April 2023 | Point of View
The Real ROI of Change Management
Do it well the first time, or pay two times as much to fix it
The Real ROI of Change Management
When it comes to change management, there is some widely accepted conventional wisdom.
15%+
of an initiative’s internal and external budget should be devoted to change management (based on complexity of change)
70%
of projects fail in implementation
It’s no surprise, therefore, that change management has a reputation problem. Statistics like these put executives on the defense. Spending 15% or more of an investment to usher change that has a 70% chance of failure? No thank you. It’s too hard, too expensive, and maybe not worth trying.
These stats may be directionally correct, but they frame the opportunity and cost all wrong.
For example, initiatives with excellent change management practices are 6x more likely to meet objectives than those with poor change management, according to Prosci.
We believe not in conventional wisdom, but in practical proof points.
How do we reconcile these points? In short, it’s not change management that is expensive and likely to fail. It’s not considering change management at all, not doing enough or doing it poorly that is expensive and likely to fail. The bottom line: You can pay to do it well the first time, or pay two times as much to fix it.
So, when considering the ROI of change management, companies need to focus not just on the return on investment but also on the other ROI: the risk of incompletion.
Here’s how companies can boost their returns and lessen their risks.
Vision and value must be defined first
By formulating vision and value statements, and establishing metrics of success for your initiative, you position employees toward an intended transformation outcome.
A vision statement looks to the future. What is the purpose of the change for the organization, and how will the organization look, act and function as a result of a successful change effort.
A value statement explains the rationale. Why is this the goal? What’s in it for the business, the employee and/or the customer? The value should be tracked through specific desired outcomes, KPIs and metrics that can be monitored throughout the project lifetime and beyond.
It’s critical to also understand the financial, customer and other impacts of the initiative.
- What is your investment?
- How will your teams and customers be impacted?
- What is your expected revenue or savings upside?
But here’s the challenge: In most cases the expected upside assumes perfect execution. However, change management benchmarking data from Prosci suggests that execution can make a major difference between delivering 3x or 6x ROI. This means that the path to meeting or exceeding your goal requires a thoughtful, robust change management strategy and proper funding. Put another way, a clear understanding of what you need to do to achieve your value.
In addition to potential value and upside, it’s also critical to understand the risk of failure or inaction. What are the costs or missed opportunity if the initiative stalls or fails?
Organizational Change Management Investment Scale
|
Poor |
Fair |
Good |
Excellent |
|
|
EXPERTISE |
Little to no change management experience |
Some experience, based on 1-2 previous initiatives |
Solid change management capabilities (3+ years of doing change work on complex initiatives) on your team |
Deep change experience (5+ year of OCM) across multiple members of your initiative or team |
|
ALLOCATION |
Little dedicated resource focus (% allocated to your initiative) |
L&D Corp Communication departments are engaged and allocated at 20% or less |
Have at least one dedicated (100%) resource and are leveraging internal L&D and/or Corp Comms resources |
Have a dedicated cross section of deep OCM expertise across multiple roles and areas of the initiative |
|
FRAMEWORK |
No specified change framework |
A few different change frameworks at play |
Single change framework, leveraged on all large transformational efforts |
Using a proven, repeatable framework and set of tools |
|
BUDGET |
No or very limited budget (0-5% of overall project budget) |
Small budget (5-10% of overall project budget) |
Decent budget (10-15% of overall project budget) |
Strong allocation of budget (15+% of overall project budget) |
From there, we look to understand the culture and environment that will influence the change.
Change fatigue is real: Assess your readiness
Readiness for change is part mindset and part practicality. Companies and people have had to adapt to countless challenges and shifts over the past few years. The goal is to be agile, but change fatigue is real, and leaders will need to consider current stress on the system.
Readiness varies by company and project, but key considerations include:
How big is the problem?
How urgent is the opportunity?
Is there broad understanding outside of the C-suite?
Are there competing priorities?
Are you resourced appropriately?
Is there a comprehensive rollout or implementation plan?
These questions are leading indicators of success, yet readiness is rarely measured.
Leaders should understand what variables could impact the time, attention and mindset of the people who will be asked to change not just processes but behaviors. Those factors may seem invisible or intangible, but they will quickly feel real and like a firm barrier the initiative is stuck behind if left unaddressed.
Readiness also informs how willing companies will be to sacrifice short-term discomfort or challenge for long-term benefit.
Measure Adoption
With any change management initiative, accountability is key. Companies that track and report adoption, celebrate wins and key milestones, and maintain urgency and commitment through implementation are much more likely to succeed.
One healthcare-related company we worked with was driving a digital transformation project with a common goal: go paperless.
They had identified $1 million in spending that could be saved by no longer buying paper. It sounded great, and relatively easy. Pull the plug on paper purchases, save money, help the environment. No pain, all gain. Right?
We dug a little deeper.
Any answer of “no” or “not sure” dropped their potential returns by as much as hundreds of thousands of dollars. Why? Because it meant less than full adoption across their ecosystem.
Ultimately it came down to this: Were they willing to siphon their million-dollar savings because they were unwilling to make some other changes?
You can have a great vision, but you have to give to get both broad adoption and the expected value.
Case Study: Unlocking ROI in CRM Change Management
A regional bank was undertaking a strategic project to implement a new CRM tool. Their goal was to facilitate cross-selling to expand relationships and increase revenues with current clients.
After rolling out the CRM enhancement, the company expected to begin seeing progress after the first month. With an understanding of their end goal, we worked backwards to gauge feasibility and offer a path toward benefit realization.
The bank expected to leap from A to Z—the common “if you build it, they will come” strategy—but was overlooking some critical steps for broad adoption.
The best projects and change management programs build on successes and key milestones over time. In this case, that began with an honest view of the current state, understanding the current use and adoption of the CRM, anticipating potential pain points that could hinder roll out and ensuring tools, training and incentives are in line to maximize the potential of the new tool + support the desired cross-selling KPIs.
By looking at each step to their goal, we helped them adjust their targets and expectations so the program didn’t look like a failure in month one when employees were exploring the tool and opening new accounts – critical first milestones on the path to cross-selling.
Other companies who overlooked the importance of practical timelines and realistic rollouts were not so lucky. After miscalculating the time required for an effective ERP transition nearly 30 years ago, Hershey is still studied in business schools today. An aggressive deadline of July for a new software platform led to empty shelves during Halloween and Christmas, loss of revenue and a loyal customer base left wanting. A costly mistake.
Realize transformation
With a clear vision, and realistic view of readiness and potential impediments, companies can deploy effective change management to increase adoption, speed and scale of their success.
Ultimately the ROI of change management cannot be separated from ROI of the change or initiative.
It’s not just linked or correlated, it’s causal, and the returns hit more than the bottom line. A smoother adoption process helps improve employee and team morale, better serve customers, save time, and increase the likelihood of success scaling.
Success scales after implementation, which means adoption is just the beginning of capturing your full transformational opportunity. Ongoing change management support including measurement, feedback and iteration are critical to fostering lasting change and optimal ROI.
Want to know how much change management can increase your ROI? Find out in 5 minutes with our estimator tool.
Ready to take the next step? Contact us to learn more about how our team can mobilize to support your initiative.
