Theory of Constraints Handbook - James Cox Iii [286]
But what percentage of the changes made by management result in measureable and sustainable improvements that meet the expectations of all stakeholders (Type 1 impact) versus what percentage of changes fail to meet measurable objectives (Type 2) or cause decay in performance (Type 3)?
The Extent and Consequences of the Failure Rate of Change
The extent of failure rates of different types of improvement or change initiatives together with the extent of organizational failures can provide a good indication of the consequences of errors of omission and commission.
The Failure Rate of Improvement/Change Initiatives
A representative sample of research studies and surveys (listed in Table 15-1) shows that regardless of the type of change initiatives, between 50 and 80 percent of these initiatives fail to meet their original objectives, are stopped before completion, or sometimes even cause the organization’s performance to decay. The only study that formally reported that no failures or disappointments were reported was conducted by Mabin and Balderstone (1999) involving implementations of TOC at 100 companies.
Analysis of the studies reporting high failure rates shows that the vast majority of the changes are reported to fall into the second category of change impact—where there is neither a direct measurable benefit nor decline. Of course, the “cost” in these cases is not only the wasted costs or investments incurred (without benefit), but also the wasted opportunity costs of not applying scarce resources (especially “management” time—the real constraint in most organizations) in changes that would have improved the system performance. This also does not to mention the impact of such a high failure rate on people’s reduced motivation and expectations for future changes. Considering such a high percentage failure rate of change initiatives, what is the failure rate of companies and organizations?
Failure Rates of Companies
When it comes to companies, research studies show that failures are also statistically much more likely than successes. Since the advent of the modern corporation, over 10 percent of all companies in the United States (the largest and most successful economy in the history of the world) fail every single year; 22 percent of the top 100 companies at any given time drop from the elite rankings in the next decade; and 50 percent of globally successful companies go extinct within the lifetime of a modern human (Ormerod, 2006, 13). A study by the U.S. Census Bureau (www.sba.gov/advo/research/data.html) showed that 25 percent of new businesses started in 1992 failed within the first year and by year 10, the failure rate was 70 percent.
TABLE 15-1 High Failure Rate for Various Change Initiatives and IT Projects
Whenever we see such large failure rates, it is quite likely that there is some vicious cycle at work where actions taken with the intent to correct a situation have the opposite effect. The next section provides insights into the vicious cycles seen in many organizations that are not improving at the desired rate or within those that no longer exist (i.e., the ones that experienced catastrophic failures).
The Vicious Cycle Related to the High Failure Rate of Change
Many of the studies reviewed not only quantified the extent of the high failure rate of change, but also analyzed the most likely causes and consequences of the high failure rate. The consequences of the high failure rate mentioned in most studies are no surprise—higher resistance to change for future initiatives and lower expectations for the likely impact of future initiatives. What might be surprising (unless readers have experienced these themselves) is that there is also a remarkable consistency in the findings