Showing the value of change management is something that change practitioners have yearned for. Some senior leaders do not understand the value of change management and either see it as a normal part of general business management or don’t even understand what it is. For less mature organisations, change practitioners often need to spend significant time educating stakeholders and explaining why they are doing the work that they are hired for. Calculating and showing the financial value of change portfolio management can be the ultimate ‘proof’.
Calculating the value of change management has been a difficult task to accomplish since a lot of the work of managing change is deemed as ‘soft’ and about people and leadership. There are various attempts to calculate in financial terms the value of managing change. These approaches include ROI (return on investment) and cost-benefit analysis. However, this approach is purely focused on a cost level and does not look at the value of the impact of change management work.
At a change portfolio level, there is even less in the literature. Not only is there not a lot of content on how to manage a portfolio of changes, but there is also almost no mention in the literature on how to calculate the financial value of managing a change portfolio.
A lot of organisations do not invest in managing initiatives across the portfolio from a change management perspective. This could be due to a lack of change management maturity or experience. Managing initiatives across a portfolio requires not only senior leader sponsorship but also having the right change governance, operational routines, change management analytics and decision-making capability in conducting ‘air traffic control’, sequencing, and resource prioritisation.
One of the difficulties is in trying to measure the value of the whole discipline, which may be too complex and wide in breadth to take into account. A better approach may be to look at the tangible parts of value created from managing a portfolio of changes.
One of the key values of effectively managing a portfolio of changes is helping the organisation better prioritise the right initiatives, the right sequencing of initiative implementation, and therefore the right resources to support these initiatives. This includes not just the right resource focus and allocation from a project implementation perspective, but also from a business perspective when it comes to change readiness and adoption.
A McKinsey study showed that companies that are better at prioritising resources to support initiatives can reap an average of 40% more value than other companies. Note that this is not ‘up to 40%’ but an ‘average of 40%’. This is a significant finding and shows how much this impacts the value of the company.
How do we calculate this change portfolio financial value?
Step 1 – Calculating the value of the company
One simple way to calculate the value of a company can be calculated by using this simple equation:
Value = Earning after tax x P/E (price to earnings) Ratio
Earnings after tax = This number you should be able to get from Finance, or for public companies, this figure should be available in the published Income Statement.
Price to earnings ratio = There are several ways to get this figure. Market value per share divided by earnings per share. Or if this number is not available you can use the average P/E ratio number of 14 as the average for S&P 500.
Let’s take a few examples.
Your company’s earnings after tax is $100 million. And if your P/E ratio is not available, then the value of the company is $100 million x 14 = $1.4 billion.
Your company’s earnings after tax is $300 million. And if you’re P/E ratio is not available, then the value of the company is $300 million x 14 = $4.2 billion.
Step 2 – Calculating the value of prioritising resources to support your initiative portfolio
In the McKinsey study, the 40% increase in company value was over a 15 year period. Let’s assume this is taking into account the compounded effect of incremental value year in and year out. Using a reverse compounded interest calculator would equate to 2% per year in incremental value.
In the example where the value of company is $1.4 billion.
$1.4 billion x 0.02 (2%) = $28 million
In the example where the value of the company is $4.2 billion
$4.2 billion x 0.02 (2%) = $84 million
You can see now that we are talking about a significant chunk of money. This is because of the increase in the value of the company from making the right decisions in focusing and appropriately resourcing the prioritised set of initiatives and having the right business focus to support these initiatives. Creating the right focus, the right change sequences, the right change ‘packages’, and changes that are ‘bite-sized’ as needed can all contribute to optimised change outcomes.
Resources and organisational energy are also not wasted on initiatives that are less critical and perhaps more likely to fail or achieve less adoption. These then translate to enhanced overall benefit realisation, and therefore improved value creation for the company overall.
This contrasts significantly with the focus on individual projects and the calculation of ROI where change management is viewed as a cost to the business. At a per-project level this may make sense, however, most companies are executing multiple projects at the same time. Sure, you can try and calculate the change management ROI for every project and still not capture the total value. This is because “the sum is greater than its parts” to quote Aristotle.
How do we use this value?
There are many ways to use this financial calculation:
Business leaders who don’t understand the value of managing change across the portfolio and struggle to see the relevance or business benefit of investment in this area
Project portfolio managers who would like to better understand and articulate the ‘prize’ in focusing on change portfolio management beyond the existing project portfolio management focus areas
Operational leaders who would like to understand the value of ‘air traffic control’ of the various initiatives that impact their business units
Change practitioners who have been asked to prove the value of managing across the portfolio and why this is needed across multiple initiatives
Delivering constant changes is a requirement in implementing agile change management. With each iteration, a change is being designed and released as a part of ongoing agile development and project implementation. However, there is little mention in change management literature of how to go about delivering change constantly and be able to achieve optimum change adoption.
Continuous delivery pipeline
The concept of a ‘continuous delivery pipeline’ is a core part of the agile methodology. It refers to having a structured pipeline of continuous changes being released as required by the organisation. The pipeline contains a set of features and changes to be worked on, and the resulting prioritised changes are released when and as needed.
The three components of a continuous delivery pipeline that forms an agile release train include:
Continuous exploration – This is about defining and scoping what needs to be built using human centred design approaches to design the problem that needs to be solved from the user perspective
Continuous integration – This step involves taking those prioritised features from the backlog and investigating further to understand what development work is required to turn them into solutions for the user.
Continuous deployment – This is about turning the completed changes from the staging environment into production, meaning the live product that is ready to be used by the user. After the technical part of the solution is ready to be released, the business then determines when is a good time for this release to go ahead.
The ‘technical side’ of the agile team is fairly well defined in terms of the roles and responsibilities of each member, including project manager, developer, QA/testing, business analyst, business owner, etc. However, the role of the change manager is much less defined and black and white. This does not mean that there is no role for the change manager though. It just means that the agile literature has not well defined the details for the role of the change manager in an agile team. ‘Agile change management’ still has some work to do to make itself better known to other agile team members.
So how does the change manager get ready to deliver a series of constant changes?
Delivering a series of constant changes is no easy feat. The main issue is that most businesses are not designed to face multiple changes, and nor are they designed to face a series of continual changes either.
Change approaches are primarily written for working on one change at a time, and not in a setting where there are continual releases of changes going on. On the other hand, how many organisations do you know that are only facing one change? Or that only deals with one change within a month? This type of stable change environment may have been the norm years ago when the business environment was much more predictable and stable. Hence, using a waterfall project approach was appropriate at the time. Fast-forwarding to the 2020s most organisations are juggling with constant and multiple changes as the norm.
1. Derive a picture of the changes within the continuous delivery pipeline.
Deriving a clear picture of what changes look like within a project is critical. Without this, you will not be able to clearly communicate to your stakeholders what changes are coming down the pipeline.
To create this picture, use a human-centred approach and illustrate what the user will go through throughout the change journey. This is similar to a user journey map. However, a change-focused picture goes beyond just what the user will be going through. It also includes not just person-based changes, but also process, policy, system, governance, reporting and other changes. Outlining these changes will complete the whole picture of what each change release may look like.
A key problem in creating a picture of the changes early on is that the project team may not even know what the solution looks like. And without particular details of every change release and solution design, it may be hard to create this picture.
The recommended approach is to focus on what the outcome could look like versus focusing on various technical or process solutions. This means you may even need to make particular assumptions in defining what these changes look like. For example:
Release 1: Ability to turn recorded customer conversations into text. With this feature, there will be new risk and privacy processes and governance be put in place in the monitoring and storage of customer data.
Release 2: Ability to search for customer conversation history and flag follow up actions required. Specialist roles may be required to audit customer conversation text. Behaviour shifts in proactively checking on customer history and knowing what to look for in trends is critical.
Release 3: Ability to use analytics to predict customer turnover and use this to minimise customer turnover. Significant capability uplift is required to ensure that consultants are able to know how to use analytics to help minimise customer turnover. Analytics capability uplift is also required at operations management, supervisor and team leader levels.
2. Map holistic stakeholder impacts.
In order to implement constant ongoing changes, it is critical to understand holistically what the stakeholders are undergoing across all types of changes and other BAU impacts. Without taking these into account it is not possible to truly understand the capacity of stakeholders and when changes will best ‘stick’ when released.
Some of the items that should be inventoried and mapped include:
Impacts from the current project that you are working on
Other project impacts that affect the stakeholder at the same time as your project, including any benefit realization periods post project implementation
BAU-led initiatives that could include business improvement or quality, and may not classified as ‘funded projects’ per se
Key high work volume periods such as end of financial year, holiday season, etc.
Audits, planning or reviews where additional work volumes are forecasted
It does take investment and effort to collect all these types of data and most change managers do not bother to do this. However, it is not possible to implement a successful change when you do not understand what other changes or work priorities your stakeholders are undergoing during the change process.
It is also important to note that this type of impact data can change constantly and once the data is collected it needs to be verified on a timely basis with any changes and updates reflected over time. Doing this activity manually can be quite cumbersome so we advise using digital tools such as The Change Compass.
The collected data on what stakeholders are undergoing can be significantly valuable. Often stakeholders themselves have not undertaken this exercise to truly understand the change journeys and work priorities added together holistically. They may be surprised by the picture you are presenting to them. At the minimum, they will value this since it shows that you have a deep understanding of what they will be going through and therefore create more stakeholder confidence.
Examples of data visualisation from The Change Compass
3. Sizing and categorising the impacts of changes
After getting a clear picture of holistic change environment that the stakeholders will be undergoing the next step is to analyse the impacts from your project. In analysing the change impacts you should be ascertaining the nature of these change impacts including:
Size of the impact
How long the impacts will last
How much time these impacts translate to
Types of these impacts (e.g. people, process, system, customer, etc.)
To whom the impacts will be on
Quantitatively sizing your impacts makes them concrete and easily understood. Armed with this information you are able to examine to what extent the planned releases are the right ‘size’ for the impacted stakeholder groups. This is another critical part of agile change management. In determining this, the following stakeholder factors are critical:
Capacity bandwidth
Potential overlaps across various impacts either within the same or with other projects or initiatives
Change maturity level and experience with similar changes in the past
Leadership support and other change reinforcement mechanisms
Overall change readiness
Engagement level with the particular change initiative
When you have considered all of these factors you are ready to engage with your project manager, the PMO, and business representatives to assess to what extent the roadmap laid out is effective and will work to maximise the targeted initiative benefits.
4. Business operations routines
Now you understand clearly the change environment of your impacted stakeholders, various changes within yours’ and other initiatives, and the categories of the various change impacts. The next step is to clarify to what extent your impacted business units have the right operational process to receive ongoing changes. This is often a neglected part of agile change management.
More change mature business units have over time developed the right routines and processes to absorb changes, especially ongoing ones. What are some of these?
Effective engagement processes. Engagement processes are not just one-way communication channels. Having effective communications channels such as newsletters and town halls are a minimum for employees to hear about what is coming down the pipeline. Engagement processes include such as effectively choreographed Yammer channels, skip-level meetings (where managers meet with employees 2 levels down), focus group sessions with a small group of select employees, and effective team meetings where information is passed both up and down the chain of command
Effective learning processes. Effective learning processes at a business unit level includes business operations routines whereby employees have individual development plans (from which training plans can be incorporated), ongoing monitoring of development tracking against targets (e.g. completion rates), virtual learning processes (e.g. employee familiarity with virtual ways of self-initiated learning)
Change champion network. Most change champion networks are project-based and therefore have a limited shelf-life. This means that business change champions have a limited time to learn and develop as effective change champions. They also have limited time to practice and experience what it is like to lead and support change. A better design for business units undergoing ongoing changes is to have business unit based change champions that can support a myriad of changes across the board. This flexes their capability. Also, with constant exposure to changes over time, they are able to continuously develop and become better change champions. Organisations that have done this well, have positioned this as a ‘talent pool’ for frontline employees seeking to grow into other challenging roles.
Benefit realisation processes. Tracking and reinforcing benefit realisation is one of the most critical ingredients for success in the impacted business unit. Usually a month after go-live, the project would have already wrapped up and the business is left to continue the rest of the change journey and achieve the targeted benefits. To do this the business unit needs to have clear benefit realisation tracking and reinforcing mechanisms, involving Finance and business leaders. There needs to be constant oversight of how the benefit tracking is trending and leader discussions on resolving any obstacles and providing adequate managerial support to drive the benefit realisation process.
If your impacted business unit lacks one or more of these ingredients, it is critical that you work on this upfront. Highlight to business leaders the risk of not having these ingredients in place within the business. These processes may take significant time and investment to build up. Therefore, factor in the time required to develop these. Often, within the challenges of agile changes, these are left until the end, by which time it is too late to try and establish quickly to support the identified project changes.
Assessing the change process and conducting effective change impact assessment are critical tasks for the change manager. The reason is that a detailed change impact assessment is a map from which change interventions are pieced together to drive and manage the change process. Most aspects of change management deliverables are tied to the effectiveness of the change impact assessment. This means, if the change impact assessment was not thoroughly conducted, covering key angles and perspectives, then the overall change will likely fail.
Illustrating the effectiveness of change impact assessment is not always easy. However, we currently have a great example. Right now, Russia is attacking Ukraine with the goal of seizing Kyiv the capital. What does this have anything to do with change impact assessment and the change process?
This event is felt globally around the world in many different ways. Firstly, the most important acknowledgement has to be the horrendous human toll for the people of Ukraine. As this article is being written, there are hundreds of thousands of Ukrainian fleeing to neighbouring countries to find safety and refuge. Lives are lost and buildings destroyed.
It may seem to be that the conflict is only in Ukraine. However, the truth is much more than this. The effects of this war are felt across the world at many different levels. Let’s look into this more thoroughly as this illustrates precisely how change impact assessments should be done.
The above diagram is only a brief surface indication of a few of the impacts of the war. You can see that it is not just economic impacts, but political, social, humanistic and technological impacts. This complex web of different impacts evolve and form the overall change and disruption.
The same can also be said for organisational systems during change. Different change impacts compound and affects one another. What may be deemed as a simple process change, could impact operational factors, leadership factors, employee capacity, reporting process, system impacts, etc.
It is also worth calling out that when conducting change impact assessments different factors often converge and make it difficult to separate an impact from one category to another category. Since we are talking about a whole global system, different impacts affect one another.
Looking at this table and looking at what is unfolding in the attack on Ukraine there are some key call-outs that change managers should learn about when conducting effective change impact assessments:
1. Transitional states may be just as important as end state changes
During the change process, many things will evolve. The change impacts that happen during transitional phases need to be fleshed out and defined. Typically, what a lot of change managers do is to follow a change impact assessment template that focuses more on current state versus end-state gaps and focus on these as impacts.
However, without clearly understanding the impacts during transitions the change process will be not successfully managed and the outcome will not be reached. For example, if you had to do an impact assessment for the Russian attack on Ukraine, and you didn’t forecast the interim events that other countries will step in to support Ukraine or that Russian people will protest then the overall tactics used could be very different.
2. The change process may not be linear
A key observation of the change that is happening around the world resulting from the attack on Ukraine is that the direction, pace and volume of change is not linear. It is systemic and even organic/viral.
Within a war, setting change may be counted on a daily basis in terms of progress. In an organisational change setting, and particularly for complex changes, the same comparison can also be drawn. Complex changes are often not one-directional in terms of A affects B, or because of process change A, process B is changed as a result. There could be a complex web of changes with multiple processes impacting each other. There could also be impacted processes that as a result impact other processes.
When we look at the evolvement of this conflict, the human impacts are just as complex. First is the civilian tolls with mothers and children fleeing to neighbouring countries. Ukrainian men from neighbouring countries return to Ukraine, crossing the same borders in the reverse direction, to help the country fight. More and more civilians enlist as volunteer fighters. There are records that many residents dare to directly confront Russian military personnel. There are families across both Russia and Ukrainian borders that are caught in this conflict. There are even reports of discrimination against black refugees fleeing from Ukraine at border controls. The diverse nature of impacts is huge.
With complex organisational changes, similar comparisons can be made in that the change evolution can be systemic and organic/viral. Leaders, influencers and networkers can have a strong influence over the organisation. Formal and informal organisational networks such as internal communication channels, functional groups and centres of excellence all exert influences on shaping the change. The trick is to understand the key drivers of influence, change, communication and engagement within the impacted stakeholder groups and use these to design the change process.
3. Every perspective should be assessed to ensure potential gaps are covered
In implementing change often there are perspectives that are not considered and these usually show up during the implementation and can potentially derail the project. This often happens when the change seems simple and so stakeholders usually resort to what has occurred in the past. However, no company is operating in a vacuum and organisational situations evolve constantly.
The key is to thoroughly consider each perspective, whether it is the perceptions of each group of stakeholders, downstream impacts of process on operations and planning, or potential role changes resulting from workload changes or oversight required. Understanding the interplay between each of these is key.
4. Anticipate tactics in altering the change process
In a war situation, both sides constantly assess the situation in a super agile environment to constantly pivot from a tactical perspective to influence the outcome. For example, Russia resorted to strict censorship and mass arrest of domestic protesters to control any opposition to the attack. Russia also exerted significant influence over US social media channels in Russia to adhere to its censorship objectives.
On the other hand, Ukraine’s Prime Minister Zelensky resorted to grassroots support at a national level and an international rallying approach to appeal for support. He is constantly on social media to appeal to the people of Ukraine to take up arms and fight for Ukraine, and this is one of the key tactics in slowing down Russia’s advances. He also proactively appealed to international leaders for financial and military support.
In a change impact assessment setting, anticipate key tactics of key stakeholder groups to support or resist the change. Document and list down previous or likely tactics used by these stakeholder groups to drive the change further, to slow down the change, or to resist the change. Leverage these perspectives and build these into the change approach to derive a much more systemic approach to achieving the change outcomes.
In Summary, whilst our first response to what is happening in Ukraine is strongly on the suffering of the Ukrainian people and the wish for the suffering to end. As the conflict unfolds it teaches us some very important lessons about change and disruption and how complex, organic and dynamic they can be. There are some important lessons on effective approaches in conducting change impact assessments and assessing the overall change process.
Acknowledgement: Featured photograph from The Independent
The increasing pressure to change and evolve continues to challenge the very existence and design of every organisation. After waves of change and disruption from industry competition, technology evolvements, customer preferences, surge in commodity prices, and Covid, change is, more than ever, a constant. To meet with this rapid and increased intensity of change, organisations are resorting to agile ways of implementing change management to keep up.
Agile ways of implementing change often times mean that the outcome may be reached faster by team members, and sometimes with fewer resources than previously. With these promises, there are very few organisations that are not jumping along the agile bandwagon.
So what are the challenges of using agile change management?
1. Agile change may not suit every change scenario
Agile ways of change management may be great when we are developing a new product, a technical solution, a new process or a new way of working. However, not every change scenario. If the change setting requires strict adherence to complex regulations and standards, significant documentation, testing and quality assurance, full agile may not be the most suitable. Pharmaceutical companies would not use a pure agile approach in developing new drugs simply due to the level of regulatory and industry standards required to be met in the process.
However, this does not mean aspects of agile practices may not be incorporated alongside traditional approaches. For example, pharmaceutical companies have been incorporating practices of involving customers in product design, customer collaboration, and marketing communication to enhance customer satisfaction. The trick is to balance those agile aspects which would benefit the overall solution and outcome, versus others that may be less applicable due to organisational and industry challenges.
On the other hand, if the project is concerned with developing changes to meet a new government regulatory requirement for customer product disclosure, an agile change approach may be more suitable. Change iterations can be designed to form the solution required to both meet regulatory requirements and not negatively impact customer experience.
2. There are significant capability requirements in implementing agile changes
Implementing agile changes does not just mean using agile frameworks and techniques in the project team. Every team involved needs to ensure effective communication and transparent communication, including regular team interactions, to build up agile capabilities. This includes not just the technical teams, quality and testing teams, but also business stakeholders, and depending on the change, customer advisory teams as well.
Project teams may be used to agile methods and techniques after several projects. However, these may be foreign for business stakeholders, especially those accustomed to traditional project management environments. Sufficient education and capability building to tackle common challenges may be required in impacted businesses to undergo the change process. This is because without this experience, the impacted businesses may not sufficiently buy-in to how the change was designed and implemented. Moreover, without adopting agile practices, the impacted business teams may not be able to adopt the changes at the rate expected in agile environments, which could hinder a smooth transition to effective agile methodologies.
3. The agile methodology has not clearly specified change management elements
Agile project management methodology clearly lays out the roles of the various members of the agile team, including the project manager, business owner, quality and testing, developer, etc. However, a big hole exists for effective change management, emphasizing the crucial role that change managers need to play. The clear role for change management has been left out. For example, methodology and training providers such as Scaled Agile. In a seemingly detailed and comprehensive treatment of all parts of agile methodology, the specific details of the role for change managers are not mentioned anywhere.
To tackle this big gap, there are various attempts to try and close this gap such as Jason Little’s Agile Change Management approach that is possibly less comprehensive than those best practices detailed by the Scaled Agile Framework for the enterprise level.
Why is it that the role of the change manager is clearly omitted? It is not that the role of change manager is becoming obsolete. The increasing popularity of agile is matched by the increasing demand for change management professionals. There has been a consistent growth in the recruitment for change professionals year after year. It could only be that perhaps those in charge of documenting agile methodology don’t have a background in change management and subsequently have not ventured to detail any requirements within the methodology.
Imagine a world where change professionals won’t need to tip-toe and educate others about how their roles fit within an agile setting. Given the importance of change management is it not a gap that cannot continue forward? Perhaps we can garner the change community to drive this through in the 2020s?
4. Oversight of multiple agile changes is more critical than ever
One of the key challenges of using an agile approach is that often the end change outcome or the solution of the change is not clearly known at the commencement. With each iterative development, agile changes become more and more defined, and the project objectives may also evolve. Or at times, the solution may continue to evolve and pilot as required according to project requirements.
What this means is that at any one-time business stakeholders are dealing with multiple projects and their project progress that are constantly evolving. The impact of those projects may or may not be known depending on the development of the specific agile iterations. This could make it a nightmare to plan and get ready for multiple changes from a business unit perspective.
The solution is to develop oversight of the entire group of change initiatives. With constant oversight, the business is much more capable of preparing for change overall. And with the shifting iterations of agile across initiatives, the picture continues to evolve so that the business can keep a pulse on the changing nature of change. This includes not just the volume of impacts, but types of changes, role impacts, timing, change pace, readiness, and fostering a culture of continuous improvement, including regular feedback loops, etc. Utilise digital change management solutions to support your stakeholders as they continue down the agile change journey.
How will you support your business stakeholders as they charter through the ever-increasing environment of change and disruption? What digital tools are you adopting within this digital world to get ready for increasingly agile changes? Just like the agile principle of including and integrating multiple disciplines to promote collaboration, leveraging digital tools to aid change readiness and collaboration is key to future change outcome success.
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