One of the toughest challenges with organizational change management is that it's one of the most intangible aspects of a transformation. In this blog, I want to specifically talk on how to build a business case that proves the ROI and the value of organizational change. Many executives and project team members fail to understand the measurable business value of organizational change management.
Oftentimes, people think organizational change is just nice to have and makes people feel good. While that may be true to some degree, I'm a firm believer that organizational change management delivers measurable, tangible results. Without organizational change management, you're actually losing a lot of that business value.
Before we dive into the measurable aspects of change management, it helps to set the framework of how change management delivers value to organizations.
One of the easiest ways to think about the conceptual value of organizational change is to think about the major components of any sort of transformation and how change management fits. Typically, most transformations involve operational business process improvements and technological optimizations. On paper, that all sounds good and there's a lot of value that you can unlock in those two areas. However, none of that actually happens until you close the circuit with organizational change management.
To help better understand, think of it as sort of an electrical circuit. Without the change management in the middle to connect the dots between operational improvements and technology, the change simply isn't going to happen. This is probably the easiest starting point to demonstrate and explain the value to executives and other project team members that may not recognize the value of organizational change management.
In the short term, there's a huge amount of value in organizational change management that oftentimes will get executive attention. You are going to implement your transformation a lot faster and cheaper than if you didn't invest in organizational change management. Now that may sound counterintuitive in theory, because on paper, you're actually adding to the cost by adding an investment of time and money and change management.
If you take two scenarios and compare what happens when organizations invest in change management vs. when you don't, companies inevitably run into headwinds that are organizational in nature that slow down the project and actually increase the cost of the actual implementation.
This is the best way to get people's immediate attention is to demonstrate how organizational change management delivers real business value in the form of implementing faster and cheaper than if you did divest in organizational change.
Perhaps the biggest hidden cost of any transformation is not necessarily the immediate implementation investment in the technology, but the opportunity costs and the damages of a failed implementation. In other words, if you aren't able to ship products, close the books, or get the information you need to run your business, there's a huge amount of value that's lost there.
In fact, believe it or not, it's a negative business benefit. In the end, the way we can demonstrate the value in a business case for organizational change management is to quantify what that impact would be.
Just to give you an example, early in my career, I was managing a big transformation for a mid-size organization and the go-live date had been pushed out. The organization had chosen not to invest much in change management. They didn't value it as much as they should have. What ended up happening is they may have saved a couple hundred thousand dollars by not investing in organizational change management, but when they went live, they actually lost over $10 million in lost sales orders.
At the end of all of this, the profit on that was probably one or $2 million. That was then lost by not investing that or $100,000 or $200,000 in what would have been an effective change management strategy for this particular organization. You really want to quantify what that impact is and how organizational change management will help you avoid that problem.
The tricky part is that most people don't recognize what those potential implementation risks. You really have to look at quantifying what the impact would be if you couldn't ship orders for a month, ran out of inventory you, or experienced high employee turnover because there's so much frustration and morale was so low. There're significant costs are associated with each of these situations and organizational change management mitigates those costs.
Now, we've talked about how organizational change management is going to save you time /money, how it's going to avoid the operational disruption, and all the opportunities or hidden costs that come after a troubled transformation - let's look at the long term.
We will work to demonstrate real business value and ROI benefits that you can expect to garner from your new technology or process improvements.
On paper, you may have a business case that shows that you're going to get X million dollars of benefits per year through areas A, B, and C. The reality is you're not going to get those benefits. Those are just placeholders on a piece of paper without organizational change management. You can actually take those business benefits and slash those down to a fraction of what you're estimating they would be.
While this may be somewhat subjective in nature, if you can quantify your business benefits and take a subjective reduction in business benefits, typically that will give you a pretty good order of magnitude impact of the cost of not investing in organizational change management.
At the end of the day, what we need to do is look at how organizational change management is going to help us reduce cost in the actual implementation, operational disruption, and increase business value longer-term post-transformation. When you put all these numbers together, usually you're going to have a very compelling case for change, even if you use conservative assumptions of what the impact of change management might be.
Change management can be hard to quantify, but you do see it eventually if you know where to look. Usually, by the time you see the impact of not investing in organizational change management, it's too late. An OCM strategic investment is a very real benefit and it’s important to be able to effectively communicate to executive leadership.
For more information on this, I encourage you to download our Guide to Organizational Change Management, which includes a number of best practices for any sort of transformation. It may give you additional guidance and tips on how to quantify and build that business case that we're talking about here.
I hope you found this information useful and if you have questions regarding ROI or change management strategies, please don’t hesitate to reach out to me directly. I am happy to be an informal sounding board as you move through your digital transformation journey.