Hydrogen transport: How will the customers actually get their energy? Part 1

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A serious impediment to sustainable energy supplies is its availability for customers where and when it is needed. Thus, transporting and storing energy is a crucial factor for success in the energy transition.

While electricity cannot be transmitted over longer distances without significant losses, hydrogen can be transported as well as stored without losing too much of the energy contained. But how does it work and how much will it cost customers to get their hydrogen?

In the first part of our mini-series “Hydrogen Transport: How will the customers actually get their energy?” we will answer this question on a global scale, i.e. we will analyze the international transport from the regions producing hydrogen to countries with a high demand. Regional hydrogen deployment options will be the topic of Part 2.

Rational for a global hydrogen transport

The costs of green hydrogen production are mainly determined by two factors: the cost of electricity and the availability of renewable electricity. Fasihi and Breyer as well as many other research teams have shown that some regions haver significantly better conditions for green hydrogen production than others. Among the preferred regions there are Australia, large parts of Africa and Southern America, plus some region in the US.

The demand for green hydrogen is primarily driven by the energy demand in industrial countries. According to a study by McKinsey, The offtakers will be located in the US, Europe, China, Japan and Korea. Apart from the US, all these countries are characterized by high hydrogen production costs.

Because of this discrepancy, hydrogen transport is the logical answer. But how can this be realized bearing in mind the physical properties of the substance?

Options for hydrogen transport

Being a gaseous energy carrier, the first options which come to mind are those already used for natural gas transport today, i.e. the use of pipelines and, similar to liquified natural gas (LNG), liquified hydrogen transport by ship.

The difference is the lower volumetric energy density of hydrogen. A cubic meter hydrogen only contains one third of the energy of a cubic meter natural gas – and LNG contains roughly four to five times more energy than liquified hydrogen.

To reduce volume and transportation costs, hydrogen can be converted into liquid energy carriers with higher volumetric energy density. The best known and technically most mature ones are ammonia and liquid organic hydrogen carriers (LOHC) as e.g. methanol.

What are the costs of global hydrogen transport?

The costs for transporting hydrogen by pipeline are determined by energy consumption for compression and depreciation of the piping system. According to Galimova et al., this is approximately 0.50 € per 1,000 km. Due to the strong dependency on distance, pipelines are attractive for shorter distances only, especially if new infrastructure is required which increases depreciation related costs.

For the other three options, costs are determined by three process steps: the conversion of hydrogen into the transport medium, the transport itself, and the re-conversion to hydrogen.

Liquifying hydrogen involves significant energy consumption which cannot be recovered later in the process. Besides, the transportation of liquid hydrogen requires special equipment which drives investment costs. Thus, liquid hydrogen is only feasible for shorter distances and higher volumes if no pipelines are available or new pipelines are too expensive.

Being an organic material, LOHC requires sustainable carbon which is not available in vast quantities in suitable molecules (i.e. CO or CO2). At the same time, high energy density minimizes transportation costs and, depending on the target usage, re-conversion may not be necessary as LOHC can be directly used as a source of energy. These characteristics make LOHC an attractive transport medium for longer distances but for smaller volumes and special use cases, e.g. sustainable fuels for aviation or maritime applications.

In contrast, ammonia utilizes nitrogen, which can easily be extracted from ambient air. Together with low transport costs due to a high energy density, ammonia is the preferred transport option for long distance shipping of large quantities.

The chart above, provided by Herib Blanco, visualizes the different solutions for hydrogen transport and the related costs depending on distance and volume. According to research by Roland Berger, the expected costs range from two to five Euro per kilo of hydrogen – depending on the distance and chosen transport option

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5 Years of RNO-Consulting

5 Years of RNO-Consulting

We’re celebrating an anniversary – 5 years of RNO-Consulting. Since 2019, we have been ensuring that you stay one step ahead of your competition – and we want to celebrate this together with you!

5 Years of RNO-Consulting: 5% for you and 5% for the region

As a thank you for the past 5 years, we are offering you a 5% discount on all new orders, regardless of whether we have worked on common ground in the past or not.

Additionally, we will donate 5% of the invoice amount to the regional sustainability project “Wir forsten auf” (We are reforesting) of our partner, Wäller Helfen. With this gesture, we do not only want to express our gratitude to you for 5 years of RNO-Consulting but also express our gratitude to the region from which we operate.

Contact us now and schedule a free, non-binding consultation so that you can directly gain a threefold benefit from our 5 years of RNO-Consulting promotion: from our expertise, the attractive promotional discount, and by contributing to regional climate protection!

5 Years of RNO-Consulting: Knowledge + Experience = Expertise

Those of you who have already participated in the 5-year journey of RNO-Consulting know what sets our expertise apart and how we distinguish ourselves from other consulting firms: profound subject knowledge and extensive industry experience, combined with a pragmatic implementation mentality that prioritizes adding value for our clients as the ultimate goal.

The foundation of our expertise is based on the solid technical and economic university education of our founder and owner, Dr. Tobias Panne. This is complemented by a consistently practiced principle of continuous professional development in relevant subject areas. This ensures that we truly understand your issues and can always offer solutions that reflect current knowledge and the latest state of technology.

The combination of technical and economic expertise is not only reflected in our theoretical knowledge but also in our practical skills. In addition to the consulting experience gained over 5 years with RNO-Consulting, we professional experience of over 15 years from companies in mechanical and plant engineering, automotive and energy technology, as well as reputable research institutes. With this background we ensure that the solutions we develop for your problems make sense and can also be implemented within the context of your company.

That this combination works is evident not only from our clients who we have been working with during the last 5 years of RNO-Consulting, but also from the external certifications we have received over the years: Since 2020 we have been Certified Consultant in the BVMW Consultancy Network, prior to our move to the Westerwald region we were awarded “Starker Partner” (Strong Partner) by the “Revier Manager” magazine and from 2023 we are listed by the International Council of Management Consulting Institutes as „ISO 20700 Trained Consultant“.

5 Years of RNO-Consulting: Risk minimized, Opportunities maximized, Success granted

Since our establishment, we have consistently worked towards ensuring your long-term success. To ensure this even in dynamic conditions, we focus on three key areas: minimizing risks, realizing new opportunities, and implementing strategies and work methods that allow you to respond adaptively to changes.

Under the keyword risk minimized, we focus on services related to risk management. These range from the development and implementation of tailored risk management systems for your company to the operational support of your projects and training your staff on dealing with uncertainty in the business context.

Opportunities maximized includes services that enable you to identify and capitalize on new opportunities for your company. This area covers topics such as “Innovation and Innovation Management,” as well as the optimization of processes and the targeted use of mistakes as a source of knowledge.

With the third topic area, success granted, we focus on the strategic alignment of your company. Through adaptive strategy approaches, we enable you to flexibly achieve your goals. Scenario planning provides you with insights into future options, and the implementation of a self-learning organization helps you integrate changes promptly into the corporate reality.

5 Years of RNO-Consulting: Consulting made in Westerwald

We support our clients across Europe from our chosen home in the Westerwald region, just outside the gates of Koblenz. Since our homeland is as dear to us as our clients, with our anniversary campaign “5 Years of RNO-Consulting,” we wish not only to express gratitude for your loyalty and trust but also to express our gratitude to the Westerwald. International consulting with local roots: that is consulting made in Westerwald.

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Tool Box Talks: Scenario Planning

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on scenrio planning.

What is scenario planning and when should it be used?

Scenario planning is a strategic planning tool. It analyses the potential development of factors impacting the development of an organization and develops different pictures of its future. Thus, it allows for the development and the test of robust and adaptive stratgeties.

Whenever a company’s enviroment is characterized by ambiguity and frequent changes, scenario planning is a valuable extension in the strategic planning process. The tool’s strengths come into play whenever environmental factors impacting a company’s success are known but not the way they will evolve over time. In these circumstances, scenario planning helps to develop a realistic view on the future and derive strategies to achieve an organisation’s goals and objectives.

How is scenario planning used?

Scenario planning is a five-step process. First one needs to define the boundaries for the scenarios, i.e. the focus (e.g. a specific market, a region or country, a certain technology, etc.) and the time (e.g. the upcoming 12 months, the next 5 years, until 2050, etc.).

Next, the user needs to define the relevant impact parameter. If they are not already known, a PESTEL analysis is the tool of choice to ensure a holistic collection of impact factors. For each of the identified factors the user has to evaluate the potential future development. This should include the spread of potential outcomes as well as the accuracy of the prediction made. Finally, the impact of each factots on the defined targets and dependencies between different factors needs to be worked out.

The third step in the scenario planning process is the selection of scenario-defining parameters. These are characterized by (i) a high impact on the targets, (ii) a low predictability, and (iii) the absence of interdependencies. The number of scenarios is directly linked to the number of defining parameters: one parameter will lead to two scenarios, two parameters will result in four scenarios, three parameters can be used building eight scenarios and so on.

Once the defining parameters are selected, the user can formulate the final situation for each scenario by picking a set of extreme results from the defining parameters. These are used to depict a potential future at the end of the selected timeline. This should be as realistic and conclusive as possible and reflect all parameters identified in step two of the scenario planning process.

Finally, a narrative bridging the time between today and the future end points needs to be developed. As before, these stories need to be realistic, conclusive and meaningful for the organisation.

Beware of pitfall!

Scenario planning is not a prediction of the future. It rather highlights dependencies and helps making ambiguities tangible and handable. Thus, it is not the goal to develop the one correct scenario but rather a set of different, equally realistic ones.

As with planning in general, there is apotential danger that some initial impacting factors are unexplored or that the analysed data is biased. To overcome these obstacles, a wide range of people including externals should be involved in the scenario planning process.

Last, the development of a narrative may be tricky, too. The team needs to pay special attention to include all relevant impact parameters and use conclusive developments. Otherwise, the scenarios become blurry and are of little use for the organization.

What are the benefits of using scenario planning?

The primary result of the scenario planning process are the derived scenarios. These are the starting point for the development of robust strategies, i.e. strategies which allow the organization to achieve its goals and objectives independently of the future development. Besides, scenarios can be used to develop an early warning system. This enables the company to react to unfavourable developments early on rather than waiting for significant deviations in the results or to develop option-based strategies.

Another benefit from scenario planning is its systematic interaction with a company’s environmental factors. By frequently changing perspective from today’s boundary conditions to a potential furture development, the involved personnel develop a deeper understanding of how external factors impact the organization. This considerably improves the decision making process as external factors are more likely to be included.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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3 Cost Elements of Green Hydrogen

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Green Hydrogen is considered key to a sustainable and climate neutral energy supply. Neither its production nor its consumption emits carbon dioxide, it can be stored and transported without significant losses and allows for sector coupling. However, these benefits com at a cost. For 2019, statista estimates the costs of the production for green hydrogen at 16.50 €/kg.

Key Drivers of Hydrogen Production Costs

The main obstacle to the commercial success of green hydrogen is its cost compared to other sources of energy. Therefore, one of the most important questions is: How can we reduce

Production costs? To better understand this question and its implications, let’s take a deep dive into what contributes to hydrogen’s production costs.

The main elements defining its production costs are:

  • investment,
  • fixed operational costs,
  • variable operational costs and
  • utilisation.

By investment is meant all expenditure related to hardware incl. engineering and erecting – from electrolysis to piping and fencing. It is primarily impacted by the size and type of electrolysis. As large scale industrial production of electrolysis systems is still in its infancy, Fraunhofer’s IMS assumes that investment costs of electrolysis projects will be roughly cut to 50% of today’s cost level by 2030.

Fixed operational cost (OPEX) is primarily defined by labour and maintenance. Thus, the most probable scenario here are cost increases induced by general inflation effects. Besides, no significant cost changes can be anticipated.

Variable OPEX is dominated by cost of electricity. Cost for water and other consumables which are required in minor quantities can be neglected for an initial estimation of production costs. Renewable electrical power can be generated for 0.03 to 0.17 €/kWh, depending on the utilized energy source and the size of the production facility.

The fourth factor influencing the hydrogen costing system is the utilization of the electrolysis. While variable OPEX is directly proportional to hydrogen production, investment costs and fixed OPEX are constant annual costs. Its impact on cost of production is depending on the overall hydrogen production and thus on capacity utilization. As producers generally try to increase utilization as much as possible, it directly depends on the availability of renewable electricity.

Dependencies in Cost of Production

Cost of production for green hydrogen can, slightly simplified, be calculated from these four factors and the time of depreciation, which is in many cases 10 years. The respective formula is:

 

CoP = V + (F + I / t) / (U * N)

 

CoP = cost of production [€/kg]

V = variable OPEX [€/kg]

F = fixed OPEX [€/a]

I = invest [€]

t = time of depreciation [a]

U = utilization [%]

N = nominal Production [kg/a]

 

As highlighted before, producers can primarily influence two factors: the cost of electricity, i.e. variable OPEX, and capacity utilization. Hydrogen production costs are reduced for lower electricity costs and increasing capacity utilization. Unfortunately, these two factors are not independent of each other for green hydrogen production.

In the example calculations shown in the table below, I assumed a 10 MW electrolysis with 65% efficiency, which would results in an annual hydrogen production of 1,500 t at 100% utilization. The overall investment cost is set at 10 M€ with a 10 years linear depreciation and 150 k€ annual fixed costs. For variable OPEX, only cost of electricity is included while all other costs are neglected for simplicity’s sake.

Bearing in mind that potential sites for large-scale hydropower plants are already used in Germany and thus the optimum scenario with a 10 MW hydropower station is unrealistic, the data showcase the reverse trend in variable and fixed elements in production costs.

Optimizing Cost of Production

Looking at the calculated cost of production, the key question is how to produce green hydrogen both ecologically and economically. One important factor will surely be e reduction in hardware cost. Even if a certain fraction of this effect will be balanced by inflation effects, the relative cost of electrolysis units will go down compared to other energy conversion technologies.

While investment costs for electrolysis technology can be expected to decline over time, a similar effect cannot be expected for wind and solar power. Thus, cost reduction for variable OPEX is rather unlikely, especially as sites with optimum wind and solar conditions will soon be utilized and new wind and solar parks will rather be built on B or C sites with lower average power production.

Finally, electrolysis utilization may be increased by use of power storage and a combination of several renewable electricity sources. Batteries or similar electricity storages can significantly increase utilization but are quite expensive as of today. Thus, an optimization of utilization comes at the cost of increased investments and the effect on hydrogen’s production costs are rather negative.

The approach to improve utilization by using several power sources, e.g. wind and solar power, seems to be more promising in reducing lower production costs. This scenario, however, requires an increased power supply which needs to be provided for. This may impact the average cost of electricity and thus has to be evaluated separately.

This example calculation and the discussion of its results highlight the complexity in green hydrogen economics. Contact us or follow us on LinkedIn to learn more about the topic.

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The 7 Colors of Hydrogen

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Hydrogen (H), a colourless, odourless, tasteless, flammable gaseous substance that is the simplest member of the family of chemical elements.

Hydrogen is colourless – that is a well known fact and not only a definition from Encyclopædia Britannica, and yet, hydrogen is frequently referred to a having a specific colour. However, the colour coding does not define the actual optical appearance of the gas. Rather, it is used to indicate its ecological footprint and its carbon intensity in particular.

Occurrence and Production of Hydrogen

With more than 90% of all atoms and roughly 75% of matter, hydrogen is the most common chemical element in the universe. However, hydrogen only contributes to less than 1% of earth’s overall mass and hardly any terrestrial hydrogen is available as H2 but in more complex molecules like water or methane (i.e. natural gas), making it impossible to exploit natural hydrogen reservoirs on earth.

To make hydrogen available in large quantities one needs to split up molecules which are available in vast quantity. This is primarily done using three processes: steam reforming, methane pyrolysis, and electrolysis.

Today’s hydrogen production primarily relies on steam reforming. In steam reforming, a hydrocarbon – primarily methane – reacts with steam to hydrogen and carbon monoxide. In a subsequent process step, additional water is used to produce carbon dioxide and additional hydrogen from the carbon monoxide.

Another technology, methane pyrolysis, uses methane as starting point. The gas is thermally cracked into hydrogen and carbon. As carbon is a solid, it can easily be separated and stored or used in other processes, thus avoiding any carbon dioxide emissions to the atmosphere.

Perhaps the best-known process for hydrogen production probably is water electrolysis. As most terrestrial hydrogen can be found in water, this technology levers the largest hydrogen reservoir on earth. Electricity is used to split water into hydrogen and oxygen. As no carbonaceous molecules are involved in the process, it does not emit any carbon dioxide at all.

That is How Hydrogen Becomes Colourful

Hydrogen and its derivatives, i.e. energy carriers produced from hydrogen, are an important building block for a sustainable and climate neutral energy supply as no carbon dioxide is emitted when using hydrogen. For a sound evaluation of hydrogen’s climate impact, however, it is necessary to understand the way it is produced – and that is why its colour nomenclature makes sense.

The color of hydrogen determines both the primary hydrogen and energy carrier and the production process. This set of information allows for a rough estimation of the climate footprint of a specific batch of hydrogen and thus whether is can be considered climate friendly or not.

Unfortunately, different users are using different color codes which, in some details, differ from each other. We are following the definitions used by Germany’s National Hydrogen Council and the German Government.

Hydrogen produced from methane and other hydrocarbons using steam reforming is labeled as grey hydrogen. Assuming perfect process conditions, four hydrogen molecules and one carbon dioxide molecule are produced from one methane and two water molecules. The energetic efficiency of the process is at roughly 70%.

The carbon dioxide emissions from this process can be captured and permanently stored underground, either in gas caverns or suited geological formations. While the required process steps prevent emitting carbon dioxide in the atmosphere, they also reduce efficiency as additional energy is required for carbon sequestration and compression. Hydrogen produced by steam reforming from fossil hydrocarbons utilizing carbon capture is labeled as blue hydrogen.

Turquoise hydrogen is hydrogen produced by methane pyrolysis. As with grey and blue hydrogen, the production process utilizes fossil hydrocarbons. But since the byproduct is not carbon dioxide but solid carbon, carbon dioxide emissions are avoided if the energy required for the pyrolysis process is produced in a carbon neutral way. The technology is currently being developed but not yet commercially available at larger scale.

Red, yellow, and green hydrogen all stem from electricity using water electrolysis. There are no direct carbon dioxide emissions, and the energetic efficiency of commercial systems today is in the 60-65% ballpark. The different colors signify differnt sources of electricity.

Yellow hydrogen is hydrogen made from grid power. The energy mix, i.e. the percentage of fossil, nuclear, and renewable energy, is given by the power generation at the very moment the hydrogen is produced. The measure of carbon dioxide emissions of yellow hydrogen are varying because the energy mix is constantly changing – due to availability in solar and wind power and changes on the demand side. In case of a high percentage of coal and gas in the energy mix, the effective emissions of yellow hydrogen may temporarily even be worse than those of grey hydrogen.

In case only electricity from nuclear power plants is used for hydrogen production, this hydrogen is labeled as red. No carbon dioxide is emitted in its entire production process and thus it is climate neutral. However, nuclear power generation produces radioactive wastes which need to be securely stored for centuries. Thus, red hydrogen comes with additional risks.

Electrolysis utilizing only electricity from renewable sources, i.e. wind solar and hydro power, produces so-called green hydrogen. In the process, neither carbon dioxide nor any other harmful substances are produced. Unfortunately, the availability of renewable electricity is generally limited by weather conditions. Therefore, for a continuous production of green hydrogen, large scale batteries are required for storage of electricity.

Finally, orange hydrogen summarizes all production pathways utilizing waste or biomass as input. It is, however, impossible to have a general statement on overall efficiency and cabron bioxide emissions as this will vary depending on the input and the respectively used production technology.

You like to learn more about how to set up a sustainable and economical hydrogen supply? Contact us or follow us on LinkedIn for regular updates.

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Tool Box Talks: PESTEL Analysis

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.
In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on a PESTEL analysis.

What is a PESTEL analysis and when should it be used?

PESTEL analysis is a strategic planning tool. However, it is also used in strategic marketing or quality management. It analyses the external environment of an organisation and provides a holistic overview of external factors the organization should be aware of.
PESTEL analysis is the first of several steps in strategic planning activitities. Whenever external, macroscopic driving forces need to be considered in the planning process, PESTEL analysis is the tool of choice.

How is a PESTEL analysis used?

PESTEL is an acronym for:
P – political factors
E – economic factors
S – social factors
T – technical factors
E – environmental factors
L – legal factors
Conducting a PESTEL analysis requires several steps to be taken. First, the facilitator needs to select a goup of people representing as many different parts and functions of the organization as possible. This group brainstorms driving forces for each of the six topics.
Next, people external tot he organization are interviewed. This ensures that results are unbiased and helps broadening the background from which ideas are taken, thus reducing the risk of missing important factors in the analysis.
IN the next step, the identified driving forces are evaluated. To do so, all available data on each of the factors are collected and reviewed in order to identify the potential impact on the organisation’s objectives.
Finally, the list of driving forces is refined based on the previous data evaluation. The result is a list of relevant external factors for each of the six categories. This list is the input for subsequent process steps, e.g. a SWOT analysis.

Beware of pitfall!

While searching external driving forces, a PESTEL analysis focuses on six different topics to help create a holistic picture of the environment. In doing so, the tool forces the user to adopt different points of view on the environment. Though this aids to minimize bias effects it does not guarantee that the team will identify all relevant factors. Thus, while preparing for a PESTEL analysis, the group discussion leader needs to pay attention on the selection of participants – both the internals for step one and the externals involved in step two. The broader the experience and background of those involved, the higher the likelihood that all relevant driving forces will be captured.
The same is true for the data analysis in step three. In order to obtain reliable results, the team needs to ensure that inputs are not only taken from a few limited sources. Instead, they should try using a baseline as broad as possible in order to avoid biased data. Again, the use of external experts in data gathering and data evaluation may be helpful in generating a neutral and balanced data set.

What are the benefits of using a PESTEL analysis?

A PESTEL analysis generates an overview of factors potentially impacting an organization. In this way the results assist in better understanding the external context in which an organization is operating. This understanding is one of the key requirements when setting up a quality management system according ISO 9001. Results from a PESTEL analysis may also be used as in input for strategic planning like, for example, a scenario analysis.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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Consulting Made in Westerwald

Westerwald Future

The Westerwald is something special: economically strong with many small and medium-sized industrial and artisan businesses, yet not an industrial metropolis, but a scenically highly attractive location that visitors associate more with vacations than with work.

The strength of the local economy is demonstrated by the development of value creation: While the GDP nationwide has only increased by just under 17% in the last decade, growth in the Westerwald was nearly 50%, which is three times higher than the national average.

This provides local businesses with the best conditions to shape a successful future. However, success is not a constant, and this applies in the Westerwald as well as in any other region. Changes in boundary conditions, inefficient handling of scarce resources, or internal misjudgments can lead formerly successful business models to become unsustainable. To remain successful in the long term, companies should therefore fundamentally seek solutions to continuously enhance their future viability.

Solutions from the Westerwald

RNO-Consulting develops such tailor-made solutions. As a regionally rooted management consultancy, we not only utilize tried-and-true approaches but also consider the specific characteristics of businesses in the Westerwald – so that you not only remain successful but also strengthen your unique identity.

Risk minimized

Only those who recognize risks and threats can actively minimize them. RNO-Consulting assists you in efficiently identifying relevant risks and developing and implementing effective countermeasures. This way, we ensure the long-term security of your success.

Opportunities maximized

There are many opportunities and improvement possibilities, but they must be seized. We solve problems within your company, optimize processes and workflows, and assist you in establishing targeted innovation management. This enables you to fully unleash your potentials.

Success granted

Success doesn’t happen by chance; it’s the result of focused efforts. RNO-Consulting is your partner in guiding these efforts in the right direction. This ensures that you stay one step ahead of your competition.

Consultng Made in Westerwald

Consulting at the highest level according to international standards, implementation- and application-oriented for medium-sized businesses, down-to-earth and hands-on like the region – that’s consulting Made in Westerwald, and that’s what RNO-Consulting stands for.

Contact us and get to know us – without obligation and of course free of charge!

International standards – RNO-Consulting operates according to ISO 20700 and is listed with the International Council for Management Consulting Institutes through its owner, Dr. Tobias Panne.

Consulting for medium-sized businesses – since 2020, RNO-Consulting has been certified by the Bundesverband Mittelständischer Wirtschaft for its quality work as a consultant for the medium-sized business sector.

Made in Westerwald – from the region, for the region. As a Westerwald-based company, we are committed to the region and place special emphasis on strengthening it..

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Successfully implementing change – Part 2

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It was Christine’s dream job: project manager for a large digitization project at an established, economically strong medium-sized company. She had the opportunity to fully contribute her experience, the pay and working conditions were attractive, the company offered perspectives beyond the project, and the position itself was a significant career advancement for her.

The first few months were unexpectedly tough. Even though the entire management officially supported the project and its goals, no one wanted to engage in the associated changes. But with her persistent nature and her skills as a change manager, she was eventually able to anchor the necessity of change and form a leadership team that truly supported the project. Christine’s second challenge now was to successfully implement the project.

The power of status quo

The first part of this mini-series showed what obstacles make the preparation of change processes difficult and how important decisions are made in the planning of changes that significantly influence later success. But even if “planning is half the battle,” implementation remains the second half that contributes just as much to the success – or failure – of a project.

When implementing changes, it is also about overcoming the power of the status quo and the inhibiting forces described in the first part of this series. Four elements can help you successfully master this challenge.

Preconditions for successful change

If you want to reap the fruits of success after a good preparation of your change project, you should show your stakeholders that your initiative is successful. At first glance, this may sound like a catch-22 situation, but it can be achieved through four simple elements.

Enable employees

First and foremost, you need to ensure that your employees can act in line with your change project. In established companies, there are a multitude of defined processes and (partially unwritten) rules. These more or less fixed guidelines significantly determine how the company operates and functions.

Changes always mean that certain areas should be handled differently than before. This means that some of the existing guidelines need to be disregarded. However, this only works if you enable and encourage your employees to override existing norms and standards where necessary.

Generate quick wins

In most cases, a change project will not consist of a single measure, but rather a multitude of smaller steps. It is important to take the first relevant steps as quickly as possible.

This can demonstrate, on the one hand, that you are proactive and driving your initiative forward, and on the other hand, that you are heading in the right direction and your project is successful (despite any naysayers). If you can communicate early successes quickly, you solidify your position in the company and gain additional supporters who were initially skeptical of your project. This gives your project new momentum, which is essential for its further implementation.

Consolidate success and initiate further change

In addition to achieving early successes, it is critical to anchor the changes achieved sustainably in the organization. As just shown, achieving milestones leads to even hesitant employees supporting the project. However, if your organization quickly falls back into old habits, this is grist to the mill for those who would like to see the project fail.

At the same time, it is important not to rest on what has already been achieved, but to continue at the same pace and take further steps towards the stated goal.

Anchoring new behaviour

While at the beginning of a change project existing processes and rules need to be broken in order to enable change in the first place, at the end of the initiative it is necessary to establish and anchor new behaviors. Only in this way will the participants in the company also adhere to the new ways of working in the long term, and not fall back into previous patterns out of old habits.

If a company fulfills all four points in the implementation of change measures, it has a good chance of successfully completing the change project.

If you want to be successful in your next change project, contact us.

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Tool Box Talks: Portfolio Matrix

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on a portfolio matrix.

What is a portfolio matrix and when should it be used?

A portfolio matrix is a portfolio management tool that assists its user in keeping track of several projects within the project portfolio. By visualizing process adherence it enables the portfolio manager to identify critical projects at a glance.

This tool is particularly useful when it comes to coordinating a greater set of projects, where the portfolio manager is not identical with the project manager. It helps to gain an overarching view of the project portfolio and to focus resources on those projects whose success is currently under threat.

How is a portfolio matrix used?

A portfolio matrix shows all portfolio projects’ target performances on process adherence, considering two dimensions for each project:

1.) How much does work progress deviate from original time schedules? (x-axis)

2.) How well is current spending within the frame of the pre-arranged budget? (y-axis)

If project portfolios are relatively small, these two dimensions can be visualised by means of a three-step scale (below plan – on plan – ahead of plan), if a portfolio comprises a greater number of projects, it makes sense to use a five-step scale (far below / well ahead of plan – slightly below / ahead of plan – on plan). Here standardized project reports should be used to update regularly the data input.

After each data update the respective project’s process adherence is plotted on the matrix. A project which is located in the middle of the matrix is exactly on schedule in terms of time and costs. The more a project diverges from the middle axis, the greater are the deviations from plan.

If this is the case, the responsible portfolio manager should take necessary measures to ensure process success.

Beware of pitfall!

A portfolio matrix is designed to show deviations from a project’s targets. However, a deviation is not necessarily to be seen as negative. For while it may sound so when a project exceeds the current target budget, there will probably be no reason for the portfolio manager to intervene if the project is ahead of schedule and the costs are in line with the reached project status. So before measures are taken, the deviations in the portfolio matrix should always be discussed in detail with the project manager.

 

Another trap is lacking awareness of priorities of projects. While the portfolio matrix informs about deviations from set targets, it does not make any statement about how relevant projects are within the portfolio. If you wish to make prioritization visible, a weighting factor can be introduced, which is reprresented by a colour code or the physical size of the projects within the matrix.

What are the benefits of using a portfolio matrix?

A portfolio matrix shows portfolio mangers at once what projects within the portfolio work out according to plan and where there are deviations from schedule. This will enable them to focus their attention on projects about to fail.

 

In this way, a portfolio matrix helps companies to use management resources effectively and to direct their focus on activities requiring extra attention.

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Successfully implementing change – Part 1

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It was Christine’s dream job: project manager for a big digitalization project in an established, thriving medium-sized company. She had the opportunity to make full use of her experience, the job was well-paid while she had attractive working conditions, the company offered career advancement opportunities beyond this project and by accepting the position she had made a great career move.

But after only a few weeks she became disillusioned with her new job. No matter who Christine talked to within the executive or management board, everybody supported the digitalization project – but as soon as there was talk about necessary changes to be made, she met with resistance from all sides. “This won’t work”, „It’s too risky“, „Let’s wait and see …“, “Yes, but …” – those were the usual reactions.

The power of the status quo

Cases like Christine’s, in which she met resistance to change is nothing new. As long as you only talk about goals to be achieved, it will be relatively easy to find approval. However, once you start listing the changes required to reach these goals, you’ll suddenly be confronted with a wave of doubts and rejection.

By the way, what is it that makes the status quo so much more attractive compared to change? One reason is sheer force of habit. Humankind gets used to things and processes in less than no time. Once committed to memory, operations are carried out automatically, hence requiring less attention and concentration. To change a routine habit, you need a great deal of energy as you have to focus on the new way of handling things plus put a lot of energy into resisting well-established processes.

Another obstructive force against change is fear. With the status quo, people have the feeling that they know the processes, the way things are connected and their consequences and they tend to think they can control all these things. When you tread new paths, this alleged security is gone because the take-off into the unknown undoubtedly has its risks.

There are many more factors, such as “one’s personal experience” or “personal pride”. The list could be endless; but it all boils down to one truth: To bring about real change, you need to overcome the attraction of established customs.

How change can be successfully put into practice

Seeing this, it is hardly surprising that about three quarters of all change initiatives in companies are doomed to failure. At the same time, at least every fourth initiative is successful. The good news is that chances of success are significantly higher if several aspects are taken into account when it comes to preparing the implementation of change. In the first part of our mini series “Successfully implementing change” we start with taking a closer look at the preparation process necessary for a change initiative to go as planned.

Creating awareness

“We’ve always done it like that.” is often seen as one of the most dangerous statements – and at least in terms of change this is only too true. If efforts to bring about change are to be successful, the mindset behind this declaration has to be overcome.

To do so, all involved persons have to made aware that the changes in question are not only important but absolutely necessary to ensure the success or even the survival of the respective company. Unless it is clear to everybody that carrying on is no alternative; no-one will accept the necessity for change.

Forming a coalition of leadership

While this is being done, you should draw up a competent leadership team. When assembling these change agents you should consider the following aspects:

  1. The team should have sufficient power and authority to put the intended changes into practice.
  2. The change agents should play a key role within the existing organization and ideally be representative of it.
  3. Each change agent should be completely committed to the cause.

It is especially the last point that is vital for successfully implementing change: Those who doubt that change makes sense or will prove advantageous, have no business to be part of the change agent team.

A useful tool to identify suitables candidates for this squad is the stakeholder matrix. A good point of departure is the dimension “interest” as it shows how strongly a person supports the change about to be reached. The dimension “power” must in no way be reduced to questions of rank and hierarchy but should describe how well someone is capable of encouraging others to participate in the process and of winning them over.

Developing a vision and a strategy

The first and foremost job of the change agents is to develop a vision for the change initiative. This vision depicts how the company will look like after the project has been completed: What will have changed, what will remain the same and why will this future situation be better than the present state of affairs? The vision serves as a compass for all activities connected with the project.

Once the goal has been defined, the team can begin to design a strategy that spells out how the organization can develop from the current situation to the company described in the vision. In a way, this guiding vision is like the book of rules for the change process and defines the most important steps on the way to realizing the vision.

Communicating the vision

Communicating this vision is the last key element in preparing change. Usually, staff members are keen on participating in improvement processes of their company. However, this can only be effective if you know where it is that your organization is going.

Here good timing is essential. Without a general awareness that change is strictly necessary, it will be difficult to earn wholehearted approval for the developed vision. Some people will utterly refuse the idea that things have to be changed at all.

If, on the other hand, those in charge one-sidedly emphasize that change is necessary without drawing a clear picture of where the relevant changes are leading, this will cause enormous internal upheaval and make it difficult for people to have trust in the management team, severely hampering the change initiative’s progress.

If a company follows all four pieces of advice when planning to introduce a change initiative, it will be ready for successful implementation. Those aspects and factors that need to be considered to finally reach the set targets, will be the subject of the second part of our blog series.

Should you wish to lead your next project of change to successful completion and are seeking support, do contact us – for free and without any further obligations.

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