7 Key Numbers To Drive Profit

Do you ever look at the reports from your accounting software and get over-faced by all the numbers? Do you not bother printing out the reports at all because you aren’t sure which numbers to look at, and you don’t have the time anyway? You would not be alone if you answered yes to either of these questions.

A typical set of financial reports i.e. Profit and Loss Statement and Balance Sheet contains a lot of numbers and it can be a daunting task to make sense of it all and know which numbers are the important ones. Of course they are all important but some are absolutely critical to financial success in business.

Most of the ‘Seven Key Numbers’ are not contained in a typical set of financials, which is a frightening thought, considering they are absolutely vital to profit and cash-flow. This is because these numbers are ‘Financial Drivers’ rather than ‘Results’. The typical financials provided to most business owners are for tax purposes rather than management use.

The Seven Key Numbers To Drive Profit are

• Revenue Growth %
• Price Change %
• COGS% (Cost of Goods Sold)
• Operating Expenses %
• Days Receivable
• Days Payable
• Days Inventory/Work in Progress

Let me explain why these seven numbers are so critical.

Revenue Growth % - Business owners focus a lot of attention on Revenue and making sales and this is obviously critical. What is even more critical though, is what those sales cost you to make, and also cost you to fund. As soon as you sell something, and often well beforehand, there are costs involved e.g. goods for sale, freight, labour, overheads etc. It’s critical to know these costs, because if they exceed your revenue then you are making a loss and heading for cash-flow problems. The reason Revenue Growth % is important is because business growth is often the killer of small businesses. How is this so? Because so many numbers besides Revenue are important to profitability, if the other numbers aren’t being managed right, revenue growth will just exacerbate cash-flow issues. If it’s not a good situation it won’t get better, but it will get much worse. Revenue Growth is cause for celebration but it’s also cause for attention to other ‘Key Drivers’.

Price Change % - means the percentage increase or decrease at which you sell your products or services. In a highly competitive marketplace it’s tempting to sell for the cheapest price possible. This is fine, but if you’re not covering costs with the price you are charging, then you are not going to make a profit. You may be discounting some products or services in order to gain business for other more profitable ones, and that’s fine. A trap many businesses fall into, is failing to increase prices regularly by small amounts e.g. by the Consumer Price Index (CPI). Failing to do this can causemargin squeeze. This means, your gross profit suffers, due to reduced revenue, compared to the costs of delivering the goods or services. Customers can get a shock if you’ve never increased prices and suddenly make a large increase,whereas regular small increases are much easier to achieve.

Many business owners fear losing customers by putting up prices. The reality is that you may not lose as many as you think. If you do lose a small number of extremely cost conscious customers, it may not be such a bad thing. Modeling can show that increased price and reduced overall revenue could, in some circumstances, actually have a positive impact on your bottom line. You could increase prices selectively to less valuable and new customers, and offer existing prices to your better customers.

COGS% – ‘Cost of Goods Sold’ means the costs incurred to get the product or service to the customer, before taking into account Overheads. This is often referred to as ‘Direct Costs’ or ‘Variable Costs’. This is a really important number as it has a huge impact on your Gross Profit and an even bigger one on your Net Profit. Many business owners focus a lot of attention on Revenue and this is important but a small reduction in COGS% can have as much impact on Gross Profit as a large increase in Revenue. Often a little attention to what makes up COGS, and some negotiation or investigation with suppliers for better prices, can pay huge dividends on your Gross Profit. If you are a service based business, attention to work practices and job management can have the same effect on your Gross Profit. E.g. knowing how many labour hours you are selling compared to those you are paying for, provides opportunity to investigate differences and tighten up processes.

Overheads% - Many business owners focus attention on the Overheads in the Profit and Loss Statement without comparing them relatively, (by percentage) to the Revenue. It’s important to compare them by percentage as this has an impact on the profit. If you just look at the Overheads dollar figure you could be making more Revenue without increasing your Net Profit. It’s much easier to focus on one number being the Overheads% rather than getting too bogged down in all of the numbers listed. If you don’t have a budget it can be very difficult to know if overheads are reasonable anyway. Very few businesses have a budget, which makes it difficult to know how they are going during the year. If you are trying to reach a goal in business then you need a budget. Not having a budget in business is like trying to find a new destination without a roadmap.

Days Receivable – is the number of days, on average, your customers are taking to pay invoices. Managing this number can have a huge impact on cash-flow. If for example your Accounts Receivable Days is currently seventy and you can get it down to say fifty, you could be putting tens of thousands of dollars back into your bank account. The way to improve this number is to focus attention on your Accounts Receivable and Debt Collection procedures. It’s fine to look at the report out of your accounting system which lists all the customers and how much they owe you. If your business is growing rapidly you need to know how much, Accounts Receivable Days are changing compared to Revenue growth. This is because if it’s not comparable you will experience cash-flow squeeze and could run out of working capital.

Days Payable – is the number of days, on average, you are taking to pay your suppliers. This number is just as important as Accounts Receivable Days in that it can have a big impact on your working capital situation. It is so easy in business to oil the squeaky wheel and pay suppliers who hassle you for money (sometimes before it’s due). It’s also easy to ignore potential better terms to be had from suppliers because you get so focused on Revenue. Some small changes to procedures relating to Accounts Payables can pay big dividends in your bank account. If your business is growing this could be critical cash for funding growth. I’m not suggesting stringing out suppliers beyond the agreed terms, but negotiating better ‘agreed’ terms for your business.

Days Inventory – is the number of days, on average, that goods for sale are sitting in your store-room, from when they are delivered by suppliers, to when they are shipped out to customers. These goods often have to be paid for before they have been sold. This means you have had to spend valuable working capital to have the stock sitting there waiting to be sold. If you can manage this situation better, and reduce the number of Inventory Days, this can have a big impact on your bank account and working capital situation. It’s very tempting when a salesperson calls and offers you a discount to buy more stock. It’s useful to consider the amount of working capital that will be tied up in that stock, compared to the discount being offered. If you are borrowing funds it’s also important to consider the amount of interest payable on those funds tied up in slow moving stock. If you are in a service based business Work in Progress (WIP) Days is very similar to Inventory Days, in that your ‘stock in trade’, is the labour and materials you have to sell. Slow WIP days can be just as dangerous to cash-flow and working capital as Inventory Days. Anything you can do to tighten up processes and speed up the time work is ready to be invoiced, will pay dividends in your bank account and reduce your interest expense.

One more thought about the Seven Key Numbers….. Of the seven numbers, four are calculated from the Profit and Loss Statement and three from the Balance Sheet. How many business owners look very closely at the Balance Sheet? Scary thought!

http://www.smallbusinesshq.com.au/factsheet/12005-7-Key-Numbers-To-Drive-Profit.htm

Change Management - Understanding the Science of Change

Kevin Sparks has been trying to get his staff to change the way it monitors and supports the data center for the past year.

But he hasn’t been getting anywhere.

Not that he’s getting resistance. At least not overtly. His staffers at Blue Cross and Blue Shield of Kansas City agree that installing automated monitoring software, along with a centralized control room and a set of standard processes for responding to problems, would be more efficient than the way they deal with things now—mostly through ad hoc heroism.

"Logic always prevails and everyone will agree—at the intellectual level—that we need to change things," says Sparks, who is vice president and CIO. But then he finds himself surrounded by empty chairs at meetings while the people who should be sitting there are off fighting the latest fire.

"I tell them I need them at the meetings and if we changed things they’d have the time to be there. But things always break down when we talk about taking monitoring out of their hands [through automation]," Sparks says.

To help his staff accept the new processes, Sparks says he’s taken layoffs off the table, even though the proposed automation and process efficiencies could reduce the need for bodies. The change is part of a larger effort to implement the IT Infrastructure Library (ITIL) process framework to improve overall productivity (for more on ITIL, see "ITIL Power," www.cio.com/090105). "I don’t want fewer people; I want the ones I have to do more things," he says, sighing with frustration.

In other words, Sparks’s staff doesn’t seem to have any logical reason for resisting the changes. But before you dismiss them as a bunch of inflexible, fearful losers, know this:
They are you and you are they.

A Universal Truth

Maybe your resistance to change manifests itself in a different way or in a different setting—a refusal to throw away that old slide rule, for example, or to look while the nurse draws your blood, or to dance at weddings. We all refuse to change our ways for reasons that are often hard to articulate.

Until, that is, you begin looking at it from a scientific perspective. In the past few years, improvements in brain analysis technology have allowed researchers to track the energy of a thought coursing through the brain in much the same way that they can track blood flowing through the circulatory system. Watching different areas of the brain light up in response to specific thoughts has brought a new understanding to the corporeal mechanics of psychology in general and to our response to change in particular.

These advances are bringing a much-needed hard foundation of science to a leadership challenge that to CIOs has long seemed hopelessly soft and poorly defined: change management. Pictures don’t (usually) lie, and the pictures of the brain show that our responses to change are predictable and universal. From a neurological perspective, we all respond to change in the same way: We try to avoid it. But understanding the brain’s chemistry and mechanics has led to insights that can help CIOs ameliorate the pain of change and improve people’s abilities to adapt to new ways of doing things.

Why Change Is Painful

Change hurts. Not the boo-hoo, woe-is-me kind of hurt that executives tend to dismiss as an affliction of the weak and sentimental, but actual physical and psychological discomfort. And the brain pictures prove it.

Change lights up an area of the brain, the prefrontal cortex, which is like RAM memory in a PC. The prefrontal cortex is fast and agile, able to hold multiple threads of logic at once to enable quick calculations. But like RAM, the prefrontal cortex’s capacity is finite—it can deal comfortably with only a handful of concepts before bumping up against limits. That bump generates a palpable sense of discomfort and produces fatigue and even anger. That’s because the prefrontal cortex is tightly linked to the primitive emotional center of the brain, the amygdala, which controls our fight-or-flight response.

The prefrontal cortex crashes easily because it burns lots of fuel of the high-octane variety: glucose, or blood sugar, which is metabolically expensive for the body to produce.
Given the high energy cost of running the prefrontal cortex, the brain prefers to run off its hard drive, known as the basal ganglia, which has a much larger storage capacity and sips, not gulps, fuel. This is the part of the brain that stores the hardwired memories and habits that dominate our daily lives.

"Most of the time the basal ganglia are more or less running the show," says Jeffrey M. Schwartz, research psychiatrist at the School of Medicine at the University of California at Los Angeles. "It controls habit-based behavior that we don’t have to think about doing." Like, for instance, many aspects of our jobs.

The interplay between the basal ganglia and the prefrontal cortex helps explain the resistance of Sparks’s staff to his proposed changes. Even though fire fighting takes more time and effort, the overall approach is familiar, and the outcome (one way or another, the problem always gets fixed) is comfortingly predictable. Doing the fire fighting the way Sparks’s staff has always done it draws upon the basal ganglia and burns less fuel than making a change and involving the prefrontal cortex.

But resistance to change is not ineluctable. The prefrontal cortex has its limitations, but it is also capable of insight and self-control. It’s what makes us human—the ability to be aware of our habitual impulses and do something about them.

"The prefrontal cortex is extremely influential in our behavior, but it does not have to be completely determinative," says Schwartz. "We can make decisions about how much we want to be influenced by our animal biology."

Carrot and Stick: The Flaw

Unfortunately, traditional change management tactics are based more in animal training than in human psychology. Leaders promise bonuses and promotions to those who go along with the change (the carrot) and punish those who don’t with less important work and the potential loss of their jobs (the stick).

Though no conclusive research has yet been done, surveys have shown that people’s primary motivation in the workplace is neither money nor advancement but rather a personal interest in their jobs, a good environment and fulfilling relationships with colleagues. The effects of bonuses, promotions and reprimands, though real and measurable, are all temporary.

"The carrot-and-stick approach works at the systemwide level—offering cash bonuses to the sales department to increase the number of customers in Latin America will get you more customers there, for example—but at a personal level it doesn’t work," says David Rock, founder and CEO of Results Coaching Systems, a consultancy. "Our personal motivations are too complex, and you can only offer so many raises."

The traditional command-and-control style of management doesn’t lead to permanent changes in behavior either. Ordering people to change and then telling them how to do it fires the prefrontal cortex’s hair-trigger connection to the amygdala. "The more you try to convince people that you’re right and they’re wrong, the more they push back," says Rock. Even well-meaning advice quickly raises warning flags in the prefrontal cortex that it is soon to become overloaded and exhausted. And just as quickly it begins to defend itself. "Our brains are so complex that it’s rare for us to be able to see any situation in exactly the same way," says Rock. "So when we get advice from people, we’re always finding ways that the advice doesn’t match up with our own experience or expectations."

Not Your Change; Their Change

The way to get past the prefrontal cortex’s defenses is to help people come to their own resolution regarding the concepts causing their prefrontal cortex to bristle. These moments of resolution or insight—call them epiphanies—appear to be as soothing to the prefrontal cortex as the unfamiliar is threatening.

Just look at a person’s face during one of these moments and you can see that something positive is happening—though scientists aren’t exactly sure what it is yet. "There isn’t conclusive evidence, [but] I think it’s reasonable to conclude that the brain has some kind of reward mechanism related to insight," says Schwartz.

Brain scans show a tremendous amount of activity during moments of insight, with the brain busy building many new and complex connections. The insights don’t have to be life-changing to have a pleasurable effect, either. "The simple insight of figuring out the answer to 12 across in the crossword puzzle is enough to give a little feeling of positive reinforcement," says Schwartz.
But because our brains are so complex and so individual, generating epiphanies in many people in a systematic way is difficult. Patience is critical, says Rock. "You have to paint a broad picture of change and resist the urge to fill in all the gaps for people," he says. "They have to fill them in on their own. If you get too detailed, it prevents people from making the connections on their own."

Leaving holes in any plan is especially hard for CIOs who tend to be ambitious and process-oriented—meaning they have thought out all the details involved in a strategy or systems change and believe they know all the steps required to get there. And, in general, they’re bursting with the need to tell everyone how, exactly, to do it.

"When I put out change proposals, it’s obvious to me why we should be changing, so when people resist I tend to get more aggressive in trying to convince them," says Matt Miszewski, CIO of the state of Wisconsin. "But we lose people in that situation. The more we try to explain things, the more dug in they get."

Doing the thinking for employees takes their brains out of the action. And when disengaged, they will not invest the energy necessary to make the new (and, to the brain, pleasurable) connections required to change behaviors. Worse, in that situation, they may instead focus their energy on the negative, fearful signals broadcast by the amygdala—deepening and reinforcing their resistance to change.

"Wherever we focus our brain’s attention, that’s where we’re making and reinforcing connections," says Schwartz. "If our attention is focused on negative things, those are the connections that will be made and strengthened."

How Questions Provide Answers: A Case Studied

In trying to focus people’s attention on personal insight and changing their behavior, Rock uses the same technique that psychoanalysts have used since the profession began: He asks questions.

"When you ask someone questions, you are getting them to focus on an idea," he says. "When you pay more attention to something, you make more connections in the brain."
Rock also says that asking questions gets people to voice their ideas. And according to the brain scans, voicing ideas creates more activity and connectivity in the brain than hearing an idea spoken by someone else. "The best way to get people to change is to lay out the objective in basic terms and then ask them how they would go about getting there," Rock says.

Richard Toole approached the question of offshoring—one of the most emotional change issues in IT today—in just this way. Toole, who is CIO for PharMerica, a pharmacy services company, says that when he joined the company two years ago he had a mandate to reduce costs and improve the productivity of his application development staff. Outsourcing and offshoring were obvious solutions, but rather than mandate them from the beginning, he had a series of meetings with his staff in which he outlined the business goals and discussed options for achieving them. "We asked them what suggestions they had," he recalls. "Every one of them came up with outsourcing as some component of their plan—even some who were opposed to it. You could say we were being manipulative, but we weren’t because even though the cost issue was pushing us towards outsourcing, it wasn’t a final decision at that point." Toole says that in the end most of the staff was more accepting of the decision to offshore some of PharMerica’s development because they had had input into the decision from the beginning.

The Joy of Repetition

Once people have had that initial insight or epiphany that change is necessary, they need to repeat the experience in order to reinforce it and to experience the potential pleasure that can be derived from it. The complex brain connections that are formed during the epiphany phase need to be supported to begin the process of hard-wiring the basal ganglia. Indeed, when Wisconsin’s Miszewski has been successful in getting agencies to accept change—server consolidation and centralization, for example—it has been because of highly repetitive lobbying.

"That’s why politicians repeat the same message 10 times," he explains.

"The epiphany is the catalyst and stimulus, but it’s not the whole deal," says Michael Wakefield, senior enterprise associate at the Center for Creative Leadership, a consultancy. "You have pathways in place, and they’re simply too strong to be changed in a single moment. You need to be able to integrate it into the psychological behavior for it to become part of a new pattern." Rock says reminding people of their insights and continually asking them about the actions they decided to take as a result will help the process along. If they haven’t taken any action, ask them when they plan to.

It’s also important to know that there are always going to be people who are simply incapable of changing their behavior in a particular situation for reasons that are too complex and personal for CIOs to resolve. CIOs are not psychotherapists, and they don’t need to be. Change experts and CIOs offer a remarkably consistent picture of the types of reaction to change and the percentages of people who fall into each category.

Roughly 20 percent to 30 percent of employees are change gluttons—often ambitious, they see change as a path to happiness and success. Another 20 percent to 30 percent cannot view change as anything other than a threat to their jobs (and they may be right) and will resist at all costs.

Finally, about 50 percent to 70 percent are skeptics—they may see some logic in the case for change but aren’t convinced it will benefit them personally. "It’s the 50 to 70 percent you need to focus on," says Rock.

Not Your Motivation, Theirs

One of the biggest mistakes leaders like CIOs make in trying to win over the skeptical middle is assuming that everyone is motivated by ambition—as many CIOs are. But many people, especially IT professionals, are motivated as much or more by the work they do (the craft of software development, for example) as they are by the opportunity to move up in the hierarchy. "There are a lot of people who don’t want to be king or queen," says Wakefield. "That’s difficult for people to reveal because they fear their bosses will start to question their courage and commitment." If these people don’t see an opportunity to maintain their allegiance to the work they love as part of a change, they won’t see the benefit of going along. They will remain skeptical or, worse, move into the camp of active resisters.

One of the best ways to bring the skeptics around is through learning. At the New York State Workers’ Compensation Board, a change readiness survey of employees at the beginning of an effort to shift compensation cases from paper folders to electronic files found that employees’ number-one demand was for training. "They wanted reassurance that we weren’t going to ask them to do something new without giving them the support they needed to do it," says Nancy Mulholland, who is deputy executive director and CIO of the board.

Information sessions, Q&As, training courses and coaching all provide ways for people to get those epiphanies without feeling as if something is being forced on them. "Learning is the antidote to change resistance," says Wakefield. "Learning lets you reframe the change from being something bad for you to something that can have value for you."

The learning environment has to be one in which employees will not be reprimanded or embarrassed for revealing their discomfort with the new way of doing things. "You have to give people the sense that feeling uncomfortable is a normal part of change and address their concerns about losing face because of their lack of confidence and competence," says Wakefield. One of the ways to do that is to put people together who share a similar status in the organization and are facing a similar change so they can see that they’re not alone—a species of corporate support group. When groups are too threatening, individual coaching can help.

The Hard Edge of the Soft Stuff

Change management is time-consuming and hard to quantify for process-oriented CIOs. But avoiding the challenge leads to failure. "Anybody can stick $2,000 in someone’s face to get them to finish a job, but it’s the people who can inspire others to follow them that are the most successful in the long run," says PharMerica’s Toole. "The soft stuff is important."
But inspiring others to change isn’t a matter of charisma or charm, say the experts. It’s finding a way to spark those epiphanies.

Sparks’s latest tactic for engaging his staff’s prefrontal cortexes was to bring in an outside consultant to discuss the ITIL program and to field concerns.
"We had an outstanding instructor, and she was able to address many of the questions people had," recalls Sparks. "I could begin to see the lights come on in some of the [skeptics]. After a long meeting, one of my people stood up and said, ’You know, we should have started working on this [automated monitoring] six months ago.’"

http://www.cio.com/article/print/24975

Change Quotes

“Any improvement is a change,
not every change is an improvement,
but we cannot improve anything unless we change it”
                                                                     Eliyahu Goldrat - Theory of Constraints

Implementing any new process or service requires change and successful change means taking steps to ensure that your business and your workforce are ready for the changes and impacts that lie ahead.

This means communicating with the people who will be affected by the change and involving them in planning for the change. 

Human nature is to initially resist change until full consideration can be made of how that change will affect the individual.  Therefore the best way to ensure buy in to a change is to involve people in planning for the change - give them all the information available, in advance of the planned change and allow them time to consider and contribute to the change. 

ERP Implementation and Change Management

Enterprise resource planning software requires full support from top management at the time of implementation, selection, customization etc. During implementation, organization may require to change some business processes to meet the software standards, which are industry specific standards. Business process can not be change without top management support. It is quite necessary to change some of the business process. It helps in implementation. If you are not willing to change any business process you may go for customization. But, customization is costly and not good for any ERP. Little bit customization is ok, but too much customization will affect your ERP project. It will increase your project duration, budget, and increase the risk of implementation failure.

It will be better to change some business process if possible, rather than customizing. When an organization changes their some business processes, change management expert is required. People resist change. Change management expert will guide how to change, and explain the benefits of changes to the employees. ERP system helps in changing the process; it is designed and developed by adopting best practices of specific industries.

Internal Change Management: An ERP implementation entails changes in business processes and reporting structure. Addressing this paradigm move is a process that the organization has to go through. This will help in achieving the acceptability of the ERP users.

Change Management Drivers:
Employees: Employees are the key players in any ERP implementation. The employees of the organization will be in the capacity of process owners, software users and administrators of the ERP software. The main challenge of an ERP implementation is to achieve the acceptability of the system to the employees and for them to perceive the benefits to the organization and to their way of working.

Process: One of the returns on investment (ROI) is adopting business best practices by virtue of an ERP system. Little change in the business process will reduce the chance of implementation failure. Minimum or no customization is very good for any ERP implementation. These processes impact the effectiveness levels to be attained by the organization.

Technology: Implementation of ERP system automatically entails adopting technology that will address easy scalability, eradication of distance and upgradeability to latest technologies.

Organization Commitment: ERP system has to be viewed as a process enabler rather than a software package to be installed and run. The implementation process is a journey towards achieving organizational effectiveness. This demands a very strong commitment of the top management throughout the entire process.

http://it.toolbox.com/blogs/erp-management/erp-implementation-and-change-management-34025

ERP Satisfaction: How Do Most Companies Define ERP Success?

Our 2008 study of 1,300+ ERP implementations across the globe reveals that 65% of companies are satisfied with their ERP solutions. On the flip side, the study also reveals that 93% of projects take longer than expected, 65% cost more than expected, and 79% realize less than half of the expected business benefits.

This research suggests that companies are fairly satisfied with their ERP solutions even though implementations are more painful than expected and business benefits fall short of expectations. So what gives?

We have a number of theories and questions that we are exploring in our 2009 study, currently in progress:

1. How do companies gauge their level of satisfaction with their ERP systems? ERP implementations can be like an amateur runner being thrilled to simply finish a marathon, regardless of where he or she places. Some CIOs are happy when their projects simply don't fail and don't put the whole company at risk; they are often times not even thinking about whether or not the company is better off with the new software or whether or not they're getting as much out of the system as possible. Is simply getting to go-live a measure of success for some?

2. Do executives have different perceptions of ERP satisfaction than lower-level employees? Our study reveals diverging views of satisfaction among executives relative to project managers and other non-executives. Even among individual ERP solutions, there are material differences between executive satisfaction compared to other employees. Perhaps executives are the happies when they have good reports and dashboards to see how the business is running, but employees rely more on robust functionality and efficient business processes?

3. Are companies failing to measure satisfaction? Another contributor to this phenomena may be that companies simply aren't measuring business benefits after go-live. Our research and client experience suggests that companies that fail to develop a comprehensive business case and/or fail to measure post-implementation business results are more likely to realize sub-part results from their ERP initiatives. Perhaps companies are satisfied because they don't know that they're underperforming and failing to realize the full potential of their newly implemented ERP systems?

There are a number of other potential explanations. Perhaps the same managers who blew their budget and project milestones are reluctant to suggest that it wasn't worth it in the end. Or perhaps it's a way to rationalize all the time and money that went into the implementation. Or perhaps companies really are satisfied, but they don't realize that they could be even more satisfied than they are if they focused on leveraging an ERP benefits realization program.

These points raise more questions than they resolve. Either way, it's not clear from our research and client experience that companies are taking full advantage of the benefits potential of their ERP solutions. We plan to continue addressing questions such as these with our clients and in our next round of ERP research.

Eric Kimberling (ERP and Business Consultant) posted 9/3/2009 | Comments (0)
http://it.toolbox.com/blogs/erp-roi/erp-satisfaction-how-do-most-companies-define-erp-success-33607?rss=1

Innovation and Change

1. Introduction
2. Theme definition
Key Issues
Types
Examples
3. Short Case
The organization
How does the literature fit into the organization
Problems or issues that emerge
4. Recommendation
Changes that should be made in the organization
The need for further study
1. Introduction
Creative management is a more open, dynamic and flexible approach to management than economic management and includes economic management as part of its framework. In this approach, the requirements of both the early and later stages of the creative process are balanced. The early stages may be seen as postmodern and the later stages as modern, but the focus is on the total process of change, rather than its components. It is a dualistic management approach, combining opposing tendencies to achieve a balanced outcome ( 2002). Creative management considers differentiation and dedifferentiation, continuous and discontinuous change, objective and subjective knowledge, intuition and analysis, predictability and experimentation, reducibility and holism. It may be seen as an integrated economic and psychological approach to product and company development (2002).


The early more postmodern development stages emphasize intuition and entrepreneurship, both enacting and developing visions and managing images. The later, more modernistic stages emphasize systematic analysis and planning in order to reduce cognitive uncertainty and establish order (2002).Consequently, image and innovation management may be seen as the main overall objectives of creative management and as major mechanisms for constructing strategic reflexivity. Products are the outcome of the managerial process, as the word itself implies, and producing products therefore mainly reflects the requirements of the late stages of the creative process, viewed as the way from idea to market offer. Product innovation and marketing, however, are much more concerned with the early stages of the creative process ( 2002).

There is a need to move from a traditional, modern economic management approach to a creative management approach by integrating modern and postmodern elements, rather than focusing on one to the exclusion of the other. These elements have always been intuitively balanced in practice by insightful decision-makers, but are separated in theory. A creative management approach should therefore also help to bridge the gap between academics and practitioners in describing and understanding their relevant realities ( 2002). Creative management consists of new ideas, new directions, new methods, and new modes of operation. Creative and innovative management focuses on coupling; that is, linking the creative management and innovative management constructs. The operative words are act of management. Acts of management involve linking strategy, organization, motivation and incentives, culture and environment, and institutional alliances. The means of measuring and evaluating these linkages in terms of their being better is on the cutting edge of creative and innovative management (1993).

Identification of creative and innovative management performance is a major research need. In concept, this means that successful creative and innovative management must be superior to the accepted norm of management. In the altered environment the new economic system has created an atmosphere promoting the innovations of enterprises. New companies are founded; old state companies are transformed into private firms. What is needed so badly is investigation of the innovative and creative management of companies (1993). The paper focuses on the concept of innovation and change in businesses. The paper will discuss a case study and a particular company that made use of innovation and change in the way they operate. The paper will end with a recommendation.

2. Theme Definition

Innovation
Over the last few decades, innovation has become widely recognized as both a major goal of economic activity and one of the most important instruments through which organizations and countries gain and sustain competitive advantage in globally competitive marketplaces. At the organizational level, some claim that innovation is a key functional activity in organizations, in much the same way as marketing or finance are. Product innovation is then thought of as a routine operation like any other that organizations perform. Others suggest that innovation is a key survival strategy for organizations because it enables more rapid adaptation to turbulent environments. Innovation then becomes a primary indicator of an organization's ability to adapt to its environment (2002). Over the past few decades, this acclamation of innovation has become highly prominent as technological and scientific advancement, particularly in information and communication, increasingly affects every aspect of people's lives. Despite their differences, most writers seem to accept that innovation leads to new ways of doing things and to new solutions to the problem of resource scarcity. However, even this is contested by, for example, evolutionary economists who regard innovation as more an effect than a cause of self-reinforcing, cumulative patterns of economic growth. Evolutionary economists argue that technological innovation should not be reduced to the narrow perspective of technological determinism. The term innovation makes most people think first about technology. The emerging world requires more social and organizational innovation. It is a virtual truism that if technical innovation runs far ahead of complementary social and organizational innovation, its use in practice can be either dysfunctional or negligible (2002).

People in organizations often talk about innovation as if there was some ultimate novelty, one that would finally deliver them from the pressures of competition, if only they could make the right rational choice. Innovation as the potential for transformation emerges in conversations between people that are characterized by redundant diversity, which is experienced as mis/understanding. Thinking about the process of innovation in mainstream literature seems to fall into two streams. First, some think of innovation as a rational, intentional, sequential managerial process. Thinking here reflects the rational behavior assumption of classical and neoclassical economics and falls within the paradigm of strategic choice and planning (2002). Firms innovate in direct, purposeful and intentional responses to objective changes in their environment, so that they can achieve a new equilibrium. The future competitive positioning is a matter of forecasting and of detecting shifts in consumer preferences or in detecting latent unsatisfied demands. Acquiring this information involves an effort that is similar to the application of the scientific method. Second, there are those who understand innovation to be a social, political and behavioral process, reflecting the position of evolutionary economics. This stream, while rejecting the rational paradigm and embracing a human-centered view, does not reject the importance of equilibrium. It only denies the ability of rational ways of achieving it. As an alternative, it proposes shared visions and culture as organizational binders and control devices to attain desired behaviors ( 2002). Innovation is an important part of creative management for businesses. Without innovation businesses would remain stale and it cannot create changes.

Changes
Over the last two decades of the twentieth century, theories of organizational change have had a tremendous impact on business and not-for-profit companies. The extent of the influence of popular theories of change including Culture Change, Total Quality Management (TQM), Business Process Re-engineering (BPR), Organizational Learning, and, more recently Six Sigma is evidenced throughout the business world as application and outcomes are reported and debated in the business presses, consulting reports, management journals and best-selling business trade books. Many of the top corporations, have implemented one or other change program over the last twenty years, often at the cost of millions of dollars, and involving large-scale restructuring and extensive job losses (2003).

At the end of the day, while it is generally agreed that certain change programs have become widely popular, there is considerable debate about the success or failure of the subsequent changes themselves. Business critics blame suggested failure on incorrect implementation. Other business critics are less convinced, questioning the lack of evidence of a clear link between the implementation of selected change program and subsequent business success. It is argued that, within management thought and practice, the notion of organizational change has changed in significance over the last two decades, from one of many potential strategies of managing to a key influence on organizational effectiveness and survival. The focus has shifted from the strategic choice of the actor to one of incontrovertible external forces that managers need to anticipate, react to and manage. It is contended that organizational change as imperative has become an important management discourse that can be witnessed in the discursive practices of companies (2003).

Explaining the popularity of organizational change in sense making terms it can be argued that change has become a conventional management practice, developed and sustained through a powerful management discourse, whose on-going character influences the decision-making of large and small companies, profit and not-for-profit companies alike. Whether or not the adoption of a particular program of change is the right course of action for some companies doesn't seem to matter. Decisions to implement change programs are based on plausibility rather than accuracy. Prior to 1980, within business texts, organizational change as a management technique was either not mentioned at all or was limited to discussion of group dynamics and employee resistance to change (2003).

The notion of organizational change in the late 1970s and early 1980s, developed from learning theories and an action research approach to organizational problems. Various models focusing on quality of working life, socio-technical theory, autonomy and job enrichment were employed to improve working conditions, where typically the emphasis was on rewarding and reinforcing particular behaviors. Over time, the emphasis on change programs has switched focus from ways to improve employee satisfaction to a goal today of customer-driven corporate effectiveness. But something more than a change in focus has occurred. The notion of organizational change has taken on new meaning. Since the early 1980s, it has become an imperative rather than a technique to be considered at appropriate times, a holistic rather than a piecemeal approach to organizational effectiveness (2003). Organizational change is done by a company when it believes that the company is not adjusting to the new trends in its environment.

Issues in Innovation and Change
Innovation and change may bring good things for a company but there are certain issues regarding these two concepts. For innovation one issue in it is the boundaries it can occupy. Innovation can only be done on a specific part of the business. It cannot easily extend to other parts of the business because the other parts of the business may have problems when innovation is done into it. Another issue on innovation is the limit of the budget and time allotted for its implementation. When innovation is to be implemented there is a limit on the budget and time for its implementation. It may or may not be enough depending on the degree of innovation used. On the other hand an issue on change is its acceptance by the people in the firm. Some people in the firm are willing to accept change while some have difficulty in letting change take place. Change can sometimes cause conflict in an organization. Another issue on change is its effects on the organization. Changes can make good effects to an organization but with the good effects are some negative effects.

3. Short Case
The company E bay
Pierre Omidyar was born in Paris in 1968, and moved with his parents to Washington, D.C., while still a young boy. By the time he reached high school, the Apple II the first practical personal computer was being snapped up by technologists and hobbyists, and the IBM PC was just coming onto the market. Like lots of kids, Omidyar developed a passion for computer programming and applied that passion to a most mundane task computerizing the card catalog of his school library. He was paid $6 an hour for that little job, which must be less than what his current net worth earns in the blink of an eye. He pursued his interest at Tufts University, just outside Boston, where he earned an undergraduate degree in computer science, then joined Claris, a software subsidiary of Apple Computer, where he developed the popular MacDraw application (2000). E-commerce was a new idea back in 1991 when Omidyar co founded Ink Development Corporation one of the pioneers of online retailing. When Ink was bought out by Microsoft, he went on to work for General Magic, a mobile communication platform company, and was working there when the idea of online auctions cropped up. Business in the Valley was at an important turning point back then. Pundits, analysts, and venture capitalists were turning their attention away from electronics manufacturers like Hewlett-Packard, the company that put the Valley on the map, and getting excited about the new companies on the block, the Internet-based start-ups (2000).

The new company was formed as a sole proprietorship in September 1995 and operated from Omidyar's small apartment, using a Web site provided by his Internet service provider (ISP). A filing cabinet, an old school desk, and a laptop computer were the tools of its makeshift trade. In order to develop a critical mass of transactions, users were charged no fees whatsoever, but within six months, the two entrepreneurs began charging token fees with no larger goal than to cover their rising Internet service costs. Before long, however, traffic on this site was so intense that the ISP told Omidyar to take a hike. He had to buy his own server and install it in his apartment (2000). The company incorporated in May 1996, but until July 1996 had no employees other than its founders, who paid themselves annual salaries of $25,000. Even so, business had grown to the point where Omidyar had to move the operation from his apartment to a one-room office in Sunnyvale and hire a part-time employee to handle the checks and billings. Employee number one was Chris Agarpao, whom Omidyar had met at a wedding, and who soon thereafter was interviewed at a picnic table on the grounds of Omidyar's apartment complex. The odds against the success of this new venture would have seemed substantial back in 1995 and 1996 (2000).

The market for the sale of goods over the Internet, particularly through person-to-person trading, was new, and did not enjoy widespread acceptance. Buying something of substantial value, often sight unseen, from a total stranger hundreds or thousands of miles away did not fall into the category of natural acts. Further, the growth of Internet use would have to continue if the auction market hoped to gain real size. And there was no assurance that it would. Public enthusiasm for Web surfing might stall out (2000). Even if public acceptance was high, the network infrastructure needed to accommodate rapidly growing usage might not be forthcoming. More than a few pundits predicted that the network would collapse under the weight of growing consumer and business use. Higher levels of Internet usage might require new standard and protocols and broadband delivery. Insufficient infrastructure and high demand might slow the Internet and turn off users. Those were the logical macro concerns. At the company level, people had to wonder what would happen if the company's servers crashed or if lots of auction participants started complaining of being ripped off. There were also questions about the popularity of the items offered in eBay auctions. Future revenues depended on continuing demand for the types of goods listed by users of the service ( 2000).

The literature and the organization
The first generation of e-business has passed into history, and a second generation is now being born. The first generation was marked by high hopes, a land grab for market opportunities, an infatuation with technology for its own sake, and a disregard for traditional performance metrics. Speed was the generation's defining characteristic, and traditional firms slower by nature than startups found themselves at a comparative disadvantage (2002). As excitement about the possibilities promised by the Internet's disruptive technology mounted, dot-com stock prices rose to unsustainable levels. A crash inevitably followed, and the Internet economy was confronted with the need to deliver real value to customers and profits to investors ( 2002). Most executives have a vision of where they want their companies to be with e-business. They can imagine the benefits of successfully integrating the Internet throughout their entire value chain. They can see the advantages of e-business transformation: reduced costs, increased productivity, accelerated business processes. But the myriad changes in business practices that they need to make are blurry and out of focus, and so they can't make their vision a reality (2002). Many executives suffer from the all too common ailment of technological presbyopia or the belief that having a clear view of something means it is only a short distance away. They become impatient when success doesn't arrive overnight, and they are tempted to skip certain steps that are necessary to create a stable and profitable business (2002).

One of the businesses that created a huge innovation and change to the industry is E bay. The said company as seen in the literature created a new trend in the way business is transacted. People who transacted with a company had to go to a store to buy the products they need or acquire the services they desire. E bay was one of the companies that changed such practice. The company gave people convenience and easier time in buying the products they need. People who have computers and internet access can just order or bid for products they want without leaving the sanctity of their homes. The company also allowed people to sell their products on its website. The innovation and change introduced by the company proves to have positive effects for clients but with it are its negative effects. One problem with such innovation and change by the company is the assurance that the product will not have defects or problems. Since there was no transaction done personally, clients cannot be 100% sure that the products they purchase will have no defects or problems. Another problem with such innovation and change is the security of records and information being transferred by clients to the company. In engaging in E business clients has to provide financial account numbers to the company as a form of payment. There are less assurance that these kinds of information will not be available to online hackers and cyber criminals. Lastly a problem with such innovation and change is the longevity of such trend. This trend of business may or may not stay for a long time. Change in businesses is a constant thing and this kind of trend may or may not be a long lasting trend.


4. Recommendations
Changes that should be made
The organization can improve itself by making sure that all the products that it intends to sell and put up for bidding would be checked for defects. The organization should have a checking and testing procedure so that the products will be in a tip top condition. It can also call into attention people who sell stuff that have problems and are not in working condition. The interest of the client is an important concern for the organization and the organization should show its concern for its clients by making them receive the most able products. The organization can improve itself by having a complete and detailed knowledge about the people who sells their products to the company. As mentioned earlier the company allows people to sell their things to through the company’s website, the company should check and know the people who sells the products so that the company will know whether or not the products have defects or are illegally sold. Moreover the organization can improve itself through having added security measures to counter threats from hackers and cyber criminals. The company can find out about new programs and applications that can stop these kinds of people from knowing the financial accounts and other important records shared between the company and its clients.

Lastly the company can improve itself through engaging in other business endeavor. There is no assurance that the way the company is conducting its business will last for a long time. The company should engage in other endeavors that can help them survive the end of the e-business trend. The company can try to have a personal buying and selling business wherein a company has a visible branch that buys and sells different products and services. Clients who have known the company for a long time will be the first customers of the company in this endeavor. These clients will be telling people they know about the company thus it will improve after some time. The financial risk they must be concerned with is the cost of the new business venture. But given some time the expenses will be replaced with profits for the company.



The need for further study

Further study will have to be attempted on topics regarding how long the trend of e –business will last. This kind of study will be important to determine the gravity of impact of the innovation and change done by e bay and e business. Further study should also be done with regards to what are the trends that might bring a new innovation and change to the way business is done. Future studies should be done particularly on the next possible business trends that will create changes and innovation in the way businesses are operated and transacted. These kinds of studies can widen the knowledge about the future possibilities in business and such kind of studies can give more proofs and a better understanding of the importance of change and innovation in business.

http://ivythesis.typepad.com/term_paper_topics/organizational_change/

Organizational Change - An Overview

Introduction

The only thing that is permanent on the face of the earth is change; and this is also applied into different varieties of business. The change is somehow important if it is intended to begin the improvement. Every organization needs change in improving the business environment or managerial aspect. The change depends unto what extent it should reach and what difficulties it will cross. Sometimes, organization takes the changes to align in the economic variations and it is truly hard to pulse the wave of economic climate.

Organizational change is defined as the process by which organizations reach the desired goals. Organizational change occurs when an organization restructures resources to increase the ability to create value and improve effectiveness. A declining company seeks ways to regain customers; a growing organization designs new products. A well-planned organizational change creates value for stakeholders.1

In a business manner, the organizational change is about a significant change in the organization, such as reorganization or adding a major new product or service. This is in contrast to smaller changes, such as adopting a new computer procedure. Organizational change can seem like such a vague phenomena that it is helpful.

Specific Types of Organizational Change

There are different overall types of organizational change, including planned versus unplanned, organization-wide versus change primarily to one part of the organization, incremental (slow, gradual change) versus transformational (radical, fundamental), etc. Knowing which types of change the business is doing helps all participants to retain scope and perspective during the many complexities and frequent frustrations during change. One form of organizational change and development will be discussed below.

Unplanned Versus Planned Change
Unplanned change usually occurs because of a major, sudden surprise to the organization, which causes its members to respond in a highly reactive and disorganized fashion. Unplanned change might occur when the Chief Executive Officer suddenly leaves the organization, significant public relations problems occur, poor product performance quickly results in loss of customers, or other disruptive situations arise.

Planned change occurs when leaders in the organization recognize the need for a major change and proactively organize a plan to accomplish the change. Planned change occurs with successful implementation of a Strategic Plan, plan for reorganization, or other implementation of a change of this magnitude. The planned change, even though based on a proactive and well-done plan, often does not occur in a highly organized fashion. Instead, planned change tends to occur in more of a chaotic and disruptive fashion than expected by participants.

Change Program Stakeholders
For an organizational change program to succeed, the business should depend upon a range of people. These people can be divided into five stakeholder groups.4

A stakeholder is any person with an interest in the process or the outcome of the proposed organizational change. There are five stakeholder group given, together with each description and examples of duty.

1. Change Recipients – They are the intended receivers of the products of change or change outcomes. Example: They are the end users of new software, such as a new accounting package, employees of two merged companies.

2. Decision Makers – They are the people that approve a change effort and decide its scope and direction. Examples: Steering Committee Members, Project Sponsor, or Chief Executive Officer.

3. Resource Holders – They are the people authorized to release financial and human resources requires by a change effort. Examples: Chief Financial Officer, Financial institution such as a bank, or a Line Manager.

4. Program Implementers – They are the people charged with the responsibility for bringing about the change. Examples: Program Manager, Project Manager, or Project Team Members.

5. External Parties – They are the people that are not the intended recipients but who are impacted by the change. Examples: Suppliers whose access to a business is restricted after a change in business hours, or a broader community impacted adversely by a new product that contaminates the local environment.

Once the business had identified the stakeholders, consider the key messages that a business will need to deliver to each group in order to gain their support. Once the business had settled on the key messages for each stakeholder group, start the communication.

Various Models for Change Management
There are numerous well-organized approaches (or models) from which to manage a change effort. There are Strategic Management Models, Action Research Model, Plan Do Check Act Model, Lewin’s Change Management Model, and Mckinsey 7S Model.

Lewin’s Change Management Model
Lewin’s Model for change which also called the Freezing Models has three phases; the Unfreeze, Transition, and the Refreezing.5 Unfreeze is where the problem should be thawed into pieces and needed to study each part. The transition steps in when the process is on-going to face the solution and transformation changes. And the last, the refreezing takes the place when the organization is already absorbing the new process. Kurt Lewin exampled this is the cube of ice; on how will you change the form of the cube of ice in to another type by not letting it evaporate.

Strategic Management Model
Many organizations undertake strategic planning. The implementation of strategic planning, when done in a systematic, cyclical and explicit approach, is strategic management. Strategic management is also one model for ensuring the success of a change effort. Simply put, strategic planning determines where an organization is going over the next year or more, how it's going to get there and how it'll know if it got there or not. The focus of a strategic plan is usually on the entire organization, while the focus of a business plan is usually on a particular product, service or program.

There are a variety of perspectives, models and approaches used in strategic planning. The way that a strategic plan is developed depends on the nature of the organization's leadership, culture of the organization, complexity of the organization's environment, size of the organization, expertise of planners, etc.6

The two kinds of models are very effective tools for the managerial change. If the models are going to apply on the stakeholders of the company, the proper assessment is needed to apply the models. The models for organizational change are presented as the basis on how to make the change in the management possible as the economic environment asks for change.

Conclusions
The organizational change is different in the other kinds of changes. Although it is necessary for the organization to adopt the prospect changes, it is advisable to first undergone through a series of investigation. Other approaches for a change also involve the technological aspect, like changing for the old technology and adopting a new kind of technological-based process. Other prefers to focus on the traditional way like on the factor of changing the customs of the employees or the rules inside the workplace.

http://ivythesis.typepad.com/term_paper_topics/2009/08/organizational-change.html

Your Change IQ

How much do you know about the most effective methods of communicating organizational change? How much do you know about the effects of organizational development and change on the people affected by the change? Take this quiz to test your understanding. The answers are listed below.

1. The initial communication regarding the change should be:

A. To the point and as brief as possible.

B. Include as much detail as possible.

C. Down-played to reduce possible reactionary stress.

2. The change should be explained as:

A. Routine and something not to be feared.

B. Something that complaining won’t fix.

C. In the best interest of the organization.

3. Frame the message on change from the perspective of:

A. The executive level.

B. The managerial level.

C. The employee level.

4. Objections to change should be:

A. Brought out in the open.

B. Down-played because they will soon disappear.

C. Dismissed quickly.

5. Structure the message on change to:

A. Foster good feelings.

B. Build compliance.

C. Build understanding and commitment.

6. In follow-up meetings and communications describing change:

A. Divulge everything you know.

B. Explain only what they need to hear.

C. Admit what you don’t know.

7. Change is best explained in:

A. Small functional groups.

B. Large groups.

C. Using media like TV or email.

Answers:

1. A. Those who plan and deliver the initial message on change can overstate and over communicate in the statement- too much, too soon can overwhelm the receiver, which lead to confusion and misinformation. It can also be viewed as an attempt to deceive. The first statement announcing organizational change needs to be honest, straightforward, brief, and constructed in relatively simple language. Make the message to the point, with little hype, and include no empty promises.

2. C. The participants of change need to believe that the change is needed at this time and is in the best interests of the overall company. If this message isn’t clearly communicated, some people may believe that the change is intended to benefit a small minority or select group. Words that tend to communicate business necessity include: growth, competitive position, market share, market position, stability, strategic strength, and so forth.

3. B and C, and possibly A. Too often executives construct a message for other executives and the media, but then try to deliver it to individual contributors and their managers. Messages that describe change need to be constructed in language that benefits people at all levels. Both managers and individual contributors need to buy into the change, so the words and concepts need to be aimed specifically at them.

4. A. During the communication of change it is common to hear comments and/or objections. If there is a perceived attempt to conceal or dismiss the comments, it will be difficult at a later time to build understanding and commitment to the plan. Let comments come to the surface and deal with them in an honest manner.

5. C. Commitment to the plan and trust of its consequences can only happen after the people understand what is going to happen, why it is necessary, why now, how it will be accomplished, and who will be involved. Skipping the understand step or failing to answer questions will likely lead to dissent and distrust.

6. A and C. It is important for people hearing about change to believe that they have heard the entire story. Remember, perception is reality. If a critical mass of the people involved comes to believe that not everything has been divulged, then a covert or overt resistance can seriously thwart the plan. Likewise, if the answer to a question isn’t known, it must be admitted, but include how and when the answer will be communicated.

7. B is best, but A and C may be necessary. It has been my experience, both receiving and delivering messages on organizational change, that small groups are the best venue (fewer than a dozen people). The personal touch and attention affords a more conducive atmosphere to not only communicate the message, but also to defuse misconceptions or misinformation. Some organizations, however, due to logistics and size are constrained to communicate via large groups and/or media.

The Effects of Organizational Development and Change

has been said that organizational development and change is inevitable in today’s competitive business climate. However, only selectively is change received with welcome arms by those most closely affected by it. So if organizational alteration is inescapable, how then can it be accomplished with the least collateral damage to those most closely involved? That is a question leaders and managers all too seldom seriously consider and plan for, but desperately need to understand and prepare for.

A number of years ago I found myself in a position in an organization that underwent frequent acquisitions and reorganizations. It seemed to those of us experiencing the changes that the frequency of change was weekly, but realistically it was annually. Therein lies an interesting fact: even to a psychologist who ought to know and understand change and its impact on people, when it happens close to home the frequency seems to be exaggerated. That is because change is often a traumatic event that can distort a person’s perception of reality. It’s also because change is typically viewed from an egocentric perspective: how will this new change impact my work situation and me?

Before we explore how organizational development and change impacts and is received by its participants, let’s be clear about the necessity of changing things in the first place. Although the status quo is comfortable and appears desirable from a personal perspective, it is in the vast majority of situations unrealistic to expect for any extended period of time. Speaking on this subject, Dr. George Odiorne once said, "That which does not change tends to stand still and soon becomes obsolete." In other words, the failure of an organization to effect strategic change could make the organization obsolete: that means out of business! Franz Kufka said the same thing another way, "In a fight between you and the world, bet on the world."

Organizational change could be as straightforward as changing the day people receive their paychecks, or it could be a major restructuring involving merging, divesting, or downsizing. There are small changes and there are big changes and the planning and executing of each requires understanding, wisdom, preparation and careful execution.

Organizational Development and Change Model

Models have been created to explain both how and why people affected by change behave as they do. While most models describe the effects of organizational change, the one described here is different because I, as an organizational psychologist, developed it while working for a company that was experiencing frequent change. Perhaps the insights of seeing the effects of change first hand, gives this model a different perspective than other models of the same type.

Although the six stages of reaction described in my model don’t occur every time and with every person, it’s amazing how accurately this model can predict how people behave when faced with organizational change. Many times in my consulting practice clients have said how this model explained behavior better than any other system they have seen.

Stage 1: When significant organizational change is first realized it is common for those affected to feel shock. It’s not uncommon, for example, to physically see the effects of shock in the faces and body language of those persons. The reason for the shock is a personal fear of how the change might impact the status quo. It’s important for leaders and managers implementing change to be aware that initial fear of the event is common, because it is a natural reaction. A person demonstrating shock from a personal fear should not be considered a problem. Rather, it is a reaction that usually dissipates in most people.

Stage 2: Soon after the Shock Stage sets in its common for people to go into denial. You can usually hear this stage more than see it, as in Stage 1. You’ll recognize Stage 2 by hearing comments like, "They’ll never go through with this!" Or, "I can’t believe this is going to happen!" Or, "Watch, they’ll change their mind before this ever gets off the ground." Or, "If we ignore this long enough, it will just go away." The reason people experience denial comes from their disbelief or even anger over what they think is about to happen. Whether it’s real or not, disbelief can trigger feelings, and expressions, of denial.

Stage 3: After experiencing shock and then denial, a person can make a conscious or unconscious decision that the impending change will be bad. This rejection of the change usually comes as a result of the person trying to preserve the status quo and/or a zone of personal comfort. Rejection of change can result in either a "fight or flight" reaction from persons affected by it. This is why it’s not uncommon for turnover to increase after changes are announced. People can believe that the possibility of comfort elsewhere is more probable than the uncertainty of change where they are.

Stage 4: The people who choose to stay, but who have not accepted or embraced the change, typically shift to a mode of tolerance. They may appear to be on-board, but in actuality the tolerance is only masking either overt or covert resistance. It is easier to deal with overt resistance than covert resistance. Overt behaviors are in the open and can be seen and diffused, whereas covert behaviors are difficult to recognize, let alone deal with.

Stage 5: When people who have been subjected to organizational change become involved in aspects of the changes, there is a possibility of strategic understanding. Involvement could be membership on a team, being asked for an opinion or suggestion, or participating in some way in the evolving organization. Without deliberate involvement, many people will take a "wait and see" attitude. The key to move people to ultimate embracing is maximum involvement of as many people as possible.

Stage 6: After a person has been involved in the planning and/or mechanics of the changes, and then has developed a strategic understanding, feelings of commitment can grow. While a few people can indeed gain commitment without moving through the five preparatory stages, most people will progress through the stages until they gain a sense of commitment or buy-in. People in the commitment stage tend to give advice to others about how the impending changes could be in the organization’s best interest. They also volunteer for assignments and are quick to give positive suggestions.

Rumination Loop. Many people who don’t become involved in the change process revert back to Stage 1 through a Rumination Loop. While experiencing resistance to the change, people can cycle back to the Shock Stage through the loop. In fact, it’s not uncommon for people to cycle through the Rumination Loop several times and even over several years. The key to moving people out of the loop is involvement.

Key Action Steps: When planning either a minor or significant change within an organization, consider these action steps to achieve maximum commitment from as many people as possible.

1. Describe what is going to happen.

2. Explain why the change is necessary.

3. Ask for reactions; listen to comments and feelings.

4. Acknowledge comments or objections and check for misunderstandings.

5. Ask for suggestions.

6. Ask for support.

7. Involve as many people in any way possible.

8. Follow through and monitor reactions.

Summary: In today’s business climate organizational development and change is a regular occurrence. While it’s true that many years ago change happened as at a snail’s pace, today it seems to be on a daily menu. Leaders and managers clearly need to be sensitive to the impact of change on their human capital. But at the same time they must weigh the benefits of what the change might do for the overall organization against what the change might do to those affected by it.

Leading Organizational Change Expert Reveals The 3 Greatest Barriers To Organizational Change

Many businesses make significant strategic changes in their organizations from time to time. Organizational Change Expert Gayla Hodges, reveals the three greatest barriers to organizational change and why they can completely undermine business strategy if handled incorrectly.

Glendale, AZ (PRWEB) June 24, 2007 -- The need for rapid organizational change is a fact of life in today's business environment. It is often necessary to make strategic changes in order to achieve key strategic business goals. The key to successful change is in the planning and the implementation. This is the reason Change Agents, Inc. is one of the few business consultants to stick around during the implementation of strategic change rather than leaving when the planning is done.

Gayla Hodges, President and Principal Consultant of Change Agents, Inc. recently revealed the three greatest barriers to organizational change. "No matter how necessary change seems to upper management," she says, "many barriers must be broken down if a planned strategic change is to be implemented successfully." The three barriers she identified are often overlooked by businesses contemplating change. They are:

• Inadequate Culture-Shift Planning. All organizational change affects people. It is easy to forget that, even at work, people make many decisions on the basis of feelings and intuition. When changes in corporate culture and the feelings of employees are overlooked, the result is often deep resentment because some unrecognized taboo or tradition has not been duly respected.

• Lack of Employee Involvement. People have an inherent fear of change. When asked to assume new responsibilities or focus on different aspects of their knowledge or skill, they also fear failure. Involving employees as soon as possible in the change effort, letting them create as much of the change as is possible and practical is key to a successful change effort. Employees need an opportunity to "try the change on for size" to obtain buy-in.

• Flawed Communication Strategies. Ideal communication strategies attend to the message, the method of delivery, the timing, and the importance of information shared with various parts of the organization. Solid communication strategies do not overwhelm people with too much information, or leave them guessing about how they will be affected by the change. Information will be provided consistently by supervisors, and people will be allowed time to think about it and talk about it.

There are other barriers, to be sure, but the three outlined above are extremely common and highly likely to create havoc in the organization. "By planning and dealing with these three areas thoroughly, carefully, and sensitively," says Hodges, "people will be most likely to get on board and help implement the change and adapt to organizational change far more readily and supportively.