{\rtf1{\fonttbl {\f2 Times New Roman Italic;} {\f3 Times New Roman;} {\f4 Times New Roman;} {\f5

Times New Roman;} {\f6 Times New Roman Italic;} {\f7 Times New Roman;} {\f8 Times New Roman;} {\f9 Times New Roman;} {\f10 Times New Roman Italic;} {\f11 Times New Roman;} {\f12 Times New Roman Italic;} {\f13 Times New Roman;} {\f14 Times New Roman;} {\f15 Times New Roman;} {\f16 Times New Roman;} {\f17 Times New Roman;} {\f18 Times New Roman;} {\f19 Times New Roman;} {\f1000000 Times New Roman;} }{\colortbl; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; \red0\green0\blue0; }\viewkind1\viewscale100\margl0\margr0\margt0\margb0\deftab80\dntblnsbdb\expshrt n\paperw11540\paperh15620{\bkmkstart Pg1}{\bkmkend Pg1}\par\pard\qj \li1055\sb0\ sl-360\slmult0 \par\pard\qj\li1055\sb0\sl-360\slmult0 \par\pard\qj\li1055\sb0\sl -360\slmult0 \par\pard\qj\li1055\ri1278\sb122\sl-360\slmult0\fi4 \up0 \expndtw0\ charscalex110 \ul0\nosupersub\cf1\f2\fs32 Organizations have personal compacts w ith their employees. \up0 \expndtw0\charscalex108 Change efforts will fail unles s those compacts are revised. \par\pard\ql \li1022\sb0\sl-759\slmult0 \par\pard\ ql\li1022\sb192\sl-759\slmult0 \up0 \expndtw0\charscalex97 \ul0\nosupersub\cf2\f 3\fs66 Why Do Employees Resist Change? \par\pard\ql \li993\sb0\sl-276\slmult0 \p ar\pard\ql\li993\sb0\sl-276\slmult0 \par\pard\ql\li993\sb148\sl-276\slmult0 \up0 \expndtw0\charscalex109 \ul0\nosupersub\cf3\f4\fs24 by Paul Strebel\par\pard\se ct\sectd\sbknone\cols2\colno1\colw5897\colsr160\colno2\colw5343\colsr160\qj \li1 022\sb0\sl-242\slmult0 \par\pard\qj \li1022\sb0\sl-242\slmult0 \par\pard\qj \li1 022\sb0\sl-242\slmult0 \par\pard\qj \li1022\ri146\sb11\sl-242\slmult0\fi211 \up0 \expndtw0\charscalex115 \ul0\nosupersub\cf4\f5\fs20 Change management isn't wor king as it should. \line \up0 \expndtw0\charscalex113 In a teling statistic, lea ding practitioners of radical \line \up0 \expndtw0\charscalex118 corporate reeng ineering report that success rates \line \up0 \expndtw0\charscalex117 in \ul0\no supersub\cf5\f6\fs18 Fortune \ul0\nosupersub\cf4\f5\fs20 1,000 companies are wel l below 50%; \line \up0 \expndtw0\charscalex108 some say they are as low as 20%. The scenario is all \line \up0 \expndtw0\charscalex124 too familiar. Company le

aders talk about total \line \up0 \expndtw0\charscalex114 quaity management, dow nsizing, or customer val-\line \up0 \expndtw0\charscalex113 ue. Determined manag ers follow up with plans for \line \up0 \expndtw0\charscalex113 process improvem ents in customer service, manu-\par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\sb0\sl-222\slmult0 \par\pard\qj \li1008\sb0\sl-222\slmult0 \par\pard \qj \li1008\ri140\sb093\sl-222\slmult0\fi4 \up0 \expndtw0\charscalex117 \ul0\nos upersub\cf5\f6\fs18 Paul Strebel is a professor and director of the Change \line \up0 \expndtw0\charscalex114 Program for international managers at IMD, the Int er-\line \up0 \expndtw0\charscalex125 national Institute for Management Developm ent in \line \up0 \expndtw0\charscalex116 Lausanne, Switzerland. This article is based on part of \line \up0 \expndtw0\charscalex121 his forthcoming book, \ul0\ nosupersub\cf6\f7\fs18 New Personal Compacts: The \line \up0 \expndtw0\charscale x110 Missing Link in Change Management, \ul0\nosupersub\cf5\f6\fs18 to be publis hed by \line \up0 \expndtw0\charscalex110 the Harvard Business School Press in 1 997. The material \line \up0 \expndtw0\charscalex110 on Eisai is taken partly fr om a study by Liisa Valikangas, \line \up0 \expndtw0\charscalex114 a senior busi ness analyst with SRI Consulting in Menlo \line \up0 \expndtw0\charscalex108 Par k, California. \par\pard\qj\pvpg\phpg\posx1012\posy15103\absw292 \expndtw0\chars calex104\ul0\nosupersub\cf6\f7\fs18 86\par\pard\column \qj \li6067\sb0\sl-242\sl mult0 \par\pard\qj \li6067\sb0\sl-242\slmult0 \par\pard\qj \li6067\sb0\sl-242\sl mult0 \par\pard\qj \li30\ri589\sb00\sl-242\slmult0 \up0 \expndtw0\charscalex116 \ul0\nosupersub\cf4\f5\fs20 facturing, and supply chain management, and for \lin e \up0 \expndtw0\charscalex116 new organizations to fit the new processes. From \line \up0 \expndtw0\charscalex117 subordinates, management looks for enthusiasm , \line \up0 \expndtw0\charscalex120 acceptance, and commitment. But it gets som e-\line \up0 \expndtw0\charscalex119 thing less. Communication breaks down, impl e-\line \up0 \expndtw0\charscalex119 mentation plans miss their mark, and result s fall \line \up0 \expndtw0\charscalex116 short. This happens often enough that we have to \line \up0 \expndtw0\charscalex109 ask why, and how we can avoid thes e failures.\par\pard\qj \li30\ri1361\sb0\sl-242\slmult0\fi196 \up0 \expndtw0\cha rscalex110 In the Change Program at IMD, in which \up0 \expndtw0\charscalex120 e xecutives tackle actual change prob-\line \up0 \expndtw0\charscalex111 lems from their own companies, I have\par\pard\ql \li20\ri1813\sb6\sl-242\slmult0\fi4 \up 0 \expndtw0\charscalex111 worked with more than 200 managers \line \up0 \expndtw 0\charscalex119 from 32 countries, all of whom are \line \up0 \expndtw0\charscal ex116 struggling to respond to the shocks \line \up0 \expndtw0\charscalex125 of rapidly evolving markets and \line \up0 \expndtw0\charscalex112 technology. Alth ough each compa-\line \up0 \expndtw0\charscalex120 ny's particular circumstances ac-\line \up0 \expndtw0\charscalex110 count for some of the problems, the \line \up0 \expndtw0\charscalex128 widespread difficulties have at \line \up0 \expndt w0\charscalex115 least one common root: Managers \line \up0 \expndtw0\charscalex 112 and employees view change differ-\line \up0 \expndtw0\charscalex111 ently. B oth groups know that vision \line \up0 \expndtw0\charscalex130 and leadership dr ive successful \line \up0 \expndtw0\charscalex108 change, but far too few leader s recog-\line \up0 \expndtw0\charscalex121 nize the ways in which individuals\pa r\pard\qj \li20\ri1616\sb0\sl-240\slmult0\fi4 \up0 \expndtw0\charscalex122 commi t to change to bring it about. \line \up0 \expndtw0\charscalex109 Top-level mana gers see change as an op-\par\pard\qj \li20\ri1098\sb0\sl-244\slmult0 \up0 \expn dtw0\charscalex121 portunity to strengthen the business by \up0 \expndtw-9\char scalex90 ?r. \line \up0 \expndtw0\charscalex116 aligning operations with strateg y, to take on\par\pard\qj \li20\ri594\sb3\sl-242\slmult0\fi4 \up0 \expndtw0\char

scalex116 new professional challenges and risks, and to ad-\line \up0 \expndtw0\ charscalex110 vance their careers. For many employees, however, \up0 \expndtw0\c harscalex126 including middle managers, change is neither \line \up0 \expndtw0\c harscalex114 sought after nor welcomed. It is disruptive and in-\line \up0 \expn dtw0\charscalex111 trusive. It upsets the balance.\par\pard\qj \li20\ri599\sb3\s l-243\slmult0\fi206 \up0 \expndtw0\charscalex111 Senior managers consistently mi sjudge the effect \line \up0 \expndtw0\charscalex113 of this gap on their relati onships with subordinates \line \up0 \expndtw0\charscalex122 and on the effort r equired to win acceptance of \line \up0 \expndtw0\charscalex120 change. To close the gap, managers at all levels \par\pard\qj\pvpg\phpg\posx8712\posy15182\absw2 120 \expndtw0\charscalex108\ul0\nosupersub\cf7\f8\fs12 DRAWINGS BY MICHAEL WITTE \par\pard\sect\sectd\fs24\paperw11560\paperh15580{\bkmkstart Pg2}{\bkmkend Pg2}\ par\pard\sect\sectd\sbknone\cols2\colno1\colw5695\colsr160\colno2\colw5565\colsr 160\qj \li811\sb0\sl-241\slmult0 \par\pard\qj \li811\sb0\sl-241\slmult0 \par\par d\qj \li811\sb0\sl-241\slmult0 \par\pard\qj \li811\sb0\sl-241\slmult0 \par\pard\ qj \li811\ri155\sb223\sl-241\slmult0\fi4 \up0 \expndtw0\charscalex113 \ul0\nosup ersub\cf4\f5\fs20 must learn to see things differently. They must put \up0 \expn dtw0\charscalex112 themselves in their employees' shoes to understand \up0 \expn dtw0\charscalex113 how change looks from that perspective and to ex-\line \up0 \ expndtw0\charscalex120 amine the terms of the "personal compacts" be-\line \up0 \expndtw0\charscalex110 tween employees and the company.\par\pard\ql \li815\sb27 8\sl-322\slmult0 \up0 \expndtw0\charscalex105 \ul0\nosupersub\cf8\f9\fs28 What I s a Personal Compact?\par\pard\qj \li815\ri146\sb144\sl-242\slmult0\fi196 \up0 \ expndtw0\charscalex120 \ul0\nosupersub\cf4\f5\fs20 Employees and organizations h ave reciprocal \line \up0 \expndtw0\charscalex116 obligations and mutual commitm ents, both stated \line \up0 \expndtw0\charscalex117 and implied, that define th eir relationship. Those \line \up0 \expndtw0\charscalex114 agreements are what I call personal compacts, and \line \up0 \expndtw0\charscalex115 corporate change initiatives, whether proactive or \line \up0 \expndtw0\charscalex114 reactive, alter their terms. Unless managers define \line \up0 \expndtw0\charscalex111 new terms and persuade employees to accept them, \line \up0 \expndtw0\charscalex115 it is unrealistic for managers to expect employees \line \up0 \expndtw0\charsca lex115 fully to buy into changes that alter the status quo. \line \up0 \expndtw0 \charscalex114 As results all too often prove, disaffected employ-\line \up0 \ex pndtw0\charscalex114 ees will undermine their managers' credibility and \line \u p0 \expndtw0\charscalex110 well-designed plans. However, I have observed ini-\li ne \up0 \expndtw0\charscalex114 tiatives in which personal compacts were success -\line \up0 \expndtw0\charscalex109 fully revised to support major change\u8212? although the \line \up0 \expndtw0\charscalex113 revision process was not necessa rily expicit or de-\line \up0 \expndtw0\charscalex110 liberate. Moreover, I have identified three major di-\line \up0 \expndtw0\charscalex120 mensions shared by compacts in all companies.\par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \ li830\sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li 830\sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li83 0\sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li830\ sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li830\sb 0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\ sl-244\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl -244\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl-2 44\slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li830\sb0\sl-244 \slmult0 \par\pard\qj \li830\sb0\sl-244\slmult0 \par\pard\qj \li830\ri140\sb149\ sl-244\slmult0\fi14 \up0 \expndtw0\charscalex111 These common dimensions are \ul 0\nosupersub\cf9\f10\fs20 formal, psychologi-\line \up0 \expndtw0\charscalex107 cal, \ul0\nosupersub\cf4\f5\fs20 and \ul0\nosupersub\cf9\f10\fs20 social.\par\pa rd\qj \li830\ri131\sb5\sl-240\slmult0\fi191 \up0 \expndtw0\charscalex116 \ul0\no supersub\cf4\f5\fs20 The \ul0\nosupersub\cf9\f10\fs20 formal \ul0\nosupersub\cf4 \f5\fs20 dimension of a personal compact is \line \up0 \expndtw0\charscalex122 t he most familiar aspect of the relationship be-\line \up0 \expndtw0\charscalex11 4 tween employees and their employers. For an em-\line \up0 \expndtw0\charscalex 112 ployee, it captures the basic tasks and performance \line \up0 \expndtw0\cha

rscalex109 requirements for a job as defined by company docu-\line \up0 \expndtw 0\charscalex116 ments such as job descriptions, employment con-\line \up0 \expnd tw0\charscalex118 tracts, and performance agreements. Business or \line \up0 \ex pndtw0\charscalex114 budget plans lay out expectations of financial per-\par\par d\qj\pvpg\phpg\posx835\posy15114\absw3301 \expndtw0\charscalex108\ul0\nosupersub \cf10\f11\fs14 HARVARD BUSINESS REVIEW May-June 1996\par\pard\column \qj \li5855 \sb0\sl-242\slmult0 \par\pard\qj \li5855\sb0\sl-242\slmult0 \par\pard\qj \li5855 \sb0\sl-242\slmult0 \par\pard\qj \li5855\sb0\sl-242\slmult0 \par\pard\qj \li20\r i811\sb159\sl-242\slmult0 \up0 \expndtw0\charscalex121 \ul0\nosupersub\cf4\f5\fs 20 formance. In return for the commitment to per-\line \up0 \expndtw0\charscalex 111 form, managers convey the authority and resources \line \up0 \expndtw0\chars calex119 each individual needs to do his or her job. What \line \up0 \expndtw0\c harscalex119 isn't explicitly committed to in writing is usualy \line \up0 \expn dtw0\charscalex111 agreed to oraly. From an employee's point of view, \line \up0 \expndtw0\charscalex119 personal commitment to the organization comes \line \up 0 \expndtw0\charscalex118 from understanding the answers to the following \line \up0 \expndtw0\charscalex109 series of questions:\par\pard\qj \li25\ri835\sb2\sl -244\slmult0\fi4 \up0 \expndtw0\charscalex113 \u10065? What am I supposed to do for the organization? \up0 \expndtw0\charscalex106 \u10065? What help will I get to do the job?\par\pard\qj \li30\ri820\sb4\sl-240\slmult0 \up0 \expndtw0\charsc alex116 \u10065? How and when will my performance be evalu-\line \up0 \expndtw0\ charscalex110 ated, and what form will the feedback take?\par\pard\qj \li25\ri82 0\sb2\sl-244\slmult0\fi4 \up0 \expndtw0\charscalex107 \u10065? What will I be pa id, and how will pay relate to my \up0 \expndtw0\charscalex111 performance evalu ation?\par\pard\qj \li30\ri815\sb3\sl-242\slmult0\fi201 \up0 \expndtw0\charscale x118 Companies may differ in their approach to an-\line \up0 \expndtw0\charscale x120 swering those questions, but most have policies \up0 \expndtw0\charscalex11 7 and procedures that provide direction and guide-\line \up0 \expndtw0\charscale x115 lines to managers and employees. Nevertheless, a \up0 \expndtw0\charscalex1 11 clear, accurate formal compact does not ensure that \up0 \expndtw0\charscalex 116 employees will be satisfied with their jobs or that \up0 \expndtw0\charscale x122 they will make the personal commitment man-\line \up0 \expndtw0\charscalex1 15 agers expect. Unfortunately, many managers stop \up0 \expndtw0\charscalex112 here when anticipating how change will affect em-\line \up0 \expndtw0\charscalex 112 ployees. In fact, performance along this dimension \up0 \expndtw0\charscalex 112 is tightly linked to the other two.\par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li5875\sb0\sl-242\slmult0 \ par\pard\qj \li5875\sb0\sl-242\slmult0 \par\pard\qj \li40\ri805\sb6\sl-242\slmul t0\fi201 \up0 \expndtw0\charscalex112 The \ul0\nosupersub\cf9\f10\fs20 psycholog ical \ul0\nosupersub\cf4\f5\fs20 dimension of a personal com-\line \up0 \expndtw 0\charscalex112 pact addresses aspects of the employment relation-\line \up0 \ex pndtw0\charscalex122 ship that are mainly impicit. It incorporates the \line \up 0 \expndtw0\charscalex124 elements of mutual expectation and reciprocal \line \u p0 \expndtw0\charscalex114 commitment that arise from feelings like trust and \l ine \up0 \expndtw0\charscalex124 dependence between employee and employer. \line \up0 \expndtw0\charscalex113 Though often unwritten, the psychological dimen-\l ine \up0 \expndtw0\charscalex120 sion underpins an employee's personal commit-\l ine \up0 \expndtw0\charscalex114 ment to individual and company objectives. Man\line \up0 \expndtw0\charscalex108 agers expect employees to be loyal and willin g to do \par\pard\qj\pvpg\phpg\posx10368\posy15055\absw291 \expndtw0\charscalex1 04\ul0\nosupersub\cf6\f7\fs18 87\par\pard\sect\sectd\fs24\paperw11520\paperh1562 0{\bkmkstart Pg3}{\bkmkend Pg3}\par\pard\ql \li6072\sb0\sl-207\slmult0 \par\pard

\ql\li6072\sb0\sl-207\slmult0 \par\pard\ql\li6072\sb34\sl-207\slmult0 \up0 \expn dtw0\charscalex104 \ul0\nosupersub\cf6\f7\fs18 PERSONAL COMPACTS \par\pard\ql \l i10713\sb0\sl-69\slmult0 \par\pard\ql\li10713\sb0\sl-69\slmult0 \par\pard\ql\li1 0713\sb0\sl-69\slmult0 \par\pard\ql\li10713\sb0\sl-69\slmult0 \par\pard\ql\li107 13\sb51\sl-69\slmult0 \up0 \expndtw0\charscalex100 \ul0\nosupersub\cf12\f13\fs6 .1.11111\par\pard\sect\sectd\sbknone\cols2\colno1\colw5897\colsr160\colno2\colw5 323\colsr160\qj \li1017\ri155\sb139\sl-243\slmult0 \up0 \expndtw0\charscalex112 \ul0\nosupersub\cf4\f5\fs20 whatever it takes to get the job done, and they rou\line \up0 \expndtw0\charscalex118 tinely make observations and assumptions abou t \line \up0 \expndtw0\charscalex116 the kind of commitment their employees disp lay. \line \up0 \expndtw0\charscalex118 The terms of a job description rarely ca pture the \line \up0 \expndtw0\charscalex112 importance of commitment, but emplo yees' behav-\line \up0 \expndtw0\charscalex113 ior reflects their awareness of i t. Employees deter-\line \up0 \expndtw0\charscalex116 mine their commitment to t he organization along \line \up0 \expndtw0\charscalex110 the psychological dimen sion of their personal com-\line \up0 \expndtw0\charscalex108 pact by asking:\pa r\pard\ql \li1022\sb8\sl-230\slmult0 \up0 \expndtw0\charscalex107 \u10065? How h ard will I really have to work?\par\pard\qj \li1022\ri160\sb0\sl-249\slmult0 \up 0 \expndtw0\charscalex111 \u10065? What recognition, financial reward, or other per-\line \up0 \expndtw0\charscalex108 sonal satisfaction will I get for my effo rts?\par\pard\ql \li1022\sb11\sl-230\slmult0 \up0 \expndtw0\charscalex108 \u1006 5? Are the rewards worth it?\par\pard\qj \li1022\ri150\sb5\sl-243\slmult0\fi201 \up0 \expndtw0\charscalex117 Individuals formulate responses to those ques-\line \up0 \expndtw0\charscalex115 tions in large part by evaluating their relationsh ip \up0 \expndtw0\charscalex117 with their boss. Their loyalty and commitment is \up0 \expndtw0\charscalex113 closely connected to their belief in their manager 's \up0 \expndtw0\charscalex118 willingness to recognize a job wel done, and not \up0 \expndtw0\charscalex119 just with more money. In the context of a major \u p0 \expndtw0\charscalex113 change program, a manager's sensitivity to this di-\l ine \up0 \expndtw0\charscalex119 mension of his or her relationship with subordi -\line \up0 \expndtw0\charscalex123 nates is crucial to gaining commitment to ne w \line \up0 \expndtw0\charscalex110 goals and performance standards.\par\pard\q j \li1027\ri155\sb0\sl-243\slmult0\fi206 \up0 \expndtw0\charscalex127 Employees gauge an organization's culture \line \up0 \expndtw0\charscalex122 through the \ ul0\nosupersub\cf11\f12\fs22 social \ul0\nosupersub\cf4\f5\fs20 dimension of the ir personal \line \up0 \expndtw0\charscalex112 compacts. They note what the comp any says about \line \up0 \expndtw0\charscalex114 its values in its mission stat ement and observe the \line \up0 \expndtw0\charscalex112 interplay between compa ny practices and manage-\line \up0 \expndtw0\charscalex112 ment's attitude towar d them. Perceptions about the \line \up0 \expndtw0\charscalex115 company's main goals are tested when employees\par\pard\column \qj \li20\ri574\sb140\sl-242\slm ult0\fi201 \up0 \expndtw0\charscalex114 Alignment between a company's statements and \line \up0 \expndtw0\charscalex110 management's behavior is the key to crea ting a con-\line \up0 \expndtw0\charscalex116 text that evokes employee commitme nt along the \line \up0 \expndtw0\charscalex110 social dimension. It is often th e dimension of a per-\line \up0 \expndtw0\charscalex111 sonal compact that is un dermined most in a change \line \up0 \expndtw0\charscalex114 initiative when con flicts arise and communication \line \up0 \expndtw0\charscalex115 breaks down. M oreover, it is the dimension along \line \up0 \expndtw0\charscalex113 which mana gement's credibility, once lost, is most \line \up0 \expndtw0\charscalex109 diff icult to recover.\par\pard\qj \li35\ri1606\sb224\sl-312\slmult0 \up0 \expndtw0\c harscalex95 \ul0\nosupersub\cf13\f14\fs30 Unrevised Personal Compacts \up0 \expn dtw0\charscalex94 Block Change\par\pard\qj \li25\ri574\sb080\sl-242\slmult0\fi20 6 \up0 \expndtw0\charscalex115 \ul0\nosupersub\cf4\f5\fs20 Looking through the l ens of unrevised personal \up0 \expndtw0\charscalex125 compacts, employees often misunderstand or, \line \up0 \expndtw0\charscalex115 worse, ignore the implicat ions of change for their \up0 \expndtw0\charscalex118 individual commitments. At Philips Electronics, \up0 \expndtw0\charscalex112 based in the Netherlands, emp loyees' failure to un-\line \up0 \expndtw0\charscalex112 derstand changing circu mstances drove the organi-\line \up0 \expndtw0\charscalex111 zation to the brink

of bankruptcy.\par\pard\qj \li25\ri578\sb4\sl-241\slmult0\fi196 \up0 \expndtw0\ charscalex114 In the early 1980s, Philips's reputation for engi-\line \up0 \expn dtw0\charscalex117 neering excelence and financial strength was un-\line \up0 \e xpndtw0\charscalex122 paralleled, and it was a prestigious company to \up0 \expn dtw0\charscalex111 work for. The company \u8212? which pioneered the de-\line \u p0 \expndtw0\charscalex110 velopment of the audio cassette, the video recorder, \up0 \expndtw0\charscalex110 and the compact disc \u8212? recruited the best ele ctrical \up0 \expndtw0\charscalex112 engineers in the Netherlands.\par\pard\qj \ li30\ri573\sb2\sl-244\slmult0\fi201 \up0 \expndtw0\charscalex114 Like many multi domestic European companies, \line \up0 \expndtw0\charscalex125 Philips had a ma trix structure in which strong \line \up0 \expndtw0\charscalex118 country manage rs ran the international sales and\par\pard\qj \li1350\ri578\sb0\sl-242\slmult0 \up0 \expndtw0\charscalex128 marketing subsidiaries like fief-\line \up0 \expndt w0\charscalex114 doms. Local product divisions were\par\pard\sect\sectd\sbknone\ cols2\colno1\colw7227\colsr160\colno2\colw3993\colsr160\qj \li1046\ri0\sb0\sl-44 3\slmult0 \up0 \expndtw0\charscalex97 \ul0\nosupersub\cf14\f15\fs46 Employees of ten misunderstand \line \up0 \expndtw0\charscalex95 or, worse, ignore the implic ations \line \up0 \expndtw0\charscalex96 of change for their individual\par\pard \ql \li1046\sb0\sl-484\slmult0 \up0 \expndtw0\charscalex95 commitments to the co mpany.\par\pard\column \qj \li20\ri578\sb3\sl-242\slmult0 \up0 \expndtw0\charsca lex117 \ul0\nosupersub\cf4\f5\fs20 organized separately, and competi-\line \up0 \expndtw0\charscalex115 tion for resources among the differ-\line \up0 \expndtw0 \charscalex127 ent business units was vigorous. \line \up0 \expndtw0\charscalex1 20 Central control was anathema, but \line \up0 \expndtw0\charscalex110 the size and complexity of headquar-\line \up0 \expndtw0\charscalex110 ters in Eindhoven grew nevertheless.\par\pard\qj \li20\ri573\sb0\sl-240\slmult0\fi196 \up0 \expnd tw0\charscalex129 \ul0\nosupersub\cf6\f7\fs18 At \ul0\nosupersub\cf4\f5\fs20 the same time, competition \line \up0 \expndtw0\charscalex117 was intensifying. \ul 0\nosupersub\cf6\f7\fs18 Despite its \ul0\nosupersub\cf4\f5\fs20 contin-\line \u p0 \expndtw0\charscalex115 ued excellence in engineering inno-\par\pard\sect\sec td\sbknone\cols2\colno1\colw5902\colsr160\colno2\colw5318\colsr160\qj \li1027\ri 155\sb8\sl-242\slmult0\fi4 \up0 \expndtw0\charscalex118 evaluate the balance bet ween financial and non-\line \up0 \expndtw0\charscalex124 financial objectives, and when they determine \line \up0 \expndtw0\charscalex117 whether management pr actices what it preaches. \up0 \expndtw0\charscalex114 They translate those perc eptions about values into \up0 \expndtw0\charscalex109 beliefs about how the com pany really works\u8212?about \up0 \expndtw0\charscalex118 the unspoken rules th at apply to career develop-\line \up0 \expndtw0\charscalex114 ment, promotions, decision making, conflict reso-\line \up0 \expndtw0\charscalex119 lution, resour ce alocation, risk sharing, and lay-\line \up0 \expndtw0\charscalex110 offs. Alo ng the social dimension, an employee tries \up0 \expndtw0\charscalex110 to answe r these specific questions:\par\pard\qj \li1031\ri156\sb0\sl-246\slmult0 \up0 \e xpndtw0\charscalex116 \u10065? Are my values similar to those of others in the \ up0 \expndtw0\charscalex109 organization?\par\pard\qj \li1022\ri155\sb0\sl-241\s lmult0\fi4 \up0 \expndtw0\charscalex114 \u10065? What are the real rules that de termine who gets \up0 \expndtw0\charscalex111 what in this company? \par\pard\qj \pvpg\phpg\posx1022\posy15079\absw292 \expndtw0\charscalex104\ul0\nosupersub\cf6 \f7\fs18 88\par\pard\column \qj \li20\ri564\sb3\sl-242\slmult0\fi4 \up0 \expndtw 0\charscalex123 \ul0\nosupersub\cf4\f5\fs20 vation, Philips was having trouble g etting new \line \up0 \expndtw0\charscalex114 products to market in a timely way . Margins were \line \up0 \expndtw0\charscalex111 squeezed as manufacturing cost s slipped out of line \line \up0 \expndtw0\charscalex119 in comparison with Sony 's and Panasonic's, and \line \up0 \expndtw0\charscalex114 market share started falling even in the company's \line \up0 \expndtw0\charscalex123 northern Europe an heartland, where Sony was \line \up0 \expndtw0\charscalex111 rapidly taking o ver the leading position. During the \line \up0 \expndtw0\charscalex115 1980s, t wo successive CEOs, Wisse Dekkers and \line \up0 \expndtw0\charscalex118 Cor van der \ul0\nosupersub\cf6\f7\fs18 Klugt, \ul0\nosupersub\cf4\f5\fs20 tried to red irect the company. \line \up0 \expndtw0\charscalex118 Each, in his time, hammere d home the problems \line \up0 \expndtw0\charscalex123 that needed correcting: t

he pace and quality of \line \up0 \expndtw0\charscalex121 product development, s low time to market, and \line \up0 \expndtw0\charscalex113 high manufacturing co sts. The two men communi-\line \up0 \expndtw0\charscalex109 cated vigorously, re organized, and set up task forces \par\pard\qj\pvpg\phpg\posx7550\posy15133\absw 3306 \expndtw0\charscalex108\ul0\nosupersub\cf10\f11\fs14 HARVARD BUSINESS REVIE W May-June 1996\par\pard\sect\sectd\fs24\paperw11580\paperh15580{\bkmkstart Pg4} {\bkmkend Pg4}\par\pard\sect\sectd\sbknone\cols2\colno1\colw5676\colsr160\colno2 \colw5604\colsr160\qj \li791\sb0\sl-243\slmult0 \par\pard\qj \li791\sb0\sl-243\s lmult0 \par\pard\qj \li791\sb0\sl-243\slmult0 \par\pard\qj \li791\sb0\sl-243\slm ult0 \par\pard\qj \li791\ri155\sb103\sl-243\slmult0\fi4 \up0 \expndtw0\charscale x114 \ul0\nosupersub\cf4\f5\fs20 on change. In Phiips's 1989 annual report, van der \line \up0 \expndtw0\charscalex114 Klugt reported that he had redefined mana gement \line \up0 \expndtw0\charscalex118 responsibilities to give product divis ions greater \line \up0 \expndtw0\charscalex123 freedom to respond to competitiv e and market \line \up0 \expndtw0\charscalex112 pressures. Yet the projected imp rovements in costs \line \up0 \expndtw0\charscalex128 and market share did not m aterialize quickly \line \up0 \expndtw0\charscalex127 enough. At the end of van der Klugt's tenure, \line \up0 \expndtw0\charscalex112 Philips was facing the bi ggest operating loss in the \line \up0 \expndtw0\charscalex111 company's history .\par\pard\qj \li796\ri146\sb0\sl-242\slmult0\fi196 \up0 \expndtw0\charscalex119 Why couldn't either of those seasoned profes-\line \up0 \expndtw0\charscalex113 sional managers deal with the changes in the com-\line \up0 \expndtw0\charscale x116 petitive environment? They understood the prob-\line \up0 \expndtw0\charsca lex125 lems, articulated the plans, and undertook the \line \up0 \expndtw0\chars calex119 initiatives that we associate with change leader-\line \up0 \expndtw0\c harscalex115 ship. Yet each failed in his attempt to redirect the \line \up0 \ex pndtw0\charscalex119 company in time because widespread employee \line \up0 \exp ndtw0\charscalex113 support was missing. In fact, personal compacts in \line \up 0 \expndtw0\charscalex114 place at the time actually blocked change because \lin e \up0 \expndtw0\charscalex122 there was little alignment between senior man-\li ne \up0 \expndtw0\charscalex118 agers' statements and the practice and attitude of \line \up0 \expndtw0\charscalex111 lower-level managers and their subordinate s.\par\pard\qj \li806\ri131\sb0\sl-242\slmult0\fi201 \up0 \expndtw0\charscalex11 1 But the problem could have been predicted. Dur-\line \up0 \expndtw0\charscalex 109 ing Philips's prosperous years, a tradition of lifelong \line \up0 \expndtw0 \charscalex114 employment was part of the company culture. Job \line \up0 \expnd tw0\charscalex115 security came in exchange for loyalty to the com-\line \up0 \e xpndtw0\charscalex118 pany and to individual managers. Informal rules \line \up0 \expndtw0\charscalex116 and personal relationships dominated formal sys-\line \ up0 \expndtw0\charscalex118 tems for performance evaluations and career ad-\line \up0 \expndtw0\charscalex110 vancement. Managers' job descriptions and position \line \up0 \expndtw0\charscalex115 in the hierarchy set limits on their respons ibiities, \line \up0 \expndtw0\charscalex119 and operating outside those boundar ies was dis-\line \up0 \expndtw0\charscalex109 couraged. Subordinates weren't en couraged any dif-\line \up0 \expndtw0\charscalex115 ferently. People weren't try ing to meet challenges \line \up0 \expndtw0\charscalex117 facing the company or even looking for personal \line \up0 \expndtw0\charscalex114 growth. Position an d perceived power in the com-\line \up0 \expndtw0\charscalex116 pany network det ermined who got what. And be-\line \up0 \expndtw0\charscalex115 cause seniority so directly affected an employee's \line \up0 \expndtw0\charscalex114 career gro wth and level of compensation, workers \line \up0 \expndtw0\charscalex118 had no incentive to work harder than people just \line \up0 \expndtw0\charscalex113 ab ove them or to exceed their boss's minimum ex-\line \up0 \expndtw0\charscalex110 pectations for performance.\par\pard\qj \li825\ri121\sb0\sl-243\slmult0\fi192 \ up0 \expndtw0\charscalex116 Moreover, even when costs were demonstrably \line \u p0 \expndtw0\charscalex115 out of line and operating margins were declining, \li ne \up0 \expndtw0\charscalex120 Philips had no effective mechanism for holding \ line \up0 \expndtw0\charscalex113 managers accountable for failing to achieve fi nan-\line \up0 \expndtw0\charscalex111 cial targets. Budget-to-actual variances were attrib-\line \up0 \expndtw0\charscalex111 uted to events outside the contro

l of unit managers. \line \up0 \expndtw0\charscalex114 And because of the limita tions of financial report-\line \up0 \expndtw0\charscalex115 ing systems and a c ulture that encouraged loyalty \line \up0 \expndtw0\charscalex109 over performan ce, no one was able to challenge this \line \up0 \expndtw0\charscalex109 mind-se t effectively.\par\pard\qj \li840\ri116\sb0\sl-240\slmult0\fi191 \up0 \expndtw0\ charscalex115 None of that changed under Dekkers or van der \line \up0 \expndtw0 \charscalex112 Klugt. Managers and subordinates were not forced \line \up0 \expn dtw0\charscalex113 to understand how the changes essential to turning \line \up0 \expndtw0\charscalex114 the company around would require them to take a\par\par d\ql \li835\sb0\sl-161\slmult0 \par\pard\ql \li835\sb0\sl-161\slmult0 \par\pard\ ql \li835\sb34\sl-161\slmult0 \up0 \expndtw0\charscalex108 \ul0\nosupersub\cf10\ f11\fs14 HARVARD BUSINESS REVIEW May-June 1996\par\pard\column \qj \li5836\sb0\s l-240\slmult0 \par\pard\qj \li5836\sb0\sl-240\slmult0 \par\pard\qj \li5836\sb0\s l-240\slmult0 \par\pard\qj \li5836\sb0\sl-240\slmult0 \par\pard\qj \li20\ri874\s b108\sl-240\slmult0 \up0 \expndtw0\charscalex115 \ul0\nosupersub\cf4\f5\fs20 fun damentally different view of their obligations. \up0 \expndtw0\charscalex114 Nei ther Dekkers nor van der Klugt drove the pro-\line \up0 \expndtw0\charscalex111 cess far enough to alter employees' perceptions and \up0 \expndtw0\charscalex110 bring about revised personal compacts.\par\pard\qj \li20\ri864\sb1\sl-244\slmul t0\fi201 \up0 \expndtw0\charscalex116 By the time Jan Timmer took over at Philip s in \line \up0 \expndtw0\charscalex112 May 1990, the company faced a crisis. Ne t operat-\line \up0 \expndtw0\charscalex108 ing income in the first quarter of 1 990 was 6 million \line \up0 \expndtw0\charscalex118 guilders compared with 223 million guilders the \line \up0 \expndtw0\charscalex108 previous year, and the n et operating loss for the year \line \up0 \expndtw0\charscalex118 was projected by analysts at 1.2 billion guilders. \line \up0 \expndtw0\charscalex119 Timmer w as an insider from the consumer elec-\line \up0 \expndtw0\charscalex111 tronics division, where he had successfully stopped \line \up0 \expndtw0\charscalex117 m ounting operating losses. But the scale of Tim-\line \up0 \expndtw0\charscalex11 8 mer's challenge to turn the company around was \line \up0 \expndtw0\charscalex 110 matched by the pressure on him to deal quickly and \line \up0 \expndtw0\char scalex111 effectively with the potentially crippling losses.\par\pard\qj \li39\r i2345\sb227\sl-302\slmult0 \up0 \expndtw0\charscalex100 \ul0\nosupersub\cf8\f9\f s28 Orchestrating the Revision \up0 \expndtw0\charscalex101 of Compacts\par\pard \qj \li35\ri849\sb137\sl-242\slmult0\fi196 \up0 \expndtw0\charscalex124 \ul0\nos upersub\cf4\f5\fs20 The revision of personal compacts occurs in \line \up0 \expn dtw0\charscalex119 three phases. First, leaders draw attention to the \line \up0 \expndtw0\charscalex113 need to change and establish the context for revis-\lin e \up0 \expndtw0\charscalex120 ing compacts. Second, they initiate a process in \line \up0 \expndtw0\charscalex118 which employees are able to revise and buy in to \line \up0 \expndtw0\charscalex114 new compact terms. Finally, they lock in c ommit-\line \up0 \expndtw0\charscalex114 ments with new formal and informal rule s. By ap-\line \up0 \expndtw0\charscalex112 proaching these phases systematicall y and creating \line \up0 \expndtw0\charscalex109 explicit links between employe es' commitments and \line \up0 \expndtw0\charscalex111 the company's necessary c hange outcomes, manag-\line \up0 \expndtw0\charscalex121 ers dramatically improv e the probability of hit-\line \up0 \expndtw0\charscalex116 ting demanding targe ts. To lead Philips out of its \line \up0 \expndtw0\charscalex108 crisis, Jan Ti mmer had to steer the company through \line \up0 \expndtw0\charscalex110 those p hases.\par\pard\qj \li39\ri841\sb0\sl-241\slmult0\fi211 \up0 \expndtw0\charscale x115 Shock Treatment at Philips. Although the com-\line \up0 \expndtw0\charscale x113 petitive landscape around Philips had changed, the \line \up0 \expndtw0\cha rscalex117 company and its employees had not. Employees' \line \up0 \expndtw0\ch arscalex115 personal compacts favored maintaining the status \line \up0 \expndtw 0\charscalex115 quo, so resistance to change was imbedded in the \line \up0 \exp ndtw0\charscalex113 culture. To achieve a turnaround, Timmer was go-\line \up0 \ expndtw0\charscalex112 ing to have to reach deep into the organization and \line \up0 \expndtw0\charscalex112 not only lead the initiative but also closely mana ge \line \up0 \expndtw0\charscalex117 it. Getting people's attention was merely the first \line \up0 \expndtw0\charscalex116 step. Persuading them to revise the

terms of their \line \up0 \expndtw0\charscalex111 personal compacts was a much bigger chalenge.\par\pard\qj \li59\ri840\sb2\sl-243\slmult0\fi191 \up0 \expndtw0 \charscalex110 Timmer's approach was a dramatic one; in fact, it \line \up0 \exp ndtw0\charscalex113 was shock treatment. Shortly after becoming CEO \line \up0 \ expndtw0\charscalex122 in mid-1990, he invited the company's top \up0 \expndtw0\ charscalex103 100 \line \up0 \expndtw0\charscalex114 managers to an off-site ret reat at Philips's training \line \up0 \expndtw0\charscalex117 center in De Ruwen berg. There he explained the \line \up0 \expndtw0\charscalex111 company's situat ion in stark terms: Its survival was \line \up0 \expndtw0\charscalex115 in jeopa rdy. To reinforce the message, he handed \line \up0 \expndtw0\charscalex112 out a hypothetical press release stating that Philips \line \up0 \expndtw0\charscale x117 was bankrupt. It was up to the group in the room \line \up0 \expndtw0\chars calex108 to bring the company back. Everyone would have to\par\pard\ql \li10358\ sb0\sl-184\slmult0 \par\pard\ql \li4542\sb131\sl-184\slmult0 \up0 \expndtw0\char scalex114 \ul0\nosupersub\cf15\f16\fs16 89 \par\pard\sect\sectd\fs24\paperw11560 \paperh15640{\bkmkstart Pg5}{\bkmkend Pg5}\par\pard\ql \li6043\sb0\sl-184\slmult 0 \par\pard\ql\li6043\sb183\sl-184\slmult0 \up0 \expndtw0\charscalex120 \ul0\nos upersub\cf15\f16\fs16 PERSONAL COMPACTS \par\pard\ql \li6729\sb0\sl-46\slmult0 \ par\pard\ql\li6729\sb0\sl-46\slmult0 \par\pard\ql\li6729\sb0\sl-46\slmult0 \par\ pard\ql\li6729\sb0\sl-46\slmult0 \par\pard\ql\li6729\sb0\sl-46\slmult0 \par\pard \ql\li6729\sb0\sl-46\slmult0 \par\pard\ql\li6729\sb0\sl-46\slmult0 \par\pard\ql\ li6729\sb28\sl-46\slmult0 \up0 \expndtw0\charscalex189 \ul0\nosupersub\cf16\f17\ fs4 .\u8226?\u9632?\u8226?\u8226?9Illf\u8226?aOMMWil\u8226?\u8226?IMIIYI\u8226?1 \u9632?IW \par\pard\li998\sb143\sl-230\slmult0\fi9\tx6033 \up0 \expndtw0\charsca lex115 \ul0\nosupersub\cf4\f5\fs20 contribute. Operation Centurion had begun and ,\tab \up0 \expndtw0\charscalex115 tunities to reinforce his message about perso nal\par\pard\li998\sb15\sl-230\slmult0\fi4\tx6033 \up0 \expndtw0\charscalex115 w ith it, the end of life in the company as all those in\tab \up0 \expndtw0\charsc alex115 commitments to current goals. Ongoing meetings\par\pard\li998\sb15\sl-23 0\slmult0\fi4\tx6028 \up0 \expndtw0\charscalex115 the room had known it.\tab \up 0 \expndtw0\charscalex115 with Philips's top 100 managers were the forum for\par \pard\li998\sb10\sl-230\slmult0\fi206\tx6033 \up0 \expndtw0\charscalex115 From t he start, Timmer's terms for change were\tab \up0 \expndtw0\charscalex115 discus sing long-term plans.\par\pard\li998\sb15\sl-230\slmult0\fi4\tx6230 \up0 \expndt w0\charscalex115 tough and unambiguous, and those who didn't like\tab \dn2 \expn dtw0\charscalex115 But Timmer knew that he could not accom-\par\pard\li998\sb10\ sl-230\slmult0\fi4\tx6028 \up0 \expndtw0\charscalex115 them were encouraged to l eave. In Operation Cen-\tab \up0 \expndtw0\charscalex115 plish his goals unless managers and subordinates\par\pard\li998\sb10\sl-230\slmult0\fi4\tx6033 \up0 \ex pndtw0\charscalex115 turion, Timmer captured the mind-set he wanted\tab \dn2 \ex pndtw0\charscalex115 throughout the company were also committed to\par\pard\li99 8\sb14\sl-230\slmult0\fi4\tx6033 \up0 \expndtw0\charscalex115 and created the pr ocess he would use to focus man-\tab \up0 \expndtw0\charscalex115 change. Employ ees' concerns about this corporate\par\pard\li998\sb10\sl-230\slmult0\fi4\tx6033 \up0 \expndtw0\charscalex115 agers' attention on the new goals. Extending the\t ab \up0 \expndtw0\charscalex115 initiative had to be addressed. Therefore, as th e ob-\par\pard\li998\sb15\sl-230\slmult0\fi4\tx6033 \up0 \expndtw0\charscalex115 metaphor, Timmer offered his managers new per-\tab \up0 \expndtw0\charscalex115 jectives for Operation Centurion came into focus at\par\pard\li998\sb20\sl-230\ slmult0\fi9\tx6033 \up0 \expndtw0\charscalex115 sonal contracts, which were like the assignments\tab \up0 \expndtw0\charscalex115 senior levels, plans to extend its reach emerged. Se-\par\pard\li998\sb15\sl-230\slmult0\fi0\tx6024 \up0 \expn dtw0\charscalex115 given officers by their superiors in the Roman\tab \up0 \expn dtw0\charscalex115 nior managers negotiated Centurion contracts with\par\pard\li 998\sb14\sl-230\slmult0\fi4\tx6028 \up0 \expndtw0\charscalex115 army. In the ens uing Centurion Sessions, the terms\tab \up0 \expndtw0\charscalex115 their busine ss unit directors, and that group then\par\pard\li998\sb15\sl-230\slmult0\fi4\tx 6028 \up0 \expndtw0\charscalex115 of these new compacts would begin to take shap e.\tab \up0 \expndtw0\charscalex115 took the initiative to the product-group and coun-\par\pard\li998\sb10\sl-230\slmult0\fi201\tx6028 \up0 \expndtw0\charscalex

115 Drawing on benchmarking data on best-in-class\tab \up0 \expndtw0\charscalex1 15 try-management teams. At workshops and training\par\pard\li998\sb20\sl-230\sl mult0\fi0\tx6024 \up0 \expndtw0\charscalex115 productivity, Timmer called for an across-the-board\tab \up0 \expndtw0\charscalex115 programs, employees at all le vels talked about the\par\pard\li998\sb10\sl-230\slmult0\fi4\tx6033 \up0 \expndt w0\charscalex115 20% reduction in head count. He also stipulated\tab \up0 \expnd tw0\charscalex115 consequences and objectives of change. Timmer\par\pard\li998\s b15\sl-230\slmult0\fi4\tx6033 \up0 \expndtw0\charscalex115 that resources for es sential new initiatives would\tab \up0 \expndtw0\charscalex115 reached out via c ompany "town meetings" to an-\par\pard\li998\sb14\sl-230\slmult0\fi0\tx6033 \up0 \expndtw0\charscalex115 have to come from within, despite deep cuts in ex-\tab \up0 \expndtw0\charscalex115 swer questions and talk about the future. His ap-\p ar\pard\qj \li7344\ri701\sb0\sl-240\slmult0 \up0 \expndtw0\charscalex117 proach made people feel included, \up0 \expndtw0\charscalex109 and his direct style enc ouraged them\par\pard\sect\sectd\sbknone\cols2\colno1\colw7184\colsr160\colno2\c olw4076\colsr160\qj \li1012\ri27\sb0\sl-454\slmult0 \up0 \expndtw0\charscalex102 \ul0\nosupersub\cf17\f18\fs44 Personal commitments, binding \line \up0 \expndtw 0\charscalex102 agreements, and performance \line \up0 \expndtw0\charscalex101 s tandards formed the basis for \line \up0 \expndtw0\charscalex101 new compacts at Philips.\par\pard\column \qj \li24\ri652\sb7\sl-240\slmult0\fi4 \up0 \expndtw0\ charscalex112 \ul0\nosupersub\cf4\f5\fs20 to support him. It soon became clear \ up0 \expndtw0\charscalex120 that employees were listening and \up0 \expndtw0\cha rscalex110 the company was changing.\par\pard\qj \li20\ri656\sb4\sl-242\slmult0\ fi206 \up0 \expndtw0\charscalex112 By the end of 1991, the workforce \line \up0 \expndtw0\charscalex105 had been cut by 22% \u8212?68,000 people. \line \up0 \ex pndtw0\charscalex116 Those who didn't meet the terms of \line \up0 \expndtw0\cha rscalex114 their contracts were gone, including \line \up0 \expndtw0\charscalex1 13 Timmer's successor in the consumer \line \up0 \expndtw0\charscalex112 electro nics division. Even at the top,\par\pard\sect\sectd\sbknone\cols2\colno1\colw586 8\colsr160\colno2\colw5392\colsr160\qj \li998\ri150\sb0\sl-242\slmult0 \up0 \exp ndtw0\charscalex125 penses throughout the company. The meeting \line \up0 \expnd tw0\charscalex109 broke up to allow managers from each product divi-\line \up0 \ expndtw0\charscalex112 sion to come to grips with what they had been pre-\line \ up0 \expndtw0\charscalex118 sented and to consider how they would respond. \line \up0 \expndtw0\charscalex110 Before this initial session with Timmer ended, eac h \line \up0 \expndtw0\charscalex115 of the division managers had oraly agreed o n tar-\line \up0 \expndtw0\charscalex121 gets for reductions in head count and o perating \line \up0 \expndtw0\charscalex117 costs. In subsequent discussions, th ose plans be-\line \up0 \expndtw0\charscalex115 came formal budget agreements be tween Timmer \line \up0 \expndtw0\charscalex111 and his Centurion managers: Each plan was signed \line \up0 \expndtw0\charscalex115 by the presenting manager to signify his personal \line \up0 \expndtw0\charscalex116 commitment to the terms . Performance would be \line \up0 \expndtw0\charscalex117 measured against achie vement of the targets and \line \up0 \expndtw0\charscalex113 linked to individua l bonuses and career opportuni-\line \up0 \expndtw0\charscalex115 ties. Personal commitments, binding agreements, \line \up0 \expndtw0\charscalex113 and standar ds for performance would form the ba-\line \up0 \expndtw0\charscalex110 sis for the new personal compacts at Philips.\par\pard\qj \li998\ri150\sb0\sl-244\slmult 0\fi201 \up0 \expndtw0\charscalex114 The De Ruwenberg meeting has become part of \line \up0 \expndtw0\charscalex112 Philips's company lore. It underscored the u rgency \line \up0 \expndtw0\charscalex112 of the company's situation and set the stage for the \line \up0 \expndtw0\charscalex110 compact-revision process that followed. In the days \line \up0 \expndtw0\charscalex117 and weeks thereafter, T immer maintained a high \line \up0 \expndtw0\charscalex111 profile as he spread the message of Operation Cen-\line \up0 \expndtw0\charscalex121 turion and the s ignificance of the new personal \line \up0 \expndtw0\charscalex110 compacts. Reg ular budget reviews gave him oppor-\par\pard\ql \li993\sb0\sl-184\slmult0 \par\p ard\ql \li993\sb131\sl-184\slmult0 \up0 \expndtw0\charscalex117 \ul0\nosupersub\ cf15\f16\fs16 90\par\pard\column \qj \li20\ri652\sb0\sl-242\slmult0\fi4 \up0 \ex pndtw0\charscalex119 \ul0\nosupersub\cf4\f5\fs20 the culture of patronage, socia

l networking, and \line \up0 \expndtw0\charscalex117 lifetime employment in exch ange for loyalty be-\line \up0 \expndtw0\charscalex112 came things of the past. When no one inside quali-\line \up0 \expndtw0\charscalex113 fied, Timmer hired t op managers from outside. As \line \up0 \expndtw0\charscalex111 a result, by mid -1994, only 4 members of the origi-\line \up0 \expndtw0\charscalex115 nal senior -management committee remained, and \line \up0 \expndtw0\charscalex112 only 5 of the 14 were Dutch. A company survey in \line \up0 \expndtw0\charscalex113 1994 confirmed that employees had responded fa-\line \up0 \expndtw0\charscalex118 vor ably to the changes and the new atmosphere: \line \up0 \expndtw0\charscalex114 M orale and feelings of empowerment had soared. \line \up0 \expndtw0\charscalex113 After fluctuating during the early nineties, Phiips's \line \up0 \expndtw0\char scalex115 financial performance recovered strongly in 1993 \line \up0 \expndtw0\ charscalex118 and 1994; operating income rose from (4.3%) of \line \up0 \expndtw 0\charscalex116 sales in 1990 to 6.2% in 1994 and the share price \line \up0 \ex pndtw0\charscalex108 moved from 20.30 guilders to 51.40 guilders.\par\pard\qj \l i20\ri652\sb0\sl-243\slmult0\fi206 \up0 \expndtw0\charscalex109 Of course, not e very case is like Philips's. You do \up0 \expndtw0\charscalex117 not need a cris is to revise personal compacts and \up0 \expndtw0\charscalex114 get greater comm itment. The contrasting example \up0 \expndtw0\charscalex117 of Eisai, a Japanes e health-care company, shows \up0 \expndtw0\charscalex119 how far the understand ing of personal compacts \up0 \expndtw0\charscalex110 can take you when change i s proactive.\par\pard\qj \li25\ri652\sb0\sl-243\slmult0\fi206 \up0 \expndtw0\cha rscalex125 Creating the Context for Change at Eisai. A \line \up0 \expndtw0\char scalex110 small, family-owned company, Eisai was one of the \line \up0 \expndtw0 \charscalex116 original manufacturers of vitamin E, and it main-\line \up0 \expn dtw0\charscalex121 tained a strong research commitment to natural\par\pard\ql \l i7512\sb0\sl-161\slmult0 \par\pard\ql \li7512\sb0\sl-161\slmult0 \par\pard\ql \l i1504\sb32\sl-161\slmult0 \up0 \expndtw0\charscalex108 \ul0\nosupersub\cf10\f11\ fs14 HARVARD BUSINESS REVIEW May-June 1996 \par\pard\sect\sectd\fs24\paperw11580 \paperh15580{\bkmkstart Pg6}{\bkmkend Pg6}\par\pard\sect\sectd\sbknone\cols2\col no1\colw5657\colsr160\colno2\colw5623\colsr160\qj \li768\sb0\sl-242\slmult0 \par \pard\qj \li768\sb0\sl-242\slmult0 \par\pard\qj \li768\sb0\sl-242\slmult0 \par\p ard\qj \li768\sb0\sl-242\slmult0 \par\pard\qj \li768\ri160\sb89\sl-242\slmult0\f i4 \up0 \expndtw0\charscalex110 \ul0\nosupersub\cf4\f5\fs20 pharmaceuticals. Ove r the years, it developed drugs \line \up0 \expndtw0\charscalex110 for the treat ment of cardiovascular, respiratory, and \line \up0 \expndtw0\charscalex110 neur ological diseases; by the end of the 1980s, such \line \up0 \expndtw0\charscalex 114 drugs comprised 60% of the company's sales. The \line \up0 \expndtw0\charsca lex114 company experienced steady, modest growth dur-\line \up0 \expndtw0\charsc alex123 ing that decade, and in \up0 \expndtw0\charscalex114 1989 sales\par\pard \qj \li772\ri1480\sb0\sl-243\slmult0 \up0 \expndtw0\charscalex117 reached 197 bi llion yen and profits \line \up0 \expndtw0\charscalex114 approached 13 bilion ye n. But there \line \up0 \expndtw0\charscalex135 were signs of potential trouble\ par\pard\column \qj \li5817\sb0\sl-242\slmult0 \par\pard\qj \li5817\sb0\sl-242\s lmult0 \par\pard\qj \li5817\sb0\sl-242\slmult0 \par\pard\qj \li5817\sb0\sl-242\s lmult0 \par\pard\qj \li20\ri898\sb84\sl-242\slmult0 \up0 \expndtw0\charscalex109 Human Health Care (HHC). It extended the compa-\line \up0 \expndtw0\charscalex1 13 ny's focus from manufacturing drug treatments for \line \up0 \expndtw0\charsc alex109 specific illnesses to improving the overall quality \ul0\nosupersub\cf18 \f19\fs22 of \line \up0 \expndtw0\charscalex114 \ul0\nosupersub\cf4\f5\fs20 life , especially for elderly sick people. To accom-\line \up0 \expndtw0\charscalex11 6 plish that mission, Eisai would have to develop \ul0\nosupersub\cf18\f19\fs22 a\par\pard\ql \li332\sb327\sl-529\slmult0 \up0 \expndtw0\charscalex96 \ul0\nosup ersub\cf14\f15\fs46 To accomplish strategic\par\pard\sect\sectd\sbknone\cols2\co lno1\colw4395\colsr160\colno2\colw6885\colsr160\ql \li772\sb1\sl-185\slmult0 \up 0 \expndtw0\charscalex121 \ul0\nosupersub\cf4\f5\fs20 ahead. Eisai was spending a hefty\par\pard\qj \li772\ri213\sb13\sl-243\slmult0\fi19 \up0 \expndtw0\charsca lex112 13 % of sales on R&D \u8212? compared \line \up0 \expndtw0\charscalex125 with an average of 8.5% in other \line \up0 \expndtw0\charscalex111 companies \u 8212? and between 1982 and \line \up0 \expndtw0\charscalex113 1991, only 12 of t

he company's 295\par\pard\column \qj \li20\ri638\sb0\sl-414\slmult0\tx471 \up0 \ expndtw0\charscalex97 \ul0\nosupersub\cf14\f15\fs46 transformation, Eisai's CEO had \line \tab \up0 \expndtw0\charscalex96 to create a context for change.\par\p ard\sect\sectd\sbknone\cols2\colno1\colw5504\colsr40\colno2\colw5896\colsr160\qj \li768\ri0\sb0\sl-237\slmult0 \up0 \expndtw0\charscalex113 \ul0\nosupersub\cf4\ f5\fs20 patent applications in Japan had been approved by \line \up0 \expndtw0\c harscalex117 regulatory authorities. Although it was the sixth-\line \up0 \expnd tw0\charscalex118 largest Japanese pharmaceutical company, Eisai \line \up0 \exp ndtw0\charscalex125 was a relatively small player in an industry in \line \up0 \ expndtw0\charscalex121 which global competition was increasing while \line \up0 \expndtw0\charscalex113 growth in the domestic market was slowing down.\par\pard \qj \li777\ri0\sb0\sl-243\slmult0\fi196 \up0 \expndtw0\charscalex108 In 1988, Ha ruo Naito took over as CEO and presi-\line \up0 \expndtw0\charscalex119 dent fro m his father. Before that, he had chaired \line \up0 \expndtw0\charscalex110 Eis ai's five-year strategic planning committee. Dur-\line \up0 \expndtw0\charscalex 119 ing that time, he had become convinced that the \line \up0 \expndtw0\charsca lex111 company's focus on the discovery and manufacture \line \up0 \expndtw0\cha rscalex117 of pharmaceuticals was not sustainable for long-\line \up0 \expndtw0\ charscalex117 term growth against large, global competitors. In \line \up0 \expn dtw0\charscalex118 the absence of either a real or a perceived crisis, \line \up 0 \expndtw0\charscalex112 however, and in the face of deeply felt cultural tra-\ line \up0 \expndtw0\charscalex115 ditions, changing direction at Eisai would req uire \line \up0 \expndtw0\charscalex112 unusual leadership.\par\pard\qj \li777\r i0\sb1\sl-241\slmult0\fi201 \up0 \expndtw0\charscalex118 In the tradition of Jap anese family companies, \up0 \expndtw0\charscalex112 Eisai had few formal rules of employment. Among \up0 \expndtw0\charscalex121 the 4,000 employees, lifelong employment was \up0 \expndtw0\charscalex120 the norm and career advancement and authority \up0 \expndtw0\charscalex109 were based on seniority. Groups made deci sions be-\line \up0 \expndtw0\charscalex115 cause failure by an individual would mean loss of \up0 \expndtw0\charscalex114 face. And employees were not encourag ed to step \up0 \expndtw0\charscalex117 outside established roles to take on\par \pard\qj \li782\ri1193\sb0\sl-240\slmult0 \up0 \expndtw0\charscalex119 assignmen ts beyond the scope and \line \up0 \expndtw0\charscalex121 structure of the exis ting organiza-\line \up0 \expndtw0\charscalex116 tion. Individuals were loyal bo th to\par\pard\column \qj \li293\ri879\sb0\sl-241\slmult0 \up0 \expndtw0\charsca lex112 wide array of new products and services. And that, \line \up0 \expndtw0\c harscalex120 in turn, would require broad employee involve-\line \up0 \expndtw0\ charscalex112 ment and commitment. Although Naito did not ex-\line \up0 \expndtw 0\charscalex123 plicitly characterize Eisai employees' commit-\line \up0 \expndt w0\charscalex112 ments as personal compacts, he clearly understood \line \up0 \e xpndtw0\charscalex118 that individuals would have to accept new terms \line \up0 \expndtw0\charscalex115 and performance standards that he could not sim-\line \ up0 \expndtw0\charscalex114 ply mandate. He had to encourage entrepreneurial \li ne \up0 \expndtw0\charscalex114 and innovative activity and create an environmen t \line \up0 \expndtw0\charscalex119 in which such efforts would be accepted and re-\line \up0 \expndtw0\charscalex115 warded. Indeed, for his vision of HHC to become \line \up0 \expndtw0\charscalex122 reality, Naito knew that employees the mselves \line \up0 \expndtw0\charscalex111 would ultimately have to take the lea d in designing \line \up0 \expndtw0\charscalex111 the formal terms of their pers onal compacts.\par\pard\qj \li298\ri883\sb0\sl-242\slmult0\fi201 \up0 \expndtw0\ charscalex116 In 1989, Naito announced his new strategic vi-\line \up0 \expndtw0 \charscalex111 sion and initiated a training program for 103 "inno-\line \up0 \e xpndtw0\charscalex115 vation managers" who were to become the agents \line \up0 \expndtw0\charscalex115 for change in the company. The training program \line \u p0 \expndtw0\charscalex114 consisted of seminars on trends in health care and \l ine \up0 \expndtw0\charscalex110 concepts of organizational change. It also gave em-\line \up0 \expndtw0\charscalex110 ployees a firsthand look at patient-care practices by \line \up0 \expndtw0\charscalex113 having them spend several days i n both traditional \line \up0 \expndtw0\charscalex112 and nontraditional healthcare facilities where they \line \up0 \expndtw0\charscalex116 performed actual n

ursing activities. At the end of\par\pard\ql \li20\sb323\sl-506\slmult0 \up0 \ex pndtw0\charscalex101 \ul0\nosupersub\cf17\f18\fs44 The employees themselves\par\ pard\sect\sectd\sbknone\cols2\colno1\colw4865\colsr160\colno2\colw6415\colsr160\ qj \li782\ri674\sb0\sl-237\slmult0 \up0 \expndtw0\charscalex115 \ul0\nosupersub\ cf4\f5\fs20 their managers and to group norms, \line \up0 \expndtw0\charscalex12 2 so they did not seek personal rec-\line \up0 \expndtw0\charscalex122 ognition or accomplishment. And \line \up0 \expndtw0\charscalex119 because other Japanese companies \line \up0 \expndtw0\charscalex116 operated in similar ways, there wa s \line \up0 \expndtw0\charscalex117 no external competitive pressure to \line \ up0 \expndtw0\charscalex111 be different. To accomplish strategic\par\pard\colum n \qj \li20\ri610\sb0\sl-428\slmult0\tx155\tx971 \up0 \expndtw0\charscalex101 \u l0\nosupersub\cf17\f18\fs44 would have to take the lead in \line \tab \up0 \expn dtw0\charscalex100 designing the formal terms of \line \tab \up0 \expndtw0\chars calex102 their personal compacts.\par\pard\sect\sectd\sbknone\cols2\colno1\colw5 672\colsr160\colno2\colw5608\colsr160\qj \li782\ri156\sb0\sl-234\slmult0\fi4 \up 0 \expndtw0\charscalex113 \ul0\nosupersub\cf4\f5\fs20 transformation, Naito woul d have to create a com-\line \up0 \expndtw0\charscalex118 peling context for cha nge and an inducement for \up0 \expndtw0\charscalex111 employees to try somethin g new\u8212?without disrupt-\line \up0 \expndtw0\charscalex111 ing the entire or ganization.\par\pard\qj \li787\ri160\sb4\sl-240\slmult0\fi206 \up0 \expndtw0\cha rscalex111 Several years after becoming CEO, Naito formu-\line \up0 \expndtw0\ch arscalex117 lated a radical new vision for Eisai that he called\par\pard\ql \li7 87\sb0\sl-161\slmult0 \par\pard\ql \li787\sb0\sl-161\slmult0 \par\pard\ql \li787 \sb37\sl-161\slmult0 \up0 \expndtw0\charscalex108 \ul0\nosupersub\cf10\f11\fs14 HARVARD BUSINESS REVIEW May-June 1996\par\pard\column \qj \li20\ri883\sb0\sl-237 \slmult0\fi4 \up0 \expndtw0\charscalex118 \ul0\nosupersub\cf4\f5\fs20 the progra m, Naito charged the innovation man-\line \up0 \expndtw0\charscalex117 agers wit h turning the insights from their experi-\line \up0 \expndtw0\charscalex110 ence s into proposals for new products and services. \line \up0 \expndtw0\charscalex1 10 Each proposal was brought before Naito and Eisai's \line \up0 \expndtw0\chars calex111 executive management to gain high-level corporate \line \up0 \expndtw0\ charscalex114 support and, as important to Naito, to secure indi-\par\pard\ql \l i10310\sb0\sl-184\slmult0 \par\pard\ql \li4498\sb129\sl-184\slmult0 \up0 \expndt w0\charscalex111 \ul0\nosupersub\cf15\f16\fs16 91 \par\pard\sect\sectd\fs24\pape rw11560\paperh15640{\bkmkstart Pg7}{\bkmkend Pg7}\par\pard\ql \li6062\sb0\sl-184 \slmult0 \par\pard\ql\li6062\sb183\sl-184\slmult0 \up0 \expndtw0\charscalex120 \ ul0\nosupersub\cf15\f16\fs16 PERSONAL COMPACTS \par\pard\li1012\sb0\sl-230\slmul t0\par\pard\li1012\sb0\sl-230\slmult0\par\pard\li1012\sb94\sl-230\slmult0\fi4\tx 6047 \up0 \expndtw0\charscalex114 \ul0\nosupersub\cf4\f5\fs20 vidual managers' p ubic commitment to the achieve-\tab \up0 \expndtw0\charscalex114 In general, the more homogeneous the culture, the\par\pard\li1012\sb14\sl-230\slmult0\fi4\tx605 2 \up0 \expndtw0\charscalex114 ment of their HHC projects' goals.\tab \up0 \expn dtw0\charscalex114 more implicit the formal dimension of personal\par\pard\li101 2\sb10\sl-230\slmult0\fi201\tx6052 \up0 \expndtw0\charscalex114 This training pr ogram and the subsequent HHC\tab \up0 \expndtw0\charscalex114 compacts is likely to be. The same is true along psy-\par\pard\li1012\sb15\sl-230\slmult0\fi0\tx60 52 \up0 \expndtw0\charscalex114 product-development efforts set the stage for th e\tab \up0 \expndtw0\charscalex114 chological and social dimensions in homogeneo us\par\pard\li1012\sb10\sl-230\slmult0\fi4\tx6052 \up0 \expndtw0\charscalex114 c reation of a dramaticaly different set of personal\tab \up0 \expndtw0\charscalex 114 environments, because employers and employees\par\pard\li1012\sb10\sl-230\sl mult0\fi4\tx6052 \up0 \expndtw0\charscalex114 compacts at Eisai. The innovation managers oper-\tab \up0 \expndtw0\charscalex114 share similar perspectives and e xpectations. For ex-\par\pard\li1012\sb15\sl-230\slmult0\fi4\tx6047 \up0 \expndt w0\charscalex114 ated outside both the normal organizational struc-\tab \up0 \ex pndtw0\charscalex114 ample, in Japan and continental Europe, the legal\par\pard\ qj \li1017\ri7038\sb0\sl-240\slmult0 \up0 \expndtw0\charscalex120 ture and the c ompany's traditional \up0 \expndtw0\charscalex116 cultural boundaries. They desi gned\par\pard\sect\sectd\sbknone\cols2\colno1\colw4860\colsr160\colno2\colw6400\ colsr160\qj \li1017\ri448\sb4\sl-244\slmult0\fi4 \up0 \expndtw0\charscalex114 ne

w products and programs, put to-\line \up0 \expndtw0\charscalex124 gether multid isciplinary teams to \line \up0 \expndtw0\charscalex119 develop their ideas, and drew new \line \up0 \expndtw0\charscalex113 participants of their own choice in to \line \up0 \expndtw0\charscalex114 the change initiative. They reported \line \up0 \expndtw0\charscalex114 to Naito, and he personally evaluat-\line \up0 \ex pndtw0\charscalex113 ed their performance and the contri-\par\pard\column \qj \l i20\ri388\sb0\sl-447\slmult0\tx160\tx606 \up0 \expndtw0\charscalex96 \ul0\nosupe rsub\cf14\f15\fs46 Personal compacts will need to \line \tab \up0 \expndtw0\char scalex97 be more explicit as companies \line \tab \up0 \expndtw0\charscalex97 be come truly multinational.\par\pard\sect\sectd\sbknone\cols2\colno1\colw5887\cols r160\colno2\colw5373\colsr160\qj \li1017\ri155\sb0\sl-238\slmult0 \up0 \expndtw0 \charscalex111 \ul0\nosupersub\cf4\f5\fs20 bution of individual projects to the HHC vision. As \up0 \expndtw0\charscalex112 a result, junior people had a chance to break out of \up0 \expndtw0\charscalex113 the seniority system and to shape the development \up0 \expndtw0\charscalex112 of the company's new strategy as we ll as the terms \up0 \expndtw0\charscalex110 of their own personal compacts. The se were oppor-\line \up0 \expndtw0\charscalex116 tunities previously unheard of in Eisai or in other \up0 \expndtw0\charscalex111 Japanese pharmaceutical compan ies.\par\pard\qj \li1017\ri150\sb0\sl-243\slmult0\fi206 \up0 \expndtw0\charscale x118 The visibility and senior-management support \line \up0 \expndtw0\charscale x112 for the first projects generated widespread enthusi-\line \up0 \expndtw0\ch arscalex109 asm for participating in the new movement at Eisai. \line \up0 \expn dtw0\charscalex116 The cross-functional teams established employee \line \up0 \e xpndtw0\charscalex115 ownership of the HHC vision, which rapidly took \line \up0 \expndtw0\charscalex113 on a life of its own. Soon there were proposals for \li ne \up0 \expndtw0\charscalex110 130 additional HHC projects involving 900 people , \line \up0 \expndtw0\charscalex108 and by the end of 1993, 73 projects were un der way. \line \up0 \expndtw0\charscalex107 New services offered by the company included a 24-\line \up0 \expndtw0\charscalex119 hour telephone line to assist p eople taking Eisai \line \up0 \expndtw0\charscalex111 medications. Another broug ht consumers and med-\line \up0 \expndtw0\charscalex110 ical professionals toget her at conferences to discuss \line \up0 \expndtw0\charscalex111 health care nee ds. New attention to consumer pref-\line \up0 \expndtw0\charscalex113 erences le d to improvements in the packaging and \line \up0 \expndtw0\charscalex109 delive ry of medications.\par\pard\qj \li1017\ri155\sb0\sl-240\slmult0\fi201 \up0 \expn dtw0\charscalex122 Although personal compacts at Eisai are still \line \up0 \exp ndtw0\charscalex118 dominated by traditional cultural norms, Naito's \line \up0 \expndtw0\charscalex115 ability to lead his employees through a process in \line \up0 \expndtw0\charscalex111 which they examined and revised the old terms en-\ line \up0 \expndtw0\charscalex114 abled them to accomplish major strategic chang e. \line \up0 \expndtw0\charscalex110 The effects of the new strategy are visibl e in Eisai's \line \up0 \expndtw0\charscalex112 product mix. By the end of 1993, the company had \line \up0 \expndtw0\charscalex111 moved from sixth to fifth pl ace in the Japanese do-\line \up0 \expndtw0\charscalex115 mestic pharmaceutical industry, and today Eisai's \line \up0 \expndtw0\charscalex113 customers and com petitors view the company as a \line \up0 \expndtw0\charscalex110 leader in heal th care.\par\pard\ql \li1022\sb257\sl-345\slmult0 \up0 \expndtw0\charscalex96 \u l0\nosupersub\cf13\f14\fs30 Culture and Personal Compacts\par\pard\qj \li1017\ri 155\sb128\sl-244\slmult0\fi201 \up0 \expndtw0\charscalex113 \ul0\nosupersub\cf4\ f5\fs20 The extent to which personal compacts are writ-\line \up0 \expndtw0\char scalex119 ten or oral varies with the organization's culture \line \up0 \expndtw 0\charscalex115 and, in many cases, the company's home country.\par\pard\ql \li1 012\sb0\sl-184\slmult0 \par\pard\ql \li1012\sb141\sl-184\slmult0 \up0 \expndtw0\ charscalex117 \ul0\nosupersub\cf15\f16\fs16 92\par\pard\column \qj \li20\ri633\s b0\sl-237\slmult0\fi4 \up0 \expndtw0\charscalex118 \ul0\nosupersub\cf4\f5\fs20 s ystems for settling disputes are based on a civil \line \up0 \expndtw0\charscale x114 code documented in statutes. Those systems carry \line \up0 \expndtw0\chars calex113 over to the underlying principles in legal contracts \line \up0 \expndt w0\charscalex123 and to the assumptions that support employer-\line \up0 \expndt w0\charscalex112 employee relationships. Indeed, when a compact is \line \up0 \e

xpndtw0\charscalex113 laid out too explicitly in Japan, it is taken as an af-\li ne \up0 \expndtw0\charscalex116 front and a sign that one party doesn't understa nd \line \up0 \expndtw0\charscalex110 how things work.\par\pard\qj \li20\ri633\s b7\sl-243\slmult0\fi201 \up0 \expndtw0\charscalex115 By contrast, in countries l ike the United States, \line \up0 \expndtw0\charscalex114 personal compacts tend to be supported by formal \line \up0 \expndtw0\charscalex117 systems to ensure objectivity in the standards for \line \up0 \expndtw0\charscalex112 performance evaluation. And more structure exists \line \up0 \expndtw0\charscalex118 to supp ort employee-employer relations, both in \line \up0 \expndtw0\charscalex109 the form of company policies and procedures and in \line \up0 \expndtw0\charscalex12 1 the role that human resource departments play. \line \up0 \expndtw0\charscalex 113 Similarly, as companies become more truly multi-\line \up0 \expndtw0\charsca lex120 national, the importance of making the terms of \line \up0 \expndtw0\char scalex109 personal compacts explicit increases, as does the re-\line \up0 \expnd tw0\charscalex112 quirement to support them formally. In my experi-\line \up0 \e xpndtw0\charscalex121 ence, this is true whether companies are imple-\line \up0 \expndtw0\charscalex117 menting change to meet the needs of a culturally \line \ up0 \expndtw0\charscalex111 diverse workforce or to respond to market opportu-\l ine \up0 \expndtw0\charscalex113 nities and threats.\par\pard\qj \li20\ri629\sb0 \sl-242\slmult0\fi206 \up0 \expndtw0\charscalex113 Regardless of the cultural co ntext, unless the re-\line \up0 \expndtw0\charscalex111 vision of personal compa cts is treated as integral to \line \up0 \expndtw0\charscalex111 the change proc ess, companies will not accomplish \line \up0 \expndtw0\charscalex120 their goal s. In one way or another, leaders must \line \up0 \expndtw0\charscalex111 take c harge of the process and address each dimen-\line \up0 \expndtw0\charscalex119 s ion. Jan Timmer and Haruo Naito revised their \line \up0 \expndtw0\charscalex115 employees' personal compacts using different ap-\line \up0 \expndtw0\charscalex 113 proaches and for different reasons. But each drove \line \up0 \expndtw0\char scalex113 successful corporate change by redefining his em-\line \up0 \expndtw0\ charscalex119 ployees' commitment to new goals in terms that \line \up0 \expndtw 0\charscalex121 everyone could understand and act on. Without \line \up0 \expndt w0\charscalex110 such leadership, employees will remain skeptical of \line \up0 \expndtw0\charscalex119 the vision for change and distrustful of manage-\line \u p0 \expndtw0\charscalex114 ment, and management will likewise be frustrated \lin e \up0 \expndtw0\charscalex111 and stymied by employees' resistance.\par\pard\ql \li25\sb29\sl-207\slmult0\tx1705 \up0 \expndtw0\charscalex109 \ul0\nosupersub\c f6\f7\fs18 Reprint 96310\tab \up0 \expndtw0\charscalex109 \ul0\nosupersub\cf10\f 11\fs14 To order reprints, see the last page of this issue.\par\pard\ql \li7535\ sb0\sl-161\slmult0 \par\pard\ql \li7535\sb0\sl-161\slmult0 \par\pard\ql \li1508\ sb47\sl-161\slmult0 \up0 \expndtw0\charscalex109 HARVARD BUSINESS REVIEW May-tun e 1996 \par\pard\sect\sectd\fs24\paperw12240\paperh15840{\bkmkstart Pg8}{\bkmken d Pg8}\par\pard\ql \li1128\sb0\sl-328\slmult0 \par\pard\ql\li1128\sb0\sl-328\slm ult0 \par\pard\ql\li1128\ri568\sb253\sl-328\slmult0\fi14 \up0 \expndtw0\charscal ex113 \ul0\nosupersub\cf18\f19\fs22 Harvard Business Review and Harvard Business School Publishing content on EBSCOhost is licensed \up0 \expndtw0\charscalex118 for the individual use of authorized EBSCOhost patrons at this institution and is not intended for \up0 \expndtw0\charscalex116 use as assigned course material . Harvard Business School Publishing is pleased to grant permission \up0 \expndt w0\charscalex118 to make this work available through "electronic reserves" or ot her means of digital access or \line \up0 \expndtw0\charscalex117 transmission t o students enrolled in a course. For rates and authorization regarding such cour se \up0 \expndtw0\charscalex117 usage, contact permissionsehbsp.harvard.edu \par \pard\sect\sectd\fs24}