The concept of management change in regards to Larsen and Toubro - Essay Example

Contents Introduction 2 Nature of the Organisation 2 Necessity for Organisational Change 2 Justifications for the Organizational Change 3 Forces of Change 3 Feasibility of the Change Process 4 Identification and Discussion of the Organizational Problems 7 Structural Perspectives 7 Political Perspectives 7 Cultural Perspectives 7 Change Interventions to Suggest Possible Solutions to the Problems Identified 8 Change Management Process 8 Organizational Leadership in the Change Management Process 9 Conclusions 11 References 12 Appendices 14 Introduction Nature of the Organisation The concept of management change would be dealt with in regards to Larsen and Toubro which is observed to be one of the premier organisations operating in the Indian subcontinent in the field of construction and engineering. A chronological study reveals that Larsen and Toubro came into existence under the joint cooperation of two engineers pertaining to Danish background during 1938. This joint venture was gradually transformed into a limited company which gained presence during 1946. Larsen and Toubro now occupies a symbol of pride with large number of departments servicing the nation in the fields of engineering, electrical, manufacturing, civil and other infrastructural support activities. Rendering satisfaction and meeting the needs of both the internal and as well as the external stakeholders concerns an important and critical identity of the concern (Larsen and Toubro Limited, 2010). Necessity for Organisational Change With changes in consumer needs and perceptions the demands for the goods and services of the organisation also counter a paradigm shift. Thus because of such changes in the organisation’s external climate the management team of the organisation tends to bring about large amount of alterations in the technological and operational processes in the organisation. These changes are reflected as the organisational changes inside the concern (Dam, Oreg and Schyns, 207, p.314). Focusing on the above discussion the organisational changes brought about in Larsen and Toubro can be further analysed. The Chairman of the concern envisaged that the need for organisational change within the concern arose from the need of value creation. Value creation was envisaged through bettering up the position of both the internal and external stakeholders of the concern. The internal people or the employees’ position was developed through the induction of the rating system which would rate the employees based on their performance rather than seniority. On the external side the process of value creation focused on enhancing the value of the shareholders through augmentation of the value of the projects carried out by the several departments. The Chairman of the concern took these steps so as to help in the increase of motivation of the employees and shareholders of the concern. Taking the above organisational change processes were further envisaged to help in the augmentation of share value of the concern in the stock market which was quite low previously (McKinsey & Company, 2010, pp.28-29). Justifications for the Organizational Change Forces of Change The forces or needs for organisational change arise out of large amount of dissatisfaction emerging out of people belonging to different organisational hierarchies. The organisational people demand a change from the existing situation for which changes or alterations needs to be brought about in the organisational structure. Failing to such demands of the people leads to several problems which in turn spreads employee unrest. On the other hand the change in organisational leadership also leads to bring about forces of change in the concern. The new organisational leader inherent with new vision and organisational philosophy endeavours to bring about changes in the existing business process and technological interventions. This force of organisational change is sometimes not welcomed by the internal people leading to strong protests and events like strikes and lockouts (Locke, 2009). In the light of the above discussion it is found that the change in organisational leadership in Larsen and Toubro led to changes in the organisational system. Mr. A.M. Naik after taking over as the Chairman of the concern found that both the internal and external stakeholders of the concern i.e. the employees and shareholders were seemingly unsatisfied. He noted that a change brought about in the organisational process with the introduction of the rating system and focusing on the process of value creation would help in bettering up the plight of the workers and the stock value of the concern’s resources. The forces of change for Larsen and Toubro are thus observed to be the demand for the workers for better performance benefits reflected in the internal climate with also the continuous falling of the stock position of the concern as reflected in the external climate of the organisation. Feasibility of the Change Process The value creation process initiated in Larsen and Toubro through the operation of the nine independent units of which the departments catering to infrastructural, hydrocarbon and electrical engineering projects constituted the major part. This process initiated in Larsen and Toubro helped the company to augment both its revenues and market valuation status to increase by manifold levels. Along the period ranging from 2005 to 2010 the amount of revenues for the company was found to rise from an amount of Rs. 15,300 Crore to that of Rs. 46,900 Crore. Again in regards to market valuation the amount reached a figure of Rs. 120,000 Crore by the close of 31st December, 2010. The increase in the organisational potential of Larsen and Toubro can be further observed through financial and sales reports made along the 2007 period. It is observed that in respect to the 2006 period the amount of sales for the company grew by around 12 percent in the 2007 period. The rate of operating margins measured before charging before charging depreciation, interest and taxes on profits also increased along the stated periods reflecting a growth of around 49 percent. Again the process of value creation also enabled the company to reduce backlogs of a number of orders along several sectors helping the company to gain large amount of financial gains. Observation made along the periods 2005 to 2007 shows that the percentage of order backlogs reduced from 42 percent to around 37 percent for infrastructural projects. Leaving the above sectors many other sectors like Hydrocarbon exploration projects and Process Engineering also countered similar or near about changes. As noted previously the reduction in the backlog of the projects helped the revenue of the firm to rise from Rs. 177 Billion during the 2004-05 to around Rs. 307 Billion during the 2007 period. (Larsen and Toubro Limited, 2006, p.5, 7; Nayak, 2011). The same can be represented in Figure 1 in the Appendix section. The reduction in the backlogging of orders through the implementation of the process of value creation helped the company in gaining more number of orders from the external market. With the increase in the flow of orders along the periods ranging from 2006 to 2007 by around 50 percent the sales of the company rose by around 12 percent. On the other hand the net revenue of the firm was found to record a rise of 11 percent from the 2006 to 2007 period. (Larsen and Toubro Limited, 2006, p.8). The above situation of the firm is represented along the Chart given in Figure 2 in the Appendix section. However the process of value creation initiated by the Chairman of the company also included rendering voluntary retirement to the employees which were found to be non-performers. This led to the rise in the employment expenses over around 3300. (Larsen and Toubro Limited, 2006, p.9). Further analysis made along the 2006 and 2007 period shows that the amount of net revenues along the different sectors likes Electronics, Manufacturing and other sectors increased by around 1 percent. However the amount of net revenues reduced by around 3 percent during the stated period. In a similar manner the amount of operating margins for the company also increased along the different sectors like Manufacturing, Electrical, Construction and other sectors from the period ranging from 2005 to 2007. (Larsen and Toubro Limited, 2006, pp.12-13). The above data can be more specifically represented through charts presented in the Appendix section in figure 3 and 4. In respect to the total firm it is found that the amount of consolidated revenue increased by around 20 percent from the period ranging from 2006 to 2007. The amount of revenue reflected a rise from around Rs. 74.7 Billion to around Rs. 89.4 Billion in the given period (Larsen and Toubro Limited, 2006, p. 21, 24). In terms of market capitalisation, Larsen and Toubro are found to have increased its market share to around Rs. 979.39 billion by the close of the 2010 period. This market share figure of the company during the 2010 period is found to rise by around 2.5 times as measured along the 2009 period. During 2009 the amount of market capitalisation was estimated to amount to Rs. 393.73 billion. From the viewpoint of the customers it is found that owing to high quality of products and services rendered the construction industry contributed to around 85 percent of the total business. This large contribution rendered by the construction sector in generating sales also helped the company to gain access to larger amount of revenues of around 82 percent. Again the company rendered increased focus on hiring the right quality of employees and also in rendering potential training to elevate their potential skills to match the changing demands of the consumers in the external market. Further larger amount of expenses were rendered in regards to implementing the voluntary retirement scheme to curtail the number of low performing employees. (Larsen & Toubro, 2010). The above information can also be reflected through graphs given in Appendix in figures 5 and 6. Identification and Discussion of the Organizational Problems The problems pertaining to the organizational level can be analysed based on mainly three perspectives pertaining to the organisational structure, the political conflicts emanating within the concern and also problems or conflicts emerging out of the human resources or cultural side. The above parameters can be further analysed as follows in the three subsections. Structural Perspectives In regards to the structural perspectives it is observed that problems emerge out of organisational changes brought about through the introduction of newer technologies or rendering change in the organisational processes. These changes brought about in the organisational structure lead to emergence of conflicts in the minds of the employees who needs to be properly counselled and trained to adapt to such needed changes. Political Perspectives In regards to the political perspectives it is observed that changes in organisational leadership tends to lead to political tussle within the organisation as the employees working under one leader tend to reflect protests as the leadership is transferred to the hands of a new person. It is because they tend to feel a sense of insecurity and need for adapting to changing psychology for administration of the work sphere. Cultural Perspectives In regards to the human and cultural perspectives it is observed that the skills and productivity of the employees inside the organisation need to be properly administered and coordinated to rightly align such to fulfil the needs of the concern. It is observed that empowering the employees to take decisions independently in the changing organisational climate helps to increase their loyalty to the concern (Bolman and Deal, 2011). In light of the above discussion the case of Larsen and Toubro being analysed shows that the taking over by the new chairman led to the introduction of newer processes and technological perspectives in the concern which helped in the enhancing of productivity and profitability part. Moreover the cultural and human resources of the concern were also developed through the introduction of performance rating system. The chairman of the concern by focusing on the creation of separate departments helped to enhance the focus of the organisational teams to help in the augmentation of value of the concern and also of the stocks in the stock markets. Change Interventions to Suggest Possible Solutions to the Problems Identified Change Management Process The change management process envisaged in Larsen and Toubro was turned operational based on certain salient steps. In the first step the entire business process was divided by the organisational managers into three key segments which consisted of core and non-core elements and also other activities pertaining to the sales dimension. As against the previous system the functions related to the manufacturing and engineering activities related to the core dimension of the business while the support functions constituted the non-core activities. Again the sales department created became more concerned with studying the demand parameters of the products developed by the concern. In the second step the chairman of the business concern started developing plans for the enhancement of value of the company in the stock markets. Thus effective counselling was conducted by the chairman through the organising of meeting with different role players in the organisational function like the employees, suppliers, and members of the union bodies and similar other groups of people. The tenet of value creation was repeatedly put in their minds by the chairman through holding of business meets. In the third case the chairman also proceeded to start the voluntary retirement program in the company through which he desired to pull out the non-performing workforce from the company. Though the system of conducting voluntary retirement reflected incorporation of financial resources of the concern to grant such privileges yet it also helped the concern in rightly implementing the rating scheme implemented to track the performances of the performers and thereby hint the non-performers. Thus overall the system of organisational change initiated in Larsen and Toubro focused on enhancing the productivity of the concern in a profound manner. Performance rating system envisaged in the company’s policies focused on the setting of benchmarks upon which the performances of the individuals along with other initiatives taken by them were evaluated. This practice helped in fostering the activity of innovation among the organisational team players and thereby helping in the development of the productivity of the unit as a whole (McKinsey & Company, 2010, pp.30-33). Organizational Leadership in the Change Management Process The first step or notion that the organisational leader should bear while fostering the organisational change process is of reflecting a clear and constructive vision of the forthcoming events that ought to take place in regard to the managerial actions that would be taken. Such visionary statements and approaches should be subjected to critical analysis before making them operational so that it renders productivity in the future and thus should not be solely based on a utopian model (Mendonca and Sapio, 2009, p.286). In regards to Larsen and Toubro it is also found that the Chairman of the company also had a vision of enhancing the productivity of the concern which he rightly implemented through strategic planning and effective coordination of the organisational people. In another case the organizational leadership approach analysed through the use of Agency theory reflects that the change leader should focus on all round development of the different agents or parties related to the company. In that the interest of both the principal and as well as of the different agents related to the change process is protected (Gauld, 2007, p.18). In regards to the case dealt it is also found that the Chairman envisaged the change process keeping in mind the needs and interests of both the employees and shareholders. The process of performance rating and also of increasing the value of the stocks through focusing on value creation helped in catering to the interests of both the employees and shareholders of the concern. Again cultivating another change leadership model the system of taking resort to information technology to help in enhancing the system of coordination among the employees can be best stated. Information Technology helps in invigorating the access of the employees to potential company information in an effective manner (Kuo and Ye, 2010, p.287-288). Focusing on the above aspect it can be observed that the Chairman of Larsen and Toubro also took the help of information technology resources to help in addressing the needs for enhancing the productivity of the organisation. In another context the concept of change leadership also depicts some new practices which are brought about in the concern and how such practices are gradually injected into the organisational culture through the process of continual counselling. The Chairman of Larsen and Toubro also fragmented the entire concern into specific departments thus helping in the starting of a new operational practice (Fairtlough, 2006, p.522-523). The analysis of change leadership also takes into count the potential of transforming the visions sought at an earlier period of time. Transformation of visions taken helps in cultivating a sense of creativity in the concern which is injected into the minds of the organisational people. Herein also the Chairman of the concern sought to transform his vision into practicing principles for sustaining creativity into the concern with the due coordination of the people belonging to different hierarchies (Bilton, 2010, p.258). The creation of adequate benchmarks for the measurement of performances of the organisational people also counts to be an important decision taken by organizational managers (Boyle, 2007, p.332). In this light the Chairman of Larsen and Toubro is also found to take resort to the creation of required benchmarks to rate the performances of people and also to take control of the non-productive elements in the organisation. Conclusions With the changing of the external climate of the business organisations the business concerns are also required to bring about changes in their organisational structure and business philosophy in order to meet the needs and demands of the external society. Thus business organisations need to render innovations both in regards to the organisational processes and as well as bring about newer innovations relating to the production of goods and services. In the light of the said context the case of Larsen and Toubro is effectively dealt with in the paper. It is found that change in regards to the management of the company lead to bring about changes in the business process by setting in the principle of benchmarks to help track the performances of the individuals and also by enhancing the process of value enhancement through segregation of the entire organisation into separate business units. These activities of the concern helped in cultivating all round productivity of the concern by helping in the enhancement of the business potential of the concern measured in terms of profitability and market share. References Bilton, C. (2010). Manageable creativity. International Journal of Cultural Policy. 16(3). 255-269. Bolman, L., and Deal, T. (2011). Reframing Organizations: Artistry, Choice and Leadership. John Wiley and Sons. Boyle, S. (2007). Impact Of Changes In Organisational Structure On Selected Key Performance Indicators For Cultural Organisations. International Journal of Cultural Policy. 13 (3). Dam, K, Oreg, S., and Schyns, B. (2007). Daily Work Contexts and Resistance to Organisational Change: The Role of Leader– Member Exchange, Development Climate, and Change Process Characteristics. International Association of Applied Psychology. 57 (2), 313–334. Fairtlough, A. (2006). Making Practice Learning Part of Our Core Business: A Case Study of Organisational Change. Social Work Education. 25(5). 518-532. Gauld, R. (2007). Principal-Agent Theory and Organisational Change Lessons From New Zealand Health Information Management. Policy Studies. 28. Kuo, Y., and Ye, K. (2010). How employees’ perception of information technology application and their knowledge management capacity influence organisational performance. Behaviour & Information Technology. 29(3). 287-303. Larsen & Toubro. (2010). L&T Press Release. Retrieved on October 7, 2011 from: http://www.larsentoubro.com/lntcorporate/LnT_PRS/PDF/ChairmansAddressatAGM260810.pdf Larsen & Toubro. (2010). Sustainability in Action. Retrieved on October 7, 2011 from: http://www.larsentoubro.com/lntcorporate/common/ui_templates/HtmlContainer.aspx?res=P_SIA_PER&tabid=SIA_4 Larsen &Toubro Limited. (2010). News & Views. Retrieved on October 7, 2011 from: http://www.larsentoubro.com/lntcorporate/corp/pdf/NNVOct-Dec-2010.pdf. Larsen and Toubro Limited. (2006). Analyst Presentation H1 07. Retrieved on October 7, 2011 from: http://www.larsentoubro.com/lntcorporate/uploads/AnalystpresentationH1-07.pdf. Larsen and Toubro Limited. (2010). Profile. Retrieved on October 7, 2011 from: http://www.lntecc.com/homepage/profile.htm. McKinsey & Company. (2010). Voices of transformation: Insights from business leaders on creating lasting change. Retrieved on October 7, 2011 from: http://www.mckinsey.com/~/media/McKinsey/dotcom/client_service/Organization/PDFs/Voices_4_Full_book.ashx. Mendonca, S., and Sapio, B. (2009). Managing foresight in changing organisational settings: introducing new perspectives and practices. Technology Analysis & Strategic Management. 21(3). 285-289. Nayak, M. (2011). L&T – Superstructure. Retrieved on October 7, 2011 from: http://businesstoday.intoday.in/story/l&t--superstructure.html/1/1727.html Appendices Figure 1 (Source: Larsen and Toubro Limited, 2006, p.7) Figure 2 (Source: Larsen and Toubro Limited, 2006, p.8) Figure 3 (Source: Larsen and Toubro Limited, 2006, p.12) Figure 4 (Source: Larsen and Toubro Limited, 2006, p.13) Figure 5 (Source: Larsen & Toubro, 2010) Figure 6 (Source: Larsen & Toubro, 2010) Read More