Managing change in financial services for sustainable growth

Flight to the Future

EDS

Changing market dynamics in the financial services industry mandate quick responses from organisations

that wish to stay ahead of the competition, reduce risk, and increase profitability.

As the world’s most experienced outsourcing services company, EDS has developed a high-value

services model that delivers superior returns to clients across the globe. We provide a broad portfolio of

business and technology solutions to help clients worldwide improve their business performance. EDS’

core portfolio comprises IT, applications and business process services, as well as IT transformation ser-

vices.

EDS’ A.T. Kearney subsidiary is one of the world’s leading high-value management consultancies.

Through our nearly 120,000 employees, we support the world’s leading companies and governments in

60 countries. With $20.7 billion in 2004 revenue, EDS is ranked 95th on the Fortune 500. EDS Global

Financial Services Industry leverages EDS’ global technology leadership to create integrated business

and technology solutions that are tailored to meet the needs of financial services institutions worldwide.

We have more than 15,000 employees serving financial institutions in more than 30 countries across the

banking, insurance and capital markets sectors.

In Europe, we work with leading financial institutions such as ABN AMRO, AON, AXA, Banksys,

Barclays, Banca di Roma, Banque Hervet, Dexia, Fortis, KBC, la Caixa and Société Générale.

These institutions turn to EDS to help them transform their infrastructure and operations in order to

reduce costs, improve efficiency and meet ongoing regulatory requirements. By leveraging EDS’ core

our clients can focus on products and services that distinguish them in the marketplace and with their

customers.

We apply our 35 years of experience in the financial services industry to each client. In fact, today, EDS:

• Is the world’s largest third-party mortgage loan sub-servicer

• Processes 1.3 billion credit card transactions annually, supports 45 million credit card

accounts and handles more than 1.8 billion merchant accounts in 18 countries

• Processes 2.2 million credit and auto loans every month

• Processes 24 million credit transactions annually (payments, applications and

adjustments)

• Processes 320 million statements and 2.7 billion cheques annually

• Provides life pensions and health BPO services to more than 10 million policyholders and

has migrated over 12 million policies globally

Table of Contents

EDS

2

Introduction 4

Why Do Financial Organisations Need To Manage Change? 5

Pace Of Change 6

Change Triggers Within Organisations 7

Strategies For Managing Change 9

Creative destruction 9

Balancing stability and change 11

Approaches to effecting change 12

Examples Of Change Strategies 13

Sea change 13

Step change 15

Changeling 17

Cultural change 17

Seven Rules Of Practical Change Management 20

Achieving agility 20

Rule 1: Clearly define the future mode of operation (FMO) and the corresponding benefits 21

Rule 2: Focus delivery on releasing business value 22

Rule 3: The programme management function must be exemplary 22

Rule 4: Strictly control scope creep 22

Rule 5: Establish a strong business change architecture function

23

Rule 6: Programme teams need HR support, too 23

Rule 7: Partnering – it’s not a sign of weakness 23

Inside Organisations – The Mechanics Of Change 24

Who is responsible for change in the organisation? 24

‘Softer’ Change Issues – Dealing Successfully With Employees 31

Phase one – unfreezing 31

Phase two – transition and acceptance 32

Phase three – moving forward 33

The importance of communication 36

Phase four – institutionalising the changes 38

Changing Lifestyles And Employee Attitudes Toward The Workplace 38

Key Failure Factors 40

Poor change leadership 40

Inability to communicate a clear rationale for change 41

Handling resistance to change 42

Poor middle management skills in managing people/projects 42

Failing to ensure employee buy-in at all levels 42

Key Success Factors 46

Effective change leadership 47

Ability to communicate a clear rationale for change 48

Rigour during the planning stage 49

Setting realistic timescales for change 49

Anticipating and handling resistance to change 49

Effective implementation 50

Choosing the right teams to deliver change 51

Employee buy-in 52

Last word 53

Acknowledgements 54



Introduction

Change is a constant in today’s world of financial services, and the ability to successfully manage change

is a prerequisite of any sustainable corporate strategy. Whether you are a de-nationalised state insurer in

an emerging market aiming to compete on a pan-European basis with global organisations, a mutual with

a rich history of success seeking to survive by a stock market flotation, or a market leader in a mature mar-

ket concerned about the challenges from new entrant competitors, managing change is an essential skill.

How change is tackled depends on the context: the company may be facing a burning platform and with

no option but to go forward; it could face change as an imperative following a merger or acquisition; or it

may be that a company already enjoys a market leadership position but believes it must change to sustain

its lead. Nevertheless, a high number of change programmes fail – and, even amongst those that appar-

ently succeed, a large number fail to meet the expectations of senior management. Good change manage-

ment is a combination of excellence in process management and in the ‘softer’ aspects of change such as

changing employee behaviours and ensuring they commit to the changes, and providing the right level of

support to enable this at the right time. Getting the multiple dependencies right is tough, akin to conduct-

ing an orchestra in that ‘a good change management capability energises and motivates, creates a sense of

pace and timing, and provides a skilled performance while sustaining the performance of others.’ (Carnall,

Colin, ‘Managing Change in Organisations,’ FT Prentice Hall, 2003.)

In Spring 2005, Limra Europe conducted research into its membership to ascertain what they considered

to be best practices in change management. The specific areas investigated included

• What kinds of events triggered change

• How change was defined in companies

• How change was managed internally in financial organisations

• Key success (and failure) factors in managing change

• What metrics/methodologies were used

• How proactively change was managed

• Age-related attitudes of employees towards change

• The psychology of change within the workplace

This report examines the results of the research, and sets it within the wider context of best practice in

change leadership. The research consisted of an online questionnaire, supplemented by in-depth meetings

with change managers and senior executives in a range of financial organisations. In the research, change

was variously described as endemic to every organisation, or to ‘business as usual’. It can range from

wholesale cultural transformation programmes which aim to alter employee attitudes, values and behav-

iour, to smaller-scale, structural, changes such as de-layering, or the restructuring of a limited number of

functions but where an existing corporate strategy is left untouched.



Why Do Financial Organisations Need To Manage Change?

Change is part of our everyday lives. We handle it so instinctively that often it creeps up

unaware, and the extent of our transformation is only registered with surprise long after the

starting point. It occurred at a slower pace in the lives of the post-world war consumer genera-

tions. Brown or white goods (fridges, TVs, ovens, now no longer brown or white but available

in ice-cream colours) were typically bought for life. The notion of in-built obsolescence would

have been anathema to them and the notion of replacing them for redesign reasons seen as

impossibly frivolous. In the world of work, organisations were characterized by a high degree

of job specialisation, reliance on formal procedures, by hierarchy, clear status differentials,

and an emphasis on control. (Carnall, ibid.)

By comparison, the past two decades have witnessed massive restructuring in the financial services market

– consolidation, competition, product failures and selling scandals. Tidal waves of legislation, combined

with the relentless speed of technology advances, have made financial companies far more aware of struc-

tural inefficiencies and the importance of responding rapidly to such changes. Elsewhere, everything is

converging into fast-moving consumer goods, offering an infinite variety of lifestyle choices. We wonder

how it came about that hamsters, champagne, Botox injections, cosmetic surgery fees and self-storage

spaces have replaced prunes, corned beef or a rubber roller table mangle in UK plc’s shopping basket over

the last half century (UK Office of National Statistics, March 2005). The intervening years have raced

by and the past seems to be a foreign country. We recall the monolithic mobile phones of only 15 years

ago as if they belonged to a bygone era. Or consider how trains have changed over the recent decades:

formerly, there used to be a division between second-and first-class carriages. Then the distinction was

between smoking and non-smoking carriages; now it is between ones allowing mobile phone usage and

quiet carriages.

So change has always been there, but capturing and shaping it is the challenge companies face today.

Instinct, however, is not enough to deal with change: businesses need to exercise formal ways of read-

ing changes in the environment and creating internal capabilities for dealing with them. How do compa-

nies differentiate between routine aspects of the changing business environment and ‘strategic inflection

points.’ There may be an extraordinary change in the business environment on the part of a competitor,

or of a regulator. It might come from a directional shift on the part of a vitally important strategic partner,

or the advent of a new product or even revolutionary types of competitive paradigm such as eBay or

Amazon.com.

If, according to PriceWaterhouseCoopers, over 40% of change projects fail and only half of those that suc-

ceed meet senior management expectations, it is vital that financial organisations are aware of the pitfalls

to best practice and are able to analyse their own experiences with clarity and insight.



Pace Of Change

When Limra Europe first started talking to the financial services community about change management,

the most common observation we encountered was how fast the pace of change is now compared to 10 or

15 years ago, that it is continuing to accelerate, that there is no respite, and that companies feel they are

racing to stand still let alone gain competitive advantage. This was definitely the case for the UK where

80% of replies revealed that the need to adapt to change was more pressing today than three years ago.

Whereas non-UK respondents felt that the pace of change had only heated up in the past three years, a

substantial proportion of UK respondents felt that the pace of change had been accelerating for at least five

years. At any given time, financial services companies confront the challenges of:

• Increased regulation – an unprecedented level of attention from regulatory bodies and consumer

groups

• Customer awareness and growing sophistication or acumen in the selection of providers

• Increased competition from large retailers diversifying into financial services, new entrants with

out legacy infrastructures and niche players who are intent on cherry-picking the best customers

• Technological developments that make new services possible or offer potential improvements to

existing systems

• Issues such as managing diversity or anti-age discrimination

There were interesting differences of opinion in the replies. One head of change at an institutional asset

manager remarked that:

‘The pace of change is no greater now than in recent years and, in technology terms, it has ac-

tually slowed down. The past 10 to 20 years have witnessed massive business improvements

when processes moved from being manual to automated. Ten years ago, the technology gain,

in our view, would be called evolutionary. Great differences were made. Now they are incre-

mental. There are no more ‘shed-loads’ of efficiency to get out of tasks.’

In another example, the senior programme manager at a global banking group commented:

‘The pace of change has quickened dramatically in recent years and will not let up. Members

of staff, especially in branches, feel bombarded with change.’

The head of change at a UK mutual life insurer observed that he did not see more change now than 10 or

15 years ago, except in the area of regulation. He did, however, consider there was more forced change

from the outside.

‘Change was always there in the ‘old days’, but it simply went under a different banner. Much

of it was concerned with fire-fighting.’



One particular pressure on companies, and a major contributor to the sense of uncertainty so many feel, is

the speed at which rivals can now enter the market and the rapidity with which they can duplicate a rival’s

value or product proposition.

’There is no escaping change as the entry barriers to our business product areas are so much

lower, technology races ahead as a constant, and the door is open for copycats to enter and

steal market share.’

Change Triggers Within Organisations

Change is caused by a complex mix of new technology and social trends, which makes it al-

most impossible to predict. It is easy to forecast most technical changes, but almost impossi-

ble to foresee how human beings will react to them.

(Partridge, Chris, The Times, February 2005.)

Replying to the question, What triggers change?, 100% of UK respondents cited regulation as the over-

riding trigger in financial services, followed by acquisition, product development and technology. Re-

spondents from Continental Europe (including the Republic of Ireland) saw competition and changing

customer demands as the most important triggers. Changes at board level were reported by 50% of UK

organisations participating in the survey as triggering change, compared to only 20% of Continental Euro-

pean participants. This possibly correlates with the far higher number of acquisitions completed in the UK

in recent years. There may well be a greater degree of senior management churn in the UK market than

elsewhere. Indeed, a survey of 115 UK companies by management psychology consultants, RHR Inter-

national, reported that half of the respondents felt they would lose 50% or more of their senior managers

over the following five years. It also noted that within 12 months of being hired, 40% of boardroom man-

agers under-perform or are fired. This could be a recipe for endless cycles of change, leaving organisations

constantly grappling with the fallout from abandoned change programmes. At Abbey National, for

example, the incoming director of programme management in 2000 inherited 294 projects, cancelled 223

of them, realigned the remaining 72 to the new business strategy and redeployed the ‘spare’ project

managers in training, development and best practice. (Project magazine, April 2003).

The role of senior management is vital to successful change, as we shall examine more closely in a later

section. It is often the case that a new CEO, not necessarily from the outside, is seen as a welcome breath

of fresh air, symbolising a break from previous practices and heralding a period of beneficial change and

new practices. At the same time, the longevity or otherwise of the CEO in his/her job can be a disruptive

factor. A sample of responses to the survey question, How long has your CEO been in his/her job? re-

vealed that average tenure of CEOs was only nine months.

The group projects manager at a mobile telephony company, whom we interviewed to add a wider context

to the research, expressed an uncompromising view of the role of the CEO. She considered that ‘senior

management likes to change the structure for the hell of it,’ to justify their existence. They like ‘to throw

all the pieces in the air at once,’ preferring to take a Big Bang approach rather than the incremental steps,

which the implementation teams believe are more realistic and achievable!



• At one global bank participating in the research, the new CEO, 18 months into his new

role, has embarked on a major cost campaign. This focuses primarily on the key areas of debt

management and wastage – the collection and processing of bad debt, money

management services for indebted members of the public, credit policy terms, mortgage

approval and arrears handling teams. This cuts across the whole business infrastructure

and is run by the CEO as a personal campaign in an attempt to maintain pace and

momentum in a massive and complex organisation of 225,000 employees worldwide.

• In the case of a UK mutual society, there have been five changes of CEO in as many years.

One came from the motor industry, stayed 18 months then moved on. Another came

from a competitor, stayed one year and moved on. Each CEO has, according to the head

of change, his own agenda. One was strong on mergers, leading to acquisitions. Another brought

in a more informal culture. This is a company that has confronted its role in the marketplace

and has had to take radical steps to adjust and survive. The incoming CEO is ‘home grown,’ with

notable skills in the areas of affinity groups, strengthening the brand and customer proposition,

in emphasising performance, combined with an empathic approach to the concerns of the

workforce. In this company, change management has historically been seen as synonymous with

staff culls and painful cost cuts that have eroded loyalties. The challenge for the change

management team and new CEO is to get employees to see that change management is ‘not a

conspiracy to ruin their lives,’ and ensure they are brought into these forthcoming programmes.

Figure 1

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other. Please specify.

Competition

Outsourcing

Alliances

Changes at board level

Merger

Relocation

Acquisition

New product development/launch

Changing customer demands

Technology

Regulation

Which of the following events act as triggers for change programmes

in your organisation (UK participants)?



In addition to the change triggers mentioned in Figure 1 {above}, several responses alluded to systems

integration, product launches and rationalisation of the organisational model as giving rise to change pro-

grammes. Other triggers included:

• E-enabling of all our business systems and the introduction of self-service

• A re-definition of how we do business to focus on persistency and the quality of customer

interaction

• Introducing the end-customer into everything we do

• Systems infrastructure

• Office relocation

• Depolarisation

• Mortgage and general insurance regulation

• Development of customer propositions

• E-transformation of our business processes

• New sales strategy

• New back office – physical move after a merger

• IT strategic changes

• Launch of new distribution channels

• Implementation of new remuneration models

Strategies For Managing Change

Creative destruction

In March 2005, Danny Kruger, a member of the UK Conservative Party who was standing against the

Prime Minister in the following May General Election, was taped talking about the party’s plans to intro-

duce a period of ‘creative destruction’ in public services. This was interpreted as implying that the Conser-

vatives planned to lay waste to these services in a ruthless attempt to reduce public spending.

Kruger’s comment was sound, if misunderstood. Taking his cue from Foster and Kaplan’s best-selling

book (‘Creative destruction: why companies that are built to last under-perform the market – and how to

successfully transform them,’ Currency, Doubleday, 2001), he argued that the managers of any organisa-

tion must abandon the idea of continuity and seek radical change in order to survive. As the author of a

Demos report on information exclusion, Kruger was well aware of the dangers of marginalising poorer

members of society by refusing them access to vital resources. But demonised in the press, and to save his

party further embarrassment, Kruger resigned.

The intensely competitive business environment means that change has come to dominate the agenda in

most organisations, with companies seeking to reinvent, renew, reshape or transform themselves in a bid

for a sharper competitive edge. Companies have responded by taking the project management model,

which has existed for decades in IT, and extending this to a more holistic concept that embraces multiple

stakeholders and can be used as a template for embedding change within an organisation.

Organisations pass through cycles of evolution and revolution according to their size and where they

stand in terms of their own evolutionary stage, for example, a green-field set-up or mature market leader.

Different styles of leadership suit these different stages. At a global French financial services group, the

general manager, sales & marketing, recruited a dynamic young manager whose role involved galvanising

10

a sleepy offshore division servicing expatriates. The general manager described the role as acting as the

‘grit in the oyster.’ The longer-term intention, however, was to replace this younger manager with a safer

pair of hands once the shake-up had occurred.

Bank branches have been revolutionised since the late 1980s by the introduction of self-service technol-

ogy. Routine practices have been stripped out and queries from customers were directed to contact centres

rather than branch staff from the mid 1990s. One bank we talked to removed lending decisions from the

branches although this was reinstated later on. As far as the branches are concerned, this is virtually a

case of permanent revolution, with change programmes in the wings to ensure that the paying in of small

business takings – one of the most time and resource intensive transactions at branch tills – is processed

in a more streamlined fashion.

Other factors affecting the ebb and flow of the corporate life-cycle are ones Carnall defines as the ‘six

dilemmas of business.’ At different stages of the life cycle, organisations will make choices in terms of

centralisation or decentralisation, in how they strike the balance between efficiency and effectiveness,

global and local operations, change and stability, control and commitment style of management, and their

use of in-house or third party professional expertise.

At one financial services research house, the appointment of a new president at the start of 2005 is leading

to a strategy of greater centralisation after a period when standalone centres had been created for the Asian

and European regions. In this case, the new strategy aims to create a structure which will strengthen the

service it offers to the regions by more effectively leveraging resources in the US and elsewhere and will

serve to eliminate duplication in some areas and reinforce capabilities in others.

In terms of the optimum balance between efficiency and effectiveness, improving the performance of

internal processes such as risk management, compliance, accounting, HR, new product development, or

procurement policies has been an industry priority for several years. Real effectiveness, however, lies in

an organisation’s ability to adapt to changing circumstances and ‘scramble’ resources to meet challenging

situations rather than simply applying cost-cutting remedies, which may diminish this adaptability in the

longer run.

We found in our research that companies are wrestling with programmes involving change of a more tech-

nical nature – such as the introduction of automated processes. At the same time they are trying to build

more flexibility into corporate culture and working practices through more emphasis on teamwork, new

job descriptions, new reward systems and by starting to engage employees in more decisions affecting the

business. At one investment house, the head of change commented that headcount was no longer a part of

any cost-cutting programmes but rather the challenge was to achieve change and business benefits in the

‘softer’ area of people management. All employees had been consulted about the need to change ways of

working and ‘had tacitly agreed,’ although there was some resistance, interestingly, mostly at board level.

Most of the companies surveyed were on this journey but few, if any, had arrived at their intended destina-

tion. Although none of the organisations researched demonstrated chaos, one major banking group’s strate-

gy director remarked at a conference that the company focused to an extreme degree on efficiency factors,

combined with huge amounts of governance and control. As a result absentee rates were ‘sky high.’

11

When it comes to choices in the area of change versus stability, some argue that organisations should adopt

a strategy of continual internal change to keep employees on their toes. Accenture coined the phrase ‘dis-

turbing the system’ (white paper of same name in Outlook, October 2004) to describe a process of ongo-

ing adjustment to change at all levels of an organisation, rather along the grounds of ‘kaizen’ or continuous

improvement. Other commentators argue that the human need for stability is paramount and taking away all

comfort zones leads to defensive, risk-avoiding behaviour on the part of employees, which is the antithesis

of the sort of entrepreneurial behaviour that businesses may wish to encourage. Others consciously pursue a

policy of unsettling their employees by removing comfort zones.

Change can only happen within a fluid state. Yet so many businesses are locked into rigid struc-

tures – management hierarchies, floor plans, etc. A company full of individuals who have sat at

the same desk in the same spot forever is not in the best mindset to encompass change. Some

businesses have a radical solution to the physical mind lock. They simply don’t allocate space

to employees, but use ‘hot desking’. The alternative is to presage a major change by an actual

physical one – i.e. moving desks and departments. This ‘unlocks’ employees from their ‘safe’

position.’

(Wilton, Eric, ‘Dealing with change’, PM magazine, January 2005.)

When companies seek to move from a control structure to a more flexible one based on commitment, indi-

vidual responsibility and teamwork, it inevitably involves the creation of more stretching objectives than

the task-oriented systems of the past, a move towards flatter structures, employee participation, the manage-

ment of multiple stakeholders, and performance-related rewards rather than a salary pegged to a particular

grade.

None of this is easy – at one insurer, an ambitious change programme was in progress to move from the

‘job description writing factory’ to a rewards system that would facilitate a flatter and more responsive

organisation. The change leader was, however, encountering fierce opposition on the part of a board member

and eventually the entire board had to be deployed as a means of countering the opposition.

Many of the companies we spoke with were transitioning toward a more fluid structure, or believed they had

moved considerably closer to it. This was the case at one investment house where employee groups had been

set up to amend the governance structure. As the head of change there remarked, ‘18 months ago the execu-

tive was the only place where decisions could be made. Now, they are permeating down to the rest of the

organisation.’

Balancing stability and change

Change today is associated with speed and discontinuity, with a sense of increased pace and complexity. We

have referred to discontinuous change, based on the new paradigm of evolution. Evolution in this context

incorporates the sense of ‘revolution.’ Carnall refers to evolution as the ‘engine of success, requiring us to

understand and learn to ride the changes occurring.’

Managing change effectively requires a clear grasp of the ‘drivers of stability’ in an organisation – those

tending towards the preservation of equilibrium or inertia, the maintenance of the status quo, the ‘traditions’

and practices that support these drivers, and the cost of removing them. They can be insidious and hard to

12

identify, which is why organisations may opt for including an external expert who may be better placed to

identify what is holding them back. Previously, companies could concentrate on small numbers of changes

at any one time and there would usually be a period of stability before the next change. Change was seen

as interrupting the status quo, whereas today change has become the new status quo. As Charles Thal-

heimer writes in LIMRA’s MarketFacts (winter 2005 edition):

`All change creates an inevitable dip in the key measures of productivity and quality during

implementation. We call it a delta state and it occurs as people learn what is required of them

in the change process and adapt to the new, desired state. If part of that delta dip is caused

by people refusing to change, spending excessive amounts of time complaining, stalling and

even sabotaging the change, the cost of change will be too great and the potential for failure is

too high.’

We come full circle to the rogue comment by Kruger on creative destruction. Andrew Grove, chairman

of Intel Corporation lecturer at Stanford University and author of ‘Managing Segment Zero’ (Leader to

Leader, Winter 1999) talks of the importance of having a period of experimentation and quasi-chaos while

a company learns to adapt to, and deal with, change. Established practices and established attitudes must

be torn apart before something new can be put in their place. This painful and psychologically demanding

period of adaptation is often referred to as the ‘Valley of Death’ by change management practitioners, and

we shall touch upon it in a later section. The phoenix, metaphorically speaking, cannot otherwise rise from

the ashes; it is in this sense that Kruger was doubtless using the term, but suffered the misfortune of being

taken literally.

Approaches to effecting change

There is a spectrum of styles and approaches to change management programmes that companies can

adopt, but the most effective choice will depend on factors such as:

• The urgency of the need for change

• The degree of opposition or resentment

• The power of the individual or group initiating the change

• The necessity for information and commitment on the part of employees

Once these issues have been taken into account, companies can opt to follow a number of strategies. Bill

Lockitt, author of ‘Change Management’ by 3T Productions Ltd, defines these as:

Participative strategy. This has the advantage of resulting in greater commitment on the part of employ-

ees, with more opportunities for individual and organisational learning, but it is relatively slow to imple-

ment, more complex and costly. Although driven by senior management, the process will be less manage-

ment dominated and instead driven by groups or individuals. The views of all will be taken into account

before changes are made. The outcomes can be less predictable and more costly if consultants are used as

facilitators.

13

Educative strategy. Similar to the participative, it involves ‘winning hearts and minds’ and changing val-

ues and beliefs through a mixture of persuasion, training and education, but tends to be more management

dominated than the previous approach. Experts, either internal or external, will be used as facilitators but

will not make any decisions or decide on outcomes.

Directive strategy. This emphasises the use of authority to impose change, with little or no involvement

of other people. It can lead to strong resentment from staff members who are not consulted or expected to

question the changes to any degree.

Expert strategy. This sees change management as a problem-solving process. It may be acceptable when

dealing with technical issues and can result in a faster implementation process, but such an approach may

fail to realise any wider aspects of the changes and how they are viewed by a larger audience.

‘Gung ho/rah rah’ strategy. This is a particular manifestation of a directive strategy predicating an avoid-

ance of key issues and a belief that all that is needed is to ‘fire up the troops’ and the change objectives are

achieved automatically.

Negotiating strategy. This approach tends to be taken when the senior managers in an organisation prefer

to negotiate and bargain in order to effect change. It acknowledges that those affected by change have a

say in what changes are made, how they are implemented, and the expected results. As with the participa-

tive strategy, however, this approach takes more time and it is harder to predict the final outcomes.

Examples Of Change Strategies

Sea change

This might be categorised as ‘deep’ or discontinuous change, one that carries a high degree of risk and

complexity. To succeed, it is vital that an organisation has the capacity and capability to cope with this

degree of change. Often the way forward is to adopt a radical, ‘once and for all,’ Big Bang, approach as

the only response in the circumstances and where a return to previous practices is not tenable. The seeds

of change may well have been sown over a long period of time, but a point arrives at which all options are

closed off and there will be no turning back and a clear break is made from the past.

The evolutionary black box – radical change at The Children’s Mutual

Six years ago, and after 120 years of existence, The Children’s Mutual found itself on the horns of a

commercial dilemma. It was an acknowledged specialist in the area of savings products for children,

and enjoying buoyant sales, an efficient operating ratio and winning multiple service awards. But David

White, CEO of The Children’s Mutual, nevertheless felt the company had reached a glass ceiling in terms

of sustainability and he must convince the board of the need for radical change. Whilst recognising that

there was a continuing public need for products that helped families make provision for their children’s

needs, David knew it would be hard to achieve the sort of revenues necessary to compete through or-

ganic growth. Premium size would inevitably be limited by the unwillingness of families to invest larger

amounts for ‘small people,’ however much they cared for their children. As a tiny market player, it lacked

the deep pockets needed to widen its product portfolio, unlike its competitors. The 1% world of low mar-

gin products was looming – meaning further pressure on margins – as was the introduction of Child Trust

Funds to the market.

1

David considered the market would polarise into large players, able to offer economies of scale, and

niche specialist ones. Unusually, he took the view that the specialist players would not be able to charge a

premium for their expertise in this particular market and therefore would have to compete on price as well

as achieve economies of scale. The Children’s Mutual had already gone as far as it could in terms of cost

cutting, so David chose to go down the route of totally re-fashioning the business. His solution was to set

up what he calls a ‘black box model’ based on the value proposition of ‘understanding the savings needs

of families for their youngsters.’

The proposed new model consisted of the creation of a virtual company. Back office unit costs could be

reduced by as much as 40% (only possible by outsourcing most of the operation). He also developed a dis-

tribution growth strategy based on the belief that economies of scale could be achieved even by a smaller

player if it was ‘smart about who it tapped into’. In other words, which strategic partners iy chose to help

with its goals. Administration and IT were outsourced in 2004, involving some 60% of staff transferring

to work for the outsourcing company in Kent and Gloucester, leaving a ‘sales and marketing machine’ and

HR function of some 65 at the head office in Tunbridge Wells. Distribution had historically been through

direct sales forces (DSFs) and independent financial advisors (IFAs), but with no further call for generalist

sales agents, the direct sales force of some 40 agents was dismantled and the direct marketing operations

ramped up instead.

Another strategic priority was to find a way of raising brand awareness (changed in 2003) without incur-

ring the promotional spend of larger operators. Accordingly, The Children’s Mutual chose to concentrate

on PR. The strategy worked in spades: 574 mentions in the past year alone and the company clearly po-

sitioned in the minds of the public as a market leader in Child Trust Funds. Everyone in the company has

been put through a ‘complete living the brand’ programme.

The Children’s Mutual currently has 30 more than partners in addition to the IFA channel and its Child

Trust Funds are sold in 5000 high street outlets. It carries out mailings on behalf of Lloyds Bank, Moth-

ercare and Boots, offers extensive IFA support, and is price competitive. It continues to be garlanded with

service awards such as Financial Adviser’s 5-Star Service Award nine times, the latest in 2004. More new

customers have been recruited in each of the past two months than in all of 2004. Fund management is

also outsourced, but The Children’s Mutual retains a duty of care to oversee its quality and prides itself on

its flexibility: if a distributor wants a different fund manager on the rota, they will oblige.

How did this new focus come about? David’s transition from sales and marketing director to CEO came

about in an evolutionary way. Prior to 1995 there had been no marketing function at all. The current chair-

man – then a non-executive director – wanted a heavyweight marketing and sales director. After taking

on the role of chairman, he persuaded the board that a new approach was needed. David was brought on

board, and later promoted to CEO.

He wants his people to ‘live and breathe’ strategy. For David, the most important aspect of any senior

management job is communication. In order to deliver against the current environment he needs to offer

a vision and to build a bridge between the present and the envisioned future. ‘If you don’t change, change

will change you, and you will have no control.’ Once the decisions have been made, you have to ‘add

context’ to make it meaningful. You have to offer proof that the vision will work. His challenge is to keep

spirits high. Members of staff were hostile at first, but over time, their comments became constructive.

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David believes what has been done is both evolutionary and revolutionary. The Children’s Mutual didn’t

set out to be a virtual company but it needed economies of scale. It now has a straightforward proposition

for customers that combines singular expertise in children’s savings, processing, and the choice of four of

the best fund managers in the country. Strategic thinking has become part of the ‘corporate DNA’, and is

handled by the most senior team. Success notwithstanding, the company refuses to sit on its laurels and,

having delivered their strategic objectives to the letter, they are planning where to go next – they do not

want to miss the longer-term picture.

Step change

An incremental approach to change can be achieved through an evolutionary process. It carries less risk

and a higher guarantee of success as it is implemented and pilot activities can be measured against the

original objectives before moving on. This may be suitable in an environment where external pressures

constantly shift. Arguably, it is a process that should be ongoing in any company that strives to retain its

competitive advantage. In other words, it is more ‘acceptable’ psychologically, more tolerable to em-

ployees and more capable of control by management. It should not contain radical shocks to a system or

culture, although it may include radical change, albeit over a more extended period of time.

At one investment house, there is an ongoing programme of change in the ‘softer’ areas of people and

behaviours. This is a logical extension on an ongoing cost-reduction and efficiency strategy that has been

taking place over the past three years or so. Most of the ‘easy targets’ or ‘low-hanging fruit’ have been

harvested through technology-based re-engineering. Certain areas are earmarked for outsourcing. The

next area of ‘attack’ is to facilitate an environment where employees will take responsibility for acting

in different ways and to achieve ‘mindset’ change. Employees are being empowered to change their

approach but pockets of resistance still remain. One of our interviewees referred to ‘logical incremental-

ism’ as a formal change strategy. As Johnson and Scholes explain in their book ‘Exploring Corporate

Strategy,’ this term describes:

‘A strategy development process where managers have a view of where they want the organi-

sation to be in years to come and try to move towards this position in an evolutionary way.

They do this by attempting to ensure the success and development of a strong, secure, but

flexible core business, building on the experience gained in that business to inform decisions

about the development of the business and perhaps experimenting with ‘side bet’ ventures.

Such experiments cannot be expected to be the sole responsibility of top management – they

should be encouraged to emerge from lower levels, or ‘subsystems’ in the organisation.

Effective managers realise that they cannot do away with the uncertainty of their environment

by trying to ‘know’ about how it will change. Rather, they try to be sensitive to environmental

signals through constant scanning and by testing changes in strategy in small-scale steps.

Commitment to strategic options may therefore be tentative in the early stages of strategy

development. There is also a reluctance to specify precise objectives too early, as this might

stifle ideas and prevent experimentation. Objectives may therefore be fairly general in nature.

Overall, logical incrementalism can be thought of as the deliberate development of strategy by

‘learning through doing’ or the ‘crafting’ of strategy.’

(Johnson. G; Scholes. K; ‘Exploring Corpo-

rate Strategy: Text and Cases’, FT Prentice Hall, 2001.)

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Change management at a UK insurer on the cusp of radical change – ‘logical incremental-

ism and lots of conversations’

The existing change management department dates back to the 1980s and has grown into a core compe-

tence over the past 20 years. The catalyst to its development was the launch of a complex pension contract

in the mid-80s with a massive array of features and benefits. Unfortunately, the developers failed to recog-

nize the IT department’s inability to manage this degree of complexity, and there was significant financial

loss. The company learned through bitter experience that it was not good at managing projects. A senior

training manager was drafted to work on developing a change management competency, one that would

involve all staff, rather than simply IT.

At this stage, it was decided that project management skills should be developed across the whole organi-

sation. Cranfield University, a leading international management centre, was brought in to discuss how the

company could be more effective at implementing change. It was felt that the approach currently in use,

adopted from the methodology of a major management consultancy, was based excessively on ‘rational,

analytical models,’ and had ‘thousands of forms to be filled in!’

The group HR director at the time took a keen interest and sponsored an in-house Open Business School

Diploma. Over the late 1980s a change management infrastructure gradually evolved, with training re-

sponsible for creating a supporting culture through education and training. According to our interviewee,

change management has always meant more to him than ‘a bundle of technical skills,’ or ‘project manage-

ment plus’. To truly succeed, change management must be embedded into the hearts and minds of

employees.

His starting point is to get people to think around the new concept and issues and to experiment with them.

The role of the change manager is to ‘facilitate lots of conversations’ before passing into the implementa-

tion stage.

IT practitioners have excellent skills of logic and tenacity in completing projects, however this tends to

mean they believe all people operate along mechanistic lines and consequently don’t always allow them

sufficient time to absorb and adapt to change. The HR director’s strategy had the ‘express aim’ of bypass-

ing IT and offering an infrastructure, which the top executive group could clearly see and grasp. Training

in project management was offered initially to the top 200 managers through three-day courses. An ex-

ternal consultant was then used to extend these courses to a further 400 managers and specialists. Project

Management Services was established as a formal unit for the first time. Initially, it conflicted with IT by

rejecting what it saw as their complicated methodology, replacing it with one more accessible to opera-

tional management.

The new change methodology went live as the company was in the process of replacing its ‘With Profits

Plan’ with a unitised version. To the surprise of large numbers of sceptics, especially in the sales branches,

it proved a resounding success. The next ringing endorsement of the methodology was the reversal of the

company’s fortunes regarding service quality. The system was activated for an ambitious change pro-

gramme entitled, ‘Total customer satisfaction.’ The group CEO and several executive directors visited the

US to observe the top-ranking service-oriented companies. An expert from Boston Consulting Group was

brought in; later in the programme, more of the top team returned to the US as part of the ‘learning align-

ment.’ Five hundred managers were put through a three-day course on the importance of customer service.

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Sixty of these were subsequently licensed as facilitators. Finally, all staff members had a one-day align-

ment course. One year after completion, the organisation was winning multiple service prizes.

Changeling

The introduction of a new change agent who is not the CEO is a subset of radical or incremental change.

It can be used as a means of seeding change in some ways by stealth, or even, in some instances, substitu-

tion. We have mentioned the appointment of an abrasive personality into a traditional organisation on a

short-term basis, to bring about Accenture’s disturbance in the system. In this case, the aim is to shake up

the status quo at the same time as retaining other senior managers who are seen as deficient in some skills

areas but of great value in others.

After a major acquisition in the US, one European financial group transferred a senior executive from the

US to the UK, ostensibly working on projects and reporting into the CEO, but with a manifest brief to

report to group headquarters on the progress of a group-wide efficiency and cost-cutting programme in

the UK unit. It had the unse