4 transition lessons
Transformation begins with a leader's approach to taking over

President-elect Barrack Obama will be sworn into office on Jan. 20.

Two years ago, when he began his quest for the presidency, the world was a different place. Some issues were the same; some didn’t exist. Certainly, the priorities have changed, even since November.

As a result, we enter one of the most challenging economic times in decades with a leader who originally appealed to people on the issues of war, torture and taxes. How relevant is his “change” message now? Does he have the right skills for the challenges we didn’t even know about two months ago?

The same questions ring true when a new CEO or any new manager takes office. A “situation” is described to the new leader that may turn out to be very different than the reality they find when he or she arrives on the job.

Our experience tells us that leadership is about vision and how the leader learns of and deals with the current reality.  The temperament and response to what is learned in the coming months and the ability to communicate those new realities will be more important than the plans and perspectives that got him or her here in the first place.

Over the years, RapidChange Group has assisted a number of leaders making difficult transitions. Few, however, were as daunting and challenging as when Mark Suwyn took the reins at Louisiana-Pacific, one of the country’s leading building products manufacturers.

Here’s what Suwyn learned: Louisiana-Pacific had major legal and intellectual business challenges to deal with, but it also had some deep-seated emotionally based issues to resolve. To succeed, he had to address both types of challenges simultaneously. And  quickly.


1. Know what you're in for

Suwyn had been in high visibility leadership positions at International Paper and DuPont.  His reputation as a well-rounded, perceptive, results-oriented leader prompted the board of Louisiana-Pacific to approach Suwyn in late 1995 about its top spot.

They were upfront with him about a number of issues. The board had removed the former CEO, the two Executive Vice Presidents and 8 other senior managers from the company after a couple of years of ever-worsening events that developed even while the company was reporting excellent earnings.  

Precipitating events included:
    •    Criminal charges levied against the company for environmental violations and product representation fraud.
    •    The Federal government was threatening LP with debarment from doing business with the government. LP was a large buyer of federal forest timber and its products were used on numerous government-related projects.
    •    A national class action lawsuit was certified by the court involving Inner Seal siding that was reported to be rotting and falling off homes.  Public estimates of the potential liability ran to $1-2+ billion.
    •    Several derivative suits had been filed aimed at the company, the former CEO and its directors were underway alleging withholding of information.

The list was much longer, but you can sense the seriousness of the situation.  


2. Know that there’s always more

Suwyn joined the company as CEO in January 1996 and soon found that while the situation was certainly as serious or more so as had been discussed, the problems were much deeper and more difficult.

The real problems resulted from the way the company had been managed for 23 years. The CEO and EVPs made even the smallest of decisions, managing in a hands-on, top-down dictatorial manner that led to 11,000 poorly trained, obedient employees who did their bidding with very few questions.  The key challenges Suwyn faced included:

    •    No systems to manage the company.  Management had been by individual direction, unencumbered by processes, systems, common practices, etc. – hence there were very few Human Resource systems (pay scales, overtime pay guidelines, salaried pay scales, job descriptions, etc.).  There were no continuous improvement processes or training; no formal capital authorization procedures or standards.  
    •    Managers had little experience in gathering information, doing analysis and coming up with recommendations.  The EVPs and CEO made most of the decisions.  Nothing was desired from the bottom-up.  As a result all efforts were limited by the ability of a few people to get to the mills and give directions.
    •    People were trained to not participate or share ideas on how to improve operations.  The management did not want to hear it, didn’t have time any way – so they gave orders and fired those who had the audacity to offer their opinion.

For the most part, those left in the company after all these years were those who had been willing to suffer an abusive management environment in return for some level of loyalty. When the board fired senior management, however, it sent a paralyzing shock through the company. The majority of employees at all levels were in deep fear for their livelihoods. They didn’t know how to run the company, but had many hints that they were not competitive. Those who had left LP reported back to their friends about how “real” companies operated. The lawsuits, the disgruntled customers and the tremendous amount of negative publicity about the company at this time added to the fear.


3. Two jobs: Keep the business going; improve the business every day

The challenge for Suwyn and his leadership team was how to keep the operations going, bring a few new people in to help start the cultural transformation required to function in a modern world, begin to do the strategic work to determine what businesses and facilities were worth keeping – and do all this while fending off the legal and financial challenges facing the company.  

As daunting as all that sounds, the leadership team also understood the need for every change to be sustainable. In other words, they had to create a company that learned quickly.
 
During the next couple of years LP accomplished the following:
    •    LP negotiated settlements on the legal front that cost a bundle (over $800MM), but spread out the fines and product liability costs over seven years. That allowed the company to meet its obligations without facing liquidity problems.  
    •    The company hired new personnel into five of the top 10 positions, so knowledgeable functional and operations people could begin the training processes required to bring the rest of the company up to speed.
    •    LP reorganized from three autonomous regions into a matrix-style organization that allowed them to start putting in corporate-wide standards and processes. They created corporate safety, purchasing, environmental, etc. organizations to start the standardization process and begin to capture the value of critical mass in these areas.
    •    They closed 30% of their operating facilities that were not competitive and couldn’t be fixed, sold off 40% of the original company’s businesses that were not globally competitive and acquired an equal number of businesses and facilities on which to build the future.
    •    Simultaneously, LP started a cultural change process, without which most of the other actions would have floundered.  
    •    And the company carried out all of the above without losing key people they wanted to keep and without any devastating morale problems.


4. Improvement is about human interactions

LP had become a company of followers. There had been little development or training.  The concept of continuous improvement or quality management had not been introduced. The dominant emotion was an intense fear – “If I speak up, I am likely to be fired.”

For LP to have shot at sustainable profitability, the leadership had to break down the fear, stimulate an eagerness to learn a lot of new skills fast and instill the concept of accountability across the company. They had to accomplish this largely with the workforce they had – there was little time or money to go out and hire all new people, particularly into the many remote mills locations. They had to transform the company by transforming themselves

The company’s approach involved two major phases – the first to deal with the fear and to stimulate a desire to learn and the second to begin to provide the actual skill training needed in all areas of the work.  

The first area utilized technology that Suwyn and RapidChange founder Magaly Rodriguez had developed with a small group of business and cognitive science experts over several years in previous organizations.  The approach starts with the assumption that business is the interaction of human beings, that they are emotionally driven beings and therefore to optimize the output of these people, they and their managers have to be relatively skilled in how people think and how they react to each other in certain circumstances.  

During a two-year period, LP took this training throughout the whole company – site by site – after thoroughly training senior management.  The CEO participated in more than 50 of these training sessions at various sites to reinforce the changes.  It revolutionized the company and set the stage for both the extensive training and learning the organization had to absorb to catch up and become competitive and to help them deal with the enormous business changes (divestments, acquisitions, closures) that had to be accomplished at the same time.

Here’s a glimpse at what the RapidChange training at LP looked like:

    •    Create safety. To help employees and organizations through the fear of the known and unknown, management had to help them publicly face the drivers.  The “unspoken fears” are far more debilitating than those people can talk about and face together. The company introduced processes that helped take people through these issues and to deal with the emotions involved.  Many times in business we stay “objective and emotionless,” while in our processes we actively explore the emotional sides of each issue. The mangers were taught to bring them out in an appropriate manner.  
    •    “Speaking truth to power” processes were introduced that gave every individual the skills and experience of delivering good and bad news to one’s boss, the senior management and to the CEO.  This was a major break-through as thousands of employees were encouraged, trained and compelled to provide information and insight into issues important to their site and the company.  There had been so many “bad” things going on for so long, they had a lot to talk about once they found that they would not be fired for being the messenger.  As employees gained their voice, they began to respectfully demand competent leadership and it helped flush out those who could or would not lead the changes needed in the company.  
    •    Management was trained to think of emotions as necessary data. Emotions tend to drive behavior much more than intellectual thoughts. This knowledge helped managers become much more powerful at moving a group to action.  The list of tools they have at their fingertips is very long – some use them extremely well – some less well.  Clearly the higher potential individuals are those who demonstrate significant accomplishments with their organizations.

The second phase involved teaching and training people in the basics of Environmental Management Systems, Quality processes, TQM, Statistical Process Control and, ultimately, Lean Six Sigma.  The key to success was that employees at all levels embraced the processes and changes – in some ways as a life preserver in a swirling sea – as the work they could do to preserve their jobs. Remember, this was workforce made up primarily of high school graduates and drop-outs – people the previous management had assumed could not learn or grow.


The Results

When Suwyn took over as CEO, the company was giving serious consideration to filing for bankruptcy and/or selling to have a larger company solve the problems. When he retired in late 2004 the company was running well, it had built a $1.4 billion cash balance to fund its future growth and had completely changed the company’s position in the industry. At that point:
    •    LPs operations ran as well or better than any of its competition, with well-trained operators using the latest quality and six-sigma skills.
    •    LP’s Human Resources systems were state of the art – giving them the information needed to manage at very low cost.
    •    The company has gone from environmental pariah to a consistent example of a well-managed company from an environmental perspective. LP has won numerous EPA and OSHA recognitions for well-run operations.
    •    The restructuring to focus attention on those businesses that can compete globally, the company’s earnings had dramatically improved, although the recent serious downturn in home building has put the company under strain.
    •    The company accomplished most of this by changing and relying on his people – not by hiring a succession of expensive consultants to tell them what to do.  Suwyn decided early on that the company’s issues were so deep and unusual that a much deeper approach was required than most consulting firms bring to the party.

While the company moved through difficult times, LP employees gained the skills that lead to rapid execution of strategies by a workforce that became energized by change instead of frozen by it.

Companies – and yes, countries – that continue to hone their human skills will not only get through these trying times, but they will thrive when the bad times are over. This requires us to recognize that as the world becomes “flat” the main differentiation we have is our peoples’ ability to work smarter, faster and more effectively than our competitors.