Addressing the change constant Successful change from the inside At a glance

Addressing the change constant
Successful change from the inside
PwC Advisory Services
At a glance
Portfolios of change
are the new norm.
How do you effectively
address change from
the inside?
Building internal
change management
competence results in
organizational agility.
Introduction
Portfolios of change are the new norm and their presence demands
that businesses have some form of resident organizational change
management capability. In order to ensure that change will be accepted
and embraced, leaders must address two tough questions: “Does my
organization have what it takes to effectively execute change on a
continual basis?” and “What are our change capabilities and how
can we leverage them for competitive market advantage?”
Successful change
from the inside
75%
of change initiatives fail to fulfill
their stated goals and objectives.
Given the economy’s continued
volatility and uncertainty, the pace,
scale, and complexity of organizational
change initiatives continue to escalate
in organizations around the globe.
In PwC’s 15th Annual CEO Survey,
70% of CEOs told us their
organizations anticipate a change
in their company’s strategy over the
next 12 months. Yet, in the midst
of this sea of unrelenting change,
business leaders have a woefully
low level of satisfaction with the
outcomes of their change initiatives.
75% of change initiatives fail to
fulfill their stated goals and objectives.1
This rate of failure amounts to billions
of dollars of leakage from wasted
resources—rework, opportunity
cost, and lost productivity. Timeto-value is elongated, return on
investment is diluted, and resistance
to undertake more change grows.
1 Source: Mark J. Dawson and Mark L. Jones, PwC, “Human Change Management: Herding Cats” (2007).
2
Addressing the change constant
Regardless, one thing is certain:
change is no longer something
that happens periodically. It’s
continuous, constant and needs
to be successfully managed.
Portfolios of change are the new
norm and their presence demands
that businesses have some form
of resident organizational change
management capability. In order to
ensure that change will be accepted
and embraced, leaders must address
two tough questions: “Does my
organization have what it takes to
successfully and effectively execute
change on a continual basis?” and
“What are our change management
capabilities and how can we leverage
them to contribute to a competitive
market advantage?” It is no longer
sufficient to keep change management
at arms’ length and expect it to happen
in isolation. At a minimum, sufficient
acumen is needed to leverage and
grow existing internal change
champions and to know when and
how best to engage outside help to
support change work. Either way,
an internal change management
capability is a business imperative.
An internal change management
capability contributes to two important
goals: it gives organizations a way to
build a culture that is more amenable
to change, and it helps them inject
greater efficiency, responsiveness,
and speed in their change programs.
As a result, change initiatives can
realize a faster time to value as well
as greater value over time. A change
management capability gives an
organization the ability to be more
agile by introducing, implementing,
and sustaining effective change; and
organizations that already possess
agility in other respects stand to
become even greater competitive
threats with a robust internal change
management capability.
Unleashing your
existing change assets
Market evidence reveals that a growing
number of organizations already have
many elements of a comprehensive
change management capability
in house such as communication
functions, workforce planning
capabilities in HR, learning and
development groups that provide
instructional design and deliver
training, and project management that
can support project work in other areas
of the organization. However, these
elements are, more often than not,
scattered throughout the enterprise—
not aligned, not coordinated, and
marginally leverageable to address
a continuous change environment.
Considering that so many
organizations are engaged in multiple
change initiatives concurrently,
existing competencies are likely to
be overlooked or underleveraged.
By not leveraging existing strengths,
companies end up having to reinvent
the wheel, incurring unnecessary
costs and mobilization delays, and
compounding the risks—of each
initiative individually and of
all, collectively.
So, building a change management
capability is not only a matter of being
able to leverage (and build on) existing
capabilities that are often beyond
the view of most leaders, but also of
capitalizing on these capabilities—
treating them as a key element of
the organization’s responsiveness
and agility. It’s about thinking
prospectively about change—not
just about the immediate short-term
needs, but about how to nurture the
capacity for the organization’s growing
change management needs. Beyond
the individual change initiatives you
might be undertaking right now,
have you stopped to consider what
your portfolio of changes might look
like over the next few years? What
methodologies, processes, capabilities
and people your organization might
need to execute it?
For those organizations that
question the value of internal change
management capabilities, consider the
ramifications and costs of any given
change initiative gone awry. Often,
organizations undertaking a largescale change initiative feel they’re
already spending enough on the
implementation and frequently skimp
on investing in change management
resources. In the end, projects stall
or derail; these companies typically
end up spending far more than
anticipated, and suffering disruption,
distraction, and lost productivity. If
the stakes are high and the initiatives
frequent enough, proactively building
an internal capability is a wise move.
Beyond the individual change initiatives you
might be undertaking right now, have you
stopped to consider what your portfolio of
changes might look like over the next few years?
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Three basic models
for an internal change
management capability
How an organization develops its
change management capability may
vary, depending on the organization’s
distinct culture, needs, characteristics,
circumstances, and the skill levels of its
staff. Practically speaking, though, it’s
rare—if ever—that an organization has
a blank slate from which to begin.
A good starting point is to look
through the lens of your company’s
culture and business model to
determine your general philosophy
about change management and the
people, processes, and tools currently
in place to deliver it. Do you need
a centralized group of people with
a set of change management skills,
methods and tools to serve the needs
of the entire organization? Or do
you want to equip people with the
tools and knowledge to execute
change, deploying those capabilities
throughout the organization with
minimal infrastructure? Or, does
it make more sense to build change
management capability as you go,
project by project, relying on internal
and/or third-party experts to
advance the projects and your
knowledge base and without
building a Center of Excellence
(COE) infrastructure?
An internal change management
capability usually takes one of three
basic forms: a center of excellence,
a leveraged talent model, or a
project-based change model. But
in most organizations, as we’ll see,
the approach morphs over time—
4
Addressing the change constant
a function of resources, organizational
structure (e.g., command-andcontrol or decentralized), or
business environment. Increasingly,
as their capabilities evolve, companies
are applying a hybrid approach that
combines elements of each. Let’s
examine each model, and then look
at real-world examples—chiefly
variations or hybrids of the three.
Center of excellence (COE).
The COE is a stand-alone change
management function with a dedicated
team to manage change initiatives
wherever in the organization they take
place. It generally reports to a member
of the senior management team.
The COE hires multidisciplinary
resources—professionals in
the discipline of change
management—to manage and
support change efforts across all
functional areas of the organization.
These professionals might include
communication specialists,
learning or training specialists,
organizational design specialists,
analysts (to gather and evaluate
trend data, for instance), and others.
The COE develops, promotes, and
maintains the change leadership
philosophy, methodology and
supporting tools to provide a
foundation for the organization’s
change efforts. It also provides
training in these methodologies,
processes, and tools to build change
expertise. Finally, a COE supports
executives and project managers in
communication, change-readiness
analysis, training, organizational
development and transition, and
stakeholder engagement.
Leveraged talent. In this model,
a change management capability is
built through a talent management
framework, the components of which
are typically managed in concert with
the line organization and human
resources. The capability is distributed
throughout the organization; that
is, the organization either identifies
change leaders from throughout the
enterprise to develop change skills and
form a change network throughout
the enterprise, or it develops a defined
set of change competencies in all
associates. It provides training in the
core change leadership competencies
it has identified—competencies that
are incorporated into hiring profiles,
training programs, leadership
development plans, performance
management guidelines, and pay and
incentive plans. In addition, education,
developmental assignments, coaching
and mentoring are integrated to
transform top-line managers into
competent change leaders. Trained
associates are enlisted for their change
skills whenever they may be needed,
for large or small, formal or informal
change initiatives.
Organizational structures, roles and
responsibilities are often revised
to provide change leaders with the
bandwidth to wear two hats: one
for their day-to-day role and one for
their new role as stewards of change.
This model also involves developing a
change methodology and supporting
tools to provide a foundation for the
organization’s change efforts. It also
includes continuing education to
maintain and develop skills.
How an organization develops its change
management capability may vary, depending
on the organization’s distinct culture, needs,
characteristics, circumstances, and the skill
levels of its staff. Practically speaking, though,
it’s rare—if ever—that an organization has a
blank slate from which to begin.
Project-based change. This
approach brings change management
capabilities to bear in a projectcentric rather than strategic manner.
Rather than invest to build the
capability broadly, the organization
often engages third–party expertise
to provide or supplement internal
change management capabilities on
an as-needed basis. With project-based
change, the organization defines and
establishes point-of-need change
competencies as each project arises.
Project-based change optimizes the
level of internal change leadership
competencies by assigning change
managers to specific change initiatives.
Not infrequently, companies will use
project-based change and third-party
support to equip their organizations
thorough knowledge transfer
plans, so that the company verifies
that methods, tools, processes and
outcomes continue to reside within
the organization. With each new
project, the organization ends up
expanding the number of people
trained in change management skills.
The project-based approach allows
the organization to have a baseline
capability and gain knowledge transfer
without making the commitment to
dedicate resources to change efforts
on an ongoing basis.
There is nothing “one-size-fits all”
about internal change management
capabilities. The three models serve
as basic frameworks that most
organizations will need to customize
by combining elements of more than
one. Each model has its pros and cons
(See the following page).
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5
The pros and cons
of the three basic
internal change
capability models
The design of an internal change capability depends on each company’s
unique needs, resources, and goals. As a result, the pros and cons of
each model can only be assessed in this context.
This table compares key pros and cons of each basic model for two
companies with different organizational structures and circumstances.
Scenario 1:
Large multi-state company; grew mainly by acquisition; units are largely autonomous;
few centralized functions
• Starting point: a geographically dispersed employee network focused on building a common company culture
• Goal: building a change management capability to support a portfolio of primarily strategic initiatives at
the enterprise level
6
Model
Pros
Cons
Center of
Excellence
(COE)
•Greater potential for strategic impact and
likelihood of success
•Consistency
•Efficient, sustainable
•Ease of accountability
•Incubator for innovation
•Staffing options
•Capacity limitations: Support coverage limited
by size of team
•Less staffing flexibility re: shifting workload
•Managing demand can be challenging; need
to prioritize and rationalize projects
•Limited reach due to autonomy and
geographic dispersal
•COE structure centralizes knowledge, making
it harder to embed change throughout
Leveraged
talent
•Talent pool in place in its culture change
network- Existing network has “reach” into
siloed facilities; can touch local level
•Close to the business; understands business
and challenges
•Staff’s local-level focus may require negotiating
to enable enterprise involvement. Harder to
manage staff time and priorities
•Geographic dispersion and decentralized
relationships complicate development and
consistent application of standardized change
methodology and tools
•Role accountability: no easy point of contact
for senior leaders who need help
•Need for training is significant to build
capability throughout organization
Project-based
change
•Talent pool in place in its culture change
network- Existing network has “reach” into
siloed facilities; can touch local level
•Close to the business; understands business
and challenges
•Less efficient; not sustainable:
–– repeated learning curves and inefficiencies
with each project
–– ever-changing resources complicates
development and consistent application of
standardized change methodology and tools
–– reliance on third-party resources may result
in multiple (and incompatible) approaches
•Use of third-party resources may not
necessarily prevent disruption or need for
internal resources: third-party resources may
lack sufficient organizational knowledge to
work independently
Addressing the change constant
The pros and cons of the three basic
internal change capability models
(continued)
Scenario 2:
Large manufacturer with facilities clustered in one region; grew primarily organically;
many support functions (finance, IT, sourcing) are centralized
• Starting point: Has several immediate and critical initiatives, but organization has little history in
proactively leading change
• Goal: Capability to manage change continuously
Model
Pros
Cons
Center of
Excellence
(COE)
•Same as COE pros for Scenario 1, plus…
•Geographic containment and consolidated
functions make it easier for COE to reach
into organization
•Capacity limitation: coverage depends on team
size
•Staffing inflexibility; not easy to add or reduce
staff to conform to workloads
•Scope limitation: by centralizing knowledge,
embedding change broadly may be difficult
•Managing demand can be challenging
Leveraged
talent
•Model explicitly recognizes that change is
constant, must be managed effectively, and
is a shared enterprise responsibility
•Close to the business; understands business
and challenges
•Lack of trained resources in house
•Need for training significant to build capability
throughout organization
•Staffing inflexibility: harder to manage time
and priorities of leveraged resources, given
their core responsibilities
•Less efficient and sustainable: dispersed talent
pool may make development and consistent
application of standardized methodology and
tools difficult
•Role accountability: no easy point of contact
for senior leaders who need help
Project-based
change
•Low-risk approach to developing capability
•Can be mobilized quickly for immediate,
short-term needs
•Staffing flexibility: easy to expand or contact
based on needs
•Accountability clear, established on
project-by-project basis
•Less efficient; not sustainable:
–– repeated learning curves and inefficiencies
with each project
–– ever-changing resources complicates
development and consistent application of
standardized change methodology and tools
–– reliance on third-party resources may result
in multiple (and incompatible) approaches
•Use of third party resources may not necessarily
prevent disruption or need for internal
resources: third-party resources may lack
sufficient organizational knowledge to work
independently
•Training need is significant to bring internal
resources up to speed
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Hybrids predominate,
and for good reason
For most organizations, some
permutation of the three basic
models is generally most appropriate.
The design and evolution of an internal
change capability should be based on
the organization’s current, as well as
anticipated future—strategic needs
and circumstances.
Consider the following
real-world illustrations.
A Center of Excellence—
as a Starting Point
(Leading Insurer)
A leading insurance company
approached PwC for help in planning
a sweeping multi-year transformation
of its largest division: aligning more
than 10 different business units
to one operating model. Basically,
the organization wants to use its
technology, business processes,
and data insights in a consistent
way across the enterprise for
product development.
8
Addressing the change constant
In the past, large-scale transformations
at the company had failed, chiefly
because the organization had
overlooked the people and structural
barriers to change. For those reasons,
the company decided that a center
of excellence would be a sensible
starting point for its internal change
management capability. Ultimately, the
company will evolve this capability into
a hybrid of the three models.
PwC was enlisted to help with two
goals: helping the organization assess
its readiness for change by identifying
enablers and barriers; and using those
insights to (among other things) help
it understand how best to develop and
build an internal change capability.
Even before settling on a COE, the
company took early steps to build
a knowledge repository containing
change management models and best
practices and tools, and it instituted a
knowledge transfer program to support
continuous improvement.
The COE is designed to reside within
the HR organization, although it
is proactively developing partner
relationships with other areas of
the organization, such as strategic
planning, the enterprise PMO, IT
(as a strategic partner) and with the
senior leadership team that is driving
transformation. The initial focus is on
change communications—a function
independent of the company’s internal
communication function.
A Leveraged Talent/Center
of Excellence Hybrid
(Healthcare corporation)
For highly decentralized organizations,
with largely autonomous units and
no unified culture, a pure center of
excellence approach isn’t always
practical. That is the case for a large
regional healthcare organization
that operates multiple hospital
systems throughout several states.
The company grew by acquisition,
so its units are not only geographically
dispersed, but are also culturally
different. Building on what is
essentially a leveraged talent model,
the company is creating a hybrid
that incorporates elements of a
center of excellence.
The organization initially focused on
cultivating a common culture through
the development and leverage of a
culture change network. Guided by
a small group of dedicated internal
culture change consultants, the
company has trained and dispersed
culture champions throughout the
organization. As the company’s culture
work has evolved and expanded, that
small group of internal consultants
has become the heart of change
management for the company. The
team is now expanding its efforts
beyond culture into other critical
strategic initiatives to benefit the
whole organization.
PwC was enlisted to help with two goals: helping
the organization assess its readiness for change
by identifying enablers and barriers; and using
those insights to (among other things) help it
understand how best to develop and build an
internal change capability.
When Change Capability
Fuels Demand for Change:
The Evolution of a Center
of Excellence (Healthcare
Services company)
Five years ago, a Fortune 100 health
care services company built a center
of excellence in the IT organization
serving one of the two major business
areas—the one generating most of
the company’s revenues. The center,
created to support the business’s
growing number of change initiatives
was staffed with a director and eight
direct reports who were supported
by 18 external consultants. In recent
years, the center’s success with IT
projects hardly went unnoticed; other
business leaders saw how much more
smoothly projects were going. Leaders
began seeking the help of the COE for
initiatives beyond IT projects. This
led to an expanded scope: supporting
strategic business transformations
such as acquisition integrations. So as
a result of its success with IT projects,
the company’s COE actually increased
demand for change management.
More recently, the company decided
to consolidate its IT organizations into
one umbrella IT group, which meant
that change management functions
would be integrated. The change
management director called in PwC
to help him assess the capabilities
of the existing center and its ability
to accommodate an increasing
demand for its services, both in
IT change initiatives as well as
business transformations.
Relying on the center’s five-year history
and evolution to broader initiatives,
PwC was brought in to assess existing
capacity and develop a future-state
strategy and road map. The center
already had a strategy, operating
model, structure, and governance
mechanisms in place, along with
change management methods,
tools, and metrics. PwC interviewed
internal customers and business and
functional unit leaders to identify
key considerations, addressing such
issues as future scalability, accessibility
of services thru multiple channels,
and how to strengthen strategic and
operational capabilities.
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9
such as engaging leaders and
mobilizing employees, creating
a governance structure, aligning
people, setting accountabilities,
and sustaining motivation.
The building blocks
of high-quality
change management
The most important aspect of
any change initiative—the makeor-break aspect—is the human side.
In fact, 98% of critical success factors
for change are people-dependent2:
Our approach to embedding
successful change management
is therefore fundamentally based
on driving positive change through
people, rather than on driving
people through change. We believe
this is the best way to secure
stakeholder engagement and
create sustainable change.
Figure 1: Building blocks of high quality change
This building-blocks approach
to change management is
designed to drive positive
change through people rather
than driving people through
a change. The ten building
blocks combine strategic
elements with transactional
tools and methodologies,
interacting with and
reinforcing each other.
2 Source: PwC Management Barometer.
10
Addressing the change constant
Workforce
transition
Project and program management
Transformation
vision
Change impact
and readiness
Training
Leadership
alignment
Communication
Adoption
Stakeholder
engagement
Cultural
changes
Sustainability
Eyes on the prize: The ROI
of change management
Whatever approach an organization
chooses, to be robust and sustainable,
the internal change management
capability should be built on a
foundation of ten building blocks—
fundamental capabilities that address
these critical human elements—from
leaders articulating a vision of the
change program’s impact, to assessing
readiness for change and creating
workforce transition plans and training
programs. (See Figure 1 on page 10.)
The blocks, a mixture of strategic and
transactional components, interact
to foster and reinforce the behavioral
changes needed to achieve the
desired benefits.
Building internal change management
competence produces multiple
long-term benefits. Companies
continue to improve at change
management, yielding more efficient,
more effective, future change
initiatives—thus boosting the
ROI of every future initiative.
Getting the maximum ROI from change
management depends on having highquality change management practices,
delivered through a mature program
management framework in an agile
organization—three elements we call
the “Change Trifecta.4”
Although companies rarely measure
the cost of change management,
evidence exists that links the quality
of the change management program
to the return on investment of the
change. A study of 40 large-scale
change projects at large companies
showed that change programs
ranked excellent by leaders yielded
an ROI of 143%; programs that were
poor or nonexistent delivered an
ROI of only 35%.3
Although companies rarely measure the cost of change management,
evidence exists that links the quality of the change management program
to the return on investment of the change. A study of 40 large-scale
change projects at large companies showed that change programs ranked
excellent by leaders yielded an ROI of 143%; programs that were poor
or nonexistent delivered an ROI of only 35%.
3 Source: LaClair, J. & R. Rao, Helping Employees Embrace Change, McKinsey Quarterly,
November 2002.
4 Source: The Change Trifecta, PwC 2012.
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Accelerating change,
accelerating value
If the ability to respond and
adapt to rapid change matters,
then organizations must be able
to accomplish change fast. A
high-quality change management
capability recognizes the importance
of speed. And faster execution, we now
know, leads to better outcomes. In a
recent study, hundreds of executives
worldwide were asked to rate their
company’s overall speed of execution:
defined as both time to value and value
delivered over time. Those executives
who rated their companies “fast”
enjoyed 40% greater sales growth
and 52% higher operating profit
than those who considered their
execution to be slow.5
How did these companies achieve
speed? The “faster” companies, it
turns out, didn’t get that way by
compressing schedules to accelerate
implementation. Instead, they focused
on the human factors—specifically,
establishing clarity, unity, and agility
5 Source: Davis, J.R., H. M. Frechette, Jr., and E. Boswell, Strategic Speed: Mobilize People,
Accelerate Execution, Harvard Business Press 2010.
6 Source: See The Change Trifecta, ibid.
12
Addressing the change constant
(in that order) up front as the basis for
the initiative. These elements feed off
each other, and in combination, foster
openness and innovative thinking—
which, in turn, reinforces speed.
Investing in an internal change
management capability helps
organizations gear themselves toward
future success. Leaders needn’t shun
future change because of the fear
of failure. They can be confident in
their organization’s proven ability to
navigate change initiatives. Success,
as we saw in the case of the Healthcare
Services company, fuels demand for
change management services. In turn,
as they embrace change more readily,
companies gain agility—and enhance
their competitive advantage. In other
words, companies that invest in the
discipline of change management end
up with an enduring benefit.6
As we’ve also shown, there is no
cookie-cutter approach to building
the internal change management
capability. The path an organization
takes should recognize the
organization’s life cycle relative to
its external environment, its existing
capabilities and the resources it has
available, as well as its culture.
What worked five years ago may
no longer apply. Creating the right
approach involves tradeoffs, planning,
and a keen understanding that
change management, like change
itself, is fundamentally unique to
every organization.
www.pwc.com/us/peopleandchange
To have a deeper conversation about change at
your organization, please contact:
Ed Boswell
Principal
US Leader, Advisory, People and Change
+1 (617) 530-7504
[email protected]
Toni Cusumano
Principal
Advisory, People and Change
US Change Management Leader
+ 1 (415) 307-7376
[email protected]
Paul Joyce
Director
Advisory, People and Change
+1 (704) 344-7569
[email protected]
Jenna Rosenberg
Manager
Advisory, People and Change
+ 1 (612) 280-7885
[email protected]
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