In today’s rapidly evolving business landscape, organisations face relentless change. From technological disruptions to shifting market dynamics, the ability to adapt is no longer a competitive advantage, it’s a prerequisite. However, many organisations still underestimate the considerable consequences, particularly financial, of not having effective change management.
This blog delves into the quantifiable costs of neglecting the use of change management best practices, demonstrating how poor change management erodes profitability and hinders both short and long-term success. We’ll explore the tangible impact on project budgets, operational efficiency, employee retention, and change fatigue, providing a compelling case for prioritising change management as a strategic imperative.
The price of neglect: When change is ignored
The financial repercussions of poorly managed change may not always appear as line items on a balance sheet, but they affect various facets of the business. The success of any organisational initiative, whether it’s a technological uplift, a process re-engineering effort, or a strategic market expansion, is intrinsically linked to the effectiveness of its change management strategy. “Companies with excellent change management strategies met/exceeded objectives 93% of the time, compared to 15% of companies with poor change management strategies. – Prosci”. This highlights the significant multiplier effect of effective change management on project success, directly translating to better control over budgets and timelines.
- Benefits realisation at risk
The most immediate impact that an organisation can suffer from is low adoption rates and delays of whatever technology, process, or structure an organisation is trying to put in place. A lack of a structured change management framework that takes into account the directly impacted individuals, ensuring a human-centered approach, often results in low adoption rates. Outside of the human-side of change, robust change management approaches emphasise the need to a Single View of Work to visualise ongoing and upcoming work in real-time, and promote the ability to surface risks early, allowing for early mitigation when plans need to deviate or when we encounter unexpected roadblocks. These practices significantly decrease the risk of projects running over budget and failing to deliver the anticipated outcomes.
Between the human and project perspectives brought by effective change management practices, we are often confronted with low adoption, leading to delayed and stalled projects, large amounts of rework, ballooning budgets and eventually, investment failures.
Digital transformations are particularly vulnerable to inadequate change management due to their substantial financial outlays and pivotal role in future competitiveness. We know that organisations that successfully manage change are more likely to achieve project success in these initiatives.
Effective change management gives organisations the ability to visualise ongoing work and a method to surface risks early from a change perspective, allowing for early mitigation when plans need to deviate or when we encounter unexpected roadblocks.
- Operational disruption and reduced productivity
The financial impact of ineffective change management extends beyond the immediate impacts of low adoption and blown out project budgets to significantly affect overall productivity and operational efficiency. McKinsey’s research on digital transformations reveals that initiatives lacking a strong change management component experience a 30-50% reduction in expected benefits due to low adoption rates and ineffective implementation.
Modern change management approaches take into account not just the singular change, but the entire organisational change landscape. This holistic view, combining the level of change demanded, the specific change impact, and an understanding of individual workloads, enables change managers to provide the right level of support when implementing any change. Without this view, employees are confronted with the inability to juggle multiple large, concurrent changes and demands, resulting in decreased productivity, operational bottlenecks, and increased error rates, directly impacting your output and profitability.
Gartner surveys highlight that the decline in employee willingness to support change has decreased from 74% in 2016 to a mere 38% today. This lack of support stems directly from the level of change fatigue experienced by the modern employee and translates to lower productivity as employees resist new processes and tools, hindering the realisation of efficiency gains.
- Increased employee turnover and talent loss
One of the most significant, yet often underestimated, financial costs of ineffective change management is the increase in employee turnover and the associated loss of valuable talent and knowledge. Repeated failure to manage change effectively leads to employee cynicism, reduced morale, increased change fatigue, and overall employee resistance. There is a clear correlation between these factors, particularly change fatigue, direct results of poorly managed or excessive change, and employee intent to stay.
According to a recent Gartner survey, only 43% of employees with high change fatigue intend to stay with their organisation, compared to 73% of those with low fatigue. The financial implications of this are substantial, as the cost of replacing an employee can range from one-half to two times the employee’s annual salary.
- Damaged reputation and customer dissatisfaction
Ineffective change management can also have significant financial repercussions through its negative impact on an organisation’s reputation and customer satisfaction. Poorly managed changes, especially those that directly affect customer-facing processes or services, lead to negative customer experiences, increased complaints, and damage to the company’s brand image.
- Fragmented Portfolio Management and wasted resources
A lack of a formalised and standardised consistent change management process within an organisation, leads to a fragmented approach across portfolios. This inevitably creates information silos, causes significant rework and duplication of effort, ultimately hindering overall returns. A fragmented approach can’t scale – and neither do its benefits.
Turning the tide: The strategic imperative of effective Change Management
While the costs of ineffective change are substantial, the good news is that investing in robust change management practices yields a significant return on investment. Whether referring to project benefits such as enhanced project success and increased adoption rates, financial benefits like minimising ballooning budgets, operational benefits involving reducing impacts and ensuring stable productivity rates, or human benefits like minimising employee turnover and decreasing change fatigue. The strategic imperative of effective change management is clear.
Key takeaways
- Prioritise Change Management: Embed change management as a core strategic capability within the organisation.
- Invest in training and development: Equip leaders and employees with the necessary change management skills.
- Foster open communication and engagement: Create a culture of transparency and actively involve employees in the change process.
- Adopt a structured and tailored approach: Implement a robust change management methodology that can be adapted to the specific needs of each initiative.
- Embrace technology and AI: Explore opportunities to leverage AI-powered tools to enhance change management practices.
Conclusion
In today’s dynamic and complex business environment, effective change management is not merely an operational function but a strategic financial imperative. By recognising its impact on the bottom line and investing in robust change management capabilities, organisations can mitigate significant financial risks, enhance the ROI of their strategic initiatives, and position themselves for sustained growth and success.
Change isn’t just about getting to the finish line. It’s about ensuring that, once you’re there, your people are on board, the change is embedded, and the ROI is real.
Ready to transform your approach to change and drive measurable business results? Contact us to explore our tailored Change Management Solutions and discover how we can help your organisation navigate change with confidence and achieve sustainable success.
Sources:
- Prosci. (n.d.). Change Management Principles. Retrieved from https://www.prosci.com/blog/change-management-principles
- Gartner. (2023, August 14). This New Strategy Could Be Your Ticket to Change Management Success. Retrieved from https://www.gartner.com/en/articles/this-new-strategy-could-be-your-ticket-to-change-management-success