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Why Change Management Fails

Last week, after taking exception to a McKinsey article on change management, something was still bugging me. In trying to determine why two thirds of change management projects fail, I think the folks at McKinsey missed the forest for the trees.

This may be a counterintuitive concept, but I think change management often fails because it should fail. In mission-critical change - change needed for a turnaround, restructuring, merger, or strategic planning process to be effective - the basis for change, the underlying strategy, is often flawed.

For example, the CEO gets it in his head to take the company somewhere, the board bites, and off it goes, risk analysis be damned. I can think of a dozen other failure modes, but it's mostly about the inherent risk in strategic change. If your strategy is right half the time, you're pretty well, IMO. But what about the other half of the time?

I know what you're thinking; how about risk assessment? Sure, but risk is part of corporate strategy, right? Remember, no risk, no reward?
And if I'm not mistaken, executives develop the vision, strategy, goals, plans - all that good stuff - and then start the change management process. Sometimes the CEO does it in a vacuum.

Think about it: Mergers like Sprint - Nextel, AOL - Time Warner, or Borland - Ashton Tate. Turnarounds like Gateway, Nortel, or Jerry Yang's Yahoo. Carly Fiorina's restructuring plan for HP. They failed - not because of flawed process or methodology - but because they were bad ideas to begin with and the employees probably knew it.

Here's an example of two changes - one successful, the other failed - at the same company, believe it or not. Check it out:

Successful Change
In the early 90s, National Semiconductor fell on hard times, so the board hired Gil Amelio as CEO. Amelio made sweeping changes to National's strategy and organization. To my knowledge, the restructuring was relatively conservative and low risk, and the company returned to growth and profitability. By all accounts and metrics, the change was successful.

Then Amelio abruptly resigned to become CEO of Apple, where he lasted just shy of a year and a half before the board replaced him with Steve Jobs.

Failed Change
National's board hired Brian Halla, who undid much of Amelio's work in favor of his own vision for the company. You see, National made low-cost analog or what I call "Jellybean" semiconductor chips, meaning they were cheap and made lots of them. But Halla wanted to remake National into a "system-on-a-chip" company that made complex, microprocessor-based chips for a new age of "information appliances."
It was a bold and risky move, but the board bought it and so it went. There was a new vision, a bunch of strategic imperatives and acquisitions, and of course, a change management program. The change wasn't effective - not because the program was flawed - but because employees just didn't buy the new strategy. Neither did the market.

The company lost a billion dollars and revenues declined over the coming years. Many years later, National jettisoned the new vision to focus on its core analog business - that would be the jellybean stuff.

It's the Strategy, Stupid
Same company, two changes, one low-risk that succeeded, the other high-risk that failed. But you can't fault Halla for taking risks. Success in business involves risk. Maybe there was too much risk, in which case a complicit board didn't help. In any case, change process wasn't a factor IMO.

The main point is this: when it comes to mission-critical change, the risk of failure has far more to do with risk associated with the underlying strategy than the change process itself.

For more on change management, check out:

Obama's Health Care Bill: Change for Change Sake?
Change Management: It's the Strategy, Stupid

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