Managing Change by Managing Risk - Essay Example

?MANAGING CHANGE BY MANAGING RISK INTRODUCTION: An organization is an entity which is structured with some objectives. To attain these objectives, these organizations carry on some kind of business. Except non-profit organizations, all these organizations have one objective in common; i.e. to earn profits in the long run. Thus, the future viability of the organization is an integral part of the organizations’ basic objectives. However, this is not as simple as it seems to be. The main threat to this objective is the risk. RISK MANAGEMENT: In organizational context, risk is anything which endangers the future viability of the organization. The risk in this sense comprises of two major elements. The first one is the probability that the system or the entity will fail to achieve its objectives. And the second is the consequences and results of such failure. In any business organization, risk is inevitable. However, how better the organization cope with such risks depends upon the techniques used by the entity for such purpose. The practice and act of identifying, assessing, handling and controlling risk related situations and issues in an organization is known as enterprise risk management. The process of risk management includes identification and tracking of risk associated areas, development of plans for mitigating risk, performance of risk assessment procedures and handling and monitoring risks. Thus, it may be seen that risk management is a very broad term and includes a number of issues being addressed during the application of risk management techniques. Along with identification and assessment of risks, the prioritization of risks is also an important part of risk assessment procedure. Thus, the process of risk management mainly focus on the probability of occurrence of unforeseen events in future and the impact of these events on the capability of the organization to achieve its objectives. A number of techniques and tools are used to carry out this process. However, it is necessary before the application of any technique to know the type of risk which the organization is facing. A better understanding of the risks will help the management to adopt such risk management techniques which will better cope with these risks. TYPES OF RISKS: There are a number of risks which evolve in any business. All these risks threaten the capability of an organization to achieve its objectives. Following are the risks that usually occur more frequently: 1. Systematic Risk: Systematic risk is a risk which cannot be predicted, mitigated or reduced in any way. This is due to the reason that this risk may occur at any time and is completely out of control. Changes in the government legislation or interest rates prevailing in the economy are examples of systematic risk. To mitigate the impact of such risks, it is advised that the organization should remain prepared for the occurrence of such risks at any time and should undertake proper plans to cope with such risk. 2. Non-systematic Risk: These are the risks which occur due to the features of assets. Changes occurring in the management decisions and employees’ strikes are the examples of this type of risk. These risks can be easily eliminated by using the diversification process. 3. Financial Risk: Financial risk rises when the organizations heavily rely on the debts and loans. This type of financing is called debt financing. This type of financing increases the liability of the organization as the organization is liable to pay such money back in future. Thus, it becomes necessary for the organization to keep enough reserves so that this money may be paid back in future. Thus, the degree of risk and uncertainty rises overall. 4. Operational Risk: Operational risk is the risk associated with the operational level of the organization. When this risk arises, organizations do not able to perform its operations properly. Thus, operational risk includes risks arising from business operations, information reporting and leadership and management style adopted by the business. 5. Business Risk: Business risk refers to the uncertainty of an organization in gaining income by carrying out the desired operations of the organization. This risk is reflected in the profit earned by the business through its operations. Business risk is the greatest of all the risks mentioned above as it greatly threatens the existence of the company. That is why it is given a great emphasis. However, the studies show that the businesses risk encompasses all other types of risks. In other words, the business risk arises due to any change in the market situation, the products and services in which the organization deal, the use of debt-financing by the organization, new government legislation and industry environment. Thus, the business risk is dependent on a number of factors and any fluctuation in these factors causes the business risk to rise or fall. CHANGE RISK: ORGANIZATIONAL CHANGE: Another major risk that arises in any business organization is the change risk. This risk only happens when the organization brings any change in itself. However, change in this context does not refer to an addition of a new person in the management of the organization or modifying or revising a program or working method at low level. But organizational change refers to a change which brings a transformation in the organization structure to a great extent. At a glance, change in organization seems to be optional and not necessary. But recent studies show that change is compulsory in the rapid changing world of today. Now everything is growing at faster rates than ever before. New products and services are being introduced by all the organizations in the market which has increased competition. The recent technological developments have also caused a great shift in the production as well as working methods. This rapid changing environment has made it necessary for an organization to bring change in itself. Change in organization includes change in the structure and size of the organization, change in working conditions, change in working relationships, change in leadership style, change in administration policies and procedures and change in the products and services the organization makes and provides. Any external change in these factors may cause organization to introduce relative change in itself. That is why, these factors are also known as change triggers. If such changes are not brought in time, there is a possibility that such organization are shut down within few years. The only choice remains with such organization is that its administration must change and adapt organization in accordance with the changing circumstances. However, managing change in an organization is not an easy task. There always comes some resistance in opposition to such change. However, the magnitude of such resistances differs with the differences in the changes. Sometimes, the resistance is minimal and thus, can be handled easily by offering incentives. On the other hand, there are some cases where resistance to change becomes threat to the organization’s future existence. Thus, such resistance to change becomes a risk for the organization. It requires a range of handy techniques to manage such changes. The philosophers of organizational behavior believe that a change can be initiated, implemented and maintained successful if the risks associated with such changes are managed properly. RISK TO CHANGE IN ORGANIZATIONS: Change is considered as a risk. This is due to the reason that change is considered as a difficult and disruptive process especially in the case where change involves learning of new efforts and skills. Most of the risks associated with changes in the organizations come in the form of resistance from employees and workers. This is due to the reason that the change affects almost all the stakeholders of the entity. The change may affect the individuals in the organization in the following ways: 1. Physical Changes – These changes occur when the physical conditions and dimensions of an individual is changed. It involves working in new conditions, establishing new work and non-work relationships and also living in a new house. 2. Physiological Changes – An organizational change may also bring physiological changes in a person’s life. These changes have direct impact on the individual’s physiological conditions. For instance, change in working conditions may affect the eating, sleeping, waking and working habits of the individual. 3. Psychological Changes – The organizational change may affect the individuals psychologically to a great extent. It may bring a feeling of uncertainty and insecurity in the individual. New working relationships and new working conditions may also cause stress in individuals. Thus, it may be seen that the organizational change affects individual to a great extent. However, these changes may be of varying nature. According to Torrington and Weightman (1994), some changes bring creativity and growth in the jobs of individuals. Such changes are less likely to encounter resistance. Rather these changes create delight and excitement in the individuals as they create opportunities for career development. On the other hand, some changes endanger the working relationships and job security of the individuals. Such changes encounter resistance. The changes which adversely affect the attitudes, beliefs, habits or past norms of the individuals may face a lot of resistance in their implementation. The changes challenging the individual’s loyalty to a particular work group may also face some resistance. The amount of resistance is also dependent on the way or method in which the change is introduced by the organization. So resistance only arise when the change seems to be harmful, or at least useless for all or particular section of the stakeholders. The greater the change affects individuals’ interests, the more active the resistance would be which may include absenteeism, deliberate errors, sabotage and strikes. If such a scenario arises, it becomes necessary for the management and administration of the organization to discuss the issue with the party concerned or to take other steps for resolving the problem. MANAGING CHANGE RISK: Modern theorists have placed great emphasis on managing risk associated with organizational change. However, it is assumed in all such theories that there is an inverse relationship between the change readiness and organizational risk. Thus, an organization which may undergo through a change easily will have a lesser risk of failure. The theorists are also of the view that a change can only be initiated, implemented and maintained successfully if it is organized and planned. That is why, alignment is considered as an important strategy to minimize the probability of risks. Various theories have also been put forward in this regard. CHANGE MANAGEMENT TECHNIQUES: 1. Force Field Analysis: Kurt Lewin developed a technique for managing risk associated with organizational change. This technique is known as Force field analysis. Lewin suggested that there are always two types of forces exist during a change. The forces which promote the proposed change are known as driving forces. There is another type of forces which oppose the suspected change. Such forces are known as restraining forces. These two forces keep the change in equilibrium. However, if restraining forces are not managed properly, they may cause a risk for the organization as a whole. These restraining forces may be managed by driving forces which include financial incentives, fear of dismissal in case of lower output, a fear that the special privileges will be lost or response to a great pressure from management. 2. Lewin & Schein Three Stage Approach: Lewin and Schein introduced a three stage approach for managing change and managing risk associated with a change. They identified three key steps for change risk management; Unfreeze, Move and Refreeze. Unfreeze is the first step of introducing a change. This is also the most difficult step of the change process as the individuals are not initially ready for the accepting the change and changing their behavior. Thus it is very important that this stage is properly planned. An awareness about the change trigger, necessity for introducing change and methods to be adopted to introduce change will be helpful to minimize resistance. The second step of this approach is Move. Once the organizational participants are ready to accept change and also changing their behavior, the next step is to implement the change. This involves defining the problem, identifying the possible solutions and selecting and implementing the appropriate solutions. The individual should be encouraged to change their norms and behaviors. The third and final stage of this approach is Refreeze. It involves the reinforcement of the new attitude and behavior. Positive or negative reinforcements may be used to refreeze the new behavior. If all these steps are planned, the change may be achieved successfully with little or no resistance. 3. Four Steps Change Approach: Another approach to change is that proper steps should be followed in order to bring change successfully in the organization. However, these steps are required to be planned and should be taken systematically. If these steps are managed properly, the risk and change may also be managed effectively. a. Understanding current situations: the first step in this regard is to understand the current situations of the organization. It includes the working conditions of the organization, interpersonal relationships, the style of leadership involved, the maturity of the organizational participants and their ability to accept the change. If a change is required in the organization, it should also be carefully studied. It will help to design a detailed plan for the introduction and implementation of change. b. Resistance Identification: Change always faces some resistance from the organizational participants. However, the amount of resistance and the way in which it is pursued vary with the factors of change, the pace of change and the manner in which the change is put forward. Thus it is important to identify resistance so that the manner and pace of change may be mapped accordingly. To overcome resistance, it is necessary to identify root cause of resistance and to give confidence to employees that their self-interests will not be compromised as a result of change. c. Considering Change methods available: Keeping possible reactions to change in mind, the organization must consider all the methods of change available to it. The probable resistance to a method and the soothing steps available with the organization to overcome such resistance should also be considered carefully. If all methods available are evaluated, the risk of resistance opposing the change may be reduced by selecting and applying proper method of change. d. Creating Plan of Action: This is the last and the most important step. It requires a detailed and continuous examination of the introduction and implementation of change. The change plan is required to be clearly stated and explained to the audience which is likely to be affected by the change. the objectives of the change should be clearly stated in the change plan and it should make clear that how the organization will achieve those objectives in future. The resistance and risk associated with change should also be reviewed closely. Any variation in the probable resistance to change should also be analyzed in detail. Where necessary, the change process may be deviated from its proposed path in order to assure that change risk might not arise and change is implemented and managed properly. Proper planning increases the chances of success of the proposed change. 4. Change Management Iceberg: Wilfried Kruger brought forward the concept of Change Management Iceberg while discussing the Change management techniques. He discussed the change management issue in detail. The real meaning of change in the organizations and the barriers and promoters of the change are highlighted by him in great detail. Kruger analyzed at the top level, the change is seem to be initiated by the management with keen consideration towards the issues which are related with quality, time and cost. But they pay little or no attention towards interest of and participation from other parts of the organization. However, the management initiating the change is only a very small portion of the organizational participants and other factors involved in change. a very large amount of such factors and personnel are present underneath who have a great role in success or failure of the change. Kruger divided the people who are involved in organizational change into four types. Opponents are the people who have negative attitude and behavior towards the change being initiated by the management. On the other hand, promoters are the people who support the proposed change. They gain advantage of this change. The third types of people involved in the change are hidden opponents. They have negative attitude towards the proposed change. However, they do not oppose the change openly and thus, pretend to support the change. They are also called opportunists as they may tilt themselves to any direction which is beneficial to them. The last type of the people involved in change is potential motivator. Overall, they support the change but due to some reasons, they are not completely convinced about the change. Kruger concluded that managing change by managing risk is the prime responsibility of the management. However, the basis of the change management is in the interpersonal, behavioral and cultural dimensions of the organization. 5. Six Change Approach: Resistance to change is considered inevitable whenever a change is implemented. However, many change management theorists have tried to devise ways through which resistance can be minimized, if not eliminated. Kotter and Schlesinger (1979) put forward a model through which resistance to change may be prevented and minimized. According to Kotter and Schlesinger, resistance to change is a result of some factors such as self interest of people affected by the change, misunderstanding between management implementing change and the people affected by the change and low or zero tolerance of the organizational participants towards the change. Keeping in view these factors, Kotter and Schlesinger put forward six approaches through which risk of resistance may be confronted and change is implemented successfully. a. Education and Communication b. Facilitation and Support c. Manipulation and Co-optation d. Participation and Involvement e. Negotiation and Agreement f. Explicit and Implicit Coercion CONCLUSION: Change is very important in the fast-moving world. However, it is essential that the change is carefully handled and managed from the time it is introduced till its complete implementation. Various theories have been put forward by theorists of organizational behavior studies who suggest different ways through which change may be managed well through managing the risk associated with the change. if change process is planned, there is a great chance that it will be implemented successfully and the business will continue achieving its objectives for many and many years through adapting new technologies and innovations and through maintenance and retention of employees’ motivation. REFERENCES: 1. Qwoter Financial Advice with a Purpose! What are the Different Types of Risk? Available at: [Accessed 12 December 2011]. 2. 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