A question most CEOs dread

What's in it for me? That's the question chief executives all over the world dread the most when they meet their employees before beginning a change initiative. But it's in their own interest that CEOs give satisfactory answers to that question from the rank and file of their organisations.

For, a study done by Mercer, a global leader in HR consultancy, has shown that the cost of having a disengaged workforce when you are implementing a change process can be quite heavy. In fact, the longer it takes for employees to get on board with the change, the more expensive it is for the organisation.

While leaders recognise that productivity will slip during a major change, they often underestimate the dramatic and prolonged people-impact. They assume that people will rebound quickly, accept the change and move on. In Mercer's experience, the opposite is true. The productivity dip can be dramatic, prolonged and disruptive to leaders and employees alike.

For example, Mercer estimates (conservatively, it says) that a major change distracts each employee by one hour per working day. It's easy to calculate the financial impact. Simply take the average loaded annual salary (salary & benefits), divide that by the total work hours in a year, and multiply that by the number of employees.

For example, let's say a company has 10,000 employees with an average loaded annual salary of Rs 50,000. Divide that with the total working hours of 2,080 hours in a year and the loss per hour per employee is Rs 24.03 per hour. Which means the company loses over Rs 240,000 in productive time per hour during its major change process. An organisation can save this loss if it can accelerate buy-in and engagement of its employees.

Though similar results are replicated in hundreds of studies around the world, top managements in companies often consider communicating with employees about change initiatives as their last priority.

This is because most consider informing employees and dealing with their concerns as a soft and fuzzy exercise that can be tackled by HR managers who incidentally are always the last to know.

Mercer says in their enthusiasm for driving change forward, CEOs may think that employees understand the issues at stake, feel the urgency to adapt to new business or market conditions and have as clear a vision of the future as they do. While this would be ideal, it's unlikely to be the case in the early stages of change.

The employee experience of change is usually at odds with views from the top. Decision-makers have had time to process their concerns and questions before employees even know that change is in the offing.

While CEOs see the potential for greater growth and profits and begin to drive execution, employees continue to ask basic questions about what's happening and why the change is needed.

Although CEOs may be optimistic and energised about the change, employees remain confused, anxious and fearful about the potential personal impact and risks. As the senior team enthusiastically tries to move forward, employees drag their heels until they understand the new deal.

Mercer finds that, often, CEOs, who are eager to forge ahead, feel impatient that employees continue to question the vision and that this can threaten successful implementation of the change itself.

There are many examples of change initiatives falling apart due to a lack of employee engagement.  For instance, only 9 per cent of the 200 global organisations surveyed by the US-based Saratoga Institute have said that their change efforts have been very successful.

Another 4 per cent termed them moderately successful while over a quarter described their experience as not very successful; 33 per cent were unsure and 27 per cent said it was too soon to comment.

Resistance to change has been, and will, remain the primary factor for the failure of change efforts and the main reason for this status quo bias is people's strong desire to hang on to what they have; the very fact of owning something makes it more valuable to the owner.

McKinsey tested the effect with coffee mugs imprinted with the Cornell University logo. Students given one of them would not part with it for less than $5.25 on average, but those without a mug wouldn't pay more than $2.75 to acquire it. The gap implies an incremental value of $2.50 from owning the mug.

So what's the way out since a company can't remain on the cutting edge by standing still? Also, change initiatives surely can't be decided by popular vote. The solution is effective communication with employees about the reasons and where each of them - at least the ones the company would like to retain - fit in the scheme of things. Traditional change-management concepts like a top-down approach - CEOs trying to force their version of change on a reluctant workforce - only breeds increased resistance and cynicism in an organisation.