Strategic change and managing change

A bank decides to replace its core banking system. The strategy is sound, the budget is approved and the supplier is chosen. Six months later the branch staff are still using the old system in secret and two senior managers have resigned. Most strategic change fails not because the idea is wrong but because the people affected were not brought with it.

This topic covers the kinds of change, what triggers it, why people resist, what makes an organisation good at change, the levers and skills of change management, Lewin’s force field analysis and his unfreeze, change and re-freeze model, the role of the change agent and the Gemini 4Rs model. The previous topic covered business plans and communicating strategy. The next area covers risk.

Neither the May 2014 nor the November 2014 Pathfinder sets a stand-alone question on this topic.

Key terms in plain English

Syllabus check

This topic is in syllabus area B (strategic management, 10% of the marks). It covers:

• the nature and causes of strategic change;
• resistance to change and how to manage it;
• models of change management.

CAMA 2020 and strategic change

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The nature of change

Change may be planned (proactive, to move to a new situation, often to seize an opportunity) or unplanned (reactive, in response to events, often a threat). It may be incremental (small, no major reorganisation) or transformational (large, needing a major reorganisation of structure, systems and procedures, with a big effect on people and a need for change management skills).

It may be a one-off move from the old state to the new, or a continuing process.

Triggers for change

External triggers (PESTEL)

• Political: a crisis or unrest in a major supply or export country.
• Economic: developments in other economies that change foreign sales or expansion plans.
• Social: changing attitudes, such as a food safety scare or views on retirement age.
• Technological: new technology.
• Ecological: shortage of fresh water or energy, or climate change, which forces a company to ask how it can survive sustainably.
• Legal: new health and safety, pollution and environmental laws.

Internal triggers

• A new chief executive with new ideas.
• An acquisition or merger, which needs integration.
• A demerger or divestment, which needs new organisation and systems.
• Reorganisation, downsizing or rationalisation, for example closing a loss-making division.

Consequences of change

Major change is hard to introduce without disruption, and many changes fail to give the planned benefits. Change management needs:

• identification of the strategic changes
• recognition that systems and structures must change to make them work
• recognition of the effect on employees, which is often overlooked and is probably the most common reason for failure
• careful planning and implementation
• making the change stick

Attitudes to change

Some people welcome change. More often they fear and resist it. The reasons are:

• Job-related: fear of redundancy, of skills no longer being needed or of worse working conditions.
• Personal: fear of being less important, a belief that the change criticises past work, fear of less interesting work or of learning new ways, and fear of the unknown.
• Social: the group will be broken up, there will be less contact with colleagues, dislike of the manager driving the change, or dislike of change made without consultation.

Change-adept organisations

Rosabeth Moss Kanter argued that some organisations handle change better. They have the imagination to innovate (leaders who look for new ideas), the professionalism to perform (managers competent at change, and a trained workforce) and the openness to collaborate (sharing ideas with suppliers and partners). Such organisations see change as natural and as an opportunity, and not only as a defence against threat.

Managing change: levers and skills

The process is to plan the change, implement it and maintain it so there is no going back. The levers of change are:

• a clear understanding of the need for change and the intended result;
• commitment from the leaders;
• two-way communication with everyone affected (listen as well as explain);
• managers with the qualities needed;
• structure and relationships adapted to the change;
• reward systems that match the new targets;
• revised CSFs and KPIs;
• education on the purpose and training for the new tasks.

Managers must sell the reasons for change, have the team’s trust and, where possible, let the team take part in planning it. Kanter’s skills for change managers are: tuning in to the environment (listening posts such as customer complaints), challenging accepted wisdom, communicating a compelling aspiration, building coalitions, learning to persevere, and making everyone a hero by giving credit.

Lewin’s models

Force field analysis

Lewin said change is the result of driving forces that support it and restraining forces that oppose it. These forces may be people and what they want, habits, attitudes, relationships, structures, vested interests, policies, resources, regulations and events. Each can be scored, for example from 1 to 5, and totalled. Change happens only when the driving forces are stronger. Raising the driving forces tends to raise the restraining forces as well.

The better approach is to reduce the restraining forces by identifying them, discussing the difficulties with those concerned and winning over key opponents.

Unfreeze, change, re-freeze

• Unfreeze: persuade people that change is needed by showing what is wrong now, and offer an attractive alternative. Discuss the problems and communicate the vision.
• Change (movement): make the change with enough support to beat the opposition, enough resources, and with the affected staff taking part.
• Re-freeze: prevent a slide back to old ways, for example by rewarding the new behaviour and results.

The change agent

Someone must drive the change. It is often an outside consultant, because the consultant seems independent and fair, has experience of the process and of many organisations, and large changes easily go wrong. The agent explains the reasons and gives reliable information (which limits rumour), involves those affected, keeps communicating and monitors progress, provides training and stresses the benefits to individuals.

The Gemini 4Rs

1. Re-frame: create the desire for change, set the vision and build a measurement system with targets.
2. Re-structure: examine the structure, build an economic model of how value is created and redesign processes.
3. Revitalise: commit to the future: new products and markets, new businesses, and new technology to change the rules of competition.
4. Renew: develop people, give them the skills they need and a reward system that motivates them to seek change.

The rules in more depth

Why people matter more than plans

A system or structure can be rebuilt in weeks. Habits and fears take longer, and unless they are handled the old ways return.

Why reducing restraining forces works better

Pushing harder produces more resistance. Removing the cause of resistance, such as fear of redundancy, lowers it without a fight.

Why re-freezing needs rewards

People do what is rewarded. If pay and promotion still follow the old behaviour, the old behaviour returns.

Why a consultant helps

Staff may trust an outsider’s neutral advice, and the outsider has seen the same problems elsewhere.

Effect on analysis

A strong answer names the type of change, identifies who will resist and why, and gives a plan with communication, training and reward.

Worked examples

1. (a) Planned and transformational.
2. (b) Unplanned (reactive).
3. (c) Incremental.

1. Driving total.
   5 + 4 + 3 = 12.
2. Restraining total.
   5 + 3 + 3 = 11.
3. The margin is thin. Do not add more pressure. Cut restraining forces: give job guarantees or retraining (5 down to 2), and train staff (3 down to 1).
4. New restraining total.
   2 + 1 + 3 = 6, well below 12.

1. Unfreeze: show the cost of errors and delays in the old system and describe the benefit of the new one.
2. Change: train staff, run a pilot with staff involved, and give the project enough resources.
3. Re-freeze: switch off the old system, and link rewards and targets to the new system.

1. Re-frame: set the vision and targets for regional sales.
2. Re-structure: redesign processes and the structure around regional hubs.
3. Revitalise: add products and markets and use new technology.
4. Renew: train staff and reward those who drive the change.

How to score full marks

• Classify the change and name the trigger.
• Name who will resist and give the type of resistance.
• Apply a model to the facts, and name it.
• Cover communication, training and reward.
• Give a plan in stages with timing.
• Add the financial effect and the risk of failure.

Common mistakes in the exam

• Describing a model without applying it.
• Ignoring the people and covering only systems.
• Raising the driving forces and not lowering the restraining ones.
• Forgetting to re-freeze the change.
• Treating all resistance as irrational.
• Leaving out a change agent or leader.

Quick revision

• Planned or unplanned. Incremental or transformational.
• Triggers: PESTEL outside; management, mergers, demergers, reorganisation inside.
• Resistance: job, personal, social.
• Lewin: force field; unfreeze, change, re-freeze.
• Kanter: imagine, perform, collaborate.
• 4Rs: re-frame, re-structure, revitalise, renew.
• CAMA 2020: ss. 305, 308, 385, 404(7).

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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