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The Hard Side of Change Management
Although DICE, the model for change management presented by Harold L.
Sirkin, Perry Keenan, and Alan Jack- son in “The Hard Side of Change Man- agement” (October 2005), may be very useful for evaluating project imple- mentation, it is much less relevant for prescribing how to actually implement change.
The five DICE factors – project dura- tion (D), the project team’s performance integrity (I), management commitment (C1), employee commitment (C2), and employee effort (E) required to cope with the change – are not all indepen- dent variables that explain successful project implementation in a causal way.
For example, employee commitment is essential for change to occur, but it will not happen without all the other DICE variables.
Employees will not spend extra efforts on projects that are a low priority for their managers. Management commit-
ment also drives the integrity of the project team. In turn, the staffing of proj- ects with very capable people drives employee commitment. The extra effort required to implement a project is also a major motivator of employee com- mitment. There is a limit to how much extra time employees will devote to a new project on top of their existing workload.
I would argue that the duration of a project and the effort required to im- plement it are so closely related that they frequently can be collapsed into a single variable. Projects with a long du- ration almost always require more em- ployee effort to implement them.
The following sequence of steps shows how the elements of the DICE score fit into a model for successfully implementing change:
1. Secure commitment from the most senior executive in charge of the proj- ect, such as the CEO or division head.
(I would call this “C1+.”)
2. Organize the project into a series of short-term versions or releases. Project review sessions, as BCG pointed out, are important to control long-term proj- ects, but splitting projects into a series of versions or project releases is even more effective. In addition to reducing proj- ect duration, versions minimize invest- ment risk and employee effort. More important, they demonstrate incre- mental success, which helps to sell the change effort to senior management and employees.
3. Gain broader management com- mitment by having the senior executive communicate the vision and rationale for change, and use incentives, promo- tions, and recognition to promote it.
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L e t t e r s t o t h e E d i t o r
4. Demonstrate management com- mitment by assigning the best people to work on the project, communicat- ing the project’s vision and rationale, promoting team members for success- ful project efforts, and supporting the project by removing obstacles and pro- viding training.
William Sherden Adjunct Professor Brandeis International Business School Waltham, Massachusetts
Sirkin, Keenan, and Jackson respond:
What’s been missing is an objective way to evaluate projects and portfolios–and that’s what DICE does. With a fact-based assessment of the strengths and weak- nesses of proposed projects, managers can decide how best to proceed, includ- ing what steps to take in their specific situations and which tools to use.
As we said in the article, everyone has his or her own views on which elements of change matter most and how best to go about implementing them. But orga- nizations need a common language that allows them to have productive discus- sions about the specific steps. Other- wise, it’s all just opinion.
“A Players” or “A Positions”?
In 494 bc, Roman senator Menenius Agrippa faced a communication chal- lenge. Tired of being treated as second- class citizens, the Roman plebeians had pulled out of the eternal city. Agrippa, a skilled orator, proceeded to tell a parable about how the various parts of the body all play an essential role in the body’s survival. He convinced the plebs to come back, but only after the upper- class patricians agreed to reforms that recognized the plebeians’ contribution to Rome’s growth and success. Agrippa’s
speech is probably no different from what any sports coach tells her team or general tells his troops: Everyone has a role to play, everyone’s contribution counts, and everyone needs to do his or her best to win–or sometimes even just to survive.
As Mark A. Huselid, Richard W. Beatty, and Brian E. Becker state in “‘A Players’
or ‘A Positions’?”(December 2005), com- petitive strategy is all about trade-offs and hard choices. Aligning all company activities, including workforce manage- ment, is a logical consequence of strate- gic differentiation. The focus should be on developing top-performing employ- ees for certain positions that contrib- ute more to a company’s success, while mediocre incumbents fill others. Apply- ing this principle is not for the faint of heart. HR managers, in particular, can be uncomfortable with harsh distinctions, perhaps because their caring hearts got them into the people business in the first place.
Yet even in HR circles, differentiation is the name of the game: Some busi- nesses are more profitable than others, some customers generate more value than others, and, yes, some people per- form better than others. The job is to at- tract, develop, and motivate those peo- ple. No, not a challenge for the faint of heart, but HR managers have embraced it and pushed their management col- leagues to do likewise.
Moving the strategic logic from A players to A positions is a different mat- ter. Of course, some roles have a greater impact than others. But to tell entire groups of employees outright that their contribution is nonstrategic or second rate, and that the company cannot af- ford and will not expect A players to do the job, is an insult that should cause any self-respecting person to follow the plebeians’ example. While there can’t
be equality (even the Communists did not pay everyone equally), there should be equity in the sense of giving every- one the opportunity to excel and have their outstanding contributions recog- nized. People should know that their best is expected, and they should have the ambition to achieve it. Equity is not just an antiquated sense of fairness; it has business benefits that may even deserve the label “strategic”: It encour- ages excellence across all functions, casts the net for A players as widely as possi- ble (some will even cross over to strate- gic functions), and provides a good reason why everyone who contributes should stay on board. Without equity, even Menenius Agrippa might have had a hard time preventing unwanted turnover.
Dirk Schlimm Vice President, Corporate Affairs Husky Injection Molding Systems Bolton, Ontario Canada
Huselid, Beatty, and Becker respond:
Dirk Schlimm uses a sports analogy to argue that everyone’s contribution counts. This is true, but even in sports, some contributions and positions are considered more valuable than others.
We often hear that you can’t win with- out good pitching in baseball. We haven’t yet heard the same thing about right fielders.
The main point of our article was that while all jobs contribute to organiza- tional success, only a few truly create wealth, and we should manage the workforce accordingly. Unlike baseball teams, many organizations do not make these distinctions, investing in their
“pitchers” and “right fielders” in equal measure. The result of this approach is to dilute scarce developmental resources throughout the organization, reducing
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workforce quality in the most important positions and increasing workforce quality in the least important roles.
In our empirical work in thousands of companies, and in our consulting work in hundreds more, we’ve found over and over again that even firms with highly differentiated business strategies often have largely undifferentiated workforce strategies. By way of comparison, compa- nies like GlaxoSmithKline, IBM, Roche, Sony Europe, and Wyeth are having honest conversations with employees about the impact of their roles on the firm’s business model and the resulting implications for the management of their own careers.
In contrast to a model that suggests to employees that all jobs are strategic (right up to the point where their posi- tions are outsourced or eliminated), the advantage of this plan is that employees gravitate to roles where using their skills will make the greatest contribution to the company’s success. For this to hap- pen, organizations must first develop a clear understanding of how the work- force can help to execute strategy and then communicate that insight to all employees.
Top talent has never been more im- portant for business success and, as a corollary, has never been more difficult to develop. While it might be nice to live in Lake Wobegon, where all jobs – and all employees – are deemed “strategic,”
we don’t believe this to be an honest, ef- fective, or, indeed, equitable way to deal with the workforce.
Competing on Analytics
Thomas H. Davenport presents com- pelling ideas in “Competing on Analyt- ics” (January 2006), but he misses the boat in one major way. While discrete business processes are improved by data-driven approaches like analytics, IT is one of the functional areas that could benefit most. More than just a col- lection of technical people and pro- gramming tools, IT involves processes that can be disaggregated, measured, benchmarked, and targeted for perfor-
mance both in terms of quality and cost.
Currently available approaches that do so–such as COBIT, ITIL and CMMI–are limited in their effectiveness precisely because they are not data based and therefore help primarily in planning but not execution.
The upshot of applying analytics to IT is that all IT capabilities, including ana- lytical capabilities, can be improved. To- gether, they can enhance the perfor- mance of all other functional areas – a sort of multiplier effect that represents a huge opportunity that should be fur- ther researched by academics and IT practitioners alike.
Michael L. Carrier Director, Strategic Technology Transformation Electronic Data Systems Irvine, California
Davenport responds: I agree with Michael Carrier that companies could and should become more analytical with respect to IT processes and perfor- mance. However, I don’t think I “miss the boat.” My article is about organi- zations that make analytically driven processes the primary basis for their competitive strategy. Certainly, systems integration and outsourcing firms like EDS, IBM, and Accenture would seem to be prime candidates to compete on this basis, but I don’t know of any com- pany–including Mr. Carrier’s employer–
that has done so yet. I am gratified to hear, however, that there is at least one partisan for analytical IT on the front lines.
You Have More Capital than You Think
I read with great interest Robert C. Mer- ton’s “You Have More Capital than You Think” (November 2005). As a credit fixed-income trader, I have seen first- hand how creative uses of derivative products such as the interest-rate swaps and credit derivatives mentioned in the article have revolutionized the way portfolio managers manage money.
Clearly, the ability to define risk in ever
more specific ways is of great benefit to many, if not most, business enterprises.
I am certain that we will look back on these times as just the beginning of a more expansive “risk management”func- tion that may unleash significant equity returns for business enterprises.
One topic that still needs to be ad- dressed when working with derivatives is counterparty risk. When entering into a derivatives contract with another party, whether a financial institution or a complimentary risk partner, a com- pany assumes the risk that the other party will have assets to deliver if the derivative requires a payoff. This is not a trivial matter, because there is some evidence that even the largest financial institutions are potentially quite lever- aged to a true “outlier” event. For in- stance, even a fairly small hedge fund like Long-Term Capital Management caused concern because of the effect on a variety of counterparties, and they were reasonably well hedged! Does Merton have a preferred solution – for example, self-regulatory, market based, or government overview – for counter- party risk?
David Hirst Tenafly, New Jersey
Merton responds:I fully endorse David Hirst’s point that whenever one enters into a contractual agreement in which the counterparty promises delivery of payments or services, it is essential to consider the creditworthiness of that counterparty. The same holds true for credit derivatives contracts. In particu- lar, Hirst points to a concern over possi- ble exposure to an extreme event that might quash even the largest financial institutions’ performance. Any time a new market emerges, extra care is pru- dent, but there are decades of cumula- tive experience in providing safeguards in derivative markets.
Probably the most important pro- tection against a systemic event is the provision of two-way mark-to-market collateral for exposures. This form of security is standard between financial- industry counterparties, including hedge funds, which constitute the bulk of no- L E T T E R S T O T H E E D I T O R
tational open interest. That leaves the nonfinancial-firm clients as the princi- pal unsecured counterparties; as the buyers of credit protection, they are cred- itors, not debtors, of the large financial institutions. As with oversight and per- formance protections in other derivative markets, the preferred solution for credit derivatives will be a blend of market- determined practices, self-regulation, and government overview, either di- rectly or through oversight of the prin- cipal participants, such as banks and in- surance companies.
Strategy and Your Stronger Hand
In the practice of medicine, holding hands is neither easy nor fun. Physicians attending to sick patients deal not only with body systems like the heart and lungs but with the patients’ life circum- stances and human relationships, as well. Plaintiff’s attorneys do, too.
As Geoffrey A. Moore detailed in
“Strategy and Your Stronger Hand”
(December 2005), insurance companies provide a volume-operations product and release survey results that proudly publicize the satisfaction of their policy- holders, most of whom are not ill. Un- like physicians, these companies have little to fear from malpractice attorneys.
(Thanks, ERISA.)
I and many other physicians no longer accept insurance because we’ve found that the companies’ constraints prohibit our best, most thoughtful practice. Un- happily, most patients must accept and accommodate their health care to the limitations of volume-operations ser- vice. Many patients are served well by this system. But many are not.
Thanks to Moore’s insights, I am no longer so angry at managed care pro- viders. I now understand they live in a different world.
Rodney V. Burbach, MD