by Mark J. Dawson and Mark L. Jones
Everyone knows the drill: Change is the only constant. Align the trinity of people, processes and technology to strategy. But everyone also knows human behaviour is complex. Organisations don't adapt to change; their people do. But this idiosyncratic human element is overlooked again and again in change projects.
So, how best to manage the process? In this article, authors Mark Dawson and Mark Jones explain "how to implement a change program successfully when dealing with the vagaries of human behaviour".
Organisations are feeling the heat of public criticism. Fuelled by a growing cynicism, many long-standing institutions have become targets for scrutiny and change. Regulators are cracking down on questionable industrywide business practices in troubled sectors. Many companies are restructuring their operations to cope with the new, lean economy. The imperative to change the way organisations do business has never been greater.
The imperative may be great, but the success rate of change programs is not so great. About 75% of all organisational change programs fail, largely because employees feel left out of the process and end up lacking the motivation, skills and knowledge to adopt new systems and procedures. Yet the recipe for successful change management is well known and deceptively simple: align the trinity of people, processes and technology with leadership and organisational strategy. The devil, as always, is in the details: how to implement a change program successfully when dealing with the vagaries of human behaviour.
Unsteady state
The traditional approach to change management relies on a conceptual model that is now obsolete: unfreeze-change-refreeze. An organisation "unfreezes" in order to adapt to change, makes the change, and then 'refreezes' again to resume its business course in steady-state mode. In this model, change is treated as an aberration, a discrete event that temporarily disturbs an organisation in a generally stable business environment. But it is evident in today's competitive and volatile economic context that change is the norm, while steady-state is fleeting and illusory.
The implication of the "change is the only constant" mantra is that the most successful organisations, in the long run, are those that learn to continuously adapt to change. Says Richard Foster, author of Creative Destruction: "We [found] that new companies coming into existing industries … could outperform their industries. But it never lasts. If you're trying to copy a company, don't. By the time you get there to copy it, you may be copying what accounts for its demise rather than its success."
Organisations don't adapt to change; their people do. Implementing the right technology infrastructure and streamlining the business processes that flow through it are essential ingredients for effective organisational change. These components are well studied, mechanized and reasonably standardized. Methodologies, measurements and best-practice guidelines are available to optimize their implementation.
But the human element that needs to make use of these systems in order to supply the leadership, judgment, flexibility and innovation needed to achieve business success is the most critical ingredient—and least understood..
The problems with Enterprise Resource Planning (ERP) system implementations illustrate the consequences of underestimating the human element. Many companies implemented ERPs during the nineties, attracted by the promise of seamless integration of critical information flows. A successful ERP can be the backbone of business intelligence for an organisation, giving management the unified view needed to develop the best strategies in a volatile business environment.
But without proper training, incentives and leadership, a flexible, integrated system will not magically eradicate organisational silos to produce a flexible, integrated workforce. If employees don't understand how an ERP system affects workflow, they may unwittingly sabotage change efforts. Many ERP implementations are described as failures when the reality is that they are incomplete. Managers need to understand and address the behavioural changes needed to reap the benefits of new systems and business models.
Understanding behavioural risk is particularly important in the current economic context—the costs of ignoring it can be significant. Poorly managed change eats away productivity on many fronts. It increases costs: Job stress is estimated to cost U.S. industry more than $300 billion a year in absenteeism and medical costs. It increases potentially destructive office politics: In a survey by Roffey Park Management Institute, 49% of respondents reported an increase in political behaviour in the past three years, attributed to the pace of change and competition for limited opportunities.
Change creates feelings of resentment: In a survey by CareerBuilder, about half of layoff survivors say their responsibilities increased. If more pay or recognition doesn't accompany a new workload, employees may resort to absenteeism, negligence or even theft to "keep things fair." Recent shifts in corporate strategy have left many employees confused about the link between their jobs and company objectives, making recovery efforts more difficult for companies.
Contrary to conventional wisdom, people resist change only when it makes them feel out of control–when change is foisted on them without their consent. The belief that it is human nature to resist change is the wrong starting point, because it creates an adversarial climate.
People are willing to change if they understand and accept the reasons, and have a say in the way their jobs are restructured. Behavioural change is most likely to occur when organisations connect with human nature rather than oppose it. A growing body of evidence suggests that much of the mechanistic organisational model antagonizes human nature. At best, people comply reluctantly and, at worst, actively resist management initiatives, covertly and overtly. Either outcome amounts to wasted time and resources, because a management that is misaligned with human nature requires expensive controls to police its employees' behaviour.
Global crackdown
The financial services industry offers some illustrative examples of wide-scale change initiatives where a culture change is crucial. The industry is under intense pressure to change the way it does business globally. In the United States, the stream of regulation to re-establish public trust and counter terrorism continues. In the European Union (EU), regulation now requires all EU-listed companies to adopt International Financial Reporting Standards (IFRS) by 2005.
In Britain, a succession of pension and investment mis-selling scandals has resulted in strict consumer protection regulation by the Financial Services Authority (FSA). These requirements are forcing financial services firms to restructure their international operations on multiple fronts, concurrently: corporate governance, separation of investment banking from research, sales practices, anti-money laundering, whistleblowing and document retention.
Regulatory watchdogs in most Western nations are adopting a tough new stance to ensure compliance with new regulations, promising to "rattle teeth fillings," as one regulator put it. According to management experts, most compliance program failures can be attributed to behavioural risk: failure by staff in the trenches to actually implement the policies and procedures mandated by management. Regulators are growing more knowledgeable than organisations themselves in defining the types of management mechanisms that need to be in place to change their employees' behaviour.
In statements of requirements, regulators now detail what training programs and staff competency levels are needed to ensure people are actually doing the right things on the job, in addition to the usual policies, procedures and systems that need to be in place. In the past, regulators were satisfied if policy manuals contained the appropriate information. Today, regulators ask probing questions and demand hard evidence that proves employees are really following the new rules.
For example, in Britain, the financial services industry has been reprimanded for misinforming investors about the true risks of savings products sold in the past to cover mortgages, appearing to guarantee returns that cannot now be delivered. The FSA is threatening to take salespeople off the road if they don't comply with new consumer protection rules. To ensure compliance, regulators are asking company management detailed, nuts-and-bolts questions: How do you make sure your new sales recruits understand why they must follow the new rules? How do you monitor their attendance at training sessions? How do you monitor their conduct to make sure they're actually following the rules during sales calls?
The right starting point is for management to ask some fundamental questions about the root causes of the problem: Why aren't our people doing what they're meant to be doing to manage risk properly? What incentives are needed to motivate them? What knowledge do they lack and how can we provide job-specific, meaningful information? Since good risk management requires judgment, what skills do our people need to develop to make the best decisions?
Once the answers to these questions are obtained, a focused training program with the right rewards and punishments can be deployed to change on-the-job behaviour with greater speed and accuracy. In the financial services sector and other highly regulated or troubled industries, companies don't have the luxury of time to tinker with the high-profile changes needed to transform their businesses.
Walk the talk
Most companies say their most important assets are their people, but few behave as if this were true. Change projects typically devote the lion's share of their budgets to technology and processes, not staff issues. "There is still a whole notion…of focusing on tangible assets and their impact on the bottom line, rather than the intangible assets, which are people," says David Brown, a human resources consultant at Hewitt Associates. "One question we ask organisations is what they are spending on their human assets and what return are they getting, and it is not uncommon to get a blank look in return."
As in any other business endeavour, strong leadership and good communications are essential. Recognizing change as a continuous process means change management is an ongoing feature of the leader's job. But a frequently overlooked component is human resources (HR) management. HR is typically regarded as an administrative area, rather than strategic, and is rarely involved in a change project's leadership. Yet offering the right incentives to link corporate goals to individual career objectives is a critical success factor.
What motivates people is an individual matter and needs to be addressed at this level. A recent survey by training specialists Discovery Learning shows that people react differently to change, and can be classified in four broad categories. Originators welcome dramatic change; conservers prefer gradual change; pragmatists are most enthusiastic about change that will address current problems—and resisters dislike all change. "Americans are attracted to innovation, so we think being an originator is best.
"But it takes all of these personality types to build a successful business," says Dr. Chris Musselwhite, the survey developer. "Conservers at Enron tried to warn of problems, but the leadership culture was apparently skewed so much toward originators charged with "reinventing business" that conservers were viewed as resisters and were either silenced or ignored." Similarly, the way people learn new things is also individualistic. Training programs that require speedy results need to be designed to accommodate the human need for context and relevance.
The usual approach to rapid training—taking employees off-site for intensive training—is in fact misguided. Such courses tend to work against human nature, since they are typically an attempt to impart all the knowledge needed to all staff in one fell swoop, with little attempt to tailor it to a specific individual's job or learning style.
Work-force flexibility—developing multifunctional workers who can adapt to a range of job requirements—is the centerpiece of many businesses that are trying to transform themselves to survive in the real economy. Few business leaders are daunted by the idea of changing their organisation's technology or processes, but many wring their hands in despair at the prospect of changing their people's behaviour. But changing human behaviour is in fact more science than art. An increasing body of evidence shows that the process of organisational change has defined parameters that suggest what works and what doesn't.
The overall process may be defined, but the elements needed to motivate a specific person are variable. A one-size-fits-all solution won't work when the fundamental issue to be addressed is that people have individual needs, wants and concerns. Human behaviour can be pushed and pulled in the right direction with an effective combination of incentives and disincentives—if the desire for change is created in the individual. Constant upheavals in the business environment mean that leaders must learn to master the process of implementing change, just as their employees must learn to accommodate change.
Mark Dawson has almost 20 years experience within PricewaterhouseCoopers working with clients throughout the UK, North and South America, across Europe, Russia and Africa Since 2002, he has led the firm's 400 people UK risk management and process improvement advisory business for the consumer, industrial products and service industries. In this role, he ensures that we integrate our process, technology and people specialisms at the point of delivery, and leads a number of our largest client accounts.
Prior to this role , Mark led the firm's "Transform" business, a 200 strong global team specialising in helping businesses change behaviour to deliver change in business performance. Change management and communications, training and knowledge management services formed the basis of the team's client consulting.
Mark is a Fellow of the Institute of Chartered Accountants in England and Wales, and holds a Postgraduate Diploma in Organisational Behaviour from London University. He has a First Class honours degree in History.
Mark Jones has worked with PricewaterhouseCoopers (PwC) since 1984 in various countries throughout the world including Australia, the UK, the USA and Netherlands. He has been involved in managing change and learning for PwC and our clients since 1988 and has been running the Behavioural Transformation practice in the Netherlands since 2000.
His primary focus is enabling companies to plan and determine their readiness to change their organisation. Further he is actively involved in developing, designing, deploying and evaluating business driven learning solutions for (inter) national clients.
Mark is a graduate in Economics from the University of Sydney, a qualified Chartered Accountant and a member of the ASTD as well as the Dutch equivalent.
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