Why Most Large Change Efforts Fail – And How to Break the Pattern EXECSUM7 - Tuesday, October 12, 2004 5:00 PM - 5:30 PM J. Scott Hyde [email protected] Mobile: 206-321-1409 Contents The Challenge of Transformational Change Ten Principles for Successful Change Case Studies Appendix Selected research sources z 1 The continuous changes hitting our industry put enormous pressure on organizations and individuals …REQUIRES ORGANIZATIONAL CHANGE… EXTERNAL CHANGE… Technology: IP; WiFi; 3G Economy: telecom bubble; retrenchment Regulatory: WNP; UNE; Sarbanes Society: privacy; security; mobility Customer/competitors Strategies Structures/de-layering Practices Processes Products …REQUIRES PERSONAL CHANGE Roles Responsibilities Habits Thinking Values Behaviours Today we’re focusing on the link between organizational and personal change: where today’s industry players must improve to adapt to transformational pressures z 2 Many organizations ignore the individual change process, leading to failure or delay in transitioning to new models The Emotional Cycle of Change Satisfaction Certainty Confidence Optimism Hope Time Pessimism Doubt ‘Valley Of Despair’ Different people will be in different places at different times – yet the depth of the valley, and the time spent there depend upon the change tactics employed Source: Daryl Conner, adapted from Kubler-Ross’s Emotional Cycle of Loss: see “On Death and Dying”. z 3 These ten principles help organizations accelerate the time between intent and results – by addressing the individual Map Your Route to Success with a ‘Big Picture’ of all Change Articulate the Need for Change and Support it With Rewards and Recognition Establish a Strategic Action Plan with Measures Develop Uncompromising Change Leadership Skills Ensure Buy-In At All Levels of the Organization Manage the Emotional Process of Change Define Performance Criteria for Re-skilling affected people Define the New Roles and Culture Leverage Key People (‘influencers’) Follow a Strategic Communications Process For sources of quantitative, validated research and evidence supporting these concepts, please see the appendix z 4 What’s So Different About This Approach? It addresses multiple perspectives: rational, political and emotional Emphasizes leadership responsibility, but not exclusively: recognizes that individuals at all levels must help define the change details Relies not just on communication, but recognizes the need to uncover dissent, understand resistance and encourage deep personal involvement Relies on central coordination, measures and targets, yet allows those directly affected to design and perform pilots and implementation activities locally Experience has shown that its not enough to merely follow the standard ‘change management’ checklist: motivate; communicate; involve; measure…The key is how you go about accomplishing these steps. z 5 Building the Case For Change: Answering the ‘Why?’ Articulate the need for change; support it with appropriate rewards and recognition for specific, well-defined behaviors Keys to Motivating People to change: Identify a Crisis: the ‘deficit’ model creates a sense of urgency (Ford in the 80’s) − OR Create a Vision: the ‘aspirational’ model paints a picture of ‘what can be’ Either model can create a tangible motivation that people can identify with z 6 Set Direction with Clear Vision and Goals Map Your Route to Success with a ‘Big Picture’ of all Change Keys to Ensuring Clear Strategic Direction: Begin with values, vision and mission Establish a business case with 3-6 major indicators of success Assign accountability to a sponsor or team lead Set ambitious targets with milestone dates Identify the detailed activities to move from the current state to the desired state Create measurement tools to track human and economic performance of the new organization z 7 Aligning All Initiatives Creates a Single Route to Success Keys to a successful initiatives integration map: Clarify major objectives of each initiative Tie each initiative to the objectives or goals of the overall change Specify milestones and results to be delivered Identify initiatives in conflict or support of the plan; halt or integrate selected projects Identify key events for communications State the sequence of the work Focus on the integration points between each change activity A rigorous assessment of initiatives often uncovers opportunities to refocus, stop or integrate existing efforts to support the change z 8 Major Change Requires New Behaviors from Leaders Important Leadership Behaviors During Change Programs: ‘Walk the Talk’ – good change leaders demonstrate what is expected of others and link words to actions Inspire, set direction, clarify vision, communicate values and expected behaviors Bring the vision to life with stories and pictures that portray the beliefs and values of the change effort and the organization z 9 Leaders Must Visibly ‘Take the Wheel’ During Change to Demonstrate Commitment Roles of Leadership during Change: Enlist support and participation from all levels of the organization Commit the required resources Leave the details to those closest to the work Nurture new formal and informal pathways for collaboration Build recognition and rewards to encourage bottoms-up commitment Encourage candid, open challenge – but confront and deal with those who subvert the change process z 10 Neither ‘Bottom’s-Up’ nor ‘Top Down’ Change Alone are Sufficient to Ensure Success Accelerate Buy-In with Bottoms-Up involvement and top-down commitment Keys to Ensuring Buy-In Have visible leadership involvement. Communicate the vision relentlessly Obtain personal commitment at all levels Involve many in defining the direction and solutions Provide support for shifts in resources Ensure emotional support by including those who will be affected by the change Rely heavily on front-line employees having the customer knowledge that can be leveraged throughout the organization z 11 Managing People through the Emotional Cycle of Change Is As Important as the Rational and Political dimensions Effectively managing the emotional cycle of change: Limit fear and sense of loss, the strongest emotions that must be acknowledged. Emotions connected with fear and loss are inevitable; William Bridges’ model* incorporates a number of helpful principles: − Identify and acknowledge losses and allow time for grieving and venting − Honor the strengths and successes of the past − Point out gains for individuals and the organization − Identify what is not changing − Encourage open dissent and dialogue; provide safe, frequent forums for debate and listening Satisfaction Certainty Confidence Optimism − Help people see the big picture, not just their loss − Give people time and space to un-learn, practice new ways of working, and make mistakes Hope Time Pessimism Doubt ‘Valley Of Despair’ *Bridges, William. Managing Transitions. 1991 Reading, Massachusetts z 12 To Truly Drive Lasting Change, Employees Must Learn New Skills and Processes Define learning requirements and any new performance measures Keys to re-skilling: Stop un-needed old behaviors and replace with new skills Remember systems don’t solve problems – people do Trace the impact of each change to the work group or individual job to design new work processes Follow this simple cycle: assess, define, train, coach, try, observe, measure and validate Create a climate for learning with a lenient attitude toward early miss-steps Remember, this is when the energy and enthusiasm can wane. − Use recognition and small rewards for early successes z 13 Major Business Change Often Requires Fundamental Changes to Culture and Behaviors Define the new culture, behavior, roles and responsibilities Keys to culture change: Analyze the written and unwritten rules of ‘how we do things around here” Establish a common purpose by aligning organization values, vision, beliefs, attitudes and rules to clarify acceptable behaviors in the new environment Link the reward and recognition system to the clearly stated roles and behaviors expected z 14 Every Organization Has a Critical Few People Who Can are Important Influencers of Opinion and Behavior Typically a small cadre of influencers are the key links in the organizational chain Keys to Leveraging Influential People Identify both natural opinion leaders and ‘mavericks’ or skeptics Gain public support of the organizational ‘skeptics’ INVOLVE – give key influencers transitional roles in the effort Focus major effort on strategic populations – usually front line supervision of the audience most affected by change Focus on early adopters; when 20% of the population embraces change it can become self-sustaining.* * Rogers, Everett M. Diffusion of Innovations. 1983 New York, New York z 15 Most Change Efforts Underestimate the Importance of Communication Create a strategic communication process as part of a leadership plan Keys to building Effective Strategic Communications Plans Create a communication map, a matrix of the critical audiences that need information to take action or make decisions; the key messages that need to be understood; and the channels of communication that will get the messages across to each audience effectively. Create a timeline for development, implementation and the evaluation method to determine the effectiveness of each communication event. Communicate the values, vision, mission and the strategy broadly and frequently to ensure widespread understanding and buy-in. Ensure there are plenty of two-way communications channels – in multiple formats – to encourage dialogue z 16 RBOC Case Study: The importance of training and acceptance in implementing new technology Situation Implementing the financial suite of an ERP package with need to have the front-line Outside Plan techs utilize the Project module for all projects Target users not ‘technology savvy’ with IT business applications Initially, senior management resisted concept of two weeks of training to be performed by the direct supervisors Previous ERP efforts at this organization had a history of difficult implementations Actions Implemented ‘train the trainer’ approach All supervisors got three weeks training over three months: • 1 week of application training • Two days of effective training techniques instruction • One day of training set up and management • 2 weeks of delivering the training to their people Results • Success was ‘phenomenal’ • Excellent system adoption, very little work disruption • overall user buy-in and acceptance, • highly successful roll-out raised the confidence of the organization • System was rolled out to 3000 people in 17 locations over a three-week time period Experience has shown that a skeptical, resistant target group is best addressed through it’s direct managers rather than higher-ups or ‘outsiders’ Source: Capgemini client case study z 17 Case Study: Handling Sensitive Issues in Downsizing Environment One organization – two divergent approaches and results: Situation Implementing multiple modules of and ERP suite Moving to a ‘shared services’ approach Efficiency gains through the technology and shared services approach created need to downsize the organization Functional executives needed to plan for and communicate the workforce reduction impacts while maintaining service in the transition period Focus: Customer Service/Call centers and Finance Actions Call Centers: Implemented ‘staypay’ program provided outplacement services early and frequent communications first run on other job opportunities planned and focused "lay off" conversation with local HR and plant directors Finance: • Limited communications • No local coordination • Reactive vs. proactive approach Results Call Centers: • Successful go-live with no issues • Employees conscientiously transferred their duties • Little early departures or work disruption Finance: • Rampant and destructive rumors • Disruption to local plants • Early defections • Missed financial closing cycles Source: Capgemini client case study z 18 GE: A Case Study in Effective Business Change Situation Actions Results GE Before the Transformation GE During the Transformation The New GE Failed to generate real earnings growth Rewarded seniority, not performance Focused on CEO satisfaction, not customer satisfaction Lagged competition in productivity growth Produced negative operating cash flow Fell behind in technology development Established profit and loss responsibility at the business unit level Created entrepreneurial spirit and a flexible, innovative culture in a large company Selected leaders with clear vision and an ability to energize others for change Established businesses as market leaders Eliminated layers of resistance (unnecessary management) and increased span of control Invested in education and communication Conducted work out sessions Invited debate/constructive conflict Shifted to new strategy model Increased revenues from $50 billion in 1991 to $100 billion in 1998 Grew net income 350% between 1991 and 1998 Improved Return on Equity to 25% Significantly increased shareholder value to over $330 billion A dramatic shift in focus and accountability enabled by effective business change, has led to a new organization, exceeding original expectations Source: Fortune, May 29, 1995; Sales and Marketing Management, February 1995; Control Your Own Destiny or Someone Else Will, Tichy & Sherman, One Source, Analyst Report: Morgan Stanley Dean Witter, 10/98 z 19 IBM: A Case Study in Effective Business Change Situation Actions Results IBM Before the Transformation IBM During the Transformation The New IBM Developed complicated products which did not effectively meet the customers need Communicated sense of urgency to change Missed the technological shift from main frames to PCs Focused employees on the customer, on providing customers with one stop shopping Maintained a rigid culture and applied an ironclad dress code Introduced a new leadership team Increased share of new, highgrowth businesses from 7% to 47% of total revenue Emerged as world’s largest seller of software Established a workplace attractive to current and prospective employees Provided market specific product offerings Reduced SG&A expenses by 25% Entered new markets, e.g. China Increased Return on Equity to over 29% Aligned compensation to performance Changed the culture A dramatic shift in focus and accountability enabled by effective business change has led to a new organization which exceeded the original expectations Source: Sales and Marketing Management, October 1994; Business Week, May 1, 1995; Wall Street Journal, January 12, 1995, January 19, 1995, February 3, 1995, April 26, 1995, May 15, 1995. One Source, Analyst Report: SG Cowen, 12/98 z 20 The Nestle USA Team Learned Some Sobering – Yet Familiar, Lessons Background: June 2000, Nestle signed a massive contract with SAP to implement an ERP solution ($280 million software+consulting) One analyst immediately downgraded the stock: “It touches the corporate culture . . . That’s risky. It’s always a risk when you touch the corporate culture.” Post-Mortem quotes: “No major software implementation is really about the software. It’s about change management.” “When you move to SAP, you are changing the way people work. . .you are challenging their principles, their beliefs and they way they have done things for many, many years.” “much of the employee resistance could be traced to a mistake that dated back to the project’s inception: None of the groups that were going to be directly affected by the . . change . . were represented” “we were really naïve in the respect that these changes had to be managed” “morale tumbled . . Nobody wanted to learn the new way to do things . . Why? . . too many competing initiatives . . Y2K . . “the project team had lost the big picture of how the various components would work together” z 21 The Failure to Enlist Key Influencers and Lack of Strategic Communications Hurt Nestle Project was re-started . . “begin at the beginning, starting with the business requirements then reaching an end date. They also concluded that they needed better support from key divisional heads and that all the employees knew exactly what changes were taking place, when.” “the End Game: Sadder but Wiser” Nestle team built a “detailed road map to follow” and hired a director of process change, who “was shocked by the still poor relationship between the divisions and the project team” Conducted regular surveys of employees readiness to change; based on poor feedback a key module was delayed for six months because users were not prepared “to do it all over again, . . focus first on changing business processes and achieving universal buy-in, and then and only then on installing the software.” z 22 Appendix Change Management Research Sources Sources of Validated Research on Effectiveness of Change Management Approaches Everett Rogers’ Diffusion of Innovations Rogers, Everett M. Diffusion of Innovations. (4th ed.). New York: Free Press, 1995 − the standard textbook and reference on diffusion studies. Now, in the fourth edition, Rogers presents the culmination of more than thirty years of research − Includes review and synthesis of 5,000 diffusion publications. The Delta Technique Armstrong, J. Scott “Strategies for Implementing Change: An Experiential Approach” Group and Organizational Studies Vol. 7 #4 (1982) Some selected research analyst statistics: Organization and Process are cited as among the top barriers to improving Network Operations Center capabilities (Lucent survey of 99 NOCs, 37% of respondents) Without the appropriate change implementation support, a company spends $3-10 for every dollar invested in the technology to retrofit it to the culture (Gartner Group) Organizations that under-invest in training are three times more prone to lengthy implementations and cost overruns (Gartner Group, 0.7 probability) Over 80% of trained users achieve at least 50% productivity improvement over untrained users (AutoCAD User Survey) Untrained users require three to six times more support than trained users (Gartner Group) Nearly half of all major technical initiatives fail because of fear and anxiety in the organization, and resistance from key managers (Computer World, 1995) z 24 Contact Information J. Scott Hyde Capgemini 10500 N.E. 8th Street Suite 1400 Bellevue, WA 98004 206-321-1409 [email protected] www.us.capgemini.com