Managing People

Change or fail. That's the golden rule at the Gap, and everybody knows it, from the CEO to the entry-level workers. By adhering to that rule, the Gap is doing very well, while competitors that are slow to change -- such as Levi Strauss -- may drop faster than a stone in a lake. In any business the basic principle is the same: you've got to change or you'll fail. And that's especially true today, when things are moving at warp speed. Understanding that, the Gap is adding 600 to 660 new stores in 2000. Gap sales in the fourth quarter of 1999 were up 27%. Meanwhile, Levi's lost $2 billion in revenues from its peak year (1996) to the end of last year.

And the bottom line isn't the only thing that's been influenced by today's dizzying rate of change. It used to be that deals were closed with handshakes; now they're closed with legal documents. Before, if you wanted a job, you knocked on doors or read the classified ads. Now you visit job sites on the Internet. Yesterday M.B.A.'s set their sights on investment banking and consulting companies. Today their horizons include Silicon Valley and dot-coms.

You can hardly say "The more things change, the more they stay the same" anymore. It's up to every one of us to learn how to ride the changes we're faced with. Sometimes that's easier said than done. Fortunately, we can learn from those who have already been there. Jack Welch, the CEO of General Electric, is a high-profile case in point.

Years ago GE's board of directors selected Welch to head the company. He was an unusual choice because he was only 45 at the time and didn't fit the mold for a CEO of one of America's biggest corporations. But GE needed someone to prune the deadwood. Welch was handed the pruning shears, and he went to work. After becoming CEO, he eliminated 100,000 out of a total of 400,000 jobs. Though the process required drastic measures, he implemented the layoffs in stages, thinking that would ease the pain.

Later, when asked at Harvard Business School about his biggest mistake as a CEO, Welch had an instant answer. "That's easy," he said. "I believed in incremental change. I knew that major change had to be made at GE, but I thought it best to move slowly. Also, I wanted people to understand the direction in which I was heading. That was a mistake. The people understood only too well. By the time of the fourth increment of change, they were so dug in, I could barely move them."

Welch wanted to be liked, to be thought of as reasonable by his new staff. So he didn't make his changes immediately. Besides prolonging the pain, the delayed action took its toll on the company's competitive position. "Everything should have been done in half the time," says Welch in retrospect. I'm sure he's right.

As a psychiatrist, I know that people tend to embrace change only in times of crisis -- during an economic downturn or following an accident or illness. Such major events usually force individuals to move out of their comfort zone. After all, isn't it natural, and very human, for someone who is sick or incapacitated to pray earnestly, "Dear God, I promise to quit smoking, change my diet, lose weight, increase my physical activity, decrease my stress if only I get well"? Faced with that sense of urgency, people do change, at least for a short while. Then, more often than not, it's back to business as usual.

With that knowledge of human nature as background, I've developed three principles to help you understand and manage change.

1. Most people are allergic to change. Despite lip service about the benefits of change, people have things like mortgages, car loans, and tuition to pay each month. So change is perceived -- rightly or wrongly -- as a threat to one's ability to pay the bank, the auto dealership, or the school. Your job is to recognize that fear, address it, and help your employees answer the question "With a new boss, a new owner, a new reorganization, will I still have a job?"

If you're going to have to fire people, there are two things you, as CEO, must do immediately. The first is to consult with a good employment lawyer and document why the personnel change is about to occur. The second is to be human and humane in letting someone go. My bias? Be generous, especially if the people being let go didn't do anything wrong. Be sensitive. Spend generous amounts on relocation and outplacement efforts. And tell people they can use you as a reference -- if they can. If you don't want to be used as a reference, don't say anything.

Give people a choice how their compensation package will be disbursed. Let those being terminated know the size of the termination pie. Let's say it's $25,000. They should be able to take it all at once or, say, in two or five equal payments. And what about health insurance? Have someone explain their COBRA benefits to them.