The “Holy Grail” of Successful Transformations

A Framework for Making Behavioural Change Happen

70% of transformations fail!

According to McKinsey research, “70 percent of complex, large-scale change programs don’t reach their stated goals” (Bucy et al., 2016). This seems pretty daunting for change leaders and managers whose primary task it is to transform businesses for the better. Especially at a time where change comes more rapidly and demands on organisations to keep up with constantly evolving trends and customer needs are higher and higher, this is bad news.

For the past 15 years, I have been working on large-scale transformations in various businesses, across various industries across the globe, and this question has often kept me up at night: If my chances of success are only 30%, what can I do to beat the odds? How can I ensure that I don’t end up in the 70%?   

 

People don’t like change

Of course, there are many reasons why a transformation program might not reach its desired goals. Sudden shifts in the industry, major organisational changes, a change in funding or project financing, changes in direction from top management, system failures or other technical issues, unrealistic goals and expectations, or dismal external circumstances – many things may cause a transformation project to fail. However, from my experience, these are rather rare occurrences. Most, if not all, transformation programs I was involved in were off to a good start, didn’t face any major external or internal blockages at launch.

In most cases, a transformation program failed because the people affected by the transformation resisted the change and carried on with (or quickly returned to) the same behaviours as before. I think this little illustration from McKinsey’s Lean Training materials captures it pretty well: It shows the difference between the 70% that fall back to old habits and the 30% that manage to sustain and maybe even further improve their performance by instilling the right behaviours across the organisation.

People don’t like change – it is uncomfortable, it unsettles long standing routines, it may make work harder at first. So, by definition, resistance from the people affected is a major obstacle for all transformation programs. We have to accept that as a fact of life. 

Yet, 3 out of 10 programs manage to overcome these issues. Their starting point has probably been no different: People don’t want to change – but then eventually they do. 

We may get a clue if we understand first what happens in the cases that fail.

 

Four reasons why people don’t change their behaviours

Let me tell you four stories of transformations that failed:

1. An American logistics company with a strong historic track record faced increasing competition and consequently lower profitability. This forced the management to launch a major lean transformation program and hire consultants to help with the implementation across the entire business. The top management was aligned – however, middle management and staff did not understand the sudden urgency to change. The business had been growing for decades, shipping volumes were high, there was apparently no shortage of work. What workers did not know was that the company was starting to lose money on most shipments. Staff saw no need to change, and hence showed little commitment to the transformation program. Even though the lean transformation initiative launched by the consultant had been successful, just weeks after the consulting team had handed over to the client team and departed, things went back to the way they were before. Not even three years later, the company was forced to shut several of its logistics centres, layoff staff and give business to their competitors.
   
   
2. An oil company facing profitability pressures due to declining oil prices was forced to launch a major cost reduction effort. The company's management team held town hall meetings to inform staff and managed to get wide-spread commitment to the changes. However, the teams responsible for generating cost savings did not have the capabilities to lead the change, create a new way of working and sustain those savings. With a lot of top management support, the short-term goals were met – however, as management started to shift attention to other priorities and their immediate project support subsided, the working teams were not able to sustain the cost reduction effort and performance started to drop.
   
   
3. A family-run real estate developer saw its Returns on Capital drop due to increasing competition and market saturation. Management decided to launch a major cost reduction initiative. However, the company lacked proper systems to systematically track cost performance in a timely manner. More than that, the management style and culture of the company did not reward performance. With no KPIs in place, there simply was no real incentive for middle management and staff to change. While small improvements were made, the overall program fell far behind its expected value creation.
   
   
4. A brick-and-mortar retailer was forced to significantly reduce costs due to increasingly fierce online and offline competition. At the same time, it launched a customer-first initiative to transform and significantly step up its customer service function. The company had a strong performance culture and capabilities of its people were above industry average. The cost savings program quickly gained traction. However, the company’s top management – while demanding significant cuts from middle management and frontline staff – continued to enjoy the same perks and benefits, went on expensive business trips, spent money on meetings at top-ranking hotels, etc. Also, despite most top managers having drivers, management did not want to give up the convenience of front-row parking, while staff and customers had to park further away. Soon, the transformation program was met with a lot of cynicism by middle managers and staff. While the cost reduction program barely achieved its targets, the customer service initiative failed to really take off. Top management simply did not “walk the talk” and therefore lost credibility with their staff.

A powerful change framework – McKinsey’s Influence Model

It is these experiences that made me a big fan of and believer in McKinsey’s “Influence Model” framework (see Basford & Schaninger 2016 for an excellent summary of the model). I came across this model in 2007 and have applied it ever since to all transformation programs I have been part of. It was a big eye-opener for me back then, and until today I believe it is the most powerful change framework I have come across so far – also because it is so simple and easy to grasp and understand.

In its basics, it says that four conditions need to be in place in order to sustainably change behaviours. As a middle manager or staff member, I will adopt the new way if each of these four conditions are fulfilled: 

1. First of all, I need to have a solid understanding why I need to change and need to be convinced that change indeed is necessary / beneficial.
2. Secondly, I need to have the skills and capabilities to behave in the new way. If I want to change, but I don’t know what to do, it is not going to happen.
3. Then, I need to have an incentive (some kind of reinforcing mechanism) to motivate me to change. This can be a positive incentive, the knowledge of (potentially negative) consequences – or simply having some "stake in the game" (stock options?). Just like paying for a gym membership: If it’s free, I might not feel the urge to go (at least that would be the case for me…).
4. Finally, I need to see that others are equally committed to change their behaviours. Particularly, I expect my managers to be good role models and to lead by example. If I see my boss is committed, I am very likely to become committed myself as well.

An illustration: Teaching your child how to pray

My friend and former colleague Tobias Mangelmann used a great example when teaching the Influence Model to clients: Teaching a child to pray. It does not matter which religion – parents who want their child to grow up religiously will inevitably want their children to pray. So how do I do that as a parent?

First, I will explain to my children why it is a good thing to pray. I might tell them that it is how their wish might become true, that they can ask for strength in difficult situations or simply tell them that praying is an important tradition.

Then, I need to teach them how to actually do the prayer. How to start, how to end, what exactly to say. In Christianity, many children’s prayers rhyme, so they are easy to remember. Without teaching them the how-to, it will be impossible for them to know what to do.

Next, we need a little enforcing mechanism for children to have an incentive to pray. That’s where heaven and hell come to play. If you behave well, pray regularly, and follow the rules, you will go to heaven – otherwise, hell it is! On a side note, some Thai Buddhist temples have beautiful illustrations of the Buddhist hell – and the different tortures poor souls have to endure - very effective to teach children...

Finally, all of the above will not have much of an impression on children if they don’t see their parents behave in the same way: ‘If daddy is not afraid of hell, why should I be?’

 

It’s a puzzle – you can’t miss a piece

The key about this framework is that it is a puzzle, with all the parts connected to each other. Even one missing piece makes the entire puzzle incomplete. And this is from my experience: if you miss out on any of the four elements, it puts the entire transformation at risk. Often though, companies miss out on multiple parts, which makes the likelihood of failure even higher.

The good news is: a strong transformation leader can proactively manage and increase her odds of success in a transformation program by focusing on the four elements of the Influence Model. Over the years, I have seen incredibly creative approaches for each of the four elements – but more on this in a later post.

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References:

• Basford, T.; Schaninger, B. (2016)
  "The four building blocks of change"
  Published in: McKinsey Insights, April 2016
  https://www.mckinsey.com/business-functions/organization/our-insights/the-four-building-blocks--of-change
• Bucy, M.; Finlayson, A.; Kelly, G.; Moye, Ch. (2016)
  "The How of Transformations"
  Published in: McKinsey Insights, May 2016
  https://www.mckinsey.com/industries/retail/our-insights/the-how-of-transformation