© Imaginist 2011 THE CHANGE EQUATION Building your Capability for Change Peter Duschinsky Managing Director, The Imaginist Company

© Imaginist 2011 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 2

© Imaginist % of projects fail to deliver the planned benefits 3

© Imaginist 2011 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 4

© Imaginist 2011 Why is it critical to be good at managing change?  The world’s private and public sector leaders have reported to IBM that a rapid escalation of “complexity” is the biggest challenge confronting them (IBM Global CEO Study 2010)  Events, threats and opportunities aren’t just coming at us faster or with less predictability; they are converging and influencing each other to create entirely unique situations  They expect this to continue - indeed, to accelerate - in the coming years:  “The complexity our organization will have to master over the next five years is off the charts — a 100 on your scale from 1 to 5.” (Edward Lonergan, President and CEO, Diversey, Inc)  They are equally clear that their enterprises today are not equipped to cope effectively with this complexity in the global environment 5

© Imaginist 2011 Why is it critical to be good at managing change?  David Snowden, CEO of Cognitive Edge, sees this as as shift:  “from a world where we can predict probable risks and use risk management systems to make our plans robust,  to one where we need to accept that complex and interdependent risks will occur, and find new ways to cope, building ‘resilience’ into our organisations”  A resilient system accepts that failure is inevitable and focuses instead on early discovery and fast recovery from failure  This places greater reliance on skilled managers being able to spot, analyse and respond to an emerging and fast-moving situation - and to turn it to the organisation’s advantage  They need to operate within a fast-reacting and resilient organisation – one that is good at managing change  6

© Imaginist 2011 What makes an organisation good at managing change?  Are there characteristics we can look out for? Strong, visible, empowering, leadership High level of trust between managers and staff – decision-making devolved wherever possible Clearly articulated and shared vision Attention paid to supporting core values 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 7

© Imaginist 2011 What makes an organisation good at managing change? 8  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

© Imaginist 2011 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 9

© Imaginist 2011 The Principles behind the Change Equation The Change Equation is based on 3 key contentions: 1.Projects fail when the complexity of the project exceeds the capability of the organisation to cope 2.The changes needed for a complex project cannot be achieved within its lifecycle 3.A conventional ’command & control’ approach to management of complex change projects will not achieve consistently successful outcomes Let’s apply these… 10

© Imaginist 2011 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 11

© Imaginist 2011 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 12

© Imaginist 2011 Change Readiness Assessment  We use a number of key models and tools  We will come back to these… 13 Process Management Capability Maturity model Capability/Complexity Indicator Exponential Complexity tool Organisational Culture Evolution model

© Imaginist 2011 Integrating the Change Equation into standard practice 1.Audit Undertake CRAs on selected completed projects Stakeholder face-to-face interviews 2.Analyse Identify and quantify key common barriers Adapt methodology, terminology 3.Integrate CRA into standard project management practice Change Equation principles into programme architecture 4.Implement Employ project and programme managers with right skill-sets  Consistent improvement in project outcomes  Capability for Change 14

© Imaginist 2011 Contention 2 “The changes needed for 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 15

© Imaginist 2011 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 16

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

© Imaginist 2011 Change Readiness Assessment: Models and tools 18 Process Management Capability Maturity model Capability/Complexity Indicator Exponential Complexity tool

© Imaginist 2011 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

© Imaginist 2011 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…

© Imaginist 2011 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’

© Imaginist 2011 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 When the pendulum is at the point of balance, the organisation is working well… But any disruption sets the pendulum swinging… Assessing an Organisation’s Culture

© Imaginist 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 Assessing an Organisation’s Culture Each culture builds upon the earlier ones, progressing up the spiral Each point or ‘level’ represents a separate, definable culture To progress up the culture spiral we have to deal with the underlying tension between: The ‘External’ Focus: The organisation’s needs and direction Systems and processes Efficiency The ‘Internal’ Focus: Culture People’s perceptions, attitudes, motivations, aspirations Effectiveness

© Imaginist The 9 Culture Levels Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 1. Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Focused on me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 25 We all start by doing everything ourselves. This works for a while, but… We all start by doing everything ourselves. This works for a while, but… Assessing an Organisation’s Culture

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 26 As we grow, we need to delegate. This needs rules and processes… Assessing an Organisation’s Culture 1. Focused on me

© Imaginist 2011 Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 27 Assessing an Organisation’s Culture This needs rules and processes… The problem with this is that it becomes bureaucratic and ‘tribal’. This needs rules and processes… The problem with this is that it becomes bureaucratic and ‘tribal’. Organised Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Focused on me 3. Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 28 Assessing an Organisation’s Culture So we streamline our processes…

© Imaginist 2011 Organised 2. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Assessing an Organisation’s Culture But that didn’t seem to work very well. Why? But that didn’t seem to work very well. Why? Efficient Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 30 Assessing an Organisation’s Culture Perhaps we didn’t spend enough time gaining ownership for the changes… 1. Focused on me

© Imaginist 2011 Organised 2. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 31 Assessing an Organisation’s Culture When we involve people in creating their future, they pull the changes through, instead of resisting them! ‘Efficiency’ + people = ‘Effectiveness’ Efficient Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 32 And when everyone is pulling in the same direction, we can give people more control over how they achieve results Assessing an Organisation’s Culture 1. Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 33 Assessing an Organisation’s Culture 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 1. Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 34 Assessing an Organisation’s Culture Now managers have the information to enable them to make radical and innovative decisions 1. Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 35 Assessing an Organisation’s Culture Now the captain at the helm can stop fire-fighting and intervening - and start thinking strategically 1. Focused on me

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus 36 Assessing an Organisation’s Culture Now people can be empowered to manage their own work - the most effective organisational culture 1. Focused on me

© Imaginist Organised 2. Efficient 4. Informed 6. Holistic 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 Culture 1. Focused on me

© Imaginist 2011 Assessing an Organisation’s Process Management Capability 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 are you? Where do you need to be? What’s stopping you? 38

© Imaginist 2011 The Organisational Capability Indicator 39 Management Culture 9. Empowered 8. Holistic 7. Creative 6.Informed 5. Devolved 4. Efficient 3.Engaged 2.Organised 1. Focused on me

© Imaginist 2011 ‘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 ‘Developmental’ Apply management improvement techniques to “make it work better” ‘Developmental’ Apply management improvement techniques to “make it work better” ‘Transitional’ Replace one system or process with another ‘Transitional’ Replace one system or process with another ‘Transformational ’ Scrap whole operation/business and start again ‘Transformational ’ Scrap whole operation/business and start again e.g. How should we measure complexity? Complicated = not simple, but outcomes are ultimately knowable Complex = not simple and outcomes are never fully knowable 40

© Imaginist 2011 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

© Imaginist 2011 So what went wrong? 1.Shortage of staff car parking spaces 2.Only one employee security checkpoint operating 3.Some staff unable to log on to the computer system 4.Hand-held communication software running slow 5.No managers on the ground to re-allocate work 6.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 42

© Imaginist 2011  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! “The Perfect Storm” 43

© Imaginist 2011 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! 44

© Imaginist 2011 ‘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 ‘Developmental’ Apply management improvement techniques to “make it work better” ‘Developmental’ Apply management improvement techniques to “make it work better” ‘Transitional’ Replace one system or process with another ‘Transitional’ Replace one system or process with another ‘Transformational ’ Scrap whole operation/business and start again ‘Transformational ’ Scrap whole operation/business and start again e.g. How should we measure complexity? 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 45 If complexity is exponential, we can build it with just 3 factors: X * Y * Z

© Imaginist 2011 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: 1.Number of people or S takeholders involved (More people = more complex = higher risk) 2.Number of business activities or P rocesses affected (More ambitious = more complex = higher risk) 3.Elapsed T ime to implement (in months) (Longer to implement = more complex = higher risk) 46

© Imaginist 2011 The Exponential Complexity Tool 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 Think about a project you are familiar with Where on the scale do you think you are? 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 mths 47

© Imaginist 2011 Combining Capability and Complexity 48

© Imaginist 2011 Deliverables: Action Plan Organisation ComponentImplicationAction 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. 49

© Imaginist 2011 Organised 2. Efficient 4. Informed 6. Holistic Engaged 5. Devolved 7. Creative 9. Empowered THE ORGANISATION - ‘External’ Focus THE INDIVIDUAL - ‘Internal’ Focus Deliverables: Route Map 50 You are here You need to be here 1. Focused on me

© Imaginist 2011 Deliverables: Calculation of the Impact

© Imaginist 2011 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  Only with both of these in place can an organisation respond to the challenges it faces with the speed and resilience it needs to survive 52

© Imaginist 2011 Peter Duschinsky Managing Director The Imaginist Company Tel: Mob: Web: ‘The Change Equation’ is available from Amazon.co.uk 53 Can you afford not to find out more?