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Projected shortfall, in millions, of global knowledge workers by 2020.

– Source: Making talent a strategic priority, The McKinsey Quarterly, January 2008.

How to plan for change in a "white water world"

BUSINESS

How to plan for change in a "white water world"

August 15, 2008

If there's one constant in business, it's this change is inevitable.

If there's something new in business, it's that change is faster, broader, and more uncertain than ever. As one CEO remarked in the recent IBM Global CEO Study, chief executives are finding themselves in a "white water world."¹

Figuring out how to manage change is a growing preoccupation. Companies have to plan for unpredictability and gain the agility to thrive in a world always in flux. Their long-term survival could depend on it.

Customers, competition, talent all in flux: IBM Global CEO Study

The IBM Study reveals that eight out of ten CEOs see significant change ahead. Among the major issues: customer expectation shifts, competitive threats, industry consolidation, global expansion, and insufficient talent.

Most CEOs say their approach to change is informal, ad hoc, or improvised. How can I improve it?

At the same time, their ability to manage change has diminished. Since the last study in 2006, the number of companies that report limited or no success in managing change has gone up by 60 percent.²

In spite of the challenges that lie ahead, most CEOs said their approach to change is informal, ad hoc or improvised. That may be the reason why they're less able to effectively manage it.

Change is continuous: Harvard Business School

Just as significantly, John P. Kotter, Professor Emeritus at Harvard Business School and leading thinker on change management, says companies have to be able to handle "continuous change, not just episodic change."

How are they faring?

So far, not well: "[In] nearly 70 percent of cases where companies need to change something significant, they either don't launch it or they do, but the efforts are over cost, way late, and there's a lot of pain involved. Only about 10 percent of change programs seem to work well."³

Lackluster responses to competitive moves: McKinsey

A study by McKinsey on how companies respond to competitor threats points to similar patterns.

Most companies expect a seven percent drop in earnings from dramatic competitive moves.
– McKinsey

When faced with a significant price change or innovation from a competitor, most companies assess just a few response options and choose the "most obvious one" – instead of undertaking significant analysis to inform their strategy.

This in spite of the fact that they expect to see a seven percent drop in earnings from such a competitor move.

Organizations also tend to limit their competitor evaluation and planning to a year ahead at most, instead of taking the longer, strategic view.⁴

Closing the gap

The IBM study suggests that the change gap – the rate of change and an organization's ability to manage it – is getting bigger in many companies.

Companies with smaller gaps have learned to anticipate and cope with transformation. These "outperformers" turn change management into a core competency because they can answer "yes" to many of the following key questions:

Outperformers turn change management into a core competency. How can I do the same?

Does your organization have a healthy appetite for change?
Do you have innovators and change leaders and provide them with the freedom to effect meaningful change?
Do you manage change as a structured program and measure change management effectiveness?
Do you have robust processes in place to incubate new product, service and business model concepts?

Embracing change

Witness the case of Proctor and Gamble. The $81.5 billion global giant is undertaking "one of the most intriguing change management efforts going on in corporate America today," says BusinessWeek.

The goal of its "design thinking" initiative is not only to find new products, but to inform and improve other key areas like strategy, relationship building and operational excellence.⁵

Other companies that have been able to "move the corporate mountain" and find market opportunity: Apple, Nintendo and HP. Symantec, for one, became a multi-billion dollar company after it regrouped and deepened its position in just one market – systems security and anti-virus.⁶

A pre-emptive approach

So, how do you gain adaptability as an organization? Greg Hackett and David Axson suggest that organizations create a risk-based early warning system – one that anticipates and responds to trends, market changes and competitor challenges.⁷

It includes deep analysis of what's going outside the company: market shifts, competitive moves and customer trends. Business drivers in turn should be linked to these events and trends.

Performance targets should also be planned and tied to trends and risk factors. They drive new initiatives and improvement efforts.

Managing change, managing the future

Using business intelligence to integrate disparate data sources into a common business view goes hand-in-hand with a company-wide approach to change management.

Timely data and dynamic management reports can provide instant information about the state of the market and the company's place within it.

Executives gain the right context for key decisions. With insight into the business, they can reallocate projects and resources as needed. Management and staff can also focus on value-added activities like competitor analysis and customer service.

The dynamic, predictive organization

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Scenario modeling

Agility is also easier when companies have flexible, integrated scenario modeling and planning capabilities.

A dynamic planning platform with capabilities such as rolling forecasts allows management to consider the consequences of different tactics and to better anticipate market changes.

Finally, predictive analytics offer another way to harness future insight. Here, companies use predictive statistical models, combine results with current analysis and communicate results across the organization through reports and scorecards.

Summary

In a future marked by increasingly fast, insidious change, agility and strategic flexibility may be the new coda for business success.

A collaborative, information-rich environment can put companies on the right footing – so they see change more as opportunity for growth instead of threat.

According to one participant in the IBM CEO study: "For large companies, it is easy to be complacent – we have to change this. Our company culture must have a built-in change mechanism."⁸