ALL CHANGE! The traditional cry of the London bus conductor at Tottenham Court Road seems to have become the working slogan of every organisation in the land. According to consultants McKinsey, at any time up to 15 of the FTSE 100 are 'transforming' themselves and a further 50 changing in less extreme ways.
At the same time, there seems almost no part of the public sector immune from being turned around or inside out. After three major reorganisations, seven substantial ones and another one planned in nine years' time, the NHS may be spending more doctor- and nurse-hours being reformed than practising medicine.
The need for constant change is now so accepted that few people question it. But the results of all this frantic activity should give pause for thought. McKinsey's research underlines just how high the stakes are. Successful transformation (BP and RBS come to mind) can and does turn ugly ducklings into swans even leaders have huge headroom for improvement. 'In value terms, successful change pays off big time,' says Colin Price, a director in the London office.
On the other hand, failed transformation a la Marconi is far more common than success. Confirming previous research, McKinsey calculates that more than 70 per cent of corporate metamorphoses turn the ducklings into something even uglier if they don't end up barbequeing them: 61 of the Forbes 100 companies of 1987 had disappeared from the list by 2003.
McKinsey naturally wants organisations to continue to change, so it accentuates the positive. Despite the poor average results, successful change, it says, is a matter of getting a number of things right at the same time: a rigorous programme architecture, emphasis on both short-term performance and long-term corporate health, high aspirations, embedding gains in processes in procedures, changing employees' behaviour and transforming leadership. None of these is optional, McKinsey insists. They have to work together as a 'bundle'. Conversely, the minute something is thought of as a silver bullet it stops being part of the solution and becomes the problem.
Although McKinsey is concerned to isolate the secrets of success, in mirror-image the analysis also casts light on failure. Because change works as a whole, you can't pick off parts of it. Successful change generates energy, says Price unsuccessful change consumes it, using it up as friction instead. In this light, the desperate attempts to salvage General Motors and its former subsidiary, parts-maker Delphi, through massive downsizing, look more likely to turn lights off than on. It seems obvious that many public-sector 'reform' programmes are similarly a drain on the batteries rather than a boost, pitting as they do different parts of the system against each other.
In a revealing interview in the British Medical Journal last week, the previous deputy chief medical officer noted that reform in the NHS had been a 'deceit'. There was an extraordinary gap, he said, 'between highly motivated frontline staff and the systemic dysfunctionality' they work in. As well as better work organisation, they needed to focus on using processes and technology to deliver high levels of quality of care. Short of that, 'throwing money at the problem only allows us to do more of what we have always done'.
Just as successful change is self-reinforcing, each round of bad change makes the next one more difficult. In the NHS, successive waves run into each other before the last one is completed, leading to cynicism and tacit resistance. 'The cycle of perpetual change is ill-judged and not conducive to the successful provision and improvement' of services, the Health Select Committee said of the most recent changes.
In truth, something as large and complex as the NHS is simply not amenable to a 'big fix' imposed from the centre. There are too many actors and interests and no lever to pull them all in the same direction. Centrally planned change of this kind, replete with targets, awards for effort and elaborate substitutes for markets, works little better in Whitehall in 2006 than in the Kremlin in the 1980s and for all the same reasons: perverse incentives, distorted priorities and corrupted information.
Structural reorganisation and strategic change allow CEOs to be seen to be doing something to justify their salaries, but activity isn't the same as improvement. Companies ignore the much profounder transformation that comes free from paying attention to humble work organisation and incentives.
The invisible secret of the best companies is that they are always changing, because it is part of the job of frontline workers and managers to improve the system every day. You might call it 'distributed change', which manages to combine continuity with a constant adjustment to the market that makes more wrenching transformation much rarer. As Don Fabrizio sums it up in The Leopard , Giuseppe Di Lampedusa's marvellous novel on political and social change: 'Everything must change so that everything remains the same.'
The Observer, 9 April 2006