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The Compounding Effect of Change of ROI: Big Wins or Big Losses?

 

Let’s look at change from an investment perspective. 

 

By definition, Change Management is: a collection of tools, methods, methodologies and models that focus on successfully transitioning people from current state to a desired future state [i]. 

 

Each time we attempt to change something, we invest time, resources and effort with the expectation of a benefit, or Return on Investment (ROI). 

 

The definition of ROI is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments [ii]. 

 

So where do the two intersect?

 

From an investment perspective, Change and Investment Managers should be doing similar things to maximize ROI.  Prudent financial investors use a calculated approach to make investment decisions and are aware of the potential gains, losses and the opportunity cost of not investing.  If they are comfortable with the level of risk – they invest.

 

Once the investment matures, the ROI is always measured in the financial world.  Unfortunately, that is not always the case with Change Management.  What would you do if your Investment Manager lost your money 70% of the time?  What if you ended up owing monies above and beyond your initial investment?  Would you keep investing – or change your approach?

 

Many studies have explored the correlation between change and ROI.  Although the findings vary, the common resolve is that ROI is often unknown because managers are unclear on how to accurately measure the results.  The numbers don’t lie – and are explored in more detail here

 

One interesting finding from a McKinsey study [iii] is that the effect of negative ROI can be felt even more acutely than positive ROI.  In other words, bad Change Managers lose more money than good Change Managers can earn on their change investments:

 

Successful Change Management programs can result in +43% ROI.

 

A poor or absent Change Management program can result in -65% ROI.

 

 

So what is the conclusion?  Change Management is good, but most companies get it wrong?

 

In our opinion: yes.  With few exceptions, it would be a stretch to call the existing Change Management body of knowledge a breakthrough.  It is however, a useful framework of pragmatic, logical, practical and efficient tools, methods, methodologies and models that facilitate the transition of individuals, teams, and organizations to a desired future state.

 

The problem, is that more often than not (probably around 70% of the time) the management of change occurs as a secondary, or parallel process to business, operations or project management work stream.  This can undermine accountability, execution, control and ultimately - effectiveness (or ROI) of Change Management.  And when Change Manager assignments are resourced by Consultants or experts from outside of the company the problem is often compounded.

 

Although a great deal of change is project driven, we would argue that the project approach to Change Management usually misplaces accountability, execution and control.  The levers of Change Management need to be embedded within the business management layers of the enterprise.  Instead of an ad hoc or project by project basis, change should be driven by Management, should be managed holistically, and should focus on the strategic goals of the company.  As those strategic goals change, so should the company.

 

Inukshuk defines Enterprise Change Management (ECM) as: a permanent and comprehensive business performance agility program that is institutionally embedded at the organizational design level and facilitates strategic and tactical execution of change across the enterprise by specific persons in a measurable way [iv].

 

Effective management of change requires a holistic approach that recognizes the overarching inter-connectivity of strategic business interests and performance goals with the entire portfolio of projects and associated change – across the enterprise.  If not managing change on a daily basis – what are your Business Managers doing?

 

[i] Inukshuk ECM Institute definition of Change Management.

[ii] http://www.investopedia.com/terms/r/returnoninvestment.asp

[iii] http://www.mckinsey.com/insights/organization/helping_employees_embrace_change

[iv] Inukshuk ECM Institute definition of Enterprise Change Management.

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Inukshuk are stone landmarks built by peoples native to the Arctic tundra region.  They are used as directional indicators to break up the uniformity of barren, desolate and forbidding - yet beautiful northern landscapes.  Inukshuk can identify safe passage through mountain valleys, beyond open water channels, and act as vital navigational way-points to prosperous hunting grounds.

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