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Value Creation: The 5 Laws of Change

March 16, 2017
Value Creation

Bias in Search and Choice

This article is part of a series on Value Creation. 

It’s pretty much a universal rule: People hate change. In fact, research shows that most people will tolerate a lot of pain with the status quo before switching. That’s why part of the Value Creation and Winning in the Global Arena program is dedicated specifically to change. If you want to grow your market share and create more value for more people, you have to convince people to change.

Thunderbird Marketing Professor Douglas Olsen describes the comprehensive change model (shown below) and explains the five laws that have to be met in order to tip the scale from the status quo to the new option. 

“If you want to grow your market share and create more value for more people, you have to convince people to change.” – Click to tweet

The 1st law: There must be superior value

Superior value is a subject we addressed in a recent Knowledge Network article, Value Creation: It Is ALL About Your Customer. From creating your products and services to selling them, only one thing matters at the end of the day: the value you’re creating for the customer. People have many incentives not to change, and unless the alternative clearly offers superior value, they will have no incentive to change.

The 2nd law: The stability of the existing option must be reduced

While value creation is essential, it isn’t enough. You have to destabilize existing options and minimize the level of fear and uncertainty around the new alternative.

Stability is driven by seven key factors:

  1. Complacency (how much do people really care that there is a superior alternative)
  2. Contractual constraints (is it even possible for people to change)
  3. Un-portability (what will get left behind – e.g., related products, expertise, history)
  4. System removal constraints (costs associated with changing)
  5. Breadth and depth of current use (how many people use the status quo, for how many purposes)
  6. Technical adequacy (how reliable is the status quo)
  7. Relationships in place (with products, companies, brands, and/or individuals)

Two examples of services that are particularly ‘sticky’ – that is, people are reluctant to change – are healthcare and banking, both of which are affected by many of those seven factors. Unsticking people from the status quo, then, requires chipping away at those stability factors.

The first step is to ask: Are people aware of alternatives?
What am I asking them to give up? Have there been recent changes? Are there constraints to removing the existing system? Do people really understand the shortcomings of the existing system? What important relationships are in place? Addressing those questions will help you reduce the stability of the existing option.

 “While value creation is essential, it isn’t enough. You have to destabilize existing options and minimize the level of fear and uncertainty around the new alternative.” – Click to tweet

The 3rd law: Fear of the new alternative must be decreased

Just as there are reasons that the existing option is sticky (those seven stability factors), there are reasons the alternative is scary. That fear is primarily driven by uncertainty in six areas:

  1. The product or service itself (tattoos, for most people, are inherently scary)
  2. Transaction risk (fear associated with the process – donating blood, for many people)
  3. Start-up costs (time, money, and effort to change)
  4. Compatibility (will the new alternative fit within the existing ecosystem)
  5. Payback period (how long until the change is time/money/effort well spent)
  6. Rate of social or technological change (how long before the new alternative is outdated too)

Uncertainty is mitigated by people’s willingness to take risk. Some people are naturally more willing; others need a lot of coaxing. Willingness to take risk is driven in large part by:

  • Resource availability
  • Reversibility of the decision
  • Time until the decision (feet tend to get cold as the deadline approaches)
  • Short-term thinking (people tend to be more risk-averse about the short-term)
  • Framing (people are more likely to make the change when motivated by positive factors)
  • Volition (too many choices can make people feel out-of-control)

The first step to decreasing fear of the new alternative is to learn what exactly people are afraid of. Then, learn what factors are influencing the willingness to take the risk. Knowing the source of the fear and the source of the willingness to take the risk, you can take steps to reduce uncertainty associated with the new alternative.

The 4th law: Outside independent influences have an impact

Parents caution their kids to say no to peer pressure. But peer pressure, if you’ve got the peers on your side, can be a huge help in getting people to change to your new alternative. In this context, ‘peers’ who influence buyers’ thinking can be legal and regulatory organizations, government programs, technological innovations, media and popular culture, macro social changes, and reference groups and significant individuals.

The 5th law: Bias in search and choice must be overcome

People’s propensity to change can be affected by bias in search and choice – that is, by their predispositions and preconceptions. The first step to overcoming such biases, which are often subconscious, is asking: Are people motivated and able to search? What information is used in the decision? What factors will cause my alternative to be automatically accepted...or rejected?

Ultimately, overcoming bias comes down to answering two seemingly simple questions – Why do people buy? Why do people not buy? – and addressing them both head-on.

“Overcoming bias comes down to answering two seemingly simple questions: Why do people buy? Why do people not buy?” – Click to tweet

Bottom line

As the journalist Sydney Harris reportedly quipped, “The dilemma is that we hate change and love it at the same time. What we really want is for things to remain the same but get better.” That’s the dilemma innovators face when trying to get people to abandon the status quo for their new alternative.

Accomplishing that goal requires tipping the scale away from the existing ‘stable’ option by destabilizing the status quo, leveraging independent influencers, navigating bias in search and choice, and mitigating the uncertainty and fear associated with the ‘new.’ It’s not easy, but worthwhile things rarely are.

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