THE ROLE OF CHANGE MANAGEMENT IN SMALL FIRM GROWTH

BA SENKA BOROVAC ZEKAN1

University Centre for Professional Studies in Split Livanjska 5, 21000 Split E-mail: sborovac@oss.unist.hr

How organisations change and develop has enormus conseguences, not just for their emoployees and owners but for society at large. Given the importance attached to the role of managers in developing strategy and managing change, this work reviews throw the case study of a small croatian firm what managers do and how they do it. In particular, the role of leadership and management development is examined and related to approaches to change management as well as the reasons for change. The work conclude that if managers have considerable choice over what to change and how to change it, then this lays a considerable responsibility on their shoulders. Most organisation theories claim to show organisations how to identify where they are and where they should be.They also, either explicity or implicity, address the issue of change management. But, as this work shows, organisations are social systems where the leadership plays a key role in changing organisations and change is not always a rational process. KEY WORDS: change management, small firm growth, leadership 1. INTRODUCTION The subject of research within this study was to determine the impact of change management on the success of small businesses. The focus on small enterprise is a result of their expected role in the economic development of the Croatian Republic. The main goal of this study is to determine the key steps of successful change management in an entrepreneurial company and to show the results of primary empirical reseach on the company that manages changes and relating these processes to its success. Successful change mangement, resulting in flexibile adaptability and entrepreneurial enterprise that dynamically develops its competitive position. The paper is divided into four parts. After the introduction follows the theoretical introduction and a concise overview of the strategic guidelines of change management in small enterprises as well as the motives for access to the same. The third part of the article deals with a company

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which we discussed the case study. The fourth section summarizes the conclusions of theoretical and empirical research and guidelines are given suggestions for further research. 2. THEORY 2.1. Change management definition Change management has been defined as the process of continually renewing an organizations direction, structure, and capabilities to serve the ever-changing needs of external and internal customers (Moran and Brightman, 2001). According to Burnes (2004) change is an ever-present feature of organisational life, both at an operational and strategic level. Change can be needs or opportunity driven. Change Management refers to the process of continuous improvement, where Organizational Development is totally based on Individual development. Being aware of the present situations and continuously reviewing them for the betterment of people (which includes employees, employers, clients, customer and also their families). Change management is a structured and strategic approach to initiate and manage the change process in the organization structure and culture as well as the individuals/teams behavior and attitude towards the change transition in the field of the business processes, technology implementation or any other policies of an enterprise. The change management process involves the task of managing change using an ethical and professional approach with an appropriate knowledge and common sense with a control mechanism and layout of a well planned organizational communication system. On the Management part, it is imperative to estimate what impact a change will likely have on the employee behavior patterns/motivation, work processes, technological requirements and finances. Management strategies the change process by assessing the reactions of the human resource to seek their co-operation and accesses the financial as well as technology resources so as to make appropriate arrangements such that the change process is implemented as per the vision of the enterprise and can be appropriately monitored for effectiveness and adjusted, if and where necessary. 2.2 Change management model There are several change management models that the enterprises follow while undertaking the Change Management process depending upon the ground realities and the organizational culture of the enterprise seeking the change process. One of such models popularly known as ADKAR Model describes five factors for the change to be realized successfully on an individual level that are as follows: 1.Creating Awareness why the change is needed 2.Inculcating Desire to co-operate and participate in the change process 3.Providing and collating Knowledge to guide the change process 4.Developing Ability and appropriate skills to drive the change process 5.Formulating Reinforcement strategy and plans to sustain the change process Picture 1.The ADKAR model for the Individual Change management developed by ProSci.

ADKAR is a goal-oriented change management model that allows change management teams to focus their activities on specific business results. The model was initially used as a tool for determining if change management activities like communications and training were having the desired results during organizational change. The model has its origins in aligning traditional change management activities to a given result or goal. Building the competency to manage change is not like installing a new technological system or training on a new skill or process. Becoming competent at managing change requires a transformation in the way your organization and the individuals within the organization view and react to change. It targets the foundation of how the organization operates, and how those within the organization see themselves in relation to change. The goal of building the competency to manage change is to give

individuals the perspective, authority and skills they need to support the many different changes they will face. There are five reasons why organizations today need to get serious about building the competency to manage change - what ProSci calls Enterprise Change Management: Competitive advantage, Failed changes, Upcoming changes, Consistent application and Personal competency. 2.3 The Nature of Small Business There is no universally accepted definition of the term small business. As indicated by Stanworth and Curran (1976) defining the small firm is in itself no easy task. Typical criteria include the non-separation of ownership and control, small market share and quantitative definitions, such as the number of employees. The difficulties attributed to the development of a working definition of small firms have resulted in limited debated within the literature. Boswell (1973) summarises the prevailing view that precise definitions based on money measures like assets, turnover or profits are subject to the obvious erosion of inflation, as well as being riddled with statistical and accounting holes. Even measures based on employment, which are closer to common experience, are dubious. More recently, Ang (1991) suggests a number of factors which distinguish small firms from their larger counterparts in the context of financial management practices. These include the fact that the securities of small firms are not publicly traded, owners are undiversified, limited liability is rarely present in a true economic sense, managers tend to have general rather than specific expertise, transaction costs of various sorts are high and, to the extent that management and ownership are separated, the relationship is nevertheless informal. The establishment of these different categories of small firms may be useful in developing more universally applicable definitions. But the problem with most definitions of small business, and lists of attributes, is that once a particular metric is proposed, examples of large businesses can be readily provided that seem to satisfy the particular criteria. Furthermore, anecdotes of what are generally accepted to be small firms can be provided that do not fit all proposed strands of the definition. For example, Stanworth and Curran (1976) indicate that small firms regularly have quite substantial proportions of their often specialised markets. But material growth had been achieved through franchising (or licensing) of the business across geographical areas. 3.METHODOLOGY The Case Study method has been an essential form of research in the social sciences and management (Chelty, 1996). It has been used in research involving business and organisational issues, education, child development and youth policy, family studies, international affairs, evaluation, technology development and research on social problems (Yin 1994). Traditionally, case studies were considered appropriate for exploratory research only. Yin (1989), however, points out that some of the best and famous case studies have been both descriptive. A Case Study is expected to catch the complexity of a single case. Case study is the study of the particularity and complexity of a single case, coming to understand its activity within important circumstances. The company participating in this study Bio-Bio is a leading seller in the healthy food market in Croatia. A change management research study involves five steps, which are as follows: 1. Background information/profile of the business. 2. Motivations for small business ownership. 3. The effect of regulations on the operation of the firm. 4. Attitudes to growth and change. 5. Problems currently impacting the business 4. THE CASE OF BIO BIO 4.1. Background Jadranka Boban Pejic s occupation is special educator. She graduated at the Faculty of Arts in 1986. She remained at the same work as a research fellow until 1989. Zlatko is a musician by profession. They live in Zagreb with their two children. He has always been interested in eastern philosophy, healthy eating and macrobiotics. He studied the Kushi's as a Scholarship at the Michio Kushi Institute. He gained a significant business experience and became macrobiotic counselor for the entire former Yugoslavia. Jadranka and Zlatko noticed that there were no any health food stores in Zagreb. They wanted to transfer their love for a healthy lifestyle and healthy diet to the other, and started to educate and teach people healthy eating. In 1985. Jadranka and Zlatko decided to start their own business. They were born the idea of opening their own business in which the organization is engaged in culinary courses in which one would learn how to cook food according to the macrobiotic way of life. Makronova was formed in 1989. They formed an another company Biovega in 1989. because it was impossible to get that kind of food in Croatia. They had to go for it in Dutch or Austria. No one has seen in this business opportunity but them.The market of healthy food

from organic farming was not there then in Croatia. Imports are set out in 1994. Today, they are representatives of 25 foreign companies (some of them for former Yugoslavia market). 4.2. Motivations for small business ownership They have became major importers for the whole territory of the former Yugoslavia. They have supplied all the health food stores in Croatia. However, they realized that their partners did not develop the pace at which they wanted. At that time Zlatko visited their foreign partners in Dutch and became interested in a franchise concept of business expansion. One couple came to Jadranka and Zlatko asking for opening their own healtly food store, same as they had. They had their own space for the store. Jadranka decided to develop a franchise concept. Bio-Bio is wife and husband coteam product. Developing the Bio-Bio franchise was a project that allowed Jadranka and Zlatko to learn together. One of the first steps they took was to register and protect the name and logo of Bio-Bio . They wanted to build a concept which would be not only attractive to the investors, but which would also ensure them a reasonable return on their investments. The Bio-Bio franchise offering was the result of several months of work and research.It was intended for towns with more than 50,000 inhabitants. Franchisees in towns with fewer than 50,000 inhabitants would have territorial exclusivity; in larger towns this could be negotiated. The location of the store had to be in a town center, near commercial walking zones, shopping centers or similar high-traffic pedestrian areas.The level of initial investment is about 150,000 euros. Most of the investments are related to interior decoration and the first food. Supply. Overal investment returns in about three years. Monthly royalties paid to the franchisor are 3% of turnover. Franchisees were required to use Makrovega and Biovega as designated suppliers so that the franchisor could control the quality of the product, though not the operations of the independent franchisee. In order to have good franchise-relationship functionality, the franchisor had to have an interest in the franchisee business so the franchisor is the only supplier to the franchisees. The franchise package includes education and employees training. In addition, the franchisor provides initial marketing support to the franchisee by establishing contacts with local and national media and helping franchisees with opening their stores. The initial franchise contract for Bio-Bio is for 5 years with the possibility of prolonging the contract after that period. 4.3. The effect of regulations on the operation of the firm. Since the concept of franchising is relatively new to Croatia and its inhabitants, it is necessary to stimulate and incentives franchising relationships. Presently (2010), there are two Centers for Franchising in Osijek and Zagreb. Jadranka and Zlatko collaborate with the one in Osijek. Each works with the Croatian Franchising Association to stimulate franchising development in several ways: Educating about franchising The Franchise Center in Osijek is organizing seminars, "Franchise A to Z," in order to educate entrepreneurs about franchising and its benefits; Franchising promotion both Centers and the Association are trying to promote franchising as a way of doing business through local media interviews, articles in the newspapers and magazines, et al.; Creating websites with information about franchising on the Internet information on the portal with current news; Connecting supply and demand between franchisors and potential franchisees one section of the franchise portal contains offers from franchisors interested in the Croatian market; there are several inquiries each week from potential franchisees; Helping domestic companies to become franchisors The Franchise Center in Osijek, with the help of Poduzetna Hrvatska, organized training for potential franchise consultants who can help domestic companies if they decide to use franchising as a growth strategy; Establishing franchise fairs and round tables. During the last few years, The Republic of Croatia has approved a number of laws which resulted in Croatias acceptance into the World Trade Organization, CEFTA (Central European Free Trade Agreement); these legal changes have also allowed Croatia to begin negotiations for acceptance into the EU. Nevertheless, there is no specific legal basis for franchising in Croatia. Franchising is mentioned in Croatian trade law (Narodne Novine, 2003), where the generalities of potential franchising agreements are stated, but mention is made in only one article and that mention is very condensed. Therefore, there is no legal standard for the development of franchising and no legal parameters (yet) for franchising agreements: at the present time, business practices on the ground determine the appropriateness of such agreements. 4.4 Attitudes to growth and change In mainstream economic literature the supremacy of the economic motive is taken for granted--people act in ways to maximize their profits. In the small business context, a more diverse view may be relevant. We know that people start and operate their own firms for a variety of reasons other than maximizing economic returns (Davidsson, 1989; Delmar, 1996; Gundr y & Welsch, 2001; Kolvereid, 1992; Storey, 1994). This does not mean that their motives are totally irrational. However, it is important to assess the relative importance of

economic and noneconomic motives in order to understand why small business managers exhibit the growth-related attitudes and behaviors that they do. When Jadranka and Zlatko noticed that they do not develop at the rate that they wanted, they were ready for change. But they knew that superficient or cosmetic changes are of no use: the goal is a process of change that ultimately leaves the company completely transformed.That is the reason why they have opted for a completely new way of doing business.They were confident in their products as well as in the philosophy of healthy lifestyle. 4.5 Problems currently impacting the business Development of their own franchise was not cheap for Jadranka and Zlatko. It cost them both money and time. Besides the obvious costs, such as getting the expert advice of lawyers, accountants, and franchise consultants to help them put their franchise package together, they also faced, and are still facing, some other difficulties, such as: Laws there is no legal regulation of franchising in Croatia. The word franchising is only mentioned in Trade Law. But, Croatia is not unusual in this respect: only 52 countries in the world mention franchising in any significant way in their legal systems (Zeidman, P.F , 2006). Common or no, however, the absence of clear legal precedent makes it difficult for Croatian lawyers to help their clients, especially during the contracting phasewhether franchisor or franchisee, whether foreign or domestic investor. Infrastructure there is a dearth of infrastructure related to franchising: no banks that will assist franchisors or franchisees, too few educational centers, no franchise consultants who could help potential franchisors in developing their own networks. Banks seem unable to distinguish between start-up entrepreneurs creating footholds in new franchise sectors and franchisees who are entering preexisting, proven franchise systems. There is not enough education about franchising, so even potential franchisors and franchisees do not know where to go to and who to contact if they would like to find more about franchising and how it can work. Problems with banks (not familiar with franchising) banks do not recognize franchising as a relatively safe way of entering into a new business and do not have any specialized loans for the franchising industry. Small market because there are only 4.5 million inhabitants in Croatia, examinees are pessimistic that the largest franchisors will come to Croatia due to logistical problems. Large and famous franchisors are looking on bigger area in sense of population number developing new franchises, and they often resist adapting to local standards and prices. Smaller franchisors that would like enter to Croatia are not as well known to Croatian entrepreneurs and are therefore seldom franchisors of choice. Franchising is not a well-known way of doing business people seldom recognize what franchising is; 4.FINDINGS Todays dynamic work environment is causing organizations to reframe the traditional view of what normal is. We are witnessing the effects of globalization, technology advances, complex multinational organizations, more frequent partnering across national borders and company boundaries just to mention a few of the enablers and accelerators of change. No longer will companies have the luxury of expecting day-to-day operations to fall into a static or predictable pattern that is interrupted only occasionally by short bursts of change. To prosper, leaders will need to abandon such outdated notions of change. In reality, the new normal is continuous change not the absence of change. Building the organizational competency to effectively implement and manage change is one of the key ways you can set yourself apart from your competitors. In todays marketplace, many organizations have seen the sources of their historic competitive advantage erode. Rapid access to information, common technologies, best practices, suppliers and markets has resulted in parity for many organizations. The new, global economy is forcing organizations to change the way they do work locally and abroad. The coming years promise to have both a larger quantity of changes and more critical changes than any time before. Organizations are constantly working to implement new technologies, upgrade systems, improve productivity, cut cost and manage the human capital in the organization. Improving how your organization manages change will directly impact the success of each of the initiatives underway and those planned for the future. Additionally, the higher priority and more strategic initiatives have a direct impact on how employees do their jobs - meaning there is a greater need for change management. With such tremendous churn on deck, effective change management will be critical to project outcomes and the organization's ability to meet its objectives. Aside from the 'organizational' reasons given above, managing change is an emerging and important individual skill set that leaders, managers and supervisors throughout the organization need to add to their portfolio. A final element of organizational change competency is the collective individual competencies built throughout the organization - from the person sitting at the very top all the way down to front line supervisors and employees. Change management competency shows up across the entire organization, and must be managed both from the organizational and the personal perspective.

5.DISCUSSION Increasing the dynamic changes in the environment of increased interest for the study of change management in companies. In recent years, the small firm has enjoyed much public prominence; it has been seen as a hope for the future, the source of new jobs, new wealth, new products and services. Indeed, a healthy small firm sector is seen by many as a prerequisite for economic growth. Despite this, the small firm is essentially short-lived--many cease to exist within the first two years, and only a few survive beyond five years. Especially interesting are becoming small and medium size companies with flexible and customizable competitive potential afforded by achievements of modern information and communication technology and globalization processes. Perspectives for future research is extending the study to the larger sample of Croatian companie and even to some neighboring countries, which are members of the European Union, and to obtain a statistically representative sample that would enable a comprehansive and a precise comparison of the results. 6.CONCLUSION Change management competencies will be a key source of competitive advantage in upcoming years. The new, global economy is forcing organizations to change the way they do work locally and abroad. How well you manage change in the coming years - and how effectively you build internal change management competencies - will be a key source of competitive advantage and will differentiate you from others in the future. Effective change management will be critical to project outcomes and the organization's ability to meet its objectives. In organizations across the globe, there is in an increased need to truly build the competency to manage change. Building the competency sets your organization apart and improves the execution of each new project being implemented. It allows you to minimize the substantial negative consequences of mismanaging change and better position yourself to be successful on future initiatives. Building the competency to change is not easy - it requires design, project management, change management and commitment from the organization - but it will be critical for success in coming years. Bibliographical references Alon, I., Alpeza, M., Erceg, A.,(2006), Opportunities and threats regarding the development of the franchising business model in Croatia, Seventh International Conference on Enterprise in Transition Ang, J., (1991), Small business uniqueness and the theory of financial management, Journal of Small Business Finance Burnes, B., (2000), Managing change: A strategic approach to organisational dynamics, Financial Times LImited Burnes, B., (2004), Kurt Lewin and the planned approach to change: a re-appraisal, Journal of Management Studies, 41 Chelty, S., (1996), The Case Study Method for Research in Small and Medium sized Firms, International Small Business Journal Davidsson, P., & Wiklund, J. (2000). Conceptual and empirical challenges in the study of firm growth. In D. Sexton & H. Landstrm (Eds.), The Blackwell Handbook of Entrepreneurship (pp. 26-44). Oxford, MA: Blackwell (Chapter 3 in the current volume). Delmar, F. (1996). Entrepreneurial Behavior and Business Performance. (Doctoral Dissertation) Stockholm: Stockholm School of Economics. D.J.Storey, (1986), Understanding the Small Business Sector; Succession in the Family Firm, Journal of Small Business Management, Vol. 24 Gundry, L. K., & Welsch, H. P. (2001). The ambitious entrepreneur: High growth strategies of women-owner enterprises, Journal of Business Venturing, 16 Holmes,S., Zimmer, I., The Nature of the Small Firm: Understanding the Motivations of Growth and NonGrowth Oriented Owners Vol.19, No.1.

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