Sunday, April 30, 2017
To bring change, reinforce trust amongst the employees
Below is a fictionalized case study that presents dilemma faced in real organizations. And written by me is the recommended solution to the problem. This has been published in Business Manager Magazine April 2017 edition.
Case Study- Change For better but how?
1991 ushered in a new era for Sea Side, the email order retailing agent. The company with a turnover of over a billion rupees was growing faster than ever before and was no longer the small, home-grown catalogue store. Located in south Kolkata, its 5,000 employees adhered to its culture and its management practices as well as the philosophy of its founder and chairman, Shantanu Das, “Take care of your people, take care of your customer, and the rest will take care of itself.” In 1991, Das decided that the company needed to apply modern management practices to keep up with its growing size and complexity.
The first step was the recruitment of a new executive vice president from competitor Mountain View, Subodh Marwah to lead the changes. Marwah quickly made numerous changes to modernize the management systems and processes including team-based management, training programs for trainees at all levels, a new multi-rater evaluation system in which managers were rated by peers and subordinates as well as their supervisors and the use of numerous consultants to provide advice. The company reworked on its mission to provide excellent products and services and to turn every customer into a friend. In addition, the company entered into a new international venture and a new business segment each year, resulting in solid businesses in the UK, Japan and Germany. Marwah was promoted as the chief executive officer in 1993. In the continuation of the modernization efforts, he hired seven new vice presidents, including Ankit Verma as the new vice president of human resources to oversee all the changes in the employee arena. In the first two years, the changes seemed to be working as the company added 100 million rupees to its revenues and posted record profits.
However, all was not as rosy as the profit picture seemed to show. In spite of the many programs aimed at employee welfare, training and team building, many employees complained of always having to meet production and sales targets. The new employee performance evaluation system resulted in numerical rating which seemed to depersonalize relationships. No matter how many pieces she monogrammed per day, one employee felt that her work was never appreciated. Other employees complained of too many meetings necessitated by the reorganization and the cross-functional teams. One team of catalogue artists, buyers, and copywriters needed numerous meetings each week to coordinate their activities. A quality assurance manager complained that his work week had increased from 40 to 55 hours and that the meetings were taking time away from his real job. Many employees complained that they did not need to go to training programs to learn how to take care of customers and communicate when they had been doing that all along.
The doubts grew until late 1994, when the board led by Das decided that the new management was moving the company too far too fast and moving far away from the basic philosophies that made the company successful. On 2 December 1994 Das and the Vice Chairman Nikhil Rao asked for Marwah’s resignation and fired Verma citing lack of confidence in the direction the company was heading under the present management and the need to return to the company’s basic philosophy.
Mr. Das then chose 34-year-old Vikash Sen as the Chief executive officer to steer the company. Sen and 11-year veteran of Sea Side (his entire working career), immediately started the about-face by dismantling most of the terms, reorganizing the others and returning to focus on what the company excelled at previously-top-quality classic clothes and excellent customer service. Three other executives left the company shortly after Sen’s appointment.
Shortly after his takeover, however, paper prices doubled, postal rates increased, and the demand for clothing dropped sharply and profits for the third-quarter dropped by 60% as the year ended, overall profits were down to 30.6 million rupees on barely Rs 1 billion in sales and Sen had to cancel a mail order to save money. Rather than cutting quality and laying off people, Sen spent even more on increasing quality and employees benefit, such as adoption assistance and mental health referrals. His philosophy was that customers still demand quality products and those employees who feel squeezed by the company will not provide good customer service. Early results were positive, with the company’s first-quarter producing profits three times as those produced the previous year.
Critics of Mr. Sen’s return to basic philosophy argue that the modernization attempts were necessary to position the company for global competition and faster reaction to competition in several of its catalogue lines. Its return to growth occurred primarily in acquisition and new special catalogue lines and not in the main catalogue for which it was so famous. Mr. Sen has put further acquisition and global expansion on hold as he concentrates on the core businesses. Employees say that they have fewer meetings and more time to do their work.
Case Analysis - To bring change, reinforce trust amongst the employees
Questions for discussions and solutions
1. How would you characterize the two sets of changes made at Sea? Which set of change is really modernization?
The first change process initiated by Executive VP Subodh Marwah should be perceived as modernization. He made numerous changes to modernize the management systems and processes through a slew of measures including reworking on company’s mission statement, new international ventures and markets. He even recruited a new team to give him new ideas and perspectives to support the growth plans. All of this showed in the results as the company added 100 million rupees to it’s revenues and posted record profits.
However it seems that the employees weren’t able to keep pace with the rapid growth rate of Sea Side. Obviously when the company is undergoing change and transformation and focus is on growth and results, performance measures and accountability will be in place. There will be targets to meet. It seems that the employees were not prepared for this rapid change management process that was happening and could not keep up pace with it. This resulted into them being unhappy with the current scenario at work and thus disengaged. They started complaining like increase in work hours, unproductive meetings, lack of appreciation at work, etc…
The board led by Shantanu Das saw that the company was moving away from it’s core philosophy of taking care of it’s employees and customers. So they asked Subodh Marwah to resign and fired VP – HR Verma citing lack of confidence in the direction the company was heading and need to return to company’s basic philosophy.
The Board hired a new chief executive Vikash Sen who immediately began dismantling and reorganizing most of what the previous team had done and focusing on past excellence history of the company i.e. quality classic clothes and excellence in customer service. However much to his and company’s dismay, things did not work out as planned as raw material and production costs increased and there was seen drop in profits. The company had to cancel a mail order to save money. Sen was seen even spending more on increasing quality and employee benefits even though business performance was dismal. Eventually Sen had to put further acquisition and global expansion on hold.
It seems that there was no planned strategy in place by Sen. He was just following the mandate given to him by the board of returning to the company's basic philosophy. It is fine that one should stick to it's core value or philosophy of what it is good at but this should be regularly revisited in tune with the changing internal & external business environment or context or issues. And based on review results, can then decide to continue doing as usual or fine tune or modify where necessary. One cannot keep on doing the same things repeatedly and expect to grow. There needs to be change however it should be in a planned and systemic manner and it should be given time. Don't expect immediate results. Change takes time.
2. How did the change processes differ?
The first change process initiated by Marwah failed to understand properly the needs and expectations of important stakeholder groups like the Board headed by Das and key employee concerns. If that were in place as a preventive action measure in terms of what is likely to go wrong if not addressed or fulfilled, then the resultant reactive measures that occurred later could have been nullified or reduced to some extent. Example – employee grievance like increase in number of working hours or meetings, unhappiness with the performance rating system, board unhappy with new functioning style or pace at which rapid transformation was taking place, etc....
Also it needs to be pondered as to whether the leaders understood as to what is expected of them as leaders of organizational change and making sure that their actions and words support the change management initiative.
The next round of change process set off by Sen was typical that of a new person in helm of affairs would do things his way or follow instructions of his boss just because the earlier person failed to live up to expectations and causes disarray in the organization. He went about dismantling, reorganizing things set in motion by his predecessors and bringing in his own viewpoints which he felt will bring in the desired results that the company wanted in first place itself. Sen should have instead used the opportunity given to him firstly to realise as to what exactly went wrong, there should have been learnings from past wrongs or mistakes and that should have been utilised as an opportunity to set things right the next time around. There should have been organizational learning in place especially after a disastrous first attempt that failed badly.
3. How do you think employees will view future attempts to implement change at Sea Side?
Employees will think that continuous change is not important. It will not be taken seriously. Employees will think that all this will keep on happening at top level. We just keep on continuing with our daily routine work as usual. This also implies that any major announcement by the top leadership at Sea Side will not be viewed in the usual serious manner as it should have perceived to be. Because employees cannot see continuity in what is being said and what is happening in reality or in actual practice.
An organization's success depends increasingly on an engaged workforce that benefits from meaningful work, clear organizational direction, and performance accountability and that has a safe, trusting and cooperative environment. By asking the CEO to resign and firing VP HR citing lack of confidence in direction in which the company was headed, employees down the line will begin to ponder as to what exactly is happening in the organization. Where is it headed? What is its future? Do they also have a safe and secure future career in the organization or should they also be looking at other opportunities. The rumblings at the top level will undoubtedly have a cascading effect down the line as is seen by three other executives also leaving shortly.
All in all the employees will not view seriously the change management attempts at Sea unless it is leadership top driven and there is stability and continuity in the initiatives. Also everyone's views must be taken into account and there must be involvement of all stakeholders concerned.