A LEVEL business 3.10 - managing strategic change

Why Change is Resisted (Kotter & Schlesinger)

self interest
different assesment of the situation
low tolerance for change
misinformation

Kotter and Schlesinger's - self interest

Arises from a perceived threat to job security, status and financial position. ‘I will be worse off’

Understandable - why would you want to lose something you believe to be valuable?

Individuals often place their own interests ahead of those of their organisation, particularly if they don't feel a strong loyalty to it

Kotter and Schlesinger's - Misinformation & Misunderstanding

People don't understand why change is needed, perhaps because they are misinformed about the real strategic position of the business

Perception may be widespread that there is no compelling reason for change

Perhaps even an element of people fooling themselves that things are better than they really are

Poor cumminication/lack of trust

Kotter and Schlesinger's - Different Assessment of the Situation

People assess situation differently to managers and see more cost than benefits

Some people may simply disagree with the change proposed, or they may feel they have a better solution

the resistance here is based on disagreement about what is best for the business

Kotter and Schlesinger's - Low Tolerance(Prefer status quo)

reluctance to change, preferring things to stay "the way they are"

Many people need security, predictability & stability in their work

If there is low tolerance of change (perhaps arising from past experience) then resistance to change may grow

Fear that they won’t be able to develop the new skills required after the change, or won’t perform as well

Overcoming Resistance to Change (Kotter & Schlesinger)

education and communication
participation and involvment
facilitation and support
manipulation and cooption
negotiation and bargaining
explicit and implicit coercion

Kotter & Schlesinger - Education & Communication

communicate effectively the reasons why change is needed!

Honest communication about the issues helps people see the logic of change

Effective education helps address misconceptions about the change

need to be delivered consistently and over a long-period for maximum impact

Kotter & Schlesinger - Participation & Involvement

Involvement in process of change can be an effective way of bringing "on-board" people who would otherwise resist

Participation often leads to commitment, not just compliance

A common issue in any change programme is just how much involvement should be permitted. Delays and obstacles need to be avoided

If they participate, there will feel more engaged and their ideas form part of the change if people become part of the process, it’ll be more difficult for them to resist the change

Kotter & Schlesinger - Facilitation & Support

Most people (though not all) will need support to help them cope with change

Key elements of facilitation and support might include additional training, counselling and mentoring as well as simply listening to the concerns of people affected

If fear and anxiety is at the heart of resistance to change, then facilitation and support become particularly important

Kotter & Schlesinger - Co-option & Manipulation

Manipulation involves the selective use of information to encourage people to behave in a particular way

Whilst the use of manipulation might be seen as unethical, it might be the only option if other methods of overcoming resistance to change prove ineffective

Cooption giving a leading member of the resistors a key role in implementing change, hope that other resistors can be convinced if the benefits if change

Kotter & Schlesinger - Negotiation & Bargaining

The idea here is to give people who resist an incentive to change - or leave

might involve offering better financial rewards for those who accept the requirements of the change programme (higher pay rates for productivity)

Alternatively, enhanced rewards for leaving might also be offered

This approach is commonly used when a business needs to restructure the organisation (e.g. by delayering)

Kotter & Schlesinger - Explicit & Implicit Coercion

This approach is very much the "last resort" if other methods of overcoming resistance to change fail

Explicit coercion involves people been told exactly what the implications of resisting change will be

Implicit coercion involves suggesting the likely negative consequences for the business of failing to change, without making explicit threats

The big issue with using coercion is that it almost inevitably damages trust between people in a business and can lead to damaged morale (in the short-term)

Can impact motivation, absenteeism, staff turnover

Lewin's Force Field Model (Change Management)

ensure that a business responds to the environment in which it operates.

Change is the result of dissatisfaction with present strategies

forces for change - forces resisting change

driving forces - restraining forces

Lewin's analysis can be used to:

Investigate the balance of power involved in an issue

Identify the key stakeholders on the issue

Identify opponents and allies

Identify how to influence the target groups

Forces for change include: internal forces

Internal forces for change (from within the business or organisation)

A general sense that the business could "do better"

Desire to increase profitability and other performance measures

The need to reorganise to increase efficiency and competitiveness

Natural ageing and decline in a business (e.g. machinery, products)

Conflict between departments

The need for greater flexibility in organisational structures

Concerns about ineffective communication, de-motivation or poor business relationships

Forces for change include: external

Increased demands for higher quality and levels of customer service

Uncertain economic conditions

Greater competition

Higher cost of inputs

Legislation & taxes

Political interests

Ethics & social values

Technological change

Globalisation

Scarcity of natural resources

Changing nature and composition of the workforce

main pressure for change in a business is usually external

common reasons why change is resisted include: self interest

Individuals are concerned with the implications for themselves; their view is often biased by their perception of a particular situation

common reasons why change is resisted include: habit

Habit provides both comfort and security

Habits are often well-established and difficult to change

common reasons why change is resisted include: misunderstanding

Communications problems

Inadequate information

common reasons why change is resisted include: diff asess of situ

Disagreement over the need for change

Disagreement over the advantages and disadvantages

common reasons why change is resisted include: economic implications

Employees are likely to resist change which is perceived as affecting their pay or other rewards

Established patterns of working and reward create a vested interest in maintaining the status quo

common reasons why change is resisted include: fear of unknown

Proposed changes which confront people tend to generate fear and anxiety

Introducing new technology or working practices creates uncertainty

organisational barriers to change, including:

Structural inertia

Existing power
structures

Resistance from work groups

Failure of previous change initiatives

a failure by management responsible for the change to if they dont:

Explain the need for change

Provide information

Consult, negotiate and offer support and training

Involve people in the process

Build trust and sense of security

Build employee relations

Strong v Weak Culture

"The way we do things around here"

The shared values of a business
The beliefs and norms that affect every aspect of work life
The behaviours typical of day-to-day behaviour

Signs of a strong organisational culture include:

Staff understand and respond to culture
Little need for policies and procedures
Consistent behaviour
Culture is embedded

Evidence that points to a weak organisational culture include:

Little alignment with business values
Inconsistent behaviour
A need for extensive bureaucracy & procedures

Handy's Model of Organisational Culture

Power, Role, Task and Person.

handys model - Power Culture

control radiates from the centre

concentrates power among a few

few rules and little bureaucracy

swift decisions are possible

Employees likely to be resistant to change

E.g founder with a strong personality

handys model - Role Culture

Individuals have clear roles and know whom they report to

hierarchal bureaucracy

power derives from a persons positions

can work well in a stable environment

handys - Task Culture

teams are formed to solve particular problems (project oriented, emphasis on getting job done )

Common in organizations that have a number of different projects like advertising agencies

no single power source

team may develop own objectives

Likely to think change is normal because they are used to changing teams often and working with a variety of people

Matrix

handys - Person Culture

people believe themselves to be superior to the business

business full of people with similar training background and expertise

common in firms of professionals e.g. accountants and lawyers

power lies in each group of individuals

organization there to assist and serve that individual

Have freedom to act independently

Critical Path Analysis

help project managers to handle complex and time-sensitive operations.

The sequence of project activities which add up to the longest overall duration

Evaluating CPA - adv

Most importantly - helps reduce the risk and costs of complex projects

Encourages careful assessment of the requirements of each activity in a project

Help spot which activities have some slack ("float") and could therefore transfer some resources = better allocation of resources
A decision-making tool and a planning tool - all in one!

Provides managers with a useful overview of a complex project

Links well with other aspects of business planning, including cash flow forecasting and budgeting

Disadvantages of CPA

Reliability of CPA largely based on accurate estimates and assumptions made

CPA does not guarantee the success of a project - that still needs to be managed properly

Resources may not actually be as flexible as management hope when they come to address the network float

Too many activities may the network diagram too complicated. Activities might themselves have to be broken down into mini-projects

What is Planned Strategy?

based around a formal process of setting corporate objectives and developing a coherent business strategy designed to achieve those objectives with the resources available.

The intended strategy
Influenced by specific corporate objectives

Based around a formal strategy planning process

Supported by traditional planning tools and methods (e.g. SWOT Analysis, PESTLE framework, Porter's Five Forces)

Described in formal business plan

What is Emergent Strategy?

Is the strategy that actually happens

Responds to events as they arise (e.g. changes in external environment)

Often involves strategic and tactical changes

Is not restricted by formal planning tools and methods

Strategic Drift - why does it happen

Business failing to adapt to a changing external environment (for example social or technological change)

A discovery that what worked before (in terms of competitiveness) doesn't work anymore

Complacency sets in - often built on previous success which management assume will continue

Senior management deny there is a problem, even when faced with the evidence

The Four Phases of Strategic Drift

Incremental Change
Strategic Drift
Flux
Transformational Change or Death

Phase 1 - Incremental Change

In this phase there is little significant change in the external environment. A series of small, incremental changes to strategy enable the business to remain in touch with the external environment.

Phase 2 - Strategic Drift

Now things are starting to drift apart. The rate of change in the external environment is accelerating and small, incremental changes in strategy are not enough on their own to remain in touch. The business will be losing its competitive advantage.

Phase 3 - Flux

This phase is characterised by management indecision. There is now a significant gap between what the market expects and what a business is delivering. Management may have recognised this gap and begun to alter strategy, however there is no decisive improvement. There may be disagreement between the senior management team about how to address what is now significant strategic drift.

Phase 4 - Transformational Change or Death

The moment of truth. Either management recognise the need for a transformational change in strategic direction, or the business fails. It often takes new, external leadership for this recognition to be made and the relevant strategic change programme implemented. For some businesses, this phase comes too late.

examples of businesses that suffered from strategic drift

kodak - failed to respond to rapid development and take up of digital photography despite having created such technology

nokia - lost dominant global market leadership in mobile phone by failing to respond to smartphone technology

Ownership and Control of a Business

owners of a company normally elect a Board of Directors to control the business's resources for them. Often in smaller firms, there is no difference between the Directors and the Shareholders - they are the same person or people.

However, when the share ownership of the business becomes more widespread (for example when shares are sold to external investors) the original owners of the business sacrifice some of their control

This may lead to conflict between them as different shareholders can have varying objectives. This is known as the principal agent problem.

The Principal Agent Problem

revolves around how best to get your employees to act in your interests rather than their own

Shareholders tend to want strong returns in the form of dividend payments and a rising share price.

The problem is the many shareholders have no day-to-day control over managers.

Strategies to deal with the potential conflict between shareholders and managers include:

Ensuring that financial rewards and incentives offered to managers are aligned with shareholder holder interests - e.g. based on the share price, dividends, profits achieved

Implementing suitable corporate governance procedures to ensure shareholders are protected as far as possible (e.g. through non-executive directors, management remuneration committees)

Company legislation

Activist Shareholders

Activist shareholders look to put pressure on existing management or force through changes to management boards.

Some insist on businesses using profits to buy-back shares to increase returns to existing shareholders.

An activist shareholder uses an equity stake to put pressure on existing management.

The goals of activist shareholders can range from financial (e.g. increase of shareholder value through changes in dividend decisions, plans for cost cutting or investment projects etc.) to non-financial (e.g. dis-investment from particular countries with a poor human rights record, or pressuring a business to speed up the adoption of environmentally friendly policies

Contingency Planning

aim of contingency planning is to minimise the impact of a significant foreseeable event and to plan for how the business will resume normal operations after the event.

contingency planning should focus on the most important risks; those that have the potential for significant business disruption or damage

Contingency planning involves:

Preparing for predictable and quantifiable problems

Preparing for unexpected and unwelcome events

Contingency planning is one of the three approaches a business can take to manage risk. These are:

Risk management: identifying and dealing with the risks threatening a business

Contingency planning: planning for unforeseen events

Crisis management: handling potentially dangerous events for a business

What is Involved in Contingency Planning?

Identifying what and how things can and might go wrong

Understanding the potential effects if things go wrong

Devising plans to cope with the threats

Putting in place strategies to deal with the risks before they happen

Some examples of how action can be taken to reduce risk include:

Marketing = Avoid over-reliance on customers or products
Develop multiple distribution channels
Test marketing for new products

Operations = Hold spare capacity
Rigorous quality assurance & control procedures & culture

Finance = Insurance against bad debts
Investment appraisal techniques

People = Key man insurance - protect against loss of key staff
Rigorous recruitment & selection procedures