Organizing HR to Lead Enterprise Change

CEB Corporate Leadership Council™

A Framework for Member Conversations The mission of CEB Inc. and its affiliates is to unlock the potential of organizations and leaders by advancing the science and practice of management. When we bring leaders together, it is crucial that our discussions neither restrict competition nor improperly share inside information. All other conversations are welcomed and encouraged. Confidentiality and Intellectual Property These materials have been prepared by CEB Inc. for the exclusive and individual use of our member companies. These materials contain valuable confidential and proprietary information belonging to CEB, and they may not be shared with any third party (including independent contractors and consultants) without the prior approval of CEB. CEB retains any and all intellectual property rights in these materials and requires retention of the copyright mark on all pages reproduced. Legal Caveat CEB Inc. is not able to guarantee the accuracy of the information or analysis contained in these materials. Furthermore, CEB is not engaged in rendering legal, accounting, or any other professional services. CEB specifically disclaims liability for any damages, claims, or losses that may arise from a) any errors or omissions in these materials, whether caused by CEB or its sources, or b) reliance upon any recommendation made by CEB. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Our Privilege to Serve You

30+

110+

10K+

Years of Experience

Countries Represented

Participating Organizations

85%

Nearly 75%

300K+

90%

Business Professionals

of the Fortune 500

of the FTSE 100

of the Dow Jones Asian Titans 50

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THE ONLY CERTAINTY IS CHANGE

Change Initiatives Expected in the Next Three Years

The typical organization has undertaken 5 enterprise changes in the last 3 years.

78%

Culture Change

of organizations expect more change initiatives

14%

of organizations expect the same number of change initiatives

13%

of organizations expect fewer change initiatives

69%

Restructuring Market Expansion

61%

Leadership Transition

52%

Merger or Acquisition None

73%

29% 1% 0%

40% Organizations Undertaking Change Initiatives in the Last Three Years

n = 305 organizations. Source: CEB HR Change Readiness Survey. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

80%

n = 305 organizations. Source: CEB HR Change Readiness Survey. 4 2  6

ORGANIZATIONS ARE UNDERTAKING A VARIETY OF CHANGES CEB’s Definition of Enterprise Change An intentional change that organizations undertake to improve financial and/or operational metrics. This change affects a significant part of the enterprise and is often in anticipation of, or in reaction to, shifts in the external environment.

Examples of Significant Enterprise Changes

Restructuring A reorganization of reporting relationships and/or organization-wide processes

Merger or Acquisition A consolidation of organizations to form a new organization, or the purchase of one organization by another

Market Expansion An introduction of products/ services or expansion of operations into a new market

Culture Change A change in the underlying assumptions, values, and beliefs shaping the organizational environment and interactions within that environment

Leadership Transition A change in leadership at the general manager or CXO level Source: CEB analysis. 5 3 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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CHANGE IS NOT JUST MORE COMMON, BUT ALSO MORE COMPLEX Lack of Organizational Familiarity with the Current Type of Change 60%

Percentage of Changes Undertaken

60%

Increasing Diversity of Change

70% of Organizations

expect to increase the types of major change initiatives they will undertake in the next three years

40%

n = 305 organizations. Source: CEB HR Change Readiness Survey.

30%

0%

Organization Had Not Previously Undertaken Current Type of Change

Organization Had Previously Undertaken Current Type of Change

n = 413 changes. Source: CEB HR Change Readiness Survey.

© 2013­–2016 CEB. All rights reserved. CLC5346416SYN

“As a result of our acquisition, we are dealing with more complexity than we have in years. This is an extremely large and complex transaction [involving] more than 13,000 retail store locations and 23 distribution centers—the largest of any previous retail merger and it will take some time.” Bob Sasser CEO Dollar Tree Source: Seeking Alpha, “Dollar Tree’s [DLTR] CEO Bob Sasser on Q1 2015 Results: Earnings Call Transcript,” 21 May 2015, http://seekingalpha. com/ article/3203066-dollar-trees-dltr-ceo-bob-sasseron-q1-2015- results-earnings-call-transcript?all=true &find=bob%2Bsasser.  8

6 4

ONLY ONE-THIRD OF CHANGE INITIATIVES SUCCEED Organizational Change Success Performance Against Organizationally-Defined Goals

50%

Clear Failures

Only one-third of changes are clear successes.

16%

Mixed Results

34%

Clear Successes

n = 413 changes. Source: CEB HR Change Readiness Survey.

7 5 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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CHANGE FAILURE IS EXPENSIVE While All Change is Costly, Failed Changes Ultimately Waste the Costs Incurred A Conservative Estimate of the Productivity Costs Incurred by Failed Changes

5 Changes at the average organization in the last three years

X

66% Failure Rate for organizational changes

(€98 Million)

(€29.7 Million)

X

in lost employee productivity per change (per €0.91 billion in revenue)a

=

in total lost employee productivity (per €0.91 billion in revenue) in pursuit of failed changes in the last three years

+ Additional costs incurred only by failed change, such as: Revenue Market capitalization Brand equity Source: CEB 2015 Employee Change Survey; CEB HR Change Readiness Survey; US Bureau of Labor Statistics, “PPI Detailed Report,” March 2009, www.bls.gov/ppi/ppidr200903.pdf. Note: Exchange rate of 1.00 US$ = 0.912983 EU€. a Based on US Bureau of Labor Statistics calculations, employees add €593 million of value for every EU€0.91 billion of revenue generated by an organization. CEB Communications Leadership Council calculated that employee productivity decreases by 5% during each organizational change. Therefore, organizations lose EU€32.41 million of employee value added (5% of €593 million) for every organizational change. For more about this analysis, please see the Appendix. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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8 6

NO SHORTAGE OF CHANGE IMPLEMENTATION ADVICE LEWIN

Unfreeze-Change-Refreeze Model

Change Implementation Step

PROSCI

ADKAR® Model

ACCENTURE

Journey Management Model

McKINSEY

The 7-S Framework

BERSIN

7 Tips for Navigating the Sea of Organizational Change

KOTTER

8-Step Process for Leading Change Source: British Library, “Kurt Lewin: Change Management and Group Dynamics Thinker,” http://www.mbsportal.bl.uk/taster/subjareas/busmanhist/ mgmtthinkers/lewin.aspx; Prosci, “A Model for Individual Change,” 2015, http://www.prosci.com/adkar-model/overview-3/; Accenture, “Journey Management: Successfully Managing a Complex Portfolio of Change,” 2015, https://www.accenture.com/us-en/insight-journeymanagement-managing-complex-portfolio-change.aspx; Robert H. Waterman, Jr., Thomas J. Peters, and Julien R. Phillips, “Structure Is Not Organization,” Business Horizons, June 1980, http://tompeters.com/docs/Structure_Is_Not_Organization.pdf; Kotter International, “The 8-Step Process for Leading Change,” 2015, http://www.kotterinternational.com/the-8-step-process-for-leading-change/; Katherine Jones, “7 Tips for Navigating the Sea of Organization Change,” 18 August 2015, http://marketing.bersin.com/7-Tips-for-Navigating-the-Sea-OfOrganization-Change-081815.html. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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9 7

ORGANIZATIONS TAKE AN EPISODIC APPROACH TO ADDRESSING CONTINUOUS CHANGE

63%

of organizations hire consultants to help manage specific change initiatives

59%

of organizations train leaders to manage through specific change initiatives

70%

of organizations train employees to prepare them for specific change initiatives

n = 305 organizations.

Amount of HR Activity

Source: CEB HR Change Readiness Survey.

■■

■■ ■■

Hire change experts Train leaders Train employees ■■

■■

■■ ■■

■■

Hire change experts Train leaders Train employees Change 1

■■

Hire change experts Train leaders Train employees

■■

■■ ■■

Change 2

Change 3

Hire change experts Train leaders Train employees

A ChangeResponsive Organization is an organization that focuses on improving change success primarily by preparing for and better managing each individual change initiative.

Change 4

10 8 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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DIFFERENTIATORS OF CHANGE SUCCESS ARE CONSISTENT Differentiators of Change Success By Type of Change

Organizational Restructuring

Merger or Acquisition

Leadership Transition

77%

of the differentiators of change success are

consistent across multiple types of changea

Market Expansion

Culture Change

n = 413 changes. Source: CEB HR Change Readiness Survey. a Seventy-seven percent of the differentiators are consistent across two or more types of change; 65% of differentiators are consistent across three or more types of change. 11 9 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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HR OWNS OR INFLUENCES TWO-THIRDS OF THE DIFFERENTIATORS OF CHANGE SUCCESS Differentiator of Change Success a Not a Differentiator of Change Success

What differentiates successful changes from failed changes?

Uncontrollable Factors

Environmental Factors

HR Owns or Influences

Controllable Factors Change Decision Factors Quality of Decision

DecisionMaking Process

Change Implementation Factors Employee Communications

Infrastructure

Change Process

Capability Factors Capability of Capability of Managers of Senior Leaders Change

Capability of Employees

n = 413 changes. Source: CEB HR Change Readiness Survey. Note: See Appendix for full list of differentiators of change success, and differences by change type. a Differentiators of change success are identified by calculating the frequency of each organizational factor in the most successful changes and their frequency in the least successful changes, then analyzing whether the difference in frequency is statistically significant. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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DIFFERENTIATORS OF CHANGE SUCCESS REVEAL SEVEN KEY CHANGE LESSONS

Lesson 1

Permanence Isn’t a Requirement for Success

Lesson 2

Repetition Doesn’t Make Change Easier

Lesson 3

Employees Have to Get It, Not Like It

Lesson 4

Change is Key Person-, Not Key Leader-Dependent

Lesson 5

Employee Readiness, Not Willingness, Drives Change Success

Lesson 6

A Clear Goal Matters More Than a Perfect Plan

Lesson 7

Change Implementation Should Be Adaptable, Rather than Consistent

Source: CEB analysis. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

13 11  17

Lesson 1

PERMANENCE ISN'T A REQUIREMENT FOR SUCCESS Conventional Wisdom

CEB LESSON

“Employees have to believe the change is going to last, otherwise they’ll just wait it out."

Changes don’t need to be permanent to be successful. Change can still be successful even if employees don’t believe the change will be permanent or if the change needs to be adjusted later.

Change in Probability of Success

+/- No Significant Impact

+/- No Significant Impact

Employees Were Skeptical of Change’s Permanence

Change Lost Relevance After Implementation

What Does This Mean for You? Don’t worry about promising stability or permanence. Be transparent about the potential need for future changes and/or adaptation of the current change over time. n = 413 changes. Source: CEB HR Change Readiness Survey. Note: "+/- No Significant Impact" means that no statistically significant impact on change success (positive or negative) was observed. See Appendix for description of variables used. 14 12 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Lesson 2

REPETITION DOESN’T MAKE CHANGE EASIER Conventional Wisdom

CEB LESSON

"We've been through this type of change before, so we know what we're doing."

Past success or failure with a particular type of change initiative does not predict future success, and more experience does not guarantee improved results.

Change in Probability of Success

+/- No Significant Impact

+/- No Significant Impact

Past Experience with Similar Type of Change

Past Failure with Similar Type of Change

What Does This Mean for You? Build flexibility into role design and team composition in order to tailor support to the change at hand; don't rely on what (or who) has been successful in the past. n = 413 changes. Source: CEB HR Change Readiness Survey. Note: "+/- No Significant Impact" means that no statistically significant impact on change success (positive or negative) was observed. See Appendix for description of variables used. 15 13 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Lesson 3

EMPLOYEES HAVE TO GET IT, NOT LIKE IT Conventional Wisdom

CEB LESSON

“Employees need to see the change as a personal win in order to be bought in.”

Efforts to ensure employees see personal benefits of the change don’t improve the probability of change success; however, if employees understand the reasons for the change, the probability of success substantially improves. +9 percentage points  Change in Probability of Success

+/- No Significant Impact 

+/- No Significant Impact 

The Change Had Negative Implications for Employees

Employees Perceived Personal Costs to the Change

Employees Understood the Goals of the Change

What Does This Mean for You? Design communications to clarify the reasons for the change, rather than how it will personally benefit employees. n = 413 changes. Source: CEB HR Change Readiness Survey. Note: "+/- No Significant Impact" means that no statistically significant impact on change success (positive or negative) was observed. See Appendix for description of variables used. 16 14 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Lesson 4

CHANGE IS KEY PERSON-, NOT KEY LEADER-, DEPENDENT Conventional Wisdom

CEB LESSON

“If you don’t have a committed and engaging leader at the top driving the change, you’re finished.”

Retaining the right talent at all levels of the organization during change initiatives substantially improves the probability of success.

Change in Probability of Success

+/- No Significant Impact  Necessary Leadership Team Was in Place

+5 percentage points 

Necessary Talent Was in Place Across Workforce

Change-Critical Employees Left Organization

-3 percentage points 

What Does This Mean for You? Focus support and retention efforts on employees—across all levels—who are critical to change success, not just the leaders spearheading the change. n = 413 changes. Source: CEB HR Change Readiness Survey. Note: "+/- No Significant Impact" means that no statistically significant impact on change success (positive or negative) was observed. See Appendix for description of variables used. 17 15 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Lesson 5

EMPLOYEE READINESS, NOT WILLINGNESS, DRIVES CHANGE SUCCESS Conventional Wisdom

CEB LESSON

"Change inevitably breaks down during implementation because employees are so resistant."

Efforts to increase employee willingness to change only pay off if organizations also ensure that employees have the knowledge and skills necessary for successful change.

Change in Probability of Success

+5 percentage points  +/- No Significant Impact  Employees Were Willing to Change

Employees Had the Knowledge and Skills Necessary for Successful Change + Employees Were Willing to Change

What Does This Mean for You? Don’t try to convince employees to get behind change until they have—and understand how to use—the necessary resources and skills to successfully implement the change. n = 413 changes. Source: CEB HR Change Readiness Survey. Note: "+/- No Significant Impact" means that no statistically significant impact on change success (positive or negative) was observed. See Appendix for description of variables used. 18 16 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Lesson 6

A CLEAR GOAL MATTERS MORE THAN A PERFECT PLAN Conventional Wisdom

CEB LESSON

“We need a new change model; a better, more solid plan to implement the change.”

A well-defined goal improves the probability of success, but a more robust planning process does not.

Change in Probability of Success

+6 percentage points  +/- No Significant Impact  Clear Plan to Implement Change

Clear Goals for Change

What Does This Mean for You? Focus on developing and communicating a clear end goal rather than refining plan details that will likely need to change as circumstances evolve. n = 413 changes. Source: CEB HR Change Readiness Survey. Note: "+/- No Significant Impact" means that no statistically significant impact on change success (positive or negative) was observed. See Appendix for description of variables used. 19 17 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Lesson 7

CHANGE IMPLEMENTATION SHOULD BE ADAPTABLE, RATHER THAN CONSISTENT Conventional Wisdom

CEB LESSON

"We know change is going to impact different parts of the organization differently, but it's impossible to predict what that impact will look like."

Different parts of the organization experience change to different degrees and in different ways. For change to be successful, it must be adapted for different parts of the organization.

Change in Probability of Success

+3 percentage points 

Change Strategy Adapted for Different Parts of the Organization

+4 percentage points 

Managers of the Change Understood the Implications for Specific Teams and Individuals

What Does This Mean for You? Ensure change processes and resources are differentiated as needed across the organization rather than defaulting to a one-size-fits all implementation strategy. n = 413 changes. Source: CEB HR Change Readiness Survey. Note: "+/- No Significant Impact" means that no statistically significant impact on change success (positive or negative) was observed. See Appendix for description of variables used. 20 18 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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DOUBLE YOUR PROBABILITY OF CHANGE SUCCESS lity

High

i obab r p age aver cess suc ange

66ch% Probability of Change Success

of

l

pab

-Ca ange

Ch

…but the most effective organizations build change capability to better manage any change.

ons izati n a g e Or

 ost organizations try M to improve individual change interventions, with limited potential for success…

lity

s

n atio

o Resp

ehang

C

iz rgan O e v nsi

i obab r p age aver cess suc ange

34ch% of

Low Low

Quality of Individual Change Interventions

High

n = 413 changes. Source: CEB HR Change Readiness Survey; CEB analysis. 21 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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KEY TAKEAWAYS FOR HR LEADERS 1

The average organization has experienced five major changes in the past three years, of which only one-third succeeded.

2

Most organizations attempt to manage each individual change separately, but the best organizations build change capability to manage any change more effectively. Change-capable organizations scalably apply change lessons to structures core processes, improving the success of all changes Lesson 1  Permanence Isn’t a Requirement for Success Lesson 2  Repetition Doesn't Make Change Easier

3

Flexible Roles and Staff Deployment

Lesson 3  Employees Have to Get It, Not Like It Lesson 4  Change is Key Person-, Not Key Leader-, Dependent

Informed and Equipped Employees

Lesson 5  Employee Readiness, Not Willingness, Drives Change Success Lesson 6  A Clear Goal Matters More Than a Perfect Plan Lesson 7  Change Implementation Should be Adaptable, Rather Than Consistent

Adaptable Change Strategy and Processes

4

Building a change-capable organization doubles your probability of change success: the average organization has a 34% probability of change success, whereas a change-capable organization has a 66% probability of change success.

5

Improve HR's change capability to enable a change-capable organization.

Source: CEB analysis. 22 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Appendix

A GLOBAL STUDY CEB Surveyed 305 Organizations About Organizational Changes Organizational Characteristics ■■ ■■ ■■

Partial List of Participating Organizations

Performance against firm-wide goals Business priorities Leadership reporting structure

HR Functional Characteristics ■■ ■■ ■■ ■■

HR HR HR HR

total expense for previous year structure strategic effectiveness service delivery model

Changes Undertaken ■■ ■■ ■■

What changes have you undertaken in the last 3 years? How did you measure the success of each change? How did each change perform against those measures?

Characteristics of Each Change To what extent do you agree that… Employees understood the reasons for the change ■■ The organization had undertaken similar change initiatives in the past ■■ Managers of the change had in-depth knowledge of the part of the organization they were responsible for changing ■■ Employees understood the reasons for the change ■■ Employees understood how their behaviors needed to change ■■

Source: CEB analysis. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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CEB INVESTIGATED HOW TO IMPROVE THE PROBABILITY OF CHANGE SUCCESS 1

CEB analyzed 413 organizational changes to identify successful changes and failed changes. Type of Goal

identified HR strategies that increase 3 CEB the probability of change success.

Performance Against Stated Goals Clear Failure

Mixed Results

+5 percentage points

Clear Success

Revenue Change in Probability of Success

Cost-Cutting Shareholder Value Return on Project Investment Time Saving Employee Performance Employee Engagement Employee Feedback

+/- No Significant Impact Strategy 1 Strategy 2

Strategy 3

Other

2

CEB identified characteristics that differentiate the most successful changes from failed changes.

–5 percentage points

Characteristics of… Changes with Mixed Results

Failed Changes

Successful Changes

■■

■■

■■

■■

■■

■■

■■

■■

■■

Source: CEB analysis. © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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Appendix

DIFFERENTIATORS OF CHANGE SUCCESS Differentiator of Change Success a

What differentiates successful changes from failed changes?

Not a Differentiator of Change Success HR Owns or Influences

Uncontrollable Factors

Controllable Factors Change Decision Factors

Change Implementation Factors

Environmental Factors

Environmental Factors Regulatory Actions Economic Downturn Emergency (e.g., Natural Disaster)

Quality of Decision

DecisionMaking Process

Alignment of the Change Decision with Organizational Need (7% importanceb)

Availability of Relevant Information (10% importanceb)

Goal Definition (8% importanceb)

Scandal Other Environmental Factor

Negative Impact on Employees Minimized

Employee Communications

Infrastructure

Differentiation of Communications Message (4% importanceb)

Alignment of Talent Processes to the Change (5% importanceb)

Stakeholder Involvement in the Change Decision (0.5% importanceb)

Frequency of Employee Communication (8% importanceb)

Alignment of Technology & Systems to the Change (0.5% importanceb)

Past Organizational Experience with the Change

Clarity of Need for Change (5% importanceb)

Time to Make the Change Decision

n = 413 organizations. Source: CEB HR Change Readiness Survey. a Differentiators of change success are identified by calculating the frequency of each organizational factor in the most successful changes and their frequency in the least successful changes, then analyzing whether the difference in frequency is statistically significant. b Relative importance to change success, based on the extent to which the factor was present in successful changes compared to unsuccessful changes, relative to other factors.

Communications Channel Used (4% importanceb)

Alignment of Organizational Culture to the Change (1% importanceb)

Alignment of Workflows and Processes to the Change Alignment of Commercial Infrastructure to the Change

© 2015 CEB. All rights reserved. CLC4166315SYN

26

Change Process

Tracking of Success Metrics (6% importanceb)

Change Implementation Roles and Responsibilities (6.5% importanceb)

Leader Authority to Adjust Change Time to Execute Change

Capability Factors Capability of Managers of Change

Managers of Change Having Change Management Skills (7% importanceb)

Managers of Change Having Organizational Knowledge (9% importanceb)

Capability of Senior Leaders

Capability of Employees

Leader Deployment to Appropriate Roles

Retention of Key Employees (5% importanceb)

Employee Deployment to Appropriate Roles (6.5% importanceb)

Employees Having Information About the Change (6% importanceb)

Employee Skills

MANAGING CHANGE ACROSS THE C-SUITE Selected Recent Studies on Change, by CEB Area of Focus

Chief Executive Officer

Compliance and Legal

Human Resources

CEB Audit Leadership Council: Auditing Through Organizational Change

CEB Corporate Leadership Council: Organizing HR to Lead Enterprise Change (Today's Presentation)

CEB Compliance and Ethics Leadership Council: Maximize Integrity at Key Career Moments

IT CEB CIO Leadership Council: Navigating the Future of Corporate IT: Adaptive IT

Marketing and Communications CEB Communications Leadership Council: Sustaining Employee Performance Through Change

CEB Recruiting Leadership Council: Accelerating Recruiting

Finance CEB Tax Leadership Council: Building a Sustainable Model for Managing Emergent Work

Innovation and Strategy CEB Strategy Leadership Council: Unlock Capacity to Execute Against New Growth Initiatives

27 © 2013­–2016 CEB. All rights reserved. CLC5346416SYN

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