After 20 years of experience leading change management programs in the U.S., Europe and New Zealand, BP executive Fiona MacLeod has concluded that the corporate world is “addicted” to serial change management programs that consume massive resources but ultimately fail to solve the problems they aim to address. “What really struck me is why so many of these change management programs fail,” only to be followed by similar initiatives within one or two years, often before the original program is completed, said MacLeod, president of BP Convenience Retail USA & Latin America.
At the recent Wharton Leadership Conference, co-sponsored by the Center for Human Resources and the Center for Leadership & Change Management, MacLeod urged her fellow leaders to ask themselves: “How can we … free ourselves from our addiction to episodic change and move to a much more healthy habit of continuous business improvement?” She compared the phenomenon to a yo-yo dieter who loses weight only to put it back on because he has not come to understand what’s causing his weight gain, or has failed to adopt the healthy lifestyle that would keep the weight off.
London-based BP is the third largest global energy company and one of six so-called “big oil” companies, with vertically integrated operations to drill for, refine and market petroleum products. Globally, BP reported revenues of $367.1 billion in 2008. Its ampm stores in the United States and Latin America – the name is a reference to the fact that they are open day and night — were launched by ARCO, the old Atlantic Richfield Co., a U.S. oil refiner and marketer that BP purchased in 2000. BP gasoline is marketed under the ARCO brand on the West coast of the United States. The company also uses the BP brand in North America and elsewhere, and the ARAL brand in Europe. In addition to gasoline, the markets offer the usual assortment of convenience store goods.
No ‘Big Splashes’
Many change management programs are doomed to failure because “the change we are putting in place is not sustainable — and sustainability is absolutely crucial,” noted MacLeod, who is based in La Palma, Calif. Change initiatives wither in an organization for several reasons:
- New leaders are often more concerned with “making a big splash” than with following through on a long-term plan to monitor change and keep the program on track.
- Organizations often revert to old habits because employees do not understand why change is needed, or they lack the tools and training required to sustain the new approach.
- Nothing changes because ownership of the change rests with an external team or consultants, rather than with the leaders responsible for running the business.
MacLeod urged managers to attend to “the soft side of change” by putting in place programs to fully engage leaders and employees in the process of creating change and sustaining it over time. “As business leaders, we’re very good at the rational part” of change: Identifying what’s wrong and how to fix it. But the soft side of change management — in terms of really engaging people — is just as important. If people get it intellectually but don’t get it emotionally, I don’t believe the change will be sustained.”
To be engaged, employees must understand the case for change. Managers should provide data showing what’s not working and how the change will fix the problem. “Develop your killer slide to make your business case whenever you give a presentation. It’s not only why you’re changing, but what it’s going to look like when you’re done. People need to have a sense of what the future looks like, so be very clear on that,” MacLeod advised.
Business leaders must own the change agenda and take responsibility for following through on implementing every step in the plan and tracking results to make sure that change continues over time. “Never assume that leaders get it…. We need to take probably 10 times as long in engaging, empowering and educating our leaders than we actually think we do,” MacLeod said.
Getting the commitment of leaders is essential to avoid the common pitfall of turning change management into a charade. “You have a workshop, learn some change management jargon, you maybe do some team building, and have a pile of flip charts … and actually none of the [steps] are properly measured or followed through and it ends up being a waste of time.”
It’s important also to shift the emphasis of change management from “big splashes” to “everyday performance improvement.” You can prevent the typical reversion to old habits by providing tools and training required to continually measure progress toward specific change objectives. “Put written charters and contracts in place. These contracts need to be in people’s performance reviews, not something separate,” MacLeod said. “You need to constantly look at them and discuss them with people.”
Changing the culture to reward the desired behavior is critical to success. Make “heroes of our day-to-day deliverers, not those who make the biggest splash. You reward people on how they treat the customer, how they make decisions, how they simplify the business….. And crucially, all of this has to be done in the spirit of open communication and respect…. If [people are] uncertain and they don’t feel respected, the change will never stick,” MacLeod said.
Since joining BP in 1988, MacLeod has specialized in business transformation, developing the required breadth of skills in a variety of marketing, HR, supply and distribution roles across the UK and Europe. She has led operational, strategic and marketing elements of the retail business, and most recently led the restructuring of BP’s European marketing businesses. A native of Scotland with a Master’s degree from Glasgow University, MacLeod was tapped to head the U.S. convenience retail business in 2006, providing her biggest challenge yet: Restructuring the business and transforming the brand for about 1,800 stores from California to Pennsylvania.
MacLeod’s project was part of a broader BP reorganization initiative announced in October 2007 to improve the company’s efficiency and narrow its performance gap with competitors. When MacLeod embarked on her restructuring program, she had to figure out what was wrong and, more importantly, why three previous initiatives had not worked. She did not want to make the same mistakes.
“The key thing was making our business purpose clear,” MacLeod said. “We thought we were there to fill up lots of stand-alone convenience stores and tie up lots of capital, when actually our purpose was to monetize the gas we made at our refineries and make sure we had a secure position in the marketplace for the long term. The question was… how could we put that change in place in a way that would stick.”
She chose a bold plan that would require wrenching change. Among BP’s 1,800 retail outlets nationwide, 800 were company-owned and operated. She would change the business model to 100% franchised with a revamped ampm store brand and new marketing programs to compete more aggressively.
Selling 800 stores to franchisees would eliminate 10,000 jobs at BP, virtually all of the people employed in BP’s convenience retail business. The total included 9,500 store employees and an additional 500 support staff at two headquarters. For the store employees there were no guarantees they would be hired by the new franchise owners. MacLeod and her team faced significant people management hurdles in readying the stores for the conversion process in only 18 months. She would have to motivate store employees to reduce overhead and improve operations, even though they faced “huge uncertainty” about future employment. “Our people were displaying the classic signs of change fatigue…. People were very jaded” and lacked confidence that they could make things better, she said.
“Confidence is absolutely crucial in making change stick. If people are confident in their leadership, themselves and the business purpose, you are way more likely to get a change that is sustainable and actually turns into continuous improvement,” MacLeod noted. To build confidence, her team drafted a business case and showed it to the “biggest cynics” in the organization, asking them for a critique and to suggest how to make it work. MacLeod said she built trust by speaking directly to store employees, explaining how the plan would help them beat the competition, and showing that “we had genuine empathy for what they were going through.”
So that employees would know what was expected and see their progress, her team communicated month-by-by month performance objectives, including specific plans to reduce overhead costs. “We focused every single day on engaging our people,” using town hall meetings, small team meetings and the web to promote continuous improvement, MacLeod said. To prevent backsliding, she offered employees retention bonuses that would be paid at the time the store was sold to the franchisees if the stores were delivered to their new owners with strong financial controls and safety records. “People were very motivated to make sure the business continued to run in a very healthy way.”
Celebrating success, recognizing achievement and making people feel good about the business were important tools for sustaining momentum. “People got rewarded for simplifying and improving things. Importantly, it’s as much — if not more — about the recognition of your peers than it is about financial rewards,” MacLeod said.
Know Your Destination
Organizational design helped to lay the foundation for change. “I put my winning, end-state organization in place from day one” rather than waiting to decide which employees would stay to support the franchises and which would leave,” MacLeod stated. “We had people who knew they would be leaving in 18 months and they stayed motivated for the entire period because we had been very straight with them. People want and expect clarity from their leaders.” Planning was critical to reduce risk as the team rolled out new concepts. “We did lots of road mapping and tested our plans before we went to market,” MacLeod said.
In the end, tracking measures showed that employees improved and simplified operations throughout the conversion period, producing $700 million a year in cost savings. Selling the stores freed $1.2 billion in capital for BP to redeploy more productively. Pulse surveys showed morale steadily improved, even though 70% of those responding knew they would lose their jobs, according to McLeod. “The thing I’m most proud of is how our people responded…. You can do some really tough things as leaders and you can do them in a way that people feel valued and respected.”
She noted that “it’s very easy to get addicted to the change pattern by not getting the change right in the first place, not making the tough calls or bold decisions up-front, maybe going for something half-way, and then allowing things to slip back.”
Ultimately, MacLeod said, not just corporations, but the global economy depends on leaders to break the cycle. “The economy needs businesses that are clear on why they exist, clear on what their business model is, and have measures in place to know when they need to make adjustments. We need organizations that can manage continuous improvement in a predictable way.”