|P E T E R S. C O H A N & A S S O C I A T E S|
|THREE CHANGE PROCESSES
Harnessing the performance enhancing benefits of technology requires change. Executives must pursue different approaches to managing this change depending on the nature of the technology's impact on the business.
Specifically, executives should recognize three distinct change processes that vary depending on the source and significance of the change. The source for the new process may either be based on ideas developed inside a company or outside -- typically from a competitor that is already doing business in the new way. The change process also varies depending on whether the new process's impact is strategic -- generally altering the way the firm positions itself relative to competitors -- or is operational. In theory, there could be a fourth type of change process in the operational/external cell of the matrix, however, in practice the process of managing such change is virtually the same as managing incremental change.
Controlled -- If the impact of the technology is strategic and the impetus for the change comes from within, then executives should pursue a controlled approach to managing the change. The controlled approach is characterized by detailed analysis of customers and competitors, the development of a rapid prototype of the new business model with fast feedback and modification from customers, and a willingness to incur short-term pain as the new business process is integrated into the core of the business with the promise of longer-term payoffs as the firm's market share improves in reaction to its superior value proposition. This pattern is exemplified by Charles Schwab's successful introduction of an online trading capability throughout the late 1990s.
Reactive -- If the impact of the technology is strategic but its source is outside the firm, then management is likely to pursue a reactive approach to managing change. While this approach is often awkward and inefficient, it is better in the long term than doing nothing. The reactive approach to change is characterized by splitting the company into camps -- those that are supporting a new direction that incorporates the best elements of the new technology while preserving the compensation systems of the status quo -- and those who resist the change altogether. In the adaptive approach to change, customers typically defect from the firm because it is not adapting quickly enough to changing competitive offerings. Ultimately, the opponents of the change are overwhelmed by market forces and either join the camp of the the change proponents or leave. If the new technology is incorporated into a competitive service, it will stanch the outflow of customers.
Merrill Lynch pursued a reactive approach to online trading. Its tens of thousands of retail stock brokers resisted online trading because they anticipated that it would cut into their commissions. Ultimately, so many significant customers and their brokers began to leave Merrill Lynch in order to get online trading services, that Merrill Lynch ultimately introduced Merrill Lynch Direct Markets, an online trading service that was sufficiently competitive to slow down the departure of the customers and brokers without eliminating their revenue stream.
Incremental -- If a firm decides to change a non-strategic process such as purchasing operating resources, managers should pursue an incremental approach to managing change. This approach is similar to the controlled approach to change with the exception that it does not involve extensive analysis of customer needs and competitors. In the place of such analysis, incremental change demands a detailed study of internal processes to pinpoint specific sources of inefficiency in the current process and to map out new ways of performing these activities that will prove more efficient. Microsoft saved $1 billion in its process of purchasing office supplies by managing an incremental approach to building its electronic procurement system.
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|SOURCE OF CHANGE|