Transformational change results in lower productivity. People are worrying about jobs, who is getting which job, how they will work in the new job, and a gazillion other things. Every level in the organization is wondering, “What’s in it for me?” The wondering and worrying translates into lost productivity – and large opportunity costs. What value would employees create if they weren’t worrying about the big change?
It would probably take a doctoral study to analyze the numbers comprehensively, but some directional assumptions point toward a scary story. The spreadsheet below takes some average numbers for revenue and costs per employee, and estimates the value created by each employee.
The logic continues that if the average employee’s productivity falls 10% during the change, the company has foregone $2,070 in value. Because the employee contributed 10% less, less value was created. People aren’t creating new products, selling to new customers, analyzing trends for opportunities, negotiating better prices, etc… They are too busy wondering and worrying.
Carrying the logic all the way out, if the change program lasts 12 months and the company has 1,000 employees, the company has an opportunity cost of nearly $25M.
$25M is a big number, and one would naturally ask, what can be done to reduce it?
The two options are “faster” and “better.” Faster says: get the 12 month project done in 11 months. Better says: get the project done in a manner whereby productivity is preserved. (This productivity preservation requires change management approaches.) Based on the assumptions I used, “better” is clearly – well… better.
A couple comments in closing:
- To repeat – these numbers aren’t an analysis. These numbers are directional estimate based on some reasonable assumptions. Using the mildest of assumptions, however, shows that productivity losses extrapolate into some large foregone value.
- If you would like to try your own numbers, you may download an Excel version of the Change Initiative Cost Estimation Worksheet.
- The figures regarding revenue and costs per employee in the spreadsheet come from PriceWaterhouseCoopers – Saratoga’s 2007 / 2008 US Human Capital Effectiveness Report.
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