Change and loss aversion

Why do we want to create change?

Based on our actions (hello, New Year’s resolutions!), we think we want to change more than we actually do change.

And the same is often true of organizational change initiatives, as illustrated by the sad statistic that 70% of change initiatives either fail outright, or aren’t sustained over time.

That’s a really sad statistic, especially when we stop to think about the impact of that on people’s careers – and on corporate finances. I recently interviewed someone for a case study on strategic change who described a multi-million-dollar failure.

That is what one might call non-trivial, and there are, of course, many factors that played a part in the outcome. 

The point I want to look at here is – what actually drives the desire for change, and how does that affect whether or not we succeed? Because it really is a whole lot easier to stay put with our established habits, routines, patterns, and ways of doing things. Neurologically speaking, the brain far prefers habit and routine – it doesn’t like to expend the extra energy it takes to create the new neural pathways that support doing new things or doing old things in new ways. 

So – why change?

Because ultimately, change is to solve a problem.

We don’t put ourselves through the stress and challenge of significant change – whether that’s establishing a new personal workout routine or implementing a new corporate-wide technology or taking on a new leadership role – whatever it may be – for grins and giggles.

We do it to solve a problem.

The new workout routine solves a health problem: we don’t feel well, we have poor stamina and can’t do the things we want to do, or we might even have a significant medical diagnosis.

Within organizations, new technology solves a competitive problem: the company is struggling in the marketplace and failing to attract new customers.

For our careers, taking on new leadership responsibilities solves a professional problem: we don’t want to be stuck in an unsatisfying role or feel like we’re not accomplishing our career goals.

And so on.

Change initiatives are often defined in terms of the desired outcome: being healthy and fit, meeting sales targets, achieving professional success.

We tend to forget – or not be aware – that loss aversion is a real thing. In brief, it simply states that we feel worse about losing $10 than we feel good about gaining $10. (The link on loss is to a behavioral science think-tank article; the link on aversion is to Wikipedia’s entry on loss aversion. Both open in new tabs.)

Therefore, when we define change initiatives, whether personal, professional, or organizational, we need to communicate the problem we’re solving as well as the outcome we desire.

What is the loss we will experience if we don’t complete this change? How will it impact us individually and as an organization?

Don’t leave out the “individually” part. Employees will understand the organizational impact of failure, but they will feel the impact that organizational failure could have on them, and it’s the feeling of loss that you need in order to help people understand the importance of their participation in the change.

So – define it. Why change? What is the problem you’re solving by undertaking this change initiative? What is the danger you face if you stick with the status quo?

Change leadership requires a different skillset from change management. For success, both are necessary; neither are sufficient on their own. You can see a short video on the challenges of change here.