Unleashing Organizational Energy

For 50 years, management theory and practice have adopted a technical, analytical approach in which the role of the so-called soft factors like emotions and feelings has largely been denied. That trend is now being reversed, with both academics and managers recognizing the powerful role that emotions play in shaping corporate behavior. The real challenge, however, is to link emotions to performance goals and objectives. The leadership task is not just to make people happy in the hope that happy people will do the right things. The central leadership responsibility is to ensure that the company’s vision and strategy capture people’s emotional excitement, engage their intellectual capacities, and produce a sense of urgency for taking action. In essence, it is a task of unleashing organizational energy and marshaling it in support of key strategic goals. (See “About the Research.”)

Four Energy Zones

Research suggests that the best leaders first mobilize organizational energy, then focus it.1 But how to define a force like the wind, both invisible and powerful? Organizational energy is seen only in its effect: the force with which a company functions. Just as burnout is said to have three dimensions (emotional, cognitive and physical), so is organizational energy considered the interplay among a company’s emotional, cognitive and physical states.2 Though difficult to directly observe or measure, organizational energy is palpable when put to use — driving the intensity, pace and endurance of a company’s work, change and innovation processes.3

Organizational energy is related but not identical to the sum of the energy of individuals. Individual energy, especially of leaders, influences organizational energy, and the energy state of the organization affects the energy of individuals. Long recognized by managers, the distinction between individual and organizational energy is now receiving more attention in academic circles.4

Companies differ in both intensity and quality of energy. Intensity refers to the strength of organizational energy as seen in the level of activity, the amount of interaction, the extent of alertness and the extent of emotional excitement. Symptoms of low energy are often obvious: apathy and inertia, tired-ness, inflexibility and cynicism.5 Qualitatively, organizational energy can be characterized as positive energy (for example, enthusiasm, joy and satisfaction) or negative energy (fear, frustration or sorrow). In fact, it is the intersection of intensity and quality that determines an organization’s energy state, which usually falls into one of four categories. (See “The Four Energy Zones.”)

Although different parts of an organization can be mapped to different energy zones, most organizations are characterized by one particular zone at any given point. The exception would be a highly diverse and decentralized company, in which the business unit may be the most appropriate level for analyzing and managing energy. Sometimes diverse energy states within one company suggest the need for greater intraorganizational integration.

Comfort Zone

Companies in the comfort zone have low animation and a relatively high level of satisfaction.6 With weak but positive emotions such as calm and contentedness, they lack the vitality, alertness and emotional tension necessary for initiating bold new strategic thrusts or significant change.

For a long period before its listing in the London Stock Exchange, Old Mutual Plc — South Africa’s dominant insurance company — exemplified this energy state. Populated with decent, educated people — almost entirely white — and widely considered upright and responsible, Old Mutual was South Africa’s “Ma Bell.” Managers strongly identified with OM, were proud to belong and happy with the status quo. They spoke politely, avoided contentious issues and worked at a steady pace. The financial results, although not spectacular, were average, and the company was well-liked.

Post-apartheid, Old Mutual began to experience aggressive competition in financial services, along with new opportunities, such as international expansion. OM’s new leadership recognized the need for drastic action: changing the legal structure, establishing a corporate center in London and launching a massive transformation program.

Resignation Zone

Companies in this energy state demonstrate weak, negative emotions — frustration, disappointment, sorrow. People suffer from lethargy and feel emotionally distant from company goals. They lack excitement or hope.

Aktiebolegat SKF — the Swedish company that invented the bearing business — was in the resignation zone for most of the last two decades. It was only modestly profitable despite outstanding technology, brand strength and global footprint. Market share inched down, and there was constant incremental restructuring and rationalization. The share price slid lower in relative terms.

An engineer’s company, SKF was always attractive to technically qualified, mild-mannered people who disliked open competitiveness. Until Sune Carlsson (CEO from September 1998 to April 2003) jolted SKF into action, SKF managers operated in a state of mild frustration.

Aggression Zone

Companies in the aggression zone experience internal tension founded on strong, negative emotions. Tension drives their intensely competitive spirit, which manifests itself in high levels of activity and alertness — and focused efforts to achieve company goals.

Oracle Corp. — the California-based, No. 2 software company — operates in the aggression zone. Employees live by the mantra: “It’s never good enough to win; all others must lose.” Oracle’s comparative advertising reinforces this intensely aggressive culture. Driven by individual-level financial incentives and CEO Larry Ellison’s personal embodiment of aggressiveness, Oracle has attracted employees who love to fight and win.

Directing that aggressiveness toward competitors has led to outstanding results for Oracle. Salespeople earn double commission whenever Oracle products or services supplant those of its main competitors. At each stage of its evolution, Oracle has surpassed competitors: “Remember Ashton-Tate?” asked Ellison, two years before his 2003 unsolicited bid to acquire PeopleSoft Inc. “Similarly, Siebel will disappear and so will PeopleSoft.”

Passion Zone

In the passion zone, companies thrive on strong, positive emotions — joy and pride in the work. Employees’ enthusiasm and excitement mean that attention is directed toward shared organizational priorities. Consider Alain Dominique Perrin, the legendary CEO of Cartier SA. Perrin stimulated organizational exuberance for 20 years and moved the French luxury products company from $50 million to $1.2 billion in revenues.

Although the Perrin-led Cartier engaged in intense competition with Rolex, Chanel and Christian Dior, competitors were never its focus — creativity was. Well-established Cartier norms strengthened that passion for creativity, including one requiring that all new products bridge the old and the new. Designers were to capture the zeitgeist of an early Cartier piece and combine it with inspiration from the finest contemporary art.

Weak emotions, positive or negative, do not spur people to action. Companies in the comfort zone or the resignation zone operate at low levels of attention, emotion and activity. Companies in the aggression zone or the passion zone display higher levels of focused emotional tension, collective excitement and action taking.

High-energy companies display an urgency that makes them more productive.7 Being constantly alert allows them to process information and mobilize resources quickly. They strive for larger-than-life goals. Low-energy companies prefer standardization and institutionalization. They try to avoid the surprises, exceptions and risks on which high-energy companies thrive.

High energy helps align employees’ perceptions, emotions and activities. Low-energy organizations suffer from conflicting priorities and lack of cooperation; high-energy companies bundle and channel their forces for shared goals, creating a foundation for organizational cohesion.

Energy Traps

Energy is not an unmixed blessing, however, and unless managed wisely, it can degenerate into one of three main pathologies or energy traps.

Acceleration Trap

Some CEOs drive an organization beyond its capabilities. Relentless efforts to accelerate can lead to organizational burnout. Companies that keep adopting major change initiatives without making time for regeneration are susceptible to the acceleration trap. Most change-management programs assume that the change is an exceptional episode. In reality, most employees contend with ongoing change, which tends to dilute the credibility of management demands to “give one’s all.”8

Consider ABB Ltd. Between 1988 and 1995, the European engineering giant responded magnificently to CEO Percy Barnevik’s radical restructuring. Costs were reduced, acquisitions integrated and new markets entered. Revenues grew from $17.8 billion to $36.2 billion.

But ABB was continuously under pressure, and the strains began to show. For example, according to numerous media reports and our interviews and research, internal conflicts in the power-generation sector mushroomed. What had formerly been a healthy level of tension in ABB’s organizational energy degenerated into intense rivalries.

In September 1998, new CEO Göran Lindahl added one more initiative to the already tired company: a drastic reorganization. Once again, people had to forgo established relationships orchestrated by mature geographical managers and start working for young, ambitious and aggressive business-area executives.

Classic organizational exhaustion resulted, bringing with it fragmented managerial attention and increased difficulty with prioritizing.9 Pressured field managers ended up spinning their wheels. The exhaustion caused Lindahl and his successor, Jörgen Centerman, to exert even more pressure, and the acceleration trap finally took complete hold of the company by 2002, with little reserve energy left to revitalize this nearly burned-out organization. (Today, under CEO Jürgen Dormann, there are positive signs, but he nevertheless has a tough fight ahead to ensure the company’s survival.)

Managers must resist the temptation to drive organizations to their limits. Energy is first built as a capacity — a potential for intense action — and then that capacity must be used in phases. Successful application of organizational energy is self-reinforcing, expanding the energy potential. To manage the process of creating and deploying energy, managers must adopt a rhythm of highly intense and less intense phases.10

Inertia Trap

Weakening a company’s ability to leverage resources is the inertia trap. This trap ensnares victims after too long a stretch of either success or poor performance.

Long success in a stable environment may convince companies (say, Old Mutual) that they have found the ideal system. As long as the environment does not change too radically, the company’s tight alignment of strategy, organizational structures and culture improves performance. But inevitably the environment does change. The alignment becomes a handicap as companies find they can’t muster the energy to overcome its rigidity.11 Similarly, with too long a stretch of operating below capacity, companies lose elasticity (like SKF). Mediocrity makes them lose confidence; they become either reactive or passive.

Old Mutual escaped inertia by initiating a listing on the London Stock Exchange. The complete change in OM’s operating context and its new, forceful leadership jolted managers out of complacency. In SKF’s case, Carlsson and, later, Tom Johnstone openly broke with company norms to focus on productivity and profitability.

Corrosion Trap

When a company faces external threats (or opportunities) at the same time as it confronts internal discord, it may fall into the corrosion trap. Instead of working together to meet external challenges, people channel their energy into internal fights. We have observed that often the behavior of senior managers is responsible. Leaders who act in a patently self-interested way or demonstrate little personal involvement with the external challenges erode people’s passion for business, their optimism and their readiness to collaborate.

Consider one large, Europe-based corporation that suffered a crisis in 2002. Senior managers successfully created a sense of urgency that employees could identify with, and workers manifested their commitment by accepting a modest 3% raise. That is, until they learned that board members had given themselves a 14% raise. The sense of betrayal was corrosive, leading to massive strikes and the frostiest labor relations in company history. In the end, top management was obliged to leave.

Corrosive energy leads to self-reinforcing negativity. Because people unconsciously respond to one another’s emotional displays by imitating or exaggerating them, even relatively minor events evolve into negative emotions that spiral out of control.12

When Paul Lego was at Westinghouse Electric Corp. (between 1990 and 1993), his arrogance and isolation within a coterie of favorites led to a breakdown of trust and self-confidence among managers. Divisional heads focused anger on colleagues rather than on outside competitors. Eventually, the corrosive forces of internal rivalry destroyed the company.

Unleashing Organizational Energy

Companies that succeed at radical change generally adopt one of two approaches for unleashing and channeling organizational energy: the “slaying the dragon” strategy (moving into the aggression zone by focusing people’s attention, emotions and effort on a threat), or the “winning the princess” strategy (moving into the passion zone by building enthusiasm for an exciting vision).13 On the rare occasions when a company can combine the strong positive and negative emotions of both zones, the results are spectacular. Companies with neither strategy fall victim to an energy trap and decline to mediocrity or to crisis.

Slaying the Dragon

This strategy involves a clear articulation of an imminent threat, the release of strong, negative emotions and the channeling of those emotions toward overcoming the threat. Threats such as bankruptcy, a dangerous competitor or a disruptive technology require moving employees from the comfort or resignation zone to the aggression zone. (See “Strategies for Unleashing Organizational Energy.”)

In July 1990, when Dutch giant Philips Electronics shocked the financial world with a huge loss, the semiconductor division was the primary culprit. But within three years’ time, the division achieved radically improved peformance. The new division CEO, Heinz Hagmeister, moved employees from the comfort zone (people in the profitable passive-components business) and others from the resignation zone (those in unprofitable integrated circuits) to the aggression zone.

Jan Timmer, the new corporate CEO, started the ball rolling. In a senior-team meeting that came to be called Centurion I, he presented a dummy newspaper postdated by seven months with the headline “Philips Declares Bankruptcy.” As participants studied Timmer’s financial figures, stunned disbelief turned to anger and fear. Only drastic cost cutting would avert bankruptcy.

Hagmeister used the same shock therapy within his division. Detailed benchmarking vis-à-vis Motorola Inc. revealed dramatic gaps not only in inventory levels, sales expenses and overall costs, but also in customer delivery and in the time it took to develop new products. Given the crisis in the overall company, divesting (or even closing) the semiconductor division was a real possibility. The dragon was defined.

Having aroused strong negative feelings, Hagmeister channeled them into dragon slaying. He created projects for reducing head count, cutting sales cost, improving delivery time, pruning the product portfolio and integrating the U.S. arm of the business into the divisional structure. For each project, managers specified accountability, milestones, measurements and deadlines. In some instances, the majority of team members had no other operational responsibility. By means of a regular review, called Centurion II, executives monitored the progress of each project in detail, backed by new norms. (For example, managers offering excuses were asked to leave the meeting and were allowed to return only after devising a new plan consistent with the agreed-on goals).

Hagmeister had to be tough to lead his division into the aggression zone. He stayed engaged, never avoiding or delegating a necessary task because it was unpleasant. Numbers had to be exact or get redone. “There are no unimportant numbers,” he insisted, “and no approximations. This is a fight; not a game.”14

So first, the dragon must be made visible. People must experience the threat personally in order for collective emotions to be unleashed.15 Second, a highly disciplined process must channel the emotions. Third, leaders must continuously guide, monitor and control the process. Their visible involvement and personal commitment are essential.

Because anger, fear, hate or shame are such powerful emotions, slaying the dragon can effectively shock people into action. However, the strategy has its downside. Sometimes it leads to organizational myopia, with people overly focused on one well-defined threat. Also, companies with the slay-the-dragon strategy rarely create major innovations or succeed in building new growth trajectories. And once the dragon is slain, there may be a rush for the comfort zone.

Winning the Princess

This strategy relies on strong, positive emotions (excitement, enthusiasm) to move people into the passion zone. To engage people’s dreams and openness to heroic effort, leaders have to create an object of desire — the princess — and invoke passion so strong that people will overcome passivity and satisfaction with the status quo.16 An excellent example occurred at Sony Corp.

As the new century dawned, few companies were changing as fundamentally as Sony. Historically a producer of analog-technology-based stand-alone audio and video products, Sony was confronting a transformation of its business. The IT, media and consumer electronics industries were converging toward a digital, Internet-based home entertainment business. Sony CEO Nobuyuki Idei articulated a new vision to enlist the organization in an adventure: “Young and old alike are truly mesmerized by digital technology,” he said. “These people, the digital dream kids, are our future customers. We must also become dream kids at all levels of Sony to create something new, something that will meet our future customers’ expectations.”

To make the princess real, Idei created VAIO World, a way for Sony’s employees to visualize how linking Sony’s diverse offerings could help the company excel at meeting the new world’s entertainment requirements.17

Although it’s too early to judge whether Sony will be successful with its winning-the-princess strategy, Idei’s vision has dispelled the self-doubt that many within the company were voicing and has created an energy spurt resulting in new VAIO computers.

Thus, slaying the dragon requires high-energy, brave and commanding leadership; winning the princess needs calm, gentle, inspiring and empathic leaders. Because the former strategy channels aggressive energy into disciplined execution, it requires top-down instructions and meticulous plans. A strategy that unleashes passion, however, needs leaders who create an environment of curiosity, excitement and ownership.

Hagmeister was the disciplinarian; Idei the source of inspiration. Idei does not exercise hierarchical authority. When his first call for a new personal computer found no volunteers, he did not force anyone to develop one. Instead, he and Kunitake Ando, who later assumed the role of Sony’s chief operating officer, created the VAIO Center, a virtual organization intended to help employees from all product divisions fall in love with the concept. Those who finally enlisted did so voluntarily.18

Making people see, believe in and commit to an opportunity is inherently more difficult than getting them to acknowledge a threat. The first and most difficult task in pursuing the winning-the-princess strategy is to define, describe and substantiate the intangible. Leaders fail when the vision remains too abstract. It must be simple, clear, convincing and moving. Second, leaders must embody that vision. Their personal credibility and symbolic actions are key in attracting and retaining people’s commitment, suppressing the noise of day-to-day activities and creating space and excitement for what is initially a fragile aspiration. Third, leaders have to balance the often playful activities involved in seeking an intangible future with the comparatively unexciting protection of the ongoing business.

Slaying the Dragon To Win the Princess

The ideal would be to combine the aggression zone’s immediacy, discipline and decisiveness with the passion zone’s enthusiasm, joy and pride. But it’s a major challenge to blend top-down, planned change that is focused on survival with the experimentation, creativity and playfulness of pursuing a long-term vision. One risk is that the contradictions and ambiguities inherent in integrating the strategies might lead to the worst of all worlds in which neither works.

The only way to combine the two strategies is to create a path to the princess that automatically involves slaying the dragon —that is, to envision a future that can only be realized if current problems and threats are overcome, as Larry Ellison is attempting to do in his dramatic makeover of Oracle.

The princess (the vision) is to see Oracle transform the IT industry into a utility, with hardware, data and applications residing in a central location and customers gaining access to them over the Internet. In such a world, Oracle would evolve from a database company into a provider of integrated services, covering a full range of mutually compatible applications. In addition to buying database products from Oracle, customers would rely on Oracle for all applications — a fully integrated product and service offering.

To Oracle employees, the princess is clear — if they succeed in making Ellison’s vision a reality, they would be part of the world’s dominant software company. To any software engineer, the idea of people everywhere in the world being able to access the full power of IT using only a PC and a Web browser has enormous intellectual and emotional appeal and thus is likely to spur involvement.

But the dragon is built into the strategy. In order to make the vision credible to customers, Oracle had to become its own test site. “Eat your own dog food,” Ellison said, when he announced a target of saving $1 billion by adopting the approach internally. Between 2000 and 2001, the company succeeded in moving its operating margin from 14% to 37%. This strategy is also in keeping with Oracle’s hotly competitive spirit. For if the vision were to be realized, key competitors would suffer: IBM would lose its main source of revenue — systems integration — and Microsoft would cease to control business customers’ IT access.

Leaders at some companies do not have a choice of strategy for creating energy. If the company faces a visible threat, it has to create a dragon: Princesses mean little to people worried about survival. Similarly, when there really is no imminent threat, no leader can make a dragon credible. In most cases, however, the situation is neither black nor white, and managers have a choice.

A sound strategy choice is rarely founded on external factors such as competition or market climate. Internal organizational factors are more significant, in particular these three: top-management style, the company’s existing energy state and its organizational heritage.

First is senior managers’ behavior or style. When managers try to behave at cross-purposes to their true nature, they create cynicism, not energy. Most CEOs are inherently better leaders of one or the other strategy, and their companies are more likely to succeed when the strategy meshes with the leaders’ natural style.

A second criterion for strategy choice is the existing energy state of the company. Slaying the dragon is easier to implement and more effective for unleashing energy in companies caught in the comfort zone. Given a state of relative satisfaction, it is difficult to create excitement and sustainable energy in these companies by calling for a better future. Companies trapped in the resignation zone, in contrast, already perceive a discrepancy between the reality and the ideal. Winning the princess is best here because it can more easily transform latent desire into productive energy. Companies experiencing low, negative energy have a harder time trying to slay dragons, because they risk sinking into deeper despair and passivity, even paralysis.

Third, company history matters. Sony has never been good at aggression. It’s a lover not a fighter and prefers to spend its energy on creating new products that customers could not have imagined. Winning the princess comes more naturally to a company that began with the express purpose of allowing engineers to have fun at work by playing with new technologies. Oracle’s history, in contrast, is more like the history of the samurai warriors that Ellison is known to admire.

In short, organizational energy creates the necessary combination of cognitive, emotional and action-taking capabilities and aligns the resulting force to achieve business goals. That is why, without a high level of energy, a company cannot achieve radical productivity improvements, cannot grow fast and cannot create major innovations. It is time that corporate leaders acknowledge this simple reality and begin to pay explicit attention to how they can unleash the energy their organizations need if they are going to achieve the kind of performance they seek.