The power of honest, collective and public conversations The Science of Organizational Transformation: Why its Not Easy and What to Do About It The power of honest, collective and public conversations

Essential System Level Outcomes They ensure sustained effectiveness, commitment and performance A system of organizing, managing and leading aligned with strategy High Performance High Trust and Commitment A system aligned with enduring human needs Sustained Performance and Commitment Capacity to Learn & Change Capacity to have honest, collective & public conversations about the system Source: Adapted from Beer (2009)

Senior leadership team The Strategic Fitness Process A means for honest, collective and public conversations about the system of organizing, managing and leading Senior leadership team Advocacy Inquiry Fitness task force Broader organization Source: Beer & Eisenstat (2004) 4 4 4

The Transformation at Becton Dickinson Becoming a more innovative company We were genuinely concerned about growth. We …..sat down with…..the leadership team and we put it to them. ….I explicitly remember that we sat down and I said you guys may not want to think about employing the Strategic Fitness Process (SFP), we’ve done it in the past, we believe that a fitness process, ….would really do us a lot of good and I think it was during that discussion that someone said … ’Let’s really go looking for insights, criticisms, ideas regarding our growth agenda because we’re spending more and more money and we’re not seeing good results.’ We had probably been through a couple of acquisitions that …weren’t quite right and a couple of products that sort of died upon launch. Unlike 2000 when I took over as CEO when we employed SFP to deal with very poor performance, as well as problems with a new enterprise system, dating of orders, and hostile shareholders, this time ….we…had a Higher Ambition to achieve – becoming a more innovative company that will grow faster. – Ed Ludwig, CEO

The Fallacy of Top Down Programmatic Change Quick-fix programs and initiatives Globalization Information Technology Best practices Total quality Benchmarking Outsourcing Customer-focused Value creation Partnering Micromarketing Flexible manufacturing Core competence Competitive advantage Networks Strategic alliances Delaying Revitalization Information Computer-aided design Concurrent engineering Restructuring Diversity Cross-functional teams Empowerment The new organization Computer-aided engineering mission Knowledge The information organization The shamrock organization The hybrid organization Strategic stretch and leverage The chaotic organization The postindustrial organization The postmodern organization The spider-web organization The turbulent organization The cyclical organization 6 6

Top Down Initiatives Fail to Recognize that Each Sub-Unit is a System CEO Senior Team Businesses/Functions/Regions Cross-cutting teams Source: Adapted from the Beer Eisenstat & Spector, “The Critical Path to Corporate Renewal,” 1990

Effective Organizations are High Fit Systems But top down transformation do not enable leaders to “see,” hear and change the whole system Leadership and Direction People Organization Design Organization Behavior, Capabilities & Culture Rewards Processes Source: Adapted from: Jay Galbraith

BD Task Force Feedback About Barriers to Innovation and Faster Growth Targets/ strategic direction Customer focus/ weak strategic marketing Ineffective acquisition process Poor partnership and collaboration with partners Culture – too little constructive challenge Feedback Feedback Poor innovation process Short-term financial focus Inadequate talent management Organizational structure and control U.S.- centricity

Organizations are Technical & Socio-emotional Systems But top down transformations do not let leaders to ”see,” hear and change the intangible socio-emotional system Organization Commitment and Performance Tangible Business/ Technical System Intangible Socio/ Emotional System Power and influence Capacity to speak truth to power Norms governing behavior Emotions – positive and negative Psychological safety Pessimism about capacity to change Strategy Business Processes HR policies & Practices Information Systems IP, Technologies, Brands Plant and Capital Assets Source: Adapted from: Malcolm Wolf

BD Associates’ Perception of Power and Influence Finance Operations Legal Quality Regulatory Human resources U.S. markets Medical Marketing Sales Research and development OUS markets

Transformation: Why is it hard? Short-term Long-term Hard Soft Surface Deep Experience and Comfort Zone of leaders “Go-to” position under pressure Essential to Transformation Requires step-out courage from leaders Source: Adapted from Malcolm Wolf

The Silent “Killers” Undiscussible soft and deep barriers to sustained learning and change Unclear strategy, values, and conflicting priorities An ineffective senior team Leadership style – top down or laissez faire (hands off) Poor coordination across businesses, functions or geographic regions Inadequate leadership/management skills and development in organization Low capacity for honest, collective and public conversations about external and internal reality Source: Adapted from Beer & Eisenstat (2000) 13

How Silent “Killers” Prevent Sustained Learning & Change Top-down or hands off senior management style Unclear strategy, values and priorities Ineffective top team Low quality of direction Low quality of learning Closed vertical communication Low quality of implementation Inadequate down-the-line leadership skills and development Poorly designed system of organizing, managing and leading 14

Why Transformations Fail: Common Pitfalls Performance Effective system of organizing, managing and leading Failure to Integrate Inadequate direction Hijacked by short-term performance pressure Missing strategic management process Wrong change process Source: Adapted from Malcolm Wolf

A Discipline for “Seeing” and Acting on the System  Develop a high-quality direction direction – strategy and values  Learn the whole truth about the quality of your organization Its direction? Its alignment with strategy and values  Design a high-quality system of organizing, managing, and leading (hard and soft) to enable implementation  Adapt the direction and continuously improve the effectiveness

High quality direction High quality implementation Honest Conversations at Becton Dickinson Transformed Silent “Killers” Into Strengths Engaged leader who listens and encourages conflict Clear strategy, values and priorities Effective top team High quality direction High quality learning Honest vertical communication High quality learning Honest vertical communication High quality implementation Effective down-the-line leadership skills and development Strategically aligned system of organizing, managing and leading 17

Former CEO Ed Ludwig Who Kicked Off SFP in 2010 I don’t think it would’ve happened as rapidly without SFP. I’m absolutely convinced that this is an energy concentrator, an action accelerator simply because everyone is [engaged]. It’s not so much about eliminating resistance as it’s about getting everyone to go in the same direction. Now, there [was] some passive resistance. For example, creating a new chief marketing office was a very controversial move in a company that had some pockets of excellence in marketing … so you need conviction … I think SFP took our vague concern about innovation, a notion that something was not quite right … – that was un-actionable to … a clear compelling action plan for change. It accelerated the transformation.

CEO Vince Forlenza Implemented BD’s Successful Transformation – 2011-2016 Doubled NPD 8% to 16% Revenue up 26% Stock price up 39% - well above S&P 500 Index The work that we [with SFP] kicked off started to really energize the transformation of BD in multiple dimensions … So all of those things happened because of SFP. Sure, I had a lot of these ideas, but … SFP was giving a voice to the organization so they could have dialog with me and with Kozy and with others. But I didn’t have the whole thing scoped out in my head. It was this information from SFP that enabled me to refine my thinking.

Risks: Sustaining Transformation to High Performance and Commitment Organization  Financial policies that could cause harm to the system Debt Underinvestment in leadership and organization development Responding to rather than shaping investor expectations  Rapid growth Shortfall of high quality EQ leaders Rapid hiring prevents careful selection to fit culture  Acquisitions and mergers  CEO succession  Board of Directors Are not committed to CEOs long-term aspirations