Change Management. Whirlpool - Essay Example

? REPORT ON CHANGE MANAGEMENT IN WHIRLPOOL (1989 - 1997) This paper examines the concept of change management through the study of the case involving Whirlpool, a global home appliance company with its headquarters in the United States. The paper examines that consumer satisfaction, globalization and shareholder needs were the main prompters of change in the company. This was supported by a temperate blend of structured and unstructured change systems. The process at Whirlpool came with elements of evolutional as well as revolutional change which gave the company a smooth transition. The change saw an evolution from a power structure influenced strongly by the operational core of Whirlpool which happens to be engineering based to a marketing-oriented system designed to enhance customer satisfaction. Also, the change process affected the entire organization through the redesign of its systems from a product based company to a brand-based company. The powerhouse of the change is the centralized marketing and R&D units that link customer demands with the production systems. In effect, they are compensated with a large proportion of the company's turnover. The new ideas for the new millennium meant to consolidate change include enhancing employee pride, consumer passion and shareholder performance. It is recommended in this paper that the management establish a sense of urgency through the new vision of the company and also operationalize it by translating it to the various units of the company. The units should be given short-term goals which should be encouraged to develop into long-term goals. Additionally, the company must maintain its marketing and R&D units and enhance knowledge by bringing in new external parties periodically. Introduction Transformation necessary for the survival of a business and transformation must be linked to strategy and internal structures of an organization (Beer, 2001 p233). Beer bases his argument on the fact that a business can only remain in operation if it continues to transform its ways and systems to ensure that they were meeting relevant environmental conditions to serve clients and also attain competitive advantage. In the case of Whirlpool, Whitwam understood some important elements of the business as he worked as marketing director. He identified that how Whirlpool branded itself was the main key to survival and this was therefore the basis of the transformation that occurred in the company after he took over in 1987. The actual transformation that took place under Whitwam was connected to three main aspects of business: globalization, consumer satisfaction and competition. Change in these three components were necessary for several reasons. First of all, globalization was necessary because there was the need to maintain a healthy financial position to keep shareholders interested in investing in the company, thus it became necessary to find markets outside North America to sell Whirlpool productions. Secondly, consumer satisfaction was key to survival because there were numerous innovations that were needed at regular intervals to ensure that consumers maintained their interest in the company's products. Finally, there was the need to include important adjustments to ensure that Whirlpool maintained its market share in relation to its three major competitors in the United States and also capture more market share in the international markets. This therefore formed the basis of the transformation and change that occurred in the company. This paper analyzes the various changes in Whirlpool in relation to several models in change management theory and practice. It uses these models to justify the change processes that Whirlpool went through and identifies the important factors relevant to these processes. The paper concludes with an attempt to recommend how the company can proceed into the future to ensure that the change management process attains the optimum results for Whirlpool. The Change Process According to Hayes, the change process in organizations comes with five distinct phases (Hayes, 2010). These phases come with distinct features and situations that prompts and/or sustains change and enables the business to move from one point to other. The phases include: 1. Recognize the need and start the change process 2. Diagnosis (review of the present situation and identify a future state) 3. Plan and prepare to change 4. Implement change 5. Sustain change Recognizing the Need for Change There are several things that were identified by the CEO which hints on the fact that the need to change was clearly identified and action was taken on it. First of all, Whitwam identified that the domestic competition was getting too tough and there were signs that markets overseas were opening up. This was in the early 1990s when Communism had ended and global politics had changed. International treaties and threats of wars were disappearing so there was hope for international business. Also, global media channels and systems were growing and the concept of global brands and international expansion was becoming commonplace. This therefore prompted Whitwam to look beyond the United States for further expansion. Secondly, internationalization prompted the need for the harmonization of manufacturing systems, technology and knowledge. This is because there was the need for new countries to be brought into the picture and this meant that there was the need for some restructuring to meet this end. Additionally, the need for financial efficiency and productivity meant that there was the need to change the reporting structures and the way production was documented. Other things like the need for more research to support the consumer oriented production system was very vital. Diagnosis At the diagnosis phase, a business needs to identify the main causes of concerns and estimate the depth and extent to which the prompters of change will affect the business. There is the need to identify where and how the change must occur and this can be very crucial for planning and preparation for the change process. In the case of Whirlpool, we notice that there is an abundance of information on the whole home appliance industry. The companies in the industry have a depth of information about their history and trading volumes and track-record. This therefore made it fairly easier for Whirlpool to analyze the industry and the external environment to identify that globalization, changes in manufacturing systems, modifications in distribution channels as well as research and marketing were going to be vital in the future. On a specific level though, Whirlpool hired Harry Burritt (p10), an external consultant to lead corporate planning. Burritt came in as an external party with an independent view of thing within the company. Burritt analyzed consumer reactions and attitudes towards Whirlpool's brands. The research identified a level of variance between consumer preferences and the production systems of Whirlpool. This became the basis for the next phase of the change process. Plan and Prepare to Change The planning system used by Whirlpool was influenced by the findings of Harry Burritt, the external consultant was factored into the decision of the top-level management. Although the findings of the external consultant was important, most of the planning and preparation was based on realistic situations in the industry rather than a structured planning system. First of all, most of the actions of Whirlpool were incremental with no significant change in systems. They were based on the previous dominant practices of the industry. The expansion and globalization was clearly to be based on acquisition which was commonplace in the industry. The evolution was also affected strongly by the competitors in the industry and how they operated as opposed to Whirlpool changing in isolation. The incremental element however came in as and when the demands of consumers changed. It is noted from the case study that consumers began to demand products that worked much more conveniently. And with an established system of collecting data and information about what consumers want, primarily through the Dominant Consumer Franchise (DCF) systems, the plans were altered as and when necessary and preparations for change were made to meet dominant needs. Implement Change Change was implemented in an evolutional fashion rather than a revolutionary system. Evolutional change is defined by Martinez (2005 p31) as change that occurs in a gradual manner and builds on existing systems and structures. Revolutionary change involves an immediate change in fundamental systems of an organization (Martinez, 2005 p38). In this situation, it is clear that Whitwam did not make fundamental changes to the organization in a single breath. Although changes in Whirlpool affected important components and units of the business, the major reorganizations were meant to strengthen some important units only. Dominant situations and cultures were allowed to change over time in response to the fundamental changes that were made rather than through the use of strict rules and laws. It can also be seen that there was a balanced blend of structured and emergent systems of change in the company. Structured change involves making conscious efforts to change situations whilst emergent change is based on new trends that come up (Martinez, 2005 p62). This therefore shows that the implementation of the new ideas and new concepts in Whirlpool was based very well thought out concepts that included Whitwam's observations as a marketing manager and the recommendations of Harry Burritt. This and the subsequent planning that involved various managers formed the guidelines and foundations of the initiation of the change and defined the scope within which change could occur. The centralized marketing and research/development units of the company gave it a very strong support in the quest to implement the transformation. Due to the central nature of these new units of the business, their findings were collated at a strategic level and sent to the various functional units of the company and this was transposed to the various brands. In effect, the numerous brands and functional units modified their systems and structures. This gradually caused the change to spread throughout the organization and affect the various units. Sustain Change The drive to sustain change is found in the attempt being made by Whirlpool to plan for the new millennium and this is done by a conscious effort to focus more on the dominant stakeholders in the industry; employees, consumers and shareholders. This attempt is being carried out by an effort to institutionalize the needs of these stakeholders in the long-term partnership of these groups to the company. There is no doubt that these efforts will eventually help the business to build on the initial structures created by the changes of the 1990s into the future. There were numerous elements of the 8-S that were changed and there were alignment and misalignment issues that came up in the change at Whirlpool. The shared values of the entire company was modified due to the change. All the units of the company had to focus on understanding and meeting the needs and demands of the customers. These demands were taken up into the central beliefs and attitudes, although it came with some initial challenges. Strategy also changed at Whirlpool. More of the revenue of the company (almost 4%) was channeled into marketing to understand the customers' position and research aimed at transposing the newly discovered customer needs into production. Thus, the overall strategy of the company revolved around these two concepts. The structure of a centralization was changed. As mentioned above, the research and marketing departments were centralized. However, other units of the company were decentralized in the form of the creation of brand-oriented companies to produce different types of the same products. The systems were also modified. The accounting system was changed, since reporting was in the form of brand-based companies rather than a centralized system of consolidated accounts. Secondly, reporting relationships were affected by the increase of the powers of the marketing and research departments. The staff and skills also had to go through several changes. More marketing-oriented and business-development managers and staff members were hired. These people and research based professionals were brought on board. There was the retrenchment of some technical staff to ensure that the change from a production based company to a customer-focused organization could be completed. As witnessed in the effort to consolidate the culture, it is clear that so many cultural modifications came up at Whirlpool after the change. The conscious effort to document the current culture and institutionalize it shows that style of management and interaction in the organization was changed to meet the new vision. Analysis of the Change Process at Whirlpool using the Theory E/O Approach. Beer & Nohria (2000) come up with a very interesting model for the analysis of change in organizations. The motivation for their research is that change is difficult to handle and over 70% of all change in businesses fail (Beer & Nohria, 2000 p133). They identified clearly that change is often prompted by the need to increase economic value (Theory E). However, in the quest to increase economic value, there are some structures in the organization that must be changed to enhance organizational capability (Theory O). And these two different components work in a corresponding fashion and in some cases in conflict with each other. However, they affect and are affected by the goals, leadership, focus, processes and rewards systems and changes that are made to them during the transformation process. Goals: In Whirlpool, Whitwam states that the main prompters of the change were shifting the attention of the organization to consumer needs and the desire to increase shareholder values. The desire to increase shareholder value was primarily an element of Theory E. On the other hand, the desire to turn attention to consumer needs was destined to affect the organizational composition of Whirlpool and this clearly was a function of Theory O. Thus from the onset, the whole process was meant to have two major ends: economic and organizational transformation. Leadership: Theory E change involves a top to down approach to leadership. The people at the top are changed and they are expected to change the rules to affect their subordinates. Theory O changes encourage participation from buttom to the top. The centralization of the marketing and R&D units of Whirlpool was clearly a function of Theory E. However, the attempt to change the reporting structure from one involving products to one based on brands was clearly meant to alter the reporting relationship within the company. This is because where the brands are meant to be entities themselves, there is going to be a different interaction between the various workers and this was meant to change the workforce and involve them in the transformation process at the highest levels possible. Focus: The focus of a change process in Theory E tends to be on structure and systems (Higgins, 2005). For Theory O, it is based on building a corporate culture that will modify employee behavior to support the change. In the case of Whirlpool, the changes in marketing and research and development were structural. Also, the internationalization of operations were of a structural consequence and was the focus of increasing wealth and of strategic importance. However, again the grouping of workers into producers of brands rather than producers of products was a major effort meant to modify the corporate climate and enhance employee behavior and tilt it towards the ultimate goal of the company. Processes: In a Theory O setup, the organization experiments, learn new lessons and evolve. In a Theory E setup, the top level management plan and establish programs that are followed by the entire organization. In the case of Whirlpool, the Dominant Consumer Franchise was a conscious effort to change the company. The Brand-Focused Value Creation was another such effort made by top-level management. However, it is known that the role of the centralized marketing unit and the research and development team represented continuous improvement. This therefore means that although there were well established programs, there were also spontaneous systems through which emergent issues could be incorporated into the changing company's operations. Reward Systems: Whilst financial rewards is the main method of Theory E change, Theory O change is characterized by other intrinsic forms of motivation. In the case of Whirlpool, it cannot be ruled out that the management and employees were not given better salaries whilst the company began to grow. However, it can also be seen that other forms of intrinsic motivations like the policy of internal recruitment for managerial positions stayed on. This clearly supported the change system and promoted co-operation amongst the various ranks and file of the company. Consultants: Typically, a Theory E change is fueled by the use of a third party consultant and these consultants make recommendations that are often implemented. On the other hand, a Theory O change is often prompted by management who apply their knowledge and understanding to drive change in a more evolutional or subtle manner as opposed to the radical change that comes with Theory E consultant recommendations. In the case of Whirlpool, there was a single external consultant, Harry Burritt who was contracted to make some diagnosis in corporate planning. This sounded like a Theory E move. However, for the most parts, the management supported by the marketing and R&D team was responsible for the changes that occurred in the company. This shows that there was more of a Theory O transformation rather than a Theory E. In conclusion, it is apparent that the change in Whirlpool is a blend of Theory E and Theory O changes. The changes were a fair blend of profit-oriented change and organizational-based change. Leadership Change management comes with some demands relating to leadership. Kotler identifies that leadership in a change management context involves creating a vision, involving people to carry out the vision, support other efforts to realize the vision, recognize and reward success (199). Whitwam developed his vision with a sensitivity towards to two main stakeholder needs: shareholder wealth maximization and consumer needs. This vision formed the spirit of his eventual developments and promotion of this his deas. Whitwam involved the whole organization by creating a brand oriented agglomeration of companies rather than a product oriented company. This was deliberated meant to involve every member of the organization. In order to continue facilitating activities, Whitwam involved numerous units like the marketing and R&D units which he centralized and gave an oversight function to all the units. Also, international partners were brought on board through acquisitions of international giants like Philips. Whitwam continued to support his vision by way of reviewing his activities and efforts. He tried to build a corporate culture and promoted important systems meant to improve operations. Employees were meant to be taken much more seriously through the new strategy and also, employee empowerment was very crucial to him. The Past, Present and Future of the Change Lewin argues that there are three stages in the actual change process: Unfreezing, Move and Refreezing (Hayes, 2010). Unfreezing involves eliminating or ameliorating the dominant forces that maintain the status quo. In other words, it includes efforts made by the leadership of an organization to identify the main pillars that support the current system and culture. After this is done, the organization is moved to a different state and from there, the change is consolidated in the Refreezing phase. Unfreezing: This phase is evidenced in Whirlpool by the fact that the CEO identified that the company is one that originally has its power base steeped engineering. This is because as a manufacturing company, the operating core is meant to be filled by people with technical and engineering backgrounds and they control very sensitive and important positions in the company. This component of the culture of the company created some forces that could potentially stand against change. So the unfreezing stage had to first of all weaken this. On the other hand, the CEO, who was the former marketing manager identified the need to shift from an operations oriented company to a customer-oriented company. Clearly, there was a conflict that was inevitable. This is because whilst the marketing oriented change is meant to promote brand focused consumer production systems, the engineering oriented core of the company are likely to desire the old ways and systems like quality, durability, accuracy and timeliness. There was thus the need to enhance the new customer-focused system to ensure that the objective for the change was realized. There was therefore the need to unfreeze the old system. Also, the old system was centered in North America. There was the need to expand. Unfreezing came in the form of retrenchment which hit the operation systems. This was meant to prevent the old system from taking over in a new setting. There was also the acquisition of new branches around the globe to internationalize. Move: The plan to move from the old system that was operation oriented to a more customer-friendly production system and globalize. This was meant to be done through a blend of conscious and evolutional change processes and systems. The move was initiated with the idea of centralizing the marketing and R & D unit. This was a deliberate effort by the management to ensure that consumer needs are collated directly by the company with the uttermost urgency. A centralized Research and Development unit was meant to act as a link between the needs of the consumers and the operational core. Refreezing: Although some refreezing has been done, through the establishment of brand-based companies and centralization of the two important units, the company still has room for the further consolidation of its plans and systems. Nancy Snyder has been able to define the culture of the refreezing and this involves respect, integrity, teamwork and customer insight. The current focus of the refreezing is based on enhancing employee pride, ensure consumer passion and improve shareholder returns. Recommendations In the current plan meant to usher Whirlpool into the future, there are some recommendations that can be made that can help improve the company's performance and bring in optimum results. In applying Kotler's Checklist for leading change, there are some things that can be used by the CEO of Whirlpool to ensure the best results. Establish a Sense of Urgency There is the need for the new concept of “Every home, Everywhere with.... pride, passion and performance” to be incorporated into the minds and perceptions of the employees and customers of Whirlpool. This way, the whole idea will become popular and more people are likely to contribute to it. Form Powerful Coalition There is the need to form a powerful coalition that will support the vision. Since the marketing and R&D units are centralized and motivated (with a total of about 4% of turnover!) they are central in any such coalition. This can be done effectively by using Lewin's force field theory discussed below. Create Vision The top management of Whirlpool needs to identify visions and objectives for individual units with themes in employee pride, consumer passion and shareholder performance of the company that is relevant to them. This will ensure that each and every unit has clearly stated roles and obligations. Communicate Vision The management and employees of each unit should be made to know and understand what is exactly expected from them as an independent unit and also their role as a component of the entire organization. Empowerment There is the need to keep each unit responsible and also well equipped to carry out the role required of them. Thus a strong monitoring system should focus on how each unit links up to the crucial components of the business (marketing and R&D) as well as other units of the company. Plan for Short-Term Wins Also, there should be targets related to the new strategic vision that will be set for each unit that must be delivered within a three-month interval. These targets should be linked to annual, medium term and long term result-oriented targets. Consolidate Components and Produce more Change Areas of Whirlpool that flourishes and meets its targets must be encouraged and those that come with issues should be investigated and necessary action taken on them. Institutionalize New Approach With time, the Organizational Development unit of the company should document and institutionalize the dominant organizational culture and filter it. Those components that are good should be encouraged and where there are weaknesses, they should be strengthened. This should become the yardstick or 'common law' of the organization and guide performance and results. Applying Lewin's Force Field Theory The management of Whirlpool must continue to strengthen the marketing department and the Research & Development units. This is because they are the engine of the change and they diminish the resistance to change. Marketing maintains the customer-focused system and R&D translates the customer-focus to the operation core of Whirlpool. The portion of turnover allocated to these units could be considered where necessary to ensure that their trust is maintained. Also, the shareholders' and board of directors' interest must be maintained. Their interest should never be diminished since the board has the power to vote against the new change. The board should always be kept informed and consulted before further changes are carried out. Although the production units are important, their influence should be reduced if they continue to resist the change. In spite of the fact that they are unionized, the management of Whirlpool still has sufficient power to keep them in check. Activities like retrenchment can be utilized to cut down their numbers. New parties like external consultants and partners should be brought in periodically to add up to the ideas and support the growth of the new partnership where necessary. Conclusion Whirlpool's evolution is connected to survival of the company. It was prompted by shareholder needs and the need for consumer-focus. The change process was a blend of economic motivations and organizational adjustment systems that comes together to define the company as it is today. The leadership provided by Whitwam promoted the process tremendously. In continuing the change process, it is recommended that the change becomes the basis of organizational strategy, vision and philosophy. This can be supported by the formation of strong coalitions. References Beer Michael (2001) “How to Develop an Organization Capable of Sustained High Performance: Embrace The Move for Results – Capability Development Paradox” Organizational Dynamics Vol 29 No 4 pp233 – 247 Beer Michael & Nohria N. (2000) 'Creating The Code of Change' Harvard Business Review Vol 78 No 3 pp 133 – 141 Hayes, John (2010) The Theory & Practice of Change Management London: Palgrave Higgins, James (2005) “The Eight 'S's of Successful Strategy Execution” Journal of Change Management Vol 5 No 1 pp3 – 13 March, 2005 Kotler Philip (1991) Strategic Leadership London: SAGE Publications Martinez Ricardo (2005) Change Management and Organizational Behavior Mason, OH: Cengage Read More