Strategies for Change - Coursework Example

Strategies for Change Executive Summary: Two alternative strategies are considered in the case of Westfarmers. One is to maintain the status quo andthe other is to react to the change by becoming more proactive and taking bolder financial steps along the lines of private equity companies. Introduction: Westfarmers has been engaging in the decision making method known as logical incrementalism, whereby it has been slowly cautiously in the areas that it knows, on the basis that if the financial picture after an acquisition is not as anticipated, the organization can walk away and reinvest its funds elsewhere.(Ferguson, 2006), Under this kind of acquisition program, companies like Westfarmer are required to follow a conservative financial policy and maintain the annual return on equity at about 26% and the divisional return on equity at 20%. Westfarmers also adopts a conservative risk management system. With the recent spate of private equity firms, Westfarmers conservative financial policies are resulting in undervalued stocks which could make the Company a sitting duck for being taken over by a private equity firm. Alternative strategies: There are two alternatives that Westfarmers can consider. On the one hand, it can consider how best it may meet the current challenges posed by private equity firms by maintaining the status quo and the continuing to pursue its theory of incremental change, which has stood it in good stead in past years. On the other hand, it could decide to shelve the current model which does not appear to be working and change its modus operandi by starting to think like private equity and adopting a bolder financial outlook. Applying the theories of organizational change: The theory of organizational change that was devised by Kurt Lewin visualizes an organization as being in a state of equilibrium, and there are two main forces that maintain organizational stability, i.e, driving forces and restraining forces (www.jpc-training.com). When the two forces are equal, the organizational remains static, however when one or the other force is greater, then disequilibrium occurs and changes must be accommodated, to bring about a fresh equilibrium. In the case of Westfarmers, the model the Company has followed has remained steady all these years, however the driving force that is disturbing the equilibrium is the spate of activity by private equity firms. Lewin’s theory of organizational change is characterized by three stages, which he refers to as cognitive redefinition. The three stages are: (a) unfreezing stage: In this stage, the basic assumption is that human behavior with an organizational is conditioned by past learning experiences and these must first be unlearned. New beliefs tend to create learning anxiety which could produce behavior such as passing the buck, denial or scapegoating. Therefore, these blocks first have to be overcome. (b) introducing the changes that need to be made in accordance with the new information that has come in and (c) making the change permanent, i.e , resetting organizational goals and behavior to be in accordance with the new standards. (Schein, 1999) Therefore, applying this in Westfarmers’ case, the crisis that has been generated by private equity firms has placed the company in the position where its stocks are undervalued and could become a prime target for private equity firms. The efficacy of the existing model is being tested by these firms and is being reflected into a falling share price for the past 12 months. However, the attitude of the Company appears to reflect the classic signs of denial that a problem exists. The attitude of the Chairman Goyder that there is no danger to the structure of the Company and that the existing system of long term shareholder return is likely to continue to favor its existence as a conglomerate. However, Westfarmer’s very reason for being is being questioned, since the conglomerate investment firm is being overtaken by the activities of private equity firms. Therefore, it appears likely that the long term policy of Westfarmer may not survive the current private equity onslaught. According to Katz and Kahn (1996) a system cannot be understood without a constant study of the forces that act upon it, therefore an open systems theory approach is recommended for contemporary organizations that need to function in a turbulent environment.(Leavitt, Pinfield and Webb, 1974). The Open systems approach considers the relationship between a system and its environment, as well as what goes on within the system (Hall, 1997). Therefore, applying this in the case of Westfarmer, it cannot afford to avoid the developments in the environment. It is likely to be better off by responding to the change and think like private equity through disciplined, yet more broad based growth and investment, to better the current lot of its shareholders. In this way, the Company will not place itself in the position of being an under valued, high return stock that is a prime target for a take over. The status quo: The alternative approach is for the Company to refrain from adopting an open systems approach and to continue its present policy of conservative expansion and growth, since this trend has served them well in the past. The opinion of the Chairman is that only arrogance and a lack of commitment could destroy the group, however he applauds the efficacy of the existing system and model, which has served the Company well thus far. It can consider ways and means by which it can continue to withstand the private equity firms. It can rely on its organizational strength and the commitment of its people to preserve the organizational goals. However, globalization has produced a business environment of continuous change, where the failure to anticipate can be deadly (Ashley et al 1997:1). While it may be argued that Westfarmers is focused on long term financial situations and therefore must adhere to long established traditions and the model that has served it well, the inherent danger in the situation is that the Company could become the target for a takeover, since many of its associated businesses are in areas where takeovers are becoming rampant. Hence in conclusion, it would be better for Westfarmers to accept the change that is occurring in the environment, to unfreeze itself from existing ways of thinking and mode of operations and adopt a more private equity centered approach to revise its investment and expansion strategies to include bolder steps, thereby bringing greater returns to its stockholders as well. It is possible that the conservative model that has been efficacious thus far needs to be revamped so that the Company can adjust quickly to the changes before it becomes a target for takeover, since it is essentially moving into the position where it is worth more dead than alive. References: * Ashley, William C, Morrison, James L. Anticipatory management: Tools for better decision making. The Futurist Sept/Oct, 1997. 31(5): 47-51 * “An ethical, means based approach to organizational change: Literature Review – Summary.” [online] available at: http://www.jpc-training.com/change/review.htm * Ferguson, Adele, 2006. “Focused: or challenged?” Financial review, 14th December 2006. * Hall, R.H.,1977. “Organizations: Structure and Process”, Prentice-Hall, Englewood Cliffs, New Jersey. * Katz, D.and Kahn, R.L, 1966. “The Social Psychology of Organizations”, John Wiley & Sons, New York. * Leavitt, H.J., Pinfield, L., & Webb, E., 1974. “Organizations of the Future: Interaction with the External Environment.” Praeger, New York, at p. xv. * Schein, E.H., 1999. “The corporate culture survival guide. Sense and nonsense about culture change.” San Francisco: Jossey Bass Publishers. Read More