Company Growth, Cost Reduction, New Technologies, and Competition Seen as
Leading Drivers of Change
These Findings are From Interviews With 133 Top Executives of Large,
U.S.-Based Multinational Businesses, for PricewaterhouseCoopers'
Management Barometer
NEW YORK, May 22, 2006 (PRIMEZONE) -- Large U.S. multinationals are heavily involved in a broad array of change management initiatives, most often stemming from growth and the need for cost reduction. The typical company is currently using an average of five change strategies to achieve desired benefits. In this environment, senior executives have learned to navigate past many internal barriers.
Permanent change
The nation's large companies are hotbeds of change:
-- 56 percent of senior executives say their company has been involved
in a great deal of change over the past 2-3 years.
-- An additional 34 percent cite moderate change.
-- Only 10 percent say they have been involved in very little change.
Going forward, more of the same is expected:
-- 33 percent anticipate much more change over the next two years.
-- Another 56 percent foresee continuation of the same amount.
Business leaders report that their company's need for change springs from a number of "extremely important" sources-first and foremost from growth, followed by the need for cost reduction:
Drivers of Change Important Extremely
Source Important
Growth 88% 42%
Cost reduction programs76%35%
New technologies 74% 24%
Domestic competition 71% 25%
Quality improvement programs 69% 26%
Risk management programs 67% 19%
Changing customer preferences 65% 25%
New regulations 64% 26%
Energy costs 62% 29%
Mergers & acquisitions 57% 20%
Foreign competition 52% 21%
Diversification 51% 15%
Faster product development
cycles 49% 22%
Companies that have recently undergone a great deal of or moderate change have been comparatively faster growers, despite averaging more than twice the size of peers that experienced little change. Similarly, those with a history of much or moderate change are expecting revenue growth averaging 8.5 percent over the next 12 months, versus 7.0 percent for those expecting little change-or 21 percent more.
"Not surprisingly, companies that see change as necessary for growth are the faster growers. Implementing change for cost reduction ensures that their growth will be profitable," added Karen Vander Linde, leader of PricewaterhouseCoopers' U.S. change management practice. "Also, the survey reveals that companies are undergoing change in multiple ways. It is critical for a company experiencing significant change to provide its leaders and staff with a clear rationale for the range of change. Linking the change to the business strategy and business results is critical, even when the change may focus on culture or other people issues such as improved talent management."
Tailored strategies
Responding to the pressures for change, companies select and adapt the change strategies best suited to their particular needs. Leadership training and CRM are the most popular change strategies, followed by simplification and organizational restructuring:
Change Strategies Leadership training 77% Customer Relationship Management 71% Simplification 67% Organizational restructuring 66% Total Quality Management 59% Re-engineering 56% Service-oriented IT architecture 55% Six Sigma 41% Positive deviance 9%
"The typical company surveyed is currently using an average of five change strategies," noted Ms. Vander Linde. "Consistent with other research by PricewaterhouseCoopers, simplification is highly popular as companies cope with the complexity brought about by change and other factors. It is also interesting to see that over half the companies are using the relatively new technology of service-oriented IT architecture, even though many executives probably still haven't even heard of the term."
Why change?
Lower operating costs, in addition to being "extremely important" as a driver of change, is also by a wide margin the most-mentioned benefit sought from company change initiatives over the past 2-3 years-in this role cited as "important" by 93 percent, including 63 percent who say it is "extremely important." Other frequently mentioned benefits of change include improved customer responsiveness, employee productivity, strategic flexibility, and the ability to innovate:
Desired Benefits Important Extremely
Important
Lower operating costs 93% 63%
Improved customer
responsiveness 86% 38%
High employee productivity 85% 33%
Greater strategic flexibility 85% 29%
Improved ability to innovate 83% 36%
Improved corporate reputation 74% 26%
Higher share price 71% 42%
Better work/life balance for
employees 61% 11%
"Reducing cost is the top priority for executives today," noted Ms. Vander Linde. "Companies are also trying hard to improve their stock price, the next-most-cited 'extremely important' benefit sought. Obviously these two are related."
Roadblocks
Many barriers may be found on the road to successful change, and most executives saw these barriers as difficult, though not extremely difficult to manage. Drawing upon recent experience, more senior executives identify competing priorities and organizational inertia as barriers making change difficult in their company. Most of these roadblocks were found to be of the same relative importance across industry groups:
Potential Barriers Difficult Extremely
Difficult
Competing priorities 81% 37%
Organizational inertia 71% 23%
Lack of change-management
skills in middle management 66% 17%
Insufficient cross-functional
collaboration 59% 14%
Inability of workers to adapt
to change 59% 10%
Insufficient training and
coaching 58% 4%
Inadequate IT support 56% 18%
Internal politics 55% 14%
Lack of change-management
skills in senior management 55% 12%
Resource constraints 54% 18%
Lack of clarity about reasons
for change 51% 11%
Lack of acceptance of reasons
for change 49% 15%
Global systems integration 35% 11%
Financial incentives do not
support desired change 35% 8%
"People issues such as lack of skills for managing and adapting to change--and the lack of acceptance of the need for change--stand out as barriers," said Ms. Vander Linde.
Critical success factors
From their own experience, more than half of senior executives cite five factors as being "extremely important" for successfully managing change-led by sponsorship from senior management or the CEO:
Critical Success Factors Important Extremely
Important
Sponsorship from senior
management 98% 78%
Sponsorship from the CEO 96% 77%
Employee involvement 95% 62%
Good internal communications 94% 62%
Clarity about priorities 94% 56%
Training programs 82% 16%
Program management 80% 23%
Team building 77% 14%
Financial and other incentives 70% 17%
Help from outside change-
management experts 38% 4%
"High level management support is critical for successful change," said Ms. Vander Linde. "Also, since conflicting priorities are a major barrier to change, it is important to be clear about them-and to have effective communications regarding the reasons for change and how it will be accomplished."
Measuring success
Success of change initiatives is measured in multiple ways, usually including subjective evaluation by senior management (87 percent), quantitative performance measures of success (78 percent), return on investment (78 percent) and benchmarking (70 percent). Surveys of customers are cited by 62 percent and employee surveys by 45 percent.
"Just as change initiatives can take a variety of shapes, there are also a number of ways for measuring their success," said Ms. Vander Linde. "Care must be taken to develop success measures-and their documentation, both quantitative and qualitative-well in advance of implementation. Successfully managing change begins with knowing how to define success," she added. "Although the typical company uses more than four ways to quantitatively measure success, it appears that two important stakeholder groups-customers and employees-could have greater evaluative input."
PricewaterhouseCoopers' Management Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
Additional information is available from Pete Collins, survey director and publisher, at 646-471-4496, or pete.collins@us.pwc.com. PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries work collaboratively using connected thinking to develop fresh perspectives and practical advice.
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