The Change Management Theory Business Essay

Our current era is experiencing massive global and environmental changes than ever before. Observing alone the technological developments, it becomes clear that the most powerful changes have happened over the past fifty years. Managements practice and theory is that today’s business environment is especially challenging for large companies because of the rapid pace at which technologies, business processes and markets are evolving.

External changes, such as globalization, workforce, economic shocks, competition, and world politics are some of the vast external environmental forces that trigger change upon organizations. These forces are uncontrolled and unforeseeable and therefore it is vital that an organization has the capabilities to adapt to whatever environment changes might happen. As opposed to external change forces, internal changes forces lie within the organization. Elements such as declining efficiency, the raise of employee expectations in tact with harsh demands of the work environment are all internal forces that trigger a need for organizational change. Some theories[1] suggest that by planning carefully you can manage internal change easily by identifying the need for change, while others argue that change is not something that happens in isolated insidences, thus not something you can plan[2]or control.

The changing business environment affects the organization’s ability for survival, as their survival tactics are being challenged. Organizations constantly have to reeducate themselves keeping every level or department in the organization equally re-informed. Consequently, more and more organizations direct their attention towards the potential benefits of a corporate merger and acquisition (M&A). M&As are often pursued in order to acquire a larger share of an existing market, enter new markets, eliminate competitors, acquire expertise or assets, transfer skills, save costs, increase efficiencies or capitalise on synergies.

Unfortunately, most organizational change efforts are poorly conceived and implemented, a fact that causes most change efforts in organizations to fail[3]. Through the last century, companies paid more attention to strategy, economics and finance. However, today many researches[4] argue that a major cause of the high rate of change failures is the fact that managers do not realize that if they do not change their culture to support the changes they are making in strategy, structure, and technology. If not, the desired changes will fail and shift back into a fit with the original culture[5].

Furthermore, M&A can change the cultural aspect of an organization due to new working environment. In this view, Hitt et al. (2001) argue that acquisitions or mergers can create unfriendly working atmosphere sometimes due to significant differences between two cultures of the merging firms, which can make working process difficult. However, thisprocess can be quit challanging as Schein[6] ague cultural assessment is usually not possible because the negotiations leading up to the merger/aqcusition have to be kept secret. Thus, the merging parties do not discover important differences until they face them

M&A is a strategic choice various companies encompases to enter rnew market opportunities and possiblity to increase revenue beyond geographical boundaries. However, new opprtunities have also broad new challanges to the organizations. When a company changes, either by changing its location or grothws this effects its internal and external environment. Researchers agree the critical importance of managing the human perspectives of the process in order to accomplish the M&A goals and to achieve the needed integration. That is why this paper has chosen to focus on the cultural and people aspect of change mangement process within M&A

Change Management theory

Change management literature is differentiated between two dominant perspectives with regard to implementing successful change in organization. One meaning refers to the systematic and planned view and the other the chaotic emergent view of organizational change.Carl Weick prominent scholer within change management breaks with the traditional wiev of organizational change and argues that orgnazationas should implement a process of chnage management. That is continous emergent change, when contrasted to the planned view, can be defined as “the realization ofa new pattern of organizing in the absence of explicit a priori intentions”[7]

in this view changing is a continuous activity at local levels where people interact and make sense of their own social reality[8]. Continuous changing is a collaborative approach to change management where employees at the operational level as well as mangers are involved in decesion making processes. It brings a holistic view to the organization focuses on interweaving activities, interrelations, and sensemaking.

Change is viwe as a continuous activity internally within the organization where people interact and make sense of their own social reality (Weick, 2000, 2001). People make sense oftheir social reality by sensemaking activities, narratives, practices, and multiple realities may be voiced and contribute to small small-scale changes. These small small-scale changes can be decisive if they occur at the edge of chaos or in a context of rebalancing and unfreezing. Small changes can have large consequences because of self-reinforcing feedback loops and relations in a social network. In interconnected systems small changes emerges through the diversity and interconnectedness of many micro-conversations (Ford & Ford, 1995). Micro-level changes provide a platform and a context for transformational change on a macro-level.

as in Kotter´s eight phases or stages a company must successfully complete in order to obtain lasting change (1995) [9]and Lewin´s Freeze change model(1943)[10]. Thus, the aim is to implement new methods and systems. This also implies that these changes lie within the organization’s control although change-triggering events might have come from outside the organization.

According to Kotter successful change management is achieved when management carefully plans the change initiative. His theory is based upon the 8 step model which has a very systematic view upon organizations and its environment. The 8 step model is build upon eight actions: create a sense of urgency, recruit powerful change leaders, build a vision and effectively communicate it, remove obstacles, create quick wins, and build on your momentum. If you do these things, you can help make the change part of your organizational culture[11]. Follwing the perspective of Lewin, the change process must contain three central steps; un-freezing, change and freezing[12] . Within un-freezing, inner resistance to change delimits the ability of the individual to move from the present to the desired state. Move seek to take into account all the forces at work and identify and evalutae, on a trial and error bassis, all the available options[13] .

The refreezing step establishes ways to make the new level of behavior “relatively secure against change” (Lewin, 1947, p. 344). This step could include installing a new reward system to reinforce the new, desired behavior or restructuring certain aspects of the organization.

An additional meaning refers to the complexity view s as in Ralp Stacy (2003)[14] of organizational change management. His theory is build upon the view of James Gleick. Gleick´s theory is based on Chaos theory and complexity theory. Later on, Stacey further developed this theory and applied it to human action, as chaos theory originally intended for mathematical deterministic behavior. Chaos theory´s key message is that our intentional interacting with each other produces intrinsically unpredictable outcomes in the long term, then our planning efforts cannot lead to outcomes we intended; something else will happen[15]. However, Stacey does not imply that then everything is utter chaos. As he states predictably unpredictable, thus a system producing patterns that are recognizable and paradoxical.

Complex Responsive Processes (CPR) can give insight for top management on how to become more emergent and respond without knowing long term consequences. However, from a bottom line result, business profit maximizing perspective, this might be hard for managers to switch to instantly. It might cost millions. The strategic problem lays within top management being blind to internal need for change. The existing external commercial strategy is distant even unknown to the employees and there is no existing internal strategy statement. This causes the employees to think of their job as one project at a time, missing focus on the development of the company as a whole. This could lead to employees working without a target or a vision together with the company. CPR approach acknowledges the fact that employees are not machines and if the original strategy doesn’t produce what it intended. Thus, introducing a case an acquisition between IBM and DMdata in 2004 where IBM management got surprised by the outcome of employee dissatisfaction and its complexities.

This paper adresses IBM’s acquisition of DM Data as the key reference in this synopsis. The case study, is used in relation to the acquisition are build upon the experiences the author of this paper had working as a trainee in DMdata both before and after the acquisition. This particular acqusition opened the authors eyes towards the challanges organizations face when implementing new initiatives follwing a merger or acqusition. Why the author find it oparticularly releveant for this course.

Introduction of Case study

First, I will make a brief introduction of the two companies to get a better understanding of the organizations and why these may have led to some challenges for both companies. Secondlymost relevant reasons that lead

interesting to observe the case from the corporate culture point of view, which means concerning

the essence of core businesses, these are essentially different enforcing different values and

priorities concerning job and goals, reflecting with these important inputs potentially conflictive in

the integration process. The conditions mentioned present it as a very appropriate and meaningful

selection to develop a case study research.

IBM was founded in 1742 and was established in the USA. It is one of the world’s leading companies in IT. historical heritage is very important for the company, in term of know-how but also, in term of marketing IBM has approximately 340.000 employees worldwide and is represented in more than 160 countries[16]. Given IBM’s size and origin it brings certain values and norms to the business which is grounded in its culture and identity.

On the contrary DM data was one of the biggest software companies in Scandinavia. It was established by two Danish companies; Danske Bank and Maersk Data. The company encompassed 800 employees located in Aarhus and Copenhagen. Even though the company only existed for seven years it managed to create outstanding profits per year.[17] The acquisition between IBM and DM data took place in 2004. After the acquisition, 13% of the employees resigned from their job per year.

Many employees mentioned the matrix structure and the American way of doing things as the reason for resigning. [18] The differences of the organizational culture and the way we do thing in each company were fundamentally different. When you attempt to change the core of a company’s values and norms it’s bound to create many challenges[19].

Both companies, are facing changes in their organizational structures through a M&A. That is,the processes, politics, values and frame of references. Each participant of this processes either the acquiring IBM or the acquired DMdata; have to face different process and challenges. Clearly, both companies get affected part of their identity and way of doing things. However due to limited access to the IBM employees this paper focuses on the view of Dmdata employees.

Analysis of IBM change management initiative

IBM managements intended strategy was to incorporate Dmdata as a datterselskab to the main organization of IBM, althoughthey succesed to acquire Dmdata the acqusition broth various unintended changes with it. As mentioned earlier critically positioned employees left the organization and a hostile and confusing environment arised. The unsuccesfull change management of the new initiatives within Dmdata, resulted in inefficient resource utilization, poor products and services[20], and frusttration amon employees and management.

IBM management approach to the acqusition can be characterized as a controlling. That is,

Some of the DMdata employee’s reactions came from poor communications such as : “IBM CEO Lars Mikkelgaard used the word fusion when he visited us for the first time, when it was in fact a takeover”[21]. Other reactions were frustration about changing from national to an international company, from hierarchical to matrix structure and from small to big company.

He emphasizes the success they had in DM data on several occasions by saying:” Those who sit down and think about it, then DM-data was a success story. Built from 53 men to something IBM would buy for x billions later”[22]. He feels overlooked by IBM’s management style and does not consider it as suitable for Danish culture: “In Denmark, IBM is derived by this American team spirit. The DM-data culture is influenced by the culture of Maersk and Danske Bank, which is very Danish[23]. And I have also been lecturing about quality in life etc. But when you are bought up, you come into an identity crisis”.

Furthermore, Dmdata employees lacked an incentive to adapt to the changes as they felt they new best as one employee states He stereotypes the Americans “There are several States in the US where American Indians are not allowed to walk together more than four at a time. If they do, then you are allowed to shoot them”.[24]

And he goes on elaborating his indignation of doing things the America way are not allowed to have loaded weapon, so we can laugh a bit of it”[25] here he shows that he does not take IBM seriously. The HR Manager talks a lot about how successful the company was, but ridicules of IBM to almost having gone bankrupt. “IBM has also been close to going under in 1993. There it was close enough to not exist anymore. And here it is clear that one as a giant company with the ambitions one had, establishes control preparations. These are then some of the procedure which we have to comply to[26].”

Follwing Lewin effective change could not tkae place unless there was a “felt need ” be all those concerned[27]. Also in this view, Kotter agues for establishing a sense of urgency. That is people need a good reasontodothingsdifferently, faling this might have created the anxiety and unsecurity Dmdata employees felt. The second step of Kotter’s 8step model might have easen, having an aly . Short term wins

Nadler and Tushman 1995 suggest that there are mainly two types of change that organisations are faced with, namely first- order and second- order changes[28]. . First -Order changes are characterized by small adjustments in system, processes or structures, whereas Second order changes are characterized by transformational which affects the core identity and values of an organization. Nadler and Tushman refer to transformational change as discontinuous change. They further dissects the changes as follows: incremental (tuning and adaptation). Tuning as being anticipatory and adaptation as being reactive. Discontinuous (re-orientation and recreation) change. Re-orientation as being anticipatory and recreation as being reactive.

Acquisitions such as IBM/ DMdata are generally regarded as a second- order change. Although IBM and DMdata are in the same industry the size of the two companies together with the cultural heritance of the two are dissimilar. There are national cultural differences, structural differences together with strategic differences which may caused frustration among the employees at DMdata. Furthermore, it is important to into consideration when characterizing whethera change is transfomational or transactional this can be viwed from two sides in mergers and aqcusiotions.remember althought the acqusition can be carachterized as frame bending for DMdata

Following Palmer, Dunford and Akin[29] any organizational change usually involves paying attention to organizational culture. That it for IBM management to provide a new vision for the DMdata employees and not simply imposing their own without any involvement from the DMdata employees.

The diagnostical tools can be helpful for an organisation to know which changes it is dealing with so that it can inform its strategy selection and organisational configuration to better respond to such changes. It seems like IBM management underestimated some of the challenges it was presented to when they acquired DMdata. The strategic problem lays within top management being blind to internal need for change and adoption within DMdata. Adapting the right diagnostical tools could have helped the management to take the right action in the right context. The lack of information could have been prevented by management taking a nurturer approach. Instead of the top down directors approach.

Discussion

Change and how people react to it are important features of organisational life. Its vital to remember in times of change, especially transformational change such as mergers and acqusitions, employees are not machines. The way we perceive change and its consecuenses can be different and paradox. As discussed earlier, it can be helpful for management to characterize the scale and scope of the change to better comprehend the impact of a change. However, its important to keep in mind that you will always be confronted with unintended change outcomes. The main problem areas within change implementation in mergers and aquisitions lie within differences in culture, not having a clear communication, and not assigning anyone asresponsible for the change initiatives. The external, managerial and operational level never worked together as one in the IBM/DMdata case study. When merging or acquiring two companies it is critical to consider their corporate culture. The success of a merger/aqusition depends as much on culture fit as it does on strategic and financial.Various failed deals can be attributed to corporate culture differences never being considered, or cultural clashes never being addressed. Furthermore, if the people side of M&As are ignored, as in the case study, both companies face not meeting the anticipated purpose of the transaction.

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[1] Kotter, Lewin

[2] Choas theries; Ralp stacey, Car Weick

[3] Strategic change management class notes, lecture one

[4] Gerry Johnson , the cultural web, Mary Jo Hatch & Majen Shultz, identity, Edgar Schein

[5] Palmer, Ian, Richard Dunford, and Gib Akin. (2009) Managing Organizational Change p. 163

[6] Schein, E.H. 1990. Organizational Culture and Leadership. San Francisco: Jossey-Bass p.178

[7] Orlowski 1996, p 65 accesed in Weick 2000 p 227

[8] Weick, 2000 p. 225

[9] Kotter 1995, Leading Change: “Why Transformation Efforts Fail”

[10] Palmer, Ian, Richard Dunford, and Gib Akin. (2009) Managing Organizational Change p. 195

[11]

[12] Palmer, Ian, Richard Dunford, and Gib Akin. (2009) Managing Organizational Change p. 195

[13] Lewin 1947a accesed through study notes from lecture 2

[14] Stacey, Ralph. (2003) “Organizations as Complex Responsive Processes of Relating.” Journal of

Innovative Management

[15] Stacey, Ralph. (2003) “Organizations as Complex Responsive Processes of Relating.” Journal of

Innovative Management p28

[16] IBM Database

[17] DM Data Handbook p 16

[18] www.computerworld.com http://www.computerworld.dk/art/40353?cid=4&q=dm+data&sm=search&a=cid&i=4&o=5&pos=6

[19] Strategic change management class notes

[20] As a reslut of many employees leaving many projects didnt get finished with led to many dissatisfied clientsandcostumers.

[21] Malike Karatepe

[22] Comment 1, Appendix 1

[23] Comment 2, Appendix 1

[24] Comment 6, Appendix 1

[25] Comment 7, Appendix 1

[26] Comment 8, Appendix 1

[27] Class notes lektion 2 by Rex Degnegaard

[28] Palmer,Dunford and akin p 87

[29] Palmer, Dunford and Akin p. 9