One of the most critical aspects of effective management is change. The ability to identify the need for change and devise a workable strategy for effective change approach cannot be over emphasized.
Because of the complexity and ever dynamism of today's business environment, organisations are often confronted with situations that alter organisations be it the structure, its people, technology or any other aspects of an organisation. These changes could be internal or external in nature. Often times such changes are effected to increase or optimize organisational effectiveness.
This report will be delving into the change history of an organisation (Procter & Gamble) focusing on the forces for and against the change, the changes that have occurred across all indicators of change, and the process of change that occurred. Also, we'll look at how important it is to involve stakeholder when implementing changes and why staff empowerment is essential when initiating and implementing change. Besides we'll look at challenges that an organisation is usually faced with when implementing a change.
Procter & Gamble Co.is aFortune 500,company that specializes in the production of consumer products. The headquater is located in Ohio USA. As of 2008, P&G is the 8th largest corporation in the world by market capitalization and 14th largest US Company by profit. It is 10th inFortune'sMost Admired Companies list (as of 2007). (www.pg.com)
The company was co-founded in 1837 by a candlemaker William Procter an English immigrant and a soapmaker James Gamble also an immigrant from Ireland. The 179 years old company's current revenue amounts to US$83.503 billion.
Recent Change History
"When [Lafley] took over in June 2000, on the same day as CEO Durk Jager's sudden resignation, the company was the sort of ink-stained mess you'd find in a Tide commercial. It had slammed four profit warnings into two quarters. . . . Its stock had dropped by half in the previous six monthslosing a crushing $70 billion in market value. And the combative Jager, whose 17 volatile months on the job had made his the shortest CEO tenure in Procter & Gamble's grand 165-year history, had left the company unsure of its footing. The day Lafley got the keys; no one had high Hopes" -Fortune, September 2002
Why Consider Change
At a point in the history of P&G there was a significant change introduced that altered the organisation structure and culture which was termed "organisation 2005". The main purpose of this was to bring about a radical transformation in the structure of the company.
It was quite unfortunate that the reorganization did not yield the expected result. Instead it led to crippling the economic outlook of the company. The effect of this was noticeable in the stock value of P&G mainly as it was seen that little or no sales were recorded at this time, and this caused P&G to issue four profit warnings (external effect). Also lack of immediate results coupled with substantial job reductions - an integral part of the Organisation 2005 restructuring - contributed to sagging employee morale (internal effect). As a result the company had no choice other than to change the CEO and was replaced by A.G Lafley. When Lafley came on board had to decide whether or not to put an end to this new structure and return to the previous organizational structure that had worked well in the past.
According to a report by business weekly 2003, the proposed Organization 2005 "aims at changing P&G's culture from a conformist, slow-moving, bureaucratic behemoth to that of a modern, fast-moving, Internet-savvy organisation. P&G wants to make faster and better decisions, cut red tape, squeeze costs out of systems and procedures, fuel innovation, set more aggressive sales goals and nearly double its revenue. The catalyst for all this changes was believed to be Information Technology".
However before long, Organization 2005 ran into various problems. It was reported that after the stock value of P& G reached $117 a share in January 2000, the stock fell below $90 a share in February same year. As the company name implies they actually "gambled" on this one.
The Organisation 2005 looks very promising at the inception as it is seen to shot up the company's global competitiveness and as such had the full support of top executives of P&G however many of the other staff were not comfortable with the approach adopted at the implementation stages. According to the Economist June 2003 report "not everyone at P&G agreed that such radical transformation was necessary or that the way to achieve it was to reduce investments in the company's core brands in order to fund radical, new products." In the long run the organization rebelled, and Jager was forced to vacate office within only 17 months after taking the helm.
When A.G. Lafley (current CEO) came on board after the resignation of Jager, He was determenined to turn things around. He was focused on improved operations and profitability as well as rebuilding a management team that works.
Lafley later introduced new product extensions to boost growth. Products like Tampex, Olay body care product were introduced to the market. He also continues to invest in research especially in the Pharmaceuticals arena.
The company decides to downscope numerous brands in 2002 that seems not profitable and those that does not fit P&G global strategy. Products like Jif, Clearasil and Crisco were downscoped. It was reported that by the early 2003, P&G have completed the review of its brand portfolio.
As a result of timely initiative of Lafley, the sales growth of P&G begins to be noticeable. It was recorded that the sales growth of 6% in 2003 and that happens to be the biggest gain of the company since 1996.
On Mr. Lafley's watch, sales have grown to more than $80B from less than $40B when he took over, and earnings have tripled, topping $10B in 2007. (Business week 2007)
Lafley believed a key enabler for Organization 2005 had been Information Technology (IT). It was reported that the company spent $1bn in 2002 on IT alone. Among the many Information Technology (IT) initiatives Organization 2005 incorporated was collaborative technology which helps to facilitate planning and marketing, business-to-consumer E-commerce and ensuring that the supply chain network of P&G is highly an integrated one.
Other Changes Adopted (Related to Company's boundaries, Structure & Process)
Among the strategic tools Lafley used during this period of change was strategic acquisitions. The company bought over Clairol, Wella and Gillette .This has helped P&G achieve it Global (goals). These alliances adopted surely alter the company's external boundary.
Beyond these acquisitions, P & G decides to also focus more on innovation. Infact innovation has been seen to be the very hallmark of P&G product delivery.
According to a writer regarding the company, "P&G places a high value on its supply chain performance because the new management feels that if the supply chain doesn't perform, P&G does not have the right brand in the right place at the right time. This might lead to losing in the marketplace."
The restructuring efforts ensured that P&G moved from a country structure to a global product structure. The result has been positive in that it helps the company to enjoy economies of scale.
One of the huge strategic advantages for P & G was IT. The company outsourced its IT infrastructure globally to Hewlett-Packardin 2003, as a result P&G were able to leverage new technology in innovation process. According to a report by the Economist June 2003 "Many of the things they were used to as an organisation in the Physical world were now been done now in the virtual world. Before long, the processes relating to operations within the organisation were better enhanced by means of IT"
The changes that took place at P&G clearly illustrate the fact that an organization's capacity to change is a key factor in its short and longer term success. Also as Jacobs (2002) stated "the most successful organizations of the future will be those that are capable of rapidly and effectively bringing about fundamental, lasting and system-wide change". A.G Lafley one we'll regard as one of the most prolific leader, was determine to establish an innovative culture in P&G that helps to propel the company.
Majority of persons who are used to a particular system are often nervous about change. Many resist it- consciously or subconsciously. Sometimes those fears are well founded. The change really will have a negative impact for them. At the end of the day in most case it will be found that those changes were really meant for them.
Those that are affected by the changes that take place are often called "Change participants". There individual that usually need to know as to why changes are needed and the effect either positive or negative it will have on their work. Such ones can be said to be stakeholders but a change may also have stakeholders who are not directly affected.
Needless to say, stakeholder analysis is required to help plan the change. This often involves the identification of key stakeholders and the extent of their influence on the change as well as potential resistance which will assist in devising a programme that will address their concerns and fears, as well identifying and looking at ways of dealing with potential conflicts when it comes.
One of the main substances of any change is cooperation. It also includes collaboration and co-ownership of others. After a full consideration of stakeholders involved in a change intervention can one can expect full acceptance.
Five approach or system to effecting change were identified by Thurley and Wirdenius (1973) and summarized by Lockitt (2004). There broad approaches include
- Educative and
- Participative strategy.
Referring back to Procter and Gamble organisation change case, a writer from the Economist 2003 opined that "the reason of failure was that Jager didn't carry along P&G employees to cooperatea requirement of all change campaigns. Managers became critical of Jager's confrontational style. As employees felt they were being pushed, there was significant disenchantment within the organisation". According to this report "in Europe about 2000 people were suddenly transferred to Geneva. About 200 employees were asked to relocate from various parts of Asia to Singapore. Besides transfers, the program had also led to various behavioral problems, as managers in a region will have to report to a director in another region". (Economist, 2003)
According to some analyst commenting on the reasons for the failure of the change stated that "Jager had tried to put too much pressure on P&G managers into bringing products to market faster. He had pursued major moves such as the dual acquisition of Warner-Lambert and American Home Products, which were futile. None of these improved P&G's performance. Jager's exhortations also did not go well in P&G's cautious corporate culture. His plan had been too aggressive."(Business week, 2003)
Thus the approach adopted by Jager was a directive strategy using his manager's right to manage change and authority to impose change. As a result valuable information and ideas was missed and thereby lead to strong resentment from staffs when changes were imposed rather than discussed and agreed.
However when A.G Lafley took over the helm of affairs, his approach was a complete opposite to that of Jager. It can be seen from Lafley leadership and managerial attitude that he adopted both Educative and Participatory strategy where he tends to win employee's heart and mind in order for them to fully support the changes being made and move towards the development of a shared set of organizational values that all staff are willing and able to support. Lafley recognized that innovation is the key to keep the organisation- P&G moving in an upward spiral as well as sustaining it's competitive advantage. It was noted and reported that Lafley "preached innovation to every member of staff; he added education, training and selection, led by specialist and in-house expert of which staff accepted. Each staff felt belonged as their views were all taken into account as the changes were implemented". Their moral was thereby well boasted and help in taking P&G back on track.(Economist June 2003)
Breyan construction employs 400 staff and is part of a European based multinational enterprise. The company provides specialist services to major construction projects. Breyan operates in a highly competitive and at times hostile and aggressive environment as is the case with many companies in this sector.
There have been ongoing frictions and disputes between contractors and subcontractors of this organisation which in most cases end up in litigation even though efforts have been made over the years to create an atmosphere of improved working relationship.
For a long period Breyan management has been more of autocratic in nature. Many in the organisation feared the managing director not getting into his red book. The leadership approach adopted has been counterproductive but as one manager commented 'You didn't challenge him, you didn't put your head above the parapet, or he'd make life hell for you'. When he left the company upon his retirement, the company has been in such a state that she's underperforming. This is was the view the parent company took as they evaluate the present state of the company. Poor management and lack of cooperation among employee were identified as the root cause of the crisis. As a result the managing director that took over was given the mandate to improve the performance of the company and improve the competency of management. Was he able to achieve this? Yes to a greater extent. Within four years, there was a significant transformation across board regarding the structure, culture and operation of the organisation.
Focusing on People and Performance
When the new managing director came on board in 1996, he was in as an enlightened manager who knew his onions well and can provide a good lead geared toward improving the state of the company. He was a trained engineer who was once an employee of the company (Breyan) but left and worked for other companies for a while before returning. During those periods he has gathered lot of management experience. And because the construction industry is such a close knit one, he still understood the Breyan and its employees.
The new managing director clearly recognized the complexity of the situation on ground that of diffusing tension between contractors and subcontractors. Hence his approach was to come up with initiative that will ensure that the conflict on ground will be replaced by cooperation and partnership among contractors and subcontractors.( Burnes and Coram,1999). Besides for the company to succeed, the managing director also recognized that external partnership will need internal partnerships and teamworking.
To achieve this, a different new management style will be required and that is a democratic or participative style management in Breyan. With this in mind, the managing director right from the onset was determined to get to the root cause of the problem confronting the organisation, that of poor management, as so he was not just concern on upgrading Breyan's management but to overhaul the company's operations and an established way of doing things-culture.
To show that he wanted to establish a better working relationship among staff, he set to broaden hi team of management to include staffs who were not directors. Hence he tend to change the hierarchical and status conscious company that Breyan was to a flat kind of
It was noted and understood that between 1996 and 2000, there were series of initiatives designed to improve the organisational performance.
His first initiative was to introduce a small -scale Kaizen programme. According to Witzel (2002) "Kaizen is a Japanese Technique for achieving small-scale improvement through teamwork". This concept introduced by the Managing Director was seen to be generating dividend.
In October 1996 the company also introduced another initiative that was a "customer care programme". The purpose of this initiative was to create a positive view of customers and building team work amongst employee for achieving common goal.
Taking a preview of Breyan construction it can be seen that there was a clear and consistent strategy geared towards transforming the organisational culture, established practices and structure. Obviously this strategy started with the new managing director. He knew well that he was sent forward by the parent company to set things straight especially as the company is losing out competitively wise and needed to come back to reckoning for the company to remain afloat.
The new Managing Director was face with a dilemma that of pleasing the parent company on one hand by creating a working atmosphere that foster cooperation and team work within the organisation so that the company can be able to cope favourable with the ever changing landscape of the construction industry. On the other hand he had to deal with hierarchical structure that was left behind by the previous managing director who was more a dictator and "heavy-handed fashion" that create an atmosphere of resistant of change. Hence the new managing director had to look for ways to adopt changes that was quick enough to satisfy the parent company and at the same time able to create a friendly and better working relationship among staff, managers and customers alike.
In overall, it can be commented and observed that Breyan's approach to change has been characterized as "Emergent" and in many cases "experimental".
Conclusion & Suggestion
Organisations implementing changes within organisational design dimensions will need to pay particular attention to the 'method or approach adopted in effecting changes even if such change model appears to be rewarding in the long run'. P & G organisational 2005 model was very promising at the initial stage but the implementation was way off the line. Also when managers attempt to implements changes it is important to give attention to the impacts both positive & negative such change will have on the cultural, structure, people in an the organisation. This will often involve doing a full stakeholder analysis. If due consideration is not given, this will eventually result in failure in the change management process.
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