Managing and Leading Strategic Change - Essay Example

Table of Contents Table of Contents Introduction 2 Literature Review 3 Strategic Management versus Strategic Thinking 3 Strategic Management Requires New Initiatives 4 Fallacy of Detachment 4 Strategic Change Management in Global Context 7 Change Management 8 Proctor & Gamble 9 External Strategic Change in Procter & Gamble 9 Managing and Leading Change in P&G 11 Nature and Influence of Organisation Dynamics 13 Conclusion 15 References 17 Introduction Business environment has changed drastically in recent times and many organization need to change their contemporary business process in order to survive in ever changing business dynamics. Purpose of the study is to understand impact of leadership in strategic change management. Understanding relationship between organizational culture and leadership issues of change management will be important aspect of the study. Procter & Gamble has been selected in this study to continue further analysis. P&G has been selected for following reasons. 1- The company has undergone major strategic changes in recent years hence I believe studying corporate restructuring model of the company will help management students and research scholars to understand key issues of strategic change management. 2- CEO of the company and other board members of P&G have contributed significantly on designing corporate restructuring model of the company hence I think strategic analysis will help management students and research scholars to understand relationship between leadership issues and change management. 3- Employees of the company have contributed significantly by participating in change management hence I believe discussing strategic change management of P&G will help management research scholars to understand impact of organizational culture on deciding direction of change. This essay will also try to examine following problems statements on which very little research work has been done so far. Relationships between management of internal systems and organizational environment in context to globalization process of strategic change management or corporate restructuring. Issues regarding strategic change management and response of organizational leaders to external changes. Managing change in order to achieve business excellence. Literature Review Henry Mintzberg in his famous research papers has pointed out three important characteristics of strategic change management. Discussing three characteristics of strategic change management will help me to understand key driving forces like leadership, learning and communication for change process. This discussion will create a link between academic theories with leadership issues in P&G during their change management process. Strategic Management versus Strategic Thinking Organizations use strategic management to operate business and control functional aspects of various departments while leaders’ use strategic thinking is synthesizing root maps to achieve organizational objectives. Strategic thinking played vital role for change process in P&G. Strategic Management Requires New Initiatives Leaders planning for strategic management need to think out of the box in order to incorporate breakthrough change. Informal learning should be encouraged in order to achieve sustainable change management. Research scholars have found that rearranging older concepts in order to accomplish change management often produces failure due to dynamic nature of strategic management. P&G had successfully used the concept of informal learning to accomplish the required change business model. Fallacy of Detachment Senior managers often fail to detect key issues of strategic change management due to various reasons such as complete detachment with employees of the organization, lack of communication with subordinates (Mintzberg, 1994). P&G had successfully mitigated the probability of detachment in order to achieve objective of change management. In accordance to research scholars strategic change management actually synchronizes short and long term objective of the organization such as increasing depth of product portfolio, increasing profitability, achieving sustainable growth rate, expanding business in overseas market, increasing market entry barrier for competitors and increasing business competency level. In 1990, Tyndall has pointed out that strategic change management can be guided by leadership quality (Tyndall, Cameron and Taggart, 1990, p. 9). Many organisations have achieved successful strategic change management due to leadership quality. The concept of strategic change management is multi dimensional in terms of organizational impact, variation of objective, dynamics of leadership and other management issues. Research scholars have suggested that organizations implement strategic change management in order to foresee and respond to business opportunities or contemporary management problems. Strategic leadership is required in order to explore internal as well as external opportunities. Various research scholars have referred that approach of top management to initiate change management differs according to various issues such as level of contingency of the problem, effectiveness of organization and organizational hierarchy. Macro environment auditing plays pivotal role on creating link between corporate strategic change and intention of top management. Absolute level of change can only be achieved by diversifying work pattern of business units. Various research scholars have argued that strategic change initiatives are taken by top management team while other researchers have pointed out that population ecology of employees initiate the need for change. In 1992, Wiersema, and Bantel have strongly recommended that employees decide direction of firm’s strategy and their research clearly contradicts research result achieved by other academic scholars (Wiersema, and Bantel, 1992). They have also pointed out that organizational dynamics play vital role on deciding direction of strategic change management. Generally top management of companies hold different sets of vision which are rigid and contemporary. Lack of flexibility in vision statement created by leaders often works as self destructive manner in context to change management. Such rigid thinking of leaders is known as ideational culture while result of such culture in many cases destroys the purpose of change (Johnson, 1992). Various research scholars have pointed out that leaders must communicate strategic vision to all the stakeholders in order to fulfil objective of change management. According to research scholars strategic change management should focus on building appropriate control over external and internal factors. It must be admitted that there is lack of research evidences available for impact of corporate restructuring (corporate restructuring is an important part of strategic change management) on organizational culture. Academic scholars have suggested that strategic change management is a function of counter balancing external forces while other researchers in 1978 have pointed out that strategic management is a process deploying planned and present resources in order to achieve successful external environment interaction. In 1997, Rajagopalan and Spreitzer have bifurcated strategic change management into two perspectives such as business level change and corporate level change. In business level change companies focus on improving competitiveness of business units while in corporate level change firms try to diversify their business. Mintzberg has proposed another type of change which is known as collective level change and this change model deals with analyzing relative merit of forming relationship with business partners as well as business rivals. Management research scholars have pointed out that successful strategic change management requires internal coordination and organizational structure of firms. In 1997, Rajagopalan and Spreitzer have pointed out that an inert organization fails to incorporate change due to high status quo among leaders while the same thing decreases probability of coordination among employees (Rajagopalan and Spreitzer, 1997). Research scholars have pointed out that top management needs to be proactive in order to overcome inertia situation. Kotter has identified following characteristics among leaders in order to lead change successfully (Kotter, 1995). • Receptivity to new ideas • Willingness to take risk • Having diversified knowledge to create a sustainable change management strategy Strategic Change Management in Global Context According to C.K Prahlad and Gary Hamel organizations should go for expanding the business in foreign market when they no longer gain minimum sales volume required to achieve cost effectiveness in domestic market. Companies must have the financial power, operational capability, sufficient human resource pool and marketing expertise in order to successfully in corporate globalization strategy (Prahalad and Hamel, 1985). The study agrees with the opinion of C.K Prahlad and Gary Hamel because for the same reason P&G felt the urge for globalization. Real reason behind the change process of P&G is poor sales performance in USA during 1990s and they took the decision to diversify business in global context in order to turn the table. Therefore it can be said that the discussion of strategic change management in P&G will be incomplete without mentioning scholarly work of C.K Prahlad and Gary Hamel. Jurgen Hintz (Executive Vice President of Procter & Gamble) has clearly stated that the company has adopted globalization strategy in order to achieve business growth. According to him days are gone when P&G can only bank on their domestic sales result because the market is becoming hypercompetitive day by day. In the period of 1970 to 1995 the USA consumer product market became saturated due to entry of non US global giants such as Unilever and Henkel. Profit margin for P&G was shrinking periodically on that above mentioned time period. Although P&G has established their first international division in the year 1950 but it was the dire situation of 1990’s which forced them to revamp their international corporate strategy drastically. During the tumultuous period the company experienced disastrous results such as low sales volume, poor profit margin and high consumer bargaining power. In that situation they don’t have any other option except shifting focus from saturated American market and go for globalization (Conklin, 2006, p. 201). Change Management Change management is a vibrant process. Organization can employ change management system in various functional areas like production process, marketing, organizational structure and financial management system. John P. Kotter has suggested a functional model for change management. Many organizations are following the Kotter model in order to incorporate change in the system. Eight steps of change management can be summarised in the following manner. Companies need to identify potential crisis after doing careful examination of external environment in order to create sense of urgency. In the next stage the company needs to create a group of responsible employees as change agents. Then the company needs to design a vision statement in order to provide guideline to the change effort. Leaders need to communicate the vision statement to change agents in order to achieve desired result of change management. In the next leaders of the organization need to empower employees to take risky decisions in context to uncertain situations. Short term goals are established in order to measure physical evidences of success. In the seventh stage leaders need to encourage employees to come with more ideas regarding strategic change. In the last step managers establish a strong link between employee behaviour and implemented change management process in order to institutionalize the new approach (Kotter, 1995). Proctor & Gamble P&G is a famous American consumer product and food company. The organization is headquartered at Cincinnati, Ohio, USA. Proctor & Gamble was founded by William Procter and James Gamble in the year 1837. The company offers their product to more than hundred and fifty countries internationally. Sales volume of Procter & Gamble has crossed a phenomenal mark of $80,000 billion in the year 2011. The Cincinnati based company has established product category and brand leadership in various consumer product segments such as Skin Care, Oral care and House Care. Total human resource capital for the company is more than 127,000. The Cincinnati based consumer product company offers more than two hundred and fifty brands globally (Kotler, 2009, p. 253). The company has achieved leadership position in twenty two categories and each of the categories contributes more than one billion dollar sales revenue annually. They have established twenty technical centres internationally (PG-Global, 2012). External Strategic Change in Procter & Gamble The American company has realized the significance of exploring global business opportunity and changed their strategy in accordance to demand of the situation. The consumer goods company has shifted focus of offering products to American consumers to serving requirements of international customers. They have significantly amplified production level in order to explore benefits of economies of scale and deliver product portfolio in cost effective manner (Löfgren, 2005, pp. 102-115). Globalization strategy of Procter & Gamble has helped them not only to achieve greater sales volume but increased scope for product diversification also. Lafley (CEO of the company) has taken great initiatives during 1990’s to change ongoing business policy of the company. He has changed the concept of offering standardized products to global customers and implemented hybrid product offering strategy to fulfil multidimensional requirement of customers. Hybrid product configuration emphasizes on designing product portfolio in accordance to localized requirement of particular market and shaping value chain in order to fillip growth opportunities. Management researchers have identified this model as Front Back Hybrid Matrix and according to them this model can be customized in accordance to situational demand. Top management of the company has decided to establish SBU or Strategic Business Units in foreign market which will report to GBU or Global Business Units. They have established twenty research and development centres internationally in order decrease the cost of value chain and develop products in accordance to requirement of local market. The Cincinnati based company has initiated strategic change management during late 1990’s and complemented the process within next seven years. Procter & Gamble has invested $2 billion in strategic change management process. Global business model designed by leaders of P&G can be described in the following manner. (Source: Dyer, Dalzell, and Olegario, 2008, p. 295) Managing and Leading Change in P&G The company has revamped their traditional strategy radically under the guidance of Chief Executive A. G Lafley. In accordance to A.G Lafley, he has started working on strategic change management of the company with the zeal of his predecessors but with different game plan. Lafley has taken following steps in order to lead the change management. Generally P&G follows ‘from within’ strategy to promote internal employees to higher job position instead of hiring external employees from outside. Lafley has changed this traditional concept in order to increase diversity among employees and encourage new ideas at work. Although P&G has innovated various exceptional products in past but during 1990’s the innovation has slowed down. Lafley has observed that room for new thoughts in the organizational culture has diminished manifold during his predecessor’s time. In that situation Lafley took a smart move by outsourcing bar soap manufacturing and information technology. Lafley has criticized the insular culture of Procter & Gamble and suggested that internal culture change is needed in order to achieve business excellence. According to A. G Lafley when he started his journey the company was facing slow growth rate because it was not able to cope with business dynamics of external world (Pearce, Robinson, and Mital, 2008, p. 413). During the time of A. G Lafley’s predecessor Durk Jager the company has faced multiple profit warning within four months but the company has achieved seventy percent rise in profit margin under the leadership of A. G Lafley. Researchers have found that Lafley adopted Kotter’s change management model of creating interconnected short term objectives in order to achieve long term business goal. Although Lafley has pointed out that internal culture of P&G has deteriorated but there is no need to change values such as trust, integrity and passion for winning of the company. A. G Lafley has communicated the urgency for change in terms of return on investment, growth and economics to all the change agents and important thing is that he used simple language so that everyone can understand. He defined cultural heritage of P&G in terms of market share, categories, brand equity, capabilities and technology (Larreche, 2008, p. 247). In yesteryears the company only focused on offering products to customers but after started to focus on developing superior customer relationship management after strategic change initiatives have taken by A. G Lafley. P&G has incorporated culture of innovation in daily operation as a result of strategic change management. The company employed a strategy of intensified economic integration in order to achieve high responsiveness in domestic market. Scalability issue of culture plays pivotal role on deciding success of change management. Although it was tough for the management to incorporate change due to sheer size of P&G but leaders of the company in the later stage diversified the culture in various SBUs in order to ensure scalability issues. P&G has incorporated local culture in their strategic business units in order to understand pulse of local market. Shenanigan performance appraisal system of the company was replaced by balance score card system. Nature and Influence of Organisation Dynamics Procter & Gamble has implemented a four dimensional structure in order to satisfy need of organizational dynamics. The four dimensional structure of P&G is complemented by global function, GBU or global business unit, upstream value chain and downstream value chain. Upstream or back end value chain is complemented by product line while downstream or front end value chain is dedicated for customers. Organization dynamics of the company has segregated the front end value chain into global and local customers. Business units (read local and global) of P&G supervise numerous activities such as supply chain management, product development, product marketing, IT, human resource management, finance and sales liaison groups. GBU of the company supports central buying in order to comprise regional and customer perspective of product supply function. Chief Operating Officer (COO) of P&G handles front end operation while back end functions are supervised by president. Research & Development head of the company works under supervision of both Global Household Group head and Chief Technology Officer (CTO). All the global functions are supervised by Vice Chairman, Chief Financial Officer (CFO) and Chief Executive Officer (CEO). Organizational dynamics of the company has created a top level management comprised by top four executives. Organizational dynamics of P&G is given below. (Source: Galbraith, 2010) Regional spreadsheet of the company is given below in order to clarify the influence of organizational dynamics of P&G. (Source: Galbraith, 2010) Conclusion It is clear from above discussion that successful leadership helped P&G to achieve sustainable result of strategic change management. P&G has achieved high growth rate after the change management process and study also suggests that the company is emerged as industry leader in terms of innovation in recent times. The company used ADKAR model in order to fillip the change management process. ADKAR model of P&G can be illustrated in the following manner. A- Awareness for change is generated by top management. D- Existing employees of the company expressed their desire to be part of strategic change management process hence they are the change agents. K- Human resource department of the company designed training and development program in order to transfer knowledge to change agents. A- This is the application part hence in this faze P&G incorporated change management process. R- In this section P&G reinforced sustainability of strategic change management process by implementing quality measures. References Conklin, D. W., 2006. Cases in the Environment of Business: International Perspectives. 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