„Perception is reality“ (Lee Atwater)
Change is inevitable. But for many, change is not necessarily welcomed. Routines, known responsibilities, goals and rules can also be a comfort. It can be hurtful, confusing and even scary to leave the comfort of the known.
For the Swiss CRM Expert Forum on July 5th 2018, the Swiss Travel Fund Reka invited in its own Parkhotel Brenscino at Brissago, Tessin, to discuss CRM and Change Management, exchange experiences and present solutions. Initiator and founder of the forum, Martin Stadelmann, director of the ec4u expert consulting, led through the day and presented the discussions.
Kolja A Rafferty, Practice Lead Strategy at Leverage Experts, presented the internal and external reasons that force companies to change and why the perception stakeholders have of the company during the process of change, is crucial for its success.
Change may cause uncertainties and inconveniences for employees or customers, yet might be inevitable for different reasons:
Management’s decisions and strategies
Various strategic or operational decisions of the management may impact established processes, hence, cause change for different stakeholders.
Merger & Acquisition
The merge of two companies involves questions regarding the integrity, culture and future of each company. Compromises and adaption are necessary. However, they can also be perceived as threatening by employees, customers and other stakeholders.
An acquisition equally can result in very negative feelings towards the change. The general perception is, that with each acquisition, employees will be reduced (which is not always the case) and that the acquired company has to adapt heavily to the acquiring company’s processes, culture and workflows.
Origins of a turnaround situation is usually an economic downturn, easily recognized as customers leaving, eroding revenues or diminishing margins. Often, a turnaround is a „do or die“ situation for a company. Hence, management performs whatever actions are required to succeed. Heavy cost cuts are often part of this.
Distress is the ultimate challenge, when the survival of a company is at stake. Whereas in Turnaround situations, the going concern of the firm is at stake and needs an adjustment of strategy and operations, in a distress situation, bankruptcy is already a very immediate threat to the firm and its shareholders. Very often, the company is in a downwind spiral, where losses keep accelerating.
When news got out that Air Berlin was facing severe economic problems, customers steered away from booking any tickets. A distress situation is likely to lead to a negative snowball effect.
Distress naturally comes with negative emotions, loss of trust and jeopardizes not just the branding but the entire existence of the company. To convince customers, investors, employees, etc. that the company can be turn around, immediate and drastic change is required.
Changes in the regulatory environment like (e.g.) GDPR (General Data Protection Regulation) can force for change of processes. For many companies, the GDPR meant, taking a hard look at lead management practices and changing the way of collection and use of personalized data.
If a company sees a gradual decline in revenue, it’s time to take a look at its product-market fit, marketing, sales and service strategies, value proposition and competitive positioning, competitors and business practices. Global competition and increasing market transparency can impact the competitive landscape and shape the market place. Adaption is essential to stay ahead of the market, yet compromises in change.
The „Black Swan Theory“, coined by Nassim Nicholas Taleb, is an event that could not be predicted based on the information we have at hand today, but has a major impact.
When news about the tactics of Cambridge Analytics came out, Facebook received unexpected backlash and drew a lot of criticism. It had to do major damage control to work on its image (in fact, Facebook still works on it).
Another Black Swan-event was the disruption of the music industry due to the digitalization of music (and with that: piracy). And yet another disruptive event could be the Blockchain technology and its impact on the banking industry.
Facing „Black Swans“, companies need to act fast and adapt, create convincing communication strategies and potentially a completely new business model.
With climate change being front and center of this year’s news cycles plus the available information on ethics in economy, social awareness can shift the public’s perception of a company. The fashion discounter H&M suffered from lack of trust after several news about poor working conditions in its factories in Bangladesh.
Shell equally lost a lot of goodwill from its customers after news spread that the company planned to drill for oil in the Arctic.
Companies therefore can be forced to change, to retain a positive customer acceptance.
Start-ups like Airbnb, Uber or Amazon have changed their respective industries and forced „traditional“ business models to adapt (or die). Some disruptive business models don’t even come from the same industry but nevertheless changed the markets in whole sectors. The popularity of online meetings via Skype or GoToMeeting, for example, has led to diminishing returns for airlines, trains and hotels. Business people simply save business trips through online meetings.
If markets change, companies must adapt to keep creating value for their customers. Sometimes, businesses „only“ need to change their service models or marketing and sales approach, sometimes, the whole business model needs to be reinvented.
The need for change may origin from various sources. Yet, coming back to the initial quote: the way people perceive change, is crucial for success. No matter the reason, whether the circumstances are positive or negative, change must be performed in a trustworthy, consistent and transparent manner. The different needs of different stakeholders have to be perceived and incorporated in strategy and communication.
Kolja A. Rafferty is pratice lead strategy at Leverage Experts, a Zurich based boutique-consulting firms, focusing on start up, scale up and turnaround situations.
Kolja publishes on various aspects of corporate governance and turnaround management on his private blog.