A formal approach to handle change avoids costly surprises.

Sitting in the boardroom of a major oil company's upstream headquarters were the chief executive officer (CEO), seven vice presidents and a management consultant. The executives explained their problem: insufficient progress on change initiatives put in place to strengthen the company's competitive position in the marketplace.

When the consultant asked how many change initiatives were involved, the executives were unsure, looking around at each other for answers. So, the consultant recommended breakout groups to inventory the initiatives at stake. The group identified a mind-boggling 72 initiatives, each one having an important impact on the company's people - in different directions at the same time.

The CEO's response to the 72 initiatives was quick and pointed: "We'll choose seven and put the others on hold. We'll complete the first seven, then continue through the other change initiatives, adding more along the way."

Solid decision? Yes and no. By recognizing that the original bundle of initiatives was overwhelming and could effectively have no overall direction, alignment or management, he decided to prioritize and focus on the top seven. By most corporate yardsticks, that was a good intuitive move.

Business program office

But the CEO did not take the process far enough, instead handling the challenge as a one-time event. More realistically, oil companies constantly are discovering new organizational opportunities and generating new change initiatives. What companies need is a permanent way to manage all the initiatives bubbling up on an ongoing basis. Emerging as one of the better solutions is the creation and application of a business program office (BPO).

In short form, the BPO's purpose is to operate as a permanent part of a company's management or leadership structure. In that role, its function is to fulfill the company's long-term vision by identifying new initiatives, chartering projects to complete these initiatives, managing resources to support these prioritized projects, retiring the projects when completed and generating ever-newer initiatives. Currently, companies are sensing a need for a BPO function, but most are not yet acting on that corporate instinct.
A key problem with change initiatives at many companies is that they are managed well in some departments, not as well in other departments and rarely all together at the top of the corporate hierarchy. For example, an E&P division looks for drilling opportunities, prioritizes which to pursue, and manages those as a program. Likewise, the information technology (IT) department may have many projects that may or may not be managed as a program to ensure none create conflicts for competing resources.
But major organizational initiatives like business re-engineering initiatives, enterprise resource planning (ERP) system implementation, a culture-change initiative and/or a merger are continually in motion at many oil companies, but are typically independently managed. More logically, these should be under a BPO corporate umbrella reporting directly to the CEO and acting as the CEO's "arms and legs." In turn, this structure allows the CEO to focus on his primary function, which is building the business, not dealing full time with the nuts and bolts of running the business.

BPO in management

Instituting a BPO is only part of accomplishing what is called red zone management, which helps companies better navigate today's critical times in the marketplace. This management concept is comparable to and borrows its name from football's red zone, the last 20 yards on the way to a touchdown.

Specifically, red zones are those critical times when companies face opportunities for a great gain or a great loss. Red-zone situations include strategy changes, enterprise re-engineering, mergers and acquisitions (M&A) and ERP or e-implementations. It is during these critical times that companies must shift to new management practices because the regular business management rules no longer apply.
The problem is that American businesses are constantly taking on big "make or break" change initiatives, or red-zone maneuvers. But company executives consistently do not do a good job of managing individual red-zone maneuvers, much less multiple maneuvers simultaneously, instead ending up with a high failure rate. And this inordinately high failure affects the company's ability to move forward competitively in its marketplace.

Red zone impact

To understand how to proceed effectively in a red zone, it's important to first examine more closely a red zone's multi-part definition. An oil company is in a red zone when any of these applies:
there is a major shift in the company's competitive strategy - in this situation, the company either quickly moves forward in market share or wastes substantial money without increasing its share even one point;

* there is a merger with another equally large company - either the merger moves not one company, but both companies ahead competitively, or it actually regresses the competitive position of both;
* there is a significant internal change in how the company does business - the company's capabilities are either enhanced, or employees are thrown into confusion and lose confidence;
* there is an implementation of major computer systems, such as ERP - either the company becomes better electronically connected and integrated, or the company as a whole slides into computer technology chaos; and

* there is an implementation of important e-business solutions - either new solutions introduce major efficiencies and cost reductions or precipitate great dissatisfaction by customers and suppliers.

Bigger challenges

A valid question about red-zone management could well be, "Aren't projects like ERP implementations, mergers and changes in strategies just part of the business world?"

While they are not uncommon, they also are not everyday "run-the-business" tasks, and that fact underscores two glaring weaknesses in using everyday management practices to guide major change initiatives.

One is that red-zone management experience, that special brand of skill applied to critical decisions that can make or break the company, is not readily available. Most employees who have been part of a red-zone maneuver were just observers, as upper management tried to take the bull by the horns.
Similarly, few managers have had any more hands-on experience than the employees. How many have handled big ERP implementations, pulled off multiple mergers or re-engineering projects and/or have been anywhere near the driver's seat during major change initiatives? Not many, but the upside is that all red-zone maneuvers are inherently similar, so companies should leverage the invaluable experience of key executives who have actually led related initiatives.

Two, should normal business rules be jettisoned during red-zone maneuvers even though these rules have built the company's successful reputation? Surprisingly, the answer is "yes." Companies that apply day-to-day business rules when in red zones discover many of these rules just don't apply. For example, a major run-the-business practice is to delegate, delegate, delegate. Not in the red zone. Here, the leaders lead on a day-to-day basis, they do not delegate.

AC/DC leadership

Between the lines of the red-zone management principles is a message only slowly taking hold in the industry: AC/DC leadership. This type of leadership relates directly to a key red-zone management principle: companies must put their best people in the game. That translates into bringing on executives with a track record of "making things happen." The parallel message is there must be clear roles for everybody on the senior executive team. That might be the C-team: the CEO, chief financial officer, chief information officer, etc.

With the C-team's roles in place, the challenge is to reverse management thinking. DC stands for delegative leadership by the C team, which is very effective in running the company on a day-to-day basis. But executives must bring their architectural (AC) leadership skills to the table, instead. In short, the DC philosophy is, "I'll drop hints and let employees figure it out," whereas the AC philosophy is, "I'm going to form and shape how we need to accomplish our objective(s)."

Commitment on perspective

An anecdote may illustrate the serious conflict that occurs when even the specter of AC/DC leadership is broached. An oil company CEO is challenged by an internal team leader asserting that the C-team is not committed to significant change initiatives. Indignantly, the CEO's response is, "What lack of commitment? We just allocated $50 million! We not only support the initiative, but we have ensured that it is well funded." Is the CEO on target or not?

While he is committed, he is following through with DC leadership, delegating all the required work. In this case, commitment isn't lacking, but leader behavior is. Not only is architectural leadership necessary - at most companies, that is what most employees expect - but the CEO must be visibly involved in making the change initiative successful. The appearance of executive commitment is also sabotaged when executives come into the office and look at "run the business" numbers every morning instead of checking with the BPO for an update on the multiple projects. Again, the behavior, not the words, sends an inappropriate signal that the C-team is not genuinely committed.

AC leadership and the BPO should be joined at the hip because the architecture that needs to be accomplished through this leadership is the architecture of the projects or initiatives occurring within the company. Without ambiguity, the leader's architecture says, "I have a suite of projects we could possibly tackle, some that I will approve and others that I will not. Then I'll lay out the approved projects in such a way that they have the highest likelihood of being completed as an overall program, doing what they were designed to do: move the company toward a better and more successful future."

Conclusion

Red zone's key to success does not involve importing a truckload of MBAs, rather it is a common-sense approach to the often enormous hurdles faced by companies today. It centers on learning new business rules and applying these rules in their entirety as an organized AC-driven team. Potential business gains can be huge by managing important changes well in the highly competitive oil industry.

Dr. Holland is the author of Red Zone Management: Changing the Rules for Pivotal Times.



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