Most companies understand there are costs associated with change. Whether the change is the result of a merger, an acquisition, a technology adoption or even moving offices, there are both hard and soft costs as well as expected and unplanned expenses. The goal for any business is to minimize these costs so they don’t cut too deep and last too long.

Often, the cost of change is much higher than projected. That’s because while tangible items like project work, integrating data and other assets, and implementing new processes can be fairly accurately predicted and measured, other items are more challenging to determine and evaluate. For example, the loss of top talent is often not measured, and the impact usually isn’t felt until after the change is complete.

With a solid stakeholder strategy in place and support for the key stakeholders involved, organizations can minimize the costs associated with change.

Where do organizational change costs show up?

When change is handled poorly, costs show up in a variety of ways across the company:

• Employee retention. While the total cost of change can be difficult to measure, we do know how expensive it is to replace valuable workers who become dissatisfied or even disgruntled with the process if the change isn’t handled well. While most companies anticipate some attrition during the significant operational change, there is often an unexpected and unwanted loss of top talent. The cost of replacing someone the company wants to retain can be expensive. One study from the Center for American Progress found that the higher up an employee is in the company, the more expensive he or she is to replace. For mid-level managers, the cost can be approximately 20 percent of their annual salary. But for highly experienced executives, the cost can be a whopping 213 percent of their salary.
• Employee engagement. Employees often react to the uncertainty of change by disengaging. They’ll call in sick more frequently or take more PTO. You may find them taking longer lunches and breaks, coming in late, or leaving early. There will be more conversations at the water cooler or coffee machine. If these conversations stop when a leader walks up, you know there is another conversation happening that should not be ignored. More time is spent surfing the web or other non-work-related activities as employees become actively disengaged from their jobs. Commitment will fade, and employees will be less willing to stretch the workday to meet deadlines and aggressive schedules. This all cuts into productivity. Loss of productivity and lack of commitment to customer service affects the bottom line. Most companies don’t measure the impact of disengagement, but every company I speak with has at least one story of an unplanned, unexpected impact. If companies took a proactive and intentional approach, how could they reduce the risk of these unwanted costs? Indirect costs due to missed work and associated productivity loss translates to approximately $1,685 per employee each year, according to the Society for Human Resource Management (SHRM) 2018 Employee Benefits If missed work and the associated productivity translates to $1,685 per employee and you have an organization of 200 people impacted by a change, that’s a $337,000 impact!
• Not my job-ism. People will start drawing a stronger box around their responsibilities and may be less willing to put in the extra effort to help another part of the organization. In the past, they would have done whatever was required to benefit the company. These employees become much more structured in their work schedule and very guarded about what they’re willing to give. Critical deadlines may be missed, and projects delayed.
• Customer service. The lack of engagement trickles down to customer-facing employees. Believe me, customers notice. The mood across the organization suffers as long as people are unsure about what’s going to happen to their roles within the company. Their lack of engagement shows up in their voice and their commitment to customers.

How do you minimize these impacts on the organization—and reduce the cost of change?

Because major changes at a company tend to happen on a tight timeline, leaders’ attention is often consumed by pressing business issues and decisions. While they don’t mean to neglect the human aspect of the change, there are just not enough hours in the day for them to give employee engagement and retention adequate attention. When push comes to shove, business issues often take precedence over human priorities. However, with a solid change strategy in place—and support for the key stakeholders charged with making the change successful—it’s possible to reduce the human costs of change. Here’s how:

• Recognize that change doesn’t have to be unduly painful or expensive. While change requires an investment of money and energy, many companies are resigned to taking a financial hit, much of it through lost productivity and employee attrition. It doesn’t have to be this way. Leaders should pause before running headlong into the change to think about opportunities to reduce costs by easing the pain and anxiety that employees are experiencing.
• Don’t underestimate the effects of a seemingly small change. Companies are constantly going through change. It’s important for company stakeholders to look beyond major events like mergers, acquisitions, outsourcing, or divestitures and recognize the impact of other changes such as new technologies, revisions to company policies that change how employees work, or an office relocation that impacts the workplace, commute, and other factors. A patient approach and a strategic pause before executing the change can prove beneficial. For example, one company I talked to changed floors in the same building. But that move meant a change in office furniture and Many employees felt certain decisions were inappropriate and negatively impacted how they interacted with their clients. The move ended up being incredibly disruptive as senior employees shifted their focus internally vs externally which can lead to missed opportunities. When company stakeholders pause before execution and consider how employees may react to changes, they can prevent or at least reduce the disruption.
• Bring in an outside perspective. Even companies accustomed to change can benefit from the counsel and expertise of someone who’s objective about the situation. A consultant can dive deeper and get the leadership team to think strategically. An outsider can push harder on the questions that need to be addressed that might be superficially discussed or brushed off by company insiders. An outsider can also bring research, best practices, and experience from across many industries, which may help leadership explore potential risks they hadn’t considered. Often in the rush to move forward with operational or business aspects of change, leaders sometimes oversimplify the human aspects of change. A qualified consultant can provide real value by taking a deeper dive and asking important, powerful and actionable questions about the impact on employees. A skilled, experienced, knowledgeable consultant can be a calming presence in the midst of the messiness that happens during a change.
• Support the changemakers in your organization. Oftentimes, the people charged with implementing the change are valuable, talented, mid-level managers. They’re often tasked with these change management responsibilities on top of their current duties. These managers are also the ones who take a lot of the heat from unhappy employees during a change. Supporting them with their own resources, such as an executive coach with expertise in change management, can bring significant value to the organization. For those leading a difficult change or a difficult group of people, a coach gives them a venue to put their worries on the table, exchange idea, and gain a different perspective.

Strong change management processes and practices are important, but they’re often not enough to ensure success. Changes don’t follow a script or checklist. They regularly go sideways in the middle of the change. Regular coaching on a weekly or bi-weekly basis provides pragmatic, real-time learning and builds awareness. This also provides a sounding board and fresh perspective as new challenges emerge.

Any change requires a time and money investment. The business expects this change to return a significant value in the form of reduced costs, higher sales, increased customer base, greater efficiencies, improved profitability, or other end goal. Making the investment to prepare your leadership and support your change leaders can reduce hidden costs, improve retention, and increase engagement and productivity. These benefits help deliver a strong overall ROI for the change taking place while minimizing cost.

Christine Pouliot, CPCC, ACC

Executive and Leadership Development Coach | Disruptive Change Coach | Trainer | International Speaker

If you have organizational changes planned in the next 6 months, are concerned about retaining your critical talent and keeping your workforce engaged and productive, reach out to schedule a short call with me.

For more tips, check out my video below.

Check out other articles on Leading Through Disruptive Change – Retaining Talent, Empowering Leaders, and Cultivating Respect.

Christine Pouliot is a trusted executive coach and a global leader in the world of transformational change. She works with organizations to create an environment where organizations, leaders, and employees succeed during challenging and disruptive changes. As a believer of “Evoking the Possible,” Christine provides executive and leadership development coaching and change management consulting as well as facilitated workshops to help clients achieve the success they desire.