The business environment is characterized by volatility and massive competition that makes it inevitable for all companies and business organizations to transform or else they risk falling behind. Although transformation has become a compulsory requirement for the survival of all businesses, it is a highly complex undertaking that often demands much time to be fully implemented. Both private and public organizations have benefited from the development of new economies hence creating the need for traditional organizations to acknowledge the essence of change. The organizations that were traditionally known to be rigid and highly resistant to change have learnt that their failure to embrace this factor may make them fail (Beer &Nohria 2000).
The concept of change in the organizational set up is easy to accept but its implementation is faced with a number of challenges. Despite the attempt to implement various transformation programs, most organizational transformation initiatives have failed. The challenges that organizations encounter in the attempt to transform in line with the demands of the current economies are largely blamed on the use of inefficient approaches when selecting and implementing transformation programs. Besides, D’Ortenzio (2012, p2) makes reference to Beer and Nohria who argue that the failure is the result of the rush, when senior personnel in the management of such organizations demonstrates attempts to implement changes. In the process, the management loses focus as they get overwhelmed with demands to execute the changes (D’Ortenzio, 2012, p.2.).
D’Ortenzio (2012, p.th 2) also refers to Burnes argument that organizations currently operate in an environment that compels them to initiate and manage change as one of the basic requirements for their survival. According to the authors, the ability to initiate and successfully manage change has slowly turned out to be a measure of organization’s competitiveness. Currently, organization’s operations are largely determined by the environment in which they operate. Time has come when any organization, be it private or public, must keenly observe what happens in the external environment without only concentrating on its internal structures (Amirkhanyan, Kim& Lambright 2008, p. 23). Aspects like technological advancements, economical developments and political influence have direct and indirect impact on how organizations operate hence they define the changes that organizations need to implement and the pace at which they should do it (D’Ortenzio 2012, p 2).
Due to the importance of the subject of organizational transformation, a lot of literature has been written on it. It is by reading the literature and examining practical case studies of companies that initiated and successfully implemented transformation that a clear understanding of change can be derived. As such, this discussion is based on various literature on transformation that will serve as the basis of the argument and a review of transformation initiatives that were launched in two companies, namely VFS and Nokia. The discussion starts by looking at the case studies to serve as a pointer towards the reasons for success or failure of the respective approaches to transformation.
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Nokia’s Leader-Driven Transformation Reinvents the Company
Nokia is a company known globally due to its former dominance in the mobile-phone industry. The company battled with many challenges that at one point helped it survive in the mobile-phone industry as it could hardly cope with the competition from rival companies. It has been in existence for at least 150 years and during the period, it has been subjected to several transformations with an aim of reinventing it. The numerous transformations that the company has undergone have made it suitable example of serial transformations (Faeste, Et al. 2014, p.1).
Among the transformations that Nokia has gone through, the most remarkable one was witnessed in 2014 when company’s management had to decide whether to continue with its heavy investment in the sale of mobile devices or to seek ways of reinventing itself. At that time, the company was experiencing a lot of hardships awing to the fact that the mobile-devices business was no longer promising. The company was not making good profits from the sector and there was a need for more capital tobe pumped in the business for it to continue. While the company was experiencing hardships in its mobile-devices business, it was taking part in a joint business with Siemens that was referred to as Nokia Siemens Networks (NSN). The two companies worked together to sell networking equipment and the business appeared to be more lucrative and rewarding as compared to that of mobile-devices (Faeste, Et al. 2014, p.1).
It was the time when Microsoft declared interest in taking over the device business from Nokia. After this declaration, Risto Siilasma, who was Nokia’s chairman, was given the mandate to conduct an evaluation of the available alternatives alongside the company’s executive. After an extensive evaluation that was conducted within a period of six months, the chairman and the executive decided accept the offer from Microsoft. The agreement that the companies reached was expected to have a great impact on Nokia as it chose to have its mobile business sold to Microsoft. At the same time, company’s CEO initiated another move that was aimed at buying Siemens from the NSN joint venture. A successful purchase of Siemens was targeted at giving Nokia full control over the unit that was intended to be its main cash generating venture (Faeste et al. 2014, p.1).
Nokia made the two moves that turned out to be very important for the company to fund its operations. The transformations of the company’s operations were well timed and their execution was perfectly done. Upon making the big announcements about the changes that had taken place in the company, Nokia chairman and the CEO alongside other executive members designed a scenario that was based on a perfect portfolio strategy with a great business plan and capital structure (Faeste et al. 2014, p.1). Working together as a team, company’s CEO, chairman and the management team formulated measures to ensure that the new organization would deliver desirable operational results across its portfolio. The company’s portfolio plan was to initiate measures which could enable it occupy a top position in facilitating the development of technologies all over the world to ensure that all people and things would get connected.
The transformational move that the company made has enabled it to steadily grow its share price with the enterprise value growing 12-fold all the way from 2012 when it bottomed. The transformation is remarkable in the history of the company as it enables it to return billions of dollars to its shareholders. It has regained its status as one of the biggest companies in Finland (Faeste, Et al. 2014, p.1). It is believed that the change that the company chose to initiate will effectively help to reinvent it in the near future.
Such big changes as the one that Nokia’s chairman, the CEO and the management made call for application of good approaches when selecting and implementing transformation programs (Faeste et al. 2014, p.1). In the case of Nokia, the top management was fully aware of the possible outcomes of the transformation hence they took enough time to conduct an evaluation before making a decision. The success that the company realized in its transformation program was only possible due to management’s patience and commitment. The top management approached the change with caution by taking time to conduct a thorough assessment of the prevailing circumstances and the possible impacts of the initiative that they wanted to take. It was after a careful examination of the available alternatives that the chairman and the CEO chose to have the mobile-devices business sold to Microsoft as Nokia decided to take full control of Siemens (Faeste, Et al. 2014, p.1).
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VF’s Growth Transformation Creates Strong Value for Investors
Value creation helps to analyze the initiatives that can have significant impacts on an organization’s change program and to reach a clear understanding of the impact that a change can have on shareholders (Argy, 2001, p. 42).
In its approach to transformation, VFS focused on value creation as a way of determining its transformation choices. The company successful in the early 2000s as it had a strong management despite experiencing little organic growth. Company’s products, namely ‘jeanswear’ and its intimate appeal business accounted for about 80 percent of its income (Faeste et al. 2014, p.1). The initiatives that the company took to cut on costs delivered diminishing returns. The company grew flat in its annual revenues and it did not have a clear path for its future growth. The company’s value creation was affected by efficiency in manufacturing and the cost discipline while its management was surprised by the fact that it had a lower valuation multiples in comparison to a good number of its peers (Faeste, Et al. 2014, p.1).
There was need for the company to identify a change approach that would enable it drive strong and sustainable value creation. As a result, it embarked on a transformation plan with a long-term implementation period.
The first approach in the company’s transformation agenda was to enhance commitment to value creation that would be company’s main focus. It decided to avoid pursuing opportunities for growth at the profitability expense and the management demonstrated their determination to facilitate a balanced value creation. As a result, company’s dividend rose by 90 percent (Faeste, Et al. 2014, p.1).
The second approach that the company took to facilitate transformation was to relentlessly manage its costs. It was done through the development of an effective operating model focused on leveraging scale by use of supply chain processes and offshoring among others. The company also chose to initiate a great transformation of its portfolio besides creating high performance culture by establishing an ownership mind set among its managers. It also decided to train its managers to boost their understanding of value creation principles. The company made a move to strengthen its management by means of a dedicated talent management program and being keen on executing selective high-profile hires (Faeste, Et al. 2014, p.1).
VF’S transformation became effective due to the help of TSR. As a result of implementing the transformation, VF achieved massive gains as evidenced by the growth in the company’s revenues from $7 billion that was realized in 2008 to more than $11 billion in 2013. It is projected that company’s revenues will top to $17 billion by the year 2017. The company has also recorded a substantial improvement in its profitability as confirmed by the gross margin of 48 percent in 2014. The company also realized other gains due to its successful transformation. For instance, its stock prices rose from $15 per share that in 2005 to more than $65 per share as of September, 2014. The company pays just about 2 percent in dividends. Over the last ten years, it has never left the top quintile of the S&P 500 with regards to the TSR (Faeste, Et al. 2014, p.1).
The case of VF Company also shows an incident of successful transformation. In its case there was mutual understanding on what needs to be done to facilitate attainment of the necessary change without meeting resistance. As was the case with Nokia Company, VF also developed a properly managed approach to change by ensuring that all members of the management team showed a positive response to the changes.
Models of and Approaches to Change and Change Management
It is vital to have a clear understanding of the impact that a properly selected approach to change will have on a transformation program. There are three main categories of change interventions. The first one is the top-down change management, where the initiators of change take time to plan prior to implementing the change in order to enable a smoothexecution of a planned transformation. In this approach, the change program can suffer hindrance in the form of resistance from employees only. Therefore, the approach focuses on changing the organizational culture (Abrahamson, 2000, p. 54). There is also the transformational change management. In this case, leaders in an organization set an example to help people think in an innovative way. While setting an example, transformational leaders also take the responsibility of setting an enabling environment to facilitate implementation of the propose change (Liu et al. 2015, p. 65)
The third category is strategic change management which contradicts the top-down change management approach as it targets an introduction of new behavior at work while giving employees an opportunity to witness the benefits of the change to the organization (Adcroft & Willis 2005, p. 17). The change management approach is based on the perception that witnessing the success of a change initiative will enable employees appreciate the need for them to change their ways of doing things. All the approaches are applicable based on the prevailing circumstances. However, the first category of change management is believed to be prone to failure (Liu et al. 2015, p. 67). The essence of communication, good leadership and involving employees in the change process is emphasized by all three approaches. Therefore, organizations should properly match a given approach to the context in which it is to be applied may, or it will lead to the failure of their change initiatives (Adcroft, & Willis, 2005, p. 12).
The Planned Approach to Organizational Change
The emergence of the planned approach to organizational change was the result of the work of Kurt Lewin who related change to a group decision making and implementation of an agreed decision. In this approach, it is pointed out that individual’s behavior often differs from the conduct of the entire group. Kurt Lewin stresses that the members of a given group can have different reasons for joining it but when they manage to have a share objective in the group; all members are capable of working together to ensure that the shared objective is achieved. The approach focuses on the need to change the conduct of a group. It is by changing the group’s conduct that members will be prevented from reverting to their old ways within a short time. Burnes (2004, p. 311) supports Lerwin’s approach to change by suggesting that human conditions can only be improved after resolving social conflicts. Based on this view, the panned approach to organizational change emphasizes learning as an undertaking that enables individuals within an organization to reframe their views on the measures that they can take to avoid or solve conflicts resulting from a change initiative.
Lawin’s Planned Approach to change proposes a three step process in executing and implementing change. When using the approach, change initiators give the employees an opportunity to learn the proposed change so that they can adjust accordingly. The three steps of change that are proposed by the approach are unfreezing, moving and refreezing (Harper 2001, p. 9). In the unfreezing step, employees change from their traditional ways of doing things as they apply the new process with a sense of urgency. Tis requirement is only achievable if measures are taken to move employees from their comfort zones so that they adopt new work practices. According to Harper (2001, p. 10), effective application of a transformation initiative requires the implementing management to call upon employees to adopt a plan to shift from former processes, while creating willingness to act among all employees (Ostroff, 2006, p. 75).
The second step of the approach is about initiating the change where employees start doing things differently or take part in activities to facilitate implementation of the change. The approach also suggests that all stakeholders are allowed to participate in decision making and to contribute to problem solving. The third step involves reinforcing new processes and ensuring that the new tasks are executed according to the newly introduced procedures (Liu et al. 2015, p. 65).
This planned approach to change is advantageous as it gives room for the management to prepare all stakeholders and employees for the change beforehand. The approach also has employees involved in the change process hence improving their willingness to participate. The provision for stakeholder’s participation is an indication of collective responsibility in the change process as evident in the earlier case of Nokia company where the executive management team came together to set a stage for the implementation of change hence realizing success in their change initiative (Kelman 2005, p.14).
Despite the advantages, the approach has challenges that relate to employees’ anxiety. Anxiety is also experienced by the management that is not certain about the outcome of the change initiative (Kelman 2005, p.34). The fear arises as the change can result in unconstructive behavior among employees rather than inculcating a constructive behavior in them. Besides, employees often show anxiety when they are performing new tasks or using new processes because they do not know the possible outcomes of their new approaches to work. Therefore, anxiety can be a cause of failure of the entire change initiative.
The Contingency Approach to Change
The approach advances the notions of Lawin’s planned approach to change. It examines change from the point of view of an organization’s transformation. Based on this perception, the contingency approach to change explores the sense of implementing a change model that is responsible for a particular situation (Anderson, Griffin & Teicher 2002, p. 24). When using the contingency approach to change, the management must ensure that change initiatives vary in accordance with the changing environment so as to attain the desired results (PWC, 2013, p.1). The approach factors are situational variables that are believed to have an impact on the success of a given change initiative. Such variables determine the performance and structure of an organization. As such, the types of change to be implemented by an organization must be selected after a strategic analysis of the situation under which the proposed change is to be implemented. The approach demands an examination of the situation both at the formulation and implementation stages of a proposed change. It also suggests application of varied leadership styles in the change process and selection of theappropriate leadership style is done after considering the prevailing situation.
The contingency approach is situation based, which is one of its strong sides. The approach can be used to respond to the ever changing business environment and to competently face competition from rivals. It relates application of a given change initiative to a strategic analysis of the prevailing circumstance. Based on the value for the situation analysis, the contingency approach allows for conceived implementation of a change if the changes are seen as a vital undertaking that willlead to success (D’Orttenzio, 2012, p. 34).
The contingency approach is criticized on the perception that its success is dependent on the interpretation of the change initiators. The model is believed to have a weakness that originates from the implementation of a wrong style by the change initiators. The entire change driver determines the manner in which transformation is executed. In case the change driver is characterized by direct leadership style, there would be no room for carrying out extensive consultation with employees and stakeholders but the change would be implemented by legitimate authority. The approach to change can also lead to resistance when its driver calls for the use of coercive leadership style. In such a case, explicit force would be placed on employees by the management as an autocratic decision making mode would be applied (D’Orttenzio 2012, p. 36).
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The Emergent Approach to Organizational Change
This approach to change was formulated in response to criticism on the planed model of change. The approach introduces different labels of the change process in an attempt to correct the weaknesses that were observed in the planned approach to change. It suggests that the change process gives room for continuous improvement or learning (Kotter& Schlesinger, 2008, p.54). In view of this approach, any change should be a process that is driven from bottom up and not in the opposite direction as was suggested by the planned model. The approach also suggests that change is a continuous and open ended process. Organizations that implement their change initiatives by use of this approach should always be ready to respond to emerging environmental circumstances. The approach is based on the assumption that the process is so rapid and that the change initiators can hardly plan for the necessary transformation within their organization. According to the emergent approach to change, it is necessary for change to be understood as a series if linear occurrences within a specified period of time (Alvesson & Sveningsson 2008, p. 23). The organization is expected to respond to the change events in an open end process as it adapts to the new prevailing circumstances (Kotter& Schlesinger, 2008, p.44).
The approach advocates for a deep understanding of strategy, style, culture and people. The factors are believed to have the capacity of functioning to either impede or facilitate implementation of a change process (Ashton, 2001, p.24). The approach also suggests that the change process should not be based on a pre-planned initiatives but a focus should be made on how to responds to emerging situations using the most effective option among the available ones (Australian Public Service Commission, 2003, p. 56). Generally, the change process focuses on the need for organizations to be prepared for transformation and on establishing appropriate means to respond to an emerging change without much attention to a pre-planned approach (Advisory Group on Reform of Australian Government Administration, 2010, p. 17).
This approach to change has its strength in the fact that it advocates for organizational preparedness for change. It looks at change as an emerging issue to which an organization should respond. The model is advantageous in that it is step-by-step hence it is easily implemented (Kotter & Schlesinger, 2008, p.54). The disadvantage of the model is regards the change as a continuous process with strict steps that must be followed for a successful implementation. Any organization that uses the approach to change must be keen enough to observe the change in the context of the prevailing environment and to follow all the necessary steps. Besides, the model rules out the option of planning as it states that pre-planned responses to change are not valid.
Generally, the transformation initiatives that organizations go through are different but they are not unique. It implies that organizations can learn from each other’s experience in the transformation process and implement the approaches that are workable based on their prevailing circumstances. An effective transformation process requires adequate preparation and involvement of all employees and stakeholders. Therefore, organizations need to establish a culture that makes employees responsive to changes so that the process does not face a lot of resistance, otherwise it can lead to failure. It is also possible to apply different approaches to change based on the prevailing circumstances. Moreover, the process will not be a success if the approach to change is so rigid. As in the case with Nokia, organizations need to fully evaluate the prevailing circumstances and to involve all stakeholders in the decision making so that implementation of the proposed change becomes effective.