The Hidden Cost of Change

Imagine a scenario where you and your business competitors all join in a pact to share your largest revenue sources, pool most of your marketing efforts and limit your respective payrolls to the exact same amount. You all sell the same product. Would you expect each of your companies to perform about equally well?

According to this article, the NFL expected such an arrangement to produce parity — but it doesn’t seem to be panning out. A few teams stand out as being consistently great over time and a few others (including my beloved Cleveland Browns) have been consistently terrible.

Are these success and failure stories the result of random luck, or are there some business lessons to be learned?

I’m not sure there’s enough data to completely rule out streaks of good and bad luck, but some of the analysts quoted in the article offered some reasoning that at least got me thinking about business lessons.

Former Colts coach Tony Dungy went to the playoffs in each of his seven seasons in Indianapolis and won the Super Bowl after the 2006 season. The key to winning, he says, is “having everyone on the same page and going in the same direction. The more stability you can get, that’s how you’re going to win.”

“I think one of the biggest reasons why teams aren’t getting better is instability,” says former Bills coach and general manager Marv Levy, who coached the team to four consecutive AFC titles from 1990 to 1993. “It’s always, ‘Let’s change, let’s change. This constant ‘We have to shake it up’ is causing some of this (disparity).”

Both quotes struck me as pretty meaningful in the business world. In my experience, big changes are disruptive and expensive — both in real terms and in opportunity costs.

For the record, I am definitely not anti-change. In fact, I love change and the eternal optimist in me is prone to almost always seeing the greener grass on the other side. But it’s helpful for me to remember that change does have its hidden costs to be considered.

Real costs
Large scale changes, be they new strategic plans, remodels, site redesigns or something similar, have real costs in their preparation and capital expenses. Since those are more obvious, I’ll move on to…

Opportunity costs
Implementing new change is hard work that takes a lot of time and effort. Diverting attention from current efforts creates opportunity costs and can cause a business to fall behind and lose market share during the buildup. Also, in my experience, big changes like store remodels and site redesigns tend to cause temporary step-backs in business and customer satisfaction (which can have longer term effects) due to the “where’s my stuff” syndrome.

Talent costs
Big changes like strategic shifts due to leadership changes tend to have human costs. For example, I’ve found over the years that any “A” player can become a “C” player if put into the wrong situation. Replacing team members is expensive and can lead to some of the opportunity costs listed above.

————————–

Again, I’m an certainly not arguing against change. But in my experience too frequent wholesale changes can generate costs that outweigh the benefits, which is what the NFL coaches quoted above seem to be saying.

At a recent speaking engagement, someone asked me if it’s better to implement occasional site redesigns or take a more continuous improvement approach. I’ve found the continuous improvement approach to be more effective because it’s less disruptive to employees and customers alike. But that doesn’t mean revolutionary change isn’t necessary at times. After all, defending the status quo kills companies. We just have to be careful how often we revolt and make sure revolution is truly the smartest long term move.

But, hey, I’m still thinking through this issue. I would certainly benefit from your thoughts and perspectives. What do you think?



3 Comments

  • By Chris Eagle, December 1, 2009 @ 5:43 pm

    Great article. John Kotter’s “Leading Change” is a short, clear book on what do look out for if you need to make wholesale change. And, likewise, an excellent primer on why wholesale change is so hard. Just the chapter on culture (which is so often underestimated) is worth the price of the book.
    As an aside, I’m skeptical that the coaches quoted really believe that their key to winning was stability. My guess is that there is a much stronger correlation between ‘playoff’s made’ and ‘Hall of Fame QBs on the team’ than with ‘stability’. 🙂

  • By Kevin Ertell, December 2, 2009 @ 8:24 am

    Thanks for your comments, Chris. I have read “Leading Change” and agree that it’s a good primer for change. And your point about the difficulties of culture change being underestimated is certainly true.
    It’s hard to say what the coaches truly believe, but their quotes about stability hit home for me when thinking about the business environment, particularly the bit about “Let’s change. Let’s change.”

  • By Jay, December 3, 2009 @ 6:53 pm

    “Big changes like strategic shifts due to leadership changes tend to have human costs. For example, I’ve found over the years that any “A” player can become a “C” player if put into the wrong situation. Replacing team members is expensive and can lead to some of the opportunity costs listed above.”
    Darn Skippy right!
    Still, if the person in the big chair actually leads and doesn’t attempt to just dictate (BB vs. MP), huge changes can be made without disregarding the local talent.

Other Links to this Post

RSS feed for comments on this post. TrackBack URI

Leave a comment

Retail: Shaken Not Stirred by Kevin Ertell


Home | About