The Appetite for Change

Many firms claim to be eager to make changes that will improve their performance, or at least claim to be open to the changes that are necessary - but in truth, the only thing that has the power to overcome the inertia of tradition is the stark realization that the current practices are not sustainable.

This is one of the reasons that different silos within a business seem to have different levels of desire or willingness to change.  Typically, the closer an employee or business unit is to a stakeholder, the sooner they realize the need for change because they recognize a growing dissatisfaction in those with whom they have constant contact.

Departments such as sales and service are the closest to the customer, and interact with them daily.  As a result, they receive constant feedback and are highly attuned to the needs of the customer.  Salesmen find it harder to close deals and customer service representatives get more complaints, both because their firm has been slower than its competitors in meeting customers' demands and expectations.

Meanwhile, departments such as finance, human resources, and information technology are well insulated from the customer.  They have no direct contact, receive no feedback.  As a result, they feel no urgency in making or supporting changes that are necessary to continue to deliver what is required by their stakeholders and are prone to cling to the comfortable routines of business as usual.   They simply do not recognize the threat because they are too distant from the alarm.

It seems particularly ironic that information technology should fall into this category - but while technology is rapidly changing, those who manage technology are far removed from the front lines: they have no contact with customers, and often regard front-line employees with some degree of indifference, as the most unreliable component of a system that they feel the need to control.  They also have made significant investment in the current systems and tend to defend their past choices.  Extremely few have a service orientation, and are focused on the technical rather than the human elements.

Back on point: the need for change ripples through an organization: the sales department recognizes a deficiency in products that is causing customers to choose other providers.  They must communicate this back to the manufacturing department to request product changes.   Manufacturing must support the change and engage engineering to make the necessary changes to the production process and human resources to bring aboard the necessary skills.  All must then contact finance in order to get budget allocated to change the operation.

At each step along this chain, there is reluctance, which is institutionalized in bureaucracy: there is a process to request a change, a process by which the change is evaluated, and a process by which a change is approved.   All of these are designed to make it difficult to deviate from business as usual, forcing any new idea to prove its worth against an existing method that is backed by historical data and the implicit assumption that the future will be no different from the past.   The larger the organization, the more elaborate and numerous are the processes by which any request to change is discouraged and slowed.

These procedures hail from an era in which environmental factors (customers, employees, vendors, competitors, markets, and technology) tended to change more slowly - and companies could take months or years to slowly tend to the process of making changes.  In the present day, the time to make all the arguments, secure all permissions, and go through a chain of processes to institute a change is limited, and obsolescence sets in quickly.

Employees as Stakeholders

Employees are often mistaken for assets of a company - "human resources" to be bought and sold as chattel of the corporation with only a modicum of regard for their personal interests.   However, it would be more accurate to consider them as stakeholders in the organization, whose continued involvement with the firm is contingent on the satisfaction of their interests.

The bilateral obligations of the employment contract are easily set aside by firms that consider themselves to be in the advantaged position in negotiation for human capital - when  the labor market has a surplus of exactly the kind of workers that are needed,  companies can show callus indifference to keeping their part of the bargain - and find themselves in a precarious position when the market shifts and their best people leave for other firms.   Such a perception is inadvisable, but likely inevitable.

This begs the question: what are the employees' interest.  Traditionally it was assumed that the only interests employees have in a firm is the income they will derive from doing so.   However, income isn't at the top of their list of interests.   In particular consider the following:

• Employees enjoy practicing their trade to the best of their ability
• Employees seek challenges that enable them to learn and grow
• Employees value the social interaction they have with colleagues
• Employees gain a sense of purpose in contributing to a mission
• Employees wish to belong to something greater than themselves

Each of these items is listed as being more important than compensation in various surveys of employee satisfaction and job-seeker interests, so there can be little argument that people work only for pay.

That's not to say that pay is not a critical factor - take away the paycheck and most employees would need to find work elsewhere.   But that is to say that they would "need" to do so, not that they would "want" to do so.   It is not merely fear that keeps them in their places, but the desire to have and retain these benefits.

In this sense, organizations and mangers are held responsible by their employees to ensure that these needs are fulfilled, and if it is their desire to retain their staff, rather than constantly hire and retrain more individuals whose interests will inevitable lead them elsewhere, firms would do well to give greater attention to holding up their end of the (implicit) contract.

This is especially important when a change takes place that impacts the interests of the employees.  When there is a reorganization or a merge, or even a dramatic change, the employment contract will be re-evaluated.  And while companies may assure employees their jobs, hence their income, are safe they must recognize that the change will impact the other factors that employees value more than money.

Any change to the status quo threatens the interests of employees.  Even in the best of cases, at least some of the workforce will consider the change to be unacceptable (in terms of the work they will do, the people they will work with, the mission they serve, etc.) and will therefore consider the firm to be in breach of contract, or at least reevaluate the terms of the agreement and determine whether the changes are acceptable to them.   Should they expect to be dissatisfied, they will begin the process of changing to another firm.

And again, firms who are callously indifferent (or carelessly ignorant) will adopt an attitude of "let them go, they are easily replaced" - but will soon find that hiring and training new employees is both a financial burden and a negative impact on performance, and that a great deal of institutional knowledge leaves along with the people, going to a competitor who values it more and will promise, at least for a time, to be better servants of the employees' interests.