Successful Change: Managing Human Capital Risk During Implementation


risk-3-26-18.pngMany financial services companies are in the process of implementing significant change initiatives or poised on the brink of doing so. As discussed in our previous article, many such efforts fail to meet expectations because leadership has underestimated the human capital risks that threaten strategy execution. But effective implementations can mitigate critical people-related risks while building employee understanding, commitment and resiliency.

The Typical Transition From the Past to the Future
Regardless of the type of change—for example, a consolidation, acquisition or new business model—employees must go through a process of transition. A transition that is smooth reduces the depth and duration of lost productivity, as well as unwanted turnover, and expands the organization’s capacity for future changes.

Employees often initially focus on change as an ending to what they know as familiar, which can foster uncertainty and negative attitudes, such as assuming the change won’t work. Leadership must help employees move first to a mindset that is more neutral and accepting, so employees are willing to give the change a try. From there, management can help employees begin to see the change as a new beginning and understand that the new organization can do better or more.

With most change initiatives, almost every employee is affected to some degree. Employees might need to adapt to a new technology system or move to a different facility. They could find themselves in a much larger department or with a different level of authority. Some of the changes in employees’ individual experiences will play a greater role in the potential for project success than others and therefore warrant greater change management attention. For example, leadership could expend more energy dealing with how managers react to having their authority altered than on employees who merely need to learn new procedures for approvals.

Note that it is not only reductions in authority that require leadership attention. Managers in a smaller bank where the president made all of the salary and promotion decisions might find it difficult to adjust after being acquired by a larger institution where they are expected to be more actively involved in such matters.

Transition Monitoring and Management
Financial services companies should create a change effectiveness scorecard to evaluate the impact, readiness, adoption and benefits realization of each change initiative. Metrics might include the percentage of business results achieved, individual or department change readiness (at project launch and quarterly intervals going forward), training completion rate, key employee retention, client satisfaction, quality of production and employee engagement.

Employee engagement can be measured through responses to pulse surveys conducted on a regular basis to track and improve employee understanding of and buy-in on the change project. These short surveys ask respondents to rank from 1 to 5 the accuracy of statements such as:

  • I understand how this transformation can benefit our employees, customers and community.
  • I believe the communications I receive from the transformation team.
  • I feel that I have enough opportunities to learn about the transformation.
  • I know where to go when I have questions about the transformation process.

When it comes to change projects, individual leaders or employees typically fall into one of four categories based on their level of engagement, performance and impact on project success. Each category calls for different management strategies during project implementation:

  • Advocate (high impact, high engagement): Leadership should recognize and reward high-impact employees who are actively and vocally on board and performing well, and consider increasing their project responsibilities.
  • Supporter (low impact, high engagement): These employees demonstrate their high level of commitment to the project by effectively providing assistance or resources, even though they are not critical to satisfying high-impact project objectives. Leadership should consider increasing their project-related roles and responsibilities.
  • Laggard (high impact, low engagement): These individuals have a low level of commitment to the project—even if they are performing well—but are essential to meeting the project objectives. Leadership should address their low engagement in hopes of moving them to advocate status. For example, the management team could consider demonstrating what’s in it for the employee if the project succeeds. If that effort fails, leadership should consider reassigning these employees from high-impact areas where they could negatively influence others and project success.
  • Bystander (low impact, low engagement): These individuals demonstrate a low commitment level, and their impact is not vital to meeting project objectives. Leadership might consider their potential for greater project impact and address reasons for low engagement.

The human capital risks associated with change initiatives could prove the difference between ultimate success or failure. Particularly when change affects customers, the employee experience has a direct effect on customer experience. By properly managing employees throughout the transition, bank leadership can help employees see change not as a negative ending, but as a positive beginning.

Does Your Bank Have a CEO Succession Plan?


succession-10-11-17.pngMedian-CEO-image.pngIn the Bank Director 2017 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, 48 percent of bank directors and executives say their bank does not have a successor to replace the chief executive officer when that person leaves. While some responders indicated they did not have a designated successor because their CEO did not plan to retire soon, there are other unforeseen events that could prompt the need for a successor sooner than expected. Starting early on a good succession plan is one of the keys to a successful transition event.

Succession planning is an ongoing practice that is focused on the organization’s strategic vision and identification of the leadership and managerial talents that are necessary to carry out that idea. Recruiting, developing and retaining individuals who have or who can develop those skills is an integral part of the process.

Maintaining a succession plan will promote a healthy organization and mean a great deal to stakeholders. It’s a shared responsibility that requires a strong partnership between senior management and the board of directors.

The best time to discuss a leadership transition is when it isn’t imminent. Establishing an environment that supports open and ongoing discussions about succession and leadership development will reduce the anxiety that executives and board members may feel.

A comprehensive plan must also take into account what happens when the potential internal candidates are either not ready to assume the needed role or have not been through a sufficient grooming process. There are three key planning processes your institution should embrace:

1. Anticipate Emergency Situations
Emergency succession planning focuses primarily on the unanticipated departure of a CEO. You may be given a few weeks’ notice, a few days, or possibly no notice at all. An emergency succession plan ensures the uninterrupted performance of essential executive functions and outlines the steps necessary for the appointment of an acting CEO.

This interruption in leadership may be short term or permanent. Regardless, planning for the event is absolutely critical to maintaining a successful drive toward the institution’s long-term business objectives.

2. Developing Leadership
Leadership development is an ongoing process that identifies the core competencies, skills and knowledge needed by the institution over the next five years or so, including a plan to develop those competencies in your existing leadership team. If the board feels that such qualities are not inherent in the current team, you’ll need a plan to recruit new talent.

Creating a strategy for leadership development will help ensure that your organization will survive a required leadership change, whether expected or unexpected. Some of the key questions to address in this step include:

  • How do future opportunities for the organization impact our leadership needs?
  • Where are the future leadership gaps?
  • Is the board developed to its full potential?
  • Who are the natural internal leaders in the organization and how can we nurture them?

3. Seamless Transition
When a leadership change needs to be made, the transition process is not automatic. To ensure a seamless, problem-free transition, a defined course of action should be executed. One question to address is: How much time do you have?

If the departure is anticipated, such as a future retirement, it’s important that the departing executive establishes a clear and unchanging end date so that the organization can work diligently to prepare for that day. Otherwise, it is likely the organization and board will be unprepared and the transition will inflict greater stress on the firm. For unanticipated departures, the transition period will be brief, so having a clear plan of action at the ready is all the more critical.

Proper communication to stakeholders and executives can be one of the most essential tasks in succession planning. Your stakeholders will want to know what contingency plans are in place. And your management team will want to know of anticipated changes in their roles and responsibilities. Losing other key members of the leadership team in this process only makes the board’s job that much more difficult. So be strategic about your communication, which means listening, speaking the truth and helping everyone understand what is taking place.

Click for more information from the 2017 Bank Director Compensation Survey sponsored by Compensation Advisors, a member of Meyer-Chatfield Group.