ORGANIZATION CHANGE MODULE 2

ORGANIZATION CHANGE

Introduction Change is one reality with which individuals, groups and organizations must constantly cope in order to survive. Change is one of the most critical aspects of effective management. Change is the coping process of moving from the present state to a desired state that individuals, groups and organizations undertake in response to dynamic internal and external factors that alter current realities. All organizations exist in a changing environment and are themselves constantly changing. For example the world of business is thought to be changing in the following ways (Kiechel, 1993):

The average company will become smaller, employing fewer people. The traditional hierarchical organization will give way to a variety of organizational forms, such as networks of specialists. Technicians ranging from computer repairers to radiation therapists will replace manufacturing operatives as the worker elite.

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The

Importance of Change

Change will not disappear or dissipate. Technology, combustion and creative thoughts will maintain their ever-accelerating drive onwards. Managers, and the enterprises, they serve, be they public or private, service or manufacturing, will continue to be judged upon their ability to effectively and efficiently manage change. Unfortunately for the managers of early twenty-first century, their ability to handle complex change situations will be judged over ever decreasing time scales. The pace of change has increased dramatically; mankind wandered the planet on foot for centuries before the invention of the wheel and its subsequent technological convergence with the ox and horse.

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Designing, evaluating and implementing successful change strategies largely depend upon the quality of the management team, in particular the teams ability to design organization in such a way as to facilitate the change process in a responsive and progressive manner.

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Any organization that ignores change does so at its own peril. One might suggest that for many the peril would come sooner rather than later. To survive and prosper organization must adopt strategies that realistically reflect their ability to manage multiple future scenarios. Drucker (1997), for example, argues that: Increasingly a winning strategy will require information about events and conditions outside the institution Only with this information can a business prepare for new changes and challenges arising from sudden shifts in the world economy, and in the nature and content of knowledge itself.

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The fact that these issues have been picked up for discussion

indicates the imperative for change in organization. What is

important, however, is recognition that change occurs continuously, has numerous causes, and needs to be addressed all the time. Lawler (1986) sums this quite effectively by noting that:

Overall planned change is not possible but it is often difficult. The key point is that change is an ongoing process, and it is incorrect to think that a visionary end state can be reached in a highly programmed way.

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Forces

of Change

External Forces of Change Political Forces

Economics Forces
Technological Forces Government Forces Increased global competition Changing Customer Needs and Preferences

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Internal Forces of Change

System Dynamics
Inadequacy of administrative process Individual/Group Speculations Structure Focused Change Technological Changes Persons focused change Profitability Issues Resource constraints

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Organisational Change: Some Determining Factors
The large variety of determinants of organisational change forces dictating change can be organized into 4 major categories. These categories are

created by combining two key distinctions: (1) whether the organisational

change is planned or unplanned by the organisation, and (2) whether it derives from factors internal or external to the organisation.
Some Determining Factors of Change Planned Internal External Internal planned change External planned change Unplanned Internal unplanned change External unplanned change
Cont.

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Unplanned Internal Changes Not all the forces for change are the results of strategic planning. Indeed organizations often are responsive to changes that are unplanned especially those derived from factors internal to the organization. Two such forces are: Changing Employee Demographic Performance Gaps Unplanned External Changes One of the greatest challenges faced by an organization is its ability to respond to change from outside work over which it has little or no control. As the environment changes, organizations must follow the suit. Research has shown that organizations that can best adapt to changing conditions tend to survive (Singh, House & Tucker, 1986). Two of the most important unplanned external factors are: Government Regulation `Economic Competition in the Global Arena

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Methods to handle recession Restructuring of Business Manage Poor Performers

Focus on Training and Development

Nurturance of talents

Rewarding employees
Manage Employee Motivation

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Variations of organizational change: A summary organizational changes may be either planned or unplanned, and based on either internal or external forces. Some examples of changes within each of the four categories are listed here.
Is the change based on internal or external factors Is the change planned or Unplanned change

Planned Internal change Changes in products or service Changes in administrative systems Change in organization size or structure (e.g. downsizing, outsourcing etc.) Introduction and new technology Advances in information processing and communication.

Unplanned Changing employee demographics Performance gaps

External changes

Government regulation External competition HR Management in Recession

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Types of Change

Happened Change
Reactive Change Anticipatory Change Planned Changed Incremental Change Operational change Strategic change Directional Change

Fundamental Change Total Change Transformational Change Revolutionary change Recreation

Cont.

Types of Change
Types of Change
Directional Fundamental change Operational change Total Change Planned Changed Happened change Transformational Change

Nature
Occurs under conditions of severe competition, regulatory shifts in government policy, and unsuccessful business strategy. Redefinition of current purpose or mission. Improvement of quality, quantity, timeliness unit cost of operations in developing products/services Developing a new vision, achieving a turnaround. A drastic surgery of the existing system. Basically an operational change on a calculated basis as responses to internal and external demands e.g. downsizing. Unpredictable occurs due to external causes over which one may have no control. Has profound/traumatic effect on the organization. Change involving the entire or a greater part of the organization due to a severe threat to its survival. The threat may occur from industrial discontinuities, shifts in the products life-cycle or internal changes. Abrupt change in the organizations strategy and design. Tearing down the old structure and building a new era. A metamorphosis becoming not just better, but different. Change of all or most of the organization component. Changes carried out in expectation of an event. In anticipation of such change, the organizations may tune-in (incremental change) or reorient itself. Response to an event or series of events. Adaptive changes are limited to a subsystem or part of the subsystems. Recreation can also be reactive but involves the whole organization.

Revolutionary changes Recreation Strategic Change Anticipatory Change Reactive Change

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1.

The Change Agent

Clients/managers often do not know what is wrong and need special help in diagnosing what their problems actually are.
Clients/managers often do not know what kinds of help consultants can give to them; they need to be helped to know what kind to help to seek. Most clients/managers have a constructive intent to improve things, but they need help in identifying what to improve, and how to improve it. Most organizations can be more effective than they are if they learn and diagnose and manage their own strengths and weaknesses. The essential function of process consultation is to pass on the skills of how to diagnose and fix organizational problems so that the client is more able to continue on his own to improve the organization.

2.

3.

4.

5.

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The Golden Rules of the Change Agent The issues related to participation become apparent when we look in closer detail at the role and positioning of the change agent in the process of change itself. In essence there are four golden rules (Lippit, 1959) that the change agent has to observe. Rule 1: The Nature of Relationship

Rule 2: To action an OD process within any organization, the change agent has to help solve a current or potential problem.
Rule 3: The relationship is a temporary one and the change agent and the organization must accept the temporary nature of the assistance being provided.

Rule 4: The change agent must be an outsider who is not part of the hierarchical power system in which the client organization is located.

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The change agents approach to change There are certain issues that the change agents will have to deal with in terms of each of stage of the change process. The first problem facing the change agent is one of definition. They have to ask the following. What is Causing the Problem? Why do I want to enter into this relationship? Who is likely to be affected by change in this client system and how are they likely to react? What can I do to help this organization change?

Who should I be at certain points in time?

How do I get constant change in this organization?

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Models of change

Characteristics of Effective Change Programs

Motivating change by creating a readiness for the employees and attempting to overcome resistance to change; change among

Creating a shared vision of the desired future state of the organization; Developing political support for the needed changes; Managing the transition from the current state to the desired future state; and Sustaining momentum for change so that it will be carried to completion.

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Motivating change.
Creating readiness for change. Overcoming resistance for change.

Initiative Contributing to Effective Change Management

Creating a vision
Energizing commitment Describing a desired future state

Developing Political Support

Assessing change-agent power Identifying key stakeholders Influencing stakeholders Effective Change Management

Managing the Transition

Activity Planning Commitment Planning Management Structure

Sustaining Momentum
Providing resources for change Building a support system for change agents Developing new competencies and skills Reinforcing new behaviours

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Models

of Change

Systems model of Change Force Field Analysis Continuous Change Process Model Change and Transition Management Organisational Growth Model

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Systems Model of Change
A System Model of change

People

Culture

Task

Technology

Design

Strategy

Cont.

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Lewins Force Field Analysis Model
Reactions to Change Based on Sources of Change Internally generated change Proactive stances Positive feelings Greater driving forces Higher certainty Higher control Less disruption Externally generated change Reactive response Negative feelings Greater restraining forces Higher uncertainty Lowered control High disruption Lewins Process of Organisational Change

Old state

Unfreeze (Awareness of need for change)

Change (Movement from old state to new state)

Refreeze (Assurance of permanent change)

New State
Cont.

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The Continuous Change Process Model
Continuous Change Process Model of Organisation Change

1. Forces for change

2. Recognise and define problem

3. Problem solving

Change Agent

5. Measure, evaluate, control

4. Implement the change

Transition Management
Cont.

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Priority
1. 2. 3. 4.

Prerequisites
Ensuring senior management commitment to the imposed changes, which needs to be visible to all participants throughout the organization. Producing a written statement about the future direction of the organization that makes clear its new objectives, values and policies. Creating a shared awareness of condition to produce a common perception that change must be implemented. Assembling a body of key managers and other important opinion-formers to gain their commitment to the change process so that this may be disseminated more widely.

5.
6 7 8.

Generating an acceptance that this type of change will require a longtime to implement fully even though there may be short-term, dramatic changes as part of the overall process of transformation.
Recognising that resistance to change is part of the normal process of adaptation, so that manager can be effective to be aware of this and equipped to manage this reaction. Educating participants about the need for change and training them with the necessary competence to be effective to overcome resistance and gain commitment. Preserving with the change process and avoiding blame where an attempt to implement a facet of this process fails. Such negative action will generate resistance and reduce necessary risk-taking behaviour. Facilitating the change process with necessary resources. Maintaining open communication about process, mistake and subsequent learning.
Cont.

9. 10

Beckhards Ten organisational prerequisites for Transformational Change

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Change and Transition Management
Model of Perceptual Transition Management (Buchanan & McCalman, 1989
THEORY Interlocking Processes PRACTICES

Trigger layer

Opportunity, threat, crisis. Clarify, express, communicate

Vision layer

Define the future (including structure)

Challenges, excitement, innovation

Conversion layer

Persuade, recruit disciples Detail the structure

Maintenance and renewal layer

Sustain and enhance belief Reinforce and justify Regression avoidance (ritual)
Cont.

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Organisational Growth Model

The Five Stages of Growth

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Forms of organizational changes Merger and acquisition
Merger

A transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage. The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock Example: Company A+ Company B= Company C.

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Acquisition A transaction where one firms buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine together to form a new company altogether. Example: Company A+ Company B= Company A.


i.

DIFFERENCE BETWEEN MERGER AND ACQUISITION: ACQUISITION MERGER

Merging of two organization in to one. ii. It is the mutual decision. iii. Merger is expensive than acquisition(higher legal cost). iv. Through merger shareholders can increase their net worth. v. It is time consuming and the company has to maintain so much legal issues. vi. Dilution of ownership occurs in merger.

i.

Buying one organization by another. ii. It can be friendly takeover or hostile takeover. iii. Acquisition is less expensive than merger. iv. Buyers cannot raise their enough capital. v. It is faster and easier transaction. vi. The acquirer does not experience the dilution of ownership.

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Experience in M&A Learn from mistakes of others Define your objectives clearly Complete strategy to achieve goal. SWOT analysis for the merged business - a must Conservative attitude necessary at evaluation desk strong arguments to support project Pick holes in strategy to get the best Will merged units be able to work at efficient / ideal level? Acquire expertise to implement changes

1. Tata 1. TATA STEEL-CORUSSteel-Corus: $12.2BILLION : $12.2 billion

January 30, 2007 Largest Indian take-over After the deal TATAS became the 5th largest

STEEL co.
100 % stake in CORUS paying Rs 428/- per share
Image: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.

2. Hindalco-Novelis: $6 billion

June 2008 Aluminium and copper sector Hindalco Acquired Novelis Hindalco entered the Fortune-500 listing of world's largest companies by sales revenues
Image: Kumar Mangalam Birla (center), chairman of Aditya Birla Group.

7. HDFC Bank-Centurion Bank of Punjab: $2.4 billion

February, 2008 Banking sector Acquisition deal CBoP shareholders got one share of HDFC Bank for every 29 shares held by them. 9,510 crore
Image: Rana Talwar (rear) Centurion Bank of Punjab chairman, Deepak Parekh, HDFC Bank chairman.

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Turnaround management It involves the formulation and implementation of strategic plan and set of action for corporate renewal and restructuring Why turnaround management? 1. Lack of expertise ,experience and weak management 2. Market circumstances , weak management 3. Bankruptcy of holding company 4. Fraud ,insufficient financial control 5. Very strong and successful competition

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Steps in turnaround management 1. Assess the situation and future viability 2. Implementing emergency steps 3. Develop strategic survival plan 4. Implement plan , restructuring the business, survive the crisis

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How People React to Change?
In reactions to change, Individual and group behavior can vary widely across a broad spectrum of possibilities. At one extreme is active resistance; at the other is enthusiastic support for the change (see Figure).
The Spectrum of possible behaviors toward Change
Enthusiastic Cooperation Cooperation under pressure from management Acceptance Passive Resignation Indifference Apathy; loss of interest in the job Doing only what is ordered Regressive behavior Non-learning Protests Working to rule Doing as little as possible Slowing down Personal withdrawal (increase time off job and away from work) Committing errors Spoilage Deliberate Sabotage

Acceptance

Indifference Passive Resistance

Active Resistance

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Why

is Change Often Resisted?

Why Individuals Resist Change? Selective Perception Lack of Information Fear of the unknown Habit Resentment towards the initiator Why Organizations Resist Change? Power Maintenance Structural Stability Functional Sub optimization Organizational Culture Group Norms

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Overcoming Resistance to Change

Research has identified six general strategies for overcoming resistance to change (Kotter & Schlesinger, 1979). Table 3.1 illustrates the kinds of situations in which these approaches might be used, along with the advantage and disadvantages of each. It is the managers job to match the demands of a change situation with the best approach to overcoming resistance with minimum disruption.

Education and communication

Participation and Involvement Facilitation and Support Negotiation and Agreement Manipulation and Co-optation Explicit and Implicit Coercion

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Methods for Dealing with Resistance to Change Approach
Education and Communication Participation and Involvement

Commonly used
When there is lack of information or inaccurate information and analyses Where the initiators do not have all the information they need to design the change, and where other have considerable power to resist. When people are resisting because of adjustment problems When someone or some group will clearly lose out in a change and when that group has considerable power to resist Where other tactics will not work or are too expensive Where speed is essential, and the change imitator possess considerable power

Advantages
Once persuaded people will often help with the implementation of the change People who participate will be committed to implementing change, and any relevant information they have will be integrated into the change plan. No other approach works as well with adjustment problems Sometimes its a relatively easy way to avoid major resistance

Disadvantage
Can be very time consuming if lots of people are involved Can be very time consuming if participants design an inappropriate change. Can be very time consuming, expensive and still fail Can be too expensive in many cases if it alerts other to negotiate for competence. Can lead to future problems if people feel manipulated. Can be risky if it leaves people mad at the initiator.

Facilitation and Support

Negotiation and Agreement

Manipulation and Cooptation Explicit and implicit coercion

It can be relatively quick and inexpensive solution to resistance problems. It is speedy and can overcome any kind of resistance.

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Minimizing Resistance to Change

Resistance to change by those affected is often the single most formidable obstacle to its successful realization. It is to be understood at the outset that resistance to a change is not the fundamental problem to be solved.
There are different methods that the managers can use to minimize resistance. These include
Compulsion, Threats and Bribery Persuasion, Rewards & Bargaining Security and Guarantees Understanding and Discussions Time and Timing Involvement and Participation

Flexibility and the Tentative Approach

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Change and the Leader

Organization and their managers must recognize the change, in itself, is not necessarily a problem. The problem often lies in an ability to effectively manage change: not only can the adopted process be wrong, but also the conceptual framework may lack vision and understanding. Change is now a way of life; organization and more importantly their managers must recognize the need to adopt strategic approaches when facing transformation situation (Burner, 1996).

Competency and change Change and the Human Resources Ensuring Managerial value and the Trinity Effective Implementation of Change Change: Implication for Managerial Competence Required Attributes, Skills and Competencies Development of Managerial Abilities