Companies love change! Moreover, corporate change is always good in a company, yes? It is exciting, new, intoxicating, and bound to generate great benefits, right? We see so much of it everywhere we look. Moreover, it infects us with the fever of “success”! With the result, that many companies ram these mantras into our brains daily in attempts to brainwash us. “Change is good”. “It brings opportunity”. “It is the lifeblood of a company”. “Change brings wealth”! Blah, blah, blah…ho hum.
Sadly, these brainwashing tactics do work for the most part. A delirious fever grips the leadership and employees alike. With visions of rich profits and personal advancement! With delicious dreams of wealth, respect, glory and pride!
Yet therein lies the root of the problem. Companies so ridden with corporate change programs, the velocity of change exceeds their abilities to grasp the impact. With leadership embracing a “Go Faster and Faster” strategy that results in a total loss of control. The average employee is also so infected, they do not question why. They just follow blindly. Akin to a motor race, where too many drivers go faster than their skills allow, resulting in mistakes. As well as a massive pileup, crash!
Misunderstanding what change means
Many companies who have fallen into this trap question (in hindsight); “Where did we go wrong”? Yet we quite often overlook the answer despite it being right there in front of us. It is because most leaders do not understand what the word “Change” means. They thrust it at the forefront of every conversation. It is part of every vision. Written into every presentation they create. It is “core” to every leaders “strategy”. That ignorance of what change means is magnified when developing corporate change strategies. Thus, it is sadly why companies lose 10’s or 100’s of millions of ££ annually.
Let’s explore for a moment. You can use the word “Change” as a verb or a noun, defined as follows (Oxford Dictionary).
1. Verb: make or become different. “a proposal to change the law”
2. Noun: an act or process through which something becomes different. “the change from single life to married life”
Therefore, as a result, if you do change a law, there is a result that something is different now. A speed limit changes from 50KPH to 70KPH. Drinking is now legal for adults over 18 years old. Gambling becomes legal now. The key point though is you moved from one stable position, to a new one.
Understanding the word “different”
To understand change, you must also understand “different”. In short, the word “different” means
· “Not the same as another or each other; unlike in nature, form, or quality”; “distinct”; “separate”.
The fundamental truth here is that you first must have something stable, in order for it to become “different”.
This is where many companies fail repeatedly when embarking on corporate change. They never let the “dust settle” from the last change, before embarking on their next “Change programme”. They never truly measure the benefits or dis-benefits of the new environment from the last change. Nor do they allow for a stabilisation period, before embarking on their next mad venture. They don’t give people time to “settle in” to the new structure, process, product, and/or way of working. Nor give their customers time to understand how the company now does business. In other words, they are not stable, but rather in a constant state of flux.
Understanding the word “chaos”
There is a word that does clearly describe this phenomenon. It is an apt descriptor of a company caught in a constant state of flux with “change programs”. In a word, “Chaos”!
· Definition: complete disorder and confusion!
Leadership are ultimately fixated on “Corporate Change”. And they fail to take into account the tremendous impacts of Change, in a chaotic environment. So ultimately, the corporations pay for change after change after change, without counting the final costs! Until it’s too late and the losses become staggering!
The ironical aspect to this dilemma is the situation of when a CEO fails to improve a company. All the “change programs” launched by the CEO fail, so the Board of Directors let him go. (NB: with a Golden Parachute of course! See Rewarding Failure). They then bring in a new “go getter”. Who is bright, enthusiastic, and passionate (Danger!)? Who quickly decides to steer the company into a brand new portfolio of “ corporate change programs”! Seems these companies could benefit from a “pace car” in their race to fortune and glory!
Use Case, the initial strategy
If you are unconvinced, perhaps we can use this to illustrate further. With this simple Use Case to explain the point.
Scenario: Imagine a car company that develops the new “PomPom” electric car program. Cost of development & initial production, one-time setup fees is £100M. Cost of production per car is £16,000 per car once production starts. Projected retail cost of £40,000. Timeline from start of program to first production start, 18 months. Projected sales of 20,000 units in first full year of production, based on concise market analysis post 18 months. £100M additional spent on marketing. Expected revenues of £800M in Year 1 minus material costs of £320M = £480M profit. Projected sales of 25,000 units in Year 2. Expected revenues of £1B in Year 2 minus material costs of £400M = £600M profit. Plan is for 42 months (18+12+12), and then re-evaluate next steps.
Then came the changes to strategy
1. 6 months into the program, new technology emerges. Leadership initiate a “Change program” to incorporate the new technology. Additional R&D costs, setup costs of £50M interjected, 6 months delay added, revised cost per unit £18,000. Additional £25M Marketing costs.
2. 9 months into the program, new Leadership push for new market “Change strategy”. Different target market based on revised demographics. Volumes remain stable. Additional site locations, setup costs of £75M interjected. Further 4 months delay added, revised cost per unit remains at £18,000.
3. 12 months into the program, discovery that new technology costs were not analysed sufficiently. Revised cost per unit increases to £22,000. Further 6 months delay to secure new suppliers. Setup costs increase by £25M.
4. 15 months into the program, new Leadership push for revised market strategy. This is to cover growing cost overruns, increase of projected sales volumes. Further 6 months delay. Additional £50M Marketing costs. Market analysis indicates that new sales strategy was not effective. Volumes do not change and remain stable based on initial projections.
5. 18 months into the program, Leadership determines that the new technology is not cost effective. They decide to have it removed. Further 6 months delay. Additional £50M marketing costs. Additional setup costs of £50M interjected to remove new technology.
6. No further changes noted, first “PomPom” delivered, “Month 46”.
So a typical scenario that could be theoretically played in a car company. Except there was no accountability of overall changes in play, shifting leadership, or new technology strategies. As a result, the program was “adrift”. Shall we compare the outcomes now?
Best Case (If you had stuck to the plan!)
If you had stuck to the initial plan, the calculations look like this. To ensure we do not lose the point, we will skip for now the finer points around EBITDA, depreciation, etc. Instead, just focus just on simple profits model.
BEST CASE:
- START: Elapsed time 18 months, initial costs £200M (Start-up + Marketing);
- YEAR 1 profit = £480M
- YEAR 2 profit = £600M
- Net profit, end of Year 2 = £1080M – £200M start-up costs = £880M
- Elapsed time 42 months total;
What really happened
REAL CASE:
- START: Elapsed time 46 months, initial costs £525M (£200M + £50M + £25M + £75M + £25M + £50M + £50M+ £50M);
- YEAR 1 profit = £480M
- YEAR 2 profit = £600M
- Net profit, end of Year 2 = £1080M – £525M start-up costs = £555M
- Elapsed time 70 months total;
Now if we extrapolated the initial plan to include an average 25,000 units per year (£600M profit per annum), the differences become very unsettling.
THE OUTCOME:
- Duration: 70 months
- Best Case: £880M + (£600M * 28 months) = £2.28 Billion.
- Real Case: £555M
In view of these numbers, it is fair to say there is still going to be a long road to recovery. If we had modelled using break-even analysis, the changed strategy break-even point is around Month 59. However, it presumes NO FURTHER CHANGES! So nearly 5 years in, before you begin making profit. Ghastly! (NB: I will let you do the break-even math.)
In short, which would you prefer after 70 months? A profit of £2.28B? Or in contrast, a profit of £555M? Simple, yes?
Effective Change
As the saying goes, “hindsight is 20/20” and it is always much easier to see why things went wrong AFTER the fact. However, for corporate “Change” programs to be effective, they must be coordinated as part of a portfolio of change programs. Any new change must be evaluated in context of other programs in play. Moreover, there must be clear Accountability at the highest levels to put on the brakes if the situation is spiralling out of control. In short, someone who says, “enough is enough”, no more changes!
In the long run, changes are required from time to time in any company. You ALWAYS have to do your homework. Every time. If you did concise market analysis the first time, re-do it for any proposed changes. New technology must be researched fully and totally before it is used. If you have a budget, stick to it and only deviate after intense scrutiny and analysis. In other words, DO NOT take shortcuts!
Here are some very simple questions that need asking, BEFORE initiating a new corporate change program, or strategy change.
1. When did the last Change program end? Has it ended?
2. What period of stabilization has occurred since program completion?
3. Do we have a clear roadmap showing benefit positions at each decision point? E.g., a 100% clearly articulated benefit realization plan?
4. Have we clearly analysed the impacts of proposed new change? Costs, timelines, impacts to benefits, markets, strategy, analysis, etc.?
5. Is anyone “putting their thumb on the scales” out of self-interest? Can you validate their numbers?
6. Is Kleptocracy a problem in your company?
7. Above all, “Do we really need a new Change program”?
Unless Chaos is your ultimate objective?
