The Cost Of Failure
The cost of transforming
Heridian has worked on large corporate business transformations where the budgeted costs for team travel, accommodation and so on has been in the region of USD 200,000 (multi-national subsidiary turnaround with multi-country operations). This does not cover the additional intangible and fixed costs such as shown below.
For smaller companies, the cost is siginificantly lower as the operations are also typically localised and simpler. In a small company, expect a monthly cost run rate of an additional salaried person.
Other costs may include:
Fixed costs :
modifications to IT systems (will probably also have capex and variable components)
re-training employees on modified processes and systems
fixed costs of employees temporarily assigned to the change effort
Intangible costs :
stake holder good will, where stake holders includes suppliers, customers, business partners and other employees
Indirect costs :
short term reduction in productivity as new processes, organizations and supporting tools stabilize
opportunity cost due to disruptions because teams and functions are changed
An organization will start to reap the benefits as soon as a business transformation goes into the implementation phase. The renewed enthusiasm and motivation of employees gives a further boost to new ideas, productivity and customer focus.
When things go wrong…
The cost of failure on the other hand is even higher for a number of reasons. In many cases, failure is not even recognized for quite some time because the symptoms are masked by the “implementation effort” and the “expected minor issues”.
Some of the costs of failure include:
The rationale for the change itself loses credibility
Time wise :
the company will have just lost a minimum of at least six months
The relatively small cost of starting right
It makes sense therefore to take time and initiate any transformation carefully. Some key success factors for any transformation are: