How to Get Organizational Change Right
Organizational change can cause a lot of anxiety for companies — and for good reason.
According to a recent Towers Watson survey, only 25% of change initiatives succeed over the long term. It's a baffling number since these moves range from mergers to reorganizations to business pivots. The stakes are high every time.
While some companies might prefer to keep things the way they are, change is necessary every now and again if organizations want to keep their doors open for the foreseeable future. There's no such thing as a news company that still requires reporters to use typewriters, for example.
Still, even though a majority of organizational change efforts fail, a considerable amount of them succeed. Like everything else in business, companies are much more likely to have their charge initiatives turn out the way they hope when they have the right approach.
What does such an approach look like? Well, it's almost certainly different for each organization because every company is in a unique position and has its own specific needs.
It's no secret that organizational change is difficult to get right. When done in a brash or undeliberate manner, you're simply setting yourself up for failure.
But when it's done correctly, you end up with a more efficient and effective company — one that's better to work for from an employee's perspective and provides more value to its customers and stakeholders.
There's a reason, however, why so many companies fail to make organizational changework: It's incredibly tricky to do. For change initiatives to succeed, companies really need to know what they're doing and have a detailed plan that outlines how they will achieve their goals.
To that end, let's take a look at some companies that have successfully enacted change as well as some that didn't enjoy the same level of success to see why their efforts turned out the way they did.
Organizational Change Case Studies
In 2011, Atlassian decided it was time to overhaul its performance management strategy. The company had determined the traditional ratings-based biannual performance review system wasn’t achieving the intended results.
Because reviews were infrequent, employees dreaded them. And since numeric ratings of performance determined whether a worker got bonus, undue attention was heaped on whether someone was a “four” or “five” — a relatively arbitrary difference.
To address the issue, Atlassian trashed its existing review process in favor of a more continuous and less numeric model. Instead of a biannual formal review, managers and employees now discuss performance once a month, during an already-scheduled one-on-one meeting.
Publishing giant Pearson took on a much bigger change project at the end of 2012 when John Fallon took the CEO reins from longtime leader Marjorie Scardino.
Rather than getting a feel for the way the company operated during his first few months on the job, Fallon announced an entirely new game plan — termed the “Global Education Strategy” — from the outset.
Further, he implemented a massive reorg that grouped the workforce into six discrete business units.
How the Companies Pulled It Off
So how did both Atlassian and Pearson lead successful organizational initiatives? There were some similarities to their approaches.
1. Both companies went big
Atlassian didn’t just change one aspect of the performance management — it changed the entire process. And Pearson didn’t just add an addendum to its strategy — it shifted the company’s focus entirely and reorganized fully to support the new plan.
2. Each initiative was launched in a top-down manner
At Pearson, Fallon took to the company intranet to blog about changes and explain what to expect. At Atlassian, HR invested in training to teach managers how to coach employees effectively.
3. They leveraged technology
Both companies leaned on technology to achieve their ends — the intranet at Pearson and a new performance management system at Atlassian.
However, there were also two key differences:
- Atlassian’s change management initiative was spurred from an internal observation (reviews are not effective), while Pearson’s materialized from an external force (a new CEO and a changing industry).
- Pearson seemingly issued more internal marketing among its employees than Atlassian.
Transparency and communication are best practices for all kinds of change management initiatives. Employees will come around to the change more quickly if they feel consulted and informed.
Now that we've looked at some examples of successful change mangement, let's shift our focus to some instances where things didn't work out as planned.
Change Management Examples to Avoid
The one upside to public failures of change initiatives is that the rest of us can learn from their mistakes. Here are three recent examples from the retail space:
Nearly a decade ago, the “Everyday Low Prices” seller of food, home goods, electronics, music, clothing, and just about anything else you can think of looked to expand its market. They brought in higher-priced, upscale items like trendy fashion in order to attract new customers.
But the move never really took hold. Higher-end consumers were decidedly underwhelmed and lower-end consumers started looking elsewhere for bargains. Walmart got a new advertising agency and forged on. But it was not to be. In 2012, they announced plans to refocus efforts on low prices.
(Recently, however, now that its traditional superstores are losing traffic, Walmart has begun experimenting with upscale goods in smaller stores. Will this strategy work better the second time around? We’ll see.)
Sometimes, no matter how good or sensible an idea is, consumers won’t have it.
The year was 2012, and rather than offer sales and coupons, JCPenney had a better idea: “month-long values” that would do away with the hype and drama of specials and so-called “reductions.” Instead, consumers could rest assured they were always getting the best price. Period.
Unfortunately, customers hated the idea and criticized JCP’s implementation. The company suffered a 20% drop in profits in the first quarter of 2012, along with strong negative consumer feedback. JCP’s then-president, Michael Francis, announced his resignation soon thereafter.
Unfortunately for JCP, consumers want sales, and they want coupons even more. There's something about getting a deal, even a fake one, that feels good.
The giant brick-and-mortar store used to be the mainstay of the book market. But with the rise of online sales, physical stores suffered, and by 2011, Borders announced that it was closing its 399 stores and laying off 11,000 workers. Borders’ main competitor, Barnes & Noble, was having a tough time as well, but B&N had one thing Borders didn’t: an e-reader already entrenched in the market. Borders’ e-reader was simply too little, too late to make a difference.
Futher, as consumer sentiment shifted, Borders refused to build up its e-commerce capabilities. Instead of launching their own site like B&N had done, the company chose to outsource their internet sales to a relatively new company called Amazon.
We all know how that turned out.
When changes are too incompatible with the existing brand — or when they just come too late — the odds are stacked against them.
Now that you're familiar with what successful and unsuccessful organizational change efforts look like, it's time to learn about why companies opt to change in the first place.
Reasons for Organizational Change
Here are a few examples of obstacles you can turn into opportunities:
1. Company performance
Are your organization’s goals or productivity quotas not being met?
Take charge to close the gaps. Maybe reorganizing teams and reallocating personnel will result in more efficiency. You can take a look at the distribution of budget and resources to make sure everyone has the tools they need.
You might also work with individual employees during performance evaluations to align each person’s goals with the big-picture vision.
2. New technology
Has your organization kept up with the innovations in your industry? What about social media? Do your employees have mobile devices?
From attracting job candidates on Facebook to engaging with customers on Twitter, the rules of recruiting and marketing have been rewritten. Make sure you stay relevant —whether that means training your employees, hiring new personnel to bring in expertise, or restructuring some of your existing processes.
While you're at it, invest in new tools, devices, and platforms that enable your workers to stay productive wherever they happen to be. Not only will your team become more effective, they'll also become more engaged.
3. High turnover
If you’re not keeping as many employees for as long as you’d expect, reach out and find out why.
Exit interviews are vital. But don’t wait until someone quits to react. Reach out to see if the members of your company are happy — and if not, why not.
Do managers need additional training? Is the company culture in need of an overhaul?Engagement surveys let your employees tell you how your organization is doing now, before they decide to leave.
It isn’t always possible to predict when organizational change needs to happen. But you can keep an eye out for the signs that indicate the time of need is approaching. Being proactive gives you more time to prepare for success.
The Role Culture Plays in Change Initiatives
Take a look at some of the top reasons employees say that they resist change:
- 44% don’t understand the change they’re being asked to make
- Over one-third don’t agree with it in the first place
If the members of a company don’t understand or agree with a change, that means there’s a deep disconnect between that change and the culture. It could be that the change goes against the established values — or maybe the overarching vision just hasn’t been communicated clearly.
And don’t get misled by early success. For the change to actually last, employees need to stay committed even when it’s all “done” and no longer a top priority.
On the other hand, values are permanent. If the change doesn’t mesh with them, the change won’t last. You can push and pull with temporary pressure or rewards. But that progress has to be reinforced by your culture to truly become a part of your organization.
Should You Let People Go?
Before making personnel cuts the first step of your change plan, it’s important to stop and examine whether they’ll make the company or its change initiative more efficient. The last thing you want is to get rid of a good chunk of workers just for the sake of it — particularly since the number one thing employees like about their jobs is the people they work with, according to our research.
Take a look at Virginia Mason Medical Center. Their approach to restructuring was surprising. When Dr. Gary Kaplan became CEO in 2002, he was faced with a number of problems that included million-dollar losses and fading staff morale. And when he tackled those problems, he also instituted a no-layoff policy.
Like most companies, Virginia Mason spent a ton of money on labor. In fact, 78% of Virginia Mason’s costs were attributed to wages and benefits. So leaving those both intact meant serious work needed to be done everywhere else. Part of Kaplan’s motivation was to get buy-in from the staff — which is why he didn't want to let anyone go. Employees might not be committed to making the solutions work if, he said, “they might improve themselves right out of a job” — thereby dooming change efforts from the start.
Inspired by the Toyota Production System, Kaplan and his team created what eventually became the Virginia Mason Production System (VMPS). Focused on cutting waste and improving processes, this philosophy still guides the hospital today.
The VMPS worked. Over two years, Virginia Mason saw savings between $12 million and $15 million. Productivity increased and staff members whose positions became redundant (remember, Kaplan refused to fire anyone) were redeployed within the hospital.
Research provides conflicting answers on whether cuts work. But in many cases, cuts risks damaging employee morale and weakening your team. And believe it or not, cutting staff doesn't always reduce costs. A 2009 study, for example, indicates that the gains might not outweigh the losses:
- Productivity improved in only 21% of cases
- 40% of employees lost motivation after layoffs
- 41% of employees lost respect for their employer
While businesses should try to reduce costs as much as possible, don't automatically assume change initiatives should result in decreased headcount.
Not only are employees on board with the organizational changes that make sense, they also believe in the managers and executives who shepherd those changes.
Leading Organizational Change Effectively
Use your leadership skills to help your employees navigate any major changes you are planning to enact.
A leader who lives a company’s values and truly embraces its culture can demonstrate how the new direction is in line with the organization’s identity. And having a manager who acts as a role model is tied to success: According to Eagle Hill Consulting, employees who were happier after change had one 94% of the time.
Employees are in desperate need of leaders who will see them through change initiatives. Look at what else Eagle Hill’s survey found:
- 82% of executives said they were committed to change — but only 66% of employees agreed that was true
- 63% of executives said change was communicated well by the company ... but 65% of employees felt differently
There is a massive misalignment between those at the top and those left to institute the change at lower levels. To increase the chances your change efforts are successful, you need to bridge that gap. Here's how.
9 Tips for Successful Organizational Change
Intimidated by all this? Don't sweat it. We've got you covered.
Take a look at these nine quick and easy tips you can use to effectively lay a foundation for successful change:
1. Clearly state your vision for the future
Teams are more likely to embrace change when they are aware of what is happening and when. Don’t create a culture of secrecy. Instead, be transparent and frequently communicate your vision so everyone is on the same page.
2. Set short-term goals
It is much easier to focus on goals and tasks that can be achieved in the immediate future than the end result that’s years away. Introduce change in bite-size chunks that are achievable and manageable.
3. Start at the top
Employees will look to the CEO and C-level for support and direction. Ensure leadership buy-in and make sure they are a unified front.
4. Ask employees what they think
Make time to talk to the people on the ground to understand how they feel. You need to hear their needs, concerns, and fears to successfully implement something new. To increase the chances employees share information they might want to keep to their chests, use pulse surveys that allow them to relay their sentiments anonymously.
5. Stay on top of resistance
Doing things differently will make some employees uncomfortable. Be aware of anyone who has a sudden negative attitude and address any unhappiness or issues the moment they arise.
6. Create new communication channels
Your team will be hungry for information and updates, so beef up your streams of communication. Maintain visibility, be more accessible for impromptu conversations, and keep your employees regularly updated.
7. Become an early adopter
When you walk the walk, your employees will be more inspired to follow you. You will be seen as a role model adapting to this change rather than someone telling everyone else what to do.
8. Keep a positive attitude
Change can be stressful and confusing. But you can keep the corporate climate positive by remaining upbeat and enthusiastic.
9. Give frequent feedback
Personal, immediate feedback can be very motivating as employees’ jobs and culture change. Build their confidence and shape expectations by providing real-time feedback.
It's hard to make organizational change turn out the way you want to. But by doing your due diligence and creating the plan that makes the most sense for your company, you'll increase the chances your change management efforts are successful. As a result, you'll have a strong, healthy company that's well-positioned to keep dominating for some time to come.
Don’t Be Tempted to Persuade Your Clients
Recently, I've been seeing a lot of articles about Advisors persuading clients to move from active management to passive management. Persuading clients to follow the way you manage investments is a big mistake. Do this instead.
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