In Charge of Change Management?
Then Good Luck!..
International MBA Institute™
18 August 2022
Change Management
Loss Aversion
Planting Seeds for Change
Hi there, Last summer I was in Seattle.
I used this occasion to meet up with a few dozens of our alumni students in this region.
Amit, a 23 years old tall guy who studied his college in USA and made his MBA-CFP degree online with us, mentioned to me about an experiment he'd recently conducted.
He works for a multinational retail and cloud service/software giant in Seattle (guess which one).
Amit was in charge of optimising some key financial processes which oversaw third party providers on their platform.
He told me that the processes in place had been almost as old as 10 years, and they could barely cover specifics of increasing numbers and types of non-tangible goods.
Good one.. :)
Lucky enough resistance against change wasn't also missing on his long list of things he had to deal with.
You probably know what I mean, if you've ever witnessed what was happening while 10 years old processes were being attempted to change.
Apparently, for his "seasoned" colleagues, everything was good enough. And newcomers used to learn to bite the bullet in time.
Sounds very familiar, isn't it? It does to me. At least when I look what I left behind.
Anyway, Amit said to me: "I didn't have much experience with change management projects. I wasn't a good negotiator. I was average at best, but I had to do something."
Then he explained to me how he'd experimented using "loss aversion" to plant the seeds for change. Very smart! If you may not be familiar with "loss aversion" concept, you should. You can thank me later..
According to our big brother who knows everything (Wikipedia)
"Loss Aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains: it's better to not lose $5 than to find $5. Some studies have suggested that losses are twice as powerful, psychologically, as gains. Loss aversion was first demonstrated by Amos Tversky and Daniel Kahneman."
For you here in this post I tried to summarise the lessons I learnt from Amit's experiment. Read on.. You are awesome as you've come so far.
The classical approach to drive change is to present its financial business case and supporting organisational benefits.
How instantly Change would enhance our teams and excel the interactions within our organisation and with our client ecosystem. How wonderfully our companies would serve customer-oriented products and services.
Is this really the correct approach? Is it better to highlight benefits of adopting a Change or the cost of not adopting?
The answer is: It depends.
According to Peter Salovey who is the originator of emotional intelligence, your approach to drive organisational and operational changes associated with Change must depend on whether your organisation perceives Change as safe or risky.
Scenario-1: Your organisation thinks Change is safe
If your organisation thinks Change is safe, first of all let me congratulate you to be part of such an open-minded culture in your organisation. The ones among us who experienced multiple Change management and transformation projects would say that your job to adopt Change is mostly done. But don’t quickly relax. You still need to work hard to emphasise all the good things that will happen if your organisation adopts Change. They will want to act immediately to obtain those benefits.
Scenario-2: Your organisation thinks Change is risky
When your organisation believes that Change is risky, don’t get worried. Welcome to the club... You are among most of us. Don’t forget that your approach with Scenario-1 alone does no longer work here. Your organisation is now comfortable with the status quo, so the benefits of Change aren’t sufficiently attractive to take action. There is no point to deny the risks as they are usually rooted from the belief systems and long experiences.
Instead, you need to shake the status quo to destabilise it and accentuate the bad things that will happen, the opportunities that will be lost if they don’t adopt Change. Taking a risk is always more attractive when they are faced with a guaranteed loss if they don’t take the risk.
The prospect of a certain loss will create a sense of urgency, make your organisation take action, invest resources to understand the benefits of Change and ultimately adopt it. Sometimes slow, sometimes fast, but always one step at a time.
Conclusion:
If you have ever been curious why it was so challenging for many organisations to adopt Change, you may have an opinion now.
Corporations and established organisations are risk averse entities and they usually fit to Scenario-2.
By injecting "Loss Aversion" in his arguments, Amit helped people in his organisation understand potential adverse effects and losses without change instead of solely focusing on why the change is good and required. Well done!..
You can’t sell them Change by solely focusing on the benefits they would get from it. They wouldn’t buy your idea.
You need to make your organisation face: Things may look OK today, but they are not. You need to make this a joint responsibility in your organisation to avoid the guaranteed loss without Change.
I hope you enjoy, and thanks again for your support! :)
Yeliz
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