National Learning Institute

© Hardwired Humans

Mostly from painful experience, business leaders learn that change management is a critical skill. The fact that 70% of change initiatives fail indicates that change is complex and risky. But it doesn't have to be that way-if we manage change in the fresh light of hardwired human behaviour.

The situation 
Chris (not the person's real name) runs a small financial planning firm. The business is family-owned and employs five staff. Chris's dad, Alan started the firm many years ago and Alan now wants to retire. Chris and Alan are concerned that Chris is not yet ready to run the business alone as Chris do not have the breadth of experience to advise and protect clients in their financial affairs.  

As a solution to the problem, Chris and Alan have been invited to merge their business with another firm slightly larger than their own. They have known the principal of this other firm for many years and the conservative style of financial planning of both firms appears compatible. They decide to go ahead and integrate their firms.

The change challenge is this: how do you manage the client dimension (the people dimension in this case)? How will the clients feel about the merger, what will be on the clients' minds, and how do you avoid losing the goodwill and the business of your clients?

The risks
There's a lot riding on your management of this change. If you don't get it right, you might lose your key clients. If you don't get it right, the business that your family has built over your father's lifetime might quickly erode. If you don't get it right, you will get half-way through the change wishing you could start again.

What normally happens
In the absence of applying knowledge of human instincts, we can predict a number of common mistakes that will most likely be made by the person managing such a change:   

• The change will primarily be managed from the firm's point of view, not the clients'.
• The emotional reaction of clients will be underestimated and will take Chris and Alan by surprise.
• The complexity associated with the change will be underestimated.
• The change will be managed as a rational process, whereas its success or failure is driven primarily by emotion.
• The change will be rushed to meet other deadlines and not driven by the client (people) dimension.
• The first communication to clients will be by letter.
• The letter will be mainly "spin" and disguise the real reasons for the merger (the colloquial term is "bullshit" but I promised my mum that I won't swear in my newsletters).
• Chris and Alan won't want to reveal that they are concerned about the firm's capability. So the letter will be worded primarily to protect the image and social standing of the firm rather than being frank and open. Concealing the truth will tend to make clients suspicious.
• Upon receiving the letter, clients will try to make sense of the situation and first and foremost wonder what the change means to them and their retirement nest egg.
• The most negative clients will be in contact, which will cause Chris and Alan to feel under siege.
• Chris and Alan's mood will drop, so that when clients visit the new premises there will be an air of despondency.  

We can predict that managed this way, Chris and Alan would regret the way they managed the change and that they wish they could have their time over to get it right.

We can predict that there is a bunch of annoyed and concerned clients, some of whom in protest will move their business to other firms.    

Human instincts to the rescue 

Insight into human instincts helps manage such a change-it provides a concrete approach to predict and manage the human response. It helps to avoid the change being derailed or failing.

Loss aversion

When a client first learns about the change they will instantly screen for what the change means to them. This instant screening is primarily to determine the likelihood of loss to the person. They will be most worried whether the change has negative implications for their investment portfolio and in deed their whole-of-life financial wellbeing. If taken by surprise, a client's loss anxiety increases.  

Given that the merger is taking place in the current financial environment and people are already twitchy about the state of their investments, their emotional sensitivity and loss concern is heightened. 

Emotion

The meaning clients attribute to the change is primarily driven by how they feel at the moment they learn about the change. Here is a subtle yet critical point. Communicating by letter is not only impersonal, it leaves the emotional reaction to chance. Through a letter, the communicator is not influencing the emotional response of the person. Further, a client might even be in a bad mood when they open the letter-that's how random it can be.

The best way to break the news, if not face-to-face, is to phone the clients. If staffing capacity means that there are just too many clients to be able to call them all, then the firm should at least call the top 20% who most likely represent 80% of the firm's work. 

First impressions to classify

As soon as the clients answer the phone (and those who still receive a letter) they will be trying to make sense of what's going on (what it means to "me"). If there is spin, then clients are hampered in their sense-making and the speaker reduces their ability to influence the client's instant classification ("good" or "bad").

The test of the success of the phone call, and whether the change is classified as "good", is how the client feels as they hang up the phone. The objective is that the positive classification is reflected in the client's happy farewell, "Okay, sounds good. Thanks for letting me know."

The narrative

It's vital that the explanation, or the story, be clear. The explanation should be based on the truth. It's amazing how liberating the truth can be, how it instantly makes sense to people, and how saves you digging a deeper hole for yourself. The truth allows the story to be consistent.

When Chris or Alan calls the client, they need to have the single clear message crystallised in a single statement. With the merger most driven by Alan's retirement, this should comprise the key message and not concealed by other peripheral reasons or factors. Nor should Alan's retirement be downplayed to protect Chris's image.  

Seven words

The story should start with no more than seven words-the seven words help the listener classify the message at the speed with which the human brain works. If Chris and Alan use more than seven words to nail the message, then the listener has raced ahead and made their own sense of what it's all about, which may or may not be the message that Chris and Alan intend.

The story in this case is likely to be, "I'm calling to let you know that (seven words begin) after many years Alan is retiring! Of course we're happy for him. He and I are conscious that he leaves a large gap for us and that we need to be able to manage without him in providing the best advice and support to you. We've decided the best way to do this is to merge with another firm. I obviously wanted to call to let you know."     

Gossip

The gossip test applies when the client hangs up the phone. If the client lives with another person, we know that the client will immediately share the story (gossip) with their partner. The gossip starts with, "That was Chris our financial planner on the phone...." In using the gossip test in their planning, Chris and Alan have articulated what they want the client to then say. They planned that the client will say, "After all these years, Alan is finally retiring! Good on him. He and Chris have taken steps to make sure they have the capability to manage our financials. What's for dinner, honey?"

Contest and Display

The most important clients (in terms of the firm's business) will be the ones most at risk of feeling let down if the change is not well managed and if they are not contacted personally. The high-wealth individuals will consider it a personal affront if they are not treated as special.

Social Belonging

The bonding dynamics need to be managed. Clients have been happily interacting with Alan and his firm for many years as if they are family. Alan and Chris have been to clients' homes and clients have visited the firm's offices. That homely feeling is about to change. 

The best way to manage this transition is through a ritual. One ritual is to invite clients to welcome drinks at the new premises. As well as creating a sense of connection, the mood will be important-it's a celebratory one. The clients can see the new office, meet Chris and Alan's new business partners and see that Chris and Alan are happy.  

Even if invited clients are unable to attend the function, they know that there has been a celebration and they know that they were invited to be part of it.

Physical orientation

When clients first visit the new premises (either at the welcome drinks or for their first meeting) the clients will feel like strangers this first time. Alan and Chris will make sure they show them around the new premises. This breaks the ice and gives the client their physical bearings (it's like when friends visit your new house the first time). Clients will also have a chance to meet the new faces, even if it's just a brief hello and handshake.   

Conclusion

By managing the predictable human response to change, Chris and Alan as the change managers will have managed the human response well. The transition has been smooth and made sense to people. It's amongst the 30% of successful change initiatives. The positive long-term relationships continue. It turned out to be no big deal.

You can subscribe to Andrew's monthly newsletter at www.hardwiredhumans.com

He is contactable at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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