Executive Summary:
We make business decisions all the time that we expect to
improve our business. When we make
these decisions, however, we often neglect to consider the change these
decisions mean for our businesses and what the short or long-term costs of
those changes might be.
The Rest of the
Story:
There is a common theme throughout many of my posts to this
blog. That theme is the pain
associated with change and how to manage it. Something we don’t consider when we make business decisions,
however, is the cost of making and managing that change.
I know that this will sound obvious. Any time we make a decision to do
something differently than we already do, we have just forced a change. Duh, I know. But if it’s so obvious, why do we neglect to consider the
cost of that change when we make our business decision?
Let me provide a few quick examples to set the tone, then we
can discuss common themes to look for and ways to minimize the costs to us. These examples come from my own
experience, tales from colleagues, or the news.
Boeing just delivered the first 787 Dreamliner, three years
late. There were a number of
contributing factors, but the primary reason that the delivery was late was
that this was the first product by Boeing that was largely outsourced.
Because the 787 Dreamliner is primarily constructed of
composite materials, Boeing contracted other experts to manufacture the body parts
that Boeing would have traditionally produced and assembled in-house. The decision to outsource drove a major
change to how Boeing did business and the impact of that change was felt.
We can’t always put a finger on the cost of making changes,
but Boeing reported that this aircraft development cost more than twice what a
typical new jet development would cost. The cost of development of the Dreamliner “topped
$32-billion due to delays… new jets typically cost closer to $15-billion.”1 I hope I never make a business decision
that costs $17-billion dollars more than I promised.
For several years, I worked for a corporate sector where
change was the norm. Every year
the leadership changed as leaders jostled to fulfill the various career
portfolio requirements to take the next step on the corporate ladder. As a result, goals and objectives and
agendas changed every year as well.
What was the drive and big thing one year, would be old news
and bygone the next. The good news
is that we all became very accustomed to change, even adaptable. The bad news is that nothing
stabilized. It was difficult to
prove that any change made any difference. On those occasions where we could
prove we had made significant strides, whatever we had set in motion soon
became forgotten or reorganized within a few months.
I once talked with a business owner who had to pull himself
out of retirement to fire the CEO he had installed and rescue his business from
disaster. In short, the
corporate-minded and groomed CEO he hired didn’t know how to lead the
family-owned and grown business.
The new leadership didn’t understand or drive the same values the
business was based upon.
My first opportunity to manage another leader, leading a
team, didn’t work out so well. I
was skilled at leading other individual contributors, but I experienced a
learning curve with regard to balancing leadership of another leader against
getting in his way. When we are
leaders, changes that challenge our own experience and skills affect others.
I devised a simple, versatile product development methodology
that would allow a diverse business with several different engineering
functions, of different disciplines, in several global locations to follow the
same product development process.
The standardization would enable a vast improvement to collaboration and
product innovation.
As a veteran of process and business behavioral change, I
knew better than to pull the trigger without first developing a solid plan to
address the risks and plan the change process. It took me longer to address everyone’s concerns and
negotiate the OK to launch the new methodology than it took to teach it to the
engineers. In fact, the process
had been vetted so many times throughout the negotiation process that many of
the engineers knew it well enough to use it before we received permission to
launch it and officially teach it to them.
A close friend of mine works for a business that recently
changed the business model from in-house production to outsourced production
and in-house assembly. This was
done to address a need to significantly increase capacity to meet customer
demands.
To facilitate management of logistics and resources they
also implemented an Enterprise Resource Planning (ERP) system (another drastic
change to business-as-usual).
Before the business model change, this business boasted on-time delivery
metrics in the upper nineties percent.
Now on-time delivery is the business’s biggest problem with some
deliveries more than 90-days late and a recent month reported no deliveries at
all.
That’s enough examples for now. What can we learn from all of these examples? Here is my list, feel free to add to
it.
- Change requires new skills, new processes, and new behaviors, which don’t fall into place overnight: change is a process not an event!
- Simple decisions (such as changing business models or leaders) can drive enormous changes
- The bigger the change, the greater the pain
- Change is necessary, but constant, uncoordinated change is just chaos
- Do not underestimate the importance of your business culture when calculating a change
- If you need permission to make a change, the negotiation effort will increase exponentially with the number of people that must approve it
- It costs more to change without a plan to handle it, than it does to invest in the plan, but it takes work and expense to build a plan
- When a leader experiences a change and isn’t accustomed to the new way, everyone pays for it
- Change invites risk, make a plan to mitigate and manage risks
I won’t address all of these individually. In many cases the same activities that
address one lesson will address several.
The bottom line is this.
Decisions often dictate change.
When you make a decision, consider the extent of change that decision
will demand and be sure you have a plan manage that change.
At a minimum, we need a risk mitigation and management plan
to go along with any significant change.
Assume that things will not go smoothly. Prepare your personnel and your customers to expect the
change and all that it implies.
The more you plan for the change, the smoother it will go, but we can’t
plan forever either.
All changes require new behaviors in some way or
another. Be sure you have a plan
to train and instill those behaviors, and a way to enforce them
appropriately. An e-mail or a memo
is usually not a sufficient solution.
Changes that drive different ways of doing what we do
require new skills and new processes along with new behaviors. Do not assume that because your team is
good at what it does that it will automatically be good at doing something
different. I know that sounds
unnecessary to say, but we do it all the time.
Consider the business described above that is struggling
with on-time delivery after changing from in-house production to outsourced
production and a new ERP system.
Why should we expect someone who is excellent at in-house operations to
suddenly be good at outsourcing?
Remember, new models mean new skills and processes.
Make sure that your risk mitigation and management plan
includes elements to introduce new skills and processes. This can be done by hiring personnel
with the skills or by hiring consultants to teach them. These same sources of experience can
help drive process and behavioral change as well.
Let me briefly sum up.
If you make a decision, consider the extent of change that the decision
demands. It’s better to invest in
a plan to drive the change than it is to deal with the consequences of the
change process as it happens naturally.
Make sure that your plan includes risk management, new skills, new
processes, and new behaviors. Make
sure that plan also fits your current business culture.
Don’t make the mistake of assuming that everything will fall
into place once you have made a decision.
Change is costly, one way or another. You can influence that cost with a plan, or you can find out
when the dust settles, the choice is yours.
Stay wise, friends.
1. Hepher,
Tim. “After 3 Years, Boeing
Dreamliner Becomes Reality.” Reuters,
www.reuters.com 25 September 2011.
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