Which is greater? Passion to win—or desire not to lose?
If the coin shows tails you lose $100
If the coin shows heads you win $120
Is the gamble attractive? Would you take it?
Your answer gives powerful insight into how best to manage organisational change.
In 1974 Kahneman and Tversky published a paper in which the results of these questions were examined. Their conclusions lead to the development of Prospect Theory.
The data suggests we have aversion to losing, and the premium required to overcome this aversion is in the range of 1.5 − 2.5. In other words, in order put $100 at risk, most people need the opportunity to win at least $150-$250.
In summary, for the general population “losses loom larger than gains” and most humans are loss averse.
Losers fight harder than winners in change management
This insight has been heavily applied in behavioural economics but lightly applied (if at all) in change management. But there is much we can learn from its utilisation.
When introducing change into an organisation, those who will lose out will fight more tenaciously for the status quo than those who would gain the most. Yet, most of those who constitute the “Guiding Coalition” (Kotter, HBR, March, 1995) are often those most likely to be in the winning circle. This might give a clue as to why most change initiatives fail.
As Executives leading change programmes we have improved. We are better at communicating why change is necessary (the problem), and how it (the solution) will be implemented.
But this shines the spotlight on the upside, and leaves the downside in the shade and thus avoids the reality of how people view change. We would be better to recall that Diminishing the downside can be more important than promoting the upside.
Reduce potential loss, and you lower the barrier to change
For Executives this means modifying their current change management checklist.
It should now read:
1. Who is likely to be affected by the change management programme?
2. What is the likely downside (as well as upside) to this community?
3. Can I recruit representatives of that community to help me build the upside and, more importantly, find a route to minimising the downside.
4. Agree jointly measures of change management success.