Wednesday, May 17, 2006

Principles of Change Management

I work for a startup which is growing by leaps and bounds. In the year 2006, the company is likely to report a revenue which is approximately 10x of the revenue in 2004. In 2007, the company is likely to go public through an IPO in NASDAQ. This kind of rapid growth is highly valued & even envied. But it also creates one of the biggest challenge - Managing Change. The company in 2006 is vastly different than the one in 2004 or 2005. Rapid growth induces rapid change within the organization. The company now has offices in three countries: USA, India, & Taiwan. In addition the company engages in a global operation with customers in US, Canada, Israel, Portugal and operations in China, India, USA, South Korea, Israel, Malaysia.

This startup represents a new breed of multinational firms - popularly called as born global companies. Rapid globalization presents one of the biggest challenge to any firm. Transforming a small startup into a global company requires the firm to be open for organizational change. Top managers and board of directors have the expertise on devising the best strategic and tactical plans. But to succeed in the organizational transformation, top management must also have an intimate understanding of the human aspect of change management.

Strategic and tactical plans mean nothing without successful execution. These plans have to be successfully executed by employees - Organizational transformation is achieved only through sustained collective action of all employees who are responsible for designing, executing and living in the changed environment.

Human side of change management

Organizational transformation can succeed only when the human aspects of change are considered. It must be noted in this regard that most employees are reluctant to change - humans by nature like stability and are averse to change. So it becomes imperative for the organization to align its organizational culture, corporate values, employees and employee motivation to encourage the desired change. And the company will reap rewards only when change occurs at the level of the individual employee.

Organizational transformation has four characteristics:

Scale: The change affects the entire organization
Magnitude: The change affects significant alternations to existing status quo.
Duration: Most of the changes to employee locations, designations, work flow, processes etc., lasts for several years.
Strategic importance: Some changes have greater strategic importance than others.
Leadership Involvement.

In a recent interview (at Wharton) with Vivek Paul, former CEO of Wipro, Mr. Paul said "We knew we couldn't develop from a small local leader to a large global leader if we didn't develop talent inside the company. We could never hire all the talent we needed," said Paul. So he and his team set out to discover "the DNA of building talent."

Most CEOs involved in organizational transformation say that they are concerned how the company workforce will react, how they can get their team to work together, and how they will be able to lead their people. They also worry about retaining their company’s unique values and sense of identity and about creating a culture of commitment and performance. Leadership that fail to plan for the human side of change often find themselves wondering why their best-laid plans have gone awry.

Research on organizational transformation done by leading universities and management consulting firms have identified a few guiding principles for change management. These guidelines are to be used as a systematic framework to manage and change the entire organization.
  1. Address the "people issues" systematically

    Any organizational transformation will create "people issues". When employees face an uncertainty, they will resist change. All organizational transformation will involve significant changes to job profiles, new skills and capability must be developed. Company leadership must address any employee apprehension early in the change process. This involves top leadership engaging the key stake holders and middle managers early in the planning process, in data collection & analysis. Key stake holders must be involved in planning, implementation of strategy and in all redesign of strategy. Planning and implementation strategy must be based on a realistic assessment of the organization’s readiness and capacity to change. In a well established firm, the history of the firm will indicate the employees readiness & flexibility to change.

    For example, firms such as GM, Chrysler, Ford are more adaptable to reorganization - than Renault or Peugeot. American Auto makers face the toughest competition from all over the world as a result, the entire organization has been transformed several times before and employees are open to changes.

  2. Change starts at the top

    Organizational transformation is stressful on employees at all levels. Employees will turn to CEO and top management team for strength, support and direction. The top leadership must embrace the new approaches first. This will challenge & motivate the rest of the organization. The leadership team must speak with one voice and display the desired behaviors. The CEO also needs to understand that, although leadership team public face may be one of unity, it too is composed of individuals who are going through stressful times and need to be supported. Any display of opposition to changes by the top management team must be done privately - only in front of the leadership team - without the rest of the organization knowing about it.

  3. Organization change efforts must involve all levels

    Changing the organization starts with defining the strategy and setting targets to design and implementation. As the change affect different levels of the organization, the change implementation team therefore must consist of members from all levels of the organization. Leaders at each level of the organization must be identified and trained - so that they are aligned to the company’s vision, equipped to execute their specific mission, and motivated to make change happen.

  4. Establish a need for change

    People are inherently rational and will question why the change is needed and to what extent. Employees need to know the whether the company is headed in the right direction, and whether they want to commit personally to making change happen. They will look to the leadership for answers. Making a formal case for the need to change and creating a written document which describes why the changes are needed, and the new direction the company needs to move - "A written Vision Statement" will answer many of the questions. By making a formal case for the need to change, the leadership team will be able to give consistent answers to employees.

    The formal document must confront reality and articulate a convincing need for change, demonstrate faith that the company has a viable future and the leadership to get there, and provide a road map to guide behavior and decision making. Leaders must then customize this message for various internal audiences, describing the pending change in terms that matter to the individuals.
  5. Create a sense of ownership among employees

    Leaders (from all levels of organization) incharge of organizational transformation must perform during the transformation. It demands ownership by leaders willing to accept responsibility for making change happen in all of the areas they influence or control. Ownership is often best created by involving people in identifying problems and crafting solutions. It is reinforced by incentives and rewards. These can be tangible (for example, financial compensation) or psychological (for example, camaraderie and a sense of shared destiny).

  6. Communicate repeatedly & consistently

    Once the need for change is established and the new direction is chalked out, the need, the plan and direction must be communicated repeatedly and consistently. Often change leaders make the mistake of believing that others understand the issues, feel the need to change, and see the new direction as clearly as they do. But in reality, most of the employees need to constant reinforcement of the messages through regular, timely advice that is both inspirational and practicable.

    Provide employees the right information at the right time and to solicit their input and feedback. Often this will require communication through multiple, redundant channels (training sessions, videotapes, newsletters, and meetings) throughout the transformation process.
  7. Assess cultural needs

    Top management must know the culture of the organization, the behavior at each level of the organization and its willingness to change before embarking on the transformation process. Thorough cultural diagnostics can assess organizational readiness to change, bring major problems to the surface, identify conflicts, and define factors that can recognize and influence sources of leadership and resistance. These diagnostics identify the core values, beliefs, behaviors, and perceptions that must be taken into account for successful change to occur. They serve as the common baseline for designing essential change elements, such as the new corporate vision, and building the infrastructure and programs needed to drive change.

  8. Address cultural needs

    Once the culture is understood, it should be addressed as thoroughly as any other area in a change program. Leaders should be explicit about the culture and underlying behaviors that will best support the new way of doing business, and find opportunities to model and reward those behaviors. This requires developing a baseline, defining an explicit end-state or desired culture, and devising detailed plans to make the transition.

    Company culture is an amalgam of shared history, explicit values and beliefs, and common attitudes and behaviors. Change programs can involve creating a culture (in new companies or those built through multiple acquisitions), combining cultures (in mergers or acquisitions of large companies), or reinforcing cultures (in, say, long established consumer goods or manufacturing companies). Understanding that all companies have a cultural center — the locus of thought, activity, influence, or personal identification — is often an effective way to jump-start culture change.

  9. Prepare for the unexpected

    No change program goes completely according to plan. People react in unexpected ways; areas of anticipated resistance fall away; and the external environment shifts. Effectively managing change requires continual reassessment of its impact and the organization’s willingness and ability to adopt the next wave of transformation. With real data from the field and supported by information and solid decision making processes, change leaders can then make the adjustments necessary to maintain momentum and drive results.

  10. Speak to the individual

    Change is both an institutional journey and a very personal one. People spend many hours each week at work; many think of their colleagues as a second family. Individuals (or teams of individuals) need to know how their work will change, what is expected of them during and after the change program, how they will be measured, and what success or failure will mean for them and those around them.

    Leaders should be as honest and explicit as possible. People will react to what they see and hear around them, and need to be involved in the change process. Highly visible rewards, such as promotion, recognition, and bonuses, should be provided as dramatic reinforcement for embracing change. Sanction or removal of people standing in the way of change will reinforce the institution’s Commitment.
Closing Thoughts

Leaders contemplating change know that people matter. It is all too tempting, however, to dwell
on the plans and processes, which don’t talk back and don’t respond emotionally, rather than face up to the more difficult and more critical human issues. But mastering the "soft" side of change management is the real key for successful organizational change.


Dinesh Tantri said...

I throughly enjoyed reading your post!!Incidentally, I wrote a post today on the challenges of change and the possibility of getting the help of a corporate anthropologist to do cultural diagnosis.

Line said...

I am a cultural anthropologist who does corporate work - including cultural diagnosis.