Why Change Fails in Performance Improvement…
Whether it is a new year, the passing of another birthday or a lecture from your doctor at your annual physical, you have made yourself a new set of promises to change. You check the many yellow sticky pad slips around your desk and see many of the same items on prior lists. Why didnt they happen last time and why will they happen this time? Frankly, having a list and the motivation isnt enough. You need a path.
Organizations arent that different. Change is difficult and its nearly impossible without a proven way to change. And most companies dont have it. In fact, in a 2006 McKinsey study of companies which had embarked on major initiatives over the prior ten years ranging from Operational Excellence to acquisitions, McKinsey found the majority proved to have a negative return on investment. McKinsey pointed to the following top three deficiencies in companies that failed to successfully drive a positive ROI on an initiative;
- Lack of Commitment and Follow Through by Top Executives
- Defective Project Management Skills Among Middle Managers
- Lack of Training and Confusion Among Frontline Employees
Before accepting these conclusions, I took a look further back in available literature for similar studies. Part of my reason was to validate the McKinsey findings but part was also to see if there had been a change in causes. My search yielded a 1996 study by Coopers & Lybrand, now PricewaterhouseCoopers, which cited the following top three causes of failure and evidence of success;
Needless to say, the Coopers study, done ten years earlier, seems to point to the same causes committed leadership and skilled, involved middle managers and frontline employees. Presumably commitment means a willingness to take on the politics of functional boundaries. The saddest part of my finding these studies is that the failings from the time period leading up to the Coopers study dont seem to have caused any sort of change in behavior over the next ten years but that is an issue to discuss at another time.
The interesting point in the McKinsey study is that success is defined and the reason for failure is refined. And that starts to lead the thinking for a solution. Specifically, the McKinsey study defines success as a positive ROI. Frankly, this is a pretty low hurdle since it doesnt get into any weighted cost of capital hurdle rates. Imagine college with a simple pass/fail. But I have to admit that if 80% of the students were failing, starting with a P/F system is a step forward.
Obviously, an ROI calculation is mathematical so while you can argue things like whether soft costs should be included and how they should be valued, you at least have a framework for discussion. You can begin to theorize whether the implementation costs are too high, the results too low or the time to achieve too long. And depending on the cause, you can begin to implement some solutions.
At this point, I admit Im leaving actual research and relying on some common sense and experience for the final part of the discussion where we look to a solution. First, I posit that the decision to move forward and the execution of a project are often two separate events. If an initiative fails to meet anticipated gains, the error is often in the original assumptions supporting the decision. That is quite different from the costs and time where some of the most significant problems arise in the execution.
What does this mean? Well assuming Operational Excellence program are producing negative returns like other corporate initiatives, how do we construct Change Management models that better address causes of failure such as the lack of a committed leadership and skilled, involved managers and front-line personnel? And keep in mind, the commitment, skills and involvement we are discussing here arent process improvement skills (i.e. belt training). We are talking about change skills. Interestingly, Deming spoke of the importance of these issues well before todays Operational Excellence programs.
If you wish to discuss Change Management models that address the aforementioned challenges, feel free to contact me.