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Thursday, December 3, 2020

Measuring Change Management Success – Defining and Ensuring a Solid ROI

By Rob Hendricks — Sr. Group Director, Business Design

In the first two installments of this series, we outlined why change management matters and how organizations can get started implementing their own change management practice. In this final post, we’re looking at the importance of measuring outcomes and ROI for change management. We’re also going to provide a high-level overview of some key measurement frameworks. After all, as Peter Drucker says, “If you can’t measure it, you can’t improve it.” And we might add, “If you can’t measure it, it didn’t happen.”

Thought: Measuring Change Management Success – Defining and Ensuring a Solid ROI
Measuring Change Management Success – Defining and Ensuring a Solid ROISr. Group Director, Business Design — Rob Hendricks
Thought: Measuring Change Management Success – Defining and Ensuring a Solid ROI

There are three keys to measuring the success of your change management initiatives. First, you have to know what to measure. Second, you need to use the data you’re measuring to formulate an accurate ROI that accounts for all the influencing factors. Finally, it’s crucial to recognize that measuring change is a little trickier than measuring your standard tech investment or improvement initiative. Change management is an inherently more nuanced situation that demands a slightly different measurement approach. 

Starting with the Big Picture – Defining Change Initiative ROI

As a global experience company, Rightpoint believes that project success is the result of executive alignment around clear project objectives and organizational benefits. Balancing all of this throughout a change initiative is no small undertaking. Keeping your team focused on the right things requires that you’re really clear about the relationship between benefits—things like decreasing costs to increasing efficiency, productivity, or employee satisfaction—and objectives—the more tangible, measurable outcomes that ultimately deliver those benefits. 

Part of the challenge in measuring the ROI of a change initiative is that traditional ROI calculations focus on revenue or performance gains that can typically be measured with simple KPIs like conversion or revenue. The results of change management are often less tangible, and therefore harder to measure despite the fact that they usually drive far-reaching, transformational outcomes that affect the whole organization in both the short and long term. 

The solution is to evaluate ROI using a modified calculation that captures all the elements that influence the success of a change management initiative. The typical ROI calculation is pretty straightforward:

ROI Equation

A better approach for establishing the ROI of change management includes two additional factors: Employee Lifetime Value (ELV) and the Investment in Change:

ROI Equation

ELV helps account for important (but often overlooked) benefits of change management such as increases in employee productivity, employee retention, and faster ramp up of new hires. Including the Investment in Change figure ensures that your calculations account for all the hard costs associated with change. This might include training costs and material costs (like printing training and reference materials), both in terms of up-front costs and the benefit these investments deliver by driving increased adoption (which drives greater project success). 

The bottom line is that to accurately measure the big-picture ROI of a change management initiative, you have to apply the appropriate calculations and consider all the influencing factors. Otherwise, you’ll get a skewed sense of whether or not the project was worth the effort. 

Getting Down to the Details – Identifying the Right Data and Metrics 

Once you have your ROI calculation defined, the first step of analyzing ROI as part of change is to gather the relevant data points from senior leaders and project managers. As you begin this process, there are three high-level metrics-related questions to ask:

What can we measure and is it reliable?

You need to first identify which KPIs matter most to your organization, and then establish reliable benchmarks. This involves finding the right data sources and doing the requisite tech assessments to ensure the accuracy of the information you’re collecting. Beyond that, if you’re going to lean on ROI for validation of your change program, it’s important to ensure reasonably consistent and predictable accuracy. Whenever a measurement has a potential for error, a key criterion for the soundness of that measurement is reliability.

Has the cost of inaction been calculated?

One of the most common drivers behind any change initiative is the fear of falling behind and losing a competitive edge. Part of setting up for accurate success measurement is gaining a really clear understanding of the long-term negative consequences of continuing with the status quo. And while the mathematical formula to calculating opportunity cost depends on the industry and business, there are ways to think about opportunity costs in a mathematical way. Opportunity cost is the value of the next best alternative or option. This value may or may not be measured in money. Value can also be measured by other means like time, or satisfaction. A common way to calculate opportunity costs is to look at the ratio of what you are sacrificing to what you are gaining. If we think about opportunity costs in this way, then the formula is very straight forward. Evaluating these risks thoroughly is an integral part of any quantitative analysis.

Can the organization track data?

It’s also important to get a tactical sense of the logistics involved in collecting the data you need. There are many possible questions to ask here, which ones apply to you depends on your specific circumstance and change initiative. Does workplace productivity analysis exist? Is the data currently siloed? Can the data be trusted? Are there scenarios modeling deprecation of old hardware, software, and reductions in workforce travel requirements due to better collaboration tools? Each of these will have an impact on the bottom-line ROI.

Once you have addressed these three foundational questions, you’re ready to dig into more specific metrics to help you measure the effectiveness of your particular change management project. We view effectiveness metrics as falling into three broad categories—internal, external, and business. The following list isn’t meant to be exhaustive, we often tailor lists of relevant metrics for each client, but here are a few examples:

Internal Effectiveness Metrics

  • Speed of (employees) adoption

  • Employee retention

  • Improved utilization reports

  • Compliance & adherence reports

External Effectiveness Metrics

  • Net Promoter Score NPS

  • Competitor benchmarking

  • Post change customer attrition 

  • Revenue change

  • Helpdesk calls & request for support

Business Effectiveness Met

  • Cultural adoption

  • Speed of execution/implementation/ integration

  • Adherence to project timelines

  • Customer growth

  • Average order value

Measuring What Actually Matters Makes All the Difference In the Long Run

Change without a tangible success narrative never lands well, which is why it’s imperative to have a solid plan for measuring the actual business impact of any change management project. It’s not enough to hit the project launch date and deliver some general efficiencies. To claim true success, you need to be able to quantify the difference you’ve made for employees, customers, and the company’s bottom line. 

Establishing benchmarks and identifying the data you need to capture to deliver insights on specific metrics are non-negotiable first steps to crafting a strong narrative powerful enough to communicate whether and how your efforts made a positive difference. Doing this work up front also ensures that you have the data you need to continue to optimize those results over time, building on your initial success. 

No one expects change to be easy, but with the right change management process and team in place, the experience can be a lot smoother and deliver much more effective results. If you have a change initiative on the horizon, we’d love to talk with you about how our change management expertise can help you improve employee morale, optimize your customer experience, and drive sustained adoption for your change initiative. Contact Rightpoint for more details.