A Systems-Psychodynamic Approach to the Recovery of Organizations After a Crisis
Theo van Iperen
The Starting Point
Organizational crises are a dominant cause of a great deal of pain and stress in organizational lives. Taking the existence of such crises as a given, I am concerned with organizational recovery after a crisis. Most of the literature on organizational crises concentrates on unexpected, nonroutine events. This contribution, however, concentrates on organizational crises in slow motion: self-inflicted and deteriorating underperformance, most frequently caused by a legacy of mismanagement and/or poor decision making, which has come to threaten an organization’s very existence. The question here is how best to recover organizations who have slipped into this danger zone.
Idea in Brief
The most common reaction to an organizational crisis in slow motion is top-down reorganization and restructuring, often with the help of some management consultancy firm. This approach is based on the classical economic perspective to organizations, but by far not predictive of success. This paradigm assumes that people are driven by rational calculation of their self-interest. This should require top-down leadership to drive recovery, as the change it demands triggers resistance among staff. Observing so many failures in organizational recovery based on this theorem, the question asked is whether approaches based on systems-psychodynamic concepts are better suited for sustainable organizational recovery.
Idea in Practice
The conclusion reached here is that to recover organizations from slow-motion meltdowns, a bottom-up recovery process that involves significant participation from an organization’s own staff is the best way forward. This should be facilitated by frank and honest communication, building a holding environment, and creating urgency at the same time. An organization’s operational processes should be central in the recovery process, without focusing too much on strategy, corporate structure, or culture. These efforts should all be supplemented with concrete investment initiatives building a clear prospect of the future prosperity of the organization. Together with fresh “holistic” leadership and a comprehensive change design, this proves the best way forward for the recovery of organizations.
Introduction
Because the life span of organizations is decreasing,1 comprehensive organizational crises are likely to strike every generation of leaders and employees in an organization. As real change only begins and is accepted after an organization experiences real pain,2 a crisis is a unique opportunity for fundamental organizational change.3 The combination of crises’ inevitability and their opportunity value makes their in-depth study both meaningful and apposite.
Method
To examine the question of how best to recover organizations from a crisis in slow motion, I review five iconic case studies of corporate revival to build a framework for recovery. To test this framework, I turn to related systems-psychodynamic approaches and leadership literature. I further test this framework by applying it to a study of ABN AMRO Bank that I conducted, before drawing several conclusions. As I will discuss, this case to a large extent supports the systems-psychodynamic framework for recovery I have developed.
The value of systems-psychodynamics in the case of crisis recovery is in the capturing of an organization’s hidden undercurrents, which affect and drive human behavior, leadership, and decision making. As a crisis triggers all kinds of emotions within and between people in an organization,4 sensibly studying this phenomenon is difficult without taking the systems-psychodynamic approach.
Organizational Crises
Most scholars of organizational crisis draw from C.F. Hermann’s definition of a crisis from 1969, as “a situation that threatens high-priority goals … which suddenly occurs with little or no response time available.”5 This starting point is built upon in more fulsome definitions of a crisis as a “low-probability, high-impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by belief that decisions must be made swiftly.”6 Crisis management may be defined as the “systematic attempt by organizational members with external stakeholders to avert crises or effectively manage those that occur.”7
My concern with organizational crisis is not, however, the sudden unexpected accident, but the self-inflicted slow-motion meltdown caused by a legacy of mismanagement and/or poor decision making. Only rather recently has this type of crisis been recognized in crisis management theory. Hwang and Lichtenthal coined this a “cumulative crisis” and contrast it to the sudden unexpected crises, which they term an “abrupt crisis.”8 Their notion suggests that organizations are subject to two kinds of crisis: abrupt crises which come from swift forces that suddenly jolt organizations away from equilibrium, and cumulative crises which gather momentum slowly before breaking out. These differences have important implications for managing both kinds of crises. Where abrupt crises need a focused response, the cumulative crisis requires a fundamental and holistic reorientation of the organization.9 Unfortunately, not much elaboration can be found on what such a fundamental and holistic reorientation should look like and how it has to be managed.
Building a Framework for Recovery
The most widely known and applied response to a cumulative crisis is the top-down reorganization or restructuring of an organization.10 Beer and Nohria call this approach the Theory E strategy, where E stands for Economic value.11 This theory is grounded in the economic assumption that people are driven by rational calculations of their self-interest. This assumption requires heroic leaders who forcefully manage programs of change down through an organization because change, as the disturbance of a static state, goes against the self-interest of people. No participation by an organization’s staff is sought, as, from this perspective, people are not able to develop proposals or take decisions against their own interest.12 The restructuring process is studiously prepared and planned in a programmatic manner, often with an extensive use of external business consultants.
The appeal of this kind of approach to organizations amid a crisis can be understood by the transformational object quality of heroic leaders and change programs, like the teddy bear is for a child leaving his or her parents for a night. As the system is in shock after a crisis, all-knowing heroic leadership, centralizing authority and delivering short-term solutions, comforts the organization and contains its collective stress.13 Something similar occurs in the development of new organizational structures.14 As a crisis threatens the existing structures,15 the creation of new structures, which can be found in a meticulously designed change program, can replace the old ones and serve as new symbols of shelter and protection. We can expect that the call from the outside world—shareholders, authorities, public, consumers, labor unions, and press—will not greatly vary from the call for heroic leadership and top-down change from within. I call these dynamics the defense-mechanism trap. This pushes organizations toward the Theory E approach to fight a cumulative crisis, although case studies suggest this may not be the best way forward for organizational recovery, as the story of Air France shows.
When Bernard Attali took the helm at Air France, he found the organization in poor condition. To turn the tide, Attali hired the consultants of Arthur Andersen to put in place a plan to lower costs and increase productivity. As matters did not improve, Attali proposed further cuts—in the form of redundancies, a wage freeze, cancellation of destinations, and disposal of noncore activities. These proposals proved the trigger for the unions to call strikes, which ran out of hand and ended in violence, canceled flights, and runways blocked by burning tires. Under this pressure, the French government pulled its support for the plans and Attali resigned.
When Christian Blanc took over two days later, his first action was to reach out to his workforce. On his first morning in office, he went out to meet them in their own workplaces, starting with the most troublesome groups, explaining to them the state of the organization, assuring them he would start from scratch with making plans, and inviting them to share their ideas for recovery. He did the same toward the leaders of the unions that fought Attali. Over the next few months, he invited unions, management, and staff to share their analysis and suggestions for improvement. He surveyed the 40,000 employees of Air France on their grievances and solutions for the airline. Hundreds were interviewed face-to-face. Active communication was set up to share the findings of the surveys and the suggestions for improvement. Six months after his arrival, all 40,000 employees received the plan Blanc built based on the outcome of the surveys and interviews. Blanc made his own commitment to the plan clear by announcing his resignation if the plan was rejected. When a few days later the main labor unions indeed rejected the plan, he reached out to his staff again, by calling a vote. Eighty-four percent of them responded of which 81 percent voted in favor. Within three years, Air France was operating in profit again.16
This case suggests that it is not the traditional Theory E strategy that brings change to organizations after a cumulative crisis. From a systems-psychodynamic point of view, this is no surprise. Marks and De Meuse give an overview of the psychological and behavioral impact of this kind of transition, which ranges from a loss of confidence in management, heightened cynicism, and decreased morale to a lack of direction, risk avoidance, bureaucratic behavior, and the loss of team spirit.17
From this point onward, we can start building toward a comprehensive framework for organizational recovery from a cumulative crisis. To develop such a framework, it is important to first look at the common characteristics of cumulative crises. Subsequently, I investigate case descriptions of successful recovery processes in connection to systems-psychodynamic concepts in the field of change management and leadership in order to see what insights they can lend. This lays out a new framework for the recovery of organizations after cumulative crisis.
Common Characteristics
There is a wide spectrum of cumulative crises. What these crises have in common, first, is that they build-up slowly in an organization, gathering their own momentum until a certain threshold limit is reached.18 Beyond that threshold, the organization tips into a crisis which plays out in the public domain and potentially threatens the existence of the organization. This process of degeneration makes the root cause of cumulative crises hard to detect. If such a cause exists, it may very well be disguised, potentially even as an abrupt crisis. This blurry origin can be seen as the second common dominator of cumulative crises. The third element is the impact it has on all the domains of the organizational system. The crisis does not concentrate or isolate itself in one element of the organization but spreads over the full community of the organization and its performance. The fourth shared element of cumulative crises is the impact they have on the psychology within the workforce, often expressed in terms of confusion, shock, stress, anxiety, anger, guilt, hopelessness, and despair.19
The broad impact of a cumulative crisis on the performance and psychology of an organization calls for fundamental organizational transformation.20 This transformation should not only be limited to the technical/operational parts the system but should also include psychological/relational healing. This two-sided challenge is to be managed simultaneously if the organization is to be revived and experience posttraumatic growth.21
What lessons can we derive from case studies regarding successful recovery processes described in the available literature? For this purpose, I selected four other iconic recovery cases from business history. For a diverse selection in geography and public/private settings, I reviewed cases involving the New York Police Department, Philips (at that time one of the biggest electronic companies worldwide), Lufthansa (a German air carrier, state owned at that time, like Air France), and Nissan (the Japanese car manufacturer).
The NYPD22
Kim and Mauborgne refer to the practices of William Bratton, who served as commissioner of New York City Police Department (NYPD) in the 1990s, after a 20-year career as a police reformer in other parts of the United States. When he came into office at the NYPD, crime had gotten far out of control. Yet, in less than two years, Bratton turned New York into the safest large city in the nation. Based on an analysis of the five remarkable turnarounds he led, Kim and Mauborgne derive a four-step model to bring about rapid, dramatic, and lasting change to organizations.23 The four steps are as follows:
1. Put managers face-to-face with the problems and with customers.
2. Focus on the hot spots and bargain with partner organizations.
3. Put the right people under a spotlight and frame the challenge to match the organization’s various levels.
4. Identify and neutralize internal opponents; isolate external ones.
Philips24
About that same time, “Operation Centurion” led Philips out of a severe organizational crisis, after financial institutions had lost confidence in the organization and its share price had plunged. Despite the recession at that time, within five years, the recovery program raised revenues by 20 percent combined with a head count reduction of 15 percent, tripling the share price. Leading this process was Jan Timmer, Philips’ CEO, supported by management guru C.K. Prahalad. The program taught Nigel Freeman, Philips’ former Deputy Director of Training, the following “pillars” for dramatic change:25
• A comprehensive design of the change process, addressing both the emotional and the rational parts of the change cycle.
• Extensive communication, especially face-to-face in repeated large multilevel meetings, cascading down through the work-place to aid buy-in.
• The exchange of best practices and the willingness to listen to junior and younger people, creating a healthy environment for learning.
• Changing business and management practices through projects using stretched targets.
• A comprehensive, yet easily understood, model for steering the change process, combining both “hard” and “soft” outcomes.
• A variety of leadership styles to ensure that all aspects of the change process are covered appropriately.
• External support by outside consultants for worldwide facilitation.
Lufthansa26
While in the 1990s airlines worldwide gasped for breath, Lufthansa still survived, due to the unification of East and West Germany, which increased the number of domestic passengers. But the Gulf war also impacted Lufthansa, soon leaving it almost bankrupt. A few years later, under the leadership of Jürgen Weber, the company announced the best results in its history, becoming one of the most profitable airlines and leading partner in the Star Alliance network. From this history, Bruch and Sattelberger, the latter a HR executive at Lufthansa during the transformation, derived the following lessons:27
• In dealing with a crisis, rely on one’s own strengths instead of consultants.
• Provide space for reflection and dialogue by involving people in strategic business processes and creating a culture of openness.
• Foster intensive personal learning by top management.
• Build networks of change actors for systematic, institutionalized renewal, and invest in the bonding of the change actors.
• Irrespective of the crisis, create slack for continuous investments in strategically important resources.
• Create sustainable relationships with internal and external stakeholders for building consensus and support.
• Create clearly defined, durable platforms for the expression of emotions and practice of reflection within the workforce.
Nissan28
Before Renault announced its cash injection of $5.4 billion into Nissan, no other carmaker dared to touch Nissan. It had posted losses in six of the previous seven years, with only 4 out of 43 models profitable. Interest payments pushed out R&D investments. Renault’s credibility as a rescuer was weak after its botched merger with Volvo. Cultural incompatibilities seemed to make a clash between France and Japan inevitable. But the miracle occurred: within three years, Nissan returned to profitability and recaptured consumers’ faith. Quy Huy identifies the following as the distinctive success factors of this recovery case:29
• Nourish open communication with the workforce to get a good sense of the “smell of the place” and to build trust and alliances.
• Undertake actions and gestures showing respect to the legacy of the organization.
• Build up urgency by being repeatedly clear about the situation the organization is in.
• Create a safe environment and opportunities for anyone who is supporting the recovery process.
• Show daily determination to reach the goals of the recovery process.
• Mobilize staff to generate ideas for change, with change teams drawing from younger talent.
• Create an open atmosphere where everything can be discussed and only verifiable arguments are accepted.
• Create hope by giving room to new initiatives and investments in R&D, business, and product development.
• Align the compensation plans and other incentives with the new strategy of the organization.
• Be uncompromising and precise in the execution and monitoring of the recovery plan and its results.
Salient Similarities
Looking at these successful recoveries, including Air France, some striking similarities emerge. Table 2.1 summarizes the characteristics of each recovery story regarding specific recovery elements.
Although every recovery story has its own characteristics, there are some interesting shared elements in these stories. Turning first to the process elements. Though most of the recovery processes were involved with serious layoffs and terminations, no serious social unrest was reported in any of the cases. Presumably, the combination of building urgency, a broad consultation with staff, and the bottom-up development of the recovery plans contributed to this result. This is noteworthy, especially considering the centralized decision making and strong labor union presence in all these cases.
Another important element in these cases is the lack of management consultants driving the recovery process. At Lufthansa, this was notably seen as one of the success factors.30 Even at Philips, the external management consultants did not take over the problems by developing the recovery plans, but mainly facilitated the process of recovery by moderating the hundreds of meetings, workshops, and off-site meetings that took place during the recovery process.
Table 2.1 Summary of characteristics of displayed successful recovery cases
| NYPD | Philips | Lufthansa | Nissan | Air France |
Serious layoffs/terminations | — | ++ | ++ | ++ | ++ |
Confrontation of the facts | ++ | ++ | ++ | ++ | ++ |
Broad consultation of staff | ++ | ++ | ++ | ++ | ++ |
Bottom-up plan development | ++ | ++ | +/- | ++ | ++ |
engaging middle management | ++ | ++ | ++ | ++ | ++ |
Centralized decision making | ++ | +/- | ++ | ++ | ++ |
Use of consultants | — | +/- | — | — | — |
large-scale communication | ++ | ++ | ++ | ++ | ++ |
new clear vision and values | +/- | ++ | +/- | +/- | +/- |
Change of corporate structure | — | +/- | +/- | +/- | ++ |
Acting on the corporate culture | — | +/- | +/- | — | — |
Acting on the daily operations | ++ | ++ | ++ | ++ | ++ |
Projects as change drivers | ++ | ++ | ++ | ++ | ++ |
Formal training programs | — | +/- | +/- | — | — |
Investing in new opportunities | +/- | ++ | ++ | ++ | — |
Scrupulous implementation | ++ | ++ | ++ | ++ |
|
Legend: ++, very applicable; +/-, moderate applicable; —, nearly not to not applicable; blank, unknown.
In terms of the content of these recovery cases, we see little effort placed on traditional recovery issues such as revising the strategy and reforming the organizational structure and culture. While typically chosen as starting points for transformation,31 they are not mentioned in the case descriptions. Most attention was given to the improvement of daily operations, backed by a clear and determined vision on how to restore the organization, without necessarily spending time on strategy. A firm project-based approach to implement and monitor these improvements and keep staff and middle management accountable for the delivery of expected results underpinned all these efforts. Finally, despite the problems the organizations were in, they kept investing in new business opportunities.
Lessons From the Iconic Cases
Summarizing this analysis of the five successful recovery cases displayed here, we can distinguish the following common threads in these cases:
1. Establishing an extensive communication flow based on face-to-face communication: top leadership themselves reach out to the workforce.
2. Building urgency by confrontation with the facts and putting people face-to-face with the problems.
3. Creating a “holding environment” through an open environment for reflection, discussion, and dialogue; respecting the past; and inviting also the nonusual suspects to speak out.
4. Working from a clear and determined vision of how to restore the organization, without losing time on strategy formulation.
5. Fostering political stability by close collaboration with employees’ representatives, giving clarity about job prospects and back-ups for staff cuts.
6. Using a comprehensive change design, installing change teams, and creating a network of change actors for systematic renewal.
7. Bottom-up development of recovery plans focused on the improvement of day-to-day work and new ways of organizing.
8. Taking concrete investment initiatives for building a clear prospect of the future prosperity of the organization.
9. Uncompromising execution and monitoring of the progress and results of the change process on both “hard” and “soft” variables.
Theoretical Underpinning
These findings might be called remarkable, as from the dominant economic paradigm in business research and practice it is hard to explain the success of radical organizational change driven by bottom-up development of plans by the organization’s own staff. This makes me turn to another model to find explanation for these findings: systems-psychodynamics, with its attention to the undercurrents in organizations. As this new approach still doesn’t offer one comprehensive framework, I draw from three related systems-psychodynamic concepts. These are emotional capital, the relational system theory, and fair process, together covering the systems-psychodynamic concept (Chapter 1). Emotional capital relates to what is going on inside each individual; the relational systems theory to the processes within and between groups; fair process to the organizational system.
Emotional Capital
The radical change necessary to match the holistic reorientation necessary for organizational recovery demands a paradigm shift which triggers defense mechanisms and resistance within the organization.32 Quy Huy stresses the importance of emotional capital to deal with resistance and sees such capital as a necessary condition for radical change.33 Huy and Shipilov define emotional capital as the aggregate feelings of goodwill toward the company by its staff. Emotional capital can be built by the actions of the company’s executives.34 Others also emphasize the importance of managing the emotional capital of the organization over the course of radical change.35 Such capital is obviously damaged in the wake of a crisis. The question is how it might be restored with a view to building support for the recovery strategy. An absence of support is often due to resistance, a state that is exacerbated when uncertainties and fears are not taken seriously by leadership.36 According to Huy, these uncertainties and fears create their own barrier to successful strategy execution and need to be tackled. He distinguishes five basic fears, each with its own defense mechanism. Accompanying this taxonomy are five strategies, which he terms as the five levers of emotional capital.37 These strategies should be applied in any comprehensive attempt to engineer radical change. The five fears, their defense mechanisms, barriers to change, and antidotes are shown in Table 2.2.
These levers of emotional capital have important implications for recovery management, particularly with respect to the leadership style, communication, and change approach required. These points are explored in the next section.
Table 2.2 Summary of the five levers of emotional capital
Fear | Defense mechanism | Barrier to change | Antidote |
Skills and roles will no longer be valued | Rationalizing why change is not feasible | Low receptivity to effortful change: change is for others | Value the existing competences and make clear these will be valued in future |
Less personal future well-being | Sabotage | More talk than action, then misaligned action | Create the feeling that today’s actions will improve future life for employees and society |
Failing to meet new higher goals attached to the recovery | Set easy targets | Complacency: we are good enough, low urgency | Create dissatisfaction with the current state by imagining a more meaningful future |
Less meaningful future work | Follow routines, no creativity | Mechanistic action: low creativity, low adjustment | Connect the change to meaningful personal development |
Personal harm when honest opinions and feelings are expressed | Sharing mainly good news | Mistrust and low sharing of useful and timely information | Create a holding environment where people feel safe expressing opinions and emotions |
Kahn, Barton, and Fellows center on the impact of a crisis upon an organization’s relational system. While traditional crisis management theory is concerned with distinctively operational matters, Kahn et al. pinpoint the rebalancing of the disrupted relational system as key and claim that if this is neglected dysfunctional patterns of behavior will continue to reinforce an organization’s vulnerabilities and performance lags.38 Four elements are core to their vision of the healthy transformation of relational systems:
1. Redefining the “boundaries” of the system—these are the rules governing who participates and how in the system—to create and clarify new healthy relationships within the system.
2. The processing of emotional experiences between an organization’s staff. Sharing experiences enables people to digest and leave behind painful events.
3. The construction of meaning through the composition of new narratives to reframe the situation in which the organization is in, enabling staff to collaborate and organize effectively.
4. Envisioning and creating a new desirable future for the organization. Hope offers the possibility of recovery and transformation.
Key to this formulation is working groups within which staff figures out the way forward.39 Challenging them to come up with ideas and solutions for the organization’s problems can be the driver for organizational and personal healing. Leadership should be available as transformational objects to help staff to overcome its anxieties and fears.
Fair Process
The concept of fair process can help us to understand how to use the potency of employee working groups. Fair process is founded upon a few simple ideas. The first is that whenever people experience pain they are highly sensitive to the procedure in which decisions are reached. Second, people will be more committed to decisions if they believe the decision-making process was fair. And third, when people are involved, they are prepared to override their personal self-interest.40
There is a substantial body of evidence from social and organizational research underpinning the above tenets.41 The implication of this in the organizational environment is that employees will commit to leadership decisions—even ones with which they disagree or that are against their own self-interest—if they believe that the process used to make that decision was fair.
Kim and Mauborgne see three largely recognized principles to underlie fair process:42
1. Engage people in the process, by inviting them to have their input and challenge one another’s ideas.
2. Explain why certain difficult decisions have to be made.
3. Set clear expectations by being honest.
In practice, fair process requires an approach in which staff are highly involved, most often in working groups. Up front, clear, and honest communication about the situation of the organization is a prerequisite, as is clarity in respect to the targets that have to be met, and transparency in the way in which plans are to be judged and in the decision-making process.
Synthesis
When we confront the findings of our case studies of organizational recovery with the theories examined, what lessons can be drawn for the creation of a comprehensive recovery framework? Starting from the lessons of the following case studies, in Table 2.3, I look at their treatment in light of the systems-psychodynamic theories examined and assess resulting implications for leadership in practice.
From this collection of the nine lessons from our iconic recovery cases, all but one—uncompromising execution and monitoring—are greatly underpinned by the systems-psychodynamic concepts consulted. This is not unexpected. While the psychodynamic theory is concerned with human behavior and an organization’s hidden undercurrents, the implementation of a monitoring system following the progress of a change program is much more obviously a “hard” change catalyst. Though overlooked by the systems-psychodynamic theory, it remains in practice indispensable for real change,43 as the case studies show.
Table 2.3 Framework for recovery from cumulative crisis
Lessons from our iconic case studies | Grounding systems-psychodynamic theories | Implications for preferent leadership practice |
1. Establishing an extensive and personal communication flow | RS: Share experiences enabling digestion and moving on RS: Be available as a transference object | — Conscious communication, being visible, and available for the organization — Show personal involvement and commitment —Put in place an extensive communication structure |
2. Building urgency by confrontation with the facts | EC: Create dissatisfaction with the current state FP: Explain why difficult decisions have to be made | —Be honest about the bad news that has to be digested — Set new high-performance standards —Be courageous, outgrowing the need to please others |
3. Creating a holding environment for reflection, discussion, and dialogue | EC: Create a holding environment RS: Facilitate the processing of emotions RS: Allow for confrontation and clarification | — Reach out to people, being available as a transference object — Show respect for the past, preserving identity and self-esteem — Invite people to speak out, protecting the voices of leadership and looking for voices from all corners of the organization — Show vulnerability, inviting people to speak out, protect, and encourage |
4. Working from a clear and determined vision | RS: Construction of meaning RS: Envisioning a desirable future | — Develop a simple and unambiguous vision for renewal and the new desirable future — Appeal to the collective imagination when speaking about that vision |
5. Fostering political stability and rest | FP: Set clear expectations by being honest | —Be honest about the impact and pain to suffer through the recovery process —Position oneself in the political field of internal and external stakeholders |
RS: Redefine the boundaries of the system FP: When in pain high sensitivity to decision-making processes | — Develop and maintain a change program and structure — Set realistic but demanding standards —Create a wave of collective leadership, from different hierarchical levels | |
7. Bottom-up development of recovery plans | EC: Connect change to personal development EC: Value the existing competences RS: Install working groups RS: Participation opens up for successful change FP: People are committed to decisions if the process was fair | — Engage and inspire people to contribute to the restoration of the organization — Empower people to comply with the new expectations —Facilitate learning and development of capabilities —Provide focus and be goal and purpose oriented —Create an open and effective work group mentality and atmosphere |
8. Taking concrete investment initiatives for the future | EC: Create the feeling that today’s actions will improve future life RS: Construction of meaning | —Create an ambitious and appealing desirable future for the organization — Deliver the actions to foster these new ambitions —Help people to buy in to that new prospect |
9. Uncompromising execution and monitoring | “Hard” technical and operational change processes to support soft change | —Be clear about expectations and rigorous in monitoring and rewarding — Implement a monitoring system to follow hard and soft change — Ensure compliance with targets |
Legend: EC, emotional capital theory; RS, relational system theory; FP, fair process theory
Leadership in extreme contexts still remains a little researched area in leadership studies.44 The analysis above includes several recommendations for leadership in times of organizational recovery after a cumulative crisis. Still, questions remain as to what leadership prototype is favorable for managing recovery after a cumulative crisis.
As leadership is key for the successful implementation of change,45 a heavy responsibility rests upon an organization’s top leadership during a crisis. The first and most urgent question to answer is whether or not incumbent leadership can take up this responsibility. There seems a strong case for new leadership after a cumulative crisis. First, while leaders seldom see themselves as part—let alone as cause—of the problems,46 the personalities of top executives are probably a contributing cause of any crisis.47 Second, as one of the challenges after a crisis is to change the imprint of the organization and bring it into new beginnings, it is doubtful whether the leadership under which a crisis has built up has the creativity and flexibility to pursue this urgent task. Given that decision makers display a strong bias toward perpetuating the status quo,48 fresh leadership seems an inevitability. Research also suggests that new leadership is decisive for the success of the recovery process after a crisis.49
What awaits this new leadership taking the helm at the brink of a cumulative crisis? Probably, the first task is to contain anxiety without responding to the call for authoritarian, commanding top-down change.50
Availability is important here so that leaders can become what we can call a transference object for the organization: an object to disassociate discomfort and project it onto.51 To deal with denialism and other defense mechanisms, the leader has to create a holding environment which allows confrontation and clarification to overcome denial.52 This means showing vulnerability, inviting people to share their anxieties and beliefs, protecting and encouraging dissonant voices, reframing situations to make them bearable, and creating hope and showing personal involvement.53
This is the psychodynamic “first aid” that a new leader has to apply. What follows this step is a process of structural psychological/relational healing and technical/operational restoration. The actions for psychological and relational healing relate to the emotional capital and relational concepts discussed earlier. The key capacity would appear to be deep felt belonging and empathy, authenticity, and sound intuition, all of which allow for the adaptation of the appropriate tone and actions.54 For success, the leader has to have overcome his or her own anxieties and need for control, and recognize that others may be better at the job.55 Self-awareness, without the need to impress or please, working in the moment, and being in tune with the bigger picture seem to be important characteristics for leaders in leading recovery.56 Other qualities looked for are optimism, emotional intelligence, self-awareness, courage, determination, inspiration, protection, and compassion.57
For the operational recovery challenges, the psychological/relational healing must be combined with a complex responsive process, which meets the context of the organization and combines different interventiontechniques.58 Here, we move toward the field of more classical change management theory. For the success of operational change, some appeal to the “hard” skills of leadership should also be made, like creating a change structure, engaging others in this process, setting realistic but demanding standards, providing focus, making people stick to these standards, implementing monitoring systems to map change, facilitating the learning and capability building, and putting up a communication structure.59
From the different leadership typologies discussed in leadership research,60 what ideal type of leadership emerges from this sketch of essential leadership capacities in a crisis? From our analysis, it seems we should look at the right column in Table 2.4 for the overview of pairs of contrasting leadership styles to find our ideal leader for organizational recovery.
There is no shortage of evidence to underpin such a choice. In their study of change leaders, Higgs and Rowland found that facilitating and engaging leadership behavior has a positive impact on change than more directive and leader-centric behavior.61 Consistent with these findings, other scholars found transformational leadership often positively related to successful change compared to more transactional styles.62 And other studies can be mentioned here too.63 This analysis of requirements brings us to leadership notions like adaptive, transformational, authentic, and inclusive leadership, what I would call “holistic” leadership.
Table 2.4 Common pairs of contrasting leadership styles
Task leader | Social leader |
Transactional | Transformational |
Command and control | Participative |
Authority and control | Supportive and therapeutic |
Leader centric | Facilitating and engaging |
The Framework for Recovery
Based on this analysis, I have derived the following framework for organizational recovery after a cumulative crisis. This consists of nine lessons from the case studies mentioned previously, of which eight are positively underpinned by the systems-psychodynamic view and one, on implementation and monitoring, which rests upon more classical change management theories, and two lessons derived from the analysis of the required leadership to manage a recovery operation. This brings us the following framework for recovery:
1. Installing fresh mature leadership, starting by personally developing a concrete notion of the situation by spending ample time within the organization.
2. A “holistic” leadership style, combining the authenticity, intuition, empathy, and professional will to inspire recovery.
3. Establishing an extensive communication flow based on personal and straight communication: top leadership themselves reach out to the workforce.
4. Building urgency through confrontation with the facts and putting people face-to-face with the organization’s problems.
5. Creating a holding environment through the fostering of an atmosphere of open reflection, discussion and dialogue, respecting the past, and inviting the nonusual suspects to speak out.
6. Working from a clear and determined vision of how the organization can be restored, without losing time on formal strategy formulation.
7. Engineering political stability through close collaboration with employees’ representatives, giving clarity about job prospects and compensation packages for staff cuts.
8. Using a comprehensive change design, installing change teams, and creating a network of change actors for systematic renewal.
9. Bottom-up development of recovery plans focused on the improvement of day-to-day work and new ways of organizing.
10. Taking concrete investment initiatives for building a clear perspective on the future prosperity of the organization.
11. Uncompromising execution and monitoring of the progress and results of the change process in terms of both “hard” and “soft” variables.
I hold this framework to be tentative in that it still requires testing in different contexts. In the next section, I explain how I began the testing process.
Testing the Framework: ABN AMRO’s Recovery
Until 2007, ABN AMRO was one of the largest Dutch banks, with approximately 110,000 employees, 4,500 offices, and a presence in 63 countries. Due to a legacy of mismanagement, poor decision making, and persistent underperformance in comparison to their peers, the bank came under attack from hedge funds in 2007 which triggered a process of looking for strategic partners. While leadership favored a merger with Barclays Bank, they were outbid by a consortium of Fortis, Royal Bank of Scotland (RBS), and Banco Santander. In late 2007, this bid was finalized, and the consortium started the break-up of ABN AMRO. With the advent of the financial crisis in 2008, the situation came under intense stress. Fortis attempted to sell its acquisition to boost its own solvency, yet no buyer could be found, and Fortis was driven into bankruptcy. In October 2008, the Dutch government nationalized the former Dutch part of ABN AMRO together with the Dutch branch of Fortis.64
In December 2008, Gerrit Zalm, a former Dutch Minister of Finance for 12 years, was appointed as CEO of the new bank. His challenge was intense as the roller coaster of events had significantly impacted staff morale and the financial crises had damaged financial performance. The dismembering of the original bank with RBS and Banco Santander was still ongoing, and the integration between ABN AMRO Netherlands and Fortis Netherlands was emergent, with the patches of banks he was to lead amounting to approximately 35,000 employees.
The leadership of Gerrit Zalm spanned from December 2008 to December 2016. During this time, employee engagement consistently improved as did financial performance. In November 2015, the Dutch government relisted the bank by selling 20 percent of its shares to the public through an IPO. At the end of 2016, ABN AMRO’s workforce had dropped to 25,000; 5,000 of these were stationed outside the Netherlands and the bank retained offices in 15 countries.
For this reconstruction, I conducted interviews with several executives and staff members closely involved in the recovery process. They came from different parts of the bank and worked at different levels. One of them was Zalm himself and one was a representative of the Workers Council. Additionally, I studied public material concerning the bank’s recovery and the daily blogs by Zalm, bundled in eight booklets. All respondents received a draft version of this reconstruction, and their comments are reflected in the following text. Examining the ANB AMRO case according to each dimension of the recovery framework, I derived the following from the interviews and other materials.
1. Installing fresh mature leadership, starting by personally developing a concrete notion of the situation by spending ample time within the organization
With the appointment of Gerrit Zalm, fresh mature leadership was installed, bringing 12 years of experience as the Minister of Finance to the table. Because he was unfamiliar with the banking profession, Zalm started with an extensive tour through the organization. Among parts of the top management, there was skepticism, as he wasn’t a banker. In return, Zalm did not have warm feelings for the incumbent top management, who earned millions with the sale of the bank. The rank and file of the organization welcomed his arrival due to his high credibility. From the start, he began a daily blog with an average of 10,000 hits a day and invited people to reach out to him. This was appreciated as humane and transparent and created a lot of goodwill. The oppositional undercurrent in some parts of the top management did not lead to concrete obstruction but did hinder the cultural change of the organization for a long time. According to Zalm himself, leading a recovery process like this would not have been possible for anyone from inside the organization as being unencumbered is essential to build the necessary credibility.
2. A “holistic” leadership style, combining the authenticity, intuition, empathy, and professional will to inspire recovery
The appointment of Gerrit Zalm brought the welcome start of new leadership. By being available and approachable, Zalm broke with the more presumptuous style of the past. He was characterized as open, humble, empathetic and cohesive and at the same time persistent. A lot of the “old school” leadership disappeared on their own or at the bank’s request in the first year after the nationalization. Zalm built his new team with people from outside and within. Still, his open style of leadership was not universally adopted by his fellow Board Members and beyond. A clear view of what the desirable leadership attributes were seemed to be missing and other, less open, behavior around him was too often tolerated. To the respondents participating in Top-100 leadership summits and trainings, a joint unifying leadership style did not materialize.
3. Establishing an extensive communication flow based on face-to-face communication: top leadership themselves reach out to the workforce
Zalm intentionally traveled a lot to the bank’s branches to meet staff, speak to them face-to-face, keep an open nose for “the smell of the place,” communicate the bank’s recovery strategy and performance, and inform others about the sacrifices the organization and staff went through. He was transparent about staff cuts, helping people to understand the synergy impact as two organizations integrated. His honesty and openness in this respect was broadly recognized and appreciated and seen an important factor in managing people’s emotions. He answered anyone’s e-mails and was always available to visit an anniversary or reception when invited. This all resonated in a steady improvement of the employee engagement scores along the way. Though here too, respondents signal a lack of support from his fellow Board Members in this respect. With a single exception, no other Board Member followed his example of active and face-to-face appearance in the bank’s branches, a lack that confirmed the old ways of doing business, workplace politics, and the importance of informal networks.
4. Building urgency through confrontation with the facts and putting people face-to-face with the organization’s problems
The need to build up urgency seemed unnecessary, as the sequence of events in 2007 and 2008 made it already quite clear that urgency was required. These events were assessed to be sufficient by themselves to prepare minds for change, and the nationalization was experienced more as a relief than as a shock. Though seemingly no explicit strategy was executed in this regard, in his blogs, visits, and conversations, Gerrit Zalm often used metaphors to stress the urgency for change, one of which was that of an escalator going down while you want to go up. Others confirmed and praised the honesty Zalm displayed about the urgency to transform the bank and its impact.
5. Creating a holding environment through the fostering of an atmosphere of open reflection, discussion, and dialogue; respecting the past; and inviting the nonusual suspects to speak out
From the start, Zalm consciously worked to create an open environment, inviting people to speak out, protecting voices from below, and encouraging debate. His daily blog played a significant role in this effort and influenced the organizational culture. Thoughtfully, he used this medium to report on day-to-day meetings he had with rank-and-file staff members and to show what behavior he expected. He also hoped management would follow his example. He showed vulnerability by stressing his own limitations, apologizing for mistakes he had made, or showing a change of position due to information he had received from his conversation partners. As noted, the openness Zalm modeled was not adopted by most of his fellow Board Members. Such behavior was insufficiently corrected to reinforce a real change. Lower in the organization a great deal of time was taken to reflect and discuss the situation the bank was in, its causes, the culture, and the direction it had to take. During these sessions, questions were posed for the top leadership and answered soon after. This process was supported by daily Q&A sessions intended to inform staff and help them deal with their external stakeholders.
6. Working from a clear and determined vision of how the organization can be restored, without losing time on formal strategy formulation
The apparent need to rebuild the bank and his unfamiliarity with banking excused Gerrit Zalm from developing a strategy in the first year and a half, which had been pushed by some. Consequently, priority was given to the operational challenges of splitting and integrating different parts of the bank. As these were highly driven by compliance and external demands, there was no strong need to create focus with an explicit vision or strategy at that time. To comply with the expectations of the shareholder (the Dutch state) and prepare the bank for long-term relisting, Zalm choose to focus on cost savings and operational excellence. For his focus on the cost/income ratio, he introduced cost ceilings for each department. Later these orientations were combined in the concept of Customer Excellence, teaming Lean techniques with Customer Intimacy. The perceptions of this program differ. According to Zalm, the concept was developed and adopted bottom-up, others state that it was driven top-down through the organization. In the perception of most, the concept was contaminated because of the implicit cost reduction motive it incorporated, which prevented it being embraced. Nevertheless, the program contributed to the engagement of staff, supported transparency, and improved collaboration.
7. Engineering political stability through close collaboration with employees’ representatives, giving clarity about job prospects and back-ups for staff cuts
The two Board Members, including Zalm, responsible for the relationships with the Work’s Council, invested a lot of time and energy in managing this. This was recognized and appreciated by the Work’s Council. In general, they were involved in decision-making processes early on in the process and were hence able to influence the outcomes of these processes. There were still occasions where decisions were made early by the Board, leaving the Work’s Council to only join in execution. This situation worsened after the relisting of the bank at the stock exchange. The collaboration between the Work’s Council and the Supervisory Board of ABN AMRO was important. As two Supervisory Board Members were appointed on behalf of the Work’s Council, they had regular access to that Board. This helped the employees’ voice to be heard at all levels of the organization and gave comfort to the workforce, knowing that their interests were also being recognized there.
8. Using a comprehensive change design, installing change teams, and creating a network of change actors for systematic renewal
The breaking up of the organization and the integration of the remaining Dutch ABN AMRO and Fortis Nederland parts asked for a change design of military precision. Under the leadership of the COO, a robust transition organization had been installed, to manage these challenges. This is pictured as a parallel shadow organization. Tens of project groups were installed, robustly supported by an international management consultancy firm. This task was performed in isolation, as often their work was to be kept secret due to antitrust regulation, often literally behind locked doors. Terms used to describe this shadow organization were military precision, blind obedience, purely top-down, very programmatic, consultancy-driven, defined into the smallest detail, energizing, and tremendously powerful. Respondents were full of praise for this transformation process and its accomplishments.
9. Bottom-up development of recovery plans focused on the improvement of day-to-day work and new ways of organizing
The manner in which the transformation was managed was far from bottom-up as the picture of the transition organization shows. The same goes for the successive cost reduction operations. Though most respondents assessed this approach positively and believed it to be inevitable, it had downsides too. Several respondents refer to a disconnect between the parallel project organization and the line organization, which spread tension within the organization. This was partly due to the increasing role taken by external consultants which saw growing resistance. Information flows got stuck, as insecurity grew on how it would be processed. While to some it was always the line organization that had to comply to the project organization, to others the line organization often won the “game” as proposals from the project organization were frequently rejected. Although Gerrit Zalm himself downplays the use of consultants in this process, others speak of an addiction to consultants with their high costs undermining the credibility of other cost reduction programs. The use of consultants lowered morale and self-esteem and was interpreted as a lack of faith in the internal workforce.
10. Taking concrete investment initiatives for building a clear perspective on the future prosperity of the organization
In the first years after the nationalization, no concrete initiatives were taken by the Board for new investment propositions to provide direction and s perspective on the future prosperity of the organization. These kinds of initiatives, which could have pictured the future ahead and built morale, were missed, but their absence is explained by the need for integration first and the market conditions of that time. Only after Zalm’s initial years was more attention paid to initiatives that might build and modernize the bank’s portfolio. The relisting of the bank was never considered to be used in this way. Though a landmark to many of ABN AMRO’s employees, Zalm never used the relisting to drive action and morale, as he did not experience it as a big thing himself. When relisted, it surprised him how emotional this turned out to be for so many.
11. Uncompromising execution and monitoring of the progress and results of the change process in terms of both “hard” and “soft” variables
The execution and monitoring of programs like customer excellence, cost cutting programs, and the integration are characterized as vigorous, relentless, determined, disciplined, energizing, and compelling. Gerrit Zalm and his COO receive a lot of credit here, and their efforts are seen as a major contribution to the relisting of the bank. To monitor progress on the “soft” variables of the transformation, quarterly “mood reports” where produced. The idea of these reports was to enable management and staff to engage in talks on leadership style, behavior, and culture. In practice, these talks were not sustained, and the reports were abolished after only two years. Explanation for this is found in a rising confusion between means and cause: the discomfort the reports produced was blamed on the reports rather than creating awareness of the root causes underlying the anxieties the reports srecorded.
What lessons can we derive from this case, both for ABN AMRO and from the theoretical perspective of the recovery framework developed in this chapter?
The following observations stand out in the ABN AMRO case. All respondents gave high praise of the way Gerrit Zalm and the transition team managed the recovery and laid out the foundations for the relisting. There is broad agreement that the personality of Zalm contributed importantly to this achievement. His empathy, perspective, humanity, and decisiveness are mentioned as crucial for managing the emotions during the recovery and keeping the bank together.
In hindsight, of course, some lessons can be taken from the recovery process. Though Zalm displayed the textbook “holistic” leadership style, this was not enough to nurture a more open and transformational culture throughout the organization. Divergent styles from other Board Members were not addressed and allowed the subsistence of an old-school leadership style deeper down in the organization. A missing common vision on the preferred leadership style and a resistance to addressing deviant leadership behavior were contributing factors here. The need for alignment among the top leadership team seems to be one of the key lessons from this case.
Though it appears there was no real reason for building up urgency, and that there was little space for initiatives envisioning a prosperous future, it may be assumed that more explicit attention here would have helped building up emotional capital in the organization. The fact that the relisting of the bank was so important to many and could easily have been used as a highly motivating goal looks like a missed opportunity here. It may also be the case that some ground may have been won by pushing the concept of Customer Excellence, which was eroded by the implicit cost reduction motives that stuck to it.
A final observation is related to the top-down and consultancy-driven approach driving change through a parallel project organization in which most of the change was managed during the recovery process. Though maybe partly inevitable due to antitrust regulations, it seems likely that ABN AMRO and its stakeholders, including the banking authorities, became victim here of the defense mechanism trap described earlier, choosing the “safe” way to change. Though the results seem positive, quite some tensions and downsides were signaled between the project organization and the line organization. While the suggestion that a more bottom-up, inclusive approach would have produced a better result remains speculative, the downsides of the chosen approach are clear in terms of tensions and decreased self-esteem. As other cases show, highly complex recovery processes can also be successfully managed in a bottom-up fashion. I regret that ABN AMRO did not grant its own people a wider role in the recovery process. The appeal which the fair process concept and relational system theory make on the part of staff engagement is too strong to be jettisoned on the basis of this case study. The evident tensions I recorded from the top-down and consultancy-driven approach show that a different process could potentially have been more productively implemented.
It is clear that a lot of the elements of the framework can be recognized in this case, and it thus offers support to the framework. The ABN AMRO-case confirms the following:
1. The necessity of fresh leadership
2. The leverage of “holistic” leadership
3. The importance of communication
4. The value of a holding environment
5. The notions about vision and strategy
6. The importance of political stability
7. The necessity of a comprehensive change design
8. The power of uncompromising execution and monitoring
While there are issues which this case does not transparently support—deliberately building up urgency, the bottom-up development of recovery plans, and the taking of future-oriented investments—they are not rejected either. On the contrary, there is evidence that such elements were missed by respondents and that their application could have benefitted the wider transformation.
One clear lesson for the framework for this case is that fresh leadership does not end with a new CEO, no matter how mature and “holistic” he or she may be. The full leadership team has to be engaged with that leadership style and trained, coached, and encouraged to act accordingly. The ABN AMRO experience suggests that leaders who cannot, or will not, follow might be best transferred from leadership roles to safeguard the integrity of the new leader and to foster the growth of a new culture. As leadership issues have recently resurfaced at ABN AMRO,65 there are grounds for assuming that a more consistent execution of this aspect of change would have been of benefit.
Conclusions
This chapter plunged into the still little explored field of cumulative organizational crisis and related system-psychodynamic concepts. Based on five iconic recovery cases, a first framework for the recovery of an organization after a cumulative crisis was derived. The common denominator of these cases was their taking of a transformational bottom-up character, rather than the more “classical” top-down restructuring approach. The underpinning of this framework was sought in several systems- psychodynamic concepts which confirmed the theoretical viability of the framework and added a call for a “holistic” leadership style in the face of recovery operations. Testing the model on the recovery of ABN AMRO confirmed its theoretical underpinning. This suggests that the framework is a valid model for developing a comprehensive recovery strategy, making it valuable for future substantive use.