MS-25

Management Programme

ASSIGNMENT SECOND SEMESTER 2013

MS-25: Managing Change in Organisations

School of Management Studies INDIRA GANDHI NATIONAL OPEN UNIVERSITY MAIDAN GARHI, NEW DELHI 110 068

ASSIGNMENT Course Code Course Title Assignment Code Coverage : : : : MS - 25 Managing Change in Organisations MS-25/TMA/SEM - II/2013 All Blocks

Note : Attempt all the questions and submit this assignment on or before 31 st October, 2013 to the coordinator of your study centre.

1. What is Turnaround Management? Explain how turn around Management can be used for bringing change in organisations. Give examples. 2. State the reasons for the change to occur in organisations and substantiate it with illustrations. 3. Explain the importance of interventions to be used in bringing about change in organisations. Describe any two interventions and their merits and demerits in the context of organisations. 4. Differentiate between Transactional and Transformational leadership. Describe the competencies and skills required for a leader in order to bring change in organisations. 5. Describe various steps involved in organisational change to occur. Briefly discuss the role of chief implementor in bringing change in organisations.

ANSWERS 1. Turnaround management is a process dedicated to corporate renewal. It uses analysis and planning to save troubled companies and returns them to solvency. Turnaround management involves management review, activity based costing, root failure causes analysis, and SWOT analysis to determine why the company is failing. Once analysis is completed, a long term strategic plan and restructuring plan are created. These plans may or may not involve a bankruptcy filing. Once approved, turnaround professionals begin to implement the plan, continually reviewing its progress and make changes to the plan as needed to ensure the company returns to solvency.
Turn around is when weak company is acquired it is rapidly subjected to turnaround management. Also when a sound and profitable company has been purchased, it is subjected to some form of turnaround management, to realize the synergies so as to increase profits and shareholders value which goes with a major acquisitions. Peripheral noncore activities are often sold out to concentrate on the organisation core business to enable the comany to increase its market share. Turnaround is also confused with the downsizing are restructuring downsizing might be part of a turnaround plan, it does not, by itself, constitute around a turnaround downsizing cannot guarantee a sick company survival and prosperity. The term turaround management primarily refers to companies or other organisations in distress. Organisations are normally sick when measured on different criteria. They often display life threating symptoms and the urgent need for restoring them to health through a whole battery of inteventions-both hard and soft. Arpi and mejke defined turnaround management as the systematic and rapid implementation of a range of measure to correct a seriously unprofitable situatios. It might include dealing with a financial disaster or measure to avoid the highly likely occurrence of such a disaster. Turnaround management includes an element of crisis management. In medical parlance the term company needing turaround management has usually reached a highly crucial and dicisive moment in its life, which could either be for better or for worse. The trnaround management usually reached a highly crucial and decisive moments in its life, which could either be for better or for worse. The turnaround management is simply there to make sure that the turning point it for the better. Turnaround activities are also triggered by acquisitions, mergers and privatization. The activities most commonly initiated of late are. (a) When a smaller company has been acquired. (b) When two companies in the the same industry are merged. (c) When a state hold company just been privatized. The turnaround management can be applied in my organistion and the organisation which I refer are as following : There is a broad spectrum of turnaround situations, which might occue. The anture situations, which might occur. The nature and urgency of the situation in often influenced by certain key parameters which include. (a) the ownership structure of the company. (b) The urgency of the crisais. (c) Whether the company must be radically cost reduced. (d) the management team presently in place. (e) whether the turnaround manager would be the long term CEO or not.

(f) (g) (h) (i) (j) (k) (1) (m) (n) (o)

whether he is assisted by other or not the degree of freedom given to him. the time available to decide on priorities and actions. the suitability of networks and tools used. whether it is a trading company or services or manufacturing company. which industry it represents. The product structure the size in market share. reputation of the company. the competitor profile and position.

Step involved in turnaround management. (i) Discussions before accepting the turnaround assignment is extremely important. (ii) If the distressed company is not in the middle of a life and death fight. (iii) The annual reports. (iv) Accounting on other published material on the organization can be scanned through for a good insight. (v) Establishing numerical benchmarks based on performance standard, (vi) Cash is the first concern, (vii) Cash flow. (viii) Projections for the next one year, (ix) Learning by systematically following a cross functional trail for business re engineering becomes crucial, (x) Business missions. (xi) Blueprint for the future company would be arrived at based on the work done, (xii) Future core business, one or more mission statements with a target description and strategy document. The action plans are also spell out in the process, (xiii) Gaining acceptance. Formal approval, (xiv) Turnaround plans fall in the next steps, (xv) Implementating the plan, (xvi) Designed bluepring with a full approval, (xvii) The implementation phase would have a capable CEO a well designed blueprint with a full approval. (xviii) Monitoring (xix) Monitoring the action plans are also spelt out in the process. Inaddition to these factors and parameters influencing the fturnaround situation organisations usually experience situations which could be described as given below : (a) Many turnaround managers would be their homework first in a situation which faces an immediate cash crisis. (b) There is no time for extensive homework. (c) An unprofitable subsidiary may also lead to a turnaround situations (SBUs) are keenly looked tfor turnaround situations before implementing any strategic changes in the company. (d) Organisations also face situations where cost cutting and downsizing va volume improving or marging improving marketing solutions arise in the company. Cost cutting is not the way to improve the profits, new profit. (e) Leadership crisis is one of the often repeated kinds of turnaround that organisation. (f) Existing turnaround literature is very scare. The practice could be traced t the US. European turnaround also reflects a distinct turnaroud situation.

Turnaround Managers
Turnaround Managers are also called Turnaround Practitioners in the UK, and often are interim managers who only stay as long as it takes to achieve the turnaround. Assignments can take anything from 3 to 24 months depending on the size of the organization and the complexity of the job. Turnaround management does not only apply to distressed companies' it in fact can help in any situation where direction, strategy or a general change of the ways of working needs to be implemented. Therefore turnaround management is closely related to change management, transformation management and post-merger-integration management. High growth situation for example are one typical scenario where turnaround experts also help. More and more turnaround managers are becoming a one-stop-shop and provide help with corporate funding (working closely with banks and the Private Equity community) and with professional services firms (such as lawyers and insolvency practitioners) to have access to a full range of services that are typically needed in a turnaround process. Most turnaround managers are freelancers and work on day rates, but there are a few very high profile individuals who work for very large corporations on an employed basis and usually get 5 year contracts.

Stages
Stages in repositioning of an organization 1. The evaluation and assessment stage 2. The acute needs stage 3. The restructuring stage 4. The stabilization stage 5. The revitalization stage The first stage is delineated as onset of decline (1). Factors that cause this circumstance are new innovations by competitors or a downturn in demand, which leads to a loss of market share and revenue. But also stable companies may find themselves in this stage, because of maladministration or the production of goods that are not interesting for customers. In public organisations are external shocks, like political or economical, reasons that could cause a destabilization of a performance. Sometimes an onset of decline can be temporary and through a corrective action and recovery (2) been fixed. The reposition situation (3) is the point in the process, where the minimally accepted performance is long-lasting below its limits. In empirical studies a performance of turnaround is measured through financial success indicators. These measures ignore other performance indicators such as impact on environment, welfare of staff, and corporate social responsibility. The organizational leaders need to decide, if a strategy change should happen or the current strategy be kept, which could lead on the other hand to a company takeover or an insolvency. In the public sector performances are characterized by multiple aims that are political contested and constructed. Nevertheless, are different criteria of performances used by different stakeholders and even if its use results in the same criteria, it is likely that different weights apply to them. So if a public organization is situated in a turnaround situation, it is subject to the dimensions of a

performance (e.g. equity, efficiency, effectiveness) as well as its approach of their relative importance. This political point of view suggests that a miscarriage in a public service may happen when key stakeholders are ongoing dissatisfied by a performance and therefore the existence of an organisation might be unclear. In the public sector success and failure is judged by the higher bodies that bestow financial, legal, or other different resources on service providers. If decision maker choose to take a new course, because of the realization that actions are required to prevent an ongoing decline, they need at first to search for new strategies (4). Question that need to be asked here are, if the search for a reposition strategy should be participative and decentralized or secretive and centralized or intuitive and incremental or analytic and rational. Here, the selection must be made quickly, since a second turnaround may not be possible after a new or existing poor performance. This means, that a compressed strategy process is necessary and therefore an extensive participation and analysis may be precluded. The same applies to the public sector, because the public authorities are highly visible and politically under pressure to rapidly implement a recovery plan. Is the fifth stage reached, the selection of a new strategy (5a) has been made by the company. Especially researcher typically concentrates on this one of the reposition process. Most of them focus on the structure and its impact on the performance of the strategy that was implemented. It is even stated by the scientist, that a commercial success is again possible after a failing of the company. But different risk-averse groups, like suppliers, customers or staff may be against a change or are sceptical about the implementation of the strategy. These circumstances could result in a blockade of the realization. Also the conclusion is conceivable, that no escape strategy is found (5b), as a result that some targets cant be achieved. In the public sector it is difficult to find a recoverable strategy, which therefore could lead to a permanent failure. The case may also be, that though a recovery plan is technically feasible, it might not be political executable. The implication of the new strategy (6) ensues in the following sixth stage. It is a necessary determinant of organizational success and has to be a fundamental element of a valid turnaround model. Nevertheless, it is important to note, that no empirical study sets a certain turnaround strategy. The outcomes of the turnaround strategies can result in three different ways. First of all a terminal decline (7a) may occur. This is possible for situations, where a bad strategy was chosen or a good strategy might have been implemented poorly. Another conceivable outcome is a continued failure (7b). Here is the restructuring plan failed, but dominant members within the company and the environment still believe that a repositioning is possible. If thats the case, they need to restart at stage four and look for a new strategy. Does an outcome of the new strategy turns out to be good, a turnaround (7c) is called successful. This is achieved, when its appropriate benchmark reaches the level of commercial success, like it was the case before the onset of decline. This is commonly measured in a timeframe between two and four year.

Techniques
There are different techniques that can be applied to cause a repositioning. The four main techniques are known as Retrenchment, Repositioning, Replacement and Renewal:

Retrenchment
The Retrenchment strategy of the turnaround management describes wide-ranging short-term actions, to reduce financial losses, to stabilize the company and to work against the problems, that caused the poor performance.[1] The essential content of the Retrenchment strategy is therefore to reduce scope and the size of a business through Shrinking Selective Strategy. This can be done by selling assets, abandoning difficult markets, stopping unprofitable production lines, downsizing and outsourcing. These procedures are used to generate resources, with the intention to utilize those for more productive activities, and prevent financial losses. Retrenchment is therefore all about an efficient orientation and a refocus on the core business.[2] Despite that many companies are inhibited to perform cutbacks, some of them manage to overcome the resistance. As a result they are able get a better market position in spite of the reductions they made[3] and increase productivity and efficiency.[4] Most practitioners even mention, that a successful turnaround without a planned retrenchment is rarely feasible.[5]

Repositioning
The Repositioning strategy, also known as entrepreneurial strategy, its main focus is to generate revenue with new innovations and change in product portfolio and market position. This includes the development of new products, entering new markets, extrapolating alternative sources of revenue and modifying the image or the mission of a company.[6]

Replacement
Replacement is a strategy, where top managers or the Chief Executive Officer (CEO) are replaced by new ones. This turnaround strategy is used, because it is theorized that new managers bring recovery and a strategic change, as a result of their different experience and backgrounds from their previous work.[7] It is also indispensable to be aware, that new CEOs can cause problems, which are obstructive to achieve a turnaround. For an example, if they change effective organized routines or introduce new administrative overheads and guidelines.[8] Replacement is especially qualified for situations with opinionated CEOs, which are not able to think impartial about certain problems. Instead they rely on their past experience for running the business or belittle the situation as short-termed. The established leaders fail therefore to recognize that a change in the business strategy is necessary to keep the company viable. There are also situations, where CEOs do notice that a current strategy isnt successful as it should be. But this hasnt to imply, that they are capable or even qualified enough to accomplish a turnaround.[9] Is a company against a Replacement of a leader, could this end in a situation, where the declining process will be continued. As result qualified employees resign, the organisation discredits and the resources left will run out as time goes by.[10]

Renewal
With a Renewal a company pursues long-term actions, which are supposed to end in a successful managerial performance. The first step here is to analyse the existing structures within the organisation. This examination may end with a closure of some divisions, a development of new markets/ projects or an expansion in other business areas.[11] A Renewal may also lead to consequences within a company, like the removal of efficient routines or resources. On the other hand are innovative core competencies implemented, which conclude in an increase of knowledge and a stabilization of the company value.[12]

Hurdles or Challenges
Three critical hurdles or challenges that management faces in any repositioning program 1. Design: What type of restructuring is appropriate for dealing with the specific challenge, problem, or opportunity that the company faces? 2. Execution: How should the restructuring process be managed and the many barriers to restructuring overcome so that as much value is created as possible? 3. Marketing: How should the restructuring be explained and portrayed to investors so that value created inside the company is fully credited to its stock price?

Professional Organizations
There are a number of professional industry associations that provide advice, literature and contacts to turn around professionals and academics. Some are:

Turnaround Management Society (International / Focus on Europe) Institute for Turnaround (England) Turnaround Management Association (International) Institut fr die Standardisierung von Unternehmenssanierungen (Germany)

2. Organizations change for a number of different reasons, so they can either react to these reasons or be ahead of them. These reasons include: 1. Crisis: Obviously September 11 is the most dramatic example of a crisis which caused countless organizations, and even industries such as airlines and travel, to change. The recent financial crisis obviously created many changes in the financial services industry as organizations attempted to survive. 2. Performance Gaps: The organization's goals and objectives are not being met or other organizational needs are not being satisfied. Changes are required to close these gaps. 3. New Technology: Identification of new technology and more efficient and economical methods to perform work. 4. Identification of Opportunities: Opportunities are identified in the market place that the organization needs to pursue in order to increase its competitiveness. 5. Reaction to Internal & External Pressure: Management and employees, particularly those in organized unions often exert pressure for change. External pressures come from many areas, including customers, competition, changing government regulations, shareholders, financial markets, and other factors in the organization's external environment. 6. Mergers & Acquisitions: Mergers and acquisitions create change in a number of areas often negatively impacting employees when two organizations are merged and employees in duel functions are made redundant.

7. Change for the Sake of Change: Often times an organization will appoint a new CEO. In order to prove to the board he is doing something, he will make changes just for their own sake. 8. Sounds Good: Another reason organizations may institute certain changes is that other organizations are doing so (such as the old quality circles and re-engineering fads). It sounds good, so the organization tries it. 9. Planned Abandonment: Changes as a result of abandoning declining products, markets, or subsidiaries and allocating resources to innovation and new opportunities.

What Organizations Can Change What organizations can change fall into the following broad areas: 1. Mission, Vision, & Strategy: Organizations should continually ask themselves, "What is our business and what should it be?" Answers to these questions can lead to changes in the organization's mission (the purpose of its business), its vision for the future (what the organization should look like), and its competitive strategy. 2. Technology: Organizations can change their technology (for example the way they produce whatever they sell) in order to increase efficiency and lower costs. 3. Human-Behavioral Changes: Training can be provided to managers and employees to provide new knowledge and skills, or people can be replaced or downsized. As result of the recent financial crisis, many organizations downsized creating massive unemployment that continues to this day. 4. Task-Job Design: The way work is performed in the organization can be changed with new procedures and methods for performing work. 5. Organizational Structure: Organizations can change the way they are structured in order to be more responsive to their external environment. Again to be more responsive to the marketplace, this also includes where decisions should be made in the organization (centralized or decentralized). 6. Organizational Culture: Entities can attempt to change their culture, including management and leadership styles, values and beliefs. Of all the things organizations can change, this is by far the most difficult to undertake.

These are the major elements that organizations can change. It is important to note that changes in one of these elements will usually have an impact on another element. As an example, changing technology may require changes in the human-behavioral area (new knowledge and skills on how to use the technology). .. Organizational change occurs when a company makes a transition from its current state to some desired future state. Managing organizational change is the process of planning and

implementing change in organizations in such a way as to minimize employee resistance and cost to the organization, while also maximizing the effectiveness of the change effort. Today's business environment requires companies to undergo changes almost constantly if they are to remain competitive. Factors such as globalization of markets and rapidly evolving technology force businesses to respond in order to survive. Such changes may be relatively minoras in the case of installing a new software programor quite majoras in the case of refocusing an overall marketing strategy. "Organizations must change because their environments change, " according to Thomas S. Bateman and Carl P. Zeithaml in their book Management: Function and Strategy. "Today, businesses are bombarded by incredibly high rates of change from a frustratingly large number of sources. Insidepressures come from top managers and lower-level employees who push for change. Outside pressures come from changes in the legal, competitive, technological, and economic environments." Organizational change initiatives often arise out of problems faced by a company. In some cases, however, companies are encouraged to change for other, more positive reasons. "Change commonly occurs because the organization experiences some difficulty, " Bateman and Zeithaml wrote. "But sometimes the most constructive change takes place not because of problems but because of opportunities." The authors used the term "performance gap" to describe the difference between a company's actual performance and the performance of which it is capable. Recognition of a performance gap often provides the impetus for change, as companies strive to improve their performance to expected levels. This sort of gap is also where many entrepreneurs find opportunities to begin new businesses. Unfortunately, as Rick Mauer noted in an article for HR Focus, statistics show that many organizational change efforts fail. For example, 50 percent of quality improvement programs fail to meet their goals, and 30 percent of process reengineering efforts are unsuccessful. The most common reason that change efforts fail is that they encounter resistance from employees. Change appears threatening to many people, which makes it difficult to gain their support and commitment to implementing changes. Consequently, the ability to manage change effectively is a highly sought-after skill in managers. Companies need people who can contribute positively to their inevitable change efforts. Areas of Organizational Change Bateman and Zeithaml identified four major areas of organizational change: strategy, technology, structure, and people. All four areas are related, and companies often must institute changes in the other areas when they attempt to change one area. The first area, strategy changes, can take place on a large scalefor example, when a company shifts its resources to enter a new line of businessor on a small scalefor example, when a company makes productivity improvements in order to reduce costs. There are three basic stages for a company making a strategic change:1) realizing that the current strategy is no longer suitable for the company's situation; 2) establishing a vision for the company's future direction; and 3) implementing the change and setting up new systems to support it. Technological changes are often introduced as components of larger strategic changes, although they sometimes take place on their own. An important aspect of changing technology is determining who in the organization will be threatened by the change. To be successful, a technology change must be incorporated into the company's overall systems, and a management structure must be created to support it. Structural changes can also occur due to strategic changes as in the case where a company decides to acquire another business and must integrate itas well as due to operational changes or changes in managerial style. For example, a company that

wished to implement more participative decision making might need to change its hierarchical structure. People changes can become necessary due to other changes, or sometimes companies simply seek to change workers' attitudes and behaviors in order to increase their effectiveness. "Attempting a strategic change, introducing a new technology, and other changes in the work environment may affect people's attitudes (sometimes in a negative way), " Bateman and Zeithaml wrote. "But management frequently initiates programs with a conscious goal of directly and positively changing the people themselves." In any case, people changes can be the most difficult and important part of the overall change process. The science of organization development was created to deal with changing people on the job through techniques such as education and training, team building, and career planning. Resistance to Change A manager trying to implement a change, no matter how small, should expect to encounter some resistance from within the organization. Resistance to change is a normal reaction from people who have become accustomed to a certain way of doing things. Of course, certain situations or tactics can increase resistance. "Individuals, groups, and organizations must be motivated to change. But if people perceive no performance gap or if they consider the gap un-important, they will not have this motivation. Moreover, they will resist changes that others try to introduce, " Bateman and Zeithaml explained. The authors outlined a number of common reasons that people tend to resist change. These include: inertia, or the tendency of people to become comfortable with the status quo; timing, as when change efforts are introduced at a time when workers are busy or have a bad relationship with management; surprise, because people's reflex is to resist when they must deal with a sudden, radical change; or peer pressure, which may cause a group to resist due to antimanagement feelings even if individual members do not oppose the change. Resistance can also grow out of people's perceptions of how the change will affect them personally. They may resist because they fear that they will lose their jobs or their status, because they do not understand the purpose of the change, or simply because they have a different perspective on the change than management. Fortunately, Bateman and Zeithaml noted, there are a number of steps managers can take to help overcome resistance to change. One proven method is education and communication. Employees can be informed about both the nature of the change and the logic behind it before it takes place through reports, memos, group presentations, or individual discussions. Another important component of overcoming resistance is inviting employee participation and involvement in both the design and implementation phases of the change effort. "People who are involved in decisions understand them better and are more committed to them, " Bateman and Zeithaml explained. Another possible approach to managing resistance to change is through facilitation and support. Managers should be sure to provide employees with the resources they need to make the change, be supportive of their efforts, listen to their problems with empathy, and accept that their performance level may drop initially. Some companies manage to overcome resistance to change through negotiation and rewards. They offer employees concrete incentives to ensure their cooperation. Other companies resort to manipulation, or using subtle tactics such as giving a resistance leader a prominent position in the change effort. A final option is coercion, which involves punishing people who resist or using force to ensure their cooperation. Although this method can be useful when speed is of the essence, it can have lingering negative effects on the company. Of course, no method is

appropriate to every situation, and a number of different methods may be combined as needed. As Bateman and Zeithaml stated, "Effective change managers are familiar with the various approaches and capable of flexibly applying them according to the situation." Techniques for Managing Change Effectively Managing change effectively requires moving the organization from its current state to a future desired state at minimal cost to the organization. Bateman and Zeithaml identified three steps for managers to follow in implementing organizational change: 1. Diagnose the current state of the organization. This involves identifying problems the company faces, assigning a level of importance to each one, and assessing the kinds of changes needed to solve the problems. 2. Design the desired future state of the organization. This involves picturing the ideal situation for the company after the change is implemented, conveying this vision clearly to everyone involved in the change effort, and designing a means of transition to the new state. An important part of the transition should be maintaining some sort of stability; some thingssuch as the company's over-all mission or key personnelshould re-main constant in the midst of turmoil to help reduce people's anxiety. 3. Implement the change. This involves managing the transition effectively. It might be helpful to draw up a plan, allocate resources, and appoint a key person to take charge of the change process. The company's leaders should try to generate enthusiasm for the change by sharing their goals and vision and acting as role models. In some cases, it may be useful to try for small victories first in order to pave the way for later successes. "Successfully changing an enterprise requires wisdom, prescience, energy, persistence, communication, education, training, resources, patience, timing, and the right incentives, " John S. McCallum wrote in the Ivey Business Journal. "Successfully leading and managing change is and will continue to be a front-burner responsibility for executives. Prospects are grim for enterprises that either cannot or will not change. Indeed, no industry member is quite so welcome as the one that steadfastly refuses to keep up."