1. © Prosci 2012 www.change-management.com 1 The case for change management Please read Right to use this content is governed by the licensing terms and conditions for this online tool. Reproduction and distribution are not permitted under a single-user license without express permission from Prosci. For permission to reproduce or distribute content, contact Prosci at +1 970-203-9332. All trademarks and copyright notices must be retained. Please read Right to use this content is governed by the licensing terms and conditions for this online tool. Reproduction and distribution are not permitted under a single-user license without express permission from Prosci. For permission to reproduce or distribute content, contact Prosci at +1 970-203-9332. All trademarks and copyright notices must be retained.

2. © Prosci 2012 www.change-management.com 2 Agenda for presentation Connecting change management to business results –The Project  People Exercise –States of change The need for change management –Qualitative argument –Quantitative argument

3. © Prosci 2012 www.change-management.com 3 Connecting change management to business results The Project  People Exercise

4. © Prosci 2012 www.change-management.com 4 Connecting change management to business results The Project  People Exercise Start with 4 columns

5. © Prosci 2012 www.change-management.com 5 The first column heading is “Project name” Project Name What is the project we are thinking about? Examples: Supply Chain Optimization, Global ERP, ACME 2015, eBenefits 2.5

6. © Prosci 2012 www.change-management.com 6 Next, add the heading “Purpose” Project Name Purpose What are the goals or outcomes the project is trying to achieve? Examples: Reduce cost, increase revenue, improve margin, introduce new product, reallocate inventory, streamline business processes, merge parts of the organization, implement unified data source for entire organization, implement common business practices

7. © Prosci 2012 www.change-management.com 7 Third, add the heading “Particulars” Project Name Purpose Particulars What is actually being changed? Specific changes that will be made to business processes, systems, tools, job roles, organization structures – what is actually being changed?

8. © Prosci 2012 www.change-management.com 8 Finally, add the heading “People” Project Name Purpose ParticularsPeople Who has to do their jobs differently? With the new processes, systems, tools, job roles, organization structures – whose day-to- day work will be impacted?

9. © Prosci 2012 www.change-management.com 9 We now have a context for the project why, what and who is changing Project Name Why we are changing What we are changing Who will be changing Purpose ParticularsPeople What is the project

10. © Prosci 2012 www.change-management.com 10 How ‘fuzzy’ is each column? Project Name Purpose ParticularsPeople Which columns were the easiest to fill out? Which were the most difficult?

11. © Prosci 2012 www.change-management.com 11 Connecting the ‘people side’ back to project and organizational success If people don’t change how they do their job, then it doesn’t matter what specific changes are implemented If people don’t change how they do their job, then we ultimately won’t achieve what we set out to do from the beginning Purpose ParticularsPeople Project Name

12. © Prosci 2012 www.change-management.com 12 Example: reallocating inventory across the supply chain Project Name Purpose ParticularsPeople SCO – Supply Chain Optimization Reduce the amount of WIP (Work in Progress) Inventory Maintain service levels Deliver products when customers demand them Document inventory levels at each stage in the supply chain Evaluate order costs, holding costs and lead times Calculate and optimize inventory levels across supply chain Implement processes and policies for placing orders in supply chain Purchasers Corporate BA W/in each business unit Manufacturers At each business unit Foreman and employees Warehouse staff Warehouse planners Employees Distribution Corporate analysts Site representatives Sales Finance Suppliers

13. © Prosci 2012 www.change-management.com 13 Example: deploying a common approach to project management Project Name Purpose ParticularsPeople PMO 08Bring consistency to project management practices in the organization to meet objectives, deliver projects on time and on budget Avoid the ad hoc approach and the consequences of not applying solid PM practices Research and identify a project methodology Collect data on existing PM practices in org Source IP, training and tools as necessary Inventory projects and create steps to infuse PM methodology Create a Project Management Office Project managers Project team members Support functions – HR, OD, communication, training, etc. Business unit leaders introducing projects Functional leaders introducing projects, such as IT or HR Corporate governance and transformation groups Consultants that support projects

14. © Prosci 2012 www.change-management.com 14 Example: building organizational change management competency Project Name Purpose ParticularsPeople ECM – Enterprise Change Management * Prosci has done research and development over the last two years in ECM, email webinar@prosci.com with “ECM” in the subject line to find out more Encourage consistent application of change management principles and processes Build ‘effectively managing change’ as a strategic capability Become more flexible and durable as an organization Identify and adopt a common methodology Build individual skills in managing change Create a CM department or office that is well- positioned in the org Incorporate CM into each new project Retro-fit existing projects with CM Project teams – need to apply change management process on their projects Project support groups – HR, OD, communication, training, etc. Change management specialists – need to adopt common approach Executives and senior leaders – fulfilling role of ‘sponsor’ on each change Middle managers and supervisors – fulfilling role of ‘coach’ for their reports

15. © Prosci 2012 www.change-management.com 15 The Project  People Exercise: Conclusion The power of the exercise is that the audience makes the connection themselves –Between the project, the objectives and the people who have to change how they do their job (their day-to-day activities) –Helps them reach the ‘ah ha’ moment about the people column on their own Try it! –Who will be your likely audience? The exercise demonstrates the role of change management and how it connects to the project and its purpose (i.e. the business results)

16. © Prosci 2012 www.change-management.com 16 Connecting change management to business results The states of change and the role of the individual

17. © Prosci 2012 www.change-management.com 17 States of change Typically we take an organizational perspective Ad hoc processesDocumented and managed processes Multiple, legacy systemsOne integrated database Generalists in the call centerSpecialists in the call center No web interface for suppliersSupplier website integrated into supply chain Two different companiesMerged organization Current state Transition state Future state

18. © Prosci 2012 www.change-management.com 18 In reality, each impacted employee has their own current and future state Organization Individual How I do my job today How I will do my job after the change is implemented Current state Transition state Future state Current state Transition state Future state

19. © Prosci 2012 www.change-management.com 19 The organization’s future state is actually the collection of many individual future states Organization Individuals Documented and managed processes One integrated database Specialists in the call center Supplier website integrated into supply chain Merged organization Future state Current state Transition state Future state Current state Transition state Future state Current state Transition state Future state Current state Transition state Future state Current state Transition state Future state Current state Transition state Future state

20. © Prosci 2012 www.change-management.com 20 States of change connection Business results are achieved when a project is successfully implemented, moving some part of the organization from a current state to a desired future state The future state is only achieved when individual contributors do their jobs differently – make their own transition from their current state to their future state Change management is the tool for helping individuals make a personal transition from a current to a future state

21. © Prosci 2012 www.change-management.com 21 The need for change management Quantitative arguments: Correlation analysis

22. © Prosci 2012 www.change-management.com 22 Correlation analysis Looking at data that shows a correlation between effectively managing change and meeting objectives –“Show me the numbers” Analysis from: –Prosci’s 2011 Best Practices in Change management study –McKinsey Quarterly article –Your own organizational experience?

23. © Prosci 2012 www.change-management.com 23 Prosci correlation analysis

24. © Prosci 2012 www.change-management.com 24 Prosci correlation analysis

25. © Prosci 2012 www.change-management.com 25 Prosci correlation analysis

26. © Prosci 2012 www.change-management.com 26 McKinsey correlation study Examined 40 projects Evaluated –ROI expected –ROI delivered –Level of change management effectiveness –Factors evaluated Senior managers Middle managers Frontline staff Results –Direct correlation between change management effectiveness and gap between ROI expected and ROI delivered r 2 = 0.70 –Those that were above average on all three factors realized 143% of expected value –Those that were below on all three factors realized 35% of expected value In the article “Helping Employees Embrace Change” in the McKinsey Quarterly 2002 Number 4, by Jennifer A. LaClair and Ravi P. Rao

27. © Prosci 2012 www.change-management.com 27 Correlation conclusion Bodies of data that support the contention: –Better change management means better realization of benefits Can you start collecting your own data? –Measure for benefits realized –Measure for change management effectiveness

28. © Prosci 2012 www.change-management.com 28 The need for change management Quantitative arguments: ROI of change management model

29. © Prosci 2012 www.change-management.com 29 Why does actual ROI differ from expected ROI? Certainty of expected ROI or benefit from change Amount of change to how people do their jobs – ‘people change’ Changes that have no ‘people change’ have high certainty in the expected ROI Changes that are highly dependent on ‘people change’ have low certainty High LowHigh Low

30. © Prosci 2012 www.change-management.com 30 Change management and uncertainty Certainty of expected ROI Amount of change to how people do their jobs – ‘people change’ Effective change management allows you to decrease the uncertainty associated with changes that impact how people do their jobs – improving the ROI of your projects that impact people

31. © Prosci 2012 www.change-management.com 31 ROI of change management model For any given organizational change, there are three ‘human’ factors that impact the amount of expected improvement from a solution: –Factor 1 – Speed of adoption –Factor 2 – Ultimate utilization (participation) –Factor 3 – Proficiency These are realities of a project’s implementation –They define and constrain the value a project delivers

32. © Prosci 2012 www.change-management.com 32 Factor 1 – Speed of adoption Expected (baseline) –Based on explicit or implicit assumptions –Project implementation phase and plan –Phased roll out? Actual –How quickly people get on board –Passive resistance –Active resistance –Through effective communication and project launch –Through sponsorship and coaching

33. © Prosci 2012 www.change-management.com 33 Factor 2 – Ultimate utilization Expected (baseline) –Perhaps implicitly assumed 100% –May have done scenario analysis –Participation Actual –How many people “opt out” of new way –Can result in any breakdown of ADKAR –Reinforcement and resistance management play big roles

34. © Prosci 2012 www.change-management.com 34 Factor 3 – Proficiency Expected (baseline) –Assumed ongoing improvement from the solution –Comes as a result of new processes, interactions with technology, behaviors, structures, etc. Actual –Determined by competence of each individual who is doing their job a new way –Can be reduced as a result of resistance

35. © Prosci 2012 www.change-management.com 35 Implementation curve

36. © Prosci 2012 www.change-management.com 36 Actual adoption

37. © Prosci 2012 www.change-management.com 37 Utilization – cost savings

38. © Prosci 2012 www.change-management.com 38 Proficiency – cost savings

39. © Prosci 2012 www.change-management.com 39 Other scenarios

40. © Prosci 2012 www.change-management.com 40 Other scenarios

41. © Prosci 2012 www.change-management.com 41 Cash flow overview

42. © Prosci 2012 www.change-management.com 42 Adoption – cash flow

43. © Prosci 2012 www.change-management.com 43 Poorly managed change

44. © Prosci 2012 www.change-management.com 44 Exceptionally managed change

45. © Prosci 2012 www.change-management.com 45 Comparing all three scenarios

46. © Prosci 2012 www.change-management.com 46 Review of ROI factors Speed of adoption How quickly do people get on board? What symptoms of poorly managed change impact speed of adoption? Ultimate utilization How many people are on board? What symptoms of poorly managed change impact ultimate utilization? Proficiency How much improvement occurs when people are on board? What symptoms of poorly managed change impact proficiency?

47. © Prosci 2012 www.change-management.com 47 ROI of change management conclusion The original business case and benefit expectations make assumptions about speed of adoption, ultimate utilization and proficiency Financial and scenario analysis can help us identity the potential impact of not managing the change – and help us calculate the value or benefit (i.e. the ROI) of applying change management

48. © Prosci 2012 www.change-management.com 48 The need for change management Quantitative arguments: The consequences of poorly managing change

49. © Prosci 2012 www.change-management.com 49 When we don’t manage change effectively, we can expect: Lower productivity Passive resistance Active resistance Turnover of valued employees Disinterest in the current or future state Arguing about the need for change More people taking sick days or not showing up Changes not fully implemented People finding work-arounds People revert to the old way of doing things The change being totally scrapped Divides are created between ‘us’ and ‘them’

50. © Prosci 2012 www.change-management.com 50 Prosci ® Flight Risk Model Mitigating negative consequences

51. © Prosci 2012 www.change-management.com 51 With change, you can expect a decline in productivity and an increase in resistance.

52. © Prosci 2012 www.change-management.com 52 The reality is that change creates instability and introduces risk to the organization.

53. © Prosci 2012 www.change-management.com 53 Multiple changes within the organization aggravate and compound this risk.

54. © Prosci 2012 www.change-management.com 54 The degree of adverse impact will vary by group and will depend on the effectiveness of your change management work.