The Big Question: How Should You Manage Change?

Hal Weitzman: Initiating, managing and implementing change is one of the hardest challenges for any leader. How do you get buy-in? And what can leaders do to help their organizations embrace change?

Welcome to a special edition of The Big Question, the monthly video series from Chicago Booth Review. We’re filming in front of a studio audience at the Gleacher Center in downtown Chicago as part of a panel hosted by the Harry Davis Center for Leadership at Chicago Booth. I’m Hal Weitzman, and with me to discuss the issue is an expert panel.

Harry Davis is the Roger L. and Rachel M. Goetz Distinguished Service Professor of Creative Management at Chicago Booth. Fred Hochberg is the former chairman and president of the Export-Import Bank of the United States, where he was the longest-serving chairman in the agency’s history, serving for eight years. Jenny McColloch is director of sustainability strategy, engagement, and business integration at McDonald’s Corporation. And Ashley Wheater has been artistic director of the Joffrey Ballet for the past decade. In 2016, he helped the ballet break with tradition by introducing a new production of The Nutcracker, set in 19th-century Chicago.

Panel, welcome to The Big Question. Harry Davis, let me start with you. Why is change so hard?

Harry L. Davis: Interestingly, it’s an interesting question, given that I’ve been at the same institution for over a half century, so maybe I have no credibility whatsoever to talk about change. But my sense is that leaders face a real challenge of both deciding what should change, and also what should not change. And to me, that is one of the great challenges of leadership.

Hal Weitzman: OK. Fred Hochberg, does that sound like the right description?

Fred Hochberg: Yes, and I think you have to find that balance between introducing change at a rate of speed an organization can handle it. If you go too slow, you lose momentum. If you go too fast, you lose everybody.

Hal Weitzman: OK, so how do you balance those two?

Fred Hochberg: It’s an art. It’s not a science. You have to sort of see how people are absorbing it, and I would say the other thing I think about frequently, and I’ve been in the public sector, the private sector, nonprofit, and even the academy. The academy is the hardest. I say that. You really have to be engaged in implementation because that’s the way you get feedback and determine if change is being absorbed or not being absorbed, whether you can accelerate the pace or you need to slow down.

Hal Weitzman: So does that mean as a change leader, it’s best to identify some early wins?

Fred Hochberg: You need some early wins because that builds momentum. You can’t just be involved in writing a strategy, and then just say, “OK, now you take care of it.” Because people will not necessarily understand the whole nuance in the framework. So only by being involved in implementation do you really see it happening and ensure that it happens. And you get the feedback to make mid-course corrections, which if you don’t do, you will actually not have a very good outcome.

Hal Weitzman: OK, Jenny McColloch, let me bring you in because you’ve been involved in vast global change at McDonald’s, this global organization. Big, kind of fundamental changes in the way that the company sources its products, and the mindset. What are the big challenges that you’ve faced?

Jenny McColloch: I think what we’re seeing in the food system is a lot of changing consumer expectations about where their food comes from and understanding that better. And when we’re dealing with a system at the scale of McDonald’s, figuring out the right way to tell those stories and share a vision of an evolution toward more sustainable sourcing practices involves really clear global, visionary leadership perspective, but then also creating the environment where those local best practices can emerge and finding ways to share those among practitioners and really help bring those to life and scale them.

Hal Weitzman: Just remind us exactly what is the change you’re trying to bring at McDonald’s.

Jenny McColloch: So we’re looking at aspirations globally to source all of our food and packaging sustainably, but probably the biggest change that we’re driving right now is a global movement on beef sustainability. As a burger company, looking at the challenges facing food production in the world today, and the impacts of beef production, it’s our responsibility but also our opportunity in our sector to really help push the industry and bring together all the different players involved who have that shared vision of a robust and healthy food system and beef industry and planet.

Hal Weitzman: And so how do you manage that trade-off that Fred spoke about between getting momentum and getting buy-in.

Jenny McColloch: Sure, so I think that piece that you mentioned around celebrating those small wins and just getting going with pilots and practices that we can then celebrate and share and figure out which ones we can scale is really important. I think if you let perfect get in the way of progress and just moving forward, you’ll never move anywhere. And so we take a very deliberate approach to lay out what that global vision is holistically, but then also really just enable our different country teams and supplier best practices to just move forward and then adjust course as we need to. But not let that one concept of the vision of where we’re headed get in the way of making progress, and then letting it adjust course as we go.

Hal Weitzman: OK. Ashley Wheater, you were involved in a different kind of change, changing the tradition of The Nutcracker to a different kind of Nutcracker. What was some of the resistance that you faced in doing that?

Ashley Wheater: I think that it goes back to before, to 2007, and looking at the organization of the Joffrey Ballet, and seeing what was the internal structure there. What did the picture look like? How did that picture need to shift? Where are the arts today? How do we engage? How do we become? How do we remain relevant to our art form? And so there was a little bit of resistance, but I would say not a huge amount.

Hal Weitzman: But it sounds like you went back to basics and talked about some big questions that you could address, about where the company was at that particular moment in the larger art scene.

Ashley Wheater: Right, absolutely, and it was really like there was a plan to getting to wanting to produce a new Nutcracker. For any ballet company, The Nutcracker is our largest revenue source of our budget, so to get it right is really important. There are hundreds of Nutcrackers out there that are all pretty much the same, but we felt that we wanted to invest in our city, setting it here in Chicago during the Columbian Exhibition, and taking just a very different idea about, what does it really mean to the people that want to come and see it? What does it mean in terms of looking at the art form and moving the art form forward?

Hal Weitzman: It sounds like you had to do a little bit of problem construction, because superficially everything’s going very well. There’s no problem that you’re trying to fix, but you’re sort of putting the production in a bigger context, and that sort of in itself necessitates change?

Ashley Wheater: Well, I think that every production has its day, and scenery and costumes are real things. Costumes are our working clothes, and they wear out. So if you’re going to spend $2 million, $3 million reproducing the exact same thing, even though we’ve moved on 25-plus years, would it not be a great idea to say, “Well, what does it look like if we take another million dollars and completely redo the work?”

It really came down to, what did we really want to do? For me, the version that we had before, I had been involved with that in 1987. Knowing that production really well, and thinking, can we do something that’s more thoughtful, more engaging, and that has a future generation that can engage with a new production, seemed to me really the right way to go.

Hal Weitzman: OK. There are two questions that have come in from our audience here at the Gleacher Center that are both related to people in organizations who are resisting change. Do the panelists have any views on the challenges with change? Many people don’t want change. How do you deal with those in organizations who resist change? Fred Hochberg, how did you, because you came from the government sector, not a kind of an organization known for its embrace of change. So how did you deal with that?

Fred Hochberg: Well, you need a lot of patience, but not too much. I remember there were some people at the Export-Import Bank who I had to say, “Well listen, if you don’t want to change, perhaps this is no longer the organization for you.” Now, that’s kind of the last thing you get to, but people have to know that you’ll go there.

I think also, at least in government, one of the hard things . . . I did serve at the Export-Import Bank for eight years, and the typical political appointee—and I was appointed by President Obama—serves maybe 18 months. So it’s very hard to effect change if you’re only there 18 months because as soon as you arrive people look at their watch, and they know you’re going to be leaving soon, and they’ll wait you out. Partly, you need enough endurance and enough staying power that people realize you’re not going to go away, the request for change is not going to go away. You also need some urgency.

In the commercial world, the urgency is far more real because, if McDonald’s is not doing it, I’ll go to Burger King (audience laughing) or Wendy’s. And if I’m not going to go to the Joffrey, maybe I’ll see a play, maybe I’ll see another dance company. But in the government, frequently, and government employees have a sense, where are they going to go if they don’t come to us? So I think that it’s harder to sometimes have the urgency in a government setting. And the academy as well.

Hal Weitzman: I was going to say, Harry Davis, you’ve been attempting to and occasionally successfully implementing change in an academic environment, also known for its resistance to change.

Harry L. Davis: You can’t say goodbye to a tenured member of the faculty, so that’s a constraint that one has to deal with. The way I tend to look at this is, is there in the culture a predisposition for experimentation, to just trying things? That works actually quite well with scientists because if you say, “Well, let’s try something and we’ll collect some data,” that’s often very compelling. And as you were talking, I was thinking about the notion of The Nutcracker is obviously a very important experiment.

Ashley Wheater: Yes.

Harry L. Davis: You probably wouldn’t call it an experiment. But you have other options.

Ashley Wheater: Yes.

Harry L. Davis: And therefore, it’s a wonderful way to try something, which isn’t probably going to either kill the organization, or it might move it up to another level. So I’m a big believer in the kind of conversation that you have with people, and to say, “We’re going to try something. We’re going to learn. Whether it works or not as we thought it would work, something is going to come out of it that’s going to be very helpful for the organization.” And I have found that to be a quite compelling rationale to generate willingness to try things.

Fred Hochberg: I think also, as I listen to you and I’m thinking about the Joffrey, frankly being an authentic leader, if people really believe that you really care about the institution, frequently the most resistant of people have been there perhaps a long time and really are engaged in the institution. If there’s a sense that you’re really part of that institution and want to see that institution flourish, and it’s for the institution and not just for yourself, that is a way of winning over a number of people.

Jenny McColloch: And I would also say an example in our context at McDonald’s, we have thousands of restaurants worldwide and thousands of independent franchisees who operate those restaurants. And so when it comes to innovation and sustainability, it’s often an opportunity, to build on your point, where we can pilot and test new practices in certain restaurants among those who are maybe a little bit more willing to try something new, and then figure out how to position those influential, sort “first-mover” leaders in a way where they can influence their peers much more effectively than we as the corporation can. Finding those influential leaders within a community that you’re trying to shift can end up helping build a movement toward a change, rather than just having a top-down approach, becomes quite effective.

Hal Weitzman: Another question from our audience about managing the change. When can you let others navigate a course that you have set? How long should you oversee a change that you have initiated? Fred Hochberg, do you have a thought on that?

Fred Hochberg: There’s no precise time. I think that what you really need, you need to get enough people who will carry the message and begin to internalize it, so that they don’t have to read a strategic plan but they begin to understand internally what it is you’re trying to do.

To be specific, one of the goals I had when I joined EXIM Bank was to make us more customer oriented, more commercial, more fitting the needs of exporters, less just following the more typical government requirements. And not to say we didn’t follow the requirements, but I’ll give you a little example. When I got to EXIM Bank, we had transactions that we were underwriting that I learned were as long as 1,800 days old. One department didn’t agree, and they would say, “Well I can’t agree, let’s talk about it in a month or two.” And they just sat there. And I got a call one day from a large exporter that says, “We have a transaction that’s 525 days old.” So I just said, “OK, anything over 100 days I want to see every Monday morning.” Well, that sent shock waves through the organization, and I remember one manager said to me, “Well, I don’t want you to look at that. I’m gonna look at it and make sure I see them at 75 days.” I said, “Exactly! I don’t want to look at them either.”

So partly that was an external force. You have to find a couple of people who will carry the mission and carry the values of the organization and find people that will internalize. The only way, I go back to, it happens is, you have to authentically believe in what you’re doing, because I’m sure there are people at McDonald’s who go, “Well, come on, we’re just in the burger business. This is a lot of fancy pants millennial stuff. Why do we have to deal with this?” I’m sure there were people who had that feeling. So you really need to find enough people who will buy into it and then carry the mission.

Ashley Wheater: Yeah, I think that’s crucial. Absolutely.

Hal Weitzman: Ashley, this sounds like one that would be good for you. How do you sell change that may not have a quantifiable ROI, return on investment?

Ashley Wheater: What I feel about the Joffrey Ballet today is that we are one of Chicago’s major arts institutions. I think that we have earned our respect of the city. I think that we have seen that by the quality that we are producing on the stage and in our academy, right throughout the community, is that we’re seeing our ticket sales and our subscriptions continually go up. We’ve never in the last 10 years seen anything go down or flat. So when you want to make change, it’s a really good barometer of what could happen next. But I’m happy to say that it keeps going up.

Jenny McColloch: Another way we think about that is, in sustainability, a lot of times the ROI isn’t short term, it’s sort of a long-term investment in the resiliency of our system. I think being able to shift gears between the types of value that we talk about, that we’re delivering, sometimes it is quantitative and financial. Sometimes it’s risk management. Sometimes its regulatory management. Sometimes it’s painting that picture of the macro context of consumer trends and just knowing that to stay relevant as a brand we need to be meeting those future expectations of customers. I’ve found that when we paint a more holistic picture of what that value is, and that long-term value, those short-term ROI, simple payback conversations become less important.They’re always going to be important. But looking at things as a long-term investment in success—

Hal Weitzman: Interesting, so you don’t try and quantify the dollar effect of sustainability—

Jenny McColloch: We certainly do when we can. It’s very hard to do in some cases. Certain things, like investments in energy efficiency or commodity costs, volatility are easier to quantify, whereas longer-term things like forest protection and climate resiliency in agriculture, it’s a bit more complex and dynamic. We sort of try and paint as quantified a picture as we can, but then also acknowledge those qualitative value factors too.

Fred Hochberg: I was just going to add: there is nothing better than an external threat. Whether it’s, people are going to get tired of that Nutcracker, and you’re going to spend all that money and people say, “I’ve already seen that one,” or whether your competition is doing it, or in our case congressional or foreign competition. We were competing against 90 other export credit agencies around the world. So there’s nothing like an external threat to get everybody focused. It’s easier in the commercial world, but it’s true in any environment.

Hal Weitzman: That’s interesting. Did you, Ashley, at the ballet, did you feel that there was an external threat, or was it, just that, as you described it, it had its day?

Ashley Wheater: I think that we are constantly with an external threat, because the arts, we’re always having to sing for our supper. And funding for the arts has changed. So I think that it’s constantly, it’s always there. Every single time we perform, “Is it . . . are we gonna succeed?”

Hal Weitzman: OK. Jenny McColloch, how does an organization determine its ability to absorb change, and then how do you gauge it along the way? You’re involved in this very long, multiyear process. Is there a danger of change fatigue?

Jenny McColloch: You know I think when it comes to change at the scale that we’re dealing with at McDonald’s, because of the pace being a bit more measured and, I guess maybe slow is just a more blunt way of saying that, it is such a long transition and journey that we’re on that I think for any one particular initiative, it takes so much momentum to get everything moving that usually there’s a lot of excitement for that once we get it going. I do think it means that we have to prioritize where we’re going to be pushing the biggest changes and the boldest actions.

For us, in the case of McDonald’s, we’re a burger company at heart, so it makes sense to a lot of people that beef would be an area where we’re trying to help drive change at a higher level than some of the other commodities that we source. But really we’re working to move the whole boat, as it were. So I think you can scale the level of change that you strive for based on sort of where the appetite is. And, yeah, it’s been a good transition so far, but I think time will tell. It’s not over by any means.

Hal Weitzman: There’s a question there isn’t there about your political or leadership capital and where you spend it. Did you feel, Ashley, at the Joffrey, could they go through another similar experiment with another . . . I guess there isn’t really an equivalent of The Nutcracker, is there? But could they go through another big change and sustain it?

Ashley Wheater: Well we could ruin Swan Lake.

Hal Weitzman: There you go. I knew you’d help me think of an example.

Ashley Wheater: You know, I think that the thing about, particularly the Joffrey because when you compare us to the rest of the country and the other companies that we’re in the same league with: the New York City Ballet or San Francisco Ballet or, their budgets compared to the Joffrey’s budget are two to three times the size. So we are a nimble company, and so turning that boat around is doable. It’s not going to take as long as it would take some of these organizations that have a deeper, longer, kind of, infrastructure that isn’t able to necessarily be more flexible.

So what I believe and hope is that, as we look to the future, that what we leave in place will be really good values that anybody would look at them and say, “This is really well done. This is really well thought out, and why would we mess with this. But we can learn from that, and we can take that and add to it.”

Hal Weitzman: OK, but how do you balance that, though, with experimenting, Harry Davis? If you experiment, and it goes wrong, you might say, “Great, we did an experiment. We learned from that,” but it might also create a counter culture against change.

Harry L. Davis: Well I think that sometimes that encouraging students to experiment, and they say, “Well, what happens if it doesn’t turn out?” And then my response is, “Then you’re not experimenting.” A lot of experiments don’t turn out as you expected. I think the notion, I suppose in a business context is, if you can create an environment where there’s a lot of relatively low-risk experiments taking place, where quite apart from, was it successful or unsuccessful, whatever the outcome is, it’s a basis for discussion and dialogue. Not just with oneself, although I think that’s important, but also with other people.

So I think that this sort of fear of failure gets in the way of change because, you learn things by . . . I’ve failed many times, but every time I’ve done it, I say, “OK, I’m going to retire,” and then I wake up in the morning and say, “You know, I bet I could fix it and do something different.” So I’m still at it.

Fred Hochberg: I think you’re right, I mean, you have to find a way, I mean, we don’t look for failure, but having run a bank, if we don’t have a few bad debts, then we’re not making enough loans or not taking enough risks. If you don’t try some new financial products, and if they don’t work then, I would say, “Listen, we tried these eight things, these three turned to be duds. We were either too early to the market, too late to the market, or missed the market, or whatever. Or priced it wrong. But then, we’re gonna move on and try something else.” You reward those that win and push aside those that don’t, but make it OK. No one’s gonna lose their job just because they tried something that didn’t work out.

Hal Weitzman: OK, and Jenny McColloch, I’m going to come back to you for the next question, because you talked about experimenting and failing. Somebody’s asked, what’s an example of a fail? And maybe you can give us some analysis of why you failed. What did you do wrong?

Jenny McColloch: I guess I’ll use a personal example in the sustainability world at McDonald’s. A couple of years ago, we were working on trying to build up a platform for how we could help our franchisees to identify and then invest in energy efficiency and water efficiency technologies in their restaurants, because there’s a lot of cost savings involved. There’s a lot of environmental benefits that we could do. We had tried designing a platform in a way that we thought would be really effective and easy, and we involved a lot of franchisees in testing it out and helping develop it. But the truth of the matter was, we launched it at a time when there was just so many other initiatives coming down across the business that the timing was off, and maybe it wasn’t as simple and easy as we thought it was from our perspective.

And so, you know, on one hand, we can view that as a failure because it wasn’t really adopted and took off the way that we had hoped that it would, but then on the other hand, we learned a lot from what aspects of it were the sticking points. Now we’re weaving those into, OK, what’s the next generation of how we work with our franchisees to really invest and find those opportunities. And if you’re not willing to at least try something and then see if it’s going to go somewhere, you won’t glean those insights that can help make the next iteration of it a lot stronger. So we’re very excited for the future of that.

Hal Weitzman: Harry, I’m guessing you have a thought on whether it’s really failing at all, or just learning from different kinds of results?

Harry L. Davis: We talk a lot at Chicago about the development of what we call insight skills, which is the ability to learn the right lessons from our experiences. It’s not easy, because many of the environments that we work with are not receptive to and really set the stage for learning the right lessons. We have a colleague who talks about sort of safe environments and also wicked environments, and often the feedback is delayed. It’s coming, it says more about the person giving the feedback. The notion of really developing the discipline to learn the right lessons I think is a very important issue for leadership.

Fred Hochberg: I was thinking, listening to both, we had two products at the Export-Import Bank that were failures. One was—more than two, but two I can think about quickly. One was called Export Express. They tried to do a fast-turnaround loan within—the goal was within three to seven days max. They were for loan amounts of maybe up to, I think, $50,000. Banks can often do, you can do a mail-in application and get a loan, and the interest rates are higher, and the write-offs are higher, but the net is still good. The problem is, the federal government is so allergic to a write-off even if you say, “Well, we’re collecting fees of 10 percent on the write-off, so 5 percent, so we’re still ahead.” All that people say is, “Look at your write-off rate. Obviously this is bad underwriting.” So there were so many safeguards put in, that the fast express was really not anywhere near express.

Hal Weitzman: So it wasn’t the speed of the approval, it was the nature of the loan?

Fred Hochberg: Well, we had to put in so many safeguards that we were no longer giving an express product.

Hal Weitzman: It could still be express compared to typical federal government—

Fred Hochberg: Yes, but ultimately, and we just, and the fees were so high because of that, and the legal fees . . . I said, this product is not delivering what it needs to. And we got rid of it. We had another product, Supply-Chain Finance, because we were concerned in the financial crisis about suppliers that were having elongated terms from companies, that instead of paying in 30 days, they were paying in 90 or 120 days, and how do the small businesses survive? Well, it took so long to get that through the federal process and to get approvals and so forth, by that point, interest rates had dropped so much that the product didn’t really have a reason for being. So part of it was timing, and part was a certain clumsiness in the federal process that didn’t really enable us.

Harry L. Davis: I think what your story also reminds of the fact that my experience is that organizations don’t have historians that have accurate memories about these experiences. Often it gets personalized: Well, you know, it was Fred—

Fred Hochberg: Who came up with that crazy idea!

Harry L. Davis: And so we’re not learning the right lessons. And often we don’t go back far enough to realize that maybe 20 years ago, there was a ballet that Joffrey tried . . . But who remembers it? And what do we hold on to? That would be really valuable.

Ashley Wheater: I think also that somehow we’re afraid to step up and say, are we making a mistake here? Or, is your idea making . . . Is it good for us or not good for us? I have witnessed the greatest ingredients that should have been a huge success, and it really was a major disaster. And so, within . . . seeing that process fall apart but still going through with a multi-, multimillion dollar production, and knowing that you get to that opening night and it’s a bomb. But you saw it coming. But nobody was able to have the conversation to say, this is a real concern for me. I don’t know why. It’s something that I learned from this lesson, so I’m very hands on about having that conversation if, for me, it’s telling me, wake up, listen, and act.

Hal Weitzman: OK. Nice question related to our recent Nobel laureate at Chicago Booth, Richard Thaler, who famously co-wrote the book Nudge, so this would be a good one for you, Fred. Have any of the panelists nudged organizational change? Just to remind ourselves, nudging is about changing the environment in such a way that people behave differently. You talk, for example, about setting the new 100-day deadline. What were some of the other nudges you put in place?

Fred Hochberg: Well, actually, as a federal agency, after the financial crisis, there was a stimulus bill that came out, which, quote unquote, was “shovel ready.” In America, we don’t really have things that are shovel ready because we don’t like to plan. But our building had been planned to be renovated for many years, so we were slated, and we had to commit all the funds immediately. One of the things I looked at as running a federal agency, the factors are personnel, technology, travel, and space. Partly nudging the organization is that nobody wanted to give up their large offices, and they had private offices with bathrooms and everything else, but what would you like to give up? You want more staff. Everybody wants more travel. Everybody wants newer IT equipment and laptops and iPhones, so let’s reduce the space per square foot per person. We went from an average of 400 feet per person down to about 150, much closer to the private sector. That was not such a welcome change. So it took a lot of nudging.

Hal Weitzman: And what were some of the nudges to get people to accept—

Fred Hochberg: Well, I found a few departments that really liked the idea, and they wanted to be compact together, so that they agreed to it. Over time, other departments said, you know, instead of having my people on another floor, let’s all pull in together. So little by little, that nudging . . . But you to had to find one or two people who would say, yeah I’ll take the chance.

Hal Weitzman: Who would be the ambassadors for your idea.

Fred Hochberg: Right, and carry that culture forward.

Hal Weitzman: How do you nudge people in the . . . You’ve got so many stakeholders at McDonald’s, how do you nudge them, build the environment so that they will come along with you?

Jenny McColloch: I think an example from McDonald’s would be looking at the Happy Meal offering. In the past, you may not know this, but all Happy Meals now have a side serving of fruit in them by default. But that wasn’t always the case, and that transition to, on the menu board offerings, make it a default choice that you had to opt out of, as opposed to opt into automatically got a lot more fruit into families and kids than would’ve otherwise maybe happened organically from a brand like McDonald’s. All of a sudden, we’ve had over 2 billion servings of fruit to kids just in the US over the last several years. It’s little things like that where we have maybe some of our customers asking for something, but not all of them. We can see where a trend is going, and then make a choice with the way we offer our products that then helps bring on the rest of the journey.

Hal Weitzman: Classic default. OK, wonderful. Well, unfortunately our time has run out. It’s been a fascinating discussion.

My thanks to our panel, Harry Davis, Fred Hochberg, Jenny McColloch, and Ashley Wheater, but also my thanks to our audience here at the Gleacher Center in downtown Chicago.

For more research, analysis, and commentary, visit us online at review.chicagobooth.edu, and join us again next time for another The Big Question.

Goodbye.