17 August 2009 • 12:18 pm

Latent Demand for Change

What seems like many hundreds of years ago, I got my start in information technology working with mainframe computers. It was then that I first learned of a concept called ‘latent demand.’ As utilization of those giant computers (whose power back then was approximately equal to that of a modern cell phone) increased over time, companies would plan to upgrade to larger, faster machines. In the months and weeks leading up to the upgrade, demand for computer power would approach the theoretical capacity of the old machine, and processing would become painfully slow. But the surplus power provided by the upgrade would very quickly disappear – consumed by the pent-up demand for processing power that hadn’t been met before. And then the cycle of slowdown and upgrade would be repeated. The demand for more computing power in the enterprise is insatiable. But this phenomenon is not just seen in the realm of information technology – it applies to change in organizations as well.

The latent demand effect is all around us. A lengthy, expensive, and hugely inconvenient project is now underway to upgrade a tollway near my home (the Tri-State, for those of you who know the Chicago area). One chronically congested segment is being expanded from three lanes to four in each direction. But I am confident that once the new lanes are opened, the congestion will quickly return. Drivers who have been avoiding the bottleneck will be inspired to use the new roadway, and the demand will expand to fill the available capacity.

In general, growth in the capacity of a resource is rarely coordinated with growth in demand. Capacity growth is usually incremental – it happens in chunks. All at once, we get a faster computer, a new lane on the expressway, a new parking structure at the shopping mall.

Demand growth is more likely to be continuous, with the rate of growth increasing when new capacity is available, and decreasing when capacity is constrained. In most cases, demand growth is organic; the collective result of  many individual decisions, while capacity growth is the result of a single deliberate decision. And the absence of a deliberate decision to grow capacity is a effectively a deliberate constraint.

Such is the case with change in organizations. The natural state of organizations is a very limited capacity for change. But as the static definition of the organization’s value proposition becomes unaligned with changes in the organization’s environment (the result of emerging opportunities and threats), the demand for change increases. When the pressure to change becomes sufficient, leaders “unfreeze” the organization and undertake a change program, and all that latent demand for change comes forward. The decision to change can be met with excessive demand; more change than the organization is capable of accomplishing. And like the slow computer or the congested expressway, the organization may become paralyzed by excess demand for change.

Prioritizing the change agenda is tricky. In the absence of a clearly articulated strategy, changes are most likely to be prioritized through a political process – by those with the most power and the loudest voices. But not all change is good, and some may even be counter-productive. Deciding what not to change is just as important as managing the change program.

It seems to me that in this time of global recession, the latent demand for change is building up. The grim realities of interdependent global financial systems, climate change, the global labor market, and resource constraints have caught up with enterprises that have been riding the departed wave of prosperity. But many have hunkered down and are loathe to accept the risk of change when uncertainty is high and performance is low. But change will come – it must come.

Organizations should now prepare to manage their latent demand for change by establishing an effective strategic management system to chart a clear direction, identify and objectively prioritize change opportunities, and manage the pace of change to fit the capacity for change.

Or be swept away by the latent demand.

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