Changing minds

Most turnaround efforts focus on new practices or products. Real ones alter how employees think about their jobs.

By Jeffrey Pfeffer, Business 2.0 Magazine columnist

(Business 2.0 Magazine) -- Effecting change in most organizations, even in places with dynamic and omnipotent leaders, is a lot harder than most people think.

As Good to Great author Jim Collins has pointed out, fewer than 1 percent of companies ever make the leap. And many celebrated corporate "turnarounds" are shockingly short-lived: Look at Chrysler and Nissan, where sales improved briefly with new leadership, only to slip again later.

Many reorganizations merely illustrate what's known as the Hawthorne effect. In a study at Western Electric in the 1930s, researchers found that almost any adjustment made in the work-place -- increasing or decreasing the lighting, changing the workgroup, or altering break times -- resulted in better performance, but only for a brief period. The insight: Workers will respond to any change you make, because they like the attention, but the results are almost always ephemeral.

To achieve lasting results at a troubled company, you can't just change "things," like product lines or org charts. You have to do something far more difficult: change minds. A car company may bring out a new model that captures the public's fancy, but unless it changes its basic philosophy -- its way of thinking about the market and its way of designing cars -- there's no guarantee that future models will enjoy the same level of success.

Real change is possible, however, even in places where you'd least expect to find it.

One example that continues to amaze me is the Colorado Permanente Medical Group, a practice that's part of Kaiser Permanente. It elects its leaders, has lots of unions, and provides health care to 475,000 people in a fiercely competitive market. When Jack Cochran was elected president in 1998, patient and doctor satisfaction had been falling, and the organization, which had made $29 million a few years earlier, was deeply in the red. By 2003, though, physician and patient satisfaction were at all-time highs, net income had jumped to $87 million, and the system ranked in the top 10 in the nation for quality. The improvements have lasted for almost a decade.

The story of how CPMG pulled it off carries lessons for almost any struggling company. Cochran and associate medical director Patty Fahy focused on altering how people think about their roles through numerous training sessions. Many people in health care see the industry as a series of trade-offs: quality vs. cost, patient interests vs. physician interests. The CPMG leadership understood that physician and patient satisfaction and improved financial performance were compatible goals. If doctors experienced better leadership and enjoyed what they were doing, patient care would improve too. With less doctor and member turnover, everyone would engage in behavior that drove better results.

Second, Cochran and Fahy focused on changing how performance was perceived. As in most organizations, people in health care tend to focus on their own work and avoid those who are creating problems.

And in most companies facing performance pressure, training and meetings get pushed aside in the drive for efficiency. Cochran and Fahy reemphasized the role of physicians as leaders and, using a new evaluation process, began removing 10 to 20 doctors a year, about 2 percent of the total. Fahy argued that the toxic behavior of some doctors -- those who ducked responsibility or lacked anger management skills -- infected the organization.

Attitudes and not technical skills, she discovered, were the biggest determinant of performance, so tracking progress through anonymous surveys became a crucial part of the turnaround. Once workers saw how things could get better, they pushed to continue the process.

As Cochran and Fahy see it, the "soft" side of organizational change -- adjusting how people think about what is possible may be the most difficult lever for improving performance, but it's also the most important. Such changes lead to enduring, not fleeting, success.

Business 2.0 columnist Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at Stanford University's Graduate School of Business. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.