Many organisations see Change Management as a ‘nice to have’.
As one senior leader put it to me, “I think we’re just going to signpost to the YouTube videos [the technology vendor] provides – we just don’t have the budget for all the warm, fuzzy stuff”.
That was despite signing off a seven-figure budget for the tech implementation.
Fast forward six months, and the project is a disaster: they’ve discovered that the solution doesn’t support a key business process (meaning additional – unbudgeted – customisation) and there’s grumbling throughout the organisation about why they’ve selected yet another shiny new system that’s going to take time and effort to learn and isn’t any better than what they have already. What’s more, the go-live clashes with another system deployment (which has also been delayed), and questions are being asked at board level about why there are so many change requests for additional budget.
It turns out that getting rid of the ‘warm, fuzzy stuff’ can have a significant, and tangible, impact on the bottom line.
What’s at stake?
According to research by McKinsey, IT projects see benefits shrink by an average of 39%. They studied 6,000 public and private sector companies and found that just 0.5% of projects delivered the intended benefits on time and within budget. 80% of public-sector projects did not finish on schedule but private sector companies weren’t exactly shining: 50% of those projects also over-ran.
This all has a cost; 14% of public-sector projects exceeded budget by 100% or more – that’s right: twice the expected budget. This was true for 7% of private-sector projects.
While the direct cost implications are massive, there are plenty of indirect costs too. When projects flounder, staff disengage. At best, this means failure to adopt the new technology; at worst, it means disconnecting from work altogether or even looking for a new job. Recent research by BCG put the cost of replacing an employee at double their salary.
Not so ‘warm and fuzzy’ after all!
What’s the solution?
Allocating an appropriate level of budget for change and adoption can have a significant positive impact on project outcomes and benefits realisation.
According to Mullaly & Linehan, “projects with excellent change management had a success rate of 94%, compared to only 41% for projects with poor change management”. This fact is proven time and again, but assuming you’re already bought into the need for change management on your project, the obvious follow-up question is, “how much is enough?”
Like the change strategy itself, there is no cookie-cutter answer, but there are some helpful principles.
The nature of the change
Leading Change Management education provider Prosci has a tool called the People-sided benefit calculation, which helps quantify a ‘rough order of magnitude’ for change management investment.
Simply put, you compare the expected project benefits (as quantified in the business case) with the expected percentage of those benefits that will be realised if adoption of the end state is zero. For a basic system upgrade, users won’t have to do much differently and business processes won’t change. You might want to do some light-touch refresher training or communicate any additional benefits, but the risk of zero adoption is small (after all, they won’t have the option to use the previous way of working because it will have been replaced).
Conversely, an enterprise-wide ERP rollout is much riskier if users don’t get to grips with the new way of working or continue to use existing tooling. A sustainability initiative would be another example (if you want to go beyond compliance box-ticking). To truly embed the sustainability change, you’ll need strong engagement and buy-in across multiple stakeholders, and if you’re undergoing a restructure, there’s significant potential for confusion and lost productivity if staff can’t quickly get up to speed on the new reporting lines and processes.
While the Prosci model is a nice starting point, it doesn’t really answer the question most budget holders want to know: how much is enough?
Gartner has done some interesting research in this area and recommends allocating at least 15% of IT project budget to change management (compared with actual spend of around 5%). This tallies with our experience, although we’d typically advise around 20%.
All this is for IT projects though: systems implementations, migrations or custom application builds, for example. These are relatively simple compared to other type of change and transformation. For a restructure or acquisition of a new business, defining the end state may be relatively straightforward, but making it happen without organisational performance grinding to a halt could easily require 50% of the overall budget (or more).
Finally, for a major culture change, change management is the project! Don’t be fooled by fancy PowerPoints which paint a rosy picture of what can be achieved if you only have a thorough understanding of human psychology – culture change is a grind! It takes resilience, determination and long-term commitment. There are no quick fixes, and half-hearted or unrealistic plans can backfire in the long run, being seen as just another leadership initiative that went nowhere.
Project scale
While 20% is a good baseline to start from, there are exceptions at the extremes. Very small projects with a budget of £100,000, for example, will struggle to find qualified support for £20,000. Often, we see companies solve this problem by giving an internal staff member responsibility for change execution as a percentage of their role. This can causes three major problems:
Skills and experience: They are (usually) not change specialists. Perhaps they have been on a Prosci course or have some informal experience, but they don’t live and breathe business change. This means they may follow a ‘paint by numbers’ approach to change, which is inefficient (especially when resource is low) and less effective.
Credibility: They are often not senior enough. We frequently see junior staff member thrown into the role, but good business change requires securing sponsorship from senior leaders, understanding the strategic drivers of the organisations and occasionally having difficult conversations. These employees typically don’t have the credibility internally to lead senior conversations or tackle issues when they arise
Time: If they also have a ‘day job’ (which is usually their area of expertise), then this is likely to take priority when time is tight. This means that the 50% allocation shrinks to 40% then 30%, until they are doing very little except send the odd email or attend the odd meeting. Few companies track time for staff, so this problem is often invisible until it’s too late
For smaller budgets, we would recommend bundling change projects together and focusing on creating tools and principles for how you execute change at an organisational level rather than tackling each project independently. Setting up a Change Management Office (CMO) or Centre of Excellence can help give change and adoption the appropriate level of focus and resource.
For very large projects, on the other hand, there are economies of scale. For a £150 million pound SAP deployment at a large central government department or FTSE100 company, for example, you won’t need to allocate £30 million for change. One exception may be training resource, which is a function of the number of impacted end users, but change teams for a project of this size are likely to be in the dozens rather than hundreds.
The nature of your organisation
The same change can be managed identically in two companies but have very different results.
Why?
Because much like people, every organisation is different. Each has a unique history, culture and competitive position. Each will have a different starting point, and different desired outcomes for the change. Only when you understand the delta between where you are and where you want to get to can you assess how much resource (time, effort, money) you need to budget for the change.
It can be helpful to ask a few simple questions:
How receptive is my organisation to change generally?
Do we have a history of poorly executed change projects?
Is my workforce engaged (you can assess this through engagement surveys, retention data and absenteeism stats as baselined against your competitors)?
How many other change projects do I have in progress?
How big is the change impact compared with the status quo (e.g. business process, roles and responsibilities, organisational structure etc.)?
How aligned are the leadership team on the strategic direction and priorities of the organisation?
It’s easy to see from these questions that an energised, strategically aligned company with a few focused projects will have an easier time executing a change project than one with low morale, a history of failed projects and an executive team pulling in different directions.
In fact, in the latter case, we would recommend addressing these factors first before attempting a large-scale transformation. This may be costly up front, but by building a robust change management capability, you streamline all subsequent projects and the long-term cost savings more than compensate for the up-front investment.
Conclusion
Despite some basic principles that can help budget for an appropriate level of change support, every change project will have nuances that mean a one-size-fits-all approach simply isn’t possible.
We recommend starting with 20% and asking whether your project is more or less complex than average, and whether your organisation is more or less ready for change.
If you would like guidance on this or any other issues related to change, schedule a free consultation: https://calendly.com/ruth-tank/30min?month=2024-09
References:
McKinsey (2021) ‘Unlocking the potential of public-sector IT projects’
BCG (2024) ‘The Employee Benefit That Pays for Itself’
Prosci: Change Management ROI Calculation (prosci.com)
Mullaly, M. & Linehan, C. (2019) ‘Change management practices and the role of project management in Canadian organizations’.
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