Clarifying Identity

In a traditional firm, culture is seen as a constraint to change and an enemy of strategic adjustments. Executives lament that their true problem is not technology or customer demands but rather an intractable “culture” that thwarts their ability to implement new strategies. In b2change firms, culture is a part of identity and promoted to the status of strategy.

Rather than being a barrier to change, identity needs to be the foundation of performance and the ability to change. This idea may be a bit counterintuitive to some—and downright contradictory to others—but it is critical to our thinking, so we’ll say it again in a different way. We think of an organization’s identity as something very stable. It is an important source of effectiveness and is potentially a primary reason why a b2change organization can reorient itself easily.

A stable organization identity makes it easier for employees to embrace changes in strategic intent, capabilities, and organization design in the same way that a stable family makes it easier for family members to take on a foreign assignment. It gives them something they can count on while the world around them changes.

Identity is reflected in an organization’s culture—a set of values and beliefs about how to view the world, solve problems, and succeed—and image—how the outside world views the firm.¹ A simple way to think about identity is to ask how an organization prioritizes and addresses the often conflicting demands of the environment and its key stakeholders. The answers communicate its identity.

Investors’ preferences for higher dividends can conflict with customers’ demands for new products, employees’ demands for higher wages, and the community’s demands for corporate social responsibility. How a company resolves these conflicts is the key part of its identity. If a company’s strategy doesn’t at least provide neutral to positive results for all of these groups or if employees cannot find ways to produce goods and services in the face of these conflicts, the organization is not likely to survive.

When strategies and value-adding processes work well, they are taught to others and become embedded in the informal, unconscious assumptions of the organization. Ultimately these ways of viewing the world influence the identity of the organization. The following are examples of possible identities that answer the question, “What kind of a company are we?”:²

• A product- or service-driven company
• A customer- or market-driven company
• A production- or technology-driven company
• A sales- and marketing-driven company
• A results-driven company
• An employee-driven company
• A sustainability company
• A company that welcomes change and innovation

Bancroft-Whitney (BW), a former subsidiary of Lawyers Cooperative Publishing and now part of Thomson Publishing, provides an interesting case study of how simple and complex the identity conversation can be. In support of a strategic change effort to address mediocre performance, the senior management team at BW met to understand the values and assumptions that might help or hinder that effort. The discussion of “What is our identity?” or “What really drives our organization?” created a heated debate.

One camp argued that because the parent company set sales and profit targets for BW, they were really a results-driven company. Managers acknowledged that the annual budgeting process was all-consuming; everything else in the organization came to a dead halt during these months as numbers were crunched, objectives set, and budgets prepared.

Another camp argued that the whole organization was built around a production orientation. They reasoned that given the large amount of editorial capability embedded in the organization, BW’s whole reason for being was to produce something—anything—and that the sales force would get it sold. This group asked, “If we could produce product x really well even if we didn’t know whether anyone would buy it, would we produce it?” They suggested that the answer was almost always yes.

A third camp believed that the company was market and customer driven. Their mission statement clearly served the legal market, and all of BW’s products were oriented toward helping lawyers understand the substantive and pertinent legal issues of a case.

Finally, a fourth group proposed that BW was a sales- and marketing-driven company. It had the largest direct sales force in the industry and was known for its aggressive yet high-touch sales efforts.

BW management realized that one of the root causes for the company’s average performance over the past few years was that all of the arguments were true. BW had “multiple personalities” and never really made choices about or understood its core identity. This lack of clarity resulted in confusion about how to respond to the emergence of new technologies that challenged the organization.

This realization led to BW’s developing a clearer identity. Doing so helped the company establish a more coherent internal communications message, make decisions about how to respond to a strong competitor, and prioritize resources across a set of functional demands.

Identity and Change

All b2change organizations need to have identities that focus on the external environment and regard strategic adjustment as “normal.” A focus on the external environment is critical to identifying what needs to be changed and how. Establishing what can change and that change is normal is an important part of establishing credibility and realistic employee expectations when change occurs.

Just as some features need to be identified as changeable (for example, needed skills), a b2change organization requires a staunch commitment to some things that will not change. That may sound inconsistent with an approach to management that assumes change is normal, but it isn’t. It is a major mistake for an organization to announce change efforts that consistently call for transformational change, radical departures, or fundamental shifts in its strategy.

An organization that boasts of making discontinuous changes in its strategy can create too much uncertainty for organization members and threaten an important source of performance. It is too easy for employees to perceive such announcements as a threat to their future with the company. This problem is a lot like what can happen in psychotherapy. When there is a threat to an individual’s basic identity, that individual can become quite anxious as he works to understand who he is, what he believes, and how he will behave.

Understanding its identity allows an organization to anticipate and respond to environmental change in effective ways without being whipsawed by it. When an organization understands its true nature, managers can more easily identify adjustments to strategic intent that organization members will understand and support. For example, an organization that prides itself on legendary customer service is in a good position to identify strategic adjustments that enhance its service and to say no to a strategic adjustment that would cut costs but decrease good service.

When organization members know that announced or intended changes honor the firm’s identity, they find it easier to support and commit to new structures and new processes or to building new capabilities. This is particularly true when an organization’s identity includes responding to change in the external world. Thus, the best b2change organizations have strong identities that incorporate commitment to both stability and change.

The Five Elements of Strategic Intent

Strategic intent is the organization’s picture, vision, or bet on how it will develop temporary competitive advantages. It is comprised of the five elements shown in Figure 3.1: the breadth of an organization’s activities; the aggressiveness of its operations; the way it orchestrates change; the differentiated features of its products and services; and the logic for making profits.³ We will discuss breadth, aggressiveness, differentiation, and logic first, and save the important discussion of orchestration for the end.

Breadth. The breadth of a company’s strategy describes the choices it makes with respect to the range of products or services offered, the different markets served, the different technologies supported, the different segments of the value chain occupied, and so on. The broader the company’s strategy, the more complex and diversified it is. GE, for example, has one of the broadest strategies, operating in twenty-three of twenty-six industry categories that are recognized by the U.S. government and supporting technologies ranging from locomotive engines and turbines to light bulbs. WD-40, in contrast, has a very narrow strategic intent that focuses on a particular type of lubricant.

Aggressiveness. A company’s aggressiveness defines how it develops new products, grows its business, and battles its competitors. It refers to an organization’s commitments to courses of action and is reflected in an organization’s goals, objectives, and policies. Intel, for example, devotes a very high percentage of its expense budget to the development of new products and to basic research, and Washington Mutual supports its high growth goals through acquisitions. Miller Beer ran aggressive ads during the football season in which referees “penalized” consumers for drinking Bud Lite by embarrassing them and taking the beer away. Budweiser quickly retaliated with ads of its own showing the referees enjoying all the Bud Lite they had stolen.

Differentiation. The differentiation elements of a strategy are concerned with the features of a company’s product or service and how they match up against competitors’ products or services. A product (we’ll use the term product generically to refer to either products or services) can vary in quality, warranty promises, reliability, or price. GM has a broad strategy because it operates in multiple market segments (Cadillac, Chevrolet, Hummer, Saab, and Saturn, for example), but for each segment, its product has features that distinguish it from other competitors in its class. Differentiation answers the question, “Why would John Q. Public buy a Chevrolet over a Ford or a Chrysler?”

Strategic Logic. Strategic logic refers to the underlying business model used to generate revenue, manage costs, and produce profits. An organization, for example, that chooses an aggressive and broad strategy may be attempting to capture market share and lower unit costs. This volume strategy may seek to establish a low-cost position within the industry and a small margin over many units. Linking the strategic intent to such economic concepts as the experience curve, economies of scale, economies of scope, or global product mandates lends credibility to its specification. Many of the start-up Internet companies in the dot-com period ignored this important principle. They employed an economic logic of “charge people for information they can get for free.”

Orchestration. The orchestration element is particularly important because it is both an element of strategic intent and a capability. On the one hand, orchestration represents a planning process for how different strategic and organizational initiatives are sequenced. It refers to how changes in breadth, aggressiveness, and differentiation are managed together to bring the organization into proximity with environmental demands over time.

On the other hand, orchestration is a capability in that the organization must effectively coordinate communications, actions, decisions, and events to implement change. A company must also be able to manage and coordinate strategic and organizational changes with technical, customer, market, and a host of other environmental trends that are all changing at different rates and in different ways.

Organizations can change the elements of their strategic intent one at a time, sequentially, or all together. They can alter them quickly or slowly. Microsoft’s introduction of the Xbox, the .Net strategy, the tablet PC, Office XP, and Windows XP all happened between June 2000 and November 2002. The decisions to produce these products were made at different times, but each one had to be coordinated with the other and with ongoing, day-to-day operations. Microsoft showed how a variety of decisions can be coordinated when they postponed the next release of Windows to focus on trustworthy computing and other security issues, make an important reorganization, and address customer loyalty.

The orchestration process needs to coordinate changes not only in the elements of strategic intent but also in the processes for designing and creating value. It is no wonder that orchestration is the biggest challenge for most organizations. At best, orchestration is usually conceived of in “cut and paste” terms—“We’ll just introduce some new products and run an advertising campaign,” as if either of those could happen at any time and in any sequence. At worst, orchestration is an afterthought.

A traditional organization must know how to disrupt the strong inertial forces in it that favor the status quo. Few organizations have a change capability—much less the inclination—to change, and so they fail to invest in orchestration. This is a major mistake. Having the ability to orchestrate strategic intent elements and the capability to manage change is the single most important investment a company can make if it wants to become a b2change organization.

Quality of Strategic Intent

What makes for a good strategic intent? First and foremost, it must identify an environmental path for an organization and an orchestrated sequence of actions, but this is not enough. It has to identify an intent that is robust and that can be implemented.

Robustness and Intent. The primary criterion for a good strategic intent is robustness. A robust intent is one that works well under multiple future scenarios or is flexible in relation to several likely scenarios. Although maintaining flexibility may entail sacrificing some short-term revenue or profit, in most cases the sacrifice will be more than offset by a b2change organization’s ability to string together a series of temporary competitive advantages.

With the advent of the Internet, BMG Entertainment faced a variety of alternative scenarios in the recorded music business. Consumers might continue to prefer the experience of shopping for music in a retail environment, might want to be able to mix their own CDs either online or in stores, or might want to download music exclusively from the Internet. It was clear that piracy and intellectual property rights; the power of retailers, artists, and other stakeholders in the industry; and the capabilities of the recording company would all play a role in determining which scenario(s) might emerge as dominant.

BMG’s strategy was to be flexible. In addition to forging ahead with an intent that supported the retail channel, the company also started several “low-cost probes” in Web-based businesses, alliances with technology providers, and negotiations with artists. These initiatives adjusted BMG’s breadth, aggressiveness, and differentiators to a small extent but kept them connected to the key sources of information that would signal which direction the industry would go.

Identity and Intent. A good strategic intent is consistent with an organization’s core identity. A clear example of this is how the Canadian Broadcasting Company (CBC) handled a major change. As a “Crown” corporation, it was largely funded by the government. But as government policies shifted, CBC was encouraged to become more independent. CBC was an icon of the Canadian people, and its identity reflected the country’s strong values of diversity and trustworthiness.

CBC’s diversity identity made it unthinkable to shift the organization’s breadth from the existing four lines of business: French TV, French radio, English TV, and English radio. Minor adjustments were made to aggressiveness by developing new programming tactics and by creating new marketing approaches to generate new forms and higher amounts of revenue. In line with its trustworthiness identity, CBC deepened investments in the differentiators of reliability, stability, and quality. Finally, CBC modified its strategic logic to account for its greater independence from government subsidies. CBC orchestrated these changes thoughtfully and coordinated them with structural changes and initiatives so as to become more of a learning organization. Thus, despite a major shift in the environment, CBC crafted a successful critical configuration by adjusting its strategic intent and honoring its identity.

Capabilities and Intent. The final criterion for a good strategic intent is the extent to which it is supported by the organization’s competencies and capabilities. This is a traditional criterion that should not be lost on a b2change firm, but it also goes one step further. In a dynamic view of organizations, capabilities and competencies are not static. They evolve and develop as technology becomes more sophisticated, but more important, they also develop as the organization learns how to use and apply them.

UPS is a good example of how a firm can meet this criterion. As it learned more and more about the relevance of its core competencies and capabilities to the movement of other people’s goods, it also learned how these strengths supported a broader strategic intent. As a result, despite an insular and conservative identity, UPS has managed to consistently enter new businesses that involve logistics and delivery.

UPS began in 1907 as a Seattle messenger and package delivery service for department stores. Its next move was to be a competitor of the U.S. Postal Service for the shipment of packages by individuals as well as by retailers. It expanded services to include overnight and international deliveries. As a result of these changes, it became a major competitor of Federal Express. To succeed in this new business, it has had to move from being largely a domestic and ground-based transporter to being a global, air-based operation. Each of these changes was an incremental extension of the basic competencies and capabilities.

To maintain its growth, UPS is in the process of using its logistics competency to enter a new business. It wants to serve as a supply chain expert for corporate America, moving materials from factory to factory, from factory to distribution points, and ultimately from distribution points to retail outlets. It has struck deals with Ford, Jockey International, and Birkenstocks to manage their supply chains in ways that will speed the movement of their materials, lower work-in-process inventory, and reduce transportation costs.

In line with its conservative identity, UPS has grown steadily by understanding and developing its competencies and capabilities and then extending them to new but similar markets and businesses. Despite a variety of environmental and organizational changes, UPS’s growth path has been successful because the company’s intent was formulated in parallel with its evolving competencies and capabilities.

Phase 1: Strategic Review

Strategizing looks into the future. In Phase 1, the organization examines the credibility of existing alternative scenarios and the likelihood that its current identity and intent will respond to those future demands. Managers and employees need to analyze whether the current strategy will put the organization in close proximity to the most likely future environmental demands. Looking forward and focusing on the environment are critical. The constellation of breadth, aggressiveness, differentiation, orchestration, and logic needs to respond to future environmental demands—an important condition for creating a virtuous spiral. If the current strategy will not meet the demands of the business environment, then identity or strategic intent (or both) need to change.

There is no rule of thumb about how often strategic reviews should occur. Their frequency should be a function of how quickly the environmental scenarios are changing. The quicker the pace of technological, global, regulatory, and competitor moves, the more frequent the need for strategic reviews.

B2change organizations need to schedule both regular and event-driven strategic reviews. At a minimum, there should be an annual updating of the strategy, even if it is only an affirmation of the existing one. Revisiting it frequently is one way to keep an organization focused on the external environment. A b2change organization should be able to start a strategic review when someone in the organization senses that performance and effectiveness are below expectations, when an unexpected event occurs, or when an assumption changes within the existing set of environmental scenarios that substantively threatens future performance.

Senior managers are often in the best position to initiate a review because they have access to the most information about performance, environmental conditions, technologies, and competitors. But—and this is especially true in a b2change organization—other organization members may also have access to information that could signal the need for a review. For example, a sales representative may learn something about a customer or competitor that warrants a review. Thus, in b2change organizations there needs to be a mechanism—some-thing similar to a “whistleblower” process—that allows employees to signal that a review process should be initiated.

No matter how the strategic review is initiated, broad participation in this early phase of the strategizing process is important. Processes and techniques that involve organization members aid in the diagnosis of the causes of poor performance or the reasons future performance may be at risk. For example, large-group conferences with a variety of stakeholders or “all hands” meetings to discuss current performance, strategic intent, or environmental scenarios can generate valid data; employee and customer surveys help identify areas of concern; and environmental scanning methods, such as technology forecasts, ecosystem mapping, and market analyses, can uncover outdated assumptions.

In general, large gaps between desired and actual performance suggest that some aspect of the strategy is not responding to current environmental demands. In other words, the organization is not proximate with the environmental success path. Review meetings, conversations with key stakeholders, and careful analysis of the existing strategy should determine the problem: the wrong strategic intent or (most seriously) the wrong identity. If the problem is the wrong intent, then intent needs to change. But be warned that adjustments to intent will not lead to immediate performance improvements; these take time.

Small gaps between desired and actual performance are usually indicative of execution problems. There may be little need for a change in strategic intent. Often, small gaps call for an assessment of the creating value or designing processes (or both) and may require only tactical changes. An organization should be able to determine the source of mediocre performance by assessing its internal operations and looking at its capabilities: Do we have the proper competencies and capabilities? Are the capabilities adequately supported by the structure, people, rewards, and information systems? This analysis, like all processes in the b2change approach, should be conducted through a dynamic lens. Current performance is important, but it should not distract the organization from planning for the future.

Phase 2: Strategic Choice

The outputs of the strategic review are the inputs to the strategic choice phase. Here the organization decides whether or not it needs to alter its identity, the elements of strategic intent, or both. Depending on the information generated by the review phase, the firm needs to engage in a conversation that either confirms the strategic direction of the firm or determines that the organization needs to reset its identity or intent. As shown in Figure 3.2, there are three options. If the review process suggests that no major change is necessary, the organization should pursue strategic adjustments to the creating value or designing processes.

Making strategic adjustments is the status quo condition of a b2change organization, and something it is designed to handle. These adjustments involve the ongoing implementation and reimplementation of a particular strategic intent that fits an affirmed identity. Toyota is a good example of a company that successfully makes strategic adjustments. It has been building cars, refining its supply chain, and improving quality year after year for more than two decades. During this time, it has added new competencies and capabilities, implemented reorganizations, and fine-tuned its reward system. These changes in the creating value and designing processes range from mundane to substantive. They have served to keep Toyota in a leadership position, and highlight the essential point that b2change organizations embrace change as normal.

A strategic review that affirms identity and intent is not a sign that the organization is choosing stability. It affirms the b2change logic that it is the implementation of a strategy that changes most often, not the strategy itself. However, if the review suggests that the strategy does need to be revised, then the information from the review is used to determine whether a reorientation or a transformation is necessary.

A reorientation reformulates one or more elements of strategic intent within an affirmed identity. A reformulation usually also requires major shifts in the creating value and designing processes. GM’s establishment of the Saturn division represented a clear change in breadth, aggressiveness, and differentiation. It required enormous changes in labor relations, reward systems, structure, work design, distributor relations, and other elements of creating value and designing. GM was able to accomplish these changes by starting a new business unit. GM stayed the same, while Saturn implemented the reformulated strategy.

A transformation involves changing both identity and intent. From time to time—sometimes by design but more often by accident—organizations shift their identity. This is a rare, important, and risky initiative, even for a b2change organization.

Hewlett-Packard (HP) has found it very difficult to transform itself into a low-cost producer of PCs and consumer electronics. The acquisition of Compaq was resisted mightily by many HP shareholders and devotees of the HP Way. It significantly altered the breadth and aggressiveness of HP’s intent, severely challenged what was arguably one of the better orchestration processes among U.S. firms, and probably made the economic logic of the firm too dependent on the Dell-dominated commodity-oriented PC business. The differences in the identities of HP and Compaq were one of the biggest challenges. The merger, by most accounts, was like trying to get gentlemen and cowboys to live in the same house. Despite a well-orchestrated merger integration process, the clash of identities, in combination with the magnitude of the changes in intent, caused many problems.

Phase 3: Strategic Change

The third phase in the strategizing process is analogous to filling the jar back up by revising the organization’s strategy—both its identity and intent in the case of a transformation or only its strategic intent in the case of a reorientation. As was true of the review phase, the number and type of employees that should be involved in revising the strategy and just how active they are depends on the size of the organization, the expected scope of change, and the likely targets of change. A transformational change is likely to require broad participation and deep levels of involvement. In contrast, a small reorientation that changes only aggressiveness, for example, might limit involvement to the sales and marketing departments.

As a general rule, more involvement is better, and particularly in b2change organizations. The more employee input an organization gets to the strategy formulation process, the more likely employees are to understand and accept the new strategy and find it useful as a guide to their behavior.

Orchestration Leads the Change. The characteristics of the change phase depend on the type of shift anticipated, with one exception: all strategic change efforts should be initiated by the orchestration process. For a given strategic intent to be effective, managers and employees in a b2change organization must share and support it.

When a company determines that a transformation or reorientation is necessary, the single most important thing for organization members to know is that the strategy is going to change. This resetting of the identity or intent must be initiated by the orchestration process—its first order of business is to alert the rest of the organization of the shift about to take place. The orchestration process is charged with communicating to the organization that it is going to “change the way it is changing.” Because the earlier review process was conducted with broad participation—in fact, there may have been multiple review processes—there should already be a good understanding among the members of the organization of why a change in strategy is necessary. The orchestration process spreads this understanding deeply into the organization and begins to involve people in the specification of the new strategic identity or intent.

Communication is one of the banes of organizational life. Very few, if any, organizations do enough of it, at least in the eyes of their members. Recent research on social change suggests a view of communication that complements our b2change approach.⁴ It provides guidance about how to ensure that the organization is alerted to the impending change in identity or intent. It argues that changes in strategy are facilitated when organizations take advantage of their connectors, mavens, and salespeople.

Connectors are individuals who occupy central positions in the social network. When a connector knows that a change in intent is being formulated, everyone inside and outside an organization will know it too.

A b2change organization should also leverage its strategy mavens. Strategy mavens have extensive knowledge about strategy in general and the likely changes in intent or identity. Mavens are willing to tell anyone who is interested everything they know about a subject. The key to the maven’s role is trust. People who speak to mavens must know that they are getting unbiased information—that there is no “hidden agenda,” just good data.

Finally, the organization needs to take advantage of its salespeople—that is, the individuals in the firm who are able to influence others to contribute to or buy in to the new strategy. They usually can be found anywhere in an organization.

Connectors, mavens, and salespeople exist in all organizations—there is no need to worry about creating them. The difference in a b2change organization is that the company makes a point of using these resources to communicate change. These individuals need to be involved in the review process so that they are informed about the change.

In addition to keeping open these channels of communication, the orchestration process needs to ensure that the message about change is “sticky” and relevant. To capture people’s attention, the message must be memorable. B2change organizations need to leverage the expertise in their marketing and communications departments to create sticky, relevant, meaningful messages.

The source of meaning is that the organization will be changing its strategy and that people will need to behave differently. Members of a b2change organization are sensitive to information about strategy because it is central to their day-to-day activities. When the right people communicate an important message, organization members can hear it and adapt quickly. As we will discuss later, this is why leadership is a team sport and b2change organizations need a “surplus” of leaders.

Reorientation Needs to be Planned. When an organization engages in a reorientation, it redefines one or more of the elements of strategic intent: breadth, aggressiveness, differentiation, logic, and orchestration. A relatively small change, such as a modification in a warranty (a differentiator), has few, if any, implications for the competencies and capabilities an organization needs. But changing multiple strategic intent elements is much more complex and often requires change in the organization’s design and capabilities. The criteria described earlier of a good strategic intent apply here. Does the new intent position the organization well for a variety of different scenarios? Does it complement the organization’s identity? Are the organization’s current competencies and capabilities up to the task of implementing the intent? Can needed new competencies and capabilities be developed?

There is a right sequence for making strategic intent decisions. The first element to specify is strategic logic. The question should be: Do the changes in the environment require a shift in the way the organization drives revenues, controls costs, or produces a profit? If a change is required, this element should receive early attention in the reconfiguration process; the other elements of the intent are then prescribed and aligned accordingly.

Xerox’s early economic logic—a clever plain-paper copy machine rental contract paired with patent protections that created large financial barriers to entry—helped commercialize the company’s copying technology quickly. But as new business venture proposals for personal computers and software emerged from Xerox’s PARC research facility, this same logic was an inappropriate model for evaluating if and how to invest. What was patentable and what could be rented proved poor templates for evaluation. By failing to understand the appropriate models for these new businesses, Xerox lost out on important new opportunities, including the mouse and other computer technologies.

Once the organization determines its logic, it should then describe its breadth, aggressiveness, and differentiators. Once Jack Welch established the logic of being number one or number two in every business, GE had important decisions to make about what units to keep and divest (breadth), how to defend current positions or invest to achieve the desired position (aggressiveness), and what it would take to build that kind of market share (differentiators).

Finally, the orchestration process needs to coordinate the design and implementation of the changes and see that they become manifest in the competencies, capabilities, and design of the organization. When and how these changes are implemented requires carefully orchestrated timing. When should the firm lead change in the industry, and when should it move with change in the industry?

Offensive reorientations can create havoc for competitors and set the rules of the game. This is an important function of crafting and implementing strategic intent—it can set the organization (and sometimes the industry) on a new path.

Merck’s acquisition of Medco radically shifted other pharmaceutical companies’ perceptions of the industry. It suggested that a new value chain was emerging and pushed in the industry into a short-term consolidation. Similarly, Apple’s introduction of the iPod and of iTunes.com shifted the definition of hardware and software companies.

Sometimes a strong follower position is best. A b2change organization must be ready both to lead and to adjust.

In the case of substantial adjustments, the key orchestration issues involve coordinating and sequencing the changes in the intention elements and addressing the implications for competencies and capabilities. For example, TWA, prior to its acquisition by American Airlines, announced changes in the differentiators of improved service and more leg room on its domestic flights but did not alter its competencies and capabilities to support the changes. The result was a failure to change and ultimately a failed airline. When there is little or no coordination between strategic intent and the creating value process, customer satisfaction and corporate value can fall quickly.

The orchestration process must address the speed of the change process and the amount of effort needed to make it happen. The quality of execution should be determined by assessing the size and expected duration of the environmental opportunity. For small to moderate-size opportunities of short duration, speed is more important than quality. In most cases, though, an 80 percent execution is probably more than enough. In the pursuit of a string of short-term advantages, b2change organizations need to avoid exhorting members toward perfection, excellence, and other sensationalist metaphors. These labels ignore or mask the realities of implementation (which are that no one can do it perfectly), often do not align with the organization’s identity, and create cynicism.

Transformation Is Risky. As we’ve discussed, a strategic transformation that changes identity is needed when the strategic review shows that the organization’s identity is not viable. Typically in these cases, the review has identified an environmental shift or organizational event of such magnitude and importance that the very core of the organization is viewed as obsolete. For example, imagine being Stasi, the East German secret police after the fall of the Berlin Wall. The emergence of a unified Germany clearly challenged Stasi’s legitimacy. The whole organization needed rethinking. Similarly, Prime Minister Margaret Thatcher’s decision to end subsidies to the coalmining firms in Britain required all the firms to rethink their identities, including whether they should remain in the business. In the United States, how about being AT&T when the telecommunications industry was deregulated?

Successful change of a firm’s identity is a rare event, but it does occur. More often than not, it coincides with dramatic shifts in technology, a fundamental change in the environment, or a merger or acquisition. These “inflection points” in an industry’s or organization’s life cycle can be obvious or subtle: environmental scanning, scenario planning, and due diligence processes can provide important information about when transformational change will be needed.

In a classic case of identity change, the March of Dimes organization, which had been dedicated to the eradication of polio, lost its reason for being when a cure for the disease was found. In response, the organization successfully repurposed itself to address a mission of preventing birth defects and infant mortality.

The issues involved in thinking through a new identity and strategy are so complex and difficult that it is a good choice only when no other options exist. As we’ve discussed, identities are deeply rooted in the basic assumptions of an organization and are very difficult to change. The one thing that increases confidence in any decision to shift identity is an intimate knowledge of the existing one. There is simply no substitute for knowing the organization’s culture and character.

The story of American Healthways (AMHC) is a good example of how to intentionally clarify and leverage identity for transformational change. Founded in 1981 to own and manage hospitals, AMHC had transformed itself by 2004 into a proactive health support provider.

The health care market is a rapidly changing, complex, and cost-conscious industry. Health care reforms and reimbursement changes in the 1980s pushed more and more services into outpatient clinics. As an operator of hospitals, AMHC noted this change and decided to look for a better business.

In 1984, AMHC launched the Diabetes Treatment Centers of America, outpatient clinics within hospitals, which became centers of excellence in the treatment of this disease. In 1993, AMHC repackaged the clinic’s services into the Diabetes Healthways plan and sold it directly to health insurance companies as a proactive product. Rather than waiting for patients to schedule treatments, appointments, and other types of care, the organization proactively contacts patients to remind them about treatment options and coach them in treating diabetes. This marked the beginning of AMHC’s shift from hospital operator to proactive provider of health support.

AMHC introduced additional proactive products in 1998 and 1999. Just six years after their introduction, the proactive disease management programs outside of hospitals earned higher revenues than the hospital-based programs. By 2003, AMHC was ranked fifth in Fortune’s list of America’s fastest-growing companies and second of one hundred companies in total return on investment. In addition, in 2003 and 2004, it was ranked number one on Fortune Small Business magazine’s list of fastest-growing publicly traded small businesses.

From our perspective, what is more interesting than AMHC’s financial success is the way it achieved that success and the role that identity played in the change. The projected growth for the proactive business clearly pointed to the need for a new organization design. The existing structure and systems simply would not support the future organization.

As part of an organization redesign effort, AMHC realized that its strategic intent was not clear enough to guide organization design. For example, the proactive disease management strategy by itself could not answer questions about how to drive the account management function; whether a network, front-back, or process-based organization structure would serve it better; or whether to outsource the IT function. A cross-functional task force, charged with specifying the new organization design and its structure, ended up focusing on AMHC’s strategic intent and eventually the very identity of the firm.

The identity conversation included debates about the core values and assumptions driving the organization’s growth, discussions of important biases and tendencies in decision making, and reflections on the organization’s strengths and weaknesses. After a number of formal and informal conversations with a broad range of stakeholders, the task force produced the necessary epiphany and consensus that AMHC was truly a market-driven company.

The task force realized that being market driven was the only way the company could be successful in the proactive business area. Moreover, it realized that even before the proactive disease management strategy was formulated, the old “hospital” strategy was effective because it too was market driven. With this new information in hand, it became much easier to make important organization design trade-offs and strategic choices about how best to implement the new strategic intent. The IT outsourcing decision, for example, became a nonissue. If the organization was market driven, it had to possess the ability to adapt its proprietary software applications; outsourcing IT was out of the question.