Four Tests for Assessing the Case for Change
If you think of yourself as a change agent, then you have or will have to deal with the business case for change. Simply stated, the business case for change is the convincing argument that we have to make to inspire others to embark on a change initiative. It is not just about the financials surrounding the change, but its feasibility and readiness—attributes that extend from the technical to the cultural.
For me, the question about the business case for change has appeared in my work a number of times. Recently, it surfaced as I prepared for the organizational change class I co-teach with Dr. Nancy Southern in the green MBA program at Bainbridge Graduate Institute in Seattle. What follows is my own rediscovery of this important subject and the content that emerged thanks to the contribution of my colleague, the chief financial officer at Omnicell who provided his practical view on the matter of the business case for change.
In change theory, the urgency for change is paramount. John Kotter in his famous Harvard Business Review article "Leading Change: Why Transformation Efforts Fail" wrote that establishing a sense of urgency as the first and most important step toward change. He goes further to state that at least 75 percent of managers should be convinced of the need for change in order to succeed. So how can we approach developing a sense of urgency for change? In my experience, the need for change may not be apparent and the motivations may be skewed. Consequently, we need to assess our case for change thoroughly.
From a practical perspective, there are four tests to assess the business case for change. They are:
- Does the business case produce a balanced, positive outcome?
- Are the change assumptions manageable?
- Are the resources needed identified and available?
- Will the organization accept and embrace the changes required?
The first test, the business case produces a balanced and positive outcome, is predicated on the equilibrium of four drivers: financial results, capabilities, schedule, and quality. Every change effort involves cost and may result in cost reductions or additional revenues. Changes that represent pure costs are normally the least appealing. An example is change due to regulatory requirements that add work, cost money to implement, and do not provide any financial benefits. The second driver for this test is capabilities. All change either affects existing capabilities or develops new ones. The schedule driver is the time it takes to implement the change. Some changes have fixed timelines as in the example of new imposed regulations. Finally, quality is the level of risk introduced by the change.
The idea of the first test for the business case for change is to achieve balance between the four drives: financial results, capabilities, schedule and quality. Too much of one driver will affect the others. For instance, an accelerated schedule may cost more, reduce the number of capabilities being delivered, and may raise the level of risk (lower quality). Another example is the goal for the lowest level of risk (high quality). This type of change may result in a longer schedule and consequently in lower financial results (higher costs).
The second test, change assumptions are supportable, relates to the tangible information supporting the case for change. This includes: the assumptions being made about the change; the evidence of the target population wanting or needing the change; proof that the change is within feasible norms; the financials based on realistic figures; and the validation that the delivery mechanisms can support change adoption. There is a lot to this second test. It compels change agents to think through all of their assumptions and test them before a case is made. As a consultant, I have frequently experienced the desire for change that is not within feasible norms. Typically, organizations want change much sooner than what is feasible. This is the type of assumption that needs to be assessed to pass the second test.
The resources to drive the change need to be identified and available is the third test for the business case for change. A plan for change cannot be based on ideal resources and their desired availability. So many change initiatives hope to count with the best resources and are not realistic. Resources tend to exist in the realm of competing commitments. That is, most organizations do not have the luxury of dedicating resources to a change initiative having to timeshare between the change and their day job. The reality of this timesharing can derail a change initiative and make it unfeasible. This third test questions the assumptions about resources to ensure they are truly available. It also looks for how resource risks may be addressed.
I remember being in a large change initiative when my company acquired a large business unit from another organization. The integration of this acquisition had a short timeline and required a large number of the critical resources from the change initiative. The result: the change initiative had to wait.
The last and fourth test is whether the organization will accept and embrace the required changes. On one extreme, the change could be forced by authority and acceptance is not optional. On the other, there could be perceived benefits and social pressures resulting in a more natural acceptance. Both of these extremes do not require much persuasion. The challenge is when a heavy amount of persuasion is needed to balance consequences against the benefits. Persuasion can take several forms such as: support and endorsement by the "chosen few," mass reaction, dissatisfaction with the status quo, incremental entry into the change, and benefits outweighing the costs. Change that is forced is seldom successful because it does not produce lasting social change. On the other hand, true acceptance and adaptation to change result in lasting evolution.
Next time you are faced with change and need to prepare a business case for it, think of the four tests and see how your assumptions hold up.