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The objective of this report is to highlight the importance of organizational culture as an important tool in determining the success of management change strategies. Organizational culture has widely been established in academic literature as a critical component of any organization’s philosophy which drives its ability to effectively operate both internally within the firm and externally in the market.
This report intends to help understand the concept of organizational culture and change, and how one is directly dependent on the other to warrant success. The report will first explore on academic literature to understand and critically appreciate the concepts of culture and change, and then will analyze different models suggested for effective change strategies.
The following section will then give a practical analysis of problems in implementing change strategies in two organizations: Royal Edeling and Ford Europe. Other examples will also be quoted and the analysis will be supported with use of academic literature and frameworks.
At the end, recommendations would be provided on how important organizational cultural considerations are to ensure successful change in organizations. Further, potential limitations in the arguments are also to be presented.
Schein (p. 373-374, 1993) describes organizational culture as “a pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration that has worked well enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.” It has often been documented in literature that existing organizational culture are crucial basis for perceptions within organization and could ultimately be the resistor to change (Currie, 1996; Merali, 2003). This vitality of culture increases more when change initiatives are introduced in organizations. Change simply refers to the introduction of norms or practices which may conflict with existing procedures.
The focal problem to be investigated in our report is the stark contrast of organizational cultural values between two merging companies of Royal Biscuits and Edeling and how these differences are preventing the newly-merged Royal Edeling Company from moving on. In order to investigate this, the report will be drawing upon frameworks of Geert Hofstede’s cultural dimensions and Ford et al (2008) Five-P model of change.
Professor Geert Hofstede is a widely recognized academic whose work reflects the differences between cultural dimensions amongst countries and how it affects the work place balances. In his own words, “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster”, (pg.1, Hofstede 2010). Since the 1970s, the professor conducted research in over 40 countries and using over 116,000 questionnaires answered by employees of IBM, he has developed the framework known as Hofstede’s five cultural dimensions (Hofstede, 2001). The five dimensions of this framework with explanations taken from Mindtools (2010) are as follows:
1.) Power/Distance Index (PDI): This index measures the extent of acceptability of unequal power distribution amongst society; the higher the pdi, the more people in society accept unequal power distribution and know their place while the lower the pdi, the more power is shared and dispersed.
Source: Mindtools (2001)
2.) Individualism (IDV): This measures the level of how society perceives individualism versus collectivism; the higher the score of individualism, the lesser sharing and interpersonal connections, while the lower the score of individualism, the more emphasis on collective teamwork and loyalty and respect for the members.
Source: Mindtools (2001)
3.) Masculinity (MAS): This measures the masculine versus feminine roles. The higher the MAS scores, the greater the society distinguishes between what jobs belong to males and others for females. A lower score suggests blurred distinguishing and that males and females are equally likely to be working on similar jobs based on their skills.
Source: Mindtools (2001)
4.) Uncertainty/Avoidance Index (UAI): This measures people’s responses during uncertain events. The higher the UAI, the more society tries to avoid ambiguous situations, while lower UAI scores suggest that people are more tolerant towards ambiguous situations.
Source: Mindtools (2001)
5.) Long Term Orientation (LTO): This fifth dimension was introduced later in the 1990s and considers the how much society values traditions. Countries with high LTO would consider maintaining long standing customs as very important.
Source: Mindtools (2001)
While Hofstede’s model analyzes cultures, in order to study change, the report will make use of Ford et al (2008) 5-P model of change. Ford et al (2008) claimed that for a successful change plan, change leaders must effectively address each of these 5 components: purpose, priorities, people, processes and proof.
The first p in the 5-p model looks at the purpose of introducing change in the organization. As Denning (2005) claimed that since change is disruptive, it should not be initiated without a clear intended purpose in mind. Therefore, change should only be initiated with determined objectives which need to be effectively made aware to all within the organization in order to gather support for the change plans implementation from everyone expected to be affected by the change. The next P looks at priorities and makes use of the components of the McKinsey 7-S model (see diagram in next page). This stage involves formulating the desired changes required amongst the 7-S and ensuring that the change actions are carried out at an appropriate sequence and time frame.
Source: Ford et al (2008)
The people element in the 5-p model expects to recruit and place the “right people for the right job” since it would be people who would both be implementing the change and are to be affected by it. When talking about processes, it refers to the style in which the change initiatives are introduced in the company. Using Dunphy and Stace (1993), there are three types of styles; autocratic, consultative and consensus approach. And finally, in terms of proof, the model suggests to carefully review and see whether objectives are being achieved and that the change is leading to desired results. Should that not be the case, there should be a review of the entire policy.
Successful change is fundamentally dependant on how smooth it is for an organization to adapt to the proposed changes. Research done by Harris and Ogbonna (2002) identified some common pitfalls of change programmes of which some examples are listed below:
- Hijacking; the process of copying a management technique out of context and relevancy to the organization culture
- Behavioural compliance; where the employees are not prepared to assist in the change
- Reinvention of processes backfiring as the organization environment is not suitable for the proposed changes
All the three points above could directly be attributable to the organizational culture which as Schein (1993) had described as the basic shared and accepted assumptions. I am now going to use real life examples from companies to illustrate how a mismatch between an organizational culture and radical new changes could result in conflicts and failures.
How culture impacts change: Case of Royal Edeling and Ford Europe
(The information on Royal Edeling is taken from Reimus, 2004 HBR paper)
Royal Edeling had been an outcome of an ambitious merger plan between British Royal Biscuits and German Edeling. The idea was to create an amicable blend between the organizations to create the world’s second-largest consumer foods business. The problem had arisen since both the individual companies had glaringly different organization cultures’ which were creating difficulties for them to co-adapt and move on with objectives.
Drawing from Hofstede’s research on German and British cultures, there are actually not significant differences amongst these nations as a whole (see graphs in the following page). The Power/Distance index, Masculinity index and Long-Term Orientation index are almost similar between Germans and British. However, considerable differences do lie between the Individualism and the Uncertainty/Avoidance Index. Specific to the UAI, the Germans demonstrate higher preference for uncertainty avoidance in contrast to the British and so the Germans are more likely to follow strict rules and practices to achieve objectives. This is clearly evidenced in Royal Edeling case where the Wallach, the German HR head emphasized on systematic and clear policies on selecting leaders for their company as opposed to Michael’s outline of ‘action learning’ in their British operations without emphasis on classroom learning. In the case of individualism, Hofstede’s results suggest that the British demonstrate higher levels of individualism as opposed to Germans and once again this could relate to the Royal Edeling case. Michael’s firm encouraged entrepreneurial spirit and creativity and managers were expected to
demonstrate talents on field while competing with others at an individual level to be considered for promotion. Wallach opposed this idea by rebuffing the idea of pitting the ‘best and brightest’ employees against each other without learning to gain consensus and harmony. These behavioural differences between Michael and Wallach are consistent with Hofstede’s results and as Hofstede suggested are instrumental in causing conflicts. We’ll now analyze the Royal Edeling case using Ford et al’s 5-P model of change.
Royal Edeling did have a clear purpose which was to consolidate the two European brands and gain significant benefits through combined operations. However, it had failed to effectively deliver this purpose to its employees as a much needed vision. As Kotter (1996) stated that an effective vision needs to be transmitted to employees in the organization to inspire efforts to support change. Yet, as the Oil and Wasser HBR paper mentions that employees at both Royal Biscuits and Edeling did not really welcome the merger and saw significant differences in culture causing the purpose of merger to be futile.
For the priority factor, while the CEO of the new Royal Edeling made it clear that he expects better initiatives and quality than either individual company had before, there is apparent disagreement and confusion on how to achieve it at least from the HR perspectives. Clearly, the German and British HR colleagues know that the priority is to achieve excellence, but differing cultural backgrounds caused no conclusions to be reached.
Essentially, from a people’s perspective, it is evidently clear that the clash in organizational culture between the two companies were present at all levels of hierarchy. The lower level staff had already voiced concerns about potential conflict which were published in news reports; but we see conflicts even between HR heads. The people element in the 5-p model expects to recruit and place the “right people for the right job” and that is ironically where the German and the British HR heads disagreed on the selection as well as appraisal and training techniques.
While we do not have information about the whole operations of Royal Edeling, from the HR case, it seems to hard understand the processes style since the two HR heads are left to consult each other and reach a consensus. However, no lower level subordinates are considered in the decision making. Needless to say, there appears to be no consensus between the two HR heads between themselves as they stubbornly refused to budge from their predetermined stance. There is no ‘proof’ yet of the merger working but the future looks bleak unless steps are quickly taken to ensure a success.
The conclusion about Royal Edeling through the 5-p model illustrates how differences in organizational culture were limiting success in each of the components of the model which are considered important for a successful change strategy. While Royal Edeling involved two companies from two different countries with significant different cultures, let’s analyze Ford Europe case to see if the same conclusions are consistent.
Ford Europe had been going through turbulent periods in the early 1990s. Falling market share, rising costs, stiff competition from competitors who offered better models and specifications, inefficient manufacturing procedures and failing management targets were core of the problems. Ford eventually realized that serious changes were needed. What the company required was almost a complete restructuring in Europe, a revitalized management team and the implementation of policies to enable the company to overcome problems mentioned earlier (Donnelly and Morris, 2003).
For Ford Europe, the purpose of change was clear. Radical steps were needed to avoid the company’s misfortunes and this was understood within the organization. The priorities were also listed down and that were to reduce costs, cut excess capacity, change relationships with suppliers, develop newer efficient car models and also expand into other automobile segments. The choices of people were also carefully made. To lead the change, Jacques Nasser was appointed in late 1998 as Ford CEO. Nasser changed his senior Europe management team and appointed Nick Scheele as the powerful new CEO of Europe (Sedgwick and Krebs, 2003). Overall Ford created a new strong management team poaching senior managers from competitors like BMW and Daewoo with sufficient experience and credibility to impress the markets and provide necessary leadership (Tully and Donnelly, 2001). However, in terms of processes, Ford’s CEO made a mistake by conflicting with the organizational culture of the past. Both Nasser and Scheele were known for being autocratic and this did not go very well with the subordinates who were used to being involved in decision making processes. Infact, Nasser was nicknamed Jac the Knife and his aim was to replace the corporate culture of decades past with an entrepreneurial style that placed a much more intense emphasis on the customer (Stevens, 2000). Scheele had followed his boss suit. Eventually, Nasser was ousted as CEO in 2001 after the company failed to revolve around its misfortunes. According to an article in NY Times (2009), Mr. Nasser had angered Ford employees with aggressive steps he argued were needed to change the company. So for the case of Ford, the proof was there that the change strategies clashed with the existing corporate culture and which eventually could be the significant factor which led to the desired results not being achieved even though the other components of purpose, priorities and people were arguably taken care of. Failing to initiate the change through an appropriate process is easily observable from the case of Ford Europe.
We have examined two cases of change being initiated but failing due to clashes with the companies’ existing organizational culture. This phenomenon is also widely present in academic literature in different industries; for e.g. Prasad and Prasad (2000) studied the failure of change strategies after takeover by new management of a hospital in US and concluded that the new owners failed to understand the existing corporate culture amongst staff of the hospital. Fronda and Moriceau (2008) studied the resistance by staff to change policies initiated by new management in a French telecom company and the major explanation given by staff were because it clashed with their years of existing practice. There are several other researches done on supermarket staff, public sector corporations and other industries and there are overwhelming conclusions that change strategies need to be aligned with the existing culture as closely as possible. Else, the effectiveness of change will be met my resistance and could take longer to settle.
On the other hand, the culture of an organization could be designed and established in a way which welcomes and accepts changes for improvement easily. This is widely present in Japanese management systems where the emphasis on continuous improvements ‘Kaizen’ is particularly highlighted and the employees are expected to contribute to it.
The report concludes that without culture being aligned with new practices, change is likely to be met with resistance and the same applies for our two companies analyzed here Royal Edeling and Ford Europe. The report suggests the director of Royal Edeling to carefully formulate a new change plan based on the 5-P model used here and make use of ample time instead of rushing up things. First, the purpose of the merger and expected changes details are to be effectively transmitted to all employees of Royal Edeling to earn their trust followed by prioritising the timings and sequences of change actions. People need to be carefully selected in order to support the change and a consensus-generating approach may be adapted to make everyone feel well. It has to be made clear to everyone that sacrifices need be made and old practices might have to be abandoned but the logic and rationality of such a move needs to be well explained and defended. As there are considerable cultural differences between the two companies, and the merger has already taken place, step-by-step small incremental changes should be introduced based on priorities highlighted in order for everyone to cope and adapt to changes easily. Introducing radical changes at a short time-frame is not at all recommended based on the resistance likely to be shown. Finally, the chairman needs to lead the way by taking everyone on board and being more supportive rather than just asking results on table.
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