Rule #3 Weigh the Opportunity Cost

Joseph Schumpeter

Joseph Schumpeter, economist and Master of opportunity cost

During my freshman year’s eight o’clock microeconomics class one of the few things that made absolute sense to me was the concept of Opportunity Cost, a theory by Friedrich Von Weiser.  It was an “aha” moment of epic proportions where I could finally explain the best way to determine the true cost of making one choice over another.

Simply put, if you have finite resources, when you choose one path of action, you will be using some of those resources up, and they will no longer be available for other activities. If you plan a course of change that will require 400 hours of IT time, without additional overtime or staffing, you would be making those resources unavailable to other departments or projects.

Opportunity Cost forces you to run the overall value of any planned activity or change against the resources it will use up. Is it worth 400 hours of IT time to update a website?  Maybe.  Is it worth 400 hours of IT time to update the website if it will slow customer service response time for your internet customers? What other projects will need to be put on the backburner in order to pull the IT team for 400 hours?

This is why you will need to be able to absolutely quantify the net savings or revenue that will result from your plan of action. You must show that the resources you require are the highest and best use of those finite resources.

P.S. Unfortunately about the only other thing I recall from my very early class was of Von Weiser’s fellow Austrian, Joseph Schumpeter, not his economic theories, but his desire to be known for three things; “To be the world’s greatest economist, the finest horseman in all of Austria, and the greatest lover in Vienna.”  He claimed to have achieved two of the three. Clearly he weighed his opportunity costs.

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Rule #2: What you knew on the very first day, is what you need to remember now.

Remember the first day you worked at this company, this department?  Some slight boredom, endless paperwork tempered with the excitement of starting something new.  You had some time on your hands to observe while you waited for HR to send back your docs, or your first client to call. Most likely you observed some stuff that didn’t quite make sense, processes that didn’t seem to be working well; a system that seemed to have a vital hiccup.   And you didn’t raise a red flag because, hey, you were the new guy, maybe you just didn’t get “how things worked.”

A few months later, the “Kool-Aid” has been drunk and you’re part of the team. And you don’t notice those things as much anymore. Or someone gave you some sort of explanation about them that kind of made sense or implied a higher level of thinking had already thought through that problem.

Except, you were right, your beginner’s eyes caught something important.

When I take note of things on the first week of any assignment with a new team, if I look back at the notes a year later, there is clarity of thought that often points to a key weakness of the group, team or setup.  It’s generally not people perceptions, but rather processes, procedures or underlying assumptions of the business model that have a “hole” which, while not fatal, may keep the business from achieving the greatest return on its efforts.

Go back to the beginning. Did you take notes? (If not, make sure you always do going forward.) You may not have been 100% correct in your impressions, but I guarantee, somewhere in those first few days, you saw a glimmer of one of the problems that is dogging your team now.

Start digging there.

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Rule # 1: Are you an Aspirin or a Vitamin?

Know your role.What's your Role in Creating Change?

Be an aspirin or a vitamin, as Coach Jodie Charlop likes to remind me. Either your role in change is to take away pain (an aspirin) or inject new life into the group (a vitamin).  In change management you have to be aware that your team (aka “the body”) may not be delighted to see you initially. In some cases the response may well be similar to that of a near-fatal allergic reaction.

If you’re an aspirin, you need to dig to the source of pain and relieve the suffering, hopefully heading off worse damage. You may affect systems beyond your initial target as you work to attack the serious underlying issues that are stressing the system.

Side Effects:

  • May cause dizziness if deployed rapidly.
  • Initial fixes may only mask deeper problems.
  • Excessive thinning of staff or resources may occur.

A vitamin can initially be a shock to the system, creating surges of energy in areas not previously disturbed, or highlighting areas that hadn’t performed at their peak. A vitamin may drive a new level of performance or set new revenue goals.

Side Effects:

  • Stomach upset may result when you rock the status quo.
  • May cause fatigue.
  • Healthy new regimens take time to become habit.

In any change management situation, you will likely have the majority of your actions fall into one camp or the other but will need to know the expected side effects of both.

What are the most common situations you’ve run into when you’ve been an aspirin or a vitamin? Share in the comments section.

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© Jeanne Goldie 2015