Monday, December 14, 2009

Six Way Formula to implement Change management

1. Address the “human side” systematically. Any significant transformation creates “people issues.” New leaders will be asked to step up, jobs will be changed, new skills and capabilities must be developed, and employees will be uncertain and resistant. Dealing with these issues on a reactive, case-by-case basis puts speed, morale, and results at risk. A formal approach for managing change — beginning with the leadership team and then engaging key stakeholders and leaders — should be developed early, and adapted often as change moves through the organization. This demands as much data collection and analysis, planning, and implementation discipline as does a redesign of strategy, systems, or processes. The change-management approach should be fully integrated into program design and decision making, both informing and enabling strategic direction. It should be based on a realistic assessment of the organization’s history, readiness, and capacity to change.

2. Start at the top. Because change is inherently unsettling for people at all levels of an organization, when it is on the horizon, all eyes will turn to the CEO and the leadership team for strength, support, and direction. The leaders themselves must embrace the new approaches first, both to challenge and to motivate the rest of the institution. They must speak with one voice and model the desired behaviors. The executive team also needs to understand that, although its public face may be one of unity, it, too, is composed of individuals who are going through stressful times and need to be supported.

Executive teams that work well together are best positioned for success. They are aligned and committed to the direction of change, understand the culture and behaviors the changes intend to introduce, and can model those changes themselves. At one large transportation company, the senior team rolled out an initiative to improve the efficiency and performance of its corporate and field staff before addressing change issues at the officer level. The initiative realized initial cost savings but stalled as employees began to question the leadership team’s vision and commitment. Only after the leadership team went through the process of aligning and committing to the change initiative was the work force able to deliver downstream results.

3. Involve every layer. As transformation programs progress from defining strategy and setting targets to design and implementation, they affect different levels of the organization. Change efforts must include plans for identifying leaders throughout the company and pushing responsibility for design and implementation down, so that change “cascades” through the organization. At each layer of the organization, the leaders who are identified and trained must be aligned to the company’s vision, equipped to execute their specific mission, and motivated to make change happen.

A major multiline insurer with consistently flat earnings decided to change performance and behavior in preparation for going public. The company followed this “cascading leadership” methodology, training and supporting teams at each stage. First, 10 officers set the strategy, vision, and targets. Next, more than 60 senior executives and managers designed the core of the change initiative. Then 500 leaders from the field drove implementation. The structure remained in place throughout the change program, which doubled the company’s earnings far ahead of schedule. This approach is also a superb way for a company to identify its next generation of leadership.

4. Make the formal case. Individuals are inherently rational and will question to what extent change is needed, whether the company is headed in the right direction, and whether they want to commit personally to making change happen. They will look to the leadership for answers. The articulation of a formal case for change and the creation of a written vision statement are invaluable opportunities to create or compel leadership-team alignment.

Three steps should be followed in developing the case: First, confront reality and articulate a convincing need for change. Second, demonstrate faith that the company has a viable future and the leadership to get there. Finally, provide a road map to guide behavior and decision making. Leaders must then customize this message for various internal audiences, describing the pending change in terms that matter to the individuals.

A consumer packaged-goods company experiencing years of steadily declining earnings determined that it needed to significantly restructure its operations — instituting, among other things, a 30 percent work force reduction — to remain competitive. In a series of offsite meetings, the executive team built a brutally honest business case that downsizing was the only way to keep the business viable, and drew on the company’s proud heritage to craft a compelling vision to lead the company forward. By confronting reality and helping employees understand the necessity for change, leaders were able to motivate the organization to follow the new direction in the midst of the largest downsizing in the company’s history. Instead of being shell-shocked and demoralized, those who stayed felt a renewed resolve to help the enterprise advance

5. Create ownership. Leaders of large change programs must overperform during the transformation and be the zealots who create a critical mass among the work force in favor of change. This requires more than mere buy-in or passive agreement that the direction of change is acceptable. It demands ownership by leaders willing to accept responsibility for making change happen in all of the areas they influence or control. Ownership is often best created by involving people in identifying problems and crafting solutions. It is reinforced by incentives and rewards. These can be tangible (for example, financial compensation) or psychological (for example, camaraderie and a sense of shared destiny).

At a large health-care organization that was moving to a shared-services model for administrative support, the first department to create detailed designs for the new organization was human resources. Its personnel worked with advisors in cross-functional teams for more than six months. But as the designs were being finalized, top departmental executives began to resist the move to implementation. While agreeing that the work was top-notch, the executives realized they hadn’t invested enough individual time in the design process to feel the ownership required to begin implementation. On the basis of their feedback, the process was modified to include a “deep dive.” The departmental executives worked with the design teams to learn more, and get further exposure to changes that would occur. This was the turning point; the transition then happened quickly. It also created a forum for top executives to work as a team, creating a sense of alignment and unity that the group hadn’t felt before.

6. Communicate the message. Too often, change leaders make the mistake of believing that others understand the issues, feel the need to change, and see the new direction as clearly as they do. The best change programs reinforce core messages through regular, timely advice that is both inspirational and practicable. Communications flow in from the bottom and out from the top, and are targeted to provide employees the right information at the right time and to solicit their input and feedback. Often this will require over-communication through multiple, redundant channels.

In the late 1990s, the commissioner of the Internal Revenue Service, Charles O. Rossotti, had a vision: The IRS could treat taxpayers as customers and turn a feared bureaucracy into a world-class service organization. Getting more than 100,000 employees to think and act differently required more than just systems redesign and process change. IRS leadership designed and executed an ambitious communications program including daily voice mails from the commissioner and his top staff, training sessions, videotapes, newsletters, and town hall meetings that continued through the transformation. Timely, constant, practical communication was at the heart of the program, which brought the IRS’s customer ratings from the lowest in various surveys to its current ranking above the likes of McDonald’s and most airlines.

Thursday, December 10, 2009


Projects can be of varying sizes and complexities. It involves a set of elements such as Cost, Time and Resources. These elements are no doubt the driving force of projects. The sufficiency or otherwise of these elements defines the success or failure of a project. It is important to state that an element that drives a project needs to be controlled. When projects fail, often times, people are blamed and queried either for their action or inactions.

A project is likely not to fail if a methodology exist and more importantly, if it is adhered to. A very good methodology is PRINCE2. This methodology has proven over time to be a set of best practices which if followed on projects, the outcome is Success!

Below are some of the reasons why Projects fail.

1. Lack of a Business Case: A business case as it were is the justification for embarking on a project.

2. Poor estimation of cost

3. Poor estimation of time

4. Lack of control check which results in sub standard products

5. Lack of objective project status review

6. Poor communication with project owners

7. Non adherence to product acceptance criteria

8. Lack of ownership of project management roles

9. Poor scheduling as a result of poor coordination of resources.

10. Lack of planning

Introduction to Governance, Risk and Compliance (GRC)

What is Governance, Risk and Compliance (GRC)?

GRC is acronymic for Governance, Risk and compliance. The need to gain investors confidence and the continuous rollout of regulations and legislation that borders on how business is conducted can be adjudged the drivers of GRC.

These set of words are closely related and should be not approached from a disjointed point of view, but as a holistic concept that should drive business activities. I do not intent to explain these concepts in detail in this post. The intent of this post is to define these concepts especially as it applies to business processes.

The G in GRC is for Governance. Governance revolves round the policies, principles, procedures and strategies within which a corporation operates. This suffices to say that governance is a definition of standards and strategies that guides the operation of a business entity. This concept involves the direction of the affair of a business. The responsibility of governance to a large extent lies with executive committee or top management of an organization.

The R in GRC is for Risk. Risk basically is the uncertainty of an event occurring. The events need not to be necessarily unfavorable. The fact that its impact posses some sort of ambiguity makes it important to manage and control risk. Not properly reacting to risk can spell doom for an organization. Risk management involves a set of activities which includes identifying, analyzing, reacting and monitoring risk.

The C in GRC is for Compliance. Compliance is simply adhering to defined policies, procedures, strategies, legislations and regulations. Compliance is a doing word and it is of course ongoing. There is more to having policies and procedures defined, compliance actually justifies their existence.

Governance is a “top management” activity that defines the rules that guides the day-to-day running of a company. These procedures and policies are not static because businesses too are dynamic and legislations and regulations changes thereby impacting on the way businesses run. In doing business, individuals and organizations are expected to comply with defined procedures and policies within the framework allowed. There are inherent risks involved in carrying out business transactions. Risk management entails the enforcement and implementation of procedures and policies. The cost of non-compliance is huge and grave both for the investor and the organization.

Doing business in this era of stringent legislations, stiff competition, credit crunch, global economic recession, globalization and unfavorable investment climate is a complex puzzle for any corporation to demystify. Hence, for companies to compete favorably, it is expedient to adopt an integrated methodology to governance, risk and compliance.

A Concise Overview of Accelerated SAP (ASAP) Methodology

ASAP is SAP’s solution to effective project implementation and management.

It is divided into 5 major phases namely:

1. Project Preparation
2. Business Blueprint
3. Realization
4. Final Preparation
5. Go Live and Support

Project Preparation
1. Initial project Planning, scoping and goal setting
2. Implementation strategy
3. Team formation
4. Project Kickoff
5. Training

Business Blueprint

1. Refining goals and objectives
2. Requirement gathering
3. As-Is & To-Be documentation
4. Gaps Analysis
5. Documentation

1. Business Process Requirement implementation based on defined blueprint
2. Baseline configuration and confirmation
3. Integration configuration
4. System management
5. Final configuration and confirmation
6. Development of program interfaces

Final Preparation

1. Unit testing
2. Integration Testing
3. User training
4. System management
5. Cutover

Go Live and Support
1. Migration to production environment
2. Support
3. Monitoring
4. Performance optimization

Objectives of Corporate Governance in an SAP Environment

Governance is a buzzword that has both technical (IT) and business (Corporate) implications. Suffice to say that it is intended to provide direction and add value to a business while leveraging technological possibilities. Corporate Governance can be defined as the management approach, processes and procedures that are in place to ensure that a business is managed profitably. IT Governance on the other side seeks to align IT with the business needs by providing appropriate directions and conducive environment aimed at optimizing the business environment with applications and systems. The SAP ERP system supports corporate governance via the provisioning of functionalities for strategic management, audit information system, business consolidation, management of internal control and performance management among others.

The objectives of corporate governance can be discussed under the following subject areas:

1. Transparency: Transparency is key in gaining shareholders and investor’s confidence in a business. The SAP system allows for online real-time access to information that can be used for decision making. Before transactions are posted into the system, it is important to ensure that processes leading to the transaction are very transparent. Corporate governance encourages organizations to make sufficient disclosures about their financial statement. Internationl Financial Reporting Standards (IFRS) is very strong in this regard, especially as it requires more disclosures when compared to local standards.

2. Efficiency: Corporate governance seeks to bring effectiveness and efficiency to processes and operations of an entity. Continually, processes should be reviewed to ensure that they are effective and in line with corporate objective and strategy. This is what corporate governance aims to achieve. Processes such as period end closing, stock taking, modification are expected to be carried out in an effective and efficient manner.

3. Monitoring: Continuous monitoring and compliance with regulations and pronouncements is an important objective of corporate governance. On a defined basis, an entity must make sure that new regulations are adopted as at when due to avoid the attendant implications – jail term, loss of brand and image etc.

Central to achieving these objectives are appropriate tools – technology and systems. Hence, to effectively enforce corporate governance, IT governance is Key!

Thursday, December 3, 2009

How To Engage Employees With Technology Based Change

When you think about the millions of dollars organizations spend each year on IT programs of work, wouldn't it be prudent knowing that employees actually understand and most importantly embrace the reason behind the changes? There is one way of ensuring that employees and their managers have got the message and truly understand the reasons for the new system implementation. And that is the means that you communicate change.

Let's start with reviewing how most organizations manage technology based change. If your organization's approach to this type of change is new skills training and employee communication strategies that include stakeholder management (translated briefings), intranet and email updates then that's not managing change, rather it is focussed on information. So what is the difference and why do we need to do anything more than provide information?

IT systems are not introduced for the sake of a new system itself, they are introduced because there are benefits to be realised from a business management perspective. This may include more information on customer profiles and identifying other products or services clients may be interested in purchasing, the chagnes might focus on back office systems such as greater information for human resources management or accounting or they may focus on the supply chain and logistics. Whatever the reason there is a business reason for change and this is what employees need to understand if the full benefits of any system implementation is going to be realised.

Let's look at an example. This financial services organisation was introducing a new back office system. In the past employees worked in separate divisions so customers were transferred from one area to another to process their request. The new system meant that all of the customer details were now available to employees and that they would now work in teams and "own" the customer from the commencement to end of transaction. It was a complete system and work style change so before specific system training was introduced a simulated work area was established and employees were taken through the customer experience. It was important that they understood the benefits to the customer by looking at the changes through the eyes of the customer. This way we created the "Aha" moment, employees got the message better than any intranet, information session or email bulletin could have conveyed it. And when employees went into system training they clearly understood the benefits and business reasons behind the changes.

The five key things to remember when communicating technology changes.

1. Be very clear about the business reasons for the changes – who will benefit and what will those benefits be?

2. Establish why those benefits are important? What will the impact be on the organization?

3. Decide the key messages for your information strategy – what will you need to communicate, to whom and when?

4. Concurrently design an engagement strategy at key points in your project plan that will engage employees at all levels in the reason for the technology changes.

5. Remember to ensure engagement the message is not about the system itself but about the business reasons for the changes.

Finally, as change management professionals can we take the same approach to managing system changes and apply it to every new organization? The answer is clearly no because as every organization's culture is different, so it follows that every approach to change management and employee communication must be different to maximise the investment and potential of the system changes that are implemented.

Building a Foundation for Organizational Change

Making change happen is one of management’s perennial challenges. If you want a current example, just look at the CMO Council’s recent Marketing Outlook Report 2007. The top priority for CMOs is listed as ‘quantifying and measuring the value of marketing programmes and investments’. That sounds like it involves a whole lot of change: Change in what gets measured, change in how it gets measured and change in who does the measuring. And then there is all the change associated with using the measures to drive the business forward. The other nine priorities listed involve just as much if not even more change. I think you get the picture.

Change folklore suggests a number of foundation stones that must be put in place for real change to happen:

An Urgent Reason to Change
The first of these is an organisational crisis. One where doing nothing is not an option. A crisis forces the organisation to face reality and to prepare for the difficult journey to the new organisation. But a crisis by itself is just a recipe for organisational anarchy. The crisis must be managed in a way that it can be turned into an opportunity to grow stronger, not just an opportunity to survive in a weakened state.

Long-term Management Support
The second foundation stone is top-management support for the change. Top management support is necessary if middle-management is to take the change seriously. Otherwise middle management won’t make time for their direct reports to make the changes happen. And the change won’t become embedded in the organisation as daily business takes priority. But top management often starts change only to go on to start a newer change a short time afterwards. Top management must support the change over the 18-36 months required to embed the change into the new organisation as daily business.

Open & Honest Information
The third foundation stone is open and honest information about the change. Staff don’t like being told what to do. Least of all by ‘overpaid suits’ who don’t understand what life on the front-line is really like. They prefer to understand the nature of the change required and to decide themselves to engage. Change is an emotional process, not a cognitive one. Staff need to feel that the change is value-adding for them and that they have a real role to play in making it happen. But staff are very good at outing information where management says one thing, but does something else instead. Management must be open and honest with staff if the information is to be credible.

Experiential Training
The fourth foundation stone is training in the new world of work. Change is by its very nature new and frightening. Even positive change can quickly become negative if staff don’t know what it means for them personally. Staff need experiential training in the new way of work that the change will introduce. This will provide the foundation that staff need to start to make changed work into daily business. But training by itself only accounts for about 40% of the ‘training effect’. The other 60% comes mostly from providing staff with post-training support once back at the workplace.

Measures, Rewards & Punishments
The final foundation stone is measures, rewards and punishments that reinforce the change. We are all creatures of habit. This is rooted in the brain’s preference for routine activities that don’t consume much cognitive energy. That means the change must be supported by appropriate measures and rewards that reinforce the desired new behaviours. It may also mean punishing the wrong old behaviours. But they must be applied with care. No organisation wants alienated staff who were forced to change but whose heart and mind wasn’t really in it.

In a subsequent post I will set out how change actually occurs in organisations that have developed these foundations.

What do you think? Do you recognise all of these foundation stones in your own change programmes? Or is change something that never quite sticks in your organisation?

by Graham Hill

Appease the Brain and Reduce the Resistance to Change

In view of the dozens of studies conducted over the last 10-plus years, it's clear that companies that embark on CRM without organizational change management (OCM) can expect poor results. Yet, companies continue to do this. The common thread in all of Hitachi Consulting's OCM cases studies is that OCM provides greater economic value faster by effectively developing, deploying and aligning the company's assets on a project.

We often find ourselves asked to rescue projects—even some that are reported to have OCM. We've learned that not all OCM methodologies provide a high project ROI. Why not? Most people think positive project results begin immediately.

But this simple misconception leads most projects astray. Our research shows the reality of all project timelines compared to business performance. The first characteristic of a good OCM methodology is that it reduces this inevitable productivity drop and project timeline creep by managing change throughout the project's lifecycle.

The second important aspect of a good OCM program is that it helps leaders understand the biology of change. Without this understanding, leaders often unknowingly make the very decisions that increase resistance and add to poor project ROI. When there is less resistance, people will do what they need to do, on time and well. So why don't people just do that? Neuroscience can shed some light on this.

The brain

The crux of resistance is a tiny, almond-shaped part of our brain: the amygdala, the part of the brain that interprets. When you hear the boss say, "We are installing a software system. Everything is changing," your amygdala perceives the information negatively and translates it into: "We're replacing you with this technology. You won't be able to put your kids through college, much less keep your job."

Whether it's eventually for good or bad, a change represents a threat to how things are. The amygdala, whose job is to protect the body from change, involuntarily kicks in the biochemical hormones of fear, flight or fight, telling the body, "You are in danger." The consequence of increased resistance, is missed milestones, higher implementation costs and fewer benefits realized.

Neuroscientists tell us that the primordial fear response in all humans can be made worse or less. Business leaders often ask us at Hitachi, "If I can't prevent my employees from these having natural reactions, what can I do to ensure a high ROI?" Such was the case for a high-tech electronics company. This company was replacing more than six separate legacy computer systems, some that had been around more than 20 years, with a new CRM system. With this change, 80 percent of the organization would be affected.

Multiple attempts to replace the legacy systems had met with failure. The users did not see the benefits for them of upgrading the company's technology, and resistance kicked into high gear. Leaders, not understanding the reason for their resistance, kept admonishing the employees. The result was twofold: resistance from the siloed organizations and extreme apathy of end-users and line management.

This time, leaders agreed that failure was not an option—and mediocre results weren't, either. Many had been through unsuccessful implementations. They'd seen ROI and other promised benefits fail to materialize; new processes adopted by only a small part of the organization; critical business systems halted, leading to lost revenue, increased costs, dissatisfied customers and frustrated employees; and projects running over budget, coming in late or not being completed at all.

No more threats

Hoping to avoid failure, the leaders approved a budget for a comprehensive OCM program. Executives participated in risk mitigation and expectation setting and gained tools through OCM that they never knew existed and never deemed valuable. They realized the worst thing they could do was lead via the command-and-control method. They stopped saying things like, "The bus is leaving the station. If you are not on it, you'll be left behind," because statements like that make the amygdala kick into super high gear.

Their new skills carried over into all aspects of their leadership, making them more affective and employees, thus more responsive.
They kicked off the CRM implementation with an open house that included demos of the new technology, helping end-users recognize and value the end result they would be working their tails off to accomplish. Importantly, through business process mapping from the customer's point of view, executives could quickly make the necessary changes to ensure the technology wasn't going to end up providing bad service. As the reasons for change became clearer to employees, they lowered their resistance to it. Employees could see the benefits to them, their customers and the health and strength of the business. In addition, the company formed high-impact, multi-disciplinary teams, tightly aligned with HR and IT, that followed the OCM methodology throughout the project.

By identifying and minimizing the "people" risks associated with the project, the company for the first time had a framework for creating successful change. This OCM framework resulted in:

  • Ninety-seven percent training attendance
  • Immediate 100-percent adoption by end-users at go-live
  • Fewer siloed teams, increased collaboration, accountability and cooperativeness
  • Minimized disruption, revenue loss and costs
  • On-time project completion, within scope and budget

Most importantly, the improvement itself amounted to more than $6 million in annual savings. Sales doubled in half the time expected. OCM had offered a tactical methodology to avoid the failures the company had previously experienced.

From executives to employees, our research shows it is worth doing things differently. And hence the promises of a CRM project's business benefits (increased market share, revenues, profits, loyal customers, employee morale and retention) are possible if leaders can shift paradigms and fund OCM programs as a strategic part of the way they do business.

For more information on Hitachi's OCM case studies, log onto and type in change management in the search box.

OCM – Realize Your ROI by Managing the People Side of Change

In this economy, realizing the ROI on IT projects isn’t just a matter of growth, but a matter of survival. Studies have repeatedly shown that a significant contributor to project failures is the lack of attention to people factors. It doesn’t matter how well the system solution is designed or processes optimized, your employees’ adoption will be key to realizing your ROI.

Common symptoms of poor people change management:

  • Lack of commitment and follow through by senior executives and middle management
  • Low level of employee understanding of project objectives and impacts to the organization
  • and individually
  • Employee perception of “ivory tower” making changes
  • Little to no employee ownership or adoption of changes
  • Lack of training and education of system and processes

As a result of these symptoms, additional costs are typically associated with:

  • Supporting a large number of training-related help desk tickets and end user support after implementing changes
  • Re-training employees on system and procedural changes
  • Low morale and turnover of employees due to frustration and dissatisfaction
  • Mitigating issues with unions and vendors from a lack of communication relating to changes to procedures
  • Dissatisfied customers from poor level of service

So, how do you make sure you realize your ROI and manage the people side of change on your projects? The answer lies in first understanding change. Changing is hard for most people, especially when it is imposed upon them. In business, change often involves putting trust in new and unfamiliar technology, processes and people and is likely to affect the way people do their work; this can be very intimidating and challenging. After all, change requires that we sacrifice something familiar, do something beyond our "comfort zone," and requires us to make an effort to learn something new. This can be unnerving for some and the impending fear of failure is inevitably threatening! Significant changes can even mean that we need to redefine our identities, reexamine our self-worth, and reassess our self-image. Resistance is a normal reaction to change.

Motivation is a significant factor influencing a person’s willingness to engage in the effort and discomfort required to learn and to change. A well thought-out and skillfully executed Organization Change Management (OCM) Plan can play a crucial part in improving the motivation of the workforce and easing the transition.

OCM gets them ready by making everyone aware of what will happen, increasing their understanding of how it will affect them through Communication; teach them what they need to know to change systems or processes effectively through Education and Training, getting them to accept these changes as necessary and beneficial through Sponsorship, managing the inevitable obstacles that arise in any significant change through Risk Management to obtain their commitment to finally ‘own’ the changes to a system or process.

Implementing changes to a system or process will often change the way people perform their jobs. Far-reaching changes to work practices will affect most non-production employees.

Managing expectations requires understanding of:

  • Why the change is happening?
  • What will change?
  • Who are the stakeholders affected?
  • How will changes affect behavior?

The biggest mistake I’ve seen in IT projects is the reliance on training being the only forum for providing people these answers. Training generally occurs late in the project and is meant for ensuring people understand what to do, but not necessarily why they’re doing it that way. An effective OCM plan will ensure that people are involved throughout the project and contribute to the final end state of a system or process. It will also localize the project team by creating change agents across business locations to promote two-way communication and involvement of all stakeholders.

There is a misconception that OCM is all “fluff." In the IT industry, the focus tends to be on technology with all the bells and whistles. As soon as you mention managing the change with people, eyes glaze over. The fact of the matter is that dealing with human factors is more complex and ambiguous than configuring a system or modeling a process. People often feel uncomfortable talking about softer issues and find it difficult to approach it objectively. A strong OCM approach can however provide assessments that measure the readiness of individuals and effectiveness of managing change. An effective OCM program lets the data from assessments drive the actions required to manage the change based on the unique environmental conditions of an organization.

For example, some of the assessments used on our projects provided the following measures:

Business Impact Assessments: Measures number of major and minor business impacts by process area / by organizational role/by department

Change Readiness Assessments: Measures people’s readiness based on their confidence of the value proposition / project mission / sponsorship / stakeholder enrollment (also indicator on resistance) / organizational & infrastructure / risks with competing initiatives

Communication Effectiveness Assessments: Measures people’s level of awareness, engagement, and commitment to the project

Training Effectiveness Assessments: Measures people’s understanding and ability to apply new systems and processes to their jobs, and measures effectiveness of training instructor and course materials

In my point of view, managing the people side of change provides very real, tangible and measurable benefits to your projects whether you’re implementing a new system, upgrading, optimizing business processes, or outsourcing IT. The question I like to pose to organizations isn’t whether they can afford to invest in OCM, but whether they can afford not to.

The Business Impact of Change Management

What is the Common Denominator for High Project ROI's?

If your company is considering a major change project, anything from a software implementation to a merger/acquisition, this article may help you as it focuses on the results of studies (over the last ten years) on organizational change management (OCM) and its impact on obtaining a high project return on investment (ROI.)

What advice would you give a friend or business associate if they said to you, "I just heard about this great investment and I am really excited about it because it has so much potential. In order to get involved, I have to put a lot of money down. And the only negative seems to be that the return on investment (ROI) is zero."

Seeing the absurdity of this potential opportunity, you would probably tell them not to invest. This scenario, as preposterous as it might seem at first, actually illustrates a common phenomenon or trend that is happening to companies worldwide.

What is this trend? Companies are spending millions for business improvement projects whose costs will far out weigh their realized benefits. At first glance this might even seem difficult to believe—much less be accurate. That is, until you begin to look at the evidence. In this article the authors look at over ten years of independent studies that show the average rate of return on all large project implementations is negative. The review of the studies begins with the McKinsey study, in which the projects of over 40 companies were investigated. From the results of this and the other studies, this article will begin an inquiry that will help to answer the following questions:

  1. Why are so many companies making the same mistake?
  2. What could companies who do not want to fall into this trap do differently?

The Common Project Success Denominator

The McKinsey study examined many project variables and in particular, the effect of an Organizational Change Management (OCM) program on a project's ROI. The study showed the ROI was:

  • 143 percent when an excellent OCM program was part of the initiative;
  • 35 percent when there was a poor OCM program or no program.

What do those these results mean? A 143 percent ROI means that for every dollar spent on the project the company is gaining 43 cents. On the other hand, a 35 percent ROI means that for every dollar spent they are losing 65 cents.

The 11 most unsuccessful companies in the McKinsey study had poor change management, which showed up as the following:

  • Lack of commitment and follow through by senior executives;
  • Defective project management skills among middle managers;
  • Lack of training of and confusion among frontline employees.

The 11 most successful companies in the study had excellent OCM programs:

  • Senior and middle managers and frontline employees were all involved;
  • Everyone's responsibilities were clear;
  • Reasons for the project were understood and accepted throughout the organization.

Measuring A Project's Return on Investment

For a project to get approved, there has to be a compelling business case. A business case looks at the cost of improvement project and weighs that against thebenefits the company will gain. If the benefits outweigh the costs, the ROI is positive and thus the project is approved.

The formula for calculating Return on Investment (ROI)[2] is:


The Benefit Of Project is based on the project's purpose. The purpose could range from increasing sales to reducing the cost of handling customers. One generally estimates that making certain changes to the business, installing new software, making processes more efficient, etc., will yield a particular project benefit that has a dollar amount associated with it.

The Project Cost includes hard costs, such as hardware and software, as well as what is sometimes termed soft costs. While the paradigm for many accounting systems has not shifted, the research also shows that these so-called soft costs are actually as—or more important to—a project's success than the hard costs. As a result, these costs should no longer be termed soft costs because they have a defined, bottom-line effect.

Soft costs, for example, can include items such as the salaries for the time period people are on the improvement project. Salaries are important to include because the time employees spend on the improvement project should be seen as a cost to the organization. The longer the project takes, the longer employees will be away from their primary job—whether it is sales, marketing or manufacturing. If they are working on an improvement project, they cannot spend the same amount of time they normally would on their regular job.

If a project experiences delays due to politics, lack of planning, unforeseen issues, or other reasons, as is often the case, the overall cost of the project increases because the time to implement the project has gone beyond the original estimate. As the costs increase, any potential benefit starts to be chipped away and in some cases more money is spent on the improvement than the improvement ends up providing. An organization that does not consider soft costs as hard costs is putting the organization at a huge financial risk because the project's scope, timeline—and therefore budget—increase (Figure 1). Within this context of project ROI, the following section will examine more studies that have evaluated the success or failure of project implementations and their ROIs. Again, in this context ROI is taken to mean that the project provides more financial benefit than it costs the organization in a reasonable time period.

Figure 1: Increased scope, timeline, and budget put an organization at risk because they erode the project's potential benefits.

The Survey Says: No Change Management Means Poor Project Results

Over the past 20 years of implementing projects, the authors have collected our own data and case studies as well as collected research from independent groups. Disappointing implementation results are being reported in all kinds of projects: Customer Relationship Management (CRM), Contact Centers, Enterprise Resource Planning (ERP), Share Services, Supply Chain, mergers and acquisitions, new pricing strategies, cost reduction initiatives, and including changes in a university's method of recording hourly wages. The following examples show the trend that no project is immune to ROI failure, regardless of who conducts the study.

Results of a study by Boston Consulting Group that examined 100 large companies found the following:

  • 52 percent reported achieving their business goals
  • 37 percent could point to a tangible financial impact for their projects[3]

A study entitled Six Ways IT Projects Fail[4] published in Darwin (2001) revealed the reasons were due to the following:

  1. Lack of executive sponsorship
  2. Lack of early stakeholder input
  3. Poorly defined or changing specs
  4. Unrealistic expectations
  5. Uncooperative business partners
  6. Poor or dishonest communication

A study published in (August 2003) entitled Six Barriers to CRM Project Success[5] showed that the failure of CRM projects was due to the following:

  • Lack of guidance
  • Integration woes
  • No long-term strategy
  • Dirty data
  • Lack of employee buy-in
  • No accountability

In 2004, a study entitled Software Disasters Are Often People Problems[6] was published on This study showed that at that time serious, preventable errors were related to poor management of the people part of the project. For example:

  • Passengers wait at McCarran International Airport in Las Vegas on September 14 for flights delayed by a communications system failure.
  • New software at Hewlett-Packard Co. was supposed to get orders in and out the door faster at the computer giant. Instead, a botched deployment cut into earnings in a big way in August and executives got fired.
  • Retailer Ross Stores Inc.'s profits plummeted 40 percent after a merchandise-tracking system failed.

The study's conclusion was that even as systems grow more complicated, failures are related less to technical malfunctions and more due to bad management, communication, or training during project implementation.

Gartner's industry analysts report a staggering 55 to 70 percent of CRM projects fail to meet their objectives. In Bain and Company's survey of 400 executives, 20 percent of respondents felt their CRM initiatives actually damaged customer relationships.[7] When the objective is to build strong relationships with customers, why is this goal eluding so many companies—especially when they are spending millions and sometimes billions to reach it?

What Is Failing?

In contrast to these studies about the people part of business, a Forrester Research study showed that companies implementing, for instance, a new technology like CRM, are satisfied with the actual software application's functionality and capability.[8]

So, if the technology is not failing, what is? A study done by ProSci, a recognized leader in change management research, again pointed to the ability of the organization to efficiently and effectively manage the changes the project was bringing about in the organization.[9] The ProSci results showed that a project's greatest success factors are the following:

  1. Effective and strong executive sponsorship
  2. Buy-in from front line managers and employees
  3. Exceptional teams
  4. Continuous and targeted communication
  5. Planned and organized approach

The ProSci study results also showed that a project's greatest obstacle factors are:

  1. Employee resistance at all levels (Surprisingly, the effectiveness or correctness of the actual business solution, process, or system changes was cited only 5 times in over 200 responses.)
  2. Middle-management resistance
  3. Poor executive sponsorship
  4. Limited time, budget, and resources
  5. Corporate inertia and politics

Another study by AMR Research, a firm whose analysts focus on independent, leading-edge research that bridges the gap between business and their technology solutions, found companies that had successful software implementations spent 10 to 15 percent of their project budget on OCM.[10] All of the success criteria found in each of these studies is what comprises an OCM program that increases a project's ROI.

Organizational Change Management (OCM)

These studies show that many different analysts and research companies have found very similar results. Clearly, continuing to deploy projects without change management is not a profitable way to do business. The purpose of OCM is to mitigate the risks of a project, including costs, scheduling, and performance. OCM does this by facilitating greater economic value faster by effectively developing, deploying, and aligning the company's assets for a given project.

As businesses face shrinking margins, global competition, and the need to deliver on loyalty-creating customer experiences, they will also face the need to change the way they do business. As companies evaluate improvement projects they should consider the financial contribution that OCM makes.

While there has been some skepticism on behalf of the business community to accept OCM as a necessary business discipline, as seen in the McKinsey, ProSci, and AMR studies, as well as from the authors' collective experiences and research at Hitachi Consulting,[11] clearly some OCM methodologies work. In a future article the authors will address why not all OCM methodologies produce the high rate of return for the money spent on them, and how OCM actually reduces the risk of a project and keeps it on schedule with regard to budget and scope.


Natalie Petouhoff, PhD, (a.k.a. Dr. Nat) is a thought leader in Hitachi Consulting's Customer and Channel 20 20SM Solutions Group. There she helps companies not only gain a clear vision of their customers today, but also takes them beyond the year 2020 to continue to understand their changing needs and the bottom-line value of acquiring and retaining customers in a very competitive marketplace. Dr. Nat is the author of Integrating People, Process and Technology (2003, Anton Press) and Reinventing Your Multi-Channel Contact Center (Prentice-Hall, 2006). Before joining Hitachi Consulting, Petouhoff was a thought leader at Benchmarkportal and a change management and contact center and software implementation consultant at PricewaterhouseCoopers. She teaches organizational change management, CRM, project management and leadership courses in Pepperdine University's MBA program. Contact her at

Tamra Chandler is the managing vice president of global solutions and people for Hitachi Consulting. Chandler is accountable for establishing and executing the company's global solution strategy. She has been involved in strategy execution and organizational improvement since 1990 and is considered a firm-wide expert in organizational change management and strategy execution. Contact her

Beth Montag-Schmaltz is the national leader of Hitachi Consulting's Organizational Change Management practice. Montag-Schmaltz, alongside teams of consultants, has built a comprehensive and structured approach to implementing change that is critical to project success. Email at

[1] "Change Management That Pays," McKinsey Quarterly, 2002.

[2] Integrating, People, Process and Technology. by Anton, Petouhoff and Schwartz, Santa Maria, CA: The Anton Press, 2003.

[3] Boston Consulting Group. (2003). Research study. In Integrating, People, Process and Technology. by Anton, Petouhoff and Schwartz, Santa Maria, CA: The Anton Press, 2003.

[4] Ulfelder, Steve. (2001). "Six Ways I.T. Projects Fail—And How You Can Avoid Them."Darwin magazine. Retrieved June 2001,

[5] Myron, David. (2003). "6 Barriers to CRM Success And How to Overcome Them.", August. Retrieved from

[6] "Software Disasters Are Often People Problems." Retrieved Tuesday, October 5th, 2004,

[7] Research study by Bain Consulting Group. Integrating, People, Process and Technology. by Anton, Petouhoff and Schwartz, Santa Maria, CA: The Anton Press.

[8] Ibid. Research study by Forrester Group.

[9] ProSci. (2003). "Best Practices in Change Management."

[10] AMR Research Report, 2003.

[11] Change Management Case Studies, Hitachi Consulting,

Wednesday, December 2, 2009

7 Key Numbers To Drive Profit

Do you ever look at the reports from your accounting software and get over-faced by all the numbers? Do you not bother printing out the reports at all because you aren’t sure which numbers to look at, and you don’t have the time anyway? You would not be alone if you answered yes to either of these questions.

A typical set of financial reports i.e. Profit and Loss Statement and Balance Sheet contains a lot of numbers and it can be a daunting task to make sense of it all and know which numbers are the important ones. Of course they are all important but some are absolutely critical to financial success in business.

Most of the ‘Seven Key Numbers’ are not contained in a typical set of financials, which is a frightening thought, considering they are absolutely vital to profit and cash-flow. This is because these numbers are ‘Financial Drivers’ rather than ‘Results’. The typical financials provided to most business owners are for tax purposes rather than management use.

The Seven Key Numbers To Drive Profit are
  • Revenue Growth %
  • Price Change %
  • COGS% (Cost of Goods Sold)
  • Operating Expenses %
  • Days Receivable
  • Days Payable
  • Days Inventory/Work in Progress
Let me explain why these seven numbers are so critical.

Revenue Growth % - Business owners focus a lot of attention on Revenue and making sales and this is obviously critical. What is even more critical though, is what those sales cost you to make, and also cost you to fund. As soon as you sell something, and often well beforehand, there are costs involved e.g. goods for sale, freight, labour, overheads etc. It’s critical to know these costs, because if they exceed your revenue then you are making a loss and heading for cash-flow problems. The reason Revenue Growth % is important is because business growth is often the killer of small businesses. How is this so? Because so many numbers besides Revenue are important to profitability, if the other numbers aren’t being managed right, revenue growth will just exacerbate cash-flow issues. If it’s not a good situation it won’t get better, but it will get much worse. Revenue Growth is cause for celebration but it’s also cause for attention to other ‘Key Drivers’.

Price Change % - means the percentage increase or decrease at which you sell your products or services. In a highly competitive marketplace it’s tempting to sell for the cheapest price possible. This is fine, but if you’re not covering costs with the price you are charging, then you are not going to make a profit. You may be discounting some products or services in order to gain business for other more profitable ones, and that’s fine. A trap many businesses fall into, is failing to increase prices regularly by small amounts e.g. by the Consumer Price Index (CPI). Failing to do this can causemargin squeeze. This means, your gross profit suffers, due to reduced revenue, compared to the costs of delivering the goods or services. Customers can get a shock if you’ve never increased prices and suddenly make a large increase,whereas regular small increases are much easier to achieve.

Many business owners fear losing customers by putting up prices. The reality is that you may not lose as many as you think. If you do lose a small number of extremely cost conscious customers, it may not be such a bad thing. Modeling can show that increased price and reduced overall revenue could, in some circumstances, actually have a positive impact on your bottom line. You could increase prices selectively to less valuable and new customers, and offer existing prices to your better customers.

COGS% – ‘Cost of Goods Sold’ means the costs incurred to get the product or service to the customer, before taking into account Overheads. This is often referred to as ‘Direct Costs’ or ‘Variable Costs’. This is a really important number as it has a huge impact on your Gross Profit and an even bigger one on your Net Profit. Many business owners focus a lot of attention on Revenue and this is important but a small reduction in COGS% can have as much impact on Gross Profit as a large increase in Revenue. Often a little attention to what makes up COGS, and some negotiation or investigation with suppliers for better prices, can pay huge dividends on your Gross Profit. If you are a service based business, attention to work practices and job management can have the same effect on your Gross Profit. E.g. knowing how many labour hours you are selling compared to those you are paying for, provides opportunity to investigate differences and tighten up processes.

Overheads% - Many business owners focus attention on the Overheads in the Profit and Loss Statement without comparing them relatively, (by percentage) to the Revenue. It’s important to compare them by percentage as this has an impact on the profit. If you just look at the Overheads dollar figure you could be making more Revenue without increasing your Net Profit. It’s much easier to focus on one number being the Overheads% rather than getting too bogged down in all of the numbers listed. If you don’t have a budget it can be very difficult to know if overheads are reasonable anyway. Very few businesses have a budget, which makes it difficult to know how they are going during the year. If you are trying to reach a goal in business then you need a budget. Not having a budget in business is like trying to find a new destination without a roadmap.

Days Receivable – is the number of days, on average, your customers are taking to pay invoices. Managing this number can have a huge impact on cash-flow. If for example your Accounts Receivable Days is currently seventy and you can get it down to say fifty, you could be putting tens of thousands of dollars back into your bank account. The way to improve this number is to focus attention on your Accounts Receivable and Debt Collection procedures. It’s fine to look at the report out of your accounting system which lists all the customers and how much they owe you. If your business is growing rapidly you need to know how much, Accounts Receivable Days are changing compared to Revenue growth. This is because if it’s not comparable you will experience cash-flow squeeze and could run out of working capital.

Days Payable – is the number of days, on average, you are taking to pay your suppliers. This number is just as important as Accounts Receivable Days in that it can have a big impact on your working capital situation. It is so easy in business to oil the squeaky wheel and pay suppliers who hassle you for money (sometimes before it’s due). It’s also easy to ignore potential better terms to be had from suppliers because you get so focused on Revenue. Some small changes to procedures relating to Accounts Payables can pay big dividends in your bank account. If your business is growing this could be critical cash for funding growth. I’m not suggesting stringing out suppliers beyond the agreed terms, but negotiating better ‘agreed’ terms for your business.

Days Inventory – is the number of days, on average, that goods for sale are sitting in your store-room, from when they are delivered by suppliers, to when they are shipped out to customers. These goods often have to be paid for before they have been sold. This means you have had to spend valuable working capital to have the stock sitting there waiting to be sold. If you can manage this situation better, and reduce the number of Inventory Days, this can have a big impact on your bank account and working capital situation. It’s very tempting when a salesperson calls and offers you a discount to buy more stock. It’s useful to consider the amount of working capital that will be tied up in that stock, compared to the discount being offered. If you are borrowing funds it’s also important to consider the amount of interest payable on those funds tied up in slow moving stock. If you are in a service based business Work in Progress (WIP) Days is very similar to Inventory Days, in that your ‘stock in trade’, is the labour and materials you have to sell. Slow WIP days can be just as dangerous to cash-flow and working capital as Inventory Days. Anything you can do to tighten up processes and speed up the time work is ready to be invoiced, will pay dividends in your bank account and reduce your interest expense.
One more thought about the Seven Key Numbers….. Of the seven numbers, four are calculated from the Profit and Loss Statement and three from the Balance Sheet. How many business owners look very closely at the Balance Sheet? Scary thought!