Drive ROI Up 4X with ECM (Excellent Change Management) … NK (No Kidding)

June 2013
Issue 34

Kathryn Manningby Kathryn Manning

Readers of the Free-Range Learning News are very familiar with the ROI acronym, but they may not be as familiar with ECM. It’s short for Excellent Change Management, and it’s a concept that I have been promoting and implementing for many years. All three words are important, but the E, for Excellent, is especially significant, because all too often people pay lip service to Change Management (CM without the E) and become frustrated by lackluster results. Our view is that, if you’re going to introduce a meaningful CM workstream into your major new organizational initiatives, you should make sure that the CM work is Excellent – it really makes a difference.

Consider these two data points:

  1. Several years ago, McKinsey and Company conducted a study of 40 large-scale industrial change projects, and they found that projects employing a program of Excellent Change Management (ECM) yielded an average ROI of 143%. In stark contrast, the ROI was only 35% for projects with no CM or poor CM program activities.
  1. More recently, Changefirst – a British consulting firm – conducted a study of 2500 change professionals from 120 companies and found project ROI as high as 650% with excellent change programs. And they concluded: A substantial ECM program may cost up to 10-15% of the total project expenditure, but it will more than pay for itself several times over.

The ROI calculation and the “people impact”

For many years, after Change Management became a well-defined discipline among those working in the organization development arena, clients regularly cherry-picked change management activities from the fully scoped change programs that were proposed. The rest was considered “fluff” in their opinion. This still happens but not nearly with the same frequency. Many seasoned business professionals have come to realize that it is usually not the process changes or the technology changes that derail the successful deployment of a new system. Instead, the ROI-deflating issues come from employees’ failure to understand, accept, and build skills to use the new system effectively and perform their jobs differently.

But, first things first, what do we mean by ROI – return on investment? Let’s take a look at how we measure ROI. Here’s a simple formula:

Screen Shot 2013-06-19 at 3.38.30 PM

A straightforward way to interpret this is that, the more the project benefits outweigh the costs, the higher the ROI.

Now, if the impact on people is not very significant, the Change Management component of the project costs does not need to be much at all. For example, if you are replacing an outdated piece of manufacturing equipment with a newer, more energy efficient model that is operated pretty much the same way as the old equipment, you can expect a fairly high ROI from, let’s say, a 60% reduction in the monthly cost of powering that equipment, without needing to invest much in Change Management.

On the other hand, if you are implementing a new ERP system that impacts 95% of the organization in a pretty significant way, you will get into ROI trouble if you do not adequately address the people impact. An Excellent Change Management (ECM) program will address the people impact head-on – it will look at all individuals in all jobs impacted by the change, and it will include detailed analysis of who does what, how their jobs will be affected, what their willingness to change is, and what they need to know to do their job in the new and improved way.

ROI drops if people are hesitant, resistant, unaware, unskilled, or unsure how to excel in the new way of doing things because the organization does not realize the dollar benefits that were so optimistically projected. Instead, target objectives are not met, operating costs rise, and the revenue gains or expense savings do not materialize as hoped.

What puts the E, for Excellent, in ECM?

Based on untold hours in the Change Management trenches and informed by numerous studies by thought-leaderly research organizations, I believe that an Excellent Change Management program includes the following nine elements:

  1. An overall, clearly articulated ECM strategy and blueprint
  2. Engaged executive sponsors with an explicit vision and well developed business case
  3. Leadership alignment that surfaces champions and addresses internal politics and sources of resistance
  4. Employee participation in program development and buy-in to the process and outcomes
  5. Honest, timely, cascading, and multi-directional communications
  6. Targeted training in both technical skills and job process impact
  7. Momentum in integrating all development, launch, and adoption activities
  8. Adequate resources, budget, and high performing teams
  9. Metrics and remediation plans to ensure post-launch sustainability

ECM programs are more likely to be successful and to generate attractive ROI, and it is because they focus on preparing all individuals in all impacted jobs prior to launch: 1) to adopt the change quickly through understanding the importance of the new way and feeling motivated to jump into it, and 2) to develop the skills needed to effectively use the new system, process, equipment, tools, and technology. In addition, with Excellent Change Management, attention is paid to monitoring the launch and post-launch implementation to ensure that individuals are given the assistance and positive remediation to embrace the new way … versus the alternative of slipping into “shadow” processes that feel more like the old, comfortable way of doing things but that move the ROI meter in the wrong direction.

If you would like a thought partner to help assess the dimensions of your Change Management activities, please feel free to contact me – Kathryn Manning.

Next month:

That’s a great question. What in the heck is gamification? I’ve heard it in snippets in office conversation, and I think it has something to do with gaming, but who knows?

Well, Kathy Dressel knows. Kathy’s a leading St. Charles thinker on educational technology, and she will enlighten us on how new competitive (game-like) elements are making their way into talent management initiatives, especially new and innovative programs of learning. Be one of the first to be up on this hot new buzzword. Be one of the first to put it to work in your organization. Just tune in next month to the Free-Range Learning News.