Not long ago, a large Massachusetts company automated its warehouse with a new conveyor system. On paper, the project looked like a can't-lose proposition, guaranteed to improve productivity. Instead, the conveyor literally brought the warehouse to a screeching halt.

The culprit? Rampant sabotage. On any given day, 50 warehouse employees fearing the loss of their jobs could be found chuckling while supervisors tried to find the latest broomstick jammed into the conveyor.

Scenes like that are no surprise to Saul Pilnick, Ph.D., president of Human Systems Inc., a Boca Raton, Fla., firm that specializes in change management. A veteran consultant and the co-author with Jo Ellen Gabel, Ph.D., of a new book on change management, Pilnick has worked with more than 250 companies going through mergers or acquisitions, the implementation of new software systems or the redesign of their supply chains.

Despite careful attention to new policies, procedures and systems, many managers have wound up lamenting that the more things change, the more they stay the same.

Or get worse.

What goes wrong? According to Pilnick and Gabel, the problem lies in the type of change management—the discipline of managing changes to an organization—that's traditionally practiced. "Most organizations respond to change by making formal changes to a system," says Pilnick. "But all too often, the management struggling to make changes is oblivious to the culture that exists within the organization." In fact, he says, cultural resistance is responsible for most failed logistics initiatives, regardless of the industry.

To help supply chain managers implement change successfully, the Research Strategies Committee of the Council of Logistics Management (CLM) commissioned Pilnick and Gabel to examine the phenomenon of corporate culture with particular attention to how this powerful force penetrates all aspects of organizational life and how it promotes or hinders change. The product of their research is The Shadow Organization in Logistics: The Real World of Culture Change and Supply Chain Efficiency, published in January by CLM. The book presents a new management process that will challenge the way logistics professionals approach change in supply chain organizations.

In today's competitive environment, more and more companies are looking to logistics and the supply chain as the source for changes that lead to organizational improvements. "Look at the buzzwords around supply chain management today," says Pilnick. "Everyone talks about getting their house in order. Organizations want to work with contract manufacturers and third-party logistics providers. They want to collaborate across the supply chain."

Each of those concepts involves a new approach to logistics and management. Change management is supposed to provide a map that will allow organizations to turn those changes to their advantage by redesigning the formal operating system of the company. Yet that is where they fall short, according to Pilnick and Gabel.

"When you look at the books being written today, they talk about systems and processes," says Pilnick. "All the while, there's a human operating system behind the scenes that no one's paying attention to."

That human operating system is the culture of a company, or what the authors call the shadow organization.

To ignore that shadow organization is to ask for trouble. Most corporations are like an iceberg, according to Pilnick and Gabel. The formal organizational structure that's visible to the public represents only 10 percent of a company. The 90 percent that is hidden is the informal system that really determines how an organization operates. It's the chatter at the water cooler. It's the way people really go about their jobs, regardless of what's in the employee manual. It's the attitude and practices of management after the rhetoric and speeches.

Pilnick and Gabel have trademarked their own term to describe corporate culture: "cultureware." They liken it to the operating system on a computer that is always running in the background. "The culture trains people to behave in a certain way at work," says Pilnick. "Once culture gets its roots in the ground, it becomes tenacious and resists change."

The secret to effective change management, according to Pilnick, is to reprogram the culture slowly but steadily. "The real [key to] successful change management is to be able to ensure that the business and culture are in synch with each other," says Pilnick. "The culture must constantly support the business initiatives. Left unattended, the two will get out of synch, and the culture will deteriorate and bring down the business or make it less efficient."

Every organization has a formal power structure of supervisors, managers and executives.

There is also an informal power structure in the shadows of organizational culture. Those are the people others look to because they know how to work the system to get things done around the office, the warehouse, the plant or the shipping department.

It's the informal power players who are most likely to feel threatened by new ways of doing things and most likely to resist change if they're ignored by management. Who, after all, wants to give up the comfort of the status quo for some uncertain future?

"If you don't pay attention to the culture, what do you think the guys who are going to end up on the short end of the stick are going to do?" asks Pilnick. "They're going to sabotage the process."

By way of example, Pilnick points to Superior Discount Stores, a pseudonym for a retail chain operating 35 high-volume stores selling food and mass merchandise in the Southeast. With over $1 billion in sales, the chain plans to open 10 to 12 new stores per year, doubling sales over the next three years.

Historically, wholesalers handled most of Superior's distribution and logistics requirements. The retailer operated just one small warehouse of its own for promotional buys.

But to support the expansion plans, Superior acquired a food wholesaler, including distribution and transportation facilities. The company also budgeted an additional $75 million to build more distribution centers.

Although warehouse profit margins initially improved after the acquisition, the company soon divided into two groups at war with one another: the traditional retail operations and the newly acquired wholesale group. Neither trusted the other. "These two departments were merged on paper," says Pilnick, "but that's all."

The failure to merge the two cultures came to a head when Superior built a new 1 million square foot food distribution center. The new facility was supposed to be a showcase for Superior's new strategy of combining the wholesale and retail operations into a seamless enterprise.

Instead, it was a disaster. Neither group worked with the other. The warehouse struggled to get orders out the door. The failure called into question the whole strategy of developing an in-house distribution and transportation network to expand the business.

Rather than scrap the distribution center and expansion plans, the company brought in Pilnick and Gabel to re-launch the warehouse and bring the two groups together.

They developed an eight-step strategy to change the culture of Superior while implementing new operating processes and procedures in the new facility (see the accompanying sidebar).

The process began with a cultural analysis of the organization. What Pilnick and Gabel found at Superior was that the wholesale side of the business didn't really understand retailing, and the retail side didn't understand wholesalers. "Their pace was different, their decision-making process was different, and they were rewarded differently," says Pilnick.

Different rewards and different measurements of success meant the two groups were often working at cross purposes. The solution was to create a third culture from the best aspects of the other two. That called for the development of a new business plan with input from key people within the organization.

Once a plan, timetable and mission statement were in hand, Pilnick and Gabel were ready to begin changing the culture one small group of employees at a time—a process they call "embedding." "We create 'seeds' or 'change cells' with three or more people who understand the behavior and values we want the organization to adopt," says Pilnick. "Then we embed those seeds in strategic areas of the organization where their new attitudes will have the greatest impact."

At Superior, change cells were organized for each of the major company areas, like produce, general merchandise, meats and groceries. A change cell might include someone from the warehouse representing a specific department, plus a retail and wholesale buyer. They developed projects and policies together, and taught one another their side of the business. "By the end of six weeks," says Pilnick, "we had strong core groups who had created new ways to run the business."

Once the core groups were working in the warehouse, the next step was to break down the silos between departments and get the new groups to work with each other. "As time went on," says Pilnick, "you saw the barriers between the departments come down because cross-functioning became more critical. Eventually, there came a point where the old culture went out the door and the new culture took over, and the warehouse was operating as a cohesive, seamless facility."

Addressing the culture of an organization may fly in the face of how most managers were taught to manage. But Pilnick believes that leaders who are both business savvy and culture smart can manage both the supply chain and the culture to achieve real supply chain efficiency. "It's a slow process," he concedes, "but by starting small and continually seeding the organization with change cells, we can change an organization with 5,000 people in 12 to 18 months."