CHALLENGES TO MANAGEMENT ABSTRACT Two caterpillars were conversing when a beautiful butterfly floated by.

The one caterpillar, staring at the butterfly, said to the other: you will never catch me on one of those butterfly things - Scott Simmerman (1999). In todays competitive market, the management of change is very important. Implementing change in an organization is not an easy task and managing it is even tougher. This report writing is based on the article Understanding and Managing Change by Peters A. H in year 2006. Peters A. H. has done a research in year 2004 on the management of change in a large South African banking institution. Peters A.H had used Kotters (1996) Change Transformation Model: Eight Steps to Transform Organization on the management of change in a large South African banking institution. In actual he only used the first 4 steps in implementing the change management. During our final group presentation with had presented all the below change models: 1) Lewins Three-Step Change Model. 2) Lippitts Seven Steps of Change Model. 3) John Kotter's Change Process Model: Eight Steps to Transform Organization. 4) Blanchards Change Strategy Model In my report writing, I will explain only on the adoption of Kotters (1996) Eight-Step Process to Creating Major Change in my own organization AM SGB SDN BHD. I will be also highlighting the similarities of other change models with Kotters model and also some of the positive and negative critics on Kotters model.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT INTRODUCTION Today the ability to deal with change gains in more importance due to the fast moving environment. The current economy crisis reveals that it is not sufficient for companies to react only. They need to be prepared and implement change continuously. As defined by Porter market forces, i.e. threat of substitute products, threat of the entry of new competitors, intensity of competitive rivalry, bargaining power of customers and bargaining power of suppliers (1979), become truer today than ever. Meanwhile the sustainable development issues, i.e. looking for a balance between today growth and tomorrows development, create the new challenges for organizations (Bielak et al. 2007; Mendonca and Oppenheim 2007; Bonini et al. 2008). Organizations that are willing to continue their business and stay competitive in the new market situation are forced to make changes. Creating competitive advantage in sophisticated industries demands improvement and innovationfinding better ways to compete and exploiting them globally, and relentlessly upgrading the firms products and processes (Porter 1990a, p.67). Here again it shows that changes are very important in todays competitive market.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT What is Change Management? The Kaizen Consulting group defines Change Management on its website as the process of developing a planned approach to change in an organization. Typically the objective is to maximize the collective efforts of all people involved in the change. At its core, change management is primarily a human resource management issue. This is because implementing new procedures, technologies, and overcoming resistance to change are fundamentally "people issues". Meanwhile from the organization point of view the definition of Change Management is Change in an organization essentially means a modification of the way things get done in the system (Fossum, 2002). According to Nickols (2008), change management has at least four basic definitions, which are as follows: i. ii. iii. iv. The task of change management, which refers to the task of managing change in a planned and managed fashion. An area of professional practice where many consultants internationally, profess to specialize in managing change on behalf of clients. A body of knowledge, which consists of models, methods and techniques, tools, skills and other forms of knowledge that goes into making up a practice. A control mechanism, which means Change Management, requires standards, processes and procedures.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT Why does Organization Change? Normally before we implement the change, it is important to understand the reasons for it. According to Sam Palmisano, CEO of IBM since 2002, the question why do I have to change is a problem that everyone running a company wrestles with (Hemp & Stewart, 2004, p.62) McKinsey Quarterly conducted a survey in July 2008 with the first question being why change. A total of 3,199 executives from industries and regions around the world responded. They highlighted the variety of goals that organizations are trying to reach through change processes.

Source: McKinsey Quarterly (J 2008). Creating Organizational Transformations The result shows that 35% of respondents, the main reason to change are to be more competitive. A point shared by Gunilla Masreliez Steen, owner of Kontura International. The main reason for an organization to change is always to do something better, to be more efficient in regard of the customers` needs

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT However in the context of my own organization AMSGB SDN BHD, there are few reasons or crisis that drives the changes. i. ii. iii. iv. v. vi. Increasing speed in market change Importance of competing and beating the customers. Continuing cost containment relates to declining in the profit margin. Poor productivity rate which contributes to higher production cost. Threat of moving the business to another Asian Countries due to cheaper labour cost. Increasing globalization. The growing importance of knowledge capital whereby the capabilities of human creativity to identify new business, new markets and innovations in production.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT Adoption of John Kotter Change Transformation Process Model: Eight Steps to Transform Organization in AMSGB SDN BHD The concept of change transformation process model was developed by John Kotter (1996; 2007). Based on his research of more than 100 various companies he identifies eight phases that allowed organizations successfully complete the change journey. We must always remember that any mistakes in the each phase can jeopardize the effort of change. The below explains the eight steps to transform organization. AMSGB Sdn Bhd had started they change management project in 2004 but however the project was a big failure. Again in year 2006, the new leader or managing director decided start again the change management project in more aggressive way. 1. Establish a greater sense of urgency Establishing and developing a sense of urgency will help the organizations effort in making the changes. The leader should be able to increase the urgency levels of his employee to get things done. In order to increase the level of urgency the leader had to remove sources of complacency and explain the needs to change. In AMSGB Sdn Bhd, the leader considered crisis that are listed in page 4 as a driver to establish a sense of urgency. According to Welch and Welch (2005), crisis can be developed or realized by managers. On the first phase of creating the level of urgency, the leader explains and creates the level of urgency by explaining the crisis in details to AMSGB management team. Once the level of urgency had been created, the managers starts to communicate the crisis to all the employees. During the early stage of creating the sense of urgency to all employees, only about 80% of the employee accepted the crisis and the remaining 20% of the employee feels that there is no need for the changes. The leader immediately forms a special team lead by himself and human resource manager, done an investigation on all the employees that resists to feel the sense of urgency. The leader had taken a very drastic by terminating the service of related employees.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT Even Jim Collins had said in his book Good To Great, they first got the right people on the bus, the wrong people of the bus, and the right people in the right seats and then they figured out where to drive. The old adage People are your most important asset turns out to be wrong. People are not your most important asset. The right people are. My personal feeling that even though the decision of AMSGB is too drastic but it proves that sometimes such action is needed to turn around the organization. Here we can see that the leader of AMSGB has moved from Theory X to an extreme level of Theory X. By taking such a drastic action the leader had created a sense of urgency to all the employees of AMSGB. 2. Create a guiding coalition To lead a change successfully, the leaders need to bring together a coalition. The coalition normally comprises of people with power, expertise, credibility, and leadership. According to Kotter one of the major obstacles during the second stage of the journey is when a company has too many managers and not enough leaders. In any organization managers and leaders has different responsibilities. John Kotter (2001) describes each term with its own functions and activities. He said they dont make plans; they dont even organize people. What leaders really do is prepare organizations for change and help them cope as they struggle through it. Managers, however, cope with complexity by instituting order and consistency to the key dimensions of the working environment. For AMSGB, in order to have a successful coalition is to have enough leaders. The Managing Director of AMSGB looks for the transformational leaders to undertake the change management project. According to Covey (1992) The goal of transformational leadership is to transform people and organizations in a literal sense to change them in mind and heart; enlarge vision, insight, and understanding; clarify purposes; make behavior congruent with beliefs, principles, or values; and bring about changes that are permanent, self-perpetuating, and momentum building.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT AMSGB considered three ways of becoming a transformational leader. i. Transformation on some of the managers within organization to become leaders. According to Jim Collins in his book Good to Great, Ten of eleven good CEOs come from inside the company. ii. Promote employees to the rank of leaders with assigned authority and accountability. Here again you can see AMSGB management provides career advancement and growth to their employees. According to the article by Frederick Herzberg One more time: How do you motivate employees? The growth or motivator factors that are intrinsic to the job are: achievement, recognition for achievement, the work itself, responsibility, and growth or advancement. iii. Hiring of leaders from outside of the company thru established head hunters.

In AMSGB the Group of Leaders is the Guiding Coalition. After the successful organizational change, there are no needs to have more leaders. Some of the leaders have been requested to become managers to cope with the complexity of the new system, and some has been relocated on different projects. According to Kotter (1990) the real challenge is to combine strong leadership and strong management and use each to balance the other. 3. Develop a vision and a strategy The leaders that form the guiding coalition in AMSGB are required to gather, analyze information and through a process of strategic thinking develop a vision for the organization. The leaders are required to take the risk of acting upon the vision (also known as walking the talk) and at the same time invite the rest of the employees in their effort. Once the organization vision has been developed and communicated, each and every department are required to developed their own organization vision and that vision must be related back to the organization vision. According to Alan Randolph and Ken Blanchard in Leading at a Higher Level, organization need to create a compelling vision that motivates and guides people.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT

In todays competitive market, its very important for a leader to develop a shared vision and strategy for the organization, and direct his employees to follow and believe in that vision and strategy. By establishing a clear vision and strategy, it will provide employees with momentum to give more than what is required to achieve a common goal. 4. Communicate the change Here the AMSGB leaders communicate their vision frequently and powerfully, and embed it within everything that they can do. The leaders also constantly communicate the vision thru various channels such as banners, memos and posters. This runs parallel with Kotters model in which he emphasizes communicating the change vision. Here the utility of Kotters model can be seen. Decisions on change must be communicated to the lowest level otherwise the change will never happen. 5. Empowering others to act on the vision According to Kotter, the vision itself and its communication is not enough. The guiding coalition is supposed to empower employees allowing them to develop new ideas and try new approaches that will bring the results that fit well with the new vision. In AMSGB, the leaders empower employees to develop new ideas and innovations. The employees were given a free hand to create new ideas and innovations. The AMSGB management starts to recognize and rewards their achievement. According to the article by Frederick Herzberg One more time: How do you motivate employees? The growth or motivator factors that are intrinsic to the job are: achievement, recognition for achievement, the work itself, responsibility, and growth or advancement. The role of leaders it to remove obstacles, which might block the change related actions. Here again we can see that AMSGB moved from and extreme Theory X to Theory Y. According to Alan Randolph and Ken Blanchard in Leading at a Higher Level, Empowerment is the creation of an organizational climate that releases the knowledge, experience, and motivation that reside people.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

CHALLENGES TO MANAGEMENT According to Gary Hamel in Leading the Revolution, Innovation is not a private act-it is seldom the product of a single individuals intellectual brilliance. Innovation is a product of the connections between individuals and their ideas-the more the connections the more the number of combinatorial possibilities. It is the constant interplay of ideas, perspectives, experiences and values that spawns innovation. In this sense, innovation is like great cooking-new flavors come from new and imaginative combinations of existing ingredients. According to Frederick Herzberg in his article One more time: How do you motivate employees? The only way to motivate the employee is to give him challenging work in which he can assume responsibility. 6. Creating short-term wins Kotter notes that change often takes a long time, especially in big organizations. He therefore stresses the importance of having a few short-term wins to demonstrate progress. AMSGB also declared a short-term win in year 2008. The change management project which was started in year 2006 resulted in an increase of total sales turnover about 80% and increase of productivity about 23%. AMSGB celebrated the short-term winning by declaring an additional bonus of 3 months salary in year 2008. 7. Consolidate gains and produce more change The short-wins are very importance for the process of change. Leaders use them as an examples of what are the difference can be made within the organization. By communicating this wins managers build a positive experience about the change to all employees. This positive experience had also created ownership to all employees. The increased in ownership also creates more opportunities for all employees to undertake further improvement projects.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

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CHALLENGES TO MANAGEMENT 8. Institutionalizing changes in the culture The last phase of the process is institutionalizing new approaches and ensures that individuals understand that the new behaviors lead to organization success. Leader should be able to anchor the changes in the organization corporate culture. Kotter argues that change should become part of the core of the organization and the new behavior should become the norm; culture and develop shared values among managers. One good model that is worth highlighting is set in Jim Collins book entitled Why Some Companies Make the Leap and Others Dont. The author identifies a number of characteristics that define truly great companies. One aspect is a culture of discipline, where everyone in the organization is focused on doing whatever is needed to keep the company successful.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

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CHALLENGES TO MANAGEMENT Comparison on John Kotter Change Transformation Process Model with Kurt Lewins Change Model (1951) Kurt Lewin (1951) introduced the three-step change model. He views behavior as a dynamic balance of forces working in opposing directions. Driving forces facilitate the change process because they push employees in the desired direction. Meanwhile the restraining forces hinder change because they push employees in the opposite direction. While studying the Kotters model and Lewins model, i found out that actually there are some similarities between these two models. The below diagram illustrates further on our group finding. 1. Establishing a Sense of Urgency 2. Creating the Guiding Coalition 3. Developing a Vision and Strategy 4. Communicating the Change 5. Empowering others to act on the Vision 6. Creating Short-term Wins 7. Consolidating Gains and Producing More Change 8. Institutionalizing changes in the culture Make the Change Freeze Unfreeze

During our group discussion, I concluded that Kotters Change Model Step 1 to Step 5 is also known as unfreezing. Unfreezing means overcoming the resistance to change. The Kotters Change Model Step 6 and Step 7 are also known as making the change. Meanwhile the step 8 of Kotters Change Model is also known as freezing or also known as establishing organization to a new level. However I feel that freezing is not exist anymore. I decided to challenge Lewins model because my personal opinion is after successful change took place, the organization need to continue change and innovate in order to sustain in todays competitive business environment. They cant let the organization to just freeze as per Lewins model.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

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CHALLENGES TO MANAGEMENT Critics on John Kotter Change Transformation Process Model Kotters 8-step process change model provides unique process guidance for change management in 21st century. The process list important topics that need attention especially on establishing a sense of urgency helps the organization to successfully implement the changes. Kotters models are more suitable in the organization that has more resistance to change. For example, in the initial change management project at AMSGB, the management was trying to use Kurt Lewins model but it resulted in a failure. Than the management decided to use Kotters model which is more aggressive and this resulted in the success of the change management project. Kotters change process model also believes that change must be led, rather than manage. He also believes that to implement the change successfully transformation leadership is an important factor for a leader. Relating this back to AMSGB, the managing director transforms a group of managers to become leaders. Here the managing director looks for leaders who have transformational leadership such as charisma, ability and willingness to treat different subordinates differently, providing intellectual stimulation for the employee, challenge the organization culture and change the culture. Kotters methods are based on the top-down, command and control model. The model sees change is been imposed by the management to achieve decisiveness and control. Thus the models weakness comes from the top-down which indirectly will disrespects and de motivates the employees. The step number 6 in Kotters model, Creating Short-term win is also one of the weaknesses in this model. My argument on this is because I feel that by declaring an early win will eventually makes the employee to sit back. The employees will feel that the goals have been achieved and tend to slow down further improvements.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

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CHALLENGES TO MANAGEMENT Conclusion In summary, Kotters change model provides a unique guidance for change management. During the presentation, our lecturer Brian asked us, is Kotters model suitable in Asian? Some feels that Asians are more sensitive and due to that Blanchards (2007) Change Strategy Model is more suitable in Asia. However the changing phase in Blanchards change model is slower compared to Kotters model. I feel that Blanchards change model is more suitable for Government Link Company in Asia. Our group answer on the question asked by Brian will be it depends on the type of organization. There is no one change model our group suggested or recommended during our presentation. We feel that each model has their own explicit merits. Organizations in todays environment must be able to use and modify these models according to their needs. The project perfect white paper collection, Understanding and Managing Change by Peters A. H in year 2006 only used the first 4 steps in implementing the change management. I believe in order to successfully implement the changes, all the eight steps by Kotter need to be adapted. Other than that this article has good academic referencing and the language used is very simple and understandable.

CHANGE MANAGEMENT REPORT BY: GUNASEKAR S/O MURUGAIAH

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