Meeting the change challenge

Only about a third of the functionality of a packaged enterprise resource planning (ERP) system ever gets used. That`s a fairly scary statistic, particularly for a company that`s invested several millions in one. But wait. It gets worse. The reason the other 60% to 70% doesn`t get used is often due to the company`s inability to implement a successful change management strategy.

This is according to Theo Veldsman, a divisional director at CS Systems Integration, part of business consulting and IT services firm CS Holdings. Although he chose to use ERP systems to illustrate how many change management initiatives fail, there are a myriad of other examples in the business world and many of them don`t seem nearly as threatening.

For instance, the fact that employees seldom use company intranets to access oft-required documentation and regularly bypass office access systems is generally seen as a minor irritation, rather than a strategic issue. But if top management can`t get staff to stop submitting hard copies of leave forms rather than logging these on the intranet, what chance do these alleged leaders have of successfully taking that same team through a merger, acquisition, internal restructuring or the development of a new revenue stream?

With today`s business environment being in an almost constant state of flux, most companies will find themselves going through more than one major change in the foreseeable future, says Veldsman. The extent to which these companies commit to a change management process, he says, will prescribe who prospers and who doesn`t.

An end-date must be set and worked towards.

Michael Ferreira, HR director, AST

Research has shown that less than half of mergers and acquisitions succeed, and that the majority of mergers and acquisitions actually destroy shareholder value. Instead of achieving the expected economies of scale, mergers have become associated with lowered productivity, higher absenteeism and poor accident rates (Sinetar, M. Mergers, morale and productivity Personnel Journal, 1981). Other studies have shown that up to two hours of productivity per employee are lost daily during the early stages of a merger (Wishard, BJ. Merger Human Dimension The Magazine of Bank Administration, 1985). Hidden costs include escalating telephone charges as rumours circulate and unofficial job-hunting starts, and even petty theft as employees take home plants, stationery and books (Altendorf, D. When cultures clash: A case study of the Texaco takeover of Getty Oil, 1986).

Michael Ferreira, human resources (HR) director at AST, defines change management - in the context of mergers, acquisitions and outsourcing deals - as "unconventional moves to cater for unconventional growth, with a specific focus on changing the attitudes and risk profiles of companies moving into a new economy".

Ferreira has been intimately involved in changes at this JSE-listed information and communication technology company, which has seen about 1 500 new staff members being brought into the AST fold in the past three years.

He says the starting point for a successful change management initiative is a clear understanding by the management teams involved of where they want to go and what they want to achieve by implementing the proposed changes.

"A clear sense of mission or purpose is essential," agrees Fred Nichols, a senior consultant at US-based consulting firm Distance Consulting. "The simpler the mission statement, the better. `Kick ass in the marketplace` is a whole lot more meaningful than `Respond to market needs with a range of products and services that have been carefully designed and developed to compare so favourably in our customers` eyes with the products and services offered by our competitors that the majority of buying decisions will be made in our favour`."

"A company`s vision is the fixed beacon in this sea of change," says Veldsman, adding that any changes need to "be referenced against the company`s vision all the time" - before, during and after the change management process.

Achieving this vision, he says, can be likened to playing chess. "Each piece needs to be played and yet sometimes the way you play the next piece depends on how you played the previous one. So, the pieces may stay the same but the game changes."

Too many initiatives are based on managers` gut feels, instead of real feedback from the company as a whole.

Jill Hamlyn, MD, The People Business

Having decided on the overall strategy, those spearheading the process need to concentrate on getting the changes introduced as quickly as possible. "An end-date must be set and worked towards," says Ferreira. Depending on the size of the companies involved in the merger or acquisition, or the scope of the outsourcing project, this could take "anything from 30 days to 100 days", he says, stressing that taking too long is one of the major causes of failure.

Another serious inhibitor is a failure by executive and change management teams to understand, prepare for and manage resistance to change.

Veldsman suggests that the adage "no pain, no gain" can be applied to any situation that involves moving people out of their comfort zones, such as the installation of new IT systems and changes in the company`s pecking order. Resistance, he says, is a given when any major changes occur in how a company does business.

People shocked out of their comfort zones by major changes within a company go through a `cycle of change` that starts with a state of shock and denial, and develops into a defensive retreat. "If the change management strategy does not accommodate and correct this retreat, the company could find itself getting bogged down in despair for an extended period," he says.

"The next step in the cycle of change is when people start saying goodbye to the old way of doing things and embracing the changes. This is when they have been engaging positively and at the end of the cycle, everyone should have a higher productivity level than they did before."

Without people there can be no organisation. Lose sight of this fact and any would-be change agent will likely lose his or her head.

Fred Nichols, senior consultant, Distance Consulting

Jill Hamlyn, MD at human resources consultancy group The People Business, says a vital part of the change management process is to get honest feedback from employees on their individual concerns and fears when a merger, acquisition or outsourcing deal is in the offing.

"Too many initiatives are based on managers` gut feels, instead of real feedback from the company as a whole," says Hamlyn. She adds that collecting feedback from staff during the change management process is best done anonymously. This ensures a higher degree of openness as it prevents individuals within the company being influenced by their subordinates, peers or managers.

"Once we have this direct, open response from a workforce, then we can start dealing with the facts, rather than with perceptions," she says.

"Guessing won`t do. Insight is nice, even useful, and sometimes shines with brilliance, but it is darned difficult to sell and almost impossible to defend. A lucid, rational, well-argued analysis can be ignored and even suppressed, but not successfully contested and, in most cases, will carry the day," says Nichols.

Both Ferreira and Hamlyn stress that effective communication is a key success factor when attempting to ensure that change produces heightened productivity levels and/or lower operating costs.

"If the people leading the way don`t have the right tools and technology to communicate effectively with all those involved, and also don`t display a willingness to listen, then the chances of a successful change management initiative drop significantly," claims Hamlyn.

There are various ways in which communication before, during and after the change management process can be facilitated. Veldsman says his style is to present the proposed changes in a face-to-face open forum. In the event of an internal restructuring, this forum should involve the entire company and any external people brought on board to assist the top management team. Where two or more companies are merging, this meeting should include the teams from all the affected companies.

He prefers to let two or three days elapse after this meeting before beginning one-on-one meetings aimed at establishing how the affected staff members are reacting to the proposed change. "This is to give them enough time to connect with their colleagues and other people within the company and form some sort of opinion on the changes."

Other forms of communication that can be used during the process include questionnaires, feedback forums on company intranets, personalised mail shots and motivational posters. While the mix of communication methods changes from company to company, Veldsman stresses the need for a consistent message during the process.

The way people sell products just doesn`t work very well anymore.

Peter Gilbert, director, Growth Partners

No matter how well the communication is handled, other problems may creep into the process at this stage. Ferreira says these include not being able to establish a common culture between merging teams. This, he says, need not be seen as an immediate disabler, as cultures can be maintained in parallel. If the benefits of the changes continue to be communicated and the change management agents can show the merging teams some quick wins during the process, a new culture will eventually emerge.

One thing that can derail the entire process, however, is when staff members in the upper hierarchies of the merging teams or companies start "playing politics," says Ferreira. This is a fairly common reaction among people concerned about losing status and possibly also their jobs.

"Organisations are first and foremost social systems," says Nichols. "Without people, there can be no organisation. Lose sight of this fact and any would-be change agent will likely lose his or her head. Organisations are hotly and intensely political. And, as one wag pointed out, the lower the stakes, the more intense the politics. Change agents dare not join in this game but they had better understand it."

Another potentially serious hiccup can occur when companies in the same industry sector consolidate and the involved management teams approach this process as "more of the same kind of business". This leads to any resistance to the change being overlooked and under-managed.

"In fact, there are still several factors that need attention here, including the fact that people think differently - so there are probably different cultures within the merging companies in terms of sales cycles, the way staff members handle people, and the different management styles in use within the merging companies," cautions Ferreira.

This refusal to recognise resistance, says Veldsman, can be just as detrimental to favourable change management outcomes as what he describes as the "band aid approach". Here change management teams are advised by management to "keep everyone happy" while the new systems or the new structure is implemented - clearly an impossibility when day-to-day operating procedures are being affected by the changes.

Ferreira advocates measuring the success of any merger, acquisition, outsourcing deal or internal restructuring through keeping a close eye on customer satisfaction levels during the process.

"We usually ask an independent agency to assess these for us. If customer satisfaction levels can be maintained for the first three months and improved on after that, then the change management initiative can be deemed to be successful."

Peter Gilbert, director at specialist sales force transformation company Growth Partners, has a somewhat different take on change management.

"There are positively dismal results coming through from major players, and not just in the IT industry sector either," he says. "There`s been a general global slowdown in sales and margins are getting tighter and tighter."

Gilbert believes the fundamental problem "is that the way people sell products just doesn`t work very well anymore". He says sales people need to evolve from offering day-to-day transaction management, specialised technical support and customer service into their customers` business consultants.

"As products become increasingly commoditised, the major differentiator has become the price tag. Too many sales people are still busy punting the benefits of their boxes instead of listening to business issues. They`re not hearing their customers` pain, so aren`t delivering useful offerings.

"We had a hi-tech, listed company approach us recently and ask for help in finding out why its sales figures were dropping. We went in and used various diagnostic tools on their sales force to try and isolate the problem. We found that over 60% of their team didn`t have the necessary skills or resources to sell business solutions. This was despite the fact that the company believed it was a player in the business solutions provider space."

Traditionally speaking, the HR department looks after the administrative side of a company`s people component.

James Arnott, senior manager for resources and human performance, Accenture

Gilbert says this is just one of countless examples of how companies are "getting it wrong" when it comes to their sales teams. And this isn`t a South African sales syndrome either. "In 1998 and 1999, the US`s sales force shrank by almost 26% - that`s one in four jobs over a two-year period. Why? Because they just weren`t adding value to their companies."

Top management teams, he says, need to constantly review their target markets, as well as regularly make the distinction between whether they are selling products, solutions, services or a combination of these. They also need to be extremely selective as to who sells what and into which target market.

"Transactional sales are about selling your stuff. Here price is the differentiator and no long-term relationship is involved in the sales process. Then there is the consultative sale, where business issues are solved at a process or operational level. The enterprise space is very different - it demands that sales people form a long-term relationship with customers that involves them getting to know the business inside and out, and understanding the customer`s business strategies and operational requirements.

"Companies need to groom the right people to sell in each area. Too many hot-shot box-droppers are being expected to perform in the solutions sales area when they just can`t make the switch between these two very different types of sales approaches."

Customer profitability should also receive attention, so sales resources can be correctly allocated. "Another of our customers was worried about falling margins. We took a look at their 14 000-strong customer base in terms of profitability and transferred almost half of them to a call centre. Now the sales team can focus on profitable, long-term clients, while the call centre agents look after the product requirements of the other 700 customers."

Gilbert maintains there are few IT companies that have correctly selected and focused their sales people on the types of sales they do best. This, he says, is why sales figures are slumping while operating costs are rising. He believes that many of the issues here can be addressed through an internal change management initiative aimed at realigning sales people`s activities with their company`s vision.

"The right question to ask when reviewing the success of your sales initiatives is: How much value does your offering deliver? IT vendors have been getting away with vague ROI [return on investment] calculations that few people believe anyway for years now. But restructuring and refocusing your sales team properly means you can deliver a measurable value-add to customers," he says.

Gilbert is somewhat scathing when asked whether he believes HR departments add any value to companies. "In all the companies I have worked with in transforming their sales approaches, not one has had an HR department that has ever proactively engaged their own sales force."

James Arnott, senior manager for resources and human performance at Accenture, a management and technology services organisation, points out that "traditionally speaking the HR department looks after the administrative side of a company`s people component".

In fact, some surveys, says Arnott, suggest that up to 70% of HR representatives` time is taken up with administrative duties, leaving little time for them to focus on growing companies and employees. Instead, HR resources spend the bulk of their time reacting to employee needs as opposed to being proactive in providing employee services.

Yet change management is clearly about people. Any new project or installation, as well as any restructuring of the workforce, is bound to impact on issues such as head count, remuneration, service conditions and benefits, training requirements and office environments. Any change management process would be greatly facilitated by a proactive HR department.

Generally speaking, South African companies are still wary of paying for change management expertise.

James Arnott, senior manager for resources and human performance, Accenture

A report on a survey of Fortune 1000 companies released by Accenture earlier this year states that despite widespread workforce reductions in the US, the "war for talent" continues, with leadership and management leading senior executives` lists of the most sought-after skills this year. The survey, conducted by global research firm Wirthlin Worldwide, revealed that on average executives reported that one in five employees did not have access to all the information they needed to do their jobs well and 35% say their employees did not understand the corporate strategy. In addition, the survey participants say 31% of employees are not able to collaborate effectively across team and organisational boundaries.

This in itself suggests the need for HR departments to get closer to how their companies are performing and introduce the changes required to assist in raising productivity and efficiency levels.

Veldsman says that in the mid-1990s, change management "was seen as an add-on in packaged application installations. It is now seen as a must-have.

"In the US, change management generally takes up at least 10% of an installation`s budgeted costs, while learning solutions take up about 15%. Anything less than that and you`re likely to run into trouble."

Arnott believes that locally "there is a growing recognition that change management is a real need. But, generally speaking, South African companies are still wary of paying for change management expertise. Many believe it is a function of the existing human relations arm or department within the company."

Companies going through major alterations in the way they do business might do well to ask themselves if they can afford not to spend money on change management initiatives.