Getting Smart About Change Management

Getting Smart About Change Management

          
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Getting Smart About Change Management

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    The business world, like the geopolitical world, has entered a new age of uncertainty. Turbulence is affecting more and more industries, more frequently and more severely. One-time market leaders and corporate giants fall rapidly from grace, having failed to modernize or having lost out to nimble competitors. BlackBerry and Blockbuster are among the high-profile casualties. In fact, companies are expiring sooner than ever before: data suggests that one-third of all public companies will disappear within the next five years. For a striking impression of the new uncertainty, see “Most Sectors Are Experiencing Volatility Unmatched in Decades.”

    Companies are facing a new reality, one of economic unpredictability, disruptive technology, globalization, and unprecedentedly fierce competition. In such an environment, traditional sources of advantage like scale and proprietary assets are no longer so valuable or sustainable. The priority imperative for many businesses is to adapt to the changing conditions in order to boost performance, or even to survive. To paraphrase Darwin, it’s not the strongest of the species that survives but the most adaptable.

    One industry that has been a huge beneficiary of all this turbulence is the change management industry. Companies in all sectors eagerly seek its services, on the premise that a tailor-made change program will improve the trajectory of their business. Unfortunately, change programs have a remarkably modest record of success. The traditional approach to change management is itself in need of change.

    Over the past few years, the change management industry has been logging an average annual growth rate of 5%. Companies around the world now spend close to a whopping $10 billion a year on change management consultancy. Publications and reports on the subject have proliferated. It has become a major discipline at many business schools. And organizations are conscientiously incorporating it into their operating models: in the decade between 2003 and 2013, according to a recent survey, the proportion of respondents adopting a “structured approach” to change management rose from 32% to 80%.

    Yet despite all the investment, the industry has not lived up to expectations. The evidence, including self-reported CEO data, indicates that 50% of change programs fail to achieve their objectives; the failure rate rises to 75% for more complex and ambitious programs. These rates have remained much the same for the past few decades. The failures are costly, translating into billions of dollars of lost potential value, not to mention the impact on senior executive turnover, most notably among CEOs.

    Martin Reeves and Lisanne Pueschel, “Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations,” BCG Perspectives, July 2015.
    Martin Reeves and Michael S. Deimler, “New Bases of Competitive Advantage: The Adaptive Imperative,” BCG Perspectives, October 2009.
    ALM Intelligence, Competitive Landscape Analysis: Change Management Consulting, 2016.
    Prosci Change Management Webinar, 2014 Benchmarking Report: Top Contributors to Success, 2014.

    Most Sectors Are Experiencing Volatility Unmatched In Decades

    Since the start of the S&P 500, in the mid 1950s, company fortunes have become far less stable across industries and geographies, particularly since the early 1990s. The exhibit below shows the volatility of all US public companies in terms of their yearly changes in market capitalization. The green represents periods of stable company value; the red represents periods of widely fluctuating value. Note how even historically calm sectors, such as energy and telecommunications, have been experiencing high volatility in the past decade or two.

    exhibit

    To put this disappointing performance in perspective, consider how other industries have fared in recent history when tackling complex challenges of their own. Never mind computing, always the outlier, with its trillionfold increase in performance over the past 60 years. Just think how the cost of air tickets—or solar power, or oil extraction—has fallen in the past couple of decades. Even biopharmaceuticals, an industry with a remarkably complex set of challenges, has registered significant advances in treating various cancers, coronary artery disease, HIV/AIDS, and hepatitis C. In a broad cross-industry comparison, change management remains near the bottom of the performance table. It has not lived up to its promise. Indeed, by most metrics, it has failed.

    Experts Exchange, Processing Power Compared.
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