First Order Change In Organizational System

This study discusses the impact of change in the organization towards management and the challenges that the company have to face. This study used two main methodologies, namely: case study and interviews. A case study was used to study on the change of the organization which is based on first-order change. In addition, an interview was used to study the perception of the management towards decision making on changing. In order to achieve this objective, in-depth interviews were conducted with Assistant General Manager and the Marketing Executive of the Company. The change of organization can be seen through changing system in multi-level marketing to single-level marketing. The result from this study has been analyzed using observational method, structured interviews, and analysis of documents, in order to identify the impact from change system. It is expected that the findings of this study will give a clear understanding and awareness of the various challenges in managing effective management towards change system.

Keywords: First-order Change, Challenges In Changing

Introduction

This research project was conducted at Era Edar Marketing Sdn. Bhd. (EEMSB), a Bumiputera owned company that markets health products produced by a network company named as “Kumpulan Syarikat Doktor Azizan” (KUSDA) situated in Jitra, Kedah. EEMSB is also one of a company under KUSDA apart from other support companies such as Homeopathic Laboratories (M) Sdn. Bhd. (HOMEOLAB), also the producer of most of the products of EEMSB, KUSKAMEI the producer of spices, Printing Era PDA (PEPDA) producing printed materials, Centre for Homeopathic Medicine & Biochemistry PDA (PPHB) which is based on the homeopathic treatment clinic and biochemistry, College of Homeopathy Chamber of institutions in the field of alternative medicine and homeopathy and biochemical UNA Beauty House of Beauty & Care Centers Face.

Found by the late Prof Dr Azizan Bin Ismail, mainly focused to market health products developed by him which based on homeopathic medicine known as Biochemistry Schuessler, Herbalisme and Aromatherapy. Products marketed by EEMSB are based on the concept of “Halalan Toyyiba” which is a part of Islamic “halal” products and good for health. They have received many compliments because of its effectiveness is being proven successful.

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By using the image of Prof. Dr Azizan as a trade mark and immortalize him on the products logo, EEMSB is now widely known throughout Malaysia, Singapore and Brunei Darussalam. Even though the company was established in 2001 but actually the business had started since 30 years ago when the founder has marketed the products through his clinic which was operated in Jitra, Kedah.

Later in 1985, he had made a stepping stone to appoint one of the company’s based in Kuala Lumpur to be his distributor. This joint-venture business has carried out until 1989, when the late Prof. Dr Azizan had set up “Sistem Era Edar Sdn. Bhd.” known as SEE on the same year. At that time SEE was the company which deal the business located at Bandar Darul Aman which was known as Tanah Merah, Jitra. The business was conducted in conventional method and the distributor was appointed to distribute the products to certain areas or locations.

This direct selling business has started when SEE is formed only on July 18th in 1991. In 1998, during the economic crisis, the company had no profit and faced loss because of the situation, which lead to retrenchment of some of the workers. Nevertheless, with the remain workers, the business is still active whereby, Prof. Dr Azizan , has formed a company name as Era Edar Marketing Sdn. Bhd. (EEMSB) on the April 1st in 2001. EEMSB is placed as the headquarters for the Group Companies of Dr Azizan (KUSDA), now consists of 125 workers from the KUSDA and from the nine service centres in Malaysia by the concepts of multi level marketing.

Literature review

Change defined as an effort that consists of actual physical changes to operations and different emotional stimulation (Bernerth, 2004) is painful in the workplace, going from what is certain and known to the otherwise. So, organizational change is typically conceptualized as moving from the status quo to a new, desired, configuration to better match the environment. Change therefore can be seen as a departure from the norm or alternatively as normal and simply a natural response to environmental and internal conditions (Bernerth, 2004).

Change is about adaptation and resiliency while maintenance is about continuing activities, structure and function. However the change of the organization might be first-order change or second-order change and this paper attempts to reveal the change of organizational is based on first-order change. First-order incremental change may involve adjustment in system, processes or structures but it does not involve fundamental change in strategy, core values or corporate identity (Palmer, 2009). Comparing with second-order change that is more radically transform. For Era Edar Marketing Sdn. Bhd. the first-order change that they have being made is based on a few factors that we will be revealed.

3.0 Research Methodology

Data collection involved interviewing with General Assistant Manager, Dr. (H) Mazelan Bin Ismail and Marketing Executive by Dr. (H) Che Normawan Bt Idris. All these data collection techniques have used observational methods, structured interviews, and analysis of documents. A qualitative design and “Open Question” was used in the interview. The research question was: why company makes a decision to change their system and how they cope with the challenges that came from company itself, members and distributors.

Based on the questions, objective for the research was developed to create a clear understanding towards this research. It is related to three parts: perception from the organization change, impact from the organization change, implementation of organizational change.

Objective 1: why they choose the system (Single Level Marketing) and how the members perception from the change?

Objective 2: aimed to enquire to what extent the impact of the organization change and how the member and distributor accept the change?

Objective 3: what is the strategy they used to implement the organization change?

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During interview, we conducted semi structured and audio-taped interviews with an average duration of 60 minutes. Two different interview questionnaires were used – one interview questionnaire for General Assistant Manager that is more to the managerial question, the other one was for Executive marketing which is more to outside challenges. Topics covered in both interview questionnaires were the same with few different questions for each group of interviewees.

Open-ended questions were carefully worded to be as neutral as possible without creating awkward situation or offending interviewees. Interview questionnaires for both interviewees were pilot tested to check whether there is any ambiguity or confusion of questions.

4. 0 Research Findings

4.1 Multi level marketing concepts

Prior to this, when Era Edar Marketing Sdn. Bhd. (EEMSB) used multi level marketing as their operation system, it is more to the head hunting concepts which is finding the person or agent or down line people to expand the business. If there is no one join, the company cannot growth well because of the strength of the program lies in the number of new members who join in and not totally depends on the product itself. However, repeat purchase will occur if the featured products have a quality and useful towards customers.

The concepts of multi level marketing can be seen as:Read phonetically Dictionary – View detailed dictionaryRead phonetically Dictionary – View detailed dictionar

The Company will take or appoint an individual as a member of the company or being as distributor to distribute the goods.

Member or distributor concerned will appoint another individual (down line) to form their own network to sell a company products. Recruitment of new members or new distributors can be continued until its reach a certain level.

Each member or distributors will get commissions / bonuses / incentives from private sales and the sales or distributors in the network (over-riding bonus).

Figure 1: Multi Level Marketing

Member

1

COMPANY

Era Edar Marketing Sdn. Bhd

Supplier / Distributor

Member

2

Member

3

Member

1

Member

2

Member

3

Supplier / Distributor

Multi Level Marketing – In this strategy, the seller recruits other distributors or sales people, and also receives commissions and bonuses on the sales they make. Down liners are necessary to increase the sales force, and thus generate a huge number of sales.

4.2 Single-level marketing concepts

For the new system that EEMSB implementing now is known as single level marketing. Single Level Marketing (SLM) is a compensation plan for direct selling in which sales associates are paid only for their own personal sales activity. They do not recruit other sales representative and derive income from them as in a multi-level marketing (MLM) organization.

The concepts of single level marketing can be seen as:Read phonetically Dictionary – View detailed dictionaryRead phonetically Dictionary – View detailed dictionar

The company will appoint a sales representative or the sales agent and pay salaries or commissions or by the combination of salary and commission from the sale made.

Sales representatives / sales agents were not allowed to nominate or sponsor sales representative and agent of the other sales.

Figure 2: Single Level Marketing

COMPANY

Era Edar Marketing Sdn.Bhd

Supplier / Distributor

member

Retailer

Single level marketing- rewards the sellers for their personal sales activity. They do not sponsor any other member or distributorship or sales personal. Income from the business based on commission or bonus after sale of the products.

4.3 Change system and challenges

Various aspects needs to be taken into consideration in assuming that types of organizational changes can be neatly categorized as small, adaptive, and incremental compared to those that are large and transformational. Mental frameworks, individual perspectives, the extent to which a change is directly relevant to a person and his or her activities, and the degree to which he or she accepts the need for change will all influence how the change is viewed. Here we choose to view from the management and members of the company.

In view of the changes made by the company of Era Edar Marketing Sdn. Bhd., Multi Level Marketing (MLM) changed to Single Level Marketing (SLM), an aspect of similarity by both are subject to the same Direct Sales Act 1993 in which this Act is to make provision for the licensing of those who carry out direct selling business, the regulation of direct sales and for other matters connected therewith.

The concept of direct selling is where individuals were trained to understand their role not only on sales or sponsorship, but also it provides a unique channel to customers and consumers in accordance with the requirements at the time. Therefore, sellers are more alert and focused to meet the needs of users in the process of purchasing and selecting products.

Advantages to members or distributors in direct selling activities are that they can become leaders to themselves, manage their own time, getting paid or the income of their own efforts, close ties and expand the number of their contacts.

For the concept of MLM, the activities carried out require a lot of documentation. The three main purposes in this concept are to use, sell and sponsor. The management is only required to provide information and guidance to the major distributors to market the product. Distributors need to find and appoint down liners to market the product. This method not only promotes the growth of the company to grow in terms of membership but also users of the products.

In MLM system, the bonus is based on sales made due and payable each month. It is in the form of incentives on sales made by down liners. For this method, the dealer does not have to work hard to get rewards. In this case the product will not change.

Compared with SLM system, it involves three stages, using, selling and sponsoring. For SLM method, all levels, whether distributors or down liners should make one for the benefits and returns that can be redeemed immediately. Returns or benefits provided in the form of discounts or points. For this method, the distributor or down liners are equal. Business through the SLM method is simpler, easier, and does not involve down liners. It encourages more people to trade and indirectly over the companies and product output.ListenRead phoneticall 

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4.4 Management Implementation

In making this change, the management has set a strategy of gradual and prudent so as not to dramatically affect the distributor, down liners, workers and goods sold.

The management provides a period of one year to dealers to make changes in terms of incentives and the income derived from the proceeds of the sale. Typically, the bonus will be paid once a month but the new system, bonuses and incentives are given immediately.

The main purpose of the changes made was to make the business carried on is based on the characteristics of Islamic business and non-conventional. Revenue earned income is more beneficial and all parties share profits and earn rewards and benefits equally.

An important aspect of the researchers’ model is the concept of the “order” or magnitude of change. “First-order” change is change that is consistent with prevailing values and norms, meets with general agreement, and can be implemented using people’s existing knowledge and skills. A change becomes “second-order” when it is not obvious how it will make things better, it requires people to learn new approaches, or it conflicts with prevailing values and norms. Second-order changes require leaders to work far more deeply with staff and the business community. They can disrupt people’s sense of well-being and the co-operation and cohesion of the business community. They may confront and challenge expertise and competencies and throw people into states of “conscious incompetence”.

Different perceptions about the implications of change mean that a change that appears to be a solution to one person can appear to be a problem for another. To the degree that individuals and/or stakeholder groups in the company or company system hold conflicting values, seek different norms, have different knowledge, or operate with varying mental models of business strategy, a proposed change might represent a first-order change for some and a second-order change for others (Waters, Marzano, and McNulty, 2003).

Change and improvement of this sort takes conscious effort that is focused on clear outcomes, it takes the right set of conditions in the professional learning context, and it takes time. We cannot assume that because people appear to have learned, it follows that they will change their practice or that because they have changed their practice, it follows that every outcomes will improve.

The company faces challenges in which not all distributors who received the positive changes made. Some of them have ceased to be a distributor because the feel there is an injustice towards those who have been longer in the business. The new system requires them to work together with down liners and equally be rewarded, where else the distributor feels they are pioneer and deserve more attention and privileges.

In applying the SLM system, the management should augment its efforts to educate and provide information on all targets for this system is accepted and fully utilized. Objectives are to provide convenience to all parties. While, the use of the old system, the company need to only provide training and information to the distributor against the new system at all levels who are involved. Accordingly, companies should be more active and require more aggressive actions in order to provide training strategies and to be more detailed in explanations pertaining to systems and effective use of skills through wider media.

Educators at all levels of the system need to test the impact of changed practices on the diverse learners for whom they are responsible, using inquiry skills to judge when their practice possesses the desired outcomes and when it is not necessary and need to be changed. When such evidence-based practices are firmly embedded, they can generate their own momentum.

Each view of change described above reflects the fact that “changes in beliefs and understanding are the foundation of achieving lasting reform” (Fullan, 2007). However, “Understanding can follow action” (Spillane et al., 2002). Learning may be deeper when it follows attempts to try out new practices, and so both practices and beliefs need to be addressed through a continuous cycle of inquiry within and between educators’ communities of practice.

In our cognitive framework, the nature of the changes sought by policy makers is also important because some changes involve more complex cognitive transformations for implementing agents than others. Focusing on the balance between continuity, growth, and loss, Marris (1975) identifies three levels of social change.

The first level is incremental change, which requires little or no alteration of the extant purposes or expectations of the people undertaking the change. Such change can be incorporated into existing schemas and frameworks rather than undermining them. The second level requires changes in the growth of some of the changes worked, but still have goals and hopes to remain intact the changes sought by an innovation, the greater the extent to which existing schemes must be restructured to form coherent understandings of the new ideas. (Spillane et al., 2002). The third level of change represents loss for the implementing agent, in that it necessitates the discrediting of existing schemes and frameworks. This level of social change is the most difficult to achieve (Marris, 1975). For example, change the way of incentives and bonuses based on any particular sale or points earned during the period that is does not require changes in goals and expectations of the company itself.

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From the interviews conducted, we found that effective communication played a significant role in ensuring the system successfully operated. This, in turn impacted on the products volume and the number increased of the distributors. Communication is important among management and employees or distributors, and also in sustaining relationship among employees. Most of the interviewed employees concurred that listening skills, as part of effective communication, is one of the key competencies that the management ought to possess at all times. Before, during and after the implementation of change, management should listen to their employees and distributors opinions and understand their perspective and feelings on the imposed changes. This would further help management to introduce future organizational change.

5.0 suggestions

This research has revealed suggestions for management in the direct selling industry – recognized as volatile and vulnerable businesses to external environment – as to take what actions in order to smoothly implement organizational change. Emphasis on action orientated implications is to ensure that all issues and concerns are acted upon immediately without procrastination. When a decision to apply organizational change occurs in the direct selling industry, managers as being responsible for the success of organizational change should pay attention to their communication approach with employees or distributors, distributors’ attitude, perception of managers’ actions, distributors’ motivation and continuous improvement of the working environment. Consequently, the following actions are suggested:

Action 1: Realize the value of effective employees’ and distributors cooperation and collaboration, motivation in the workplace. Before implementing a change in the system, managers should understand that different individuals hold dissimilar opinions about change. Also, not all employees, distributors and member are outspoken and willing to be honest with their managers or up line that is management. Therefore, managers should have the initiative to interact with employees and keep them informed about any organizational change. By maintaining communication and listening to employees, and distributor managers can understand their unfulfilled needs and resistance to change. That’s where, in the unfreezing Lewin’s stage (Levasseur, 2001) the communication should be improved between managers, employees and distributors.

Action 2: During the implementation of organizational change, which is the moving Lewin’s stage (Levasseur, 2001), managers should be able to understand employees’ and distributors attitudes, but also they should keep in mind Conner’s (1998) stages of human cycle of negative response in related industry, such as stability, immobilization and denial. As leaders, managers should guide and direct employees along the organizational change process, be aware of importance of employees’ motivation to proceed with change, and be receptive to new ideas that come from employees. Listening and explaining to employees is a necessary process to convince them about the projected benefits that are expected from the introduced change.

Action 3: As soon as the change is implemented, which is the refreezing Lewin’s stage (Levasseur, 2001) managers should continue to communicate with employees about the change implemented. This will promote an open exchange of ideas and information among all parties. By being attentive, managers can discover to what extent change affects employees especially distributors and take corrective actions immediately to support them. For example, managers should be aware that although organizational change impacts that bring positive results into the related industry do not necessarily bring positive outcome to their distributors. Change of a working system especially in selling and marketing the product may increase employees’ income with extra workload creating fatigue and low spirits. To distributors this is such a challenge for them to work hard than the old days just sponsoring the down liners to get benefits.

We can conclude that, before the change occurs it seems important for managers to have thorough analysis of the implementation of organizational change to enable to determine at extent the change is beneficial to both management performance and employees. Since the direct selling industry requires a high labour input, management should pay attention to different kinds of impacts imposed on employees. They should, in particularly, keep in mind employees’ motivation create an environment that encourages employees to accept change and sustain the company’s product competitiveness.

6.0 Summary

Research has been done in Era Edar Marketing Sdn. Bhd., we identified that observational method, structured interview and analysis of document is used in research. We found the company is using first order change. Hence we recommend three action plans should be implemented in order to enhance the development of the Company. Methods are as employees’ motivation, accept change and sustain product competitiveness.

As a conclusion, this study was done successfully and had achieved its objectives to study on how SLM works in the company. We found that effective communication played a significant role in ensuring the system successfully operated. Communication is important among management and employees or distributors, and also in sustaining relationship among employees. Understanding the people involve and communication are part of effectiveness of the implementation the system.

7. Acknowledgements

We would like to thank Era Edar Marketing Sdn. Bhd. (EEMSB), for their support and permission in providing the research grant for us to study about the change in organization in order to complete our research and achieve the objective of this course.

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