Change is hard for people, whether that change has to do with starting an exercise regimen, moving house or embarking on a different career. For organizations, change can entail anything from migration to a new data platform to an entire reorganization. Since organizations are made up of people, it’s not particularly surprising that change is hard for organizations as well.
For individuals, change is hard on both a logistical and a psychological level. When moving to a new house, a person may get overwhelmed with the details of packing boxes, transferring electricity service and a whole bunch of other process details. In addition, moving can be psychologically challenging because people are often apprehensive about leaving a familiar space, saying goodbye to existing friends and neighbors and migrating to a new untested environment. For organizations, the logistical challenges that accompany change are even harder, since their changes are more like moving thousands of people into new homes simultaneously! Organizational change is often harder from a psychological perspective as well since, in addition to aggregating individual workers’ psychological aversions to change, organizational change often disrupts the unspoken and informal working relationships that workers have with one another.
Types of Organizational Change
In order to understand change management, it is helpful to first understand what is meant by organizational change itself and what different flavors of change can arise. This categorization is important since different types of change have very different impacts on employee uncertainty, and disruption as it relates to change and managing employee wellbeing is a crucial, but sometimes underappreciated, component of the change management process.
Within the universe of organizational change, it’s helpful to categorize the nature of a change along two dimensions. First, change can be voluntary or involuntary. Examples of voluntary change are corporate reorganization, supplier rationalization and adoption of a new business intelligence platform, whereas involuntary change involves activities such as post-merger integration and corporate restructuring due to bankruptcy. Of course, one could argue that many mergers and acquisitions are voluntary changes in an indirect sense, but they are largely unavoidable once a merger or acquisition goes through.
On a purely practical level, this distinction is probably not crucial, but the voluntary versus involuntary characterization colors how workers view the change and is therefore a relevant aspect of any change. Specifically, workers often seem to be more tolerant of inconvenience and uncertainty when it is viewed as unavoidable, either because it is literally unavoidable or because it is necessary in order to stay profitable and not shut down. In contrast, workers can be more resistant to change when they view such change as an optional profit-enhancing effort, particularly when they feel like they will not share in the spoils of the increased profits that result.
The second dimension of interest for organizational change is the level at which a change takes place. For example, change can take place at the overall corporate level, such as when companies redesign their business units to align with products and capabilities as opposed to customer industries. Change can also take place at the technology level, such as when a company decides to migrate from Tableau to Looker as its business intelligence platform. Change can even take place at the supplier level, such as when vendor rationalization and consolidation efforts are undertaken. Understanding the level at which change is taking place, keeping in mind that change can affect multiple aspects of an organization at once, is crucial because this categorization drives the specific worker concerns that need to be addressed and steps that need to be taken to alleviate such concerns. In the case of the switch from Tableau to Looker, employee concerns are probably centered around training and the learning curve that will result, whereas corporate reorganization efforts most often lead to concerns about job security.
What Is Change Management?
In order to organize the processes and mitigate the various challenges that change presents for organizations, business schools and management experts have developed the field of change management. At a basic level, change management is exactly what the term implies: since organizations often want to enact change but are impeded by complexity inherent in the organization as well as external factors that make transitions challenging, there is an opportunity for “change managers” to step in and guide the process. Various forms of change management exist, sometimes hiding under names such as transition management, post-merger integration and so on, but the basic idea is that change management takes knowledge from fields such as behavioral science and information technology and provides guidance and solutions specific to various types of organizational change.
In order to codify the process of change management, academics and management experts have developed a number of frameworks to work with when embarking on organizational change and change management. Each framework has its own name and specific features – the 8-Step Process for Leading Change, the ADKAR Model, the Plan-Do-Check-Act Cycle, the Change Management Foundation, and so on – but they all rely on the same general principles. These principles include determining the underlying need for change and problem to be solved, identifying the relevant stakeholders, laying out specific steps to implement the change, deciding how to assess the impact of the change and relating that impact to a future course of action.
To its credit, the field of change management does incorporate various aspects of organizational behavior and psychology that focus on the happiness of the workers in the organization, though some models make the worker aspect an explicit component more than others. In particular, the 8-Step Process for Leading Change, developed by John Kotter during his time at Harvard Business School, includes components that relate to forming coalitions and enlisting a “volunteer army” of change-sympathetic workers 1. That said, such focus on workers is usually in the context of happy workers being more productive and more likely to achieve organizational objectives rather than viewing worker wellbeing as an end goal in itself, but there is plenty of room to adapt such processes to focus more directly on the needs of workers.
How Organizational Change Happens Naturally
Not all organizational change is explicitly managed or even necessarily deliberate, so it’s helpful to think about how organizations evolve organically and contrast this process with the notion of change management. As it turns out, ‘evolution’ is a pretty apt term for this sort of change, at least according to economists Richard Nelson and Sidney Winter. In their book An Evolutionary Theory of Economic Change as well as other related works, Nelson and Winter describe a process not unlike that in biological systems in which organizations undergo mutations – in this context, often decentralized and sometimes small changes to the structure and processes of an organization – and then the stronger resulting organizations drive weaker competing organizations out of business 2.
If this evolutionary theory of organizations is to be believed, organizations that are ultimately successful are often as such because they were good at what biologists call cumulative adaptation, or a series of additive incremental changes that produces large overall effects. When this is the case, the organization may not even be aware of the individual steps that it took to achieve success in the marketplace, which makes it difficult to try to learn from such success stories or achieve similar success via replication. This presents a challenge for change management specialists, since their field of expertise is essentially trying to hasten and direct the otherwise organic evolutionary process of the organization.
Mitigating the Difficulty of Change
As stated earlier, it’s pretty clear that both people and organizations are averse to change. It’s also somewhat of a mantra that success, organizational or otherwise, relies heavily on the ability to respond to changes in one’s environment in a productive manner. This is even the thesis of the best-selling management book Who Moved My Cheese?, in which author Spencer Johnson offers a mouse-based allegory that highlights the importance of successfully dealing with change (and learning from the wisdom of others) in reaching one’s long-term goals 3. Since one of the goals of change management is to enable and hasten change, understanding the factors that drive aversion to change is crucial in that such knowledge can be used to help mitigate the aversion. Luckily, economists can provide some insight in both an individual and an organizational context.
In 1991, economists Daniel Kahneman, Jack Knetsch and Richard Thaler documented the finding that people appear to be ‘loss averse,’ meaning that they hate losses more than they like equivalent gains 4. This concept of loss aversion, in turn, leads to a phenomenon known as status-quo bias, where people view whatever option they see as the status quo more favorably than is rational compared to other, non-status-quo options. On some level, this is just a fancy way of saying again that people don't like change, but it’s helpful to explore why exactly this phenomenon occurs. According to the theory, people evaluate new options and situations as a sort of pro/con list vis-à-vis one’s current environment and then weigh the pros and cons to decide whether a change is warranted. In this context, loss aversion causes people to weigh the cons (losses) heavier than the gains (pros), which essentially puts a finger on the ‘don’t do the new thing’ side of the scale. Therefore, if an organization is going to help workers be less resistant to change, it either has to provide enough pros to overcome the overweighted cons or try to change what workers view as the status quo in order to move the desired outcome closer to it.
In an organizational sense, resistance to change is also driven by companies’ reliance on routines and learning by doing. To understand the nature of organizational routines, it is helpful to start with an analogy of an individual skill such as driving a car. When someone first starts driving a car, it seems to require a lot of mental effort and explicit choice to stop when the light is red, activate the turn signal when changing lanes, stay within the posted speed limit and so on, but as one becomes more proficient at driving, the skill becomes more automatic, often to the point that the driver isn’t consciously aware of all of the actions they are undertaking and choices that they are making. In a similar fashion, organizations develop organizational routines, often implicitly, that allow many processes to operate more via habit than through explicit choices. The aggregation of all of these organizational routines is what is known as organizational memory (or institutional knowledge or similar), and it is a crucial component of all smoothly functioning organizations.
The downside of relying on organizational routines is largely that habits are hard to break. Just as it’s difficult to immediately switch to driving on the opposite side of the road, even seemingly trivial changes to organizational routines can result in a surprisingly large amount of disruption and loss of efficiency. Without the organization driving explicit change, large organizational memories result in organizations exhibiting a lot of behavioral inertia. When change is actively undertaken to overcome such inertia, it could be difficult or even impossible to change if workers keep to existing habits rather than adopting new procedures and, over time, developing new habits. To overcome these difficulties, it is helpful for managers to recognize the persistent nature of habits and not expect that change is going to happen smoothly without repetition and reinforcement of new directives.
Change Pitfalls to Avoid
Let’s say you’re a manager, director or company owner who has gotten this far and still wants to actively implement organizational change (of a yet undetermined sort) rather than just letting nature take its course and perhaps ending up on the losing end of organizational Darwinism. Because change management is in large part an attempt to take over the natural evolution of an organization, it almost by definition has to be driven in a top-down manner. This can be viewed by many as a rather authoritarian approach to management, which generally carries with it a level of suspicion and reluctance from workers. Therefore, it is important to appreciate and assuage the concerns of workers to the degree possible, and it is crucial to be aware of common pitfalls in organizational change and so that they can be avoided.
The field of change management lists a number of common reasons for failure when undertaking organizational change, ranging from not correctly specifying the problem to be solved to not considering the right stakeholders or identifying an effective sponsor. While these issues are important, let’s focus on a few recurring pitfalls in change management that particularly relate to worker wellbeing and job satisfaction.
Circumventing Worker Buy-In and Input
Logistical necessity largely dictates that organizational change be driven by workers that are high up in the organization, but, in most organizations, the reality is that workers who are on the ground carrying out the business objectives of the company have a better perspective than high-level managers on whether change initiatives are reasonable or even feasible. Therefore, managers are failing to harness an important source of knowledge and perspective if they try to implement change without treating workers as both crucial advisers and stakeholders.
Consider a scenario where an organization is considering moving its administrative assistants from dedicated roles into a central pool in order to provide increased flexibility at lower cost. In order to determine whether such flexibility is actually a benefit, it is crucial to understand precisely what functions the assistants perform in each part of the organization and how standardized the tasks are. If the tasks are very group specific or the overall function is very relationship-based, then the central pool model clearly doesn’t make sense. However, it is impossible to know whether this is the case without talking to the people in those roles and the workers that they serve.
In addition to being beneficial from a knowledge standpoint, it is helpful to interact with workers both before and during the change process simply because people generally report that they would prefer to be consulted before a change is imposed on them, partly because such interaction feeds a form of what psychologists call the illusion of control. The illusion of control is a phenomenon where an individual irrationally believes that they can control what is in reality a random outcome. Unfortunately your lucky shirt isn’t actually lucky, but the good news is that this false belief can actually make you feel a bit better about the uncertain outcome you are about to experience! In this way, getting worker input can be good for morale in addition to being helpful for the organization. That said, it can also be frustrating for a worker to feel like they’ve made an effort to engage in the process only to have their input get ignored, so good faith efforts to incorporate worker ideas and viewpoints once they are gathered is crucial, especially when workers are in a position to derail change efforts if they feel like they are being slighted.
One issue related to employee buy-in is the choice of whether to trust an insider or outsider CEO to develop and implement a plan for change. To some degree, conventional wisdom seems to favor the idea of bringing in an outsider to take over for the sake of a totally fresh perspective, but evidence regarding company turnarounds suggests that insider CEOs are more likely to be associated with later success. For example, researcher Jim Collins, in his book Good to Great: Why Some Companies Make the Leap…And Others Don't, identified 11 companies that exhibited significant turnarounds after 15 years of underperformance and found that, in 10 of the 11 cases, the turnaround was orchestrated by a CEO who was not new to the company 5. Among other things, this suggests that the tacit knowledge and perspective gained by being part of an organization is a key factor for successful change.
Treating Procedures Like Processes
While workers generally know more than high-level managers (and even change management consultants!) about the details of various business processes, workers often take this knowledge for granted and aren’t always consciously aware of how much they know. Many may have a general sense that they can do their jobs pretty automatically, ‘like clockwork’ even, but they have difficulty outlining every relevant aspect to the different tasks they perform and functions that they serve.
The field of evolutionary economics draws a helpful distinction between procedures and processes where ‘procedures’ are the explicit steps outlined as instructions to perform a task, and ‘processes’ encompass not only the formal instructions and steps but all of the implicit logistics required to get a task done smoothly and efficiently. By this definition, organizational routines are very much processes as opposed to procedures, and difficulty arises in that change management can only provide workers with procedures, leaving them to fill in the process gaps themselves.
The good news is that teams of workers usually develop process capabilities pretty naturally, but it’s important to recognize that building this capability takes time and that implementing change can destroy a large portion of a team’s process capability, especially if the team itself is shuffled to different parts of the organization. In cases where procedures are treated as substitutes for processes – i.e. where the building of tacit knowledge and capabilities goes unappreciated – managers can mistakenly view a change as unsuccessful when in reality it just hasn’t had a chance to become an efficient process.
One notable feature of many implementations of change management is that providing explicit procedures for every new function that an organization needs to perform is viewed as a high value-add part of the system, but it’s far from clear that outsiders can develop the best procedures for a given task. Furthermore, when the focus on procedure is taken to an extreme, the procedures can crowd out the natural formation of organizational routines and impede productivity and success. This mechanization of workflow can also have a negative impact on employee satisfaction if workers think they have no room to leverage their individual ingenuity or feel like there is little value in building tacit knowledge with colleagues.
Being Limited by Incrementality
As stated earlier, organic organizational change usually happens via a series of incremental process modifications. As such, it can seem like a reasonable option to actively implement change by breaking down the overall change into a path of smaller steps and taking the change one step or piece at a time. While this can be a valid approach in some cases, it’s important to keep in mind that what organizations do naturally isn’t necessarily an optimal approach that should be deliberately used as a model for success.
To see why this is the case, it’s helpful to think about the concept of a local versus a global optimum. A global optimum is the best outcome among all of the options in the universe, whereas a local optimum is merely better than the other options that are close to it. To see the distinction, picture yourself on top of a hill that is adjacent to a mountain: you’re at a higher elevation than the area around the hill, but clearly you’re not as high up as you could be. In this context, the top of the hill is the local optimum and the top of the mountain is the global optimum (assuming it’s the highest mountain, technically speaking).
This analogy becomes relevant when you think about the path you would have to take to get from the top of the hill to the top of the mountain, no matter which way you go, you are going to sink to a lower elevation before you get to a higher one, so if you are unwilling to ever go downhill, you’re never going to reach the top of the mountain. In an organizational context, if your company is at a local maximum, then any incremental change is going to result in a reduction in performance.
What can managers do to alleviate this problem? One option is to recognize that local optima exist and allow the organization to ride out the path of incremental change to long-term improvement, but this is difficult for two reasons. First, it’s not obvious which incremental changes are short-term losses that are part of a path toward long-term gains and which are just bad ideas, and incremental paths contain a lot of points where a manager has to make difficult choices regarding whether to turn around or move ahead. Second, the underlying business model of the organization may not be able to withstand the short-term losses involved in an incremental approach.
Another option, to continue the analogy, is to try to jump from the top of the hill to the top of the mountain, or to implement organizational change in one big package. This can be a daunting task, and it is likely more logistically challenging and possibly more resource intensive to make such a leap, but sometimes it’s the only way to avoid retreating to the local optimum. In addition, this all-at-once approach shields workers from the stress of working through the low points, though this benefit should be weighed against the cost to workers of a more dramatic all-at-once change.
Breaking the Learning Curve
Unfortunately, incremental change is not the only way in which things can get worse before they get better for an organization. Organizational change often requires workers to acquire and master new skills, and, even in cases where new skills are not explicitly required, new organizational routines and processes must come together in order to properly adapt to a change. Most realistic people will acknowledge that learning is hard and doesn’t happen immediately, so the learning process creates a type of local optimum similar to the one described earlier. In this case, however, the path is one of time progression as opposed to additional changes.
The outcomes of learning are often uncertain, which can cause stress and anxiety during the learning process, but the most successful people are the ones who can overcome their psychology and work their way up the learning curve rather than retreat back to old ways of doing things. For example, Tiger Woods is somewhat notorious for reworking his golf swing, even deciding to implement change after significant successes. This approach is notable largely because it’s uncommon due to the mental fortitude required to withstand the initial period of inferior performance and fully commit to the change. Interestingly, Tiger is also known for saying that he wants to go back to his old swing!
Of course, not every change works, so managers are generally wise to circle back and assess the effectiveness of a change after it’s been in place for a while. That said, not giving the organization enough time to get up the learning curve and settle down before evaluating the results of a change can cause potentially effective changes to be reversed. So how long should the learning runway be? Frustratingly but not surprisingly, this answer is very specific to the particular change being implemented. However, some general guidance that applies to a wide variety of scenarios is to remember that the learning curve is in fact a curve. More specifically, most learning curves (if you picture time on the horizontal axis and proficiency on the vertical axis) are steeper at the beginning and then flatten out as learners achieve a sort of steady state level of competence. If a manager tracks this curve over time, they can perceive when it begins to flatten out, and this is likely a good time to assess the results of the change.
Learning curves can be very stressful for workers, in large part because it’s uncomfortable to learn and adapt when you feel like you are being watched and assessed. In order to maintain a worker-centric view of change management, organizations should clearly communicate that they are aware of the existence of learning curves and that workers are being provided with a judgment-free time period to try to get comfortable with new procedures, business requirements and so on. Ideally, the organization would also communicate that the evaluation horizon itself is based on worker progress rather than being on a fixed schedule.
Other Considerations When Considering Change
Change is often a necessary part of an organization’s life cycle, largely because organizations are unlikely to face a completely static business environment. Given that change is generally crucial for survival, it can be appealing to managers to try to accelerate and guide such change rather than simply allowing organizations to evolve through organic incremental adaptation. Once change becomes deliberate and directed, change management arises as a relevant and potentially impactful part of a company’s tactical plan.
Guiding and managing change certainly has its place in organizations, but care must be taken to use the tools offered by change management effectively and avoid the common obstacles that not only prevent organizational change from being successful but also result in worker frustration and dissatisfaction. In addition, it is essential to think carefully about the frequency of organizational change, since repeated attempts at change generally have negative impacts on employee morale, particularly when early attempts are unsuccessful or impose large psychological costs on workers. Fortunately, properly managed change can drive both business value and employee satisfaction, but it’s crucial to get it right the first time and be judicious with the use of managed change.
Jodi N. Beggs
Jodi is a behavioral economist who specializes in how human psychology affects organizational and market dynamics. She is the founder of Economists Do It With Models, a company that focuses on producing educational content for use in and out of the classroom. In addition, Jodi works as an economist in the tech sector, writes for various publications, and is a competitive figure skater.
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