Change with Benefits The Role of Change Management in Targeted Improvement Programs
Introduction The rapidly changing economic environment of the last 12 months has driven an unprecedented need for business transformation to deliver both cost reduction and increased productivity. This demand, in turn, has brought about a renewed focus on the role of change management in ensuring that results are achieved and quantified. The problem, however, is that change management methodologies are often treated as an add-on, rather than being centrally woven into performance improvement initiatives. As a result, change plans often fall significantly short on delivering anticipated benefits. Compass examines misconceptions and pitfalls surrounding the traditional approach to change management, and outlines basic characteristics of a change management strategy that ensures benefit realization. Benefit Erosion The history of change management includes many cases of failed improvement projects. While costly even in times of plenty, failure to capture value from operational change projects in today s business environment simply cannot be tolerated. Research shows a consistently recurring rate of 60 percent to 70 percent of projects failing to deliver. A recent global survey of over 3,000 executives found that only 30 percent could say that their organization had succeeded in achieving a true step change in performance. 1 Fig. A.: Dissipation of benefits begins at the strategic planning stage, and continues through the planning and execution stage, by which time few of the potential benefits remain in the delivery plan. The illustration above maps how benefit erosion results from an inability to link benefits to activities from the outset, and when the focus is on the mechanics of delivery and not the realization of benefit. Keys to Successful Change Management Many organizations address change through both bespoke and standard methodologies to optimize the delivery of select projects that support the corporate vision. Others have an existing organizational view of how to manage change, bound to one particular methodology. While a focus on change management is commendable and correct, these approaches may give rise to the temptation to treat change management as something to be added to the improvement delivery plan rather than woven into it. Compass analyses show that successful change management projects share a set of leading practices. Our Program Assurance methodology defines four essential elements: Define and Communicate Benefits Understand Change as a Process Identify Change Management as a Deliverable Component Formalize Management of Benefits Realization Define and Communicate Benefits The initial business case for the proposed initiative should include the definition of targeted benefits. However, this initial definition is usually only the starting point. Comprehensive communication and the associated promotion of ownership of change are needed to ensure that this definition is meaningful to both the delivery project CHANGE WITH BENEFITS 1
team and to the receiving business area throughout the initiative. Consider the following three statements. All real examples describing the same change: We will achieve a 15 percent reduction in the unit cost of our Claims Handling We will increase productivity by 15 percent across all of our Claims Processing We will be releasing new functionality for our Claims Receipt system, which will reduce the number of cases with missing information being passed to the processing team Each statement describes the same benefit. The point is not that any particular definition is wrong or misleading, but rather that the right definition be communicated to the right audience from the outset. Now, consider the three statements from the perspective of a member of the Claims Processing team, someone who will likely play a role in the delivery of the Claims System Enhancement Improvement Project, e.g. user testing. The three statements may be heard as: We will be cutting 15 percent of you You will need to work 15 percent harder You will have to deal with less waste in your system and processing will be simpler Experience shows that people react to proposed change in entirely different ways, based on how it is first communicated to them. In this instance, the third message will always drive more positive subsequent interaction than will the first two. Where a particular target is to be achieved, change management starts with communication. While metrics are needed to understand the success of the delivery, a project that changes the way someone will work requires up-front communication of that message. Unfortunately, the role of change management is typically made more challenging by an initial project launch, prompting one of the first two responses with a subsequent handover to the change function to make it work. A useful test of change management communication is to ask whether the targeted improvement has been linked to a set of drivers that the business can understand. A defined communications link from each targeted benefit (project language) to the required benefit targets of the business (business language) requires the change management role to involve a high degree of focused communication between the different business entities: customers, end-to-end process elements, support services, business owners, process owners, and executive management. Maintaining this link to the benefit requirement is essential to the ability to actively assess priorities and resolve conflicts as the delivery program unwinds. Responsibility for benefit realization then passes from the governancerich project environment to the more dynamic realm of business ownership. Understand Change as a Process Traditionally improvement programs have focused most of their planning and control activity on the delivery of the components of the project plan, a condition Compass refers to as Gantt blindness. An initial focus on targeted improvement often yields to a drive to just deliver the project. For example, the statement, The ERP implementation has now gone live, becomes an end in itself, with no consideration given to the benefits delivered as a result of the implementation. While good governance is a crucial component of delivery, transformational governance allows for the identification and briefing of change agents as the project unwinds. Consider our hypothetical Claims System Enhancement Project and where the targeted improvement is actually delivered. Key events during delivery include: System specification signed-off Testing signed-off Pilot system launched System go live All of these are necessary steps, but do not deliver the targeted improvement. The reality of most delivery environments is that, with the possible exception of a Post- Implementation Review, they will mark the end of the delivery plan, and the beginning of the benefit erosion. Some equally key downstream events represent the actual benefit (the targeted improvement) being met. While the change management component of delivery must CHANGE WITH BENEFITS 2
recognize these events, both those within and post the delivery plan, only the last represents the actual realization of sustainable business benefit: Productivity using new system is measured and hits target levels Quality and connected processes are not adversely effected Productivity is proved sustainable over a measured business cycle Through release or redeployment FTE levels are adjusted to accommodate new productivity The rest are simply Benefit Triggers necessary, but insufficient to realize sustainable business benefit. Identify Change Management as a Deliverable Component Improvement projects typically focus on the delivery of change to the business, its processes and activities the Benefit Triggers described earlier. Most of our assumed 70 percent benefit erosion occurs when the change is not managed after those benefit triggers have been met. However, reconsider the role of change management as a deliverable component. Reversing the traditional model makes the project plan a sub-component of the wider change management plan affording a level of foresight crucial to tackling benefit erosion. At a high level, the elements of this change management component, in relation to the delivery plan, can be thought of as follows: A map that tracks the delivery objectives to the drivers of benefit to be unlocked in the business, e.g. reduced FTE requirement, system decommissioned, etc., co-developed with the in-scope business area A subset of milestones that represent the Benefit Triggers (i.e. the milestones that mark the delivery of the potential for benefit to the business, and that ensure these are managed as rigorously as the more usual delivery milestones); these milestones are codeveloped with the project / program manager A schedule and nature of benefit release within the business budgets, co-developed with the business owners (and, often, the Finance Team) Fig. B The Benefits Management Domain The Business owns and manages benefits typically through the vehicle of a project. The Change Manager takes a central role with respect to benefits delivery being central to the define manage deliver cycle that any complex change will go through. Change management should be the central cog around which delivery of real benefit is managed. Formalize Management of Benefits Realization To ensure that the targeted improvement is met, Compass advocates the use of a defined Benefit Manager to oversee the communication and change management requirements. The scale of improvement program should determine whether benefits management is discharged as part of a wider change management role, or whether there is a defined benefits manager role. The Benefit Manager works closely with the area(s) where the change is manifest to establish the measurement criteria for each targeted benefit: Cost reduction: How much does each FTE exit save? What are the associated costs? What is the timing vs. annualized saving? Quality enhancement: What are the customer satisfaction metrics: What is the target score? How can we be sure that benefit is attributable to the initiative? At what point is the benefit deemed sustainable by the business? CHANGE WITH BENEFITS 3
Conclusion Businesses have evolved a wide range of methodologies for both program management and change management. However, this parallel development has often created a view that change management must be an addition or overlay to a good delivery plan. In reality, a delivery plan will only create the potential for the target benefit; hence the role of change management must be pervasive and extend beyond the project lifecycle. When required change is specific and targeted, a manifest advantage is gained by recognizing that change management has a critical role from the outset. This recognition forms the common language between change delivery and the business, centering all activity on a clearly defined business benefit. 1 Creating organizational transformations: McKinsey Global Survey Results, The McKinsey Quarterly, August 2008. CHANGE WITH BENEFITS 4
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