CHAPTER 2 LITERATURE REVIEW

2.1 CHANGE MANAGEMENT

DEFINITION
Change management is a systematic approach to dealing with change, both from the perspective of an organization and on the individual level. There are at least three different facets of Change management, which include: adapting to change, controlling change, and effecting change. For an organization, change management means defining and implementing procedures and technologies to deal with changes in the business environment and to profit from changing opportunities. (Tech Target n.d.) According to Fred Nicholas in his article the meaning of managing change refers to the making of changes in a planned and managed or systematic fashion. The intention is to implement new methods more effectively and systems in an ongoing organization. The organization has to control the changes, which lie within.

In another article Change management is thought to entail thoughtful planning and sensitive implementation, and consultation with, and involvement of, the people affected by the changes. Problems mainly arise if change is forced on people. The change to be made should be reasonable, attainable and quantifiable. These aspects are in particular pertinent to the management of personal change. (Alan Chapman 1995-2005) The organizations that do not acknowledge the changing environment and refuse to change consequently lack behind and lose their competitive edge and eventually go extinct. Organizational change management is from the perspective of top management officials and their role as leaders in carrying about a successful change process progressively.

TYPES OF CHANGES
According to the improvisation model proposed by Wanda J. and J. Debra Hofman, There are three types of changes which involve anticipated, emergent, and opportunity-based changes. Anticipated changes changes that are planned in advance and come about as anticipated -- and evolving changes -- changes that arise unexpectedly out of local innovation and which are not originally anticipated or intended.

Opportunity-based changes can be differentiated in a way that these changes that are not anticipated ahead of time but are introduced purposefully and intentionally during the change process in response to an unexpected opportunity, event, or breakdown. Both anticipated and opportunity-based changes involve deliberate action, in contrast to emergent changes, which arise spontaneously and usually explicitly out of people's practices with the technology over time. The process of change has been characterized by Fred Nichols in his article as having three basic stages: unfreezing, changing, and re-freezing. (Fred Nickols 1994) The beginning and ending point of the unfreeze-change-refreeze model is stability which, for some people and some organizations, is a luxury. For others, inner steadiness spells disaster.

PROS AND CONS

Change management if not effectively managed can have more negative implications than positive results. Some of its likely repercussions include a reduction in productivity as people become more consumed and involved with the change being introduced. They are conscious and insecure about being potentially the next victim of change. People become passive resistance fester, active resistance emerges and sabotages the change and the valued employees leave the organization, Employees become disinterested in the current state and the future state and begin arguing about change and the direction of the company. People are left wondering as to why the change is happening. As they find work-around to avoid

implementing the new way of doing things or they revert back to the old way of doing things. It occurs rarely that the changes are fully put into practice. Changes are fragmented and terminated due to the lack of support throughout the organization. And finally, many types of risk are created - risk to the project, to the organization, to the employees involved and to the individuals supporting or chartering the change. If change is managed effectively the employees have a solid understanding of why change is happening, they engage in both the solution and the change. Training is used for building knowledge of employees who have decided to support the change. Resistance is identified and dealt with early in the process and senior leaders demonstrate their own and the organization's commitment to the change. Communications are devised and tailored for different audiences, answering the questions that they care about. Momentum is built throughout different areas and levels within the organization where changes are less painful to the organization and to the employees. Momentum throughout the organization creates a coalition of support among senior leaders and managers. Probability of meeting project objectives is increased and the organization begins to build a history of successful change, creating a better 'backdrop' for the next change initiative. At the heart of change management lie the change problem, that is, some future state to be realized, some current state to be left behind, and some structured, organized process for getting from the one to the other. The change dilemma might be small or large and it might be large or small in level or extent, and it might even focus on individuals or groups, on one or more divisions or departments, the entire organization, or one or on more aspects of the organizations environment. According to this article, the great majority of change management programs new company missions, new products or business portfolios, restructurings, management realignments, growth and globalization programs, new technology applications fail.

The ones who fail adopt traditional communications practices that hurt the change process. The main reason behind this is; change is approached as a problem by them. Change is undoubtedly a challenge, but it isnt the problem. Commitment to change is. Many employees in the organization try to come up with new ideas of change, about how and where to implement it in a hope that the change would be accepted by the other employees with minimal resistance.

USAGE
The objective of any change management is to maximize the benefits, while minimizing the risk of failure during the change implementation. The change management strategies help leaders of organizations to achieve desired business goals, which may ultimately dictate a merger or acquisition, a downsizing, restructuring or similar systemic change in order to maintain the organization's viability. Change is a very necessary and should be constant in todays organization and presents both a challenge and an opportunity for employees alike. Often those in leadership arose when institute changes that are critical to the survival of the organization and yet those changes are sometimes met with resistance. Peoples response to change depends on the degree to which they understand the need for the change, are involved in the change process, and understand the implications the change has for their roles.

TOOLS AND STRATEGIES

People are to some extent reluctant to change due to the lack of comprehension of what would be in store for them in the time after the implementation of various change management strategies.

The primary concern in individual change management is the coaching required for helping individuals understand their role in the change process.

PREPARING FOR CHANGE

The construction of a foundation for managing change is very crucial. Theories that impact how people go through changes should be examined. Specific change characteristics along with the organizational aspects should be evaluated to gauge the impact of change management. The team composition should also be developed. Managing change: Development of the key change management plans: communication, training, and resistance management. For the implementation of change management activities, a project plan should be devised. Reinforcing change is the assessment of the effectiveness of change management actions. The hindrances must be identified and overcome. (Prosci 1996). According to Kurt Lewin the basic elements of a formula based organizational change strategy are 1. Determining the need to change 2. Development of a vision. 3. Consensus building 4. Identify barriers to implementation 5. Walk the talk 6. 7. Creating an overall change strategy Implementation and Evaluation

Mostly all change programs fail due to employee resistance. Keeping into perspective the meager success evidence of various interventions strategies, their validity has to be questioned as organizational change dynamics are related to it. Now if the intervention strategies are a suspect, it would also be logical to question the theory of organizational change which supports these interventions. Lewins model of organizational change consists of two basic concepts. The first is that an organizations natural state is static or unchanging. Such a condition has been described by

Lewin as frozen. The second concept is that an organization can be separated into two groups one that looks for s change and one that resists change. (JPC Training & Consulting LLC 2002)

2.2 ORGANIZATIONAL DEVELOPMENT

The nature and needs of organizations are changing dramatically and in correspondence, the profession of organization development (OD) has been changing as well. Hence, it may be most constructive to consider several definitions of organization development. Following is a standard definition.

The following definition was developed in 1969 at a time when an organization was believed to be much like an unwavering machine consisting of interconnecting parts. Organization Development is an effort planned, organization-wide, and managed from the top, to increase organization effectiveness and health through planned interventions in the organization's 'processes,' using behavioral-science knowledge. Beckhard, Organization development: Strategies and Models, Reading, MA: Addison-Wesley, 1969, p. 9.

The organizations today, function in a hastily changing environment. Accordingly, one of the most imperative assets for an organization is the aptitude to administer change and for people to remain vigorous and dependable. Reflect on the following definition of OD: Organization Development is the attempt to influence the members of an organization to expand their candidness with each other. The hypothesis behind OD is that when people pursue this objective, they are liable to discover new ways of working together that they experience as more effective for achieving their own and their shared (organizational) goals; and that when this does not happen, such activity helps them to understand why and to make meaningful choices about what to do in light of this understanding. Neilsen, Becoming an OD Practitioner, Englewood Cliffs, CA: Prentice-Hall, 1984, pp.2-3.

The key premise of organizational development is that organizations are social systems. The target is to boost the enduring health and performance of the organization, while enriching the lives of its

members. Organizational culture is emphasized upon in the approach of organizational development, which has an influence on the way people work. In order to increase motivation, remove obstacles, and make change easier; the technique of using planned change based on research should be adopted. Organizational culture is transformed by working with systems such as work procedures, rewards and systems. (Toolpack Consulting, LLC 2001)

The tools of Organizational Development are as follows: 1. Change management 2. Training (and learning) 3. Continuous improvement

Overview of organizational development itself (Toolpack Consulting, LLC 2001) Just as organizations change their products, services, or administrative systems to stay competitive, so too do they alter the size and basic configurations of their organizational charts- i.e. they restructure. Many organizations have restructured by completely eliminating parts of them that focus on no core sectors of their business, hiring outside firms to perform these functions instead that is, by outsourcing. Typically, this means reducing the number of employees needed to operate effectively the practice of downsizing the workforce.

The evidence is clear that downsizing has been occurring on a large-scale basis. Between 1980 and 1993, American companies laid off over 8 million employees the equivalent of laying off more than the total population of New York City. The rationale for downsizing is frequently that payrolls are bloated, and that by trimming them, companies can increase their earnings. Indeed, companies such as IBM, Boeing, and United Technologies, which laid off tens of thousands of employees during 1993 enjoyed 30 percent rises in their stock prices by the end of that same year. Not surprisingly, CEOs tend to explain their companies layoffs in positive terms. For example, the year it laid off 12,000 employees, Kodaks CEO said, We are making real progress in reducing our cost base.

It is, however, important to note that any gains resulting from layoffs tend to be short - lived. This is because laying off employees merely reduces costs without increasing revenues. Less than half

of the companies that lay off workers actually become more profitable. After all, people are needed to produce goods and provide services that can help generate revenue. Not surprisingly, companies tend to replace most of their laid-off workers within two years. Greenberg, Baron (1996:550-551)

According to the author, organizational development helps companies by:

Empowering leaders and individual employees. Creating a culture of incessant enhancement and alliance around shared goals Making change easier and faster. Putting the minds of all employees to work. Enhancing the quality and speed of decisions. Making conflict constructive instead of destructive. Giving leaders more control over results, by giving employees more control over how they do their jobs. (Toolpack Consulting, LLC 2001)

The outcomes of organizational development may include increases in:

Profits (cost reduction, for nonprofits) Innovation Customer satisfaction Product and service quality Cost effectiveness Organizational flexibility Personal feelings of effectiveness Job, work, and life satisfaction (Toolpack Consulting, LLC 2001)

(Richard 2000)

Byrd Company

2.3 DOWNSIZING
Downsizing is replaced by a number of terms such as re-organizing, retrenching, reduction-inforce, resizing, rightsizing, redesigning or restructuring. Each of these terms share at-least some common meaning but each also has its own unique connotation. The important thing is that we must be clear about the features of downsizing. Kim S. Cameron in her article states, Downsizing is the set of activities, undertaken on the part of management of an organization and designed to improve organizational efficiency, productivity, and/or competitiveness. It is a strategy that affects the size of the firms workforce, the costs and the work processes (Cameron, 1994). Similarly, Halley claims, Downsizing or workforce reduction is a strategy to streamline, tighten, and shrink the organizational structure with respect to the number of personnel the organization employs (Michigan State university Board of Trustees 1995). Therefore, the term downsizing is used both to refer to a narrow effort to reduce the workforce and also to broad efforts to improve work systems or redesign the total organization.

More than 85 percent of the Fortune 500 companies have downsized in early 90s and 100 percent are planning to do so in the upcoming years (Bennett, 1991: Buch, 1992). The need to explore the best way to downsize organizations is crucial because the success of organizations that have

downsized in the past has not been particularly laudable. According to a survey by Right Associates in 1990, an outplacement firm found that 74 percent of senior managers in downsized companies said that the morale, trust and productivity suffered after downsizing (Henkoff, 1990). Another survey by Wyatt Associates found out that of 1005 firms that downsized between 1986 and 1991 found that only 46 percent actually reduced expenses, only 32 percent actually increased profits, only 22 percent actually increased productivity and 17 percent reduced bureaucracy.

Downsizing has unfortunately become the strategy of choice for many corporations but it often has disastrous results on the company as well as the employees left behind. Kim S. Cameron produces interesting research findings of 30 organizations that engaged in downsizing out of which 25 organizations did not improve their performance and experienced more negative side effects than they expected over a four-year period of study. But on the other hand there were 5 organizations that were successful in conducting the process of downsizing (Cameron, 1994).

While conducting the research, three types of downsizing strategies were identified:

1. Workforce Reduction 2. Work Redesign 3. Systemic

The Workforce Reduction Strategy focuses more on reducing the number of employees in the workforce. The strategy consists of actions such as early retirements, transfers, outplacement, buyout packages, layoffs, attrition, firings and so on. The main advantage of this strategy apart from the immediate diminution, is to capture the attention of members of organization to the serious condition that exists and to motivate cost savings in day to day work but on the other hand the disadvantage of this strategy is that it becomes impossible to determine what relevant knowledge and what critical skills will be lost to the organizations when employees leave.

The primary aim of the Work Redesign Strategy is to reduce work in addition to or in place of reducing the number of employees. The strategy includes redesigning tasks, consolidating and merging units. The main advantage of this approach is that the downsized organization can achieve a greater degree of competence because of its simplified structure.

The third type of downsizing strategy is Systemic Strategy. This not only focuses on changing the size of the workforce or the work but also focuses on changing the organizations culture and attitudes and values of people. This strategy does not act as a program or target but is an on going process for a continuous improvement.

Downsizing is often confused with the concept of organizational decline. Thomas A. Hickok, in his article argues that, the most prominent effects of downsizing are in relation to cultural change, not in relation to saved costs or short term productivity gains and that it has become to closely associated with the process of organizational decline and its naturally negative effects (Hickok n.d.). But according to a research, all those firms that successfully carried out the process of downsizing implemented a greater variety of the three strategy types (i.e. workforce reduction, work redesign and systemic strategies) rather than just relying only on one strategy (Kim S. Cameron, 1994, p.200). Based on the research results, downsizing can act as a positive and purposive strategy if multiple downsizing approaches are adopted over a period of time through which not only the cost can be reduced or short term productivity gains can be achieved but even a change in organizations culture and attitudes of people can become prominent.

Downsizing Strategies
Workforce Reduction Work Redesign Systematic

Increasing Breadth (employing greater variety) Increasing Depth

(employing a greater number)

Layoffs Attrition Buyout Packages Early Retirements Job Banks Etc.

Eliminate Layers Combine units Remove Products

System Analysis Change culture Cut hidden costs

Rearrange Processes Hold everyone Redesign Tasks Etc. accountable Bottom-up design

Categorizing Organizations on Depth and Breadth of Downsizing Strategies

Cameron, in her research study investigated the predictors of improved performance during downsizing which included systematic analysis in advance of downsizing, gradual, incremental implementation of downsizing, increased communication and participation resulting in increased effort leading to improved performance. On the other hand, the factors associated with

deteriorating organizational performance included downsizing by attrition, no work reduction and no improvement in quality (Strategies for Successful Organizational Downsizing). The fouryear period research study gives evidence that organizations tend to be more effective where participation and involvement of employees is prevalent and where the firm has an advanced and

improving quality culture. While ineffectiveness is associated with stagnant quality and downsizing that rely mainly on workforce reduction strategy.

Among the best practices to carry out effective downsizing is to motivate the employees who survive the downsizing process (The New York Times company 2008). In order to truly benefit from downsizing the organizations need to invest even more energy in the people who remain after downsizing. The management needs to increase productivity, boost morale and minimize the damage to workplace trust. Similarly, in an article, Robert Bacal states, In the first few weeks after downsizing even those who still have jobs will feel a lot of difficult things. Grief, anger, sense of betrayal and depressions are common normal reactions. Listening is a key here. Therefore, in order to normalize the situation and to create a climate of stability, it is necessary to provide attention and support who stay in the organization. Firms that have lost staff need to have a sense that the future will bring positive things if they are to rebuild.

2.4 DOWNSIZING IN PAKISTAN

Shamim Ahmed Rizvi, in his article states, According to the government sources the restructuring exercise is aimed at introducing austerity and economy. The quest for economy in public expenditure and raising quality of governance starts with downsizing which needs a number of steps, like abolition, winding up, privatization, mergers, transfers and downsizing (Rizvi 2000) The whole process of downsizing can slash down non-productive public spending and improve governments performance by laying off the extra burden of unwanted staff. Side by side reducing the size of the organizations can result in better productivity.

2.5 VOLUNTARY SEPARATION SCHEME

Downsizing has taken place in a number of government organizations in Pakistan which include PTCL, PIA, CBR, HBL, National Bank, United Bank. A 50 percent layoff of the existing staff was recommended for financial restructuring of the two banks i.e. HBL and UBL by offering

them voluntary retirement schemes like Golden-hand-shake or newly coined term of Voluntary Separation Scheme (VSS). The emphasis was more on the reduction in the number of staff because huge administrative cost eroded the profitability of the public sector companies (Bashar 2001) The PTCL offered the VSS to its employees and received an overwhelming response. Almost half of the PTCLs total strength i.e. 34,000 employees, had applied to avail the scheme out of which the request of around 30,000 had been accepted.(30,000 PTCL workers set to bow out DAWN,2008). Similarly, in a press release, Sajid Gondal states that currently PTCL has 65000 employees all over Pakistan; out of which 35000 are present employees of the company while remaining 30,000 are hired on daily wages or contracts which will be cut by offering VSS. ([email protected] 2007) An article published in Peoples Daily draws attention towards a massive retrenchment in Pakistan International Airlines. According to an estimate, the airlines would save more than Rs. 750 million per year as a result of the downsizing of around 3500 to 4000 employees at all levels The companies are trying to reduce the number of surplus employees by offering Voluntary Separation Schemes/ Golden Handshake Schemes because the employees are to participate in it voluntarily while the normal retrenchment is often hostile. Thomas Chow claims, The consequence of a case where the industrial court has determined that the separation was indeed involuntary, the separation then becomes an unjust dismissal and the industrial court may award reinstatement of the workmen or order compensation in lieu of reinstatement. (mbam 2004)

In addition to it, Chow has pointed out the differences between Retrenchment and VSS, its pros and cons which are as follows:

Retrenchment
Focus on actual surplus employees Focus on right fit Potentially hostile Hard approach Managers find it tough to handle Contractual Compensation or in law Productivity can be disrupted Potential claims for unjust dismissals May end in reinstatements Potentially additional compensation Impact on corporate image Industrial actions by employees

VSS
Focus on reducing the right number May not attract the right fit to stay Amicable Soft approach May have difficulty to achieve number Needs an inducement or sweetener Less disruption to productivity Less claims on unjust dismissals Less exposure to reinstatements Less exposure to more compensation Corporate image is least impacted No cause for industrial actions

VSS or retrenchment is a very traumatic exercise and the problems can be very overwhelming if a company does not handle it properly. The exercise needs to be carried out smoothly with care, empathy and dignity. In oder to carry out effective VSS exercise the company has to analyse its organizations structure;extend assitance to redundant employees and most important of all focus on how to communicate effectively in order to ensure that everyone if fully informed of the purpose of downsizing. In order to handle it well, there are three principle phases to such an exercise:

THE PLANNING PHASE

The company has to plan it well for the well being of the company, the affected employees as well as the remaining employees after the exercise in order to reduce the negative impact.

THE IMPLEMENTATION PHASE

This phase can be traumatic for both the affected employees and the managers who have to communicate the bad news or not too good news. It is important that the implementation phase is properly strategised and that the effected employees are handled with proper care, dignity and empathy.

THE CONSOLIDATION PHASE

A close attention must be paid on the the consolidation phase for the remaining employees. This is necessary because employees are more inclined to have negative thoughts than the positive ones so the company must concentrate on how to instill cofidence and energize the remaining workforce to focus on business that will improve the productivity and ensures it survival. (Master Builders Association Malaysia 2004)