Strategic Change Management

Strategic Change Management Alexey Verbetsky Executive Director, IDPPA MA in Economics, New Economic School MBA, Kingston Business School [email protected] Definition of Strategy Strategy is the direction and scope of an organization over the long term, which achieves competitive advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations Strategy and Game Theory  Game: a situation of strategic interdependence  Decision-makers choose their moves  Typically, there are zones of commonality of interest as well as of conflict  Payoffs  Short-run and long-run  Signalling  Education  Elasticity  Bidding for a dollar – slippery slope  The first and the second highest bids Strategic Commitment  “A verbal contract isn’t worth the paper it’s written on” Credibility is the key – but how do we establish it?  Contracts and penalties  Reputation (for repeated interactions) – at all levels  e. g., tax amnesty programs  Move in small steps  e. g., payment scheme  Burn bridges behind you - irreversibility  sunk costs  Banks - other examples?  Cutting off communications  What would be the ultimate form of such commitment? Blue Ocean Strategy Companies can succeed not by battling competitors, but rather by creating ″blue oceans″ of uncontested market space  Blue ocean strategy is about breaking the value-cost trade-off by reordering and reconstructing market realities in a fundamentally different way  Blue ocean strategy is not about being first to market. Rather it is about being first to get it right by linking innovation to value • Cirque du Soleil: Blending of opera and ballet with circus format while eliminating star performer and animals • Southwest Airlines: offering flexibility of bus travel at the speed of air travel using secondary airports • Dyson: Cyclonic Vacuum Cleaners Strategy questions to be answered • • • • • • What results do you aim to achieve? What market opportunities will we exploit? What strengths will be used? What risks are there? What actions are required in the short & longer term? What resources will be required? Vocabulary of Strategy Vocabulary of Strategy Term Definition Mission Overriding purpose in line with values/expectations of stakeholders Be healthy and fit Vision/strategic intent Desired future state: aspiration of organization Run a marathon Goal General statement of aim or purpose Lose weight, strengthen muscles Objective Quantification or more precise statement of goal Strategies Long-term direction and steps to take Lose 5 kilos by 1 sept, run marathon Excercise regularly, compete in other races Business model How product, service, and information flow between participating parties Associate with network (join running club) Control Monitoring to assess effectiveness and modify as necessary Monitor weight, heartbeat, kilometres run and times. If not ok, other strategies Example Vocabulary of Strategy o A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market o The strategic customer is the person(s) to whom strategy is primarily addressed because they have the most influence o Critical success factors are those product features particularly valued by a group of customers and where the organisation must excel to outperform competition Different ways of viewing strategy  The design school; process of conception  The planning school; formalized process  The positioning school; analytical process  The entrepreneurial school; visionary process  The cognitive school; mental process  The learning school; emergent process  The power school; process of negotiation  The cultural school; collective process  The environmental school; reactive process  The configuration school; transformational process Strategic Capability Competitor Worse comparison Equal Better Resources Threshold resources Unique resources Resource gap Competences Competence Threshold Core gap competences competences Resource Audit  Physical resources  Machines, buildings, production capacity  Financial resources  Capital, cash, debtors/creditors, suppliers of money (shareholders, bankers etc)  Human resources  Number and mix of people, skills and knowledge  Intellectual capital  Patents, brands, business systems, customer databases, “goodwill” Core Competences  A bundle of skills, knowledge, processes, and technologies, which might be spread across the organisation, is difficult for other organisations to imitate, and which deliver high benefits to customers  The (very) few things that you are particularly good at doing  i.e. better than your competitors Competitive advantage  Sources of Competitive Advantage  Human capital (e.g., management skills, leadership, corporate education system)  Unique resources (e.g., technology, customer database, reputation)  Both tangible and intangible  Identification of these sources represent a major input into a firm’s strategy Possibility Opportunity Risk Enabler Barrier Positive Negative Status Existing Implication ? Increased advertising Increased profit Increased profit Increased revenue Increased volume of sales Increased number of customers Increased customer acquisition Increased promotional impact Increased advertising Increased profit Increased revenue Increased volume of sales Increased number of customers Increased customer acquisition Increased price Increased volume of sale per customer Increased customer retention Decreased costs Increased customer retention Increased customer satisfaction Increased customer service quality Automatic check-in terminals introduced Reduced queuing time Increased number of customers Increased volume of sales Increased volume of sales per customer Increased revenue Increased profit Change Context  Change and Strategy  The role of context in developing appropriate approaches to change  Change agents – responsible for ‘making the change happen’  CEO/HR Director/team  formal/informal  The ability to manage change is fast becoming a mainstream competence for managers The difference between successful and unsuccessful organizations is seldom their vision, the strength of their strategy or level of investment. The success is the effectiveness with which necessary change is implemented Change and Strategy  Strategy seen as an organization’s attempt to reconcile the changes in the business environment with its internal capabilities (skills and resources)  Implementation of the strategy – implications for marketing, finance, operations, HRM…  Emergence is far more prevalent in organizations than strategic planning implies  Organizational Change Management is about people – changing people and the way they behave External Change Drivers  Globalization Globalization  Huge growth in international trade volumes  Capital flows  Travel, work and communication across the world  Increasing interdependence of the economies  2008-2009 global crisis Globalization drivers (1)  Political changes  Relative peace since the World War II  China transformation  Soviet block  Asian ‘tigers’  Technology spread  The pace of change is increasing  Convergence of computer technologies and communication technologies  Number of Internet users – network effects Globalization drivers (2)  Economic liberalization and deregulation  Increase in international capital mobility  foreign exchange (currencies)  the debt (treasury bills, corporate bonds)  equities in private companies  Emergence of transnational companies (MNEs) due to saturation of the developed markets  Increase in the volume of trade (WTO)  Economic integration of nations (EU, NAFTA) Globalization drivers (3)  Cost drivers  Outsourcing (lowering production costs)  Economies of scale (international expansion)  Competition  International competition increases as trade barriers are removed  Access to new markets  First mover advantage Global Product Management USA Japan EU US J core EU Global Product Management - a core product which can be adapted for different markets to avoid the cost of developing separate products for each. Sources of Change Drivers Levels of organizational Change • Physical, Infrastructural, Behavioral and Cultural • Ability to influence • Durability The Nature of Organizational Change What organizational change is taking place? What has been the recent organizational history of change? What rationale has been offered for this organizational change? Who made the decision to change? What is the scale and scope of this organizational change? What is timescale for this organizational change? How is this organizational change being communicated? Who is managing this change and how is it being managed? How will the success of this organizational change be evaluated? Who can influence the success of this organizational change?  Organisational change has three main components:  The change context is the why of change  The change content is the what of change  The change process is the how of change Change Context: External  PEST  Porter’s Five Forces Globalization and Industry Context  Identify key external trends and factors  Assess key threats and opportunities  Propose implications on how to protect the company from the threats  Suggest actions that would help maximizing the opportunities Globalization Trends  Political  Economic  Social  Technological  Competitive  Strategic position of your company  Forces  Managerial actions Change Context: Internal  7S (McKinsey)  Porter’s Value Chain  Balanced Scorecard Fishbone (Ishikawa) Diagram Change Content and Change Process  Change content – the what of change Choices about product range, markets to compete, how to compete, what is the optimal structure, etc.  Porter’s three generic strategies  Ansoff matrix  BCG matrix  Change process – the how of change  Change management frameworks that will be detailed in the course  Change and organizational culture  Organizational Culture Assessment Instrument (OCAI) Context-specific change  No ‘one best way to change’  Problems with extending lessons from the specific to general cases  e.g., senior management support  Sources of pre-selected change approaches      Past experience of the change agent(s) Previous experience of the organization Consultants’ proven ‘10-point plans’ Books/article on change Dominant CEOs  Context-specific approach to change: no pre-selected approach METAPHORS TO HELP YOU IDENTIFY THE IMAGE OF AN ORGANISATION Perspective metaphor Image of organisation… Image of the manager Classical machine Designed and constructed to achieve goals An engineer who designs builds and operates the organisational machine Modern Organism Living system that performs the functions necessary to survive, adapt to hostile world An interdependent part of an adaptive system Symbolic-interpretative Culture A pattern of meaning created and maintained by human association through shared values, traditions and customs An artifact who would like to be a symbol of the organisation Postmodern Collage A collage made from bits of knowledge and understanding brought together to form a new perspective that has reference to the past A theorist and an artist The change classifications framework  What organizational change is taking place?  What has been the recent organizational history of change?  What rationale has been offered for this organizational change?  Who made the decision to change?  What is the scale and scope of this organizational change? The change classifications framework (continued)  What is timescale for this organisational change?  How is this organisational change being communicated?  Who is managing this change and how is it being managed?  How will the success of this organisational change be evaluated?  Who can influence the success of this organisational change? Key change management models  Change Kaleidoscope (Balogun & Hope-Hailey)  The Cultural Web (Balogun & Hope-Hailey)  Three Change States (Lewin)  Tripartite Model for Change (Pettigrew)  Individual Transition Curve (Kubler-Ross/Adams)  Change Acceptance Curve (Scott and Jaffe)  Strategic Drift (Johnson)  Cultural change (Quinn)  Eight-Stage Process for Change (Kotter) PEST (PESTEL, PESTLIED) Global markets Global business; need to be proactive at new markets Competing management teams Entrants Moderate High entry barriers due to brand recognition importance Takeover threat at periods of poor performance Low Intensity of rivalry Suppliers Wide range of available suppliers High Low High Aggressive competition; Strong brands Low Substitutes few substitutes Buyers High Consolidation of retail chains and wholesalers demanding better terms Group exercise and home assignment  Group exercise: Identify major external drivers for change Group 1: MTS Group 2: Alfa-bank Group 3: Dixy Group 4: Eldorado Group 5: Aeroflot  Read the case and answer the questions:  Does the organisation need to change?  Why? Any specific drivers?  What is the characteristics of expected scope of change?  What are the potential barriers to change?  Is there any resistance to change? Planned approach to change  Lewin’s (1951) three state framework  Volatility – the rate, amount, and magnitude of change  Even the minor shifts that occur daily, such as new and “immediate” priorities that disrupt plans, or the increasing need to “multi-task,” are changes that increase volatility  Uncertainty - the amount of unpredictability inherent in issues and events  Leaders can’t predict because they lack clarity about the challenges and their current and future outcomes. Uncertainty can result in an over-reliance on past experiences and yesterday’s solutions or to analysis paralysis as we sift through more and more data  Complexity – the amount of dependency and interactive effect of multiple factors and drivers  Complex interactivity requires leaders to think in more creative, innovative and non-linear way; to be able to deal with shades of gray (as opposed to black and white) solutions  Ambiguity – the degree to which information, situations, and events can be interpreted in multiple ways  Ambiguity increases doubt, slows decision-making, and results in missed opportunities (and threats). It requires that leaders think through and diagnose things from multiple perspectives Translating strategy into practice Transactional and transformational leadership 7S – Shared Values Strategies and change Strategic drift Change Kaleidoscope  Diagnostic Framework  External (strategic) context  Contextual features  Design choices  The inner circle shows the design choice ingredients which should be considered by the change agent  Analysis using the kaleidoscope model guides the change agent in his change design choices which in turn set out the change point, path, style, target, levers and roles Six attributes of engaged employees  BCG (2013): The degree to which each attribute of engagement is required depends on the organization's goals Contextual Features Change Kaleidoscope revisited  Time  Scope  Preservation  Diversity  Capability  Capacity  Readiness  Power Each of these factors can be assessed as positive, negative or neutral in the context of change. Positive features facilitate change and negative ones restrict change Time: How much time does the organization have to achieve this change? Is it in a short term crisis or is it concerned with long-term strategic development? Are stakeholders, such as the stock market, expecting short term results from the change? Scope: Is the required outcome realignment or transformation? Does the change affect the whole organization, or is it only concerned with a particular division or department? Preservation: To what extent is it essential to maintain continuity in certain practices or preserve specific assets? Do these practices and/or assets constitute invaluable resources, or do they contribute towards a valued stability or identity within an organization? Diversity: Is the staff group concerned diverse or relatively homogeneous in terms of its values, norms and attitudes? Are there many subcultures or national cultures within the group? Are there different departments or divisions or is it one particular staff group? With whom or what in the organization do different staff groups identify – their team, job, department, division or the whole organization? Are there professionals who identify more with their profession than their organization? Capability: How capable or competent is the organization at managing change and how widespread throughout the organization is this capability? How much change has the organization and its individual staff experienced in the past? Is there an expertise at an individual level for handling change? Capacity: How much cash or spare human resource is there to divert towards the change? Readiness for change: Are staff aware of the need for change? If they are, how willing and motivated are they towards the change? How much support generally is there for the change? How much understanding is there for the scope needed? Power: Where is power vested within the organization? For this change to be successful, who are the major stakeholders within and outside the organization whose support must be canvassed? Is the unit needing to change part of a larger group or is it relatively autonomous? Resistance to change – an introduction