Feb 2, 2017

Change can actually be a good thing. So why do organizations find it so difficult to do?

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There is a quote from Heraclitus that goes: “The only thing that is constant is change”. If it was true in Ancient Greece, it’s definitely true today. Especially if you look at modern technology. Change is everywhere and there is extensive literature on change management, but many organizations and change leaders suffer the same pitfalls.

70% of Hackett best-in-class Procurement organizations use eSourcing. And yet, others are still failing to make the change. CPO Rising has urged its readers:

”If an eSourcing solution is not in place, change that. If one is in place, start driving and/or mandating its usage. They may be the single most effective value-driver for CPOs and procurement teams today.” (CPO Rising)

So why are some organizations still failing to implement eSourcing? Even if they stand to benefit significantly? Why are some Procurement organizations resistant to change? Sourcing Innovation has been answering some of these questions, but let's look at some of the factors at play.

Big Jelly Theory

We all know that change is difficult. It’s true for individuals - and it’s definitely true for organizations. Project management consultant Paul Finnerty explains this with the big jelly theory.

”The ‘theory’ is that if you throw yourself and your team members, 100% mentally and physically, at the organization, in an attempt to change it, at best the organization will give a little shiver, momentarily, like a giant jelly, and then immediately return to its pre-existing shape and carry on, with business as usual, as though nothing has happened. Clearly this way is energy, effort and time consuming, with little or no discernible result.” (Paul Finnerty)

Despite all the effort from change leaders, organizations are resistant to change. The usual outcome is a return to the previous state. So why is this?

Organizations, especially large ones, can be compared to oil tankers. Because of their large size and weight, oil tankers are extremely difficult to steer. When the captain turns the wheel, this does not immediately change the course of the ship. It takes a long time to see the ship turn. If it happens at all, change takes a lot of time because of the inertia of the organization. Inertia could be because of the size or a culture of complacency in the organization. There is often a long time between the moment you initiate a change and you start to witness any.

Irrational Actors

We are all exposed a whole range of biases when making decisions. There is so much psychology and behavioural economics devoted to this. But, in short, human beings are not rational actors.

”Brain science has found that human beings are anything but reasonable… When it comes to motivation, our approach is based on the view of classical economic theory that people are rational beings trying to maximize their economic return. This leads us to use the promise of rewards to motivate the behavior we need. But in direct defiance of the theory, people don’t respond reasonably or objectively to the rewards.” (Charles Jacobs)

When a person makes a change, we would expect her to assess benefits, efforts and trade-offs. We would also expect this to be based on facts and be rational. But several factors actually bias the evaluation: some criteria are overestimated, others are underestimated. This jeopardizes the success of the change initiative. Therefore, it is important to understand how this works. We also have to take these biases into account in a change management program.

Getting From A To B

Let’s say a change is about moving from A to B. To decide if the change is worth it or not, you need to analyse the current state (A). The problem is this:  “the fact is that human beings consistently think they are better than they are—a phenomenon referred to in psychology as a self-serving bias” (McKinsey). So people are likely to doubt that they need to change if they are already achieving their targets. They link their results to their own actions alone and forget their own shortcomings. They also omit the effect of help in getting the results (e.g. a process, a technology, or other people).

We should also consider the value that people attribute to what they currently have (A) vs. what they could potentially get in the future (B). There are two main sources of influence at play:

  • Endowment effect: Attributing more value to something you own (A), just because you own it.
  • Risk aversion: Preferring not to take risk when confronted with a choice and opting for complacency.

Just presenting the benefits is not enough to get people to embrace the change. Implementing a new Procurement technology, it is typical to solely count on the argument that the new technology is “so simple to use that people will adopt it immediately.” As trivial as it sounds, many organizations make this mistake. This includes CPOs trying to implement eSourcing or eProcurement. They forget that the endowment effect and the natural risk aversion that people have are both at play and undermine their message.

In the coming months, we will be looking at how organizations are overcoming these problems. We will also be exploring ways Procurement can improve change management.

Check back for more!

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