Change Management in Michelin Shanghai - Case Study Example

Change Management in Michelin Shanghai A proper change management allows a manager to improve a poorly structured and poorly performing organization to a better performing one with a robust infrastructure. The change management of Michelin Shanghai production facility has faced a lot of challenge, until the responsibility was handed over to Bertrand Ballarin. He implemented his own change management system by applying changes in a gradual manner. He also adopted the right leadership style to gain the trust of the employees and thereby reducing the resistance to change. He successfully identified all the external and internal factors associated with the current turmoil in the facility. Keeping that in mind he devised his strategy in such a way that the overall performance of production facility is improved along with the improvement of the working environment and job satisfaction level of the workers. He also overcame the socio-cultural barrier to establish a good communication in the facility, which allowed him to motivate the employees, which as a result led to the overall improvement of the production facility. Table of Contents Introduction 4 Change Management 5 Impact of Change at Michelin on Individuals and Teams 6 PESTLE analysis of Michelin Shanghai 7 Organizational Culture of Michelin in Light of Change Management 9 Force for change at Michelin 12 Force field Analysis 12 Kotter’s Eight Step model of Change management 14 Impact of Leadership 16 Conclusion 17 Reference List 19 Introduction Michelin is a tyre manufacturing company headquartered in France. The company operates in 19 countries with 72 production units. Michelin is among the top tire manufacturers in the world and operates in a fairly competitive environment among the established brands like Bridgestone, Goodyear, Continental, etc (Chapel Corner, 2014). The company entered into a joint venture with Shanghai Tire and Rubber Co., Ltd in 2001 to form Shanghai Michelin Warriors. This joint venture did not turn out to be as profitable as expected, as from its time of inception the Shanghai Michelin Warriors were always at a loss. The large employee base of Shanghai tire could not match the operational and quality standards demanded by Michelin. In order to reduce the revenue leakage and the operating cost, the management decided to release more 300 poorly performing employees. As a result, it worsened the situation even further and the workers suspended production for several days. The company’s headquarter decided to send Bertrand Ballarin, to China to improve the production and management condition of the company (CEIBS, 2013). He incorporated his own change management strategies to turn around Michelin Shanghai’s situation. Incorporating change in an organization is essential to make it adaptable to the constantly changing market scenario. Moreover, change is also required to improve a firm’s financial and operational conditions (Richards, 2014). However, incorporating change needs proper change management strategies and the right leadership approach. Change is needs to be implemented at the individual employee level and the holistic organizational level. The implementation process can only be successful with a proper leadership style. The role of a leader is to drive the human resources in the right direction, with right momentum so that proper implementation of change can be ensured (Ajmal et al, 2012). This paper is focused on the organizational structure of Shanghai Michelin Warriors, and how the company went through the change management under the leadership of Ballarin. Change Management Ballarin ensured that any new changes made must be compatible with the current situation of the production plant. He started with improving the maintenance of facility, by improving the external outlook of the plant with paint jobs and planting trees. He eventually made several minor changes which improved the overall work environment of the plant. As a result, the employees realized that Ballarin took the welfare of the facility quite seriously. He also increased the remuneration of certain hard working employees. These gradual changes allowed the employees to have trust in Ballarin’s management system. In order to improve the production operations, he sanctioned RMB 45 million to upgrade the existing machinery. These changes brought new hopes among the employees which suggested that the plant can still be improved to its former glory (CEIBS, 2013). Hickson et al (1971) stated that according to Contingency theory, any solution or change is situation dependent. The theory provides the potential to apply changes in an organization based on the existing situation. As opposed to orthodox approaches which try to solve an issue using pre defined models, the contingent approach allows the managers to design new problem solving methods particularly tailored for the problem at hand. The theory X and theory Y proposed by Douglas McGregor, highlights the human motivational factors which acts as major determinant of employees’ engagement to work (Banfield and Kay, 2012). The theory X suggests that all workers dislike their work and lack dedication towards the organization and in response the management must adopt an authoritative leadership style in order to force the employees to work. The firms which follow theory X are characterized by managers or supervisors who possess great power of control over the employees and they are compelled to follow the rules set by their supervisors. On the other hand theory Y is characterised by a decentralized organization, where power is evenly distributed among the employees. The managers focus on motivating the employees so that they engage themselves to their work voluntarily. This approach creates a favourable work environment for the employees where they can have individual working freedom (Banfield and Kay, 2012). Ballarin followed the theory Y, in order to motivate the employees, by employing several strategies, like facilitating a better communication within the facility, improving the work environment, etc. He established a new human resource management system which ensured that all the employees maintain a good behaviour and a healthy interaction among them. The company also sponsored dinners to the employees in order to bring them together and closer to the organizational values. Moreover the contingency theory also explains the Ballarin’s actions which were particularly designed based on the cultural background of the employees. He realized that the Chinese culture greatly value their New Year celebration, so keeping this in mind Ballarin decided to throw a year end celebration dinner. The workers in the factory never received this kind of treatment from the company, thus these warm gestures allowed the employees to build a strong trust for the new management system (CEIBS, 2013). Impact of Change at Michelin on Individuals and Teams Michelin’s management decided to implement new changes in the Shanghai facility in order to improve its overall performance. Before Ballarin came in to responsibility, the management decided that the operating cost of the facility needs to be decreased in order to stop revenue leakage. Thus they decided to dismiss several employees, which in turn created a severe turmoil among them, leading to voluntary suspension of work. The theory change management discussed by Elrod and Tippett (2001) suggests that the behaviourism approach studies the behaviour change in an individual resulting from the change. Malone, (1990) also highlighted Pavlov’s theory which suggested that behaviours of an individual can be influenced both positively and negatively by rewards or punishment respectively. Thus the employees of Michelin Shanghai were highly motivated when Ballarin started increasing their increased wages and giving them rewards for good behaviour. According to Branch and Wilson (2010) the cognitive psychological theory suggests that by changing the beliefs of an individual, his reaction towards experiences can be changed. In light of this theory it can be justified that Ballarin gradually gained the trusts of the employees by making several small changes, so that they get habituated to the implementation of the MDP process and other major changes in the operational procedure like stabilizing the volume of production, etc. The impact of change can also be assessed by its influence on an entire team of an organization. Glaser (1998) suggested that a team’s effectiveness can be improved by the following processes, planning team mission, allocating team roles, deciding on the operating process, building inter personal relationships within the team members. In order to enhance the productivity of the facility, Ballarin created several teams headed by different business unit leaders, thus as a result the individual business unit team received proper guidance and their roles were clearly defined. Ballarin also ensured that a good relationship among the employees is established so that the team members can work with proper coordination and harmony, leading to improved production efficiency. PESTLE analysis of Michelin Shanghai The external environmental effects also had a crucial role to play in the change management system. Political: The political influences of a region forces an organization to follow certain regulations while commencing their business activities. Michelin procured raw materials from African and South American regions (CEIBS, 2013). A poor political relationship between the home country and the host country would affect the supply chain of the company. Moreover, the political factors are also responsible for imposition of overseas trade taxes, which affects the operating cost of the company (Kotler and Keller, 2011). Economical: The economic condition of Shanghai instigated the turmoil in the facility even more. The initial low wages of the workers were below the industry standard. The workers companied that their salaries were even lower than retired individuals (CEIBS, 2013). Thus it can be stated that the healthy economic condition of Shanghai increased the expectation levels of the employees. Socio- Cultural: The socio cultural background of China acted as the major determinant of the initial onset of the turmoil. The language barrier acted as a big hassle for the French managers, moreover the management practices differed extensively between France and China. As a result this posed as a new challenge to Ballarin (CEIBS, 2013). Technologies: While improving the operational output of the facility Ballarin also took help of the technological availability of the region and upgraded the existing machinery and improved the overall infrastructure of the firm (CEIBS, 2013). Legal factors: The legal framework of a region also imposes certain rules, regulations and security to an organization (Kotler and Keller, 2011). After the employees revolted against the management in a violent manner, the local law enforcement intervened to stop the dispute. Thus, the legal frame work of Shanghai provided sufficient safety to the management and the supervisors. Environmental factors: The environment of a region can act as an influencing factor for a business operation of a firm (Kotler and Keller, 2011). The foreign workers habituated in a different weather conditions can find it hard to settle in another region with a different weather condition. Moreover, the rubber production process can negatively affect the environment of the host country, which as a result may pose certain regulatory boundaries to the manufacturing process of the company. Thus it can be stated that the external factors have played a major role in the operations of Michelin Shanghai. Organizational Culture of Michelin in Light of Change Management The organizational culture of Michelin can be described in the light of the cultural web model. Figure 1: Cultural Web Model Source: (Thomas, 2008) The cultural web consists of six parameters which are used to define the culture of an organization. These six parameters form the existing paradigm or the cultural trend of an organization. Stories are the past organizational events which are often discussed and referred by the employees (Thomas, 2008). In case of Michelin Shanghai, the employees often compare the present and past situations. In the past the employees had a secured and lifelong contract with the Shanghai Tire company. However, after the establishment of the joint venture and the subsequent poor performance of the production facilities, a lot of employees were thrown out of their jobs (Lee and Chung, 2014). These incidents often form stories among the employees which is a major determinant of the organizational culture. Symbols are defined by the physical manifestations unique to an organization, which may include the aesthetics, dress codes, etc (Thomas, 2008). The Michelin Shanghai facility was poorly managed with no care for cleanliness and safety measures. The overall production plant was dirty, and the employees had no sense of responsibility or decency (CEIBS, 2013). Power structure defines the authority structure of an organization and how the power of control is distributed among the supervisors (Thomas, 2008). Previously the facility was overseen by only a single plant manager, who was responsible for taking care of the entire facilities production and employee management. However, Ballarin made certain changes in the organizational structure. Apart from improving the human resource management system, he also introduced Business Unit Leaders (BUL) (Lee and Chung, 2014). The business unit leaders were given the responsibility to overlook individually allocated territories with their own machines. A BUL could directly interact with the frontline workers by giving them instructions and guidance and at the same time receive feedbacks. As a result, each production unit became independent which as a result led to better monitoring of performances and ease of improvement (CEIBS, 2013). Organizational Structure is defined by the overall formal and informal structure of the firm which controls the values and influences of individual personnel (Thomas, 2008). The entire structure of Michelin Shanghai was unstable as the employees were severely unsatisfied and insecure of their future in the organization (Lee and Chung, 2014). Moreover, they revolted against the management in order to suspend production, which even led to violent results. The management structure was restored to a stable one, after Ballarin implemented his management style by bringing new changes in the facility which was widely accepted by the employees (CEIBS, 2013). Control System is characterized by the way in which the organization is controlled by the authorities. It includes factors like quality, financial system, rewards, etc. (Thomas, 2008). Before Ballarin took over the management of the facility, the overall performance quality was severely low. The production quality was never stable and often fluctuated between 11,500 and 15,000 (CEIBS, 2013). Proper configuration of machines and proper procedural approach was lacking. In order to stabilize the production system, Ballarin gave more priority to production volume than to handling rejects. This as a result allowed the employees to reach the production target quite easily. Ballarin also made it easier for the employees to earn rewards by reducing individual target at a reasonable level. Thus these changes increased the morale of the employees and they started to work sincerely, as a result along the quantity, the quality of the production also improved (Lee and Chung, 2014). Routines and rituals are defined by the daily pattern of the employees’ behaviours and actions (Thomas, 2008). Previously the routines of the workers were highly haphazard with no sense of urgency to meet targets. This was reflected in the fluctuating production volume (Lee and Chung, 2014). After Ballarin overtook the management, he reorganized the employees’ daily routines. As a result of the well managed daily activities, the production quality gradually improved (CEIBS, 2013). Force for change at Michelin Force field Analysis Figure 2: Force field analysis Source: (Created by Author) Ballarin came across several factors in the organization which resisted change and several factors which supported the change. The force field analysis of Michelin Shanghai will describe the implementation process of Ballarin’s management and the subsequent response from the employees. The restraining forces which acted against the change management include the socio cultural background, existing organizational culture, the previous incidents responsible for the demotivation of the employees, etc. After Ballarin overtook the management of the facility, he faced a lot of challenges which included crossing the language barrier and gaining the trust of the workers. He noticed that the poor performance of the production plant was mainly due to lack of sincerity and motivation among the employees. Moreover, the poor pay scale and improperly managed organizational structure, made the employees sceptical towards new management style. The interaction between the Chinese and foreign employees was extremely poor. Due to this communicational gap the operational process was badly coordinated, which was reflected as the poor production output of the facility. Thus in order to implement change in Michelin Shanghai, Ballarin had to overcome the above mentioned barriers (CEIBS, 2013). On the other hand, there were certain factors which supported the changes made by Ballarin. The employees were willing to take steps to improve the facility, thus when Ballarin gradually started to change the organizational structure, the employees realized that there is still hope for the development of Michelin Shanghai. Moreover, according to Hofstede’s cultural framework, the Chinese culture is highly collectivist in nature that is they prefer to work in teams and support each other by sharing responsibilities (Hofstede Centre, 2015). Thus it was easier for Ballarin to motivate the employees in teams. Moreover, the preference of the Chinese culture to prioritise cultural celebration also allowed Ballarin to gain their trust by offering New Year parties and other celebrations. Thus it can be stated that Ballarin successfully overcame the existing challenges and leveraged the supporting factors to implement the changes in Michelin Shanghai (CEIBS, 2013). Liebhart and Lorenzo, L.G., (2010) mentioned that organizational change can be segmented into two types, Planned and Emergent. Cunliffe (2006) mentioned that planned change can be often static in nature and should only be implemented at the time of high stability in the organization. On the other hand, the Emergent approach is more dynamic and can be implemented from any direction. Emergent change allows the organization to properly align with the environment and bring about ‘real time’ changes (Stacey, 2005). The emergent approach is sensitive to existing contingencies and designs change which is likely to satisfy the need of control and expression. Thus based on Ballarin’s management style it can be ascertained that he followed the Emergent change management style. The change management process is often characterized by following a series of sequential steps which has been identified by Lewin (1951) as Unfreeze, Change, Refreeze. Unfreezing involves reducing the resistive forces in the system, before incorporating the changes. This phase is characterized by motivating the employees and gaining their trusts, so that any new changes are welcomed by them. The next phase is ‘change’ which is characterized by the actual implementation of the desired change in the organization. This involves facilitating improved communication in the organization, designing action plans and time schedules, task allocation, etc. The final stage is ‘refreeze’ which involves finalizing the activities after ensuring that the organization has reached stability. The employees start following new regulations in order to ensure that the organization is moving towards a new direction. Kotter’s Eight Step model of Change management The application of change management can be described by a series of consecutive steps as explained by Kotter’s eight steps. The eight steps can be underpinned as follows, creating a sense of urgency, developing a guiding coalition, developing a definite vision and formulating strategies to achieve the vision, properly communicate the change vision, empowering the actions taken by the management, winning short term goals, leveraging gains to implement more change, and bringing changes in the organizational culture (TIPQC, 2014). Figure 3: Kotter’s eight step of organizational change Source: (Kotter, 1996) Create a sense of urgency The change management implemented by Ballarin followed some of these steps which are relevant in the given situation. Although he was pressurised by the French headquarter to implement the Management System of Daily Production (MDP), but he did not push the employees of the facility to implement it instantly (CEIBS, 2013). Rather, he applied the changes in a gradual manner, so that they are not rejected by the employees, who are quite sceptical about new changes owing to their past experiences. Thus Ballarin did not implement this stage. Creating guiding Coalition Ballarin introduced new Business Unit Leaders and at the same time he also trained the front line leaders, thereby creating a team of leader who will be able to sufficiently guide and lead the workers’ team. The guiding coalition has also allowed the management to achieve a close relation with the workers. Develop Change Vision He developed a vision which states that Michelin Shanghai’s performance would be improved to match other facilities of Michelin (CEIBS, 2013). Furthermore, the employees will develop trust for the company and devote themselves to work harder. In his next step, Ballarin shared his vision with the employees in a passive manner. Communicate Vision Although Ballarin did not directly communicate it with the employees, but he made it clear with his actions that he was looking towards long term welfare of the Shanghai facility (Lee and Chung, 2014). Empower Broad Action Ballarin realized that creating a vision is not sufficient enough to successfully implement the strategic planning. The employees and frontline managers must be guided and trained sufficiently so that they are capable of pursuing the vision goal. Thus he introduced a training program to enhance the skills of the frontline leaders and the Business Unit Leaders. Members from the Plant Senior Management Team provided coaching and real time feedback to the leaders, which as a result led to quick improvement of the overall facility’s performance. Short Term Wins The change management approach of Ballarin created short term goals and focused on achieving them, rather than aiming for a singular long term goal. The achievement of short term goals like improving the infrastructure of the facility, working condition of the employees, etc. motivated the employees and at the same time it also allowed the management to measure the gradual progress. Institutionalize the Change Ballarin implemented his change management strategies in a gradual way where each achievement was the founding stone of the next one. As a result the changes made by him were permanent. Thus Ballarin was able to turn around the fate of Michelin Shanghai facility. Impact of Leadership According to Fairholm, (2007) leadership can be defined by an individual’s ability to influence others to voluntarily follow his methods or guidance. Leaders depend on the power of influence and trust, whereas managers depend on the power of authority. A leader motivates his employees and drives them towards organizational success. Bolden et al (2003) has described different types of leadership style as follows. Autocratic leadership style: This style is characterized by highly centralized distribution of power, where the supervisor holds all the power of decision making and control over the action of his subordinates. Persuasive leadership style: The leader holds the liberty of taking all the decisions by him, but he also ensures that the decision taken by him is favourable for the welfare of the employees. He tries to encourage the subordinates to follow his methods by highlighting the advantages. Democratic leadership style: This leadership style is characterized by collaborative approach among the subordinates. All the decisions are taken with the joint effort of the employees and the supervisor. The employees are given sufficient working freedom and they are motivated by rewards and equal distribution of power. According to Cameron and Green (2012) the five leadership qualities essential for change management can be underpinned as follows. The edgy catalyser: This leadership style focuses on pointing out the abnormalities and creating discomfort deliberately to initiate change. The visionary motivator: A visionary motivator engages the employees and achieves their consolidated agreement on the change management process. The Measured Connector: This approach focuses on creating a sense of purpose across the entire organization by developing a good communication among the employees. Tenacious Implementer: This leadership style is characterized by focusing on the plans, targets, strict deadlines, etc. Thoughtful Architect: A thoughtful architect focuses on achieving a perfect fit between strategy and theories to ensure that the organization has a firm basis for change. Ballarin’s leadership style also carries some of the qualities mentioned above. Based on his implemented strategies it can be stated that, his leadership possess the qualities of a visionary motivator and a measured connector. Ever since Ballarin stepped into the Michelin Shanghai facility, he tried to gain the trust and agreement from the employees, so that he can reduce the resistance to change (Morgeson, DeRue, and Karam, 2010). He gained the trusts of the employees, not by his words but by his actions. The workers realized that Ballarin had genuine intentions for the welfare of the production plant and its employees. Moreover, he established a good communication between the management and the employees. He also facilitated the internal communication among the employees. This as a result motivated the worker to voluntarily engage themselves to achieve organizational goal. Conclusion Change Management is the most essential factor in successfully turning an organization’s wheels towards a better and sustainable future. Organizational change in most cases can get rejected or looked at with scepticism, but with proper change management strategies the organizational structure and performance can be improved without facing much friction from the employees. Leadership plays an important role in change management. The leader must indentify and apply the right leadership style in order to ensure that the subordinates eventually trust the management’s decision. This as a result will reduce the resistance to change by the existing employee’s. 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