Journal of Change Management Vol. 5, No.

1, 97 107, March 2005

Strategic Change Decisions: Doing the Right Change Right

HEIKE BRUCH , PETER GERBER & VICTORIA MAIER

University of St. Gallen, Switzerland, Deutsche Lufthansa, Germany

ABSTRACT We use the case of German aviation Group Deutsche Lufthansa and its strategic change program, D-Check Maintaining Leadership, to illustrate how a large company was able to execute group-wide change in order to effectively secure its future despite a highly turbulent environment. In this context, we found that top executives must systematically make two decisions. First, they need to decide what the right change is for their company and second, they need to decide how to implement the change correctly. In the process of making these decisions, various critical factors also need to be taken into individual consideration in a methodical, deliberate way. Details of Lufthansas program are provided and the benets of and insights into pre-implementation decision-making processes are assessed for framing and subsequently implementing strategic change. The impact of leadership and management decisions for successful strategic change is discussed in the analysis. We round up our discussion with major lessons learned. KEY WORDS : Strategic change management, leading change, decision-making

Introduction

In recent dialogue concerning organizational change, there has been broad consensus that increasing environmental instability and uncertainty are forcing companies to change continuously (Brown and Eisenhardt, 1997). However, change itself is a risky, and often haphazard and improvised, process reaching unsatisfactory results in many companies, sometimes even leaving them worse off than before (Katzenbach and Smith, 1993). Farias and Johnson (2000) state that only about 50 percent of all large-scale change interventions are successful. These facts have given management scholars and practitioners alike pause to solve the puzzle of how companies can ensure successful change.

Correspondence Address: Heike Bruch, University of St Gallen, Switzerland. Tel.: 47 71 224 2371; Email: heike.bruch@unisg.ch 1469-7017 Print=1479-1811 Online=05=01009711 # 2005 Taylor & Francis Group Ltd DOI: 10.1080=14697010500067390

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One answer, proposed by several authors, in response to this puzzle revolves around what managers can do to ensure success in a change process (e.g. Senge, 1990; Kotter, 1996). Several authors argue that the decisions managers make are critical to ensuring that their companies stay apace and aligned with changing demands (e.g. Child, 1972; Romanelli and Tushman, 1988). However, the management decisions addressed by this dialogue tend to emphasize the implementation process. Decisions prior to the rollout of a change program i.e. those related to clarifying the change itself, have received surprisingly little attention (Lengnick-Hall and Lengnick-Hall, 1988). Nevertheless, strategic change is not merely a matter of dening steps that will ensure its successful implementation. Part of change management also embodies taking a rm grasp on a seminal change idea or purpose, which must then be thought through and claried before the enactment of the change. Ironically, most companies are in considerable want of systematic decisionmaking processes for developing and executing strategic change. The following contribution therefore focuses on key decisions in managing change. Inappropriate set up and execution are two of the major reasons why certain change processes are only marginally successful or even completely unsuccessful (Kotter, 1996). So from a theoretical and practical standpoint, there is a difference between the what What would be right? and the how How do we do it right?. The ndings presented here are based on over 10 years of research in multiple global companies, as well as several years experience with change at German aviation company Deutsche Lufthansa AG, in particular.
Strategic Management Programs at Lufthansa and D-Check

Deutsche Lufthansa AG has shifted its shape successfully several times over the last 13 years since its spectacular turnaround from the brink of bankruptcy in 1991 (for a more detailed account, see Bruch, 2000). The company became a master of managing strategic change despite the turbulent aviation market conditions prevalent from 1991 to 2004 by launching a series of major initiatives, Programm 90, Programm 15, Operational Excellence and D-Check Maintaining Leadership (see Figure 1).
Core Elements of D-Check
Group-wide change program Conceptualized from fall 2000 to spring 2001 Company context: Hallmark earnings from 2000 but trouble pending Duration: Three years (1 June 2001 to 31 May 2004) Goal: To generate ?1 billion in sustainable cash flow from 2004 Outcome: ?1.604 billion in additional cash flow generated by February 2004 Total number of D-Check projects: 1,320

Figure 1. Core elements of D-check

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This latest change program made it possible for Lufthansa to manage aviations greatest crises, which emerged during 2002 and 2003, more effectively than most of its competitors worldwide. In the fourth strategic change program, D-Check, Lufthansas management built on various lessons learned from and experience gained over the rst three. D-Check was implemented throughout the entire Lufthansa Group and ran from summer 2001 to spring 2004. Though scal 2000 was a banner year for the company, Lufthansas top management sensed weak signals of nancial crisis. The ultimate goal of the program was to generate E1 billion in sustainable cash ow to assure the companys future. D-Checks success rate speaks for itself: by mid-August just one year prior to the end of the program the company had met and surpassed its objective of generating E1 billion in sustainable cash ow by June 2004.

Leadership Decisions: Doing the Right Thing

As Kotter (1996) points out, there is a difference between leading change and managing change. If leading change revolves around conceiving a clear goal as well as a logic for how to achieve it, managing change deals with the actual realization of that logic in a controllable process (Kotter, 1996). Our research shows that part of what made D-Check so effective was the fact that Lufthansas management made deliberate choices with regard to these two things. Before they can even broach the subject of implementation, companies must clarify in a straightforward, systematic way what change would be right for their company. All too often, when a change program is underway, questions emerge, such as Does the change make sense?, Is it the right thing for the company? or Is it happening at the right time?. Such questions and misgivings rob a company of its energy, weaken the process and hinder long-term implementation (Bruch and Vogel, 2005). So the primary leadership issue in strategic change deciding what change would be right really needs to be resolved at the beginning of the process in a clear, conclusive manner by addressing certain key questions (Figure 2).
Key decisions The leadership decision: What would be right? Key questions
What change is right for our situation? What is the central focus? What can we credibly execute? What is right for our culture and energetic situation?

The management decision: How do we do it right?

How do we gain acceptance? How can we get the company focused on the change process? How do we find the right people to make it happen? How can we generate momentum and make the change sustainable?

Figure 2. Key decisions and questions for making strategic change decisions

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Designing the Right Change for the Companys Situation

Change projects have to make sense from the beginning. The feeling that a change is right for a company and the necessary sense of urgency to secure its realization will only occur if it is clear that the change has been tailored to the company and its particular business situation (see Bruch and Ghoshal, 2003). Change is only possible when it is contextualized against the backdrop of a companys particular past and present (Pettigrew, 1987). Lufthansa addressed this issue by systematically orienting the point and focus of D-Check to the companys needs for strategic action in 2001. The sense and purpose of the program was explained by using an analogy to the d-check, the most comprehensive inspection a plane can undergo. In order to ensure a planes functionality, the d-check constitutes a complete overhaul during which a plane is dismantled, inspected and refurbished down to the last screw. This image reected the basic idea behind the D-Check change program, namely an organizational overhaul, which would ensure Lufthansas future by using minute precision and thoroughness to investigate all company processes and structures and to make them more efcient where necessary. Although Lufthansa posted one of its best annual results in 2000, the companys top managers saw the rst signs of crisis at the end of the scal year and decided to initiate a strategic change program. D-Checks nancial target was to generate a long-term, annual cash ow contribution of approximately E1 billion. This target was derived based on Lufthansas strategic business needs. Lufthansas Corporate Units and ve Business Units were integrated into the process of setting the target for D-Check. Lufthansas top management asked these Units to specify the greatest possible business risk to their business from 2001 to 2004 with respect to price uctuation, sudden market collapse and infrastructural bottlenecks. These estimates were then considered together and the top management developed a worst-case scenario for the entire Lufthansa Group. The management determined that approximately E1 billion in additional cash ow would need to be generated to ensure Lufthansas future and so set this amount as the target for D-Check. The overarching purpose and target of the program were thus as clear as the requirement that each Unit had to contribute to D-Check in proportion to its own business risk. Furthermore, by being involved in this process prior to implementation, the Units also understood why the program was right for Lufthansas situation.
Focusing the Change Agenda

Change processes are by nature complex, but they must have clear priorities in order to be manageable. Excessive complexity and an inconsistent focus are deadly to a programs executability, especially to a company-wide program. So as they ask themselves what the right change would be, companies must systematically dene what the focal points of the change will entail and what, as a result, those focal points will not entail. In light of this point, D-Check just as Lufthansas previous strategic change programs was given a clear focus right from the beginning, i.e. to generate E1

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billion in cash ow for the long term. This goal was formulated clearly and simply. Understanding and tracking its progress in the change process was easy, which minimized speculation, confusion and issues of reprioritization.

Doing Only What You Can Really Commit to

Another critical factor for the success of a change process is top management credibility (Simons, 1999). So as they design the change, a companys top management must ask itself, What can we credibly implement?, What change can we really commit to? and What type of change will t our style so that we will be able to support it authentically and wholeheartedly later?. D-Check and its predecessors at Lufthansa were designed so that Jurgen Weber, Lufthansas CEO until June 2003, would be able to live out and embody the philosophy behind the program in a natural, believable way. Weber himself came from Swabia, a part of Germany reputed for thrift, punctuality and ensuring ones future. Change processes that lack a credible patron are as unsuccessful as those which lack visible, convincing support from the top management (Kotter, 1996). Insufcient agreement between word and deed have negative effects on the energy in change initiatives, ranging from loss of momentum through to the mobilization of destructive forces within the company (Huy, 2002).

Doing What Is Right for the Companys Culture and Energy

Change processes are only successful if they t a companys current culture. Traditions, norms and shared values within a company must be included the deliberations regarding the selection of a change program (Heracleous, 2001). Certain change processes cannot be executed in more bureaucratic cultures, while other types of processes simply are not compatible with team-oriented or innovative/ dynamic organizations (Bruch and Ghoshal, 2004b). In addition, the basic process of designing the program for a particular change should also account for a companys energy. Different types of change programs will be effective with companies characterized by comfortable inertia than for companies with other types of energy, such as change tiredness, high productive energy or resignative inertia (Bruch and Ghoshal, 2003, 2004a).

Management Decisions Doing Change Right

Once the question of which change program is right for a company at a particular point in time has been answered, the management must also systematically make decisions that will ensure that the change will be implemented successfully and have a permanent impact. Acceptance, attention, effective change agents as well as momentum and sustainability are all key in this regard (Davenport and Beck, 2000; Kotter, 1996). Without these factors, change processes will not be put in motion, make headway only with great difculty or have a eeting or even negligible impact (Weick, 2000).

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So in order to gure out how to do implement a change correctly, companies need to answer key questions while taking these critical factors into consideration (Figure 2).
Creating Acceptance

Insufcient acceptance is often considered to be the major source of resistance and the key reason why change initiatives fail. Well thought-out acceptance management is based on an approach that integrates everyone involved in a way that promotes commitment. Toward this end, Lufthansa used a communication system for D-Check that was designed to ensure uniform, direct, rapid communication that was consistent, both internally and externally. This system was used to bypass many of the initial difculties associated with gaining acceptance for change programs by making D-Check highly transparent, both inside and outside the company. Lufthansa had learned from other programs that people viewed a program as more relevant and serious once they had read about it in the press. So the top management decided to publish D-Checks results externally on a monthly basis, despite the potential risk of backlash. The rst reports describing D-Check and reporting cash ow generated were extremely well received internally and created a high degree of acceptance. A second strong lever in acceptance management used repeatedly at Lufthansa for D-Check was the conscientious integration of all parties affected by the change into the process of designing and implementing it. The top management derived D-Check targets based on how critical the program was for each Unit the greater a Units business risk, the greater its contribution to the overall E1 billion target. So a Units project volume also corresponded to the level of its estimated risk. For example, Lufthansas largest Unit, Passage, had by far the greatest contribution to make toward the E1 billion: 63 percent. Responsibility for implementing D-Check was transferred completely to the line management. Acceptance for change was reinforced by including D-Check targets into a line managers normal target agreement. Furthermore, goals for meeting a target could be broken down according to expertise, so that the people involved in the changed could exploit their strengths, inclinations and expectations collectively for D-Check. This practice also ensured that employees never saw D-Check goals as competition to or less important than their normal business.
Managing Attention

With information ooding companies, management must assure that employees see that the change process has priority, is permanently present and that key information is not lost. So key levers of attention management include effective branding, in-depth, personal, top management communication and demonstrative, regular monitoring (Davenport and Beck, 2000). Lufthansa learned to maintain employee attention by giving programs a simple, easy-to-recognize brand. The d-check is a clearly dened process in the aviation industry. Thus everyone could relate to it as a name for the change program, no

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matter where they were in the Lufthansa Group, and it triggered a particular association with certain goals, activities and processes in airplane maintenance. Past experience with change had also taught Lufthansas top management the power of personally communicating change to employees during large-scale events. Thus, the communication strategy for D-Check, which used indirect communication such as electronic and printed media, also utilized comprehensive, direct communication by the top management to focus and keep peoples attention on the program. Examples include the Town Meetings, a series of events with up to 250 managers, or the Board on Tour initiatives, in which Board members visited selected project leaders to discuss their progress. Direct communication was particularly critical during the beginning phase of D-Check. Lufthansas top management had to explain the need for the program to convince employees of the change despite the companys strong nancial situation just as the program was starting in 2001. By focusing its effort through direct communication, the top management reached 1,250 managers per week in person during the initiation phase of D-Check. Finally, using an effective, comprehensive system of monitoring and reporting is essential for focusing and maintaining peoples attention. Lufthansas management deployed a system that enabled all Lufthansa employees to track D-Checks progress, successes and problem areas; the D-Check Barometer, as it was called, was published every month (Figure 3). Aside from holding peoples attention, this highly transparent means of monitoring and reporting also maintained the credibility of the program and top management and ensured that the achievements and results generated through the program were intermediately given recognition.

Figure 3. The D-check Barometer a highly transparent means of monitoring and reporting progress

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Involving the Right People

One key factor for implementing change is having the right people to sell, implement, and drive the program from start to nish. One of the reasons change processes fail is because companies underestimate the importance of the individuals involved in the change and their interaction (Kotter, 1996). Lufthansa dedicated 26 people to work exclusively on D-Check. Sixteen D-Check employees worked in the Business Units. The remaining 10 took care of overarching coordination tasks in the Corporate Units and reported directly to Weber (Figure 4). In order to symbolically emphasize the importance of the team, the D-Check team was stationed right next to the CEOs ofce. Team members were carefully selected in a rigorous application process reviewing their abilities, experience and internal standing. Finally, the D-Check team was deliberately removed from the company hierarchical structure so that D-Check projects would be promoted and implemented without falling prey to conicts of interest or structural interdependencies.
Maintaining Momentum and Sustainable Change Effects

Change management loses momentum when a company does not address the issue of its own organizational energy. Organizational energy reects the extent to which a company has mobilized its potential in pursuit of its goals (Bruch and Ghoshal, 2003, 2004a). Problems associated with energy during change manifest themselves as either insufcient urgency during the beginning phases of, a loss in momentum during or the reversal of positive impact after a change program. Change initiatives in turbulent environments are lled with unexpected transitions that managers must deal with to secure a change effort (Brown and Eisenhardt, 1998). Three things can be done to prevent against these typical pitfalls. First, the required urgency for initiating a change can be achieved through a large number of visible, tangible activities. Second, the primary means for maintaining momentum for a change is to strategically revitalize and refocus it. Third, the
D-Check Corporate Team Tasks
Controlling and monitoring of D-Check throughout the Lufthansa Group Coordination of interface projects between Business Units Project support in the Business Units Co-ordination of measures for improving capabilities and the Digitalization of processes Communication of the D-Check program (together with Corporate Communications)

Figure 4. D-check corporate term tasks

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long-term impact of a change should be safeguarded by integrating the result of the change into existing company systems. D-Check exhibited an immense driving force as a result of the ood of projects initiated under the auspices of the program. By 2004, no less than 1,320 individual projects had been executed in association with D-Check. As time went by, the program was revitalized repeatedly, if perhaps somewhat differently than originally planned as a result of 9-11. The events surrounding 11 September 2001, took Lufthansa from a stable economic situation to a threat of crisis proportions. Lufthansas top management deployed the D-Check as the central infrastructure for managing the crisis. A supplementary program, D-Check akut, was used to redene D-Checks focus so that projects offering immediate cost-savings were given priority over those focused on generating sustainable cash ow. D-Check akut helped Lufthansa to generate E530 million in additional cash ow within three months. The management refocused and revitalized D-Check once again at the beginning of 2003 as Lufthansa coped with the greatest crisis in the history of aviation as a result of the SARS epidemic, ongoing economic downturn and the war in Iraq. By then, Lufthansas operating results had dropped considerably, and D-Check was again expanded by another initiative, dubbed Cash 100. Cash 100 called upon the management in all Business Units to take short-term measures so as to generate an additional E100 million in cash ow by the end of 2003. The top management also used other measures for maintaining the momentum for D-Check, such as a survey halfway through the program, letters praising particularly successful project leaders and a yearend bonus to employees despite the companys tense nancial situation to symbolically acknowledge employees extraordinary effort in managing the crisis after 9-11. Lufthansa ensured D-Checks long-term impact through various measures, including for example a comprehensive, academic study on the efcacy of D-Check with corresponding recommendations for future change initiatives and an emotionally reinforcing concluding event. Furthermore, Lufthansas management made sure that the cash ow level attained through D-Check remained an element of the budgets for 2005 and 2006, i.e. well after the program had ofcially concluded.
Conclusion Human Resources Managers Critical Contribution: Step-by-Step Support before Rollout

This contribution has shown how pre-implementation decisions with regard to the leadership and management of a strategic change are necessary for making the right change, at the right time (Ulrich, 1997; Ulrich et al., 1999). This research supports the growing evidence that Human Resources (HR) can and should make signicant contributions toward organizational development and strategy by appropriately placing and managing human capital (Lawler and Mohrman, 2003). Our empirical study at Lufthansa clearly indicates that HR managers above all should support its companys management in such key decisions.

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HR managers should accompany change processes step-by-step as change agents and strategic business partners who help managers to systematically make decisions regarding the what and how of a change.
Clear Separation of Leadership and Management Decisions

A central nding to be taken from Lufthansas experiences of change management is that questions regarding what change is right should be distinctly separated from those regarding how to implement the change correctly. Though both are closely connected, the decisions surrounding them deserve to be considered and made in isolation from one another.
The Right Decisions Based on Critical Factors

Change processes require a series of key decisions. Our research ndings and Lufthansas experiences reveal that there are three basic rules in this regard. First, it is important that decisions are indeed made at all. Second, these decisions must be made in the right sequence, i.e. leadership decisions (what the right change is) should be made before management decisions (how to do the change right). Third, managers must orient their decisions toward critical factors for success in change processes. By following these rules while considering key individuals within the change effort, companies can avoid unfocused, ineffective action-taking in change and ensure that the process is founded on a solid, conceptual basis.
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