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The inconvenient truth_about_change_management

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  • 1. The Inconvenient TruthAbout Change ManagementWhy it isn’t working and what to do about itby Scott Keller and Carolyn AikenConventional changemanagement approacheshave done little to changethe fact that most changeprograms fail. The odds canbe greatly improved by anumber of counterintuitiveinsights that take intoaccount the irrational butpredictable nature of howemployees interpret theirenvironment and chooseto act.
  • 2. In 1995, John Kotter published research thatrevealed only 30 percent of change programs aresuccessful. Fast forward to 2008. A recent McKinsey& Company survey of business executives indicatesthat the percent of change programs that are asuccess today is… still 30%. The field of ‘changemanagement’, it would seem, hasn’t changed athing.Digging deeper into why change programs failreveals that the vast majority stumble on preciselythe thing they are trying to transform: employeeattitudesandmanagementbehavior.Conventionalchange management prescribes addressing thesebehavioral and attitudinal changes by putting inplace four basic conditions: a) a compelling story,b) role modeling, c) reinforcement systems, and d)the skills required for change.These prescriptions are well grounded inpsychological research and make good commonsense – which, we believe, is precisely wherethings fall apart. The inconvenient truth of humannature is that people are irrational in a numberof predictable ways. The prescription is right, butrational managers who attempt to put the fourconditions in place by applying their “commonsense” intuition typically misdirect time andenergy, create messages that miss the mark, andexperience frustrating unintended consequences.In the same way that the field of economicshas been transformed by an understanding ofuniquely human social, cognitive and emotionalbiases, so too the practice of change managementis in need of a transformation through an improvedunderstanding of the irrational (and oftenunconscious) nature of how humans interprettheir environment and choose to act.a) Creating a compelling story#1: What motivates you doesn’t motivate(most of) your employees. Research confirmsthat there are at least five sources of meaning forhumans at work: impact on society, the customer,the company/shareholder, the working team, and“me”personally. What’s more, workforces are evenlysplit as to which of these is a primary motivator.“Telling five stories at once”is the key to unleashingmaximum energy for change.#2: You’re better off letting them writetheir own story. Research indicates that whenemployees choose for themselves (versus “beingtold”), they are more committed to the outcome bya factor of almost five to one.Time communicatingthe message should be dramatically rebalancedtowards listening versus telling.#3: It takes both “+” and “–” to create realenergy. Deficit-based approaches (“solve theproblem”) to change can create unproductivefatigue and resistance. Constructionist-basedapproaches (“capture the opportunity”) generatemore excitement and enthusiasm, but lead to risk-aversesolutions.Bymovingbeyondthisdichotomyand pursuing both approaches simultaneously,managers can neutralize these downsides andmaximize impact in mobilizing the organization.b) Role modeling#4: Your leaders believe they already “arethe change.” Most executives have the will andskill to role model, but don’t actually know “what”they should change due to their self-servingbiases (if they didn’t think what they were doingwas right, they wouldn’t be doing it). Smart useof concrete 360-degree behavioral feedback canbreak through this barrier.#5: Influence leaders aren’t that influential.It is not enough to invest in a few rather than inmany as a way of catalyzing desired changes, nomatter how appealing the idea is. New researchshows social “contagions” depend less on thepersuasiveness of “early adopters” and more onhow receptive the “society” is to the idea. Whileinfluence leaders are important, we warn againstoverinvesting in them – your effort is better spentelsewhere. c) Reinforcing mechanisms#6: Money is the most expensive way tomotivate people. A change program’s objectivesshould be linked to employee compensation toavoid sending mixed messages. Little upside isgained, however, due to a number of practicalconsiderations.Thereisabetter,andlesscostly,way.Small, unexpected rewards have disproportionateeffects on employees’ motivation during changeprograms.#7: A fair process is as important as a fairoutcome. Employees will go against their ownself-interest if the situation violates other notionsthey have about fairness and justice. Carefulattention should be paid to achieve a fair processand fair outcomes in making changes to companystructures, processes, systems and incentives.d) Capability building#8: Employees are what they think. Behaviorsdriveperformance.Mindsets(thethoughts,feelingsand beliefs held by employees) drive behaviors.Capability building should focus on technical skillsas well as shifting underlying mindsets that enablethe technical skills to be used to their fullest.#9: Good intentions aren’t enough. Even withgood intentions, it is unlikely employees will applynew skills and mindsets unless the barriers topractice are lowered. The odds can be improvedby using “field and forum” approaches linked totrainees’ day-to-day accountabilities reinforced byquantifiable, outcome-based hurdles along theway.Show me the money!Where we have tested these inconvenient truthsin practice versus more rational, conventionalapproaches to influencing behavior we havefound they achieve significant positive results. Forexample, in 18-month longitudinal studies usingcontrol and experimental group methodologieswe achieved a 19 percent lift in profit per bankerversus 8 percent and a 65 percent reduction incall center customer churn versus 35 percent withconventional approaches alone.The Inconvenient TruthAbout Change ManagementWhy it isn’t working and what to do about itThe Idea in Brief The Idea in Practice
  • 3. Page 1The Inconvenient Truth About Change ManagementThe Inconvenient TruthAbout Change ManagementWhy it isn’t working and what to do about itConventional change management approaches have done little to change the fact that mostchange programs fail. The odds can be greatly improved by a number of counterintuitiveinsights that take into account the irrational but predictable nature of how employeesinterpret their environment and choose to act.In 1995, John Kotter published what manyconsider to be the seminal work in the field ofchange management, Leading Change: WhyTransformationEffortsFail.Kotter’s“calltoaction”cited research that suggested only 30 percent ofchange programs are successful.1His work thengoes on to answer the question posed in its titleand to prescribe what it takes to improve thissuccess rate.Kotter is perhaps the most famous purveyorof change management wisdom, but in facthe is one of many who have a point of viewregarding how managers and companies can bestmanage change. In the last two decades, literallythousands of books and journal articles havebeen published on the topic. Today, there aremore than 1,800 books available on Amazon.comunder the category of “Organizational Change.”2The field has developed to the extent that coursesdedicated specifically to managing change arenow part of the curriculum in many major MBAprograms. 3With so much research done and informationavailable on managing change, it stands to reasonthat change programs today should be moresuccessful than those of more than a decade ago,right?The facts suggest otherwise. McKinsey &Company recently surveyed 1,546 businessexecutives from around the world, asking them ifthey consider their change programs “completely/mostly” successful: only 30 percent agreed.4Further investigation into a number of similarstudies over the last 10 years reveals remarkablysimilar results.5The field of change management,it would seem, hasn’t really changed a thing.This failure to live up to its promise is whymany senior executives today recoil at the meremention of the words ‘change management’.Memories come flooding back of significant timeand effort invested in “the soft stuff” that, in theend, yielded little tangible value.The focus of McKinsey’s applied research overthe last four years has been to understand whychange management efforts consistently fail tohave the desired impact and, most importantly,what to do about it. At this point in ourresearch we don’t claim to have all the answers.We have, however, developed and tested a set ofperspectives in real-life application that seniormanagers have found genuinely insightful andthat have consistently delivered business resultsfar beyond expectations.Scott Keller (scott_keller@mckinsey.com) is a Partner inMcKinsey & Company’sChicago Office. Heleads McKinsey’sOrganizationalBehavior Practice inthe Americas andhas deep experiencein counsellingsenior executiveson organizationperformance andchange effectiveness.Also from McKinsey &Company is CarolynAiken (carolyn_aiken@mckinsey.com), is anAssociate Principalin McKinsey’sOrganization Practicebased in the TorontoOffice who haspioneered innovativeapproaches to CEO,top-team andorganization-widechange effectiveness.
  • 4. Page 2The Inconvenient Truth About Change ManagementSUCCESSFUL CHANGEREQUIRES UNCOMMON SENSEDigging deeper into why change programs failreveals that the vast majority stumble on preciselythe thing they are trying to transform: employeeattitudes and management behavior (versusother possible sources such inadequate budget,poorly deployed resources and poor changearchitecture).6Literally thousands of prescriptions areput forward in various change managementpublications regarding how to influence employeeattitudes and management behavior. However,the vast majority of the thinking is remarkablysimilar. Colin Price and Emily Lawson provideda holistic perspective in their 2003 article, ThePsychology of Change Management, that suggeststhat four basic conditions have to be met beforeemployees will change their behavior:7A. A compelling story: They must see thepoint of the change and agree with it, at leastenough to give it a tryB. Role modeling: They must also seecolleagues they admire modeling the desiredbehaviorC. Reinforcement systems: Surroundingstructures, systems, processes and incentivesmust be in tune with the new behaviorD. The skills required for change: They needto have the skills to do what is required ofthem.This prescription is well grounded in the fieldof psychology and is entirely rational. Puttingall four of these conditions in place as a part ofa dynamic process greatly improves the chancesof bringing about lasting changes in the mindsetsand behaviors of people in an organization—andthus achieves sustained improvements in businessperformance.One of the merits of the approach above is itsintuitive appeal, so much so that many managersfeel that, once revealed, it is simply good commonsense. And this, we believe, is precisely wherethings fall apart. The prescription is right, butrational managers who attempt to put the fourconditions in place by applying their “commonsense” intuition typically misdirect time andenergy, create messages that miss the mark, andexperience frustrating unintended consequencesfrom their efforts to influence change.Why? In implementing the prescription, theydisregard a scientific truth of human nature:people are irrational in many predictable ways.The scientific study of human irrationality hasshown that many of our instincts related tounderstanding and influencing our own andothers’ motivations push us towards failureinstead of success. We systematically fall victim tosubconscious thought processes that significantlyinfluence our behavior, even though our rationalminds tell us they shouldn’t. How many of usdrive around looking for a close parking placeto “save time” for longer than it would have takento walk from the available parking spaces? Howabout falling into the trap of spending $3,000to upgrade to leather seats when we buy a new$25,000 car, but finding it difficult to spend thesame amount on a new leather sofa (even thoughwe know we will spend more time on the sofathan in the car)? Are you willing to take a pencilhome from work for your children to use, butare not willing to raid the company’s petty cashbox for the money to buy a pencil for the samepurpose? These examples point to how all of usare susceptible to irrationality when it comes todecision making. 8The scientific study of humanirrationality has shown thatmany of our instincts related tounderstanding and influencingour own and others’ motivationspush us towards failure insteadof success.In the same way that the field of economics hasbeen transformed by an improved understandingof how uniquely human social, cognitive andemotional biases lead to seemingly irrationaldecisions,9so too the practice of changemanagement is in need of a transformationthrough an improved understanding of theirrational (often unconscious) way in which
  • 5. Page 3The Inconvenient Truth About Change Managementhumans interpret their environment and chooseto act.In what follows we will describe a numberof counterintuitive insights regarding humanirrationality and implications for putting the fourconditions for behavior change into place. Wewill also offer practical—if inconvenient—advice(as it calls for investing time and effort in areasthat your rational mind will tell you shouldn’tmatter as much as they do) on how to improve theodds of leading successful change. We illustratethese approaches through concrete examples ofhow various companies have, either by consciousawareness, intuition, or simple luck, leveragedpredictable employee irrationality to great effectin making change happen.Dealing with the human side of change isnot easy. As Nobel Laureate Murray Gell-Mannonce said, “Think how hard physics would be ifparticles could think.” All told, we don’t expectour advice to make your life as a change leaderany easier. We are convinced, however, it willhave more impact.A. THE INCONVENIENTTRUTH ABOUT CREATING ACOMPELLING STORYChange management thinking extols thevirtues of creating a compelling change story,communicatingittoemployeesandfollowingitupwith ongoing communications and involvement.This prescription makes sense, but in practicethree inconvenient truths often get in the way ofthis approach achieving the desired impact.Inconvenient Truth #1: What motivates youdoesn’t motivate (most of) your employeesWe see two types of change stories consistentlytold in organizations. The first is the “good togreat” story along the lines of “Our historicaladvantagehasbeenerodedbyintensecompetitionand changing customer needs; if we change, wecan regain our leadership position once again,becoming the undisputed industry leader for theforeseeable future and leaving the competitionin the dust.” The second is the turnaround storyalong the lines of, “We’re performing belowindustry standard and must change dramaticallyto survive; incremental change is not sufficient—investors will not continue to put money intoan underperforming company. We are capableof far more based on our assets, market position,size, skills and loyal staff. We can become a top-quartile performer in our industry by exploitingour current assets and earning the right to grow.”These stories both seem rational, yet they toooften fail to have the impact that change leadersdesire. Research by a number of leading thinkersin the social sciences, such as Danah Zohar, ChrisCowen, Don Beck and Richard Barrett, has shownthat stories of this nature will create significantenergy for change in only about 20 percent of yourworkforce.10Why? The stories above all center onthe company—beating the competition, industryleadership, share price targets, etc.—when in factresearch shows that there are at least four othersources of meaning and motivation that can betapped into to create energy for change. Theseinclude impact on society (e.g., making a bettersociety, building the community, stewardingresources), impact on the customer (e.g., makingit easier, superior service, better quality product),impact on the working team (e.g., sense ofbelonging, caring environment, working togetherefficiently and effectively), and impact on “me”personally (my development, paycheck/bonus,empowerment to act).What the leader cares about (andtypicallybasesatleast80percentof his or her message to otherson) does not tap into roughly80 percent of the workforce’sprimary motivators for puttingextra energy into the changeprogram.The inconvenient truth about this researchis that in surveys of hundreds of thousands ofemployees to discover which of these five (society,customer, company/shareholder, working team,“me” personally) sources of meaning mostmotivates them, the result is a consistently even20 percent split across all dimensions. Regardlessof level (senior management to the frontline),industry (healthcare to manufacturing), or
  • 6. Page 4The Inconvenient Truth About Change Managementgeography (developed or developing economies),the results do not significantly differ.This finding has profound implicationsfor leaders. What the leader cares about (andtypically bases at least 80 percent of his or hermessage to others on) does not tap into roughly80 percent of the workforce’s primary motivatorsfor putting extra energy into the change program.Those people leading change should be ableto tell “five stories at once” and in doing sounleash tremendous amounts of organizationalenergy that would otherwise remain latent in theorganization.By way of practical example, consider acost-reduction program at a large U.S. financialservices company. The program was embarkedon with a rational change story that “ticked allthe boxes” of conventional change managementwisdom. Three months into the program,management was frustrated with the employeeresistance inhibiting impact. The team workedtogether to re-cast the “story” around the costprogram to include an element related to society(to deliver “affordable housing”: we must bemost affordable in our services), customers(increased simplicity, flexibility, fewer errors,more competitive prices), the company (expensesare growing faster than revenues, which is notsustainable), working teams (less duplication,more delegation, increased accountability, fasterpace), and individuals (bigger, more attractivejobs created: a great opportunity to “make yourown” institution).This relatively simple shift in approach liftedemployee motivation measures from 35.4 percentto 57.1 percent in a month, and the program wenton to achieve 10 percent efficiency improvementsin the first year—a run rate far above initialexpectations.Inconvenient Truth #2: You’re better offletting them write their own storyWell-intentioned leaders invest significanttime in communicating their change story.Roadshows, town halls, magazines, screen-saversand websites are but a few of the many approachestypically used to tell the story. Certainly the story(told in five ways!) needs to get out there, but theinconvenient truth is that much of the energyinvested in communicating it would be betterspent listening, not telling.In a famous experiment, researchers ran alottery with a twist. Half the participants wererandomly assigned a lottery ticket. The remaininghalf were given a blank piece of paper and a penand asked to write down any number they wouldlike as their lottery number. Just before drawingthe winning number, the researchers offeredto buy back the tickets from their holders. Thequestion researchers wanted to answer is, “Howmuch more do you have to pay someone who‘wrote their own number’ versus someone whowas handed a number randomly?” The rationalanswer would be that there is no difference (givena lottery is pure chance and therefore every ticketnumber, chosen or assigned, should have thesame value). A more savvy answer would be thatyou would have to pay less (given the possibilityof duplicate numbers in the population who writetheir own number). The real answer? No matterwhat geography or demographic the experimenthas taken place in, researchers have always foundthat they have to pay at least five times more tothose who wrote their own number.11This result reveals an inconvenient truth abouthuman nature: When we choose for ourselves, weare far more committed to the outcome (almost bya factor of five to one). Conventional approachestochangemanagementunderestimatethisimpact.The rational thinker sees it as a waste of time tolet others self-discover what he or she alreadyknows—why not just tell them and be done withit? Unfortunately this approach steals from othersthe energy needed to drive change that comesthrough a sense of ownership of “the answer”.When we choose for ourselves,we are far more committed tothe outcome (almost by a factorof five to one).ConsideranotherpracticalexampleinBarclays’Personal Financial Services CEO, David Roberts,who employed a fairly literal interpretation of theabove finding. He wrote his change story in fullprose, in a way that he found meaningful. He thenshared it with his team, getting feedback on whatresonated and what needed further clarification.He then asked each of his team members to “write
  • 7. Page 5The Inconvenient Truth About Change Managementtheir own lottery ticket”: what was the changestory for them, in their business, that supports thebigger PFS-wide change story? His team memberswrote their change story, again in full prose, andshared it with their teams. Their teams gavefeedback and then wrote their own story for theirarea/department, and so the process continuedall the way to the frontline. It took twice as longas the traditional roadshow approach, but for afive-times return on commitment to the program,it was the right investment to make.12Sam Palmisano, current CEO of IBM, inspearheading a change effort to move IBMtowards a values-based management system,enabled thousands of employees to “write theirown lottery ticket” regarding IBM’s values.During a three-day, online discussion forum(dubbed ValuesJam), over 50,000 employees wereempowered literally to rewrite IBM’s century-oldvalues.13Other applications need not be so literal. Ata global consumer goods company the CEObrought together his top 300 for three two-day“real work” sessions over three months where theycreated the story together. Again, this investedsignificant time, but having the top 300 five-timescommitted to the way forward was consideredwell worth the investment. At BP, to develop acomprehensive training program for frontlineleaders, a decision was made to involve everykey constituency in the design of the program,giving them a sense of “writing their own lotteryticket.” It took a year and a half to complete thedesign using this model, but was well worthit. Now in implementation, the program is thehighest rated of its kind in BP. It involves morethan 250 active senior managers from across thebusinesses willingly teaching the course, and,most importantly, has resulted in managers whohave been through the training program beingconsistently ranked higher in performance thanthose who haven’t, both by their bosses and by theemployees who report to them.14At a minimum, we advocate that leadersleveragethe“lotteryticket”insightbyaugmentingtheirtellingofthestorywithaskingaboutthestory.Consider David Farr, CEO of Emerson Electric,who is noted for asking four questions relatedto his company’s story of virtually everyone heencounters in the organization: 1) how do youmake a difference? (testing for alignment on thecompany’s direction); 2) what improvement ideaare you working on? (emphasizing continuousimprovement); 3) when did you last get coachingfrom your boss? (emphasizing the importance ofpeople development); and 4) who is the enemy?(emphasizing the importance of “One Emerson”/no silos, i.e., he wanted to emphasize the “right”answer was the competition and not some otherdepartment!).On a final note, many executives aresurprised not only by the ownership and drivefor implementation that comes from high-involvement approaches, but also by the improvedquality of the answers that emerge. As one CEOtold us, “I was surprised how people steppedup during the direction-setting process – I wasworried about everything getting ‘dumbed down,’but in the end we got a better answer because ofthe broad involvement.”Inconvenient Truth #3: It takesboth“+”and“–”to create real energyIn 210 B.C., a Chinese commander namedXiang Yu led his troops across the Yangtze Riverto attack the army of the Qin (Ch’in) dynasty.Camped for the night on the banks of the river,his troops awakened to find their ships on fire.They rushed to the boats ready to take on theirattackers, only to find that it was Xiang Yuhimself who had set their ships ablaze. Not onlythat, but he had also ordered all the cooking potscrushed. Xiang Yu’s logic was that without thepots and the ships, they had no other choice butto fight their way to victory or die trying. In doingso he created tremendous focus in his troops, whobattled ferociously against the enemy and wonnine consecutive battles, obliterating the main-force units of the Qin dynasty.The above story is perhaps the ultimateexample of creating a “burning platform” tomotivate action—a message that says “We’vegot a problem, we have to change!” This modelis often referred to as a deficit-based approachto change. It identifies the problem (what is theneed?), analyzes causes (what is wrong here?)and possible solutions (how can we fix it?), andthen plans and takes actions (problem solved!).Advocates of this approach point out that its
  • 8. Page 6The Inconvenient Truth About Change Managementlinear logic and approach to dissecting thingsto understand them is at the heart of all thescientific progress made by Western civilization.They also cite examples like that of Xiang Yu,where it has a profound effect. Given the casefor the deficit-based approach, it has become themodel predominantly taught in business schoolsand is presumably the default change modelin most organizations. At success rates of 30%,however, the vast majority of change leaders arenot enjoying the same success as Xiang Yu did.Why is this?Research has shown that a relentless focus on“what’s wrong” is not sustainable, invokes blameand creates fatigue and resistance, doing littleto engage people’s passion and experience, andhighlight their success. This has led to the rise ofwhat many refer to as the constructionist-basedapproach to change. In this approach the changeprocess is based on discovery (discovering thebest of what is), dreaming (imagining what mightbe), designing (talking about what should be) anddestiny (creating what will be).15Consider a study done at the Universityof Wisconsin where two bowling teams wererecorded on video over a number of games.Each team received a video to study. One team’svideo showed only those occasions when itmade mistakes. The other’s showed only thoseoccasions when it performed well. The teamthat studied its successes improved its scoretwice as much as the other team. The conclusionis that choosing the positive as the focus ofinquiry and storytelling is the best answer forcreating change.16Whereas the deficit-basedchange approach is well suited for technicalsystems, research into the constructionist-basedapproach shows that in human systems a focuson “what’s right” can achieve improved results.So should enlightened change leaders shift theirfocus exclusively to capturing opportunities andbuilding on strengths instead of identifying andsolving problems? We think not.Humans are more risk averse when choosingamong options framed as “gains” than whenthey choose among those framed as “losses.”For example, what would you do if given thechoice between a sure gain of $100 and a 50percent chance of gaining $200? Social scienceexperiments show that most individuals are riskaverse and take the gain. What would you do ifgiven the choice between a sure loss of $100 or a50 percent chance of losing $200? If you are likemost individuals, you are risk seeking in this caseand choose a 50 percent chance of losing $200.17A single-minded focus on “what’s possible,” withits bias towards more conservative choices, flies inthe face of achieving radical change. The reasonfor this is that, as humans, we inherently dislikelosses more than we like gains.18The inconvenient truth is that both the deficit-based and constructionist approaches to changehave their merits and limitations. It is clear that asingle-minded focus on today’s problems createsmore fatigue and resistance than envisioning apositive future. But it is also clear that when itcomes to behavioral change some anxiety is good,and that an over-emphasis on the positive canlead to watered-down aspirations and impact.It is clear that a single-mindedfocusontoday’sproblemscreatesfatigue and resistance… But it isalso clear that when it comes tobehavioral change some anxietyis good.We believe the field of change management hasdrawn an artificial divide between deficit-basedand constructionist-based approaches. The bestanswer is an “and” answer. While it is impossibleto prescribe generally how the divide should besplit between positive and negative messages, asthis will be specific to the context of any givenchange program, we strongly advise managers notto “swing the pendulum” too far in one directionor another. Consider Jack Welch at GE, whotook questions of “what’s wrong here?” (poor-performing businesses, impending bankruptcy,silo-driven behaviors, bureaucracy, etc.) head on,as well as “imagining what might be” (numberone or two in every business, a “boundaryless”culture of quality, openness, accountability, etc.).Revisiting the University of Wisconsinbowling team experiment mentioned above, wesuspect that a team that studied its successes andmistakes would outperform teams that studiedonly either/or.
  • 9. Page 7The Inconvenient Truth About Change ManagementB. THE INCONVENIENT TRUTHABOUT ROLE MODELINGConventional change management suggestsleaders should take actions that role model thedesired change and mobilize a group of influenceleaders to drive change deep into the organization.Unfortunately, this prescription rarely deliversthe desired impact because it neglects two moreinconvenient truths about change management.Inconvenient Truth #4: Your leaders believethey already“are the change”Most senior executives understand andgenerally buy into Ghandi’s famous aphorism,“Be the change you want to see in the world.”They, often prompted by HR professionalsor consultants, commit themselves to “beingthe change” by personally role modeling thedesired behaviors. And then, in practice, nothingsignificant changes.The reason for this is that most executivesdon’t see themselves as “part of the problem,” andtherefore deep down do not believe that it is theywho need to change, even though in principlethey agree that leaders must role model thedesired changes. Take for example a team thatreports that, as a group and as an organization,they are low in trust, not customer-focused andbureaucratic. How many executives when askedprivately will say “no” to the questions, “Do youconsider yourself to be trustworthy?” and “Areyou customer focused?” and “yes” to the question“Are you a bureaucrat?” Of course, none.The fact is that most well-intentioned andhard-working people believe they are doing theright thing, or they wouldn’t be doing it. However,most people also have an unwarranted optimismin relation to their own behavior. Consider that94 percent of men rank themselves in the tophalf of male athletic ability. Of course this isirrational, as mathematically exactly 50 percentof males are in the top half of male athletic ability.This isn’t only true for males and athletics—farmore than 50 percent of people rank themselvesin the top half of driving ability, although it is astatistical impossibility. When couples are askedto estimate their contribution to household work,the combined total routinely exceeds 100 percent.In many behavior-related areas, human beingsconsistently think they are better than theyare—a phenomenon referred to in psychologyas a “self-serving bias.”19Whereas conventionalchange management approaches surmise that topteam role modeling is a matter of will (“wantingto change”) or skill (“knowing how to change”),the inconvenient truth is that the real bottleneckto role modeling is knowing “what” to change ata personal level.The fact is that most well-intentioned and hard-workingpeople believe they are doingthe right thing, or they wouldn’tbe doing it. However, mostpeoplealsohaveanunwarrantedoptimism in relation to their ownbehavior.Typically, insight into “what” to change canbe created by concrete 360-degree feedbacktechniques, either via surveys, conversationsor both. This 360-degree feedback should notbe against generic HR leadership competencymodels, but instead against the specific behaviorsrelated to the desired changes that will drivebusiness performance. This style of feedback canbe augmented by fact gathering such as third-party observation of senior executives going abouttheir day-to-day work (e.g., “You say you are notbureaucratic, but every meeting you are in createsthree additional meetings and no decisions aremade”) and calendar analyses (e.g., “You say youare customer focused but have spent 5 percent ofyour time reviewing customer-related data and notime meeting with customers or customer-facingemployees”).ConsiderAmgenCEOKevinSharer’sapproachof asking each of his top 75, “What should I dodifferently?” and sharing his development needsand commitment publicly with them.20Considerthe top team of a national insurance companywho routinely employed what they called the“circle of fire” during their change program: Everyparticipant receives feedback live in the room,directly from their colleagues on “What makesyou great?” in relation to “being the change” and
  • 10. Page 8The Inconvenient Truth About Change Management“What makes you small?” Consider the leadershipcoalition (top 25) of a multi-regional bank who,after each major event in their change program,conducted a short, targeted 360-degree feedbacksurvey regarding how well their behaviors rolemodeled the desired behaviors during the event,ensuring that feedback was timely, relevant andpractical.While seemingly inconvenient, these types oftechniques help break through the “self-servingbias” that inhibits well-meaning leaders frommaking a profound difference through theiractions to the ultimate impact of the changeprogram.Note that some readers may be thinking, “Butsurely there are a few people who are fully rolemodeling the desired behaviors—what does thismean for them?” If the purpose of senior executiverole modeling is to exhibit the behaviors requiredthat ensure the success and sustainability of thechange program (e.g., collaboration, agility indecision making, empowerment), then the answeris “keep up the good work!” If the answer, however,is expanded to include role modeling the processof personal behavioral change itself, there is moreto do. Recall that Gandhi also said famously, “Forthings to change, first I must change.”We often cite Tiger Woods’ reaction to hisastonishing, 18-below-par victory in the Masterstournament in 1997: he chose to rebuild hisswing. As he practiced many of its 270 elements,he endured a period of awkward performance.The press deemed him a one-Masters wonder.Four years later, he won the world’s four majorgolf tournaments in one year, an unprecedentedaccomplishment. At one point, Woods’ lead overthe second-ranked player was larger than thegap between No. 2 and No. 100.21The lesson isclear: continued success requires critical self-examination and growth. Few senior executiveswould suggest they are less in need of personallearning than Tiger Woods.Inconvenient Truth #5: Influence leadersaren’t that influentialAlmostallchangemanagementliteratureplacesimportance on mobilizing a set of “influenceleaders” to help drive the change. Typicallyguidance is given to find and mobilize those inthe organization who either by role or personality(or both) have disproportionate influence overhow others think and behave. We believe this issound and timeless advice – indeed having a cadreof well-regarded people proactively role modelingand communicating the change program is a “noregrets” move. However, since Malcom Gladwellpopularized his “law of the few” in his best-sellingbook, The Tipping Point, we have observed thatthe role of influence leaders has moved from beingperceived as a helpful element of a broader set ofinterventions to a panacea for making changehappen (likely an unintended consequence ofGladwell’s work which itself was directed towardsmarketers versus change leaders).Influence leaders are no morelikely to start a social “contagion”than the rank and file… successdepends less on how persuasivethe “early adopter” is, and moreon how receptive the “society” isto the idea.Gladwell’s “law of the few” suggests that rare,highly connected people shape the world. Hedefined three types of influence leaders that areamong this select group: Mavens—discerningindividuals who accumulate knowledge andshare advice; Connectors—those who know lotsof people; and Salespeople—those who have thenatural ability to influence and persuade others.Gladwell famously illustrates his point with theexampleofHushPuppies. Thefootwearbrandwasdying by late 1994—until a few New York hipstersbegan wearing their shoes. Other fashionistasfollowed suit, whereupon the cool kids copiedthem, the less-cool kids copied them, and soon, until voilà! Within two years, sales of HushPuppies had exploded by 5,000 percent, without apenny spent on advertising.22Compelling storiessuch as this have been interpreted by many changeleaders as evidence that the lion’s share of theirrole should focus on getting the influence leaderequation right and – voilà! – all else will follow.
  • 11. Page 9The Inconvenient Truth About Change ManagementDuncan Watts, a network-theory scientistworking for Yahoo!, has conducted a number ofexperiments that help explain why “influenceleaders” are not the panacea the above exampleimplies. In the context of the Hush Puppies story,he essentially posed the more expansive question,“Given East Village hipsters were wearing lots ofcool things in the fall of 1994, why did only HushPuppies take off? Why didn’t their other clothingchoices reach a tipping point too?” His researchshows that influence leaders are no more likelyto start a social “contagion” than the rank andfile. He concludes that success depends less onhow persuasive the “early adopter” is, and moreon how receptive the “society” is to the idea. Tostart a social epidemic is less a matter of findingthe mavens, connectors, and salespeople to do theinfecting and more a matter of developing the“virus” that society is a fertile spreading ground for.Watts suggests a better metaphor than a virus—aforest fire—for the way social influence reallyworks. There are thousands of forest fires a year,but only a few become roaring monsters. Why?Because in those rare situations the landscape isripe: sparse rain, dry woods, badly equipped firedepartments. In these situations, no one will goaround talking about the exceptional propertiesof the random smoker who unwittingly tossed asmoldering cigarette butt into a patch of parchedgrass in the middle of a forest during a drought.23The inconvenient truth is that it is not enoughto invest in a few rather than in many as away of catalyzing desired changes, no matterhow appealing the idea is. We warn againstoverestimating the impact a group of influenceleaders can have and, in turn, overinvesting inthem in a world of scarce resource (time, money,people). We advocate that change leader attentionshould be balanced across all four conditionsfor change – a compelling story, role modeling,reinforcement systems, and the skills requiredfor change – to ensure they are reinforcingin ways that maximize the probability of thechange “spark” taking off like wildfire across theorganization.C. THE INCONVENIENTTRUTH ABOUT REINFORCINGMECHANISMSConventional change management emphasizesthe importance of reinforcing and embeddingdesired changes in structures, processes, systems,target setting and incentives. If you wantcollaboration, create cross-functional teams. Ifyou want customer focus, make sure your systemsgive you a full picture of the customer relationship.If you want just about any behavior, make people’spaycheck dependent on it, and so the logicgoes. Again, these are all perfectly rational untilconfronted with two inconvenient truths.Inconvenient Truth #6: Money is the mostexpensive way to motivate peopleUpton Sinclair once wrote, “It is difficult toget a man to understand something if his salarydepends upon him not understanding it.”24Ifa change program’s objectives are not linkedsomehow to employee compensation, this sendsa strong message that the change program is nota priority, and motivation for change is adverselyaffected. The flip-side, however, is not true.When change program objectives are linked tocompensation, motivation for change is rarelymeaningfully enhanced. The reason for this is aspractical as it is psychological in nature.Consider the change manager who is workingto link the change program with compensation.He or she is faced with existing executives’ annualcompensation plan that is typically comprised ofthree elements: a portion dependent on how thecorporation does (typically an earnings or return-on-capital number for the whole company), aportion dependent on how the leader’s specificbusiness or function does, and a portiondependent on individual goals, often related tooperations or people.The rational change manager dutifullybuilds change-program impact into earningsforecasts and business unit/functional financialoperating plans. Come review time, however, he/she realizes that with the myriad of controllableand uncontrollable variables that influence the
  • 12. Page 10The Inconvenient Truth About Change Managementfinancial outcomes, the link to specific changeprogram implementation becomes weak at best.Operational (non-financial) impact from changeprogram implementation creates a stronger linkto outcomes and individual efforts. Unfortunately,however, the weighting of non-financial outcomesfrom the change program in the context of the vastarrayofothermetricsalso“linked”torewards(e.g.,compliance, safety, social responsibility, diversity,talent development, leadership competencies)renders any link to compensation hardly relevant.The reality is that in the vast majorityof companies it is exceedingly difficult tomeaningfully link a change program toindividual compensation. So why not just changethe compensation approach? This is of course anoption, but easier said than done and certainlynot without risk and potential unintendedconsequences when considering that changemust happen in real time—the organization mustcontinue to carry out its day-to-day tasks andfunctions while at the same time fundamentallyrethinking them. The good news is that thereare easier, relatively inexpensive ways to useincentives to motivate employees for change.In one study, researchers gave people a tinygift and measured the increase in satisfactionwith their lives. Specifically half of a group ofpeople who used a photocopier found a dimein the coin return. How much did the giftincrease their satisfaction with their lives? Whenasked about how satisfied they were with theirlives, those with the dime were 6.5 on a 7 scalewhereas those without were only 5.6.25Why sucha lift in satisfaction for such little reward? Forhuman beings it holds that satisfaction equalsperception minus expectation (an equationoften accompanied by the commentary, “realityhas nothing to do with it”). The beauty of thisequation for change managers is that small,unexpected rewards can have disproportionateeffects on employees’ “satisfaction” with a changeprogram.Gordon M. Bethune, while turning aroundContinental Airlines, sent an unexpected $65check to every employee when Continental madeit to the top 5 for on-time airlines. John McFarlaneof ANZ Bank sent a bottle of champagne to everyemployee for Christmas with a card thankingthem for their work on the company’s “Perform,Grow and Breakout” change program. The CEOof a large multi-regional bank sent out personalthank-you notes to all employees working directlyon the company’s change program to mark itsfirst-year anniversary. Most change managerswould refer to these as merely token gestures andargue that their impact is limited and short-lived.Employees on the receiving end beg to differ.Recipients of these “dime in the photocopier”equivalents consistently report back that therewards have a disproportionately positive impacton change motivation that lasts for months, if notyears.For human beings it holds thatsatisfaction equals perceptionminus expectation – small,unexpected rewards can havedisproportionate effects.The reason these small, unexpected rewardshave such impact is because employees perceivethem as a “social exchange” with the companyversus a “market exchange.” To understand thedifference,considerthefollowing:Assumeyouareat your mother-in-law’s house for Thanksgivingdinner. She has spent weeks planning the mealand all day cooking. After the meal you thankher and ask her how much you should pay for theexperience. What would her reaction be? Mostpeople report that their mother-in-law would behorrified and the relationship damaged as a result.Why? The offer of money takes the interactionfrom a social norm, built around a reciprocal,long-term relationship, to a market norm thatis more transactional and shallow. Back to yourmother-in-law, would she have accepted a nicebottle of wine for the table as a gift from you?Likely yes, as small, unexpected gifts indicatesocial norms are at play. 26Consider the study of a daycare center wherea $3 fine was imposed for parents picking uptheir children late. When the fine went into place,incidents of late pickups went through the roof.Why? Before the fine was imposed, the daycarestaff and the parents had a social contract—for the
  • 13. Page 11The Inconvenient Truth About Change Managementparents, feeling guilty about being late compelledthem to be more prompt in picking up theirkids. Once the fine was imposed, the daycarecenter had inadvertently replaced social normswith market norms. Free from feelings of guilt,parents frequently chose to be late and pay the fee(certainly not what the center had intended!)27When it comes to change, social normsare not only cheaper than market norms, butoften more effective as well. By way of example,consider the AARP (American Association ofRetired Persons) which asked some lawyers ifthey would offer less expensive services to needyretirees, at something like $30 an hour. Thelawyers said no. Then the program managerfrom AARP had the idea to ask the lawyers ifthey would offer free services for needy retirees.Overwhelmingly, the lawyers said yes. Whencompensation was mentioned the lawyers appliedmarket norms and found the offer lacking. Whenno compensation was mentioned they used socialnorms and were willing to volunteer their time.28Inconvenient Truth #7: A fair process is asimportant as a fair outcomeConsider a bank which, as part of a majorchange program, diagnosed that its pricing didnot appropriately reflect the credit risk that theinstitution was taking on. New risk-adjusted rateof return (or RAROC-based) models were created,and the resulting new pricing schedules deliveredto the frontline. At the same time, sales incentiveswere adjusted to reward customer profitabilityversus volume. The result? Customer attrition(not only of the unprofitable ones) and priceover-rides went through the roof and, ultimately,significant value was destroyed by the effort. Therational change manager scratches his or her headin confusion wondering, “What went wrong?”“Ultimatum games” offer a compelling exampleof the inconvenient truth at play here. Give astranger $10. Tell them they must split the moneywith another stranger however they wish. If theperson accepts the offer, the money is split. If theyreject the offer, no one gets any money. Studiesshow that if the offer is a $7.50/$2.50 split, morethan 95 percent will reject it, preferring to gohome with nothing than to see someone “unfairly”receive three times as much as they do.29You maybe thinking to yourself that with a total pie of $10to share, unequal allocations are rejected onlybecause the absolute amount of the offer is low.Seemingly irrationally, however, the “ultimatumgame” findings are the same even when theabsolute amount of the offer is equivalent to twoweeks of wages.30Employees will go againsttheir own self-interest (read:incentives) if the situationviolates other notions they haveabout the way the world shouldwork, in particular, in relation tofairness and justice.The inconvenient truth is that employees willgo against their own self-interest (read: incentives)if the situation violates other notions they haveabout the way the world should work, in particular,in relation to fairness and justice. In the case ofthe banking price-rise example described above,whether right or wrong, the frontline view of thepricing and incentive changes was that they wereunfair to the customer, a symbol of increasinglygreedy executives losing sight of customer service.Even though it meant they were less likely toachieve their individual sales goals, a significantnumber of bankers vocally bad-mouthed thebank’s policies to customers, putting themselveson the customer’s side, rather than the bank’s.Where possible, price over-rides were then usedto show good faith to customers and inflictretribution on the “greedy” executives.In making any changes to company structures,processes, systems and incentives, changemanagers should pay an unreasonable amountof attention to employees’ sense of the fairnessof the change process as well as the outcome.Particular care should be taken where changeseffect how employees interact with one another(headcount reductions, changes to processes suchas talent management, annual planning, etc.)and with customers (sales stimulation programs,call center re-designs, pricing, etc.). Ironically,
  • 14. Page 12The Inconvenient Truth About Change Managementin the pricing example described above, theoutcome is inherently fair (customers are askedto pay commensurate to the risk the bank istaking on), and therefore the downward spiraldescribed could have been avoided (and has beenby other banks adopting RAROC-based pricing)by carefully tending to employees’ perceptionsof fairness in the communications and trainingsurrounding the changes.D. THE INCONVENIENT TRUTHABOUT CAPABILITY BUILDINGConventional change management emphasizesthe importance of building the skills and talentneeded for the desired change to be successfuland sustainable. Though hard to argue with, inpractice there are two more inconvenient truthsthat demand attention if one is to successfullybuild the needed capabilities.Inconvenient Truth #8: Employees are whatthey thinkMany managers believe in their heart ofhearts that the “soft stuff”—employees’ thoughts,feelings and beliefs—has no place in workplacedialog. “All that matters is that they behave inthe ways I need them to; it doesn’t matter why,”they will say. While rational—behaviors driveperformance after all—this view misses thepoint that it is employees’ thoughts, feelings andbeliefs that drive their behaviors. Ignoring theunderlying mindsets of employees during changeis to address symptoms rather than root causes.Consider an analogy from operationsmanagement. When a motor burns out on amachine on the shop floor it is replaced, right?Effective managers will only replace the engineonce the root causes are known: “Why did themotor burn out?” Because it overheated. “Whydid it overheat?” Because it was insufficientlyventilated. “Why was it insufficiently ventilated?”Because the machine is too close to the wall. Theoperator then moves the machine away from thewall and replaces the motor. Not doing so wouldmean the fix would be short-lived (the new motorwould have quickly burned out too, due to the lackof ventilation). A far better solution is achieved byaddressing the root cause.Let’s see how this applies to changemanagement. Consider a bank that through abenchmarking exercise found that its sales perbanker were lagging the competition. “Why aresales per banker lower?” the rational managerasks. Analysis shows bankers are not spendingenough time with customers. “Why aren’t theyspending more time with customers?” Becausea significant amount of their time is spentcompleting paperwork. With this diagnosis thebank set about reengineering the loan-originationprocess to minimize paperwork and maximizecustomer-facing time. Not only that, bankers areprovided with new sales scripts and easier-to-usetools so that they’ll know what to do with theextra time in front of the customer. Training onthe new processes and tools is administered and,voilà, problem solved. Except for the fact that sixmonths later, the levels of improvement are farlower than envisioned.Ignoring the underlying mind-sets of employees during changeis to address symptoms ratherthan root causes.What went wrong? A further investigationinto “why”, with an eye to the bankers’ mindsets,provides a much fuller view of the root causes:Is there anything about how they think andfeel, or what they believe about themselves andtheir jobs, that explains why they wouldn’t bespending more time with customers? Facedwith a stalled improvement program, the bankin question proceeded down this line of inquiry.They quickly found that most of the bankers inquestion simply found customer interactionsuncomfortable and therefore actually preferredpaperwork to interacting with people (and, inturn, created reasons not to spend time withcustomers). This was driven by a combinationof introvert personalities, poor interpersonalskills and a feeling of inferiority when dealingwith customers who by and large have moremoney and education than they do. Furthermore,
  • 15. Page 13The Inconvenient Truth About Change Managementsupervisors (who had mostly been recruited fromthe banker ranks) were also insecure with theirselling and interpersonal skills, and thereforeplaced more emphasis on managing paper-basedactivity, further exacerbating the problem. Finally,most bankers loathed to think of themselves as“sales people”—a notion they perceived as bettersuited to employees on used-car lots than in bankbranches. Efforts to create “more sales time” flewdirectly in the face of their vocational identity.Armed with these root-cause insights, thebank’s change program was enhanced to directlyaddress the mindset challenges as well as theprocess and tool barriers. Training for bankersand supervisors was expanded to includeelements related to personality types, emotionalintelligence and vocational identity (recasting“sales” as the more noble pursuit of “helpingcustomers discover and fulfill their unarticulatedneeds”). This enhancement not only put theprogram back on track within six months, butalso ultimately delivered sustainable sales lifts inexcess of original targets.Those skeptical of the importance of mindsetsare encouraged to consider the Roger Bannisterstory. Until 1954, the four-minute mile wasconsidered to be beyond human achievement.Medical journals of the day went so far as todeclare it an impossible “behavior.” In May of thatyear, however, Roger Bannister broke this barrier,running the mile in 3 minutes, 59.4 seconds. Whatis perhaps more amazing is that two months laterit was broken again, by Australian John Landy.And within three years, 16 other runners had alsobroken this record. What happened? A suddenspurt in human evolution? Genetic engineering ofa new super race of runners? Of course not. It wasthe same human equipment, but with a differentmindset—one that said “this can be done.”Bannister emphasizes in his memoirs thathe spent as much time conditioning his mindas he did conditioning his body. He wrote, “themental approach is all important… energy canbe harnessed by the correct attitude of mind.”31While perhaps inconvenient, when it comes tobuilding capabilities required for change, webelieve a balance should be struck betweenbuilding technical skills and shifting underlyingmindsets (to enable the technical skills to be usedto their fullest).Inconvenient Truth #9: Good intentionsaren’t enoughIt is well documented that after three monthsadults retain only 10 percent of what theyhave heard in lecture-based training sessions(e.g., presentations, videos, demonstrations,discussions). When they learn by doing (e.g., roleplays, simulations, case studies), 65 percent of thelearning is retained. And when they practice whatthey have learnt in the workplace for a number ofweeks, almost all of the learning can be expectedto be retained.32Accordingly, effective skill-building programs are replete with interactivesimulations and role plays to ensure time spentin the training room is most effective. Further,commitments are made by participants regardingwhat they will “practice” back in the workplace(“My Monday morning takeaway is…”) to embedthe learnings. This is all well and good, exceptthat come Monday morning, very few keep theircommitments.Consider a social science experiment at aPrinceton theological seminary. Students wereasked a series of questions about their personalityand level of religious commitment and then sentacross campus. Along the way, they met a personslumped over coughing and groaning and askingfor medical assistance. Did self-proclaimed nicepeople help more? Absolutely not. Neither didreligious commitment correlate to who providedhelp. The only predictor of the seminarians’behavior was that half were made to think theywere late for an appointment across campus, whilethe others believed they had plenty of time. Sixty-three percent with spare time helped, as opposedto just 10 percent of those in a hurry. When shortof time, even those with “religion as a quest” didnot stop to help.33Given this aspect of human nature, it isunreasonable to expect that most employees willgenuinely practice new skills and behaviors backin the workplace if nothing formal has been doneto lower the barriers to doing so. The time andenergy required to do something additional, oreven to do something in a new way, simply don’texist in busy executives’ day-to-day schedules.Ironically, this is particularly the case in thedays following training programs, when mostmanagers are playing catch-up from their time
  • 16. Page 14The Inconvenient Truth About Change Managementaway. This failure to formalize and create thespace for practice back in the workplace doomsmost training programs to deliver returns thatare at best 65 percent of their potential.We advocate a number of enhancements totraditional training approaches to “hardwire” day-to-day practice into capability-building processes.First, training should not be a one-off event.Instead, a “field and forum” approach shouldbe taken, in which classroom training is spreadover a series of learning forums, and fieldwork isassigned in between. Second, we suggest creatingfieldwork assignments that link directly to theday jobs of participants, requiring them to putinto practice new mindsets and skills in waysthat are “hardwired” into to the things for whichthey are accountable. These assignments shouldhave quantifiable, outcome-based measuresthat indicate levels of competence gained, andcertification that recognizes and rewards theskills attained.Failure to formalize and createthe space for practice back in theworkplace dooms most trainingprograms to deliver returns thatare at best 65 percent of theirpotential.Consider one company’s approach to buildinglean manufacturing capabilities. The first forumoffered a core of basic skills and mindsets inperformance improvement. Fieldwork thenfollowed, involving cost, quality and serviceimprovement targets over a three-month period.Anyone delivering on these targets was awardeda green-belt certification in lean. The next forumprovided much deeper technical system designskills and project and team leadership training.The fieldwork that followed involved participantsredesigning entire areas of the plant floor andoverseeing a portfolio of specific improvementteams—all aspects of which had quantitativetargets (both in terms of financial results, andpeople and project leadership in 360-degreeevaluations). Anyone achieving their fieldworktargets then became a black belt in lean. Thefinal forum built more advanced skills in shapingplant-wide improvement programs in the contextof pressing strategic issues, applying improvementconcepts to more complex operations, andcoaching and mentoring others. Fieldwork againput these lessons into practice with quantitativeimprovement goals attached, resulting in a set of“master black belts” emerging from the program.SHOW ME THE MONEY!So far, we have tested the incremental impactof applying these inconvenient truths in practiceabove and beyond more conventional approachesto influencing behavior in three longitudinalstudies. Each study has employed control versusexperimental group methodologies (comparingimpact with like customer and employeedemographics, ensuring minimal distortions oftrial over a one-year test period). In each of thesecases, the results have been profound.In retail banking, for example, applyingconventional change management approachesin a salesforce stimulation program achieved an8 percent lift in profit per business banker and 7percent per retail banker. While respectable, thiswas below management aspirations of achieving a10 percent lift in both areas. Where inconvenienttruths were acted on beyond conventional changemanagement approaches, however, the programachieved a 19 percent lift in profit per businessbanker and 12 percent per retail banker, farexceeding management’s expectations.34Inthecallcentersofalargetelecommunicationscompany, the results of a customer churnreduction program applying conventional changemanagement approaches resulted in 35 percentchurn reduction, falling short of management’saspiration of a 50 percent reduction. Actingon the inconvenient truths, however, delivered65 percent churn reduction to the delight ofmanagement, employees and customers.An insurance back office which hadimplemented lean operations improvementsfound that performance six months after the“step change” was stagnant, not fulfilling thecontinuous improvement expectations of theprogram. Revamping the program to leverageinconvenient truths, the company has now postedmore than two years of 5 percent improvement
  • 17. Page 15The Inconvenient Truth About Change Management(above and beyond the step change) in cost, qualityand service, exceeding the 3 percent continuousimprovement target built into the budget.As mentioned above, we acknowledgethat our research into the impact of applyingapproaches based on the inconvenient truthsabout change management is still in itsrelatively early days by virtue of the fact thatsustainable impact can only be measured overnumbers of years. The longitudinal examplesmentioned above, however, give us confidenceand motivation to broadly share the thinkingabove.***DavidWhyteoncewrote,“Work,paradoxically,does not ask enough of us, yet exhausts thenarrow part of us we bring to the door.”35Ourresearch and experience has led us to believe thatthe impact of conventional change managementthinkingisheldbackbyexactlythisparadox.Moreactivity is undertaken, less energy is tapped into,and ultimately change impact is disappointing.By acting on the inconvenient truths discussedabove, Whyte’s paradox is at least in part resolvedby tapping into motivations that are uniquelyhuman. In doing so, tremendous individual andorganizational energy for change is unleashed.
  • 18. Page 16The Inconvenient Truth About Change ManagementIn writing this article, the goal has been to highlightthose aspects of change management that aremost counter-intuitive, and therefore most likelyto inhibit change program success. We have notattempted to deliver a holistic recipe for changemanagement. For a comprehensive view of themore rational, conventional elements of successfulchange programs, we suggest the followingreading:A R T I C L E SLeading Change:Why Transformation Efforts FailBy John KotterHarvard Business ReviewMarch–April 1995Businesses hoping to survive over the longterm will have to remake themselves into bettercompetitors at least once along the way. Theseefforts have gone under many banners: totalquality management, reengineering, rightsizing,restructuring, cultural change, and turnarounds, toname a few. In almost every case, the goal has beento cope with a new, more challenging market bychanging the way business is conducted. A few ofthese endeavors have been very successful. A fewhave been utter failures. Most fall somewhere inbetween,withadistincttilttowardthelowerendofthe scale. John P. Kotter completed a 10-year studyof more than 100 companies that attempted sucha transformation. Here he shares the results of hisobservations, outlining the eight largest errors thatcan doom these efforts and explaining the generallessons that encourage success. Unsuccessfultransitions almost always flounder during at leastone of the following phases: generating a sense ofurgency, establishing a powerful guiding coalition,developing a vision, communicating the visionclearly and often, removing obstacles, planning forand creating short-term wins, avoiding prematuredeclarations of victory, and embedding changesin the corporate culture. Realizing that changeusually takes a long time, says Kotter, can improvethe chances of success.Driving Radical ChangeBy Josep Isern and Caroline PungThe McKinsey QuarterlyJune 2006Genuine transformations take place on a scaledifferent from that of routine change programs— and are much harder to pull off. Two of themost urgent challenges are setting appropriateaspirations and mobilizing energy and ideas. Atransformation calls for game-changing ideas, notincremental improvements. Leaders must clarifythis up front and regularly reinforce it, elicitingideas on why change is necessary, what mustchange, who must change, and how to change. Bycreating clear expectations, leaders must initiatedisciplined processes for idea generation anddevelopment. This first phase of every initiativemust include time for creativity, with a challengemechanism built in to avoid incrementalism.Many transformations kick off with a rush ofenthusiasm, only to falter later. To achieve radicalchange, leaders must find ways to reenergize theirorganizations at regular intervals. They can do thisby “fuel-injecting” ideas with six proven catalysts:setting high aspirations; managing pace; engagingat three levels; embedding visible change; buildingcapabilities; and making change personalThe Psychology of Change ManagementBy Emily Lawson and Colin PriceThe McKinsey Quarterly2003 Special Edition: The Value in OrganizationLarge organizational-change programs arenotoriously difficult to run: They involve changingthe way people not only behave at work but alsothink about work. Sometimes, however, changingindividual mindsets is the sole way to improve acompany’s performance. Psychologists in fields ofadult development have made several importantdiscoveries about the conditions that have to bemet before people will change their behavior. First,they must see the point of the change and agreewith it, at least enough to give it a try. Then thesurrounding structures – rewards and recognitionsystems, for example – must be in tune with thenew behavior. People must also see colleaguesthey admire modeling it and need to have the skillsto do what is required of them. Applying any oneof these insights on its own doesn’t have muchimpact. But managers now find that applying allfour together greatly improves their chances ofbringing about lasting changes in the mindsetsand behavior of people in an organization – andthus of achieving sustained improvements inbusiness performance.The Role of the CEO in Leading TransformationBy Scott Keller and Carolyn AikenThe McKinsey QuarteryApril 2007In today’s business environment, incrementalimprovement is not enough – periodicperformance transformation is required toget, and stay, on top. Much has been writtenabout what it takes to transform performancesuccessfully. But what is the CEO’s role in leadingthe transformation? How does the CEO’s role differfrom the role of the executive team or of initiativesponsors?Surprisingly,thereislittlewrittenmaterialthat addresses these questions. Guidance can begiven, however, based on experience derived fromscores of major transformation efforts combinedwith a series of intense research projects over thepast decade. There is no single model for success.The exact nature of the CEO’s role will be context-specific (e.g., influenced by the size, urgency, andnature of the transformation, the capability of theorganization, the CEO’s personal style). This whitepaper outlines four roles that successful CEOs tendto play: making the transformation meaningful,role modeling desired mindsets and behaviors,building a strong and committed team, andpursuing impact relentlessly.The Inconvenient TruthAbout Change ManagementWhy it isn’t working and what to do about itFurther Reading
  • 19. Page 17The Inconvenient Truth About Change ManagementEnd NotesKotter, John, “Leading Change: Why Transformation Efforts Fail”,1. Harvard Business Review, March–April 1995, p 1.For a list of about 100 highly recommended books on change management see Nickols, Fred, 2006.2. http://www.managementlogs.com/2006/04/change-management-books.html. As of March 7, 2008, Amazon had 1,861 books listedunder the official category “organizational change” and 8,604 books under the category of “change.”Examples include Harvard: “Managing Change”, Michigan: “Navigating Change”, MIT: “Planning and Managing and3. Change”, Duke: “Human Assets and Organizational Change”, Columbia: “Organizational Change”, IMD (Switzerland):“Managing Change”, London Business School (U.K.): “Managing Change”, INSEAD (France/Singapore): “Leadership &Change”, ESADE I (France): “Change Management”, Queens University (Canada): “Strategy Implementation & ChangeManagement.”Isern, Joseph and Pung, Caroline, “Organizing for successful change management: A McKinsey global survey”,4. TheMcKinsey Quarterly, June 2006.In 2002, D. Miller reported that 70 percent of change programs fail in “Successful change leaders: what makes them? What5. do they do that is different?”, Journal of Change Management, 2(4), pp 359–68. In 2005, M. Higgs and D. Rowland reportedthat, “Only one in four or five change programs actually succeed” in “All Changes Great and Small: Exploring Approachesto Change and its Leadership”, Journal of Change Management, 5(2), pp 121–51.Composite data from a number of sources that indicate that the reason change programs fail is due to employee resistance6. or management behavior come from the following sources: ed. Michael Beer and Nitin Nohria, Breaking the Code of Change,Harvard Business School Press, 2000; Cameron, Kim S. and Quinn, Robert E., Diagnosing and Changing OrganizationalCulture: Based on the Competing Values Framework, Addison-Wesley, 1999; Caldwell, Bruce , “Missteps, Miscues: BusinessRe-engineering Failures Have Cost Corporations Billions, and Spending Is Still on the Rise,” Information Week, June 20,1994; “State of Re-engineering Report (North America and Europe),” CSC Index, 1994; Goss, Tracy, Tanner Pascale, Richardand Athos, Anthony G., “The Reinvention Roller Coaster: Risking the Present for a Powerful Future,” Harvard BusinessReview, 71, 1998; John P. Kotter and James L. Heskett, Corporate Culture and Performance, Free Press, 1992.Price, Colin and Lawson, Emily, “The Psychology of Change Management,”7. The McKinsey Quarterly, 2003, Number 2,Special Edition: Organization.The leather seats and red pencil examples have been borrowed Ariely, Dan,8. Predictable Irrationality: The Hidden Forces thatShape Our Decisions, Harper Collins, 2008, p. 20 and p. 218.Behavioral economics and behavioral finance are closely related fields which apply scientific research on human and social9. cognitive and emotional biases to better understand economic decisions and how they affect market prices, returns and theallocation of resources. Daniel Kahneman with Amos Tversky and others, established a cognitive basis for common humanerrors using heuristics and biases (Kahneman & Tversky, 1973, Kahneman, Slovic & Tversky, 1982), and developed Prospecttheory (Kahneman & Tversky, 1979). He was awarded the 2002 the Nobel Prize in Economics for his work in Prospect theoryas a psychologically realistic alternative to expected utility theory.See Zohar, Danah,10. Rewiring the Corporate Brain: Using the New Science to Rethink How We Structure and Lead Organizations,Berrett-Koehler, 1997; Barret, Richard, Liberating the Corporate Soul: Building a Visionary Organization, Elsevier, 1998;and Beck, Don and Cowan, Christopher, Spiral Dynamics: Mastering Values, Leadership, and Change, Blackwell Business,1996.Lottery tickets study as described in, Langer, Ellen J., “Chapter 16: The Illusion of Control” in Daniel Kahneman, Paul Slovic11. and Amos Tversky, eds., Judgment under Uncertainty: Heuristics and Biases, Cambridge University Press, 1982.See Barclays’ Personal Financial Services CEO David Roberts, “Easy to Do Business With: The Way Ahead for PFS,” April12. 2002, London, England: Barclays, Reg. # 1026167.Hemp, Paul; Palmisano, Samuel J. and Stewart, Thomas A., “Leading Change When Business Is Good: The HBR Interview13. – Samuel J. Palmisano,” Harvard Business Review, December 2004.Priestland, Andreas and Hanig, Robert, “Development of First-Level Leaders,”14. Harvard Business Review, June 2005.This juxtaposition of the deficit-based and constructionist-based approaches to change is taken directly from Bernard J.15. Mohr and Jane Magruder Watkins, The Essentials of Appreciative Inquiry, Pegasus, 2002.University of Wisconsin research as cited in Bernard J. Mohr and Jane Magruder Watkins,16. The Essentials of AppreciativeInquiry, Pegasus, 2002.Risk-taking research cited in Terry Burnham and Jay Phelan,17. Mean Genes, Perseus, 2000.For further evidence that humans are ‘irrational’ loss avoiders, see Kahneman, D. and A. Tversky, “Choices, Values, and18. Frames,” American Psychologist 39, no. 4 (1984): 341-50.
  • 20. Page 18The Inconvenient Truth About Change ManagementBarber, Brad M. and Odean, Terrance, “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,”19. Quarterly Journal of Economics, 2001. Ross, M. and F. Sicoly, “Egocentric Biases and Availability and Attribution,” Journalof Personality and Social Psychology 37 (1979): pp 322-336. Svenson, O., “Are We All Less Risky and More Skillful Than OurFellow Drivers?” Acta Psychologica 47 (1981): pp 143-148.McKinsey & Company Organization Practice,20. Building Exceptional Leadership Strength, 2005.Note that in an interview with21. Time magazine published August 14, 2000, looking back on his decision, he told writer DanGoodgame: “I know I wasn’t in the greatest position with my swing at the [1997] Masters. But my timing was great, so I gotaway with it. And I made almost every putt. You can have a wonderful week like that even when your swing isn’t sound. Butcan you still contend in tournaments with that swing when your timing isn’t as good? Will it hold up over a long period oftime? The answer to those questions, with the swing I had, was ‘no’. And I wanted to change that.” Rankings reported byHarig, B., “Wood ‘Uncomfortable’ with his Game,” ESPN.com, April 26, 2004.Gladwell, Malcolm,22. The Tipping Point: How Little Things Can Make a Big Difference, Little Brown, 2000.Thompson, Clive, “Is the Tipping Point Toast?”23. Fast Company, February 2008.Sinclair recalled this statement from his 1934 California gubernatorial campaign speeches in his memoir,24. I, Candidate for Governor, and How I Got Licked, Farrar & Rinehart, 1935, p 109.The dime in the photocopier study, Schwarz, Norbert,25. Stimmung als Information : Untersuchungen zum Einfluss vonStimmungen auf die Bewertung des eigenen Lebens, Springer, 1987, pp 12–13.The ‘mother-in-law’ example has been borrowed Ariely, Dan,26. Predictable Irrationality: The Hidden Forces that Shape OurDecisions, Harper Collins, 2008, p. 72.Dubner, Stephen J., Levitt, Steven D.,27. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, Doubleday,2005, p. 19.Ariely, Dan,28. Predictably Irrational: The Hidden Forces that Shape Our Decisions, Harper Collins, 2008: p. 71.The seminal ultimatum game study is by Guth Werner, Rolf Schmittberger and Bernd Schwarze, “An Experimental Analysis29. of Ultimatum Bargaining,” Journal of Economic Behavior and Organization, December 1982, 3(4), pp 367–88. Note thatnew ultimatum game research in the field of neuroeconomics shows us exactly what part of the brain operates the bilateralanterior insula (not part of the prefrontal cortex) in rejecting small offers (As reported by Sanfey, A.G., K.K. Rilling, et al.,“The Neural Bais of Economic Decision-Making in the Ultimatum Game,” Science 300 (2003): pp 1755-1758.Cameron, Lisa, “Raising the stakes in the ultimatum game: experimental evidence from Indonesia,”30. Economic Inquiry 1999,37(1), pp 47–59; This assumption was also tested t by having U.S. participants play the game for $100. They found nodifference between play for $100 and play for $10 as reported in Hoffman, E., K. McCabe, et al., “On Expectations and theMonetary Stakes in Ultimatum Games,” International Journal of Game Theory 25 (1996): pp 289-301Bannister, Roger,31. The Four-Minute Mile, Guildford: The Lyons Press, 1981, p 210.IBM research; Whitmore, “Coaching for Performance.”32. Darley, J. M. and Batson, C.D., “From Jerusalem to Jericho: A study of situational and dispositional variables in helping33. behavior,” Journal of Personality and Social Psychology, 1973, 27(1), pp 100–108.Experimental and control group clusters of bank branches were chosen that matched each other and the organizational34. average on the following dimensions: Performance: NPBT (growth and average over longest coherent period available),economics of customers, average income per customer, industry composition in business banks (split between serviceand manufacturing industry), and characteristics of centers; Staff: performance rating, tenure (+2.5 years min.); and Size:footings per banker. During the study we ensured no distortions of trial occurred in terms of change of management,restructuring of operations, test of other initiatives in an incomplete subset of trial participants. Performance was comparedover 1 year between three groups: 1) No intervention, 2) Salesforce effectiveness improvement program with “rational”change management interventions, 3) Salesforce effectiveness improvement program with “rational” change managementinterventions. This approach is illustrative of all longitudinal studies mentioned.Whyte, David,35. The Heart Aroused: Poetry and the Preservation of the Soul in Corporate America, Doubleday Currency, 1996,pp. 22.