Addressing the change constant Successful change from the inside

PwC Advisory Services

At a glance
Portfolios of change are the new norm. How do you effectively address change from the inside? Building internal change management competence results in organizational agility.

Introduction
Portfolios of change are the new norm and their presence demands that businesses have some form of resident organizational change management capability. In order to ensure that change will be accepted and embraced, leaders must address two tough questions: Does my organization have what it takes to effectively execute change on a continual basis? and What are our change capabilities and how can we leverage them for competitive market advantage?
Regardless, one thing is certain: change is no longer something that happens periodically. Its continuous, constant and needs to be successfully managed. Portfolios of change are the new norm and their presence demands that businesses have some form of resident organizational change management capability. In order to ensure that change will be accepted and embraced, leaders must address two tough questions: Does my organization have what it takes to successfully and effectively execute change on a continual basis? and What are our change management capabilities and how can we leverage them to contribute to a competitive market advantage? It is no longer sufficient to keep change management at arms length and expect it to happen in isolation. At a minimum, sufficient acumen is needed to leverage and grow existing internal change champions and to know when and how best to engage outside help to support change work. Either way, an internal change management capability is a business imperative. An internal change management capability contributes to two important goals: it gives organizations a way to build a culture that is more amenable to change, and it helps them inject greater efficiency, responsiveness,

Successful change from the inside

Given the economys continued volatility and uncertainty, the pace, scale, and complexity of organizational change initiatives continue to escalate in organizations around the globe. In PwCs 15th Annual CEO Survey, 70% of CEOs told us their organizations anticipate a change in their companys strategy over the next 12 months. Yet, in the midst of this sea of unrelenting change, business leaders have a woefully low level of satisfaction with the outcomes of their change initiatives. 75% of change initiatives fail to fulfill their stated goals and objectives.1 This rate of failure amounts to billions of dollars of leakage from wasted resourcesrework, opportunity cost, and lost productivity. Timeto-value is elongated, return on investment is diluted, and resistance to undertake more change grows.

75%

of change initiatives fail to fulfill their stated goals and objectives.

1 Source: Mark J. Dawson and Mark L. Jones, PwC, Human Change Management: Herding Cats (2007).

Addressing the change constant

and speed in their change programs. As a result, change initiatives can realize a faster time to value as well as greater value over time. A change management capability gives an organization the ability to be more agile by introducing, implementing, and sustaining effective change; and organizations that already possess agility in other respects stand to become even greater competitive threats with a robust internal change management capability.

By not leveraging existing strengths, companies end up having to reinvent the wheel, incurring unnecessary costs and mobilization delays, and compounding the risksof each initiative individually and of all, collectively. So, building a change management capability is not only a matter of being able to leverage (and build on) existing capabilities that are often beyond the view of most leaders, but also of capitalizing on these capabilities treating them as a key element of the organizations responsiveness and agility. Its about thinking prospectively about changenot just about the immediate short-term needs, but about how to nurture the capacity for the organizations growing change management needs. Beyond the individual change initiatives you might be undertaking right now, have you stopped to consider what your portfolio of changes might look like over the next few years? What methodologies, processes, capabilities and people your organization might need to execute it?

Unleashing your existing change assets

Market evidence reveals that a growing number of organizations already have many elements of a comprehensive change management capability in house such as communication functions, workforce planning capabilities in HR, learning and development groups that provide instructional design and deliver training, and project management that can support project work in other areas of the organization. However, these elements are, more often than not, scattered throughout the enterprise not aligned, not coordinated, and marginally leverageable to address a continuous change environment. Considering that so many organizations are engaged in multiple change initiatives concurrently, existing competencies are likely to be overlooked or underleveraged.

For those organizations that question the value of internal change management capabilities, consider the ramifications and costs of any given change initiative gone awry. Often, organizations undertaking a largescale change initiative feel theyre already spending enough on the implementation and frequently skimp on investing in change management resources. In the end, projects stall or derail; these companies typically end up spending far more than anticipated, and suffering disruption, distraction, and lost productivity. If the stakes are high and the initiatives frequent enough, proactively building an internal capability is a wise move.

Beyond the individual change initiatives you might be undertaking right now, have you stopped to consider what your portfolio of changes might look like over the next few years?

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Three basic models for an internal change management capability

How an organization develops its change management capability may vary, depending on the organizations distinct culture, needs, characteristics, circumstances, and the skill levels of its staff. Practically speaking, though, its rareif everthat an organization has a blank slate from which to begin. A good starting point is to look through the lens of your companys culture and business model to determine your general philosophy about change management and the people, processes, and tools currently in place to deliver it. Do you need a centralized group of people with a set of change management skills, methods and tools to serve the needs of the entire organization? Or do you want to equip people with the tools and knowledge to execute change, deploying those capabilities throughout the organization with minimal infrastructure? Or, does it make more sense to build change management capability as you go, project by project, relying on internal and/or third-party experts to advance the projects and your knowledge base and without building a Center of Excellence (COE) infrastructure? An internal change management capability usually takes one of three basic forms: a center of excellence, a leveraged talent model, or a project-based change model. But in most organizations, as well see, the approach morphs over time

a function of resources, organizational structure (e.g., command-andcontrol or decentralized), or business environment. Increasingly, as their capabilities evolve, companies are applying a hybrid approach that combines elements of each. Lets examine each model, and then look at real-world exampleschiefly variations or hybrids of the three. Center of excellence (COE). The COE is a stand-alone change management function with a dedicated team to manage change initiatives wherever in the organization they take place. It generally reports to a member of the senior management team. The COE hires multidisciplinary resourcesprofessionals in the discipline of change managementto manage and support change efforts across all functional areas of the organization. These professionals might include communication specialists, learning or training specialists, organizational design specialists, analysts (to gather and evaluate trend data, for instance), and others. The COE develops, promotes, and maintains the change leadership philosophy, methodology and supporting tools to provide a foundation for the organizations change efforts. It also provides training in these methodologies, processes, and tools to build change expertise. Finally, a COE supports executives and project managers in communication, change-readiness analysis, training, organizational development and transition, and stakeholder engagement.

Leveraged talent. In this model, a change management capability is built through a talent management framework, the components of which are typically managed in concert with the line organization and human resources. The capability is distributed throughout the organization; that is, the organization either identifies change leaders from throughout the enterprise to develop change skills and form a change network throughout the enterprise, or it develops a defined set of change competencies in all associates. It provides training in the core change leadership competencies it has identifiedcompetencies that are incorporated into hiring profiles, training programs, leadership development plans, performance management guidelines, and pay and incentive plans. In addition, education, developmental assignments, coaching and mentoring are integrated to transform top-line managers into competent change leaders. Trained associates are enlisted for their change skills whenever they may be needed, for large or small, formal or informal change initiatives. Organizational structures, roles and responsibilities are often revised to provide change leaders with the bandwidth to wear two hats: one for their day-to-day role and one for their new role as stewards of change. This model also involves developing a change methodology and supporting tools to provide a foundation for the organizations change efforts. It also includes continuing education to maintain and develop skills.

Addressing the change constant

How an organization develops its change management capability may vary, depending on the organizations distinct culture, needs, characteristics, circumstances, and the skill levels of its staff. Practically speaking, though, its rareif everthat an organization has a blank slate from which to begin.

Project-based change. This approach brings change management capabilities to bear in a projectcentric rather than strategic manner. Rather than invest to build the capability broadly, the organization often engages thirdparty expertise to provide or supplement internal change management capabilities on an as-needed basis. With project-based change, the organization defines and establishes point-of-need change competencies as each project arises. Project-based change optimizes the level of internal change leadership competencies by assigning change managers to specific change initiatives. Not infrequently, companies will use project-based change and third-party support to equip their organizations thorough knowledge transfer

plans, so that the company verifies that methods, tools, processes and outcomes continue to reside within the organization. With each new project, the organization ends up expanding the number of people trained in change management skills. The project-based approach allows the organization to have a baseline capability and gain knowledge transfer without making the commitment to dedicate resources to change efforts on an ongoing basis. There is nothing one-size-fits all about internal change management capabilities. The three models serve as basic frameworks that most organizations will need to customize by combining elements of more than one. Each model has its pros and cons (See the following page).

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The pros and cons of the three basic internal change capability models
Scenario 1:

The design of an internal change capability depends on each companys unique needs, resources, and goals. As a result, the pros and cons of each model can only be assessed in this context. This table compares key pros and cons of each basic model for two companies with different organizational structures and circumstances.

Large multi-state company; grew mainly by acquisition; units are largely autonomous; few centralized functions Starting point: a geographically dispersed employee network focused on building a common company culture Goal: building a change management capability to support a portfolio of primarily strategic initiatives at the enterprise level
Model Center of Excellence (COE) Pros Greater potential for strategic impact and likelihood of success Consistency Efficient, sustainable Ease of accountability Incubator for innovation Staffing options Cons Capacity limitations: Support coverage limited by size of team Less staffing flexibility re: shifting workload Managing demand can be challenging; need to prioritize and rationalize projects Limited reach due to autonomy and geographic dispersal COE structure centralizes knowledge, making it harder to embed change throughout Staffs local-level focus may require negotiating to enable enterprise involvement. Harder to manage staff time and priorities Geographic dispersion and decentralized relationships complicate development and consistent application of standardized change methodology and tools Role accountability: no easy point of contact for senior leaders who need help Need for training is significant to build capability throughout organization Less efficient; not sustainable: repeated learning curves and inefficiencies with each project ever-changing resources complicates development and consistent application of standardized change methodology and tools reliance on third-party resources may result in multiple (and incompatible) approaches Use of third-party resources may not necessarily prevent disruption or need for internal resources: third-party resources may lack sufficient organizational knowledge to work independently

Leveraged talent

Talent pool in place in its culture change network- Existing network has reach into siloed facilities; can touch local level Close to the business; understands business and challenges

Project-based change

Talent pool in place in its culture change network- Existing network has reach into siloed facilities; can touch local level Close to the business; understands business and challenges

Addressing the change constant

The pros and cons of the three basic internal change capability models (continued)
Scenario 2:
Large manufacturer with facilities clustered in one region; grew primarily organically; many support functions (finance, IT, sourcing) are centralized Starting point: Has several immediate and critical initiatives, but organization has little history in proactively leading change Goal: Capability to manage change continuously
Model Center of Excellence (COE) Pros Same as COE pros for Scenario 1, plus Geographic containment and consolidated functions make it easier for COE to reach into organization Cons Capacity limitation: coverage depends on team size Staffing inflexibility; not easy to add or reduce staff to conform to workloads Scope limitation: by centralizing knowledge, embedding change broadly may be difficult Managing demand can be challenging

Leveraged talent

Model explicitly recognizes that change is constant, must be managed effectively, and is a shared enterprise responsibility Close to the business; understands business and challenges

Lack of trained resources in house Need for training significant to build capability throughout organization Staffing inflexibility: harder to manage time and priorities of leveraged resources, given their core responsibilities Less efficient and sustainable: dispersed talent pool may make development and consistent application of standardized methodology and tools difficult Role accountability: no easy point of contact for senior leaders who need help Less efficient; not sustainable: repeated learning curves and inefficiencies with each project ever-changing resources complicates development and consistent application of standardized change methodology and tools reliance on third-party resources may result in multiple (and incompatible) approaches Use of third party resources may not necessarily prevent disruption or need for internal resources: third-party resources may lack sufficient organizational knowledge to work independently Training need is significant to bring internal resources up to speed

Project-based change

Low-risk approach to developing capability Can be mobilized quickly for immediate, short-term needs Staffing flexibility: easy to expand or contact based on needs Accountability clear, established on project-by-project basis

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Hybrids predominate, and for good reason

For most organizations, some permutation of the three basic models is generally most appropriate. The design and evolution of an internal change capability should be based on the organizations current, as well as anticipated futurestrategic needs and circumstances.

In the past, large-scale transformations at the company had failed, chiefly because the organization had overlooked the people and structural barriers to change. For those reasons, the company decided that a center of excellence would be a sensible starting point for its internal change management capability. Ultimately, the company will evolve this capability into a hybrid of the three models. PwC was enlisted to help with two goals: helping the organization assess its readiness for change by identifying enablers and barriers; and using those insights to (among other things) help it understand how best to develop and build an internal change capability. Even before settling on a COE, the company took early steps to build a knowledge repository containing change management models and best practices and tools, and it instituted a knowledge transfer program to support continuous improvement. The COE is designed to reside within the HR organization, although it is proactively developing partner relationships with other areas of the organization, such as strategic planning, the enterprise PMO, IT (as a strategic partner) and with the senior leadership team that is driving transformation. The initial focus is on change communicationsa function independent of the companys internal communication function.

Consider the following real-world illustrations.

A Center of Excellence as a Starting Point (Leading Insurer) A leading insurance company approached PwC for help in planning a sweeping multi-year transformation of its largest division: aligning more than 10 different business units to one operating model. Basically, the organization wants to use its technology, business processes, and data insights in a consistent way across the enterprise for product development.

Addressing the change constant

A Leveraged Talent/Center of Excellence Hybrid (Healthcare corporation) For highly decentralized organizations, with largely autonomous units and no unified culture, a pure center of excellence approach isnt always practical. That is the case for a large regional healthcare organization that operates multiple hospital systems throughout several states. The company grew by acquisition, so its units are not only geographically dispersed, but are also culturally different. Building on what is essentially a leveraged talent model, the company is creating a hybrid that incorporates elements of a center of excellence. The organization initially focused on cultivating a common culture through the development and leverage of a culture change network. Guided by a small group of dedicated internal culture change consultants, the company has trained and dispersed culture champions throughout the organization. As the companys culture work has evolved and expanded, that small group of internal consultants has become the heart of change management for the company. The team is now expanding its efforts beyond culture into other critical strategic initiatives to benefit the whole organization.

PwC was enlisted to help with two goals: helping the organization assess its readiness for change by identifying enablers and barriers; and using those insights to (among other things) help it understand how best to develop and build an internal change capability.

When Change Capability Fuels Demand for Change: The Evolution of a Center of Excellence (Healthcare Services company) Five years ago, a Fortune 100 health care services company built a center of excellence in the IT organization serving one of the two major business areasthe one generating most of the companys revenues. The center, created to support the businesss growing number of change initiatives was staffed with a director and eight direct reports who were supported by 18 external consultants. In recent years, the centers success with IT projects hardly went unnoticed; other business leaders saw how much more smoothly projects were going. Leaders began seeking the help of the COE for initiatives beyond IT projects. This led to an expanded scope: supporting strategic business transformations such as acquisition integrations. So as a result of its success with IT projects, the companys COE actually increased demand for change management.

More recently, the company decided to consolidate its IT organizations into one umbrella IT group, which meant that change management functions would be integrated. The change management director called in PwC to help him assess the capabilities of the existing center and its ability to accommodate an increasing demand for its services, both in IT change initiatives as well as business transformations. Relying on the centers five-year history and evolution to broader initiatives, PwC was brought in to assess existing capacity and develop a future-state strategy and road map. The center already had a strategy, operating model, structure, and governance mechanisms in place, along with change management methods, tools, and metrics. PwC interviewed internal customers and business and functional unit leaders to identify key considerations, addressing such issues as future scalability, accessibility of services thru multiple channels, and how to strengthen strategic and operational capabilities.

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The building blocks of high-quality change management

The most important aspect of any change initiativethe makeor-break aspectis the human side. In fact, 98% of critical success factors for change are people-dependent2:

such as engaging leaders and mobilizing employees, creating a governance structure, aligning people, setting accountabilities, and sustaining motivation. Our approach to embedding successful change management is therefore fundamentally based on driving positive change through people, rather than on driving people through change. We believe this is the best way to secure stakeholder engagement and create sustainable change.

Figure 1: Building blocks of high quality change

This building-blocks approach to change management is designed to drive positive change through people rather than driving people through a change. The ten building blocks combine strategic elements with transactional tools and methodologies, interacting with and reinforcing each other.

Workforce transition Project and program management Change impact and readiness Training

Leadership alignment

Communication

Adoption

Transformation vision

Stakeholder engagement

Cultural changes

Sustainability

2 Source: PwC Management Barometer.

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Addressing the change constant

Eyes on the prize: The ROI of change management

Whatever approach an organization chooses, to be robust and sustainable, the internal change management capability should be built on a foundation of ten building blocks fundamental capabilities that address these critical human elementsfrom leaders articulating a vision of the change programs impact, to assessing readiness for change and creating workforce transition plans and training programs. (See Figure 1 on page 10.) The blocks, a mixture of strategic and transactional components, interact to foster and reinforce the behavioral changes needed to achieve the desired benefits. Building internal change management competence produces multiple long-term benefits. Companies continue to improve at change management, yielding more efficient, more effective, future change initiativesthus boosting the ROI of every future initiative. Although companies rarely measure the cost of change management, evidence exists that links the quality of the change management program to the return on investment of the change. A study of 40 large-scale change projects at large companies showed that change programs ranked excellent by leaders yielded an ROI of 143%; programs that were poor or nonexistent delivered an ROI of only 35%.3

Getting the maximum ROI from change management depends on having highquality change management practices, delivered through a mature program management framework in an agile organizationthree elements we call the Change Trifecta.4

Although companies rarely measure the cost of change management, evidence exists that links the quality of the change management program to the return on investment of the change. A study of 40 large-scale change projects at large companies showed that change programs ranked excellent by leaders yielded an ROI of 143%; programs that were poor or nonexistent delivered an ROI of only 35%.

3 Source: LaClair, J. & R. Rao, Helping Employees Embrace Change, McKinsey Quarterly, November 2002. 4 Source: The Change Trifecta, PwC 2012.

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Accelerating change, accelerating value

If the ability to respond and adapt to rapid change matters, then organizations must be able to accomplish change fast. A high-quality change management capability recognizes the importance of speed. And faster execution, we now know, leads to better outcomes. In a recent study, hundreds of executives worldwide were asked to rate their companys overall speed of execution: defined as both time to value and value delivered over time. Those executives who rated their companies fast enjoyed 40% greater sales growth and 52% higher operating profit than those who considered their execution to be slow.5 How did these companies achieve speed? The faster companies, it turns out, didnt get that way by compressing schedules to accelerate implementation. Instead, they focused on the human factorsspecifically, establishing clarity, unity, and agility

(in that order) up front as the basis for the initiative. These elements feed off each other, and in combination, foster openness and innovative thinking which, in turn, reinforces speed. Investing in an internal change management capability helps organizations gear themselves toward future success. Leaders neednt shun future change because of the fear of failure. They can be confident in their organizations proven ability to navigate change initiatives. Success, as we saw in the case of the Healthcare Services company, fuels demand for change management services. In turn, as they embrace change more readily, companies gain agilityand enhance their competitive advantage. In other words, companies that invest in the discipline of change management end up with an enduring benefit.6 As weve also shown, there is no cookie-cutter approach to building the internal change management capability. The path an organization takes should recognize the organizations life cycle relative to its external environment, its existing capabilities and the resources it has available, as well as its culture. What worked five years ago may no longer apply. Creating the right approach involves tradeoffs, planning, and a keen understanding that change management, like change itself, is fundamentally unique to every organization.

5 Source: Davis, J.R., H. M. Frechette, Jr., and E. Boswell, Strategic Speed: Mobilize People, Accelerate Execution, Harvard Business Press 2010. 6 Source: See The Change Trifecta, ibid.

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Addressing the change constant

www.pwc.com/us/peopleandchange

To have a deeper conversation about change at your organization, please contact: Ed Boswell Principal US Leader, Advisory, People and Change +1 (617) 530-7504 ed.boswell@us.pw.com Toni Cusumano Principal Advisory, People and Change US Change Management Leader + 1 (415) 307-7376 antonia.m.cusumano@us.pwc.com Paul Joyce Director Advisory, People and Change +1 (704) 344-7569 paul.m.joyce@us.pwc.com Jenna Rosenberg Manager Advisory, People and Change + 1 (612) 280-7885 jenna.rosenberg@us.pwc.com

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