Change Management White Paper
- “41% of completed IT projects failed to deliver expected business value and ROI”1
- “Less than 50% of change initiatives in Fortune 500 companies were successful, with employee resistance sited as the main reason for failure”2.
- “1500 change management executives from 15 countries revealed that nearly 60% of projects aimed at achieving business change do not fully meet their objectives”5.
In many published articles addressing ‘why IT projects fail’ authors will supply a list of causes and inevitably these lists cite one or more human factors. Lack of frontline employee involvement, lack of communication to users, employee resistance, inadequate project visibility throughout the organization, and management and training issues are some of the examples denoted as causes for failed IT projects. Net/net is that if the employees whom an initiative is affecting are not embraced at the onset of the project, the probability of project success decreases exponentially.
Common Denominator of Project Success
McKinsey conducted an extensive study regarding Change Management and Project ROI. “The study showed the project ROI was:
- 143% when an excellent change management program was part of the initiative
- 35% for projects with ineffective or no change management plan” 3&6.
Further, IBM studies have shown that “there is a strong correlation between successful projects and realistic awareness of the challenges involved in change. Those organizations that are fully aware of the challenges of implementing change have double the percentage of completely successful projects, and 27% fewer troubled projects or outright failures” 5.
Many people have many different definitions of change management. Refining all the various definitions, change management is simply managing the people side of implementing systems and/or processes, and positioning the affected people to be welcoming, knowledgeable and proficient with the new systems and /or processes.
It sounds simple but it is not. In general, people don’t like change especially if it comes as a surprise. The fear of the unknown is a very real emotion that drives human reactions as does employee’s generational group and ethnic origins. For example, there are Early Adopters, Laggers, Nay Sayers, Baby Boomers, Gen Jones, GenX, GenY, Gen Z, all of which have disparate characteristics that impel behaviors. Other factors to contemplate are organizational cultural norms and stressful personal events which will also shape employee’s perceptions and reactions to change. So, both internal and external influences do drive how employees react to change.
At the end of the day, employees want to feel like they are an integral part of organizational success that recognizes and appreciates their contributions. In order for organizations to be successful in instituting change within a part of or throughout the enterprise, they need to manage the organic side of the initiative which is centered on ‘the people’. The veracity is that employees who can will sabotage a change effort if they feel or perceive negative connotations with no regard as to whether it is the right thing to do for the company at large. The disruptive power of employees should not be underestimated! They can be very clever in inventing ways to circumvent the new system and/or process. A negative rumor mill can emerge that will detract from effective communication efforts and permeate the very culture of the organization. Once that happens, it is extremely difficult to turn around those perceptions and obtain a positive groundswell of supporters. So, why not involve the employees on the front-end, let them know what is in it for them, the company and its customers, and then give them the knowledge and skills to help them be successful and embrace the new changes?
To use an analogy, it is said that all politics are local . . . along those same lines, so is change. Change needs to be targeted at the lowest common denominator which is the individual. And yes, it will take time.
In sum, to exponentially increase the probability of achieving project objectives, fund and execute an effective change management plan, as it is only then that you will truly realize project desired results.
Change Management & Company Profitability
Change can negatively or positively impact the profitability of a company. Most organizations are in business to succeed and when a company decides to fund a project, they are looking to add long term sustainable value to the organization. This is quantified by looking at the return on investment. What value are you delivering if the organization invests $1M for an IT initiative? When you condense most project objectives they involve either increasing revenues or decreasing costs, in which case should always have a corresponding change management plan. Specific change drivers that affect an organizational return on investment dollars are:
1) Accelerated user adoption4 which is the speed with which employees start using the new system right out upon implementation. Conversely, decelerated user adoption means that employees are finding reasons why not to embrace the change and are both actively and passively resisting the new system and/or process.
2) Increased utilization4 refers to the number of employees actually using the new system and/or process.
3) Increased proficiency4 refers to the level of improvement occurring as a result of the new system and/or process.
Managing these three change components generates an accelerated return on investment. How? The faster employees adopt the new system/process will drive a greater number of employees to use the new system resulting in a large group of employees becoming proficient (i.e. productive) leaving fewer workarounds which will need to be dealt with. It is this behavior that will be the impetus to realizing the stated project benefits of increased revenue and/or decreased costs thereby realizing a faster return on the initial investment made to fund the project.
Let’s say for example that you are implementing technology that provides customers the ability to order products online and track the status of their order. Additionally, customer service personnel would also receive a consolidated view of detailed order information rendered on a single screen. The desired outcome of this change initiative would increase revenue with 24/7 ordering availability, and decrease costs as customers can place and track their own orders therefore, fewer incoming calls would require less customer service personnel. As such, the change management plan would need to encompass both internal employees and external customers. The faster both customers and employees adopt the new system the faster the project related cash flow becomes positive. So, by integrating a comprehensive change management strategy in which the three critical profitability change components are imbedded, creates the ‘stickiness’ for long term sustainability of the change and the desired financial results.
When an organization does not realize the need for a change plan, they will realize a new and even higher cost of doing business, which will negatively affect a projects’ return on investment.
Why Is Change Management Needed?
First let me share with you a true story. There was a large property management company that took on the project of implementing a new enterprise-wide accounting system. Their desired project benefits were to decrease the cost of processing accounting transactions by eliminating the accounting team at corporate headquarters and pushing the accounting transactions down to the managers at each property. This was a $10M initiative.
The system was designed in a vacuum. The property managers were not included on the current state analysis of property specific transaction processing; therefore a system was deployed without regard for the business environment at each property.
When headquarters was ready to roll out the new system, managers were flown in from each property to corporate headquarters where a three-day intensive ‘fire hose’ training was delivered complete with 12-hours a day of classroom instruction. The training curriculum built upon itself such that if you didn’t understand one piece you were lost for the rest of the training. This three-day training and thereafter periodic follow up conference calls were the extent of their change management efforts. The follow up conference calls were optional and within one month were discontinued due to “no participation”. Management assumed everyone understood the system but in reality the managers had all given up on the system and reverted back to their individual desktop workarounds.
Less than 4 years later, the company scrapped the project, poured $10M down the drain and hired IBM Global Services to come in and implement a PeopleSoft solution.
In retrospect, if people had known the “who, what, where, when, why, and how” of the new solution and were included in the front-end analysis and final solution then the probability of their acceptance and adoption would have increased exponentially. As you can see from this example (and there are many more just like this one), if you don’t engage the employees their reaction will be “there goes the ivory tower executives with their hair brain ideas”. They will fold their arms, sit back and say “this too shall pass” - which is exactly what happened at an expense of $10M!
In this era of information explosion and rapid globalization, organizations need to challenge themselves to be fast, nimble and adaptive to change. Organizations with the greatest advantage are ones where agility is ensconced in their culture giving them the competitive advantage that ensures first mover advantage (if they choose) and increased market share. Moreover, the bigger the organization, the harder it is for them to move quickly but this should not be viewed as a barrier. A comprehensive change plan is always essential along with consistent and timely execution. Furthermore, expect and plan for resistance because it will usually be encountered at some degree within the organization. The pay-off for developing and implementing, when needed, a resistance plan is appropriately neutralizing the resisters which will amplify the probability of rapid user acceptance and adoption. As mentioned earlier, it is rapid user acceptance and adoption that translates into realizing intended project outcomes and expected financial results.
Every organization needs an effective change management strategy to accompany their project initiatives because it is the change management that builds a bridge between implementing a solution and aligning the people with it so that in the end, the entire effort is synchronized across both people and systems.
Why Is Change Hard To Execute?
Change is hard to execute because it involves managing the human side of a project. It is the identification and recognition of people’s feelings. More specifically, it is employee’s perceptions and individual interpretations of what is happening within an organization. Change management is not a means of manipulation but a coordinated effort of being inclusive and helping to demonstrate to everyone how a business decision is good for the greater whole of the company and how it will affect each person.
An extremely important facet of change management is communicating the “WIIFM - What’s In It For Me’. If this is addressed many times via many different communication channels and mediums, desired employee behaviors will be realized. Recognize that employee worries go way beyond the project such as how this change will affect their career, educational plans, promotions, telecommuting arrangements, etc. Also, employees past experiences with other organizational change initiatives will affect how they react to a new change as well. They will discuss amongst themselves “Remember what we went through with Y2K or ISO 2000?” Or better yet, perhaps even worse, “Didn’t we just go through a business process change effort? Why do we have to keep doing this . . . what a waste of time?!”
And then there are the Nay-Sayers. This group can have a great deal of influence over other employees and could create a groundswell of resistance that is difficult to quell. It is important to try to identify and win over this group before they become poison to the company. In general, people will naturally resist change even if it is taking them to a better environment, simply because of their fear of the unknown.
In sum, change is hard to execute because change can be taken personally, and create unintended emotional responses, because what people hear may not necessarily be what fact is.
How Do You Know If You Need Change Management?
The following questions can help assess the need for change.
1) Will the implementation affect the way an employee, group or department uses a process or system?
2) Will the implementation affect one or more processes?
3) Will the implementation affect your customers?
If the answer is yes to one or more of these questions then it is highly recommended that some form of change management activities are incorporated into the project initiative.
Before rolling out new change into the organization, it is advisable to examine how much change has already been instituted and when it happened. Employees can become frustrated and burnt out if too much change is deployed in a short period of time. Further, not all change is assimilated equally. Project A may be absorbed quickly but project B may take longer due to its complexities and/or post deployment adjustments. There is a delicate balance between implementing needed change so that the organization can sustain competitiveness and employees becoming overwhelmed by large amounts of change to which they are expected to rapidly assimilate. Be sensitive to the change saturation factor and look for signs.
“Some organization saturation signs are:
- Higher turnover
- Decline in productivity
- Increased absenteeism
- Loss of focus on business basics
- Negative morale4”
A comprehensive change management plan should be part of the overall project plan and is needed to ensure proper and timely execution of activities throughout the life of the project. The core elements of a change plan are “communications, training, coaching, employee resistance, and executive sponsorship plans”4. Change related problems will not magically go away, they will not solve themselves and left unaddressed, they will end up costing the organization more money in the long run. In order to realize desired organizational outcomes, it is imperative to make the change management investment on the front end of the project to ensure that the solution and the people are in unison.
Because every project, organization and culture is different, no two change management plans should look the same. However, the methodology should have the following characteristics:
- It should be malleable to accommodate for the organizations culture, specific project outcomes and company norms.
- It should be easy to execute.
- It should be contain a holistic view of the entire enterprise (this includes external constituents as well).
- It should be results-based, tie change efforts to project benefits.
Executive Sponsorship
Executive sponsorship is another cornerstone to delivering project success. It is the organizational leadership that needs to articulate to all employees how the project fits into the overall direction and strategy of the company. The leadership must demonstrate commitment to the project because if they do not appear committed, none of the employees will be committed. Time and time again, research has shown that employees want to hear why change is happening from the person at the top. To that end, here at DM&A we have consistently seen seven specific characteristics that are paramount to assuming the role of executive sponsorship of change.
Seven ‘C’s’ Of Executive Change Sponsorship
1. Curiosity Executive sponsors listen to the points of view of front line employees who touch the customers.
2. Creativity Executive sponsors need to be willing to be open to thinking outside the box. For example, take one employee from each functional area of the company and ask them as a group to “blue sky” their preferred future of the company. Studies have shown that leaders who engage their employees in this type of process developed more innovative, future oriented goals and plans than a group that was simply asked to solve a problem.
3. Communication Executive sponsors must at all times exemplify honesty and transparency in all their communications. It is important to be compelling and speak with conviction about what needs to happen, why, and what is needed from the employees. From a communication lens, the real time to worry is when there is no employee response. One other point on communication, selecting the right sender of specific messages is just as important as the message itself.
4. Charisma This is where the leader inspires people to dream positive WIIFM’s and generates employee excitement about the future that they are about to become a part of!
5. Courage Let’s face it, change is hard. Leaders have to both share the needs of the organization and overcome obstacles. Let’s say for example that employees are being eliminated as a result of a project. The executive sponsor needs to face both those being eliminated and those who have to pick up the extra work. Look people in the eye and tell them how you are going to help them - and here’s why. When employees see leaders taking a personal interest with both those being dispossessed and those picking up the extra work it creates the opportunity to obtain that ‘100% buy-in’ (again going back to user acceptance and adoption). People will jump through hoops for their leader if they know you have their back. Ensure there is a plan for the dispossessed!
6. Competence As an executive sponsor, it is important to insure that change leaders are surrounded with people who know how to develop and execute against a change plan. Building the right execution team is paramount. Do not ‘wing’ this and do not put people that lack leadership and negotiation experience in change roles. This is not the time to create opportunities for people without requisite experience to take on a leadership role. What DM&A has seen is that inexperienced people in these roles tend to focus on forms and tactical project details and not on the people, which is what change is all about.
7. Commitment Change takes time and it cannot be rushed. It’s a roll up your sleeves detailed process that is labor intensive. Tenaciously executing against the plan will drive the success of realizing project benefits (i.e. profit). Sponsors and change leaders must make the commitment of standing behind the effort to fruition. This is very difficult for executives because other competing priorities become more important, and as we’ve said, change takes time. The key is to not take your eye off the ball! Change is not sexy and fun, it’s the grit that happens behind the scenes that makes everything look easy. When you set out on this track this becomes a repeatable process. Keep in mind, the cost of not doing this on the front end. This process will become easier and easier each time you do it and it will eventually become second nature to your organization. And that is the ‘Promised Land’ in which your organization can rapidly adapt to change, with employees welcoming and not resisting it. This is when change becomes rooted in your culture.
The sweet spot of change is when the following five factors are naturally working in concert.
1) Everyone is aware of the change before implementation.
2) The majority of the employees want to embrace the change.
3) Managers can and are ready to support the change.
4) Employees naturally don’t resist the changes and there is a plan to execute for those who do.
5) Most important is there is visible executive support throughout the life of the project.
All of these attributes working together gives an organization that ability to effortlessly absorb and adjust to a rapidly changing environment. Eventually yours becomes a culture in which change is welcomed. These attributes also erase negative WIIFMs from people’s consciousness so, at go live times, there is not a negative WIIFM in the house!
Investment For Change Management
What is the right investment to be made for change management? Companies that have enjoyed successful implementations spent 10%-15% of their project budget on change management efforts3&5. However, this investment can vary based upon a variety of factors such as culture, magnitude to initiative, number of past failed projects, demographics, etc. The important takeaway is this; to achieve a project’s objectives, fund and execute an effective change management plan. It is only then that desired results will truly be realized, and an organization can enjoy the lower costs of doing business and increased project ROI’s.
1. Asay, Matt. (2008) “62 Percent of IT Projects Fail. Why?” The Open Road, March 21, 2008 Retrieved from http://news.cnet.com/8301-13505_3-9900455-16.html
2. Michael A. Knaus & Associates Organizational Change Management Consulting, http://maknaus.com/services/tmrfcf.htm
3. “The Business Impact of Change Management”, Pepperdine University, 2006 Retrieved from gbr.pepperdine.edu/0630change.html
4. Prosci. (2006). “How to Implement Success Change in Our Personal Lives and Professional Careers”
5. IBM Press Room (2008). IBM Global Study: “Majority of Organizational Change Projects Fail” Retrieved from http://www.03.ibm.com/press/us/en/pressrelease/25492.wss
LaClair, Jennifer A., Rao, Ravi P. (2002) “Helping Employees Embrace Change” The McKinsey Q