Building your Capability for Change THE CHANGE EQUATION Building your Capability for Change Peter Duschinsky Managing Director, The Imaginist Company

The Purpose of this Presentation To: Examine what makes an organisation good at managing change Introduce the key models and tools in the Change Equation methodology Develop the concepts of: Change Readiness and Capability for Change Show how the Change Equation can be incorporated into your standard practices: at project level - to deliver consistently improved project outcomes at programme level – to deliver Capability for Change into the organisation as a key outcome

70% of projects fail to deliver the planned benefits

Internal Change Programmes fare no better The Harvard Business School tracked the impact of change efforts among the Fortune 100 and found that only 30% produced a positive bottom-line improvement… A survey of change programmes in 400 European organisations quoted by Prof. John Oakland, Emeritus Professor, Leeds University Business School found that: 90% of change programmes faced major implementation problems Only 30% delivered measurable business improvements A CIPD survey of 800 executives found that reorganisations failed to deliver real improvement in performance in 40% of cases

What makes an organisation good at managing change? Are there characteristics we can look out for? Strong, visible, empowering, leadership Clearly articulated and shared vision Attention paid to supporting core values High level of trust between managers and staff – decision-making devolved wherever possible People able to give priority to new initiatives – overload issue managed well Innovation encouraged and well managed Good communication between departments Collaboration with customers and suppliers Adherence to standard ways of doing things HR benefits and rewards aligned to business objectives

What makes an organisation good at managing change? Does your organisation have these characteristics? Then you are likely to have: High level of involvement and commitment Low resistance to change Resilience in the face of challenges Able to bring in changes rapidly and effectively in response to need Capability for Change

“Stock of capability” (Rebecca Henderson, Harvard Business School) Capability for Change “Stock of capability” (Rebecca Henderson, Harvard Business School) “Attention and resources focused on people and processes, developing the organisation’s capability and resilience” Crucial if you want to respond to the accelerating pace of change and rising levels of business complexity But erodes through natural entropy and neglect, so requires continual investment and maintenance Any Change / Transformation Programme needs this to be part of its core deliverables, but many don’t The Change Equation provides the tools you need

The Principles behind the Change Equation The Change Equation is based on 3 key contentions: Projects fail when the complexity of the project exceeds the capability of the organisation to cope The changes needed in a complex project cannot be achieved within its lifecycle A conventional ’command & control’ approach to management of complex change projects will not achieve consistently successful outcomes Let’s apply these…

Contention 1 “Projects fail when the complexity of the project exceeds the capability of the organisation to cope” Management typically: Underestimates the complexity of its projects Overestimates the capability of their organisation So if we want to be able to predict success or failure, we need to measure project complexity and organisational capability We do this by undertaking a Change Readiness Assessment

Change Readiness Assessment The Change Readiness Assessment (CRA) comprises: Stakeholder interviews, review of project documentation, analysis, senior management team workshop, report & recommendations It allows us to: identify the underlying causes of low and negative ROI on projects quantify the barriers to success predict the success or failure of projects deliver a Route Map and Action Plan to help clients gain ownership of the risks and improve performance Undertaking a CRA at the planning stage will improve a project’s outcomes Integrating CRA into your standard project planning process will deliver consistently improved project outcomes

Change Readiness Assessment We use a number of key models and tools We will come back to these… Process Management Capability Maturity model Capability/Complexity Indicator Exponential Complexity tool Organisational Culture Evolution model

Contention 2 “The changes needed in a complex project cannot be achieved within its lifecycle” The actions needed to achieve and embed behaviour change usually have to be linked to a wider programme Building these into a Change (or Transformation) Programme will enable the development of an organisation’s Capability for Change The Change Equation principles provide the framework The CRA Route Maps and Action Plans provide the content

Contention 3 “A conventional ’command & control’ approach to management of complex change projects will not achieve consistently successful outcomes” Conventional change management interventions attempt to impose change…so people give up, fall back on ‘what’s in it for me’ and the change project fails   In a complex project, newly emergent ways of working and new forms of organisation need to be recognised, nurtured and embedded You need to employ project and programme managers with the right skill-sets to achieve this

Integrating the Change Equation into standard practice Audit Undertake CRAs on selected projects Stakeholder face-to-face interviews Analyse Identify and quantify key common barriers Adapt methodology, terminology Integrate CRA into standard project management practice Change Equation principles into programme architecture Implement Employ project and programme managers with right skill-sets Consistent improvement in project outcomes Capability for Change

Change Readiness Assessment: Models and tools Process Management Capability Maturity model Capability/Complexity Indicator Exponential Complexity tool Organisational Culture Evolution model

Change Readiness Assessment: Models and tools Organisational Culture Evolution model Process Management Capability Maturity model Capability/Complexity Indicator Exponential Complexity tool

Assessing an Organisation’s Culture Using the Organisational Culture Evolution model There’s an inherent tension between the individual and the organisation… Between the aspirations and motivations of people and the external systems and controls that they work with… Think of this as a pendulum

Assessing an Organisation’s Culture There’s an inherent tension between the individual and the organisation… Between the aspirations and motivations of people and the external systems and controls that they work with… Think of this as a pendulum When it swings to the left, people are ignored in favour of rules and processes…

Assessing an Organisation’s Culture There’s an inherent tension between the individual and the organisation… Between the aspirations and motivations of people and the external systems and controls that they work with… Think of this as a pendulum When it swings to the right, systems are ignored in favour of people’ doing their own thing’

Assessing an Organisation’s Culture When the pendulum is at the point of balance, the organisation is working well… But any disruption sets the pendulum swinging… Point of balance THE ORGANISATION ‘External’ Focus: The organisation’s needs and direction Systems and processes Efficiency THE INDIVIDUAL ‘Internal’ Focus: Culture People’s perceptions, attitudes, motivations, aspirations Effectiveness

Assessing an Organisation’s Culture 1 2 3 4 5 6 7 8 9 Point of balance THE ORGANISATION ‘External’ Focus: The organisation’s needs and direction Systems and processes Efficiency THE INDIVIDUAL ‘Internal’ Focus: Culture People’s perceptions, attitudes, motivations, aspirations Effectiveness The evolution of an organisation’s culture can be described as a set of 9 points on a spiral Each culture builds upon the earlier ones, progressing up the spiral To progress up the culture spiral we have to deal with the underlying tension between: Each point or ‘level’ represents a separate, definable culture The ‘External’ Focus: The organisation’s needs and direction Systems and processes Efficiency The ‘Internal’ Focus: Culture People’s perceptions, attitudes, motivations, aspirations Effectiveness

THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus The 9 Culture Levels Organisation 2. Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus

THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Assessing an Organisation’s Culture Organisation 2. Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus We all start by doing everything ourselves. This works for a while, but…

THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Assessing an Organisation’s Culture Organisation 2. Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus As we grow, we need to delegate. This needs rules and processes…

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus This needs rules and processes… The problem with this is that it becomes bureaucratic and ‘tribal’. Organisation 2.

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus So we streamline our processes…

Assessing your Organisation’s Culture Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus But that didn’t seem to work very well. Why? Efficient 4.

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Perhaps we didn’t spend enough time gaining ownership for the changes…

Assessing your Organisation’s Culture When we involve people in creating their future, they pull the changes through, instead of resisting them! ‘Efficiency’ + people = ‘Effectiveness’ Organisation 2. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Efficient 4.

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus And when everyone is pulling in the same direction, we can give people more control over how they achieve results

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Now that we are working as a team, communication flows undistorted - across as well as up and down – so we can focus outwards and use real-time information to make better decisions

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Now managers have the information to enable them to make radical and innovative decisions

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Now the captain at the helm can stop fire-fighting and intervening - and start thinking strategically

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Now people can be empowered to manage their own work - the most effective organisational culture

Assessing your Organisation’s Culture Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Where are you now? Where do you need to be?

Assessing an Organisation’s Process Management Capability Where are you? 1. Initial Ad hoc process Chaotic 2. Managed Repeatable process Controlled environment 3. Defined Standard process Consistent Execution 4. Quantitatively Managed Measured process Quality and Productive Improvement 5. Optimising Effective process Continuing Improvement Software Engineering Institute Where do you need to be? What’s stopping you?

The Organisational Capability Indicator

How should we measure complexity? LOW Complexity HIGH ‘Developmental’ Apply management improvement techniques to “make it work better” ‘Transitional’ Replace one system or process with another ‘Transformational ’ Scrap whole operation/business and start again e.g. ‘Transformational’ Scrap whole operation/business and start again Major impact on people ‘Transitional’ Replace one system or process with another Some impact on people ‘Developmental’ Apply management improvement techniques to “make it work better” Little impact on people Complicated = not simple, but outcomes are ultimately knowable Complex = not simple and outcomes are never fully knowable

Terminal 5 Over 28,000 lost bags, 700 cancelled planes and more than 150,000 disrupted passengers “The Terminal 5 debacle is a national disgrace” Daily Mail, 14 April 2008

So what went wrong? Shortage of staff car parking spaces Only one employee security checkpoint operating Some staff unable to log on to the computer system Hand-held communication software running slow No managers on the ground to re-allocate work Shortage of bar-reading storage bins Baggage handling staff late in arriving 60 staff queue to get into terminal 6am: 3 planes leave without bags Bags pile up, unattended By midday 20 flights cancelled 4pm: baggage conveyor belt grinds to a halt, BA suspends all baggage check-in

“The Perfect Storm” In 2004, HP's project managers knew all of the things that could go wrong with their ERP centralisation programme. But they just didn't plan for so many of them to happen at once. The project eventually cost HP $160 million in order backlogs and lost revenue—more than five times the project's estimated cost. Gilles Bouchard, then-CIO of HP's global operations, says: "We had a series of small problems, none of which individually would have been too much to handle. But together they created the perfect storm.” Complexity is exponential!

Complexity is Exponential ”We live in a world that can change exponentially – but we have brains that are hardwired to plot things out linearly - the software in our brains compels us to think about progressions as being simple arithmetic ones So as a species, and a society, we deal poorly with uncertainty in non-linear domains.” Prof Albert Bartlett, University of Colorado That’s one good reason why management typically under- estimates the complexity of projects!

How should we measure complexity? If complexity is exponential, we can build it with just 3 factors: X * Y * Z ‘Transformational’ Scrap whole operation/business and start again Major impact on people ‘Transitional’ Replace one system or process with another Some impact on people ‘Developmental’ Apply management improvement techniques to “make it work better” Little impact on people LOW Complexity HIGH Apply management improvement techniques to “make it work better” ‘Transformational ’ e.g. Complexity Factor Exponential Complexity Model Complexity Factor Not simple - needs some project management A complicated project – needs an experienced project manager Your project is too complex – break it down into separate projects and employ a programme manager Simple project A complex project – needs a dedicated project team Exponential Complexity Model

The Exponential Complexity Tool Which 3 factors? They must be: Common to all projects Quantifiable by stakeholders Good predictors of the complexity of a project The Exponential Complexity Tool uses the following 3 factors: Number of people or Stakeholders involved (More people = more complex = higher risk) Number of business activities or Processes affected (More ambitious = more complex = higher risk) Elapsed Time to implement (in months) (Longer to implement = more complex = higher risk)

The Exponential Complexity Tool Think about a project you are familiar with Where on the scale do you think you are? Now do the numbers: Stakeholders x Processes x Time Think about a project you are familiar with Where on the scale do you think you are? 20 200 18 mths Complexity Factor Not simple - needs some project management A complicated project – needs an experienced project manager Your project is too complex – break it down into separate projects and employ a programme manager Simple project A complex project – needs a dedicated project team Exponential Complexity Model 72,000

Combining Capability and Complexity

Deliverables: Action Plan Organisation Component Implication Action required Management Culture The lack of information-sharing, alignment and empowerment will jeopardise the success of the project. At the very least it will mean poor take-up and a lower than planned level of benefits. A programme of interaction and dialogue across the organisation is urgently needed to improve the management culture. This needs to include increasing trust, see below. Process Capability The organisation’s process capability is poor. This means that any projects which seek to standardise and improve processes to achieve greater efficiency will be very difficult to achieve. Consider carrying out a programme to raise the levels of process capability ahead of implementing the project or using the project itself to inject the necessary disciplines. In this case it is crucial for the Board to make compliance to the new processes mandatory.

Deliverables: Route Map THE ORGANISATION - ‘External’ Focus Organisation 2. Efficient 4. Informed 6. Holistic 8. 1. Me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE INDIVIDUAL - ‘Internal’ Focus You need to be here You are here

Deliverables: Calculation of the Impact - % Total potential impact on benefits + % Total potential impact on project timescales/costs Other factors impact estimated at: IT Solution 9 Relationship with suppliers 8 OTHER FACTORS Delivery of Project Impact estimated at: Benefits Realisation 7 Distrust factor 6 Visibility of process 5 DELIVERY OF PROJECT Project Impact estimated at: Complexity of project 4 Clarity of objectives 3 PROJECT Capability Impact estimated at: Capability Maturity 2 Management Culture 1 ORGANISATION Benefits -% Time/Cost +% Potential Impact Status Component

Summary The Change Equation methodology is designed to be integrated into standard practice: at Project level – CRA ensures Change Readiness and deliver consistent improvement in change project outcomes at Programme level – Change Equation principles, Route Maps and Action Plans provides framework and content to deliver organisational Capability for Change as a key outcome If you think this approach might be of value to your organisation, please contact us

Can you afford not to find out more? Peter Duschinsky Managing Director The Imaginist Company Email: peterd@imaginist.co.uk Tel: 020 8201 1478 Mob: 07801 802 571 Web: http://www.imaginist.co.uk ‘The Change Equation’ is available from Amazon.co.uk