Managing organizational change

"Even the best of organizations struggle to adapt to change. While it is difficult to change, look at the downturn to try to experiment and change." says... Sourav Mukherji, Associate Professor of Organization & Strategy Indian Institute of Management Bangalore,

Excerpts:

The quotation from Darwin, of survival of the fittest is the most wrongly quoted and misunderstood concept. According to Darwin, Species cannot adapt in their life time, they adapt across generations. Lets assume that some Giraffes were born with long necks and some with short necks, given the environment they were living in, the long necks had good chances of getting food, it did not mean the short necks stretched their necks and eventually became long necks. In the process Long necks survived. If you strictly apply Darwin, your chances of changing yourselves is very less, you're either born with a skill or not, if you're born with it, then best of luck and if you're born without it, and if your chances of surviving are dependent on that attribute, then sorry folks, you've not made it.

If you apply it in the context of organizations, changing and responding to uncertainty is a difficult task. There is no definite prescription, to adapt to a world about which you don't know anything, there is a logical fallacy about it.

Given below is a chart by R N Foster & S Kaplan (2001), where you will find that the average life span of an organisation has significantly gone down. The average life expectancy of an organization is not more than 12 years today, and it is likely go down further. In the chart, each of the jagged ends tell us a story, a story about the great depression, a story about oil fluctuation and a story about World War 2 etc. As the business world becomes more and more uncertain, it is difficult for us to change and survive as organizations.

Research indicates that, 70% change efforts in organisations fail, the unnerving fact is that, though most organisations find it difficult to change even after accepting the fact that if they don't change they will die.

The first edition of Forbes magazine, which came out in 1917 featured 100 top companies. A study did in 1987, said that of the 100 companies featured, 61% companies did not exist in 1987 at all, though it is 70 odd years. Of the surviving 39, only 18 managed to stay in Forbes 100 list. If you put together the returns of these 18, they fell 20% below the market average, which means the market was out-performing them consistently. Only 2 of them - GE & Eastman Kodak earned greater returns than average, but both these companies have fallen in hard times since then. Even the best of organizations struggle to adapt to change.

Plenty of advice is available in times of slowdown, I picked some which looked logical to me, Gary Beach - Publisher Emeritus at CIO Magazine said that it was necessary to ‘Think new' because 35% of Fortune 500 companies came into being during recession - and 7 out of Fortune 10 apparently came into existence during recession. So not everything is Blue, as far as recession is concerned.

George Colony - Founder and CEO of Forrester Group said in The New Your Times, what not to do during the downturn. He says, don't compare this with the 2002 Technological downturn, which was due to IT and Dotcom meltdown. Impact of it was localized. You cannot afford to stop spending on technology, as you did last time, i.e. the technological depression in 2002, because you risk losing customers, so he is talking about long term.

Does downturn provide us some advantages; Todays CEOS are more receptive to ideas. I was talking to a CTO of a large IT service firm, he said earlier the CFOs were not listening unless there were a couple of millions in savings, but today they are listening carefully, even saving small amounts matters and the downturn is opening doors. What we have found out is that Organizations are more receptive to change during crisis.

We are saying that while it is difficult to change, look at downturn to try to experiment. It should be random experiments on a variety of fronts, then the chances of success are higher. For example, a venture capitalist who invests in 20 businesses knowing fully well that 18 of them may not do well, but the 2 that do well will have their rate of return so high that, it will cover for all the 20. While you are experimenting, question yourself, what kind of organisation you are and what you would like to be, whether you are an organization that tolerates dissent, inculcates diversity, accepts ambiguity, do you actually spend time on exploration... and so on and so forth.

There are 2 change models; one model is the Economic model, which focuses on quick results and financial turnaround. Initiatives on economic incentives, financial restructuring, layoffs and downsizing. The focus is on Maximizing shareholders wealth, this is a model you are forced to follow if you are a publicly held company. It is a hard approach.

The organisational model which focuses on developing organizational capabilities is the second model. This is the soft and a nurturing approach. Initiative is on organizational culture and development of individual learning. The focus is on aligning the organisational purpose with individual employee aspirations. Maximizing and realizing employee potential as a means to deliver better performance, here benefits are difficult to quantify, it's a long term effort thereby making it difficult to justify ROI.

If you follow the economic model, you will face tough situations, when employees join, they make a psychological commitment and want a long term relationship and they feel that it is a breach of their trust. Though the economic model can deliver quick results, it hampers the long term competitiveness of the organisation.

During a downturn, the natural tendency is to go for a centralized economic model and get quick results - which might be helpful to win the battle but ensures that you lose the war.

Sourav Mukherji is Associate Professor of Organization and Strategy at the Indian Institute of Management Bangalore. His major research interests are strategic and structural challenges faced by Indian firms competing in global markets. Prior to joining the faculty at IIM Bangalore, Sourav worked for the Boston Consulting Group as a strategy consultant. After completing his engineering, Sourav had worked with information technology firms like IBM and Oracle in various product management functions. As a doctoral student at IIM Bangalore he won the ‘Infosys Fellowship', awarded for research in the IT industry.

He was speaking at a Panel discussion organised by Businessgyan and TASMAC on the topic "Change Management"  

Compiled by consulting Correspondent, Mangal D Karnad for Businessgyan 

Issue BG98 May09