OEC Handout # 3

External and Internal Factors of Change

External Factors of Change

Political forces: Political environment is an importnat trigger for organizational change. Managers need to understand the political system of the country where they work. During the 1990s, an all-emcompassing phase of globalozation began throughout the world. Globalization in turn facilitated free markets. Governments began to withdraw their stake from the business enterprises. A number of countries de-regulated industries and thus created new opportunities for entrepreneurs. From regulators, the governments have become facilitators. As a result of new thrust given to free market and foreign direct investment, the companies have changed their strategies and they are growing by leaps and bounds.
Certain developments in the international political scene such as the transition of the East-European nations to democracy and market economy, opening up of the economy of South-East Asia, the collapse of the erstwhile Soviet Union, the Unification of Germany, the Gulf War, the crisis in Yugoslavia etc. have had profound impact on economy and business thereby triggering organizational change in a number of companies.
V Nilakant and S Ramnarayan in their seminal work Change Management (Response Books) mention that organizational change itself is a political process because it involves influencing, persuading, and negotiating with people in order to bring about a change in their mental models. The manager tries to ensure the support of the key and influential individuals in the organization while implementing any intervention programme.

Economic forces: The uncertainty about future trends in the economy is a major cause of change. For example, fluctuating interest rates, declining productivity, uncertainties arising from inflation or deflation, low capital investments, etc. have significant impact on industrial organizations. Economic forces usually determine the direction an industrial organization takes. For instance, Infosys has changed its startegy from being a profitability-driven organization to growth-oriented one due to economic slowdown in the USA from where they got maximum number of clients. Accroding to a report published in Mint (New Delhi) on 29 July 2008, Infosys’ new approach is a consequence of what is happening in the market in which it operates. Excerpts from the news item:
By focusing on growth now, they (Infosys) will be looking to add new customers as their existing clients are cagey about increasing their budgets further. Infosys has said it will look to add new customers even as it expands its presence in businesses such as health care, pharmaceuticals, logistics, energy and utilities. Currently, much of its revenue comes from four major areas: financial services, telecommunications, manufacturing and retail. The company expects to grow revenue 6% in the three months to September as compared with the corresponding period in 2007.The emphasis on growth could mean a further dip in Infosys’ operating profit margin, measured as operating profit (or earnings before interest, taxes, depreciation and amortization) expressed as a percentage of revenue. In the quarter ended June, the company’s operating profit margin was 30.4%, down 2 percentage points from the previous quarter in the wake of higher salaries and visa costs. Over the past two years, the company’s operating profit margin has stayed in the 30-32% range. Infosys’ push for growth reflects the new business reality in the software services business.“Our existing customers are not growing and we need to find new growth engines,” Gopalakrishnan said. As part of growth strategy, the company plans to add new customers and newer service lines such as learning services and offering software as a service (where companies pay not for the entire solution but for what they use) by investing in solutions and intellectual property. The company is focusing on newer geographies such as West Asia, India, Latin America and South Africa.Infosys, which serves customers such as British Telecom Plc. and Cummins Inc., derives about 63% of its revenues from North America, 27% from Europe and about 10% from the rest of the world including India. “We want to reduce our dependence on the US by growing operations in other geographies such as Europe and rest of the world,” Gopalakrishnan said, adding that the target revenue ratio from these three geographies for the company would be 40:40:20. He did not elaborate on the time it would take the company to achieve this revenue mix.Infosys ended 2007-08 with revenue of Rs16,692 crore and a net profit of Rs4,659 crore. The company has issued a guidance of revenue up to Rs21,622 crore and earnings per share of up to Rs101.06 in 2008-09, a growth of 29.5% and 24%, respectively.Shares of Infosys closed flat at Rs1,538.9 each on the Bombay Stock Exchange even as the exchange’s benchmark Sensex index closed marginally down at 14,349 points and the technology index ended marginally lower at 3,606.81 points. In the past year, shares of Infosys have touched a high of Rs2,140 each and a low of Rs1,212 each.(Source: http://www.livemint.com/ 29 July, 2008)

Global Competition: Companies often change due to explict or implicit pressure from their competitors who might have better technologies, better systems, better products, better brand image, better HR practices, better aftersales service or better supply-chain. sometimes, the competitors might have advantages of being a first mover in the market or having a monoploy in raw material procurement (a captive mine for Steel companies, for example).When the competition is sharp-edged, the companies have no choice but to usher in necessary changes. Nokia's strategic move to reengineer its Research and Development unit is a case in point as reported in Economic Times (New Delhi) on 6 August 2008. Excerpts from the news item: In a major strategy change, handset major Nokia is re-engineering its research and development (R&D) model world-wide to tackle growing competition from unconventional sources of competition like Apple’s iphone and Google’s mobile phone platform Android. Taking a cue from companies like P&G, Nokia which till now largely carried out in-house innovation and R&D, is looking at external collaborations for product innovation. Nearly 50% of its new innovations are expected to come from external sources, a fact which is expected to help the company cut R&D costs significantly. It is expected to spare higher resources for product design and marketing, reduce time-to-market and improve return on investment (ROI), sources said. The Finnish giant’s move, which will be implemented throughout the company, is based on findings that breakthrough innovation sometimes originates from external sources. The company has also initiated a company-wide cultural change program, called `Living it working’ to directly involve and expose employees to consumers The major change in the way Nokia will now look at R&D has been caused by a slew of reasons. Not only are consumer preferences changing faster than ever, competition is emerging from hitherto unknown quarters. Computermaker Apple has swept the world with its iPhone, which now poses a huge challenge for Nokia. Google, which started as a search engine, has now launched a mobile phone platform called Android and the first handsets from this initiative are expected in the second half of this year.(Source: The Economic Times, New Delhi, 6 August 2008)There are other illustrations of completion-led organizational change as well. Facing stiff competition from the American automobile majors, the Japanese automobile companies such as Toyota, Nissan and Mitsubishi have been forced to relocate their manufacturing and assembly operations to South East Asia where the cost of labour is quite low. Simultaneously, they have established their plants all over Europe and America to get past the import restrictions. In this process, they have been able to retain their competitive edge in catering to the global automobile market.Technological forces: The world is characterized by the dramatic technological shifts. The technological advancements, particularly in information and communication technologies, have revolutionized the workplaces and have helped create new range of products and services. For example, a super communication system is on the anvil in which about 20 Japanese companies will join a Motorola-led project to set up a sattelite cellular telephone system that can be used anywhere on the earth. The partner companies include Sony, Mitsubishi, Kyocera, among others. The estimated cost of the project is US$ 132 million or 15 billion Yen.Globalization: Globalozation means integration of cpaital market, labour market and commodity market. This integration has touched almost all the aspects of business lifecycle. Hence, globalization is a unique trigger of change present everywhere.

Internal Factors of Change

System dynamics: An organization is made up of sub-systems, similar to that of the sub-personalities in human brain. The sub-personalities in the brain are in constant interaction with each other creating changes in human behaviour. Similarly, the sub-systems within an organization are in constant and dynamic interaction. The factors that influence the alignment and relationships are, for example, technology, internal politics, dominant groups, and formal and informal relationships within it.

Inadequacy of administrative process: An organization functions through a set of procedures, rules, and regulations. With changing times and the revision of organizational goals and objectives, some of the existing rules, regulations and procedures could be at variance with the demands of reality. To continue with such functionally autonomous processes can lead organizational in-effectiveness. Realization of their inadequacy induces change in the organization.

Individual/group expectations: The organization as an entity is a convergence f people, each one aiming to satisfy his/her needs and aspirations. In anthropological context, man is a social animal whose needs and desires keep changing. This creates differing expectations among individuals and groups as to the needs they intend to satisfy in the organizational context. Positive factors such as one’s ambition, need to achieve, capabilities, career growth, and negative aspects such as fear, insecurities, frustrations, etc operate as complex inter-individual and inter-group processes inducing change in n organization’s functioning and performance.

Organization design and structure: Over the years, structure of a company might become redundant due to new technologies and paradigm shift in managerial practices. At times, structure becomes a stumbling block in retaining competitive edge because of cost as well as procedural issues. Such a situation invariably leads to structural changes in the organizations. Many companies have launched structural reforms in their endeavour to remain at the top. Examples include: IBM, Tata, Ford, Hyundai etc.

OEC Handout # 2

Skills of a Change Agent

Any person who has the power and knowledge to make a difference, challenge the stereotypes and create prototypes can be termed as change agent. A change agent must possess the following:
· Knowledge of the business environmental (understanding);
· A value system and self-concept to support and under gird the actions of a change agent (motivation);
· Change agent abilities (skills).
Change Agent Abilities: The following is a listing of change agent abilities compiled from numerous sources.
· Resilient
· Optimistic·
· Tenacious
· Committed
· Passionate·
· Patient·
· Emotionally intelligent
· Assertive
· Persuasive
· Empathetic
· Authentic
· Ethical
· Self-Aware
· Competent
· Curious
They can:
· Communicate ideas clearly, concisely, and precisely both orally and in writing·
· Listen to others and incorporate their ideas and perspectives·
· Accommodate individual differences (cultural, socioeconomic, global, etc.) in your decisions and actions and be able to negotiate across these differences.
· Engage in self-assessment, self-reflection, and analysis·
· Reflect on what is happening to make meaning, gain perspective and understanding·
· Engage in civil discourse and debate·
· Mediate and resolve conflicts·
· Analyze power, structures of inequality, and social systems that govern individual and communal life·
· Recognize the global implications of their actions·
· Span boundaries·
· Challenge the status quo effectively when appropriate·
· Creatively and collaboratively solve problems using critical thinking skills; search for “families” of solutions for complex multi-faceted issues·
· Collaborate, network

What makes good change agents?
When assessing potential candidates for roles as change agents, three questions need to be asked: Do they have the right attitude? Do they possess the appropriate knowledge? And do they have the necessary skills? Here is an exploration of each of these questions:
The Right Attitude
Change agents cannot succeed without great persistence. Change is a complex and labor-intensive process that arouses feelings and emotions. Angry people, frustrated teammates, conflicting priorities, unforeseen problems and behind-the-scene resistance are typical daily challenges. Project leaders or managers cannot lead teams through these difficulties without determination and stamina.
To avoid changes in leadership in the midst of change, change agents must be fully committed to see projects through to completion. A good way to ensure such commitment is to appoint ambitious and enthusiastic individuals who have potential for career advancement within the organization. They will look at the challenges as a career-development opportunity and will be highly motivated to succeed. These high potential employees will gain a broader understanding of the business, an extended network of relationships and stronger leadership skills.
Attitude is one aspect of good change agents that is often overlooked. "knowledge and skills" have to be complemented by "beliefs and attitudes."
A person with relevant knowledge and skills but inappropriate attitude will not be able to contribute as much to the organization and the community. Moreover, the higher the skills and knowledge of a person, the greater damage they can do to the organization if their attitude is flawed. Change agents must be prepared to stand up for their projects, even if it means tactfully challenging powerful executives – including the senior leadership. In many cases, implementation problems are due to the project sponsors or top management under-estimating the significance of their own duties. They are reluctant to commit the necessary resources; they sometimes send conflicting messages about the importance of change by failing to apply enough pressure to those who resist; or they alter priorities half-way through the change.
Change agents must act as "voices of conscience" when any mid-course corrections are contemplated. It is the responsibility of change agents to make sure such issues get a complete airing in order to avoid the project ending in failure. One effective change agent summed up the attitude needed: "My primary goal is to ensure this project succeeds, no matter what. My secondary objective is to preserve my personal relationship with all senior management." The best change agents are tactful and diplomatic. "Political skills" are necessary, not so change agents can join in the game, but so they can better understand it. Change leaders must make their own judgments and keep their own counsel. No one can do that for them.
The Appropriate Knowledge
Project sponsors should be seasoned change agents with a general understanding of the business. However, project managers should be subject-matter experts in their respective area of responsibility. Having someone with excellent project management skills is simply not enough. They will crash due to lack of detailed understanding of the subject area. Expertise also brings the credibility and respect needed to succeed in their role.
Simply put, change agents better understand how a business works – in particular, the business in which they are involved. This entails understanding money – where it comes from, where it goes, how it goes and how to keep it. The job also requires knowledge of markets and marketing, products and product development, customers, sales, selling, buying, hiring, firing and just about every other aspect of the business.
In addition to the relevant expertise, change agents also should be well-connected throughout the organization. Active relationships in all areas of the organization are important in communicating effectively with stakeholders, developing coalitions and designing a successful rollout.
The Necessary Skills
The pressure on the project leadership can be tremendous. Change agents have to be able to operate during times of instability and uncertainty. They have to manage conflicting priorities, multiple constituencies and fast-approaching deadlines. They are responsible for guiding the organization through the numerous challenges of transition. Therefore, in order to survive, change agents must possess the ability to remain highly effective under intense pressure.
In addition to being well organized and disciplined, change agents need strong analytical skills. Guessing won't do. Insight is nice, even useful and is sometimes mistaken for brilliance, but insight is often difficult to sell and almost impossible to defend. A rational, well-argued analysis can be ignored, but not successfully contested. Change agents must learn to take apart and reassemble operations and systems in novel ways, and then determine the financial and political impacts of what they have done. At the same time, good change agents must be flexible enough to work around roadblocks and handle evolving priorities. In short, a disciplined and yet flexible approach is needed to tackle the challenges of change.
People skills – team-building, forging strong interpersonal relationships and communicating within groups – are mandatory for good change agents. The challenge is to build the project team, putting the team members' competencies to best use. To succeed, change agents must create a strong sense of identity, purpose and joint-ownership, as well as a high-performing mindset. To manage resistance – a natural part of the change process – change agents must start by understanding and acknowledging the resistance. They need a lot of empathy, with good listening skills. Change agents must be able to put themselves in the shoes of people affected by the change. Resistance is most damaging when it remains unnoticed. It usually occurs when the feelings and concerns of employees are ignored or when they feel change is forced upon them. In order to avoid resistance or the risk of hidden resistance, change agents must learn to listen to the voice of employees and involve them in decisions whenever possible.
During the change, communication is the glue that keeps the organization together and moving toward the desired goal. Change agents need to be able to communicate effectively at all levels and across all organization boundaries.
Choosing a Good Leader for a Change…
Change is never easy and the failure rate can be high. Top management must take a hard look at the candidates for change agent positions. If none of the in-company candidates closely match requirements of the job, then a search outside the company is required. And, once an organization finds the right individual to be its change agent for a project, management has one more commitment to make – assuring the change agent has between 50 and 100 percent of their work time available to dedicate to the success of the initiative.

[Source: http://europe.isixsigma.com/library/content/c040501a.asp]

OEC Handout # 1

An Overview of the Concepts of Organizational Change, Effectiveness and Develoment

Section 1: Organizational Change

"Change is the only constant in the universe". --Heraclitus, 500 BC

Change implies the following:
To make or become different.
Dissatisfaction with the old and belief in the new.
A qualitatively different way of perceiving, thinking, and behaving to improve over the past and present.
Continuity without change leads to stagnation, and change without continuity leads to conflicts.
The rate of change is faster than our ability to comprehend and cope with it.

What is organizational change?
Organizational change implies changes in the following:
Goals, Vision and Mission
Boundaries
Pattern of activities/administrative practices
Assumptions, values and belief
Culture
Structure
"Organizational change consists of goal-oriented and to a degree, pre-planned actions, the final result of which can be, more or less, clearly formulated in advance". --Van der Vlist

What is planned change?
"Planned change is a conscious, deliberate and collaborative effort to improve the operation of a system -whether it be a self-system, a social system, or a cultural system -through the utilization of scientific knowledge". --Bennis, Benne & Chin.
"...conscious, deliberate and collaborative effort to improve the operation of human system through utilization of valid knowledge". --Lippit

Elements of Planned Change
Outcome: goals, results, direction, improvement, renewal
History: causes, need, motive, context
Actors: External/Internal
Phases: steps, sequences
Communication: interaction, cultural aspects
Steering: monitoring, directing, guiding

Taxonomy of Change
Directional Change: Occurs under conditions of severe competitions, regulatory shifts in government policy, and unsuccessful business strategy.
Fundamental Change: Redefinition of current purpose or mission.
Operational Change: Improvement of quality, quantity, timeliness, unit cost of operations, in developing products and services.
Total Change: Developing a new vision, achieving a turnaround; a drastic surgery of the existing system.
Planned Change: Basically an operational change on a calculated basis as a response to internal and external demands e.g. downsizing.
Happened Change: Unpredictable. Occurs due to external causes over which one my have no control.
Transformational Change: Change involving the entire or a greater part of the organization due to a severe threat to its survival. The threat may occur from industrial discontinuities, shifts in a product’s life cycle or internal change e.g. union-management conflicts.
Revolutionary Change: Abrupt changes in the organization’s strategies and design.
Recreation: Tearing down the old structure and building a new one. A metamorphosis –becoming not just better but different.
Strategic Change: Change of all or most of the organization’s components.
Anticipatory Change: Changes carried out in expectation of an event. In anticipation of such change, the organization may tune-in (incremental change) or re-orient itself.
Reactive Change: Response to an event or series of events. Adaptive changes are limited t a sub-system or apart of the sub-system. Recreation can also be reactive but involves the whole organization.
[Source: Management of Organizational Changeby K Harigopal (Response Books)]

Why Chnage is important?
Business performance improves in the chosen market place
Financial performance is positive; there is sustained growth
Customers notice improvements in service or products
Customer loyalty increases
The organization benefits from continuous innovation and increase in knowledge capital
The organization has a successful image

Section 2: Organizational Effectiveness

What is organizational effectiveness?
Organizational effectiveness is the concept of how effective an organization is in achieving the outcomes the organization intends to produce.
Organizational effectiveness is the concept of how effective an organization is in achieving the outcomes the organization intends to produce.

Models of Organizational effectiveness
Human Relations Model
Means: Discussion, Participation, Consensus, Team work, Employee development
Ends: Morale and cohesion, commitment, human resource development
Internal Process Model
Means: Information management, communication, standardized decision making
Ends: timeliness, Stability, Efficacy
Rational Goal model
Means: Goal clarification, direction, decisiveness, planning, achievement of measurable goals, external positioning
Ends: External positioning, productivity, Goal achievement
Open System Model
Means: Commitment to experimentation, individual initiative, adaptation, readiness, insight
Ends: Creativity, cutting edge output, Growth, and external support

Section 3: Organizational Development

What is Organization Development?
"Organization Development is an effort – planned, organization-wide and managed from the top – to increase organizational effectiveness and health through planned interventions in the organization’s processes, using behavioural science knowledge".– Richard Beckhard
"Organization Development is a systemwide process of data collection, diagnosis, action planning, intervention and evaluation aimed at
i. enhancing congruence among organizational structure, process, strategy, people and culture;
ii. developing new and creative organizational solutions;
iii. developing the organization's self-renewing capacity.
It occurs through the collaboration of organizational members working with a change agent using behavioural science knowledge". –Michael Beer
"Organization Developemt refers to a long-range effort to improve an organization's problem solving capabilities and its ability to cope with changes in its external environment with the help of external or internal behavioural scientist consultants or change agents as they are sometimes called" –Wendell French

Value system of Organization Developemt
The basic value underlying all organization development theory and practice is that of choice. Through focused attention, and through the collection and feedback of relevant data to relevant people, more choices become available and hence better decisions are made.
More specifically, the value system of Organization Development revolves around humanistic, optimistic and democratic principles.
According to a survey conducted by the American Society of Training and Development, the managers ranked the values absolutely necessary for success of any Organization Developemt intervention in terms of importance in the following order:
Empowerment
Openness in communication
Ownership of process and outcome
Collaboration
Continuous learning

Assumptions in Organization Development:
The basic building blocks of an organization are groups (teams). Therefore the basic units of change are groups and not individuals.
An always relevant change goal is the reduction of inappropriate competition between parts of the organization and the development of a more collaborative condition.
Decision making in a healthy organization is located where the information sources are, rather than in a particular role or level of hierarchy.
Organizations, subunits, of organizations and individuals continuously manage their affairs against goals. Controls are interim measures and not the managerial strategy.
One goal of a healthy organization is to develop generally open communication, mutual trust, and confidence between and across levels.“People support, what they help create”. People affected by change must be allowed active participation and a sense of ownership in planning and conduct of change.

According to French & Bell, following assumptions hold good in Organization Developemt:
Most individuals have drives towards personal growthMost people desire to make and are capable of making, a higher contribution to the attainment of organizational goals than most organizational environment will permit.
The most psychologically relevant reference group for most people is the work-group
Most people wish to be accepted and to interact cooperatively with at least one small reference group and usually with more than one group.
The formal leader cannot perform all the leadership and maintenance functions in all all circumstances at all times; hence group members must assist each other with effective leadership and member behaviourSuppressed feelings and attitudes adversely affect problem solving, personal growth and job satisfaction.
The level of inter-personal trust, support, and cooperation is much lower in many groups and organizations than is either necessary or desirable.
The solution to many attitudinal and motivational problems are transactional.
The key movers in an OD effort need to have a relatively long range time perspective
Improved performance stemming from OD efforts needs to be sustained by appropriate changes in appraisal, training, staffing, tasks, and communication sub-systems.