Let’s be honest. Global and complex pricing transformations are no walk in the park. They challenge the organization at its core: its culture, processes, organizations, skills, and systems. They can take up to ten years, especially in organizations with complex matrix footprints. In any long-term transformation, many things can go wrong. Typical reasons for pricing transformation failures are a change of CEO, a global recession, a large M&A project derailing the process, or a lack of budget and resources. When I finished my PhD program in 2013, and after coaching several large-scale pricing transformations, I thought I’d seen it all. But every pricing transformation is different and reflects the DNA of the organization. Ten years after beginning my personal journey in the pricing arena, I’m realizing that conducting these global transformations is truly challenging for everyone involved. There’s also no guarantee of total success. This raises the question of what makes global pricing transformation so challenging and perilous. What are the potential differences between a pricing transformation and an IT or marketing transformation? In this short essay, I begin to explore the challenges by looking at ten challenges I’ve witnessed firsthand when supporting transforming teams.
1. Pricing is the most complex function of all
Some might disagree with me that pricing is the most complex function in the organization. Along with the supply chain, pricing requires tremendous alignment between functions. The complexity increases in global transformation with the injection of cultural and language differences. Combine that with geographic distances and different time zones, and you have a very complex system to manage. I’ve published the visual below several times, and it remains relevant. Managing global pricing transformation requires thinking about functions, hierarchy, cultures, languages, interpersonal relationships, and relational trust.
2. Pricing is hard to transform when times are good
Many pricing transformations happen when businesses are doing well. Change is hard in general. But when times are good and indicators are pointing the right way, it’s even harder to bring people on board with a strong burning platform or sense of urgency.
The resistance to change and to transform is fierce when times are good. We hear things like “we’re doing well already” or “our EBIT is above that of other business units” or “all our indicators are green, so stay the course.” When EBIT levels are at 15% of sales, for example, complacency and satisficing behaviors settle in. When all is well inside, it’s time to bring the outside in and show what our industry peers are doing or what potential challenges lie ahead. When EBIT is at 15%, why not aim for 18%, especially when low-hanging fruit and quick wins are within reach?
3. Pricing transformations mean commercial and marketing transformations
Marketing, sales, and pricing processes are joined at the hip. Doing a complex global pricing transformation in a vacuum without touching peripheral functions never works. Changing pricing systems, pricing processes, and global pricing rules inevitably involves changing commercial processes and impacting the overall marketing plan. In essence, can you do a deep and complex pricing transformation without doing a marketing and sales transformation at the same time? How are these three transformations related? Who leads what, and which one comes first? These are key questions to ask and answer during the blueprinting and roadmapping of your pricing transformation.
4. Project management and change management are not the same thing!
This is probably the biggest single reason that pricing transformations derail, stagnate, or fail. Project managers, when available, focus on delivering the technical side of strategic pricing projects, because project management focuses on the technical side of change. Change management focuses on the people side of change. Both professions involve science, methods, and tools. Both need to be formally managed and well-resourced within complex transformations. Experts often say that 70% of change projects fail. One of the reasons for this is the lack of formal, proactive, and intentional change management. Ask yourself: how many project and change managers are involved and/or supporting my pricing transformation? If the answer is zero, what are the chances of your global transformation succeeding? Pricing team members can certainly acquire the necessary skills in change management, but they’re already busy focusing on the technical side of pricing change, and there are only so many hours in a day! Without project and change managers, pricing leaders have to think of plan B. That plan is focusing one or two pricing team members full time on project and change management in the form of a PCMO (project & change management office).
5. The right focus on change management and change leadership is needed
John Kotter says it best: “Change management is the engine of change. Change leadership is the fuel for the engine.” Let’s assume that you adopt the right change management method (usually Prosci® ADKAR® or LaMarsh Global’s Managed Change™) and deploy an integrated and customized change management toolbox. This is half the battle. What’s needed next is a solid group of evangelists, contagious change agents, motivated top executive champions, and embedded opinion leaders to provide the fuel for your change engine. By “fuel” I mean energy, drive, motivation, power, charisma, hope, visibility, credibility, and contagious, ongoing positivity. Few top executives or high-level sponsors have the will and time to invest in sweat equity and to burn political capital to support complex pricing transformations. It requires true championing behavior to support pricing and commercial transformation leaders when times are rough and resistance is fierce. Look at your transformation today and identify these change leaders. Do you have enough of them? Are they focused on true contagious leadership?
6. One transformation too many!
Look inside your organization and count the number of transformations that are being done at the same time. The recent changes in business conditions and the increased disruption have forced many organizations to reinvent themselves. No issue with that. It becomes complicated when companies transform incrementally and not in a coordinated fashion. The end result is a series of fragmented transformations (sales, marketing, IT, procurement, engineering, pricing) that exhaust people in the organization. There is confusion between resistance to change and change fatigue. The first is related to the fear of change; the second comes from too much change at the same time. A complex and global pricing transformation on top of two or three other transformations seriously reduces the bandwidth of your go-to-market team. You have two options in this situation: embed your transformation as a project within another large and complex transformation, or align and adjust the pace and intensity of your pricing transformation with the rest of the transformation agenda. Either way, you have to get it done!
7. Resistance to change in pricing runs deep in general
Because pricing is so complex and touches so many nerves, the type of resistance to change that pricing people face can run deep and be highly irrational. I’m referring to meltdowns, resignations, burnouts, explosive discussions, and things of that nature. It’s widely understood that changing pricing guidelines, pricing practices, and customer interaction with regard to pricing can be nerve-wracking, especially with the sales force. Add to this the need to change vocabulary, routines, roles and responsibilities, and compensation plans, and you have a highly emotional experience. Fear and anxiety for people who are touched by pricing transformations have the potential to go through the roof. The natural reaction is pushback, denials, objections, and overt resistance. These are coping mechanisms. This is why change management includes a strong section on reinforcement over time to allow people to get comfortable with and assimilate the change. This is also why all change management methodologies require the anticipation and management of resistance to change.
8. Personal transformation needed: mindset modification does not happen on its own
A large-scale global pricing transformation is the aggregation of many individual personal transformations. Because of the situation presented in reason 7, change management is designed at the organizational level but managed and executed at the individual level. I often say that it’s hand-to-hand combat! The goal is to reach deep into people’s hearts and souls and convince them of the need to change. Only when this is done can you think about modifying their mindsets and work hard to learn new things. Mindset modification means aiming at irreversible change that can only be accomplished with the help of coaches, HR professionals, and a strong dose of change leadership.
9. Training and learning are not the same thing
Global complex pricing transformations require a deep learning agenda using both experiential and adult learning practices. To change people’s mindsets, you have to make sure the concepts and practices stick in their memory. This is called absorptive capacity. In a standard training program, people retain 20 to 30% of what they hear. By having people conduct practical exercises and by touching them ten times over a period of six months, we aim to increase that retention to 60 to 70%.
Designing a learning agenda and roadmap for your pricing transformation requires support from your HR and learning & development professionals. This needs to be done with the before/during/after the change approach in mind. And it needs to be resourced adequately as part of the transformation budget.
10. Accountability is not always part of the process
This brings me to the last reason why pricing transformations can be highly challenging: accountability at the organizational level. There are multiple levels of accountability: individual, team, department, functional, and organizational. Accountability is the glue that keeps the pricing transformation together all the way to the finish line. But in many organizations, there is a lack of functional and organizational accountability.
Transformation initiatives are launched but not well executed for many reasons. If there’s a tolerance for mediocrity and for nonparticipation, there’s a lack of accountability: people’s incomes are not impacted, or resistors face no consequences for their behaviors. As a change agent, you must work hard to convince the early and late majority of people to jump on board your project. These people watch what other people do. When resistance is tolerated and there are no consequences for nonparticipation, the late majority might begin resisting, and the early adopters might get frustrated. The way to change this situation is to include the right KPIs in the people’s performance plan, to align goals and incentives programs, and to include pricing deliverables in the people process—that is, performance reviews. This is hard work that can’t be done without HR and top leadership involved. There needs to be a philosophical agreement among actors on how to handle resistance, purposeful opposition, and negative behaviors with regard to the pricing transformation.
For the past ten years, I’ve had the privilege of studying and practicing pricing. Today, I’m even more convinced that the pricing skills of the future will focus on change management, change leadership, and a growth mindset. Most pricing people agree with this. However, they continue to ignore change management training. Ask 100 pricing professionals today if they prefer to attend a technical pricing course or a change management in pricing course; I’ll bet 95% of them will choose the first option. The future of pricing science is systems, analytics, and artificial intelligence. The future of pricing skills is in soft areas. Pricing transformations of the future will be highly technical and complex. They’ll require change agents in pricing who can handle the ten reasons I listed in this essay. Get started today, because change is the only constant.