Drive change with lowest common denominator

30.1.2012

We’ve helped numerous customers to implement new business processes or change existing ones. Quite often top management knows what is wrong and how it should be done in a perfect world. Still the promised business benefits are not realized.

Closer look at the problem reveals typically several issues:
1. Target is too perfect world
2. Multiple changes are required (such as changes in people’s actions, processes, management systems, information systems)
3. Communication to employees has not succeeded – several truths of the desired way of working exists
4. Duration of the implementation project is rather long (even years)
5. Business environment is different than in the beginning of the implementation project

Steve Jobs said once: “Deciding what not to do is as important as deciding what to do”. That’s exactly the case. Companies easily overestimate their readiness for change and aims at too perfect world at once. The other issues arise because of the gap between current and desired situation. When the gap is big then we are talking about two totally different problem structures. The ceteris paribus hypothesis is not valid any more.

When multiple changes are required more stakeholders will exist, more management will be needed and the change project is more complex (often exponentially). Due to this the project duration increases and project involves obviously more risks.

Long duration actually requires modelled chain of decisions. Expected returns should be calculated from that chain. Guestimating the best possible decision chain requires actually simulations of different business environments at the time of each decision (based on certain distributions). When trying to optimize the decisions in the chain, different state of the worlds must be picked randomly for calculating the value distributions for each possible decision chain. Calculation of value distributions requires thousands of iterations. And because decision makers are not equally risk averse we must define different target functions for the optimization model to calculate the preferred choice. In other words we must examine the theory and practice of multiphase stochastic optimization.

Sounds pretty complex? It is. But still it is only a model and as a very wise professor once told me even the best possible model is still only a simplified picture of the reality.

If the world is so damn complicated what can one do as a decision maker? Maybe taking another approach by simplifying the problem will be good enough. It’s not an answer to every situation but works often well. First a decision maker must limit the project duration. Scope the project until only one parameter common to all stakeholders exists.

How to define the new value of the found parameter? Try lowest common denominator between the stakeholders (eg. employees). It will increase the probability that the stakeholders will start to act based on that because the change required compared to the current way of working is small. The change will be also very easy to manage because metrics are easy to implement and understand. Small change may represent small expected return. However the multiplier can be big (eg. # of employees). Thus the absolute profit increase may be substantial.

Once the lowest common denominator is implemented management can review its effect very quickly. This provides the opportunity to define next common denominator with the greatest impact, define the parameter value and implement it.

One of my customers told me that they have shifted from week-business to minute-business. Profit is made or lost faster and faster. Thus it is important that the company’s management system will react quickly. In perfect world it would be forward-looking but sometimes it is better to run with small steps. The small steps taken may actually develop a new mutual management system and enforce competitive advantage in a way that is hard to copy.

Based on our empirical evidence and the experiences from some of the greatest companies in their industry (see Starbuck’s CEO on CNN) the lowest common denominator method often equals with success.

Jukka Koskenkanto
Jukka Koskenkanto toimii kehityspäällikkönä Trainers House Oyj:ssä. Jukka on erikoistunut informaatioteknologian käyttöön muutoksen läpiviennissä.