What are the barriers to organisational change?

What got you here won’t get you there.

            - Marshall Goldsmith

You’re pitching to a major client, and you know the time of the Pitch: Monday 5th, 10am for 60 minutes.

For every organisation there are four common drivers of change:

Changes in customers

Changes in competitors

Changes in regulations

Changes in technology

The mix of changes is different for different markets. Yet despite the differences, as Marshall Goldsmith accurately identifies: doing the same will not work. So, to adapt organisations must change. Yet, we see so many organisations that either cannot change or will not change. So, the question is why don’t they change? And the answer is simple: there are substantial barriers to change.

The first barrier to change is most people don’t like change. People stick to what they know and what worked before. However, change is happening: like it or not.

Some people change when they see the light, others when they feel the heat

- Caroline Schroeder

 

As executives, we need to help people answer the question: why do they need to change? We can help people see the light by showing them the drivers for change acting on their market. We need to help people feel the heat by letting them experience some of the drivers for change. Bring customers into your organisation. Let your staff see how your customers see little difference between your offer and your competitors offer.

A second barrier is specific to mature markets; organisations can only grow by winning share from competitors.One sign of a mature market is the rule of three. In many mature markets, most market share –70 per cent or more – is divided between three large players. The remaining market is shared between many small players who are often niche suppliers.

In mature markets there are significant capital investments for each player and an oversupply of capacity. In the long term, some players need to leave. However, anyone who leaves has to take a large loss to their profit as they write off their equipment. Not being willing or able to take such a loss creates a barrier to exit. There are no easy answers but, Anita McGahan’s 2004 Harvard Business Review article, How Industries Change offers some thoughtful insights

Mature markets are not themselves barriers to change but drive behaviour which is a barrier to change. Companies and industries that have been successful for many years believe that this will be repeated in the future. This is no incentive to make major changes. Change in these organisations often involves high career risk because everyone believes there is only one right way, the way that delivered results for so many years. So, people and companies focus on incremental and low-risk improvements.

The third barrier is depending only on price to compete. Many organisations rely on price to compete and continually reduce their prices. Reducing prices will reduce margins, so they struggle to innovate and add value to their customers. This is a vicious cycle that encourages them to lower prices further to win more business.

Lowering prices means less margin to invest in products, less margin to promote products. In addition, lowering prices means less margin for your people. Less margin to reward your existing people or you can afford fewer people. Both ways this means it’s tougher to have satisfied and productive people. Competing on price is unsustainable for your people and a barrier to change.

Relying on price to sell often means organisations stop investing time to understand what adds value to the customers. As they become more dependent on selling on price, the organisation tells itself the customer does not value anything except price. For fear of losing business,organisations don’t test if this assumption is true. They stop trying to understand how to add value to customers. But not understanding how to add value to customers leads to another problem: the organisation incurs unnecessary costs and delivers no value to the customer. These unnecessary costs reduce margins and lead to increased pressure on price.

The final barrier to change is the pressure for short-term results: pressure to produce revenue or profit, this day, this week, this month or this quarter.

In a US$2bn revenue organisation, a CEO phoned salespeople asking about this week’s orders against budget. Faced with a choice between trying to get an order this week or trying to invest time to get 200 orders next financial year, salespeople always chose the short-term and chased this week’s order. The tragedy is that by chasing this week’s order, the salesperson ensures that in a year, the situation will be no better. It will probably be worse because of increased competition. (The senior management below the CEO wanted their people to be more strategic, but could not understand what was stopping their staff being more strategic.)

This continuous pressure for short-term results drives out strategic behaviour. Strategic behaviour is behaviour that will produce results beyond this financial year and will strengthen the organisation’s competitive position. We understand the need to produce short-term results, however you must balance between action for short-term results and strategic action for long-term results.

Balancing short-term results and long-term results does not mean: short-term or long-term. Balancing means short-term AND long-term. Practically, balancing means having separate meetings for long-term because otherwise participants will spend the time talking about short-term. Occasionally, managers will ask: Why do we need a meeting because we have nothing to talk about? And the answer is simple: because if your staff are doing nothing to improve long-term results, then you need a meeting to plan for the long-term.

 

Gary-Peacock

Gary Peacock

Gary Peacock, Head of Innovation & Research @ Gordian Business Master’s degree from Cranfield, Technology School, UK&MBA from Australian Graduate School of Management (AGSM)

What are the barriers to organisational change?
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