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The Art of Transformation

by Natascha Zeljko

Disrupt yourself. Easier said than done. Philip Morris, however, is one company that has succeeded in doing so. We talked to Claudia Oeking, Director External Affairs Germany, about the art of transformation, new leadership, and the role communication plays

What are the most important factors for successful transformation?

There are three dimensions, and it begins with a look at the product or service and the question: will we be able to make it into the next age? From today’s perspective, that means into the 2020s. For some companies, this is an enormous challenge. In our case it’s relatively simple because we have this phase behind us. We already have this product. We want to replace cigarettes with tobacco heating-systems and other regulated, low-contamination products. Then there are external factors; what market conditions do I have and how can I take the consumer with me? Additionally, we have regulators, science and society who – and rightly so – are watching the tobacco market particularly closely to ensure that levels of protection are maintained or extended. And then there is the cultural perspective: are we, as a company, prepared to really consistently drive innovation forward and do we have the right resources? Are we sufficiently diverse? Are we agile enough in view of the volatile market situation? Do we understand the consumer, are we prepared to really listen? In a nutshell, for a successful change you need the right product, the intuition to correctly interpret external factors, and a modern corporate culture.

“Especially in times of upheaval, it is important to be clear about the value of good employees. Product life cycles are getting shorter and shorter, so people and their skills are more important than ever.“

Many find it difficult to adequately respond to these changes. Sascha Lobo calls it “reality shock”, it’s the title of his new book. Employees are an important prerequisite for mastering the challenges. How do you get the best talent? And how do you keep them?

Especially in times of upheaval, it is important to be clear about the value of good employees. Product life cycles are getting shorter and shorter, so people and their skills are more important than ever. The question is: what do I do with those who are already there? Changes often trigger fears, there are reservations and concerns. You have to learn new things and get away from your familiar environment. How can you take people with you on this path? I think banal things can help. Sometimes it’s even enough to change the space in which people sit. But sometimes smaller corrections are not enough. If the business model changes fundamentally, for example from a hardware company to a software company, it’s all about knowledge and the right skills. Then you have to evaluate whether these come naturally to your employees or whether they have to be supported by targeted further education or training. In addition, it can be the right strategy to gain these skills externally. Then it’s a matter of considering which new experts you need on board, which is where the value of a first-class people and culture department like the one we have at Philip Morris becomes apparent. We focus very strongly on culture and consider who suits us best in terms of abilities, but also in terms of mindset. The decisive factor here is how to reduce hierarchies and take account of the fact that knowledge is becoming more and more specific and the boss often brings less specialist expertise than an employee.

What do you have to give up in terms of a modern corporate culture?

One example would be an outdated understanding of power. Why can’t the intern sit at the table? Why is he not perhaps even a project manager for some projects, simply because he has the most ideas? We have to dismantle hierarchies wherever ideas have to be introduced and criticism expressed. If you can’t do that in a company, you won’t succeed.

What demands does this place on the new leadership role?

You have to juggle daily between security, as related to your own competence while at the same time being a reliable partner for the organization and your colleagues. And to the same extent, you have to be so confident as to admit when you don’t understand something and don’t have any idea what to do. This is the area of tension in which you have to move. If people in management do not openly say that they have no idea, they miss essential information or signals that say, “Attention, there’s a change, a better technology, maybe even a disruption.” And if the company doesn’t offer any room for that or leaves too much room for an individual manager to take ego trips, sooner or later it’ll flop.

With Philip Morris, you did something unusual, you disrupted your core business from the inside and created a substitute. How does that work?

That was a development process, it wasn’t done overnight. When the big lawsuits happened in the USA 15 years ago, all our offices said they wanted to be more proactive with regulation and print warnings on packaging. But we asked ourselves, honestly, is that it? Is that really enough? We put a research team to it and thought about how to solve the main problem of drastically minimizing pollutants. And finally, seven or eight years ago, our then CEO said, “Now we have to test the first concepts on the market.”

What was the biggest challenge in this transformation?

The shift from a disposable product to an electronic device that has to be taken back from the consumer puts completely new demands on logistics and sustainability. Another challenge was that we used to have brands that everyone knew. Now we have to build new ones. And everyone understood the cigarette, now we have a product worth explaining with the tobacco heater. We have grown from a brand- and marketing-driven company to a high-tech company. At the same time, our sales channels have changed; we still have a great sales force, probably the best in the world, which ensures smooth distribution to retailers but we now also have our own stores. And here we are again at the three dimensions we talked about at the beginning. We have a new product, new market conditions, and new demands on employees in terms of skills and corporate culture. And this is the only way we have succeeded in paradoxically, cannibalizing ourselves and pulling it through. We knew there was no way back, because we did it so loudly that we stand behind this change process completely with the entire company name.

“Change is the new constant, but colleagues at the same time have the desire for consistency and reliability. Organizational theory still has no answer to all this.“

And what remains difficult or at least challenging?

I believe that organizational theory lags far behind development. This continuous change constantly confronts us with questions such as: how do you dismantle a department? Where do hierarchies have to be taken out? When do you switch to an agile project organization? How do you create new structures that are so liquid that you can react to the market? And all this against the background that change is the new constant, but colleagues at the same time have the desire for consistency, reliability, and continuity. Organizational theory still has no answer to all this.

What else are important drivers of innovation besides structural issues?

I think it’s about listening. Listening to what the market wants. Whatever it is one wants to institutionalize. In the past it would have been market research, today lean start-up, design thinking and the like have provided new instruments to react more quickly. That is one facet. If you just listen to the market, it won’t work. To the same extent you have to think about society, issues such as sustainability and diversity, which are the decisive values. You need as many people as possible with different backgrounds to deal with the same topic. And even those that are sometimes clueless and remain clueless. And those who continually question their assumptions. And there you are again with culture.

This questioning has an effect not only inside the company, but also in the relationship to the outside world, to the customer. Keyword: social media.

Absolutely. There used to be a few consumer organizations, that’s all. Social media has changed this dramatically; as a company you are now dealing with an individually responsible consumer. This poses new challenges. At the same time, it was long overdue. It has to be a given and not a novelty to focus on the customer. Otherwise what else?

It is also the age of good communicators. What makes an excellent communicator?

They must be able to listen, I would make that number one. We communicators must be the membrane, we are not just the announcers. We are the ones who pick up external currents and try to understand the demands that are placed on companies. This makes the job exciting and demanding at the same time. Of course, it is much easier to take up the strategy and communicate it to the outside world. But with such an attitude you will never really gain importance in the company. You also have to be uncomfortable and disagree. You have to insist on being involved in important business decisions. At a time when corporate brands are becoming more important, a good communicator must have his own objectives and reputation goals. We used to have company crises, financial crises, sector-specific crises. Today there is an additional threat of communication crises. No matter how marginal an issue may be, the wrong communication can cause immense damage. Now I have already made up my mind again (laughs). A good communicator should also be able to communicate succinctly.

“Companies will only survive in the long term if they see themselves as corporate citizens and do not rely solely on their products.“

What are the most important themes in the coming years?

Change remains. For us, this means finding answers to the critical questions that always predominate here. With the stakeholders – now consumers are excluded – in society, politics, and science. And to bring this into line with what we do every day in the market. Sustainability is a mega topic, and it will remain so. Companies will only survive in the long term if they see themselves as corporate citizens and do not rely solely on their products. And diversity is, of course, the other mega topic of our time. We were the first to get equal pay certification. We are really proud of that. When it comes to diversity, we’re great; when it comes to internationality, we’re great; when it comes to the percentage of women, we’re getting better and better. We can still improve when it comes to age and impairments. When it comes to purpose, we have to keep regenerating ourselves and question critically: what comes after Generation Y? What are the working models that you have to offer? How do we ensure that part-time work does not become a career killer? And what does career actually mean? Does that have anything to do with hierarchy? Or is it more a question of professional expertise? These will be the most important questions. So we won’t get bored!

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