Managing organisational process and crisis of change
By Adetunji Adeleye
Emeka Onwuka, MD, Diamond Bank
IT must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more
dangerous to handle, than to initiate a new order of things,” says Niccolo Machiavelli.
Change is one of the most pervasive and complex forces with which organisations and their managers must reckon. Changes occur in people themselves, in organisations, and in the social, political and economic environments. Apart from catastrophic events, changes occur within patterns of stability for both societies and organisations.
The first thing to note about change is the range of attitudes and reactions to it. For some, organisational change is beneficial, for others, it is a threat, a danger and a source of fear. For others, change is a challenging game, a vital life force; it is a disturbance to be avoided or borne with solidity and patience. The attitudes evoked by change are largely dependent on the context of the situation, the nature and the extent of change and the manner in which changes are initiated and executed. This is why managerial skills are attuned to problems of change.
The nature of organisational change
According to Kayode Faboyede, a change expert, the focus of change can be either through the redesign of organisational structure or through attempts to change people by means of training and discipline; or it can be both.
Attempts to make organisational changes by modifying either structure or individual behaviour alone run the risk of ignoring the interdependence of the two kinds of change. Hence the complexity of managing change makes it necessary for managers to understand both the structural and psychological approaches to change.
Dalton Mcfarland, a management consultant and author, said that it often appears that organisation structures are fixed, a view that is reinforced by what happens when a vacancy occurs. The procedure is often to keep the position, title and salary constant, and to fill it with a person possessing the qualifications of the position. Positions are relatively stable, although organisation members and needs may change.
In some cases, irrelevant positions that have outdated their usefulness are left behind in the organisation without any justifiable economic reason. It is the result, in part, of the fact that managers are often conservative about changes, so that gradual changes in existing structure can be mistaken for the absence of any change at all.
The strong instinct for survival that attends an organisational structure and coupled with opposition from longest serving employee whose position is to be scrapped could frighten or inhibit a top executive from restructuring. The tendency to play down the seriousness of drastic change and to magnify the importance of small changes to enhance a manager’s reputation as an empathetic person have always been the factors that slow down dynamic management in organisations.
Change is real and organisations must cope with it or fail to survive. Growth presents many challenges and opportunities for change. Change is extensive when growth occurs from rapid success in organisational activities. Growth leads to the need for more employees at all levels, more functions to be established and old irrelevant functions to be changed or eliminated.
Organisation decay has manifested in the departments that are no longer viable and departmental functions are no longer relevant, such department(s) must be scrapped and staff must be redeployed to take on new responsibilities. In a situation whereby staff do not have required skills, experience and training to adapt to new roles, retrenchment might be the best option.
Turnaround management in a critical situation.
Times of corporate distress present special strategic management challenges. In such situations, a firm may be in bankruptcy or nearing bankruptcy. Often turnaround consultants are brought into the company to devise and execute a plan of corporate renewal, assuming that the firm has enough potential to make it worth saving.
Before a viable turnaround strategy can be formulated, one must identify the root cause or causes of the crisis. Frequently encountered causes include:
• Revenue downturn caused by a weak economy
• Poor execution of a good strategy
• Poor strategic choices
• Overly optimistic sales projections
• High operating costs that decrease flexibility
• Insufficient resources
• Unsuccessful R& D projects
• Highly successful competitor
• Excessive debt burden
• Inadequate financial controls
According to Femi Owoade, a management consultant, while each case is unique, the turnaround process frequently involves the following stages:
• Management change consultants may be called in to manage the turnaround of the firm
• Situation analysis: A situation analysis is performed to evaluate the prospects of survival. Assuming the firm is worth turnaround, depending on the root causes of the distress, one or more of the following turnaround strategies may be selected and presented to the board:
• Change of top management
• Divestment of certain assets
• Reformulation of strategy
• Revenue increase
• Cost reduction
• Strategic acquisitions
•Emergency action plan: Achieve positive cash flow as soon as possible by eliminating departments, reducing staff, etc.
•Business restructuring: Once positive cashflow is achieved, strategic plan is implemented, improved continuing operations, adjusting the product mix and repositing products if necessary. The management team begins to focus on achieving sustained profitability.
• Return to normalcy: The company becomes profitable and the changes are internalised. Employees regain confidence in the firm and emphasis is placed on growing the restructured business while maintaining a strong balance sheet.
• Abandonment strategy: In some cases, the prospects of the firm may be too bleak to continue as an ongoing operation and an exit strategy may be appropriate. Different strategies may be pursued that vary in their immediacy. An immediate abandonment strategy exits the market by immediately liquidating or selling to another firm. In other situations, a harvest strategy is appropriate by which the firm plays the end game, maximising near-term cash flows at the expense of market position.
Restructuring: This is the act of partially dismantling or otherwise reorganising a company for the purpose of making it more efficient and therefore more profitable. It generally involves selling off positions of the company and making severe staff reductions. Restructuring is often done as part of a bankruptcy or of a takeover by another firm, particularly a leveraged buyout by a private equity firm. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company.
The selling of portions of the company, such as a division that is no longer profitable or which has distracted management from its core business, can greatly improve the company’s balance. Staff reductions are often accomplished partly through the selling or closing of unprofitable portions of the company and partly by consolidating or outsourcing parts of the company that perform redundant functions such as payroll, human resources and training left over from old acquisitions that were never fully integrated into the parent organisation.
Other characteristics of restructuring are:
• Changes in corporate management (usually with golden parachutes)
• Retention of corporate management sometimes “stay bonus” payments or equity grants.
• Sale of underutilised assets, such as patents or brands.
• Outsourcing of operations such as payroll and technical support to a more efficient third party.
• Moving of operations to lower cost locations.
• Re-organisation of functions like sales, marketing and distribution.
• Renegotiation of labour contracts to reduce overhead.
• Refinancing of corporate debt to reduce interest payments
• A major public relations campaign to reposition the company with consumers.
• Forfeiture of all or parts of the ownership share by pre-restructuring shareholders.
A company that has been restructured effectively will generally be a leaner, more efficient, better organised and better focused on its core business. If the restructured company was a leverage acquisition, the parent company will likely resell it at a profit when the restructuring has proven successful.
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