This article originally appeared on Forbes.com.
When companies decide to take out cost, jump-start sluggish growth or respond to upheavals in their core markets, they often follow a well-worn path. Headquarters orders staff to identify a set of initiatives that will deliver the goods. A senior executive steering committee and a program office direct a group of teams mobilized to execute the initiatives outside of the routine flows of business.
That approach can work if the interests of frontline managers and employees align with those of senior executives. But when big, scary change programs materialize, such alignment is rare.
Consider the track record of change programs in the corporate world. A Bain & Company survey of 250 large companies executing transformations found that only 12% actually achieved what they set out to accomplish. Some 38% failed by a wide margin, capturing less than half of the value they initially targeted. And 50% settled for a significant dilution of results. The disturbing implication: Over time, too many organizations unwittingly wind up accepting mediocre performance.
Where classic change programs fail to deliver their full potential, the disappointing results often tie back to the fact that the changes were not owned by the front line. Often, the steering committee and program management office sit outside the normal hierarchy of the business. That creates two different tracks of governance, with a tension between them: The program sponsors attempt to spur change but lack formal authority over resources; meanwhile, the line managers who control those resources typically have a vested interest in the status quo.
What does this look like on the ground? At one oil and gas company, as part of a centralized approach, headquarters executives looked to wring short-term savings from their pipeline operation. They changed the specifications for equipment in new production processes, which later led to operational shutdowns, requiring costly repairs. Plenty of companies feel other unintended consequences of highly centralized efforts. They do not capture the many ideas for improvement initiatives that frontline employees have, and they often fail to consider employee knowledge that’s vital to the well-being of the business.
Putting local knowledge to work
An alternative approach puts the line organization at the heart of the transformation. Senior executives reporting to the CEO are accountable for the targeted results and decide how to attain the targeted goals, while line managers run the program, with the authority and the incentives to achieve the targets.
A line-led approach can pay huge dividends. One major engineering firm running a line-led transformation is on track to meet its cost-reduction target of $450 million over 18 months, off a total cost base of $1.2 billion. Investors have rewarded the firm with a nearly four times appreciation in the stock price since the start of the transformation.
By relying on local knowledge and experience, companies can better understand the trade-offs involved in suggestions from the center. At a multinational logistics firm, senior executives proposed many cost-reduction measures that were embraced by local managers and employees. But in some cases, a local leader responsible for executing initiatives had compelling reasons not to implement them. Eliminating paper copies of an internal newsletter would alienate employees who did not typically read on digital devices. A proposed cap on salaries for certain positions would spur an exodus of top talent. Based on those assessments, the company did not pursue the suggestions.
When to use the line-led approach
A line-led approach may not be appropriate for all situations. For example, a legislative mandate would have little room for interpretation in the organizational change required, and so would not merit this approach. But there are several situations that point to a line-led approach. One occurs when the motivations behind the change program do not obviously align with business as usual, resulting in potential agency problems. A classic example concerns cost cutting, which any organization will resist if headquarters dictates the cuts. It’s more effective to convince the business unit staff of the need to reduce costs, agree with headquarters on a target, and then have the front line make the associated decisions and trade-offs.
Another opening for the line-led approach occurs after the easy or obvious moves have already been made, and the company now needs to capture benefits from a long tail of smaller initiatives. These initiatives often emerge from the front line, not the center, because only a local manager will know of opportunities like obsolete inventory that can be sold to raise cash.
Finally, companies should turn to a line-led program when the execution of the transformation is inherently unpredictable. One can plan, but in the heat of execution, the pace of testing and learning may be so fast that initiative owners have to make decisions with incomplete data. In these circumstances, missteps and mistakes are inevitable, which means that employees will need to make course corrections quickly. That’s best done by local leadership.
A line-led transformation does not happen overnight, of course. It usually requires initial prodding from the center until the logic and enthusiasm take hold locally—a “tell them, then coach them, then let them run” evolution.
Corporate transformations thrive on the engagement of employees who know the nooks and crannies of the local landscape. Making clear both the intent of the effort and the individual accountability needed to succeed in that effort will ensure that frontline employees advance the cause rather than resist the tough changes that lie ahead.
Orchestrating a successful line-led transformation
Two ingredients are essential: intent and accountability.
Intent consists of three components:
- a desirable goal that’s articulated simply and understood by all employees;
- empowerment of each of the initiative owners, so that they feel they can make a difference; and
- a sense of urgency instilled through a daily drumbeat reinforcing the key messages of the transformation.
Accountability can be infused by relying on another set of components:
- clear marching orders in the form of specific targets for each business unit, and a concrete plan showing how to attain those targets;
- consequences, both positive and negative, that kick in when individuals hit or miss their targets; and
- transparency, using metrics that indicate progress toward the goals and that everyone follows.
Lodewijk de Graauw, Marco D’Avino and Simon Henderson are partners with Bain & Company’s Performance Improvement practice and experts in Bain’s Accelerated Transformation work. De Graauw is based in Amsterdam, D’Avino and Henderson in Sydney.