SECTION 3

WHY BUSINESSES NEED TO CHANGE

Disruption is happening everywhere. Businesses of every size and in every industry should be prepared to deal with technological disruptions, shifting consumer expectations and sudden external changes.

Being change-ready is not dependent on the size or age of a business. It’s about looking outwards, embracing external change and letting disruption lead you to growth and gaining a competitive advantage.

If you are the number one or number two in the market and your world is changing around you, you need to be changing at least as fast, if not faster. If you’re not, then you’re in trouble!

– Executive, retail and wholesale

The rate of change is increasing

Most businesses have been through some form of change and are expecting more change to come.

86% of businesses surveyed underwent moderate to large changes in the past two to three years. The same percentage (86%) believe they’ll have the same degree, or more, change in the next two to three years.

Based on surveyed respondents, the top five industries expecting the most change are:

  1. Banking and finance - 68%
  2. Information media, technology and IT services - 60%
  3. Local government - 54%
  4. Manufacturing - 54%
  5. Retail and wholesale - 47%

What’s causing change?

External factors are driving the need for change within most organisations, with the top 5 drivers of change being externally focussed.

Drivers for change as a top pressure
Drivers for change as a top pressure

Change-ready businesses see more pressures overall and they are more focussed on external pressures.

45% of change-ready businesses nominated customers as the main pressure for change, compared to 28% of less change-ready businesses.

HIGH CHANGE-READY BUSINESSES
HIGH CHANGE-READY BUSINESSES
HIGH CHANGE-READY BUSINESSES
HIGH CHANGE-READY BUSINESSES
LOW CHANGE-READY BUSINESSES
LOW CHANGE-READY BUSINESSES

The triggers and barriers to change

There are many catalysts for and barriers to change. Interestingly, the business leaders interviewed identified cost as the number-one trigger of change (the need to reduce spending) and a barrier to change (the cost of implementation).

Top 3 triggers and barriers to change
Top 3 triggers and barriers to change

Costs are always top of mind. Especially when you’re talking about changing something, it always ends up costing money, so you have to be able to show why it’s worth it.

– Executive, manufacturing

For less change-ready businesses the drivers for change are very internally driven and defensive around reducing costs. The top three triggers of change in these organisations are:

  1. Reducing costs (55%),
  2. Generating growth or profit (49%), and
  3. Improving efficiency (48%).

Meanwhile high-change ready businesses look at costs as a barrier to getting things done rather than as a driver of change. Within this set of decision-makers, almost three in five (58%) strongly agreed the cost of implementation was a barrier to their business implementing change.

Triggers
Triggers
Triggers
Triggers
Barriers
Barriers

Which industries are most ready for change?

Being change-ready is not dependant on the industry you are in, with no stand-out industries identified as leading the way in change readiness.

The score distribution shows change readiness to be more fragmented across some industries with some businesses lagging their industry averages.

The retail and wholesale sector was the most ready for change of the industries surveyed, and local government the least – although there was less than 6% difference between the average scores of those two sectors.

We found similar conclusions based on age and size of the organisations as well.

Change readiness score by industry
Change readiness score by industry

Are businesses overconfident?

Business leaders are overconfident about being change-ready. When we compare the Change Readiness score against respondents self-rated change readiness, we see a worrying disparity. Decision-makers’ perceptions of their organisations' capacity for change, and the attributes and attitudes required to change are actually different.

The central problem in western business today is casual optimism: ‘It will all be alright. It’s going to be great.’ Or it’s this casual pessimism: ‘My god, it’s going to go terribly this year. I’m worried about the economy.’ Most businesses lack determinism: ‘This is the problem, this is how we will grow.'

– Andy Lark, CMO, Xero
The difference in self-rated vs actual change readiness scores
The difference in self-rated vs actual change readiness scores

Any business can be ready for change

To better understand the attributes of high change-ready businesses, we compared them against their less change-ready counterparts. The results suggest that change readiness is not restricted to any particular type of business; there are large and small change-ready businesses, in various industries across both the public and private sectors, and operating under a range of different business models.

Where the high-change ready businesses differ is in their heightened awareness of the causes of change – particularly external pressures– and what they must do to adapt. They understand the importance of engaging change enablers – such as technology – to make the most of the situation when changes do happen.

What do change-ready businesses look like?

What sets a high change ready business apart from the rest? Change leaders share common traits: they value flexibility, agility, the ability to listen, collaboration and openness. Survey respondents told us that change-ready businesses should have:

  • a senior leadership team engaged with the idea that the business must be ready to deal with change
  • a strong and active planning process that is strong enough to be followed, but flexible enough that it can be adapted when needed
  • clear and strong communication across the whole business, especially when communicating how changes may benefit individual staff members and the organisation as a whole
  • strong connections between different levels within the organisation; for example, senior leaders should be visible and connected at all levels of the organisation, and front-line staff feel members should connected to approachable management and leadership teams
  • employees who feel confident they can take risks and will be supported by the business
  • an open dialogue about the potential for failure and the inevitability of some failure during any process
  • management systems and processes that support employees and drive change through the business
  • an internal culture where employees accept that change is inevitable and are excited about the opportunities it can bring.

Underlying these traits, change-ready businesses have a sense that they are preparing for and anticipating change – “like crouching at the starting line, ready for a race”, as one respondent said.

Change-ready organisations have better rituals for communicating with each other. The best teams that I've worked with meet every day – just short, stand-up meetings. They have good internal networks that allow people to communicate with each other irrespective of their hierarchy, titles or divisions.

– Dr Jason Fox, motivational strategy and design expert

I believe everybody needs to be a futurist. You can't outsource that. Everybody has to think about the future, think about what might happen, and think about what it is that they can do to be able to create something better for themselves and their organisations

– Ross Dawson, futurist

Industry Expert Spotlight - Andy Lark, Chief Marketing Officer, Xero

Q.How do you view change in the context of business, the importance of change and what it means to businesses at the moment generally?

A. If you look at mid-range, large organisations; the two dominant boundary lines that get drawn - think of them as guardrails on the road for change - at the one end is culture and the other end is structure. And for different organisations, those guardrails turn that road sometimes into a single-lane road. For many government organisations, it's a single-lane road, narrowing quickly to a bicycle lane. In other organisations, that boundary, those guardrails widen out.

Organisations struggle with change because they're unable to determine how wide those guardrails should be on the road. So the guardrails always narrow naturally. If not addressed, the rule - I call it Lark's rule - the guardrails narrow naturally. They'll always form a bike lane.

And, you know, organisations are complex political power bases as a whole. And it's rare you'd ever find a leader in an organisation who said, "Guess what? No rules."

And most leaders you talk to, they're managing those guardrails right the way down into, "I want to deliver this yield to my shareholders." And it's such a conservative mindset, particularly in Australia. Versus the new market entrant who comes in and goes, "You know, we're just going to eat the market alive."