Change initiatives success rates are not high. Neglecting cultural and people issues in change management can be costly.
In a Nutshell
The rate of change initiative failures are high
Culture and people focus can impact the success or failure of change initiatives
Leading and managing people through change can mitigate failure rates
Are change initiatives more likely to fail than to succeed?
In Soul Searching: True Transformations Start Within, Bain reports that “only 12% of companies achieve their full transformation targets”. This is according to a recent Bain survey of “senior executives who have led large-scale change programs”. Bain also shared that “the good news is, the share of total failures—companies that missed their ambition by a wide margin—dropped sharply to 20% from 38% in 2013.
In 2008, McKinsey surveyed 1,564 business executives worldwide, on the success of their change initiatives. Only 30% considered their efforts successful, according to Enclaria, in It's Time to Abolish the 70% Change Failure Rate Statistic.
In 2009, IBM shared a study of over 1,500 change practitioners, published in Making Change Work, in which 41% of projects were found to have met their objectives. The remaining 51% missed at least one objective of their change programme, or considered the project a failure.
The Executive Development Blog reports that in 2012, a study by Capgemini found that “change management should be a core competency in most organizations yet its survey of Norwegian business leaders found that 45 percent of all companies currently do not excel at change management”.
When Fujitsu surveyed 1,625 global business leaders, they found that:
92 percent say that their customers expect them to be more digital.
70 percent are concerned about their organizations’ ability to adapt to digital technologies such as artificial intelligence
33% have cancelled a project in the last two years at a cost of SGD689,659
28% have experienced a failed project costing SGD904,872
Learn more about overcoming digital adoption challenges in the Building Digital Confidence E-book.
Business leaders today find themselves in a challenging climate—change efforts appear to be more likely to fail than to succeed.
Learning from failed change initiatives
What can we learn from failure that will help business leaders chart a path to change management success?
The Daimler-Chrysler and AOL-TimeWarner mergers are examples of large-scale change initiatives that had great promise but failed in the end.
“Why have the DaimlerChrysler and AOL–Time Warner mergers become the benchmark against which bad strategic combinations are measured?”, Bill Pasmore asks in his book “Leading Continuous Change”.
Daimler - Chrysler
Daimler-Benz and Chrysler Corporation merged in 1998, resulting in a “large automobile company, ranked third in the world in terms of revenues, market capitalization and earnings, and fifth in the number of units sold.”
AOL - TimeWarner
The merger in 2000 between AOL and Time Warner was hailed as a brilliant strategic move by experts and analysts, and later on described as “the worst merger of all time.”
Fortune says of the merger’s promise: “Time Warner, via AOL, would now have a footprint of tens of millions of new subscribers. AOL, in turn, would benefit from access to Time Warner’s cable network as well as to the content, adding its layer of so-called ‘user friendly’ interfaces on top of the pipes.”
What actually happened was: “A few scant months after the deal closed, the dot com bubble burst and the economy went into recession. Advertising dollars evaporated, and AOL was forced to take a goodwill write-off of nearly $99 billion in 2002, an astonishing sum that shook even the business-hardened writers of the Wall Street Journal. AOL was also losing subscribers and subscription revenue. The total value of AOL stock subsequently went from $226 billion to about $20 billion.”
Why the mergers failed: a culture mismatch
“In the various autopsies that were conducted, the explanation offered most frequently was simple: their cultures didn’t fit together”, Bill Pasmore says in Leading Continuous Change.
“The Daimler-Chrysler merger was concluded to be a “culture mismatch”, Manju Thomas shares in a LinkedIn presentation.
In Why the Daimler Chrysler Merger Never Got Into Gear, Harvard Business Review says of Daimler-Benz and Chrysler Corporation, “The two organizations really didn’t like each other, and couldn’t cooperate to the extent necessary to make the combination work. Serious efforts to integrate the operations of Daimler and Chrysler foundered on lack of trust clashes between the mid-market cowboys of Detroit and the high-end knights of Stuttgart.”
In 15 Years Later: Lessons From the Failed AOL Time Warner Merger, Fortune shared their opinion that “Merging the cultures of the combined companies was problematic from the get go. Certainly the lawyers and professionals involved with the merger did the conventional due diligence on the numbers. What also needed to happen, and evidently didn’t, was due diligence on the culture.”
Their conclusion was that “The aggressive and, many said, arrogant AOL people ‘horrified’ the more staid and corporate Time Warner side. Cooperation and promised synergies failed to materialize as mutual disrespect came to color their relationships”, and, eventually, their business results.
In both merger stories, the people aspect of the organisations took a back seat. The speed and delivery of the intended results were pursued without giving due importance to involving and navigating their people through change.
Leading a successful change initiative
On the flip side, what successful change initiatives have done is to manage what many failed change transformations neglected: to take care of their people.
Bain shares how Amgen Chief Executive Robert A. Bradway “led his company through a successful multi-year transformation by anticipating the hazards that could derail the effort”:
Before the transformation:
Bradway spent months discussing key risks with his leadership team.
Bradway appointed a trusted senior executive as Chief Transformation Officer.
Chief Transformation Officer Brian McNamee set up an extensive feedback loop to measure progress—allowed the company to adjust the plan every four-to-six months and each initiative monthly.
McNamee deployed a "change-agent network,” a group of trusted leaders in the field, to understand how the transformation was affecting the organization.
The leadership team listened to frontline managers' concerns and advice, building credibility in the process.
The results:
Amgen's upfront efforts to help people understand the transformation supported the momentum for change even when people's energy inevitably flagged at the midway point.
After two years, the company's margins had risen by 15 points and the stock price had doubled.
Support for the company and the CEO predictably dipped one year into the effort, but at two years, it had rebounded to a level higher than at the beginning of the transformation. Bradway's Glassdoor CEO approval rating rose 12 percentage points in the same period (data provided by Glassdoor). His current rating is 76%.
People-centered change management recognises people’s struggles
The people aspect alone is not a determinant of success, but it can make or break your change initiative.
In Soul-Searching: True Transformations Start Within, Bain says that “Leaders who have mastered the inner game acknowledge a simple truth: People struggle with change.”
“Successful leaders build deep commitment at all levels of the organization from the outset, acquire the capability to encourage behavior change, ensure fast governance and inspire the organization with a clear vision of the company's future state. They also prepare for the valley of death—the difficult phase of sustaining change after the initial enthusiasm disappears. Bain research shows leadership teams that address these inside risks are nearly two times more likely to achieve their ambitions and three times more likely to sustain change.”
Understanding people and establishing buy-in are key
Understanding where the people are at and establishing buy-in are key to managing successful change. It is the senior leaders’ responsibility to listen to their people’s responses to change. Understanding how each person in the team is responding to it will determine how to engage them and the roles they can play in the process.
Bain shares that “Although only 12% of companies make good on their transformation goals, there's a proven path for others to replicate their success. Leaders invest the time and resources to understand how change is likely to disrupt the organization and who will be hit hardest”.
There will be individuals who will be very open to change, while others who feel strongly that the change should not occur and will resist it. Change leaders need to engage people according to their levels of openness.
“To ensure the organization is committed to a transformation, they listen closely to the individuals who will bear the brunt of change”, Bain says. “When pain grips the organization at the halfway point, CEOs play a critical role sustaining the effort. They redouble their commitment and work to restore people's faith in the promises they made.”
Changing the change failure statistic
As organisations prioritise leading and navigating people through change, we believe we will begin to see the change failure percentages decrease.
Leading and navigating your people through change increases the likelihood for success in organisational change and transformation.