On corporate efficiency
Corporations get a bad rap. People think they’re cold, heartless, and all about efficiency.
The cold and heartless bit? Often true.
The efficient bit? If only!
My experience working as an employee of large corporations and as a consultant working with them has convinced me that 80% of the work in big companies is 100% wasted. Meaning, it has no impact at all on anything important. It might as well not have happened. If you have experience with a large company, you’ll know what I’m talking about even if you disagree with my number. How much time is spent on the meeting to prepare for the meeting to prepare for the meeting? How much time is spent looking in the rear-view mirror for no good reason? How much time is spent on CYA (cover your ass) activities that contribute nothing to business results? How much time is spent running analyses and creating decks because of a passing comment a senior executive made in a meeting that he or she forgot about 2 seconds later?
If you don’t believe my numbers above, here’s another for you:
According to McKinsey, 70% of corporate change efforts fail.
Not all work is about change of course. There is plenty of effort spent just executing repetitive tasks. File that monthly report, complete your annual plan, have performance conversations with your team, interview candidates…
But almost anything that’s important enough to be on the agenda of the C-Suite will require change. Any significant shift to what a company does, when it does it, how it does it, where it does it will require change. And 70% of that work will fail!
This is the part where you’re supposed to go into shock and fall off your chair or become outraged and storm the barricades!
Millions of people every year are told about some important new initiative that will require them to break old habits, spend more time at work, push beyond their comfort zone…and it’s all a crock of bullshit. It’s not going to work. It will be a near-complete waste of time, money, and the passion of employees. And not only will it fail to yield the desired goals, it will cause damage to the employee experience, drive unwanted attrition, build employee resistance to future change, create cynicism…not to mention the potential damage to customer and partner relationships and the company’s brand.
How is this tolerated?
This 70% failure rate is not a new statistic. It seems to date back to a book, Reengineering the Corporation, written by Michael Hammer and James Champy in 1993 (likely based on previous academic research). So CEOs and other executives have known about this for more than 30 years! How the fuck does any senior executive have a job? In any sane operating environment — and certainly in a culture that cared about efficiency — every “leader” responsible for any of this would not only be fired but would be blacklisted from working anywhere else!
If you miss any important target — say revenue, EBITDA, market share, household penetration — by 5 points, you are going to have a bad week full of unpleasant fire drills. There will be analyses, forecasts, post-mortems, 100-page PowerPoint decks, action plans…And people will want to know who’s to blame.
Fire drills for a 5-point miss but crickets if 70% of change initiatives fail. Are you kidding me?!
This failure rate is tolerated because it’s hidden. If you miss revenue by 5 points, you can see it. It’s obvious. But when a stupidly-conceived change initiative fails, you don’t see it as clearly so nobody is held accountable. Failed change efforts are considered a normal part of doing business. And, not to worry, there’s always another stupidly-conceived change effort waiting in the wings.
This is not acceptable. Well, it shouldn’t be. If you’ve become the butt of an Onion joke, maybe it’s time to reevaluate your life choices.
And you know what really pisses me off about this?
I spend a lot of time advocating for more responsible, ethical, moral, purpose-driven business. It’s an uphill battle. I have to overcome resistance from people who think that this touchy-feely nonsense has no place in the serious world of business. That business is all about results, making money, being practical…
And maybe I could live with all of that if this “serious” approach actually worked. If it led to sustained business success that created prosperity for employees and their communities. If it led to greater innovation, better products, a better experience. Heck, even if it just led to better shareholder returns I could at least see their point.
But it doesn’t do any of that.
Business is not efficient. It consistently wastes time and money on stupid flights of fancy from senior executives who may have sound logic behind their ideas but never seem to bother to do the work of understanding what makes change actually succeed — even though decades of research and countless books and articles have offered a fairly clear and consistent view on what it takes.
So I’d like to propose a new way of thinking about change.
1/ Instead of viewing failed change efforts as a cost of doing business, think about failed change as a hidden tax.
What would you do if you found out that the cost of a raw material went up by 10%? Or if your company was going to be hit with a 10% tax increase? Or if any cost on your P&L went up by 10%?
In my experience, that would immediately trigger a cost-cutting exercise. That 10% would have to come from somewhere. You’d look for ways to reduce costs in other areas. Every team would be asked to identify high, medium, and low-pain cuts to their budget. If the low and medium line items failed to close the gap, there’s a fairly good chance some people would be laid off.
Maybe you’d be enlightened enough to look for revenue growth opportunities as a way of closing the gap instead of cutting costs. But I know one thing for sure: you wouldn’t do nothing. You wouldn’t just let it slide or consider occasional 10% cost increases to simply be a routine part of doing business.
Change efforts should be looked at through the same lens.
Even if your change effort doesn’t fail completely in a spectacular flameout, a 10% miss should be considered material in precisely the same way as a 10% miss or gap on anything else. Perhaps even more so since corporate change efforts are, typically, of major strategic value to a company.
With that in mind, what would you do differently?
2/ Instead of viewing change as mysterious and nearly impossible to get right, think about change as simply another human endeavor — subject to the same patterns, rules, and norms that govern human behavior everywhere else.
While human nature may be mysterious to some, there are entire fields of study dedicated to understanding human nature and behavior. These disciplines have existed for centuries and have amassed large bodies of knowledge that can help shed light on the best way to engage humans to successfully drive change.
I find finance and operations mysterious. But I’m not going to throw my hands up, declare it impossible to understand, and just take my chances. And you shouldn’t accept failed change as just a cost of doing business. It’s not. It’s a cost of not thinking about change the right way, not preparing properly, and giving up too soon.
The science isn’t perfect. It never is. But if you don’t stop forecasting your business just because almost every business forecast ever done is wrong, don’t stop trying to pursue change the right way simply because almost every change effort in the past has failed.
It is definitely possible to implement change much better. Here are my top 10 high-level tips; more detail to come in a future article.
- Understand the people you work with — their experience, their wants and needs, their frustrations…
- Meet people where they are
- Design for human nature not in opposition to it
- Make the case for change — in both a rational and emotionally-compelling way
- Explain the why. Then explain it again. And again. When you’re sick of explaining it, that’s when people might be starting to understand it. Keep going.
- Be patient and resolute — change takes much more time than you think
- Don’t start a major new change before people have had time to properly digest the last one
- Constantly monitor the change — learn from what is and isn’t working and adjust as you go
- Draw inspiration from your personal life — surely you deal with real live humans on occasion
- Not every list has to have 10 items.
