How do enterprises deal with change? Chief executives all over corporate UK are, we are told, waking up to the need for new ways of organising, such as tooling up for global operations, standardising business processes across often quite devolved parts of a conglomerate, improving flexibility and, of course, bettering responsiveness to customers. But how?
To address what it believes is a shortage of ideas on how to move forward on managing this change, PricewaterhouseCoopers decided, as long ago as the early ’90s, to help fund a programme of research led by Professor Andrew Pettigrew of the Warwick Business School. The research began in 1992, and up until 1996 looked into the ways in which 450 European companies were managing change. The newly published report gives some clear ideas about how that management changed in the four years surveyed, while ending overall with some important conclusions about where change is headed in the future.
To summarise this important research too simply would not be doing it justice, but three clear areas of change are pinpointed by the report, each of which subdivides three ways. Firstly, structural change was identified as a crucial way forward, divided between corporate delayering, decentralising and a focus on project-based organisation. Secondly, changes in processes include change within horizontal and vertical communications, investment in IT and the adoption of new HR processes. Lastly, boundary changes include the adoption of outsourcing, strategic alliances and downscoping.
These three aspects are interdependent, overall performance benefits dependent on complementary change in all of them.
Taking structure first, there has already been a well documented move to reduce the number of management levels in the average enterprise.
The report’s evidence, however, is that this may well be somewhat illusory.
The average number of levels between chief executive and the lowest manager with responsibility for profit decreased between 1992 and 1996 from 3.5 to 3.2, hardly the radical stripping out of layers so many would have you believe is de rigeur. To add to this, the report found that while 30 percent of those surveyed had acted to decrease management levels, 20 percent actually increased them. There is also evidence that responsibility for profit is heading further up the management chain, creating an illusion that management layers are being rolled back with it.
On a slightly more positive note, while companies may not be breaking down hierarchies, they are seemingly decentralising in other ways. Important decisions are being farmed out to ever more local levels, with people given more freedom in how their work is carried out. Project-based organising is on the increase, with more dependence on horizontal collaboration across internal boundaries.
In terms of change in corporate processes, internal communication is particularly identified by PwC as a fast developer. Horizontal interactions doubled between 1992 and 1996 in those organisations surveyed. Vertical interactions trebled. Inevitably, investment in IT has been the facilitator in the intensification of internal communications. The use of cross-enterprise IT strategies increased fourfold over the period in question.
Processes have also changed thanks to new human resource management processes.
Multiple initiatives have seen people and skills transferred between units. A growth in seminars, conferences and mission building activities has fostered better teamwork across different parts of the enterprise.
In the area of boundaries, enterprises are increasingly limiting themselves to core activities and competencies. They are outsourcing peripheral activities, and securing additional skills and resources through strategic alliances rather than by acquiring them in-house. More than 10 percent of enterprises questioned reported abandonment of strategies of diversification, while increases in outsourcing and alliances were reported by nearly two thirds.
Some enterprises are changing simultaneously in all three of these areas, and those that do tend to be the higher performers. Activity in one area of change can increase the benefit of doing more of another, for example, combining decentralisation while delayering and adopting project-based organising.
Taking only a few isolated initiatives generally leads to poorer performance, except in the area of IT where changes made in isolation can be of benefit.
The biggest benefits are obtained through the implementation of enterprise-wide programmes of complementary change.
In another part of its extensive report, PwC tries to highlight the characteristics of a high performing enterprise – what distinguishes a real achiever from an also ran? It starts by debunking the myth that “less is more”. More, says PwC, is quite simply more. Successful change programmes are enterprise-wide and fully comprehensive. Just a little change can be worse than doing nothing. Management by fad, that is, placing a lot of faith in one single panacea, does not work. Even a seemingly full programme of change can be undermined if a vital component goes missing. There are also the issues of vision and enthusiasm. A small scale change programme will not get the blood racing, whereas a full enterprise-wide effort should capture imaginations all over.
A successful enterprise is usually one where managers are decentralising decisions on how people do their work, while still being accountable for results and outcomes thanks to centralised control – a paradox, but a crucial issue. Similarly paradoxical is the need for greater horizontal communication while making use of communication up and down the hierarchy.
A successful enterprise is usually one that has been successful in simplifying internal organisation and minimising bureaucracy through outsourcing.
Simplification can also involve complex external relationships.
The report is not merely an exercise in hindsight. For those for whom 1996 seems like an aeon ago, there’s a section of the report entitled “Key Dimensions in Organising for the 21st Century”. It contains advice on how chief executives need to organise enterprises to obtain lasting performance benefits in the future. It identifies four key dimensions.
Autonomy is first up. Top management teams have a crucial role to play in creating an environment in which people perform well. But they often fail by becoming distracted by decision making that would be better delegated to others. Such teams need in future to deal with people they manage in order to work out how particular types of decision should be positioned on an “autonomy” scale. They should then stick to this deal and not meddle.
The scale needs to tip towards delegation to operating managers, and only involve top management where strategic leadership is involved.
Decentralisation of decision making should not however be confused with laissez faire management. Many firms are imposing tighter performance controls as they delegate more, and leave more activities and decisions to be tackled through internal networks.
Next after autonomy, PwC cites collaboration as a way forward to effective change management. More and more enterprises are facing tasks which are best addressed by cross-functional project teams. A key role for senior managers is to provide an infrastructure that facilitates collaborative working across structural boundaries. This includes providing IT systems that support cross-structural communications and sharing of knowledge, as well as opportunities for networking, such as enterprise-wide training events. It is occasionally necessary to disrupt forces that act against collaboration, perhaps by transferring people between different structural units. It is yet another paradox that collaborative working often requires central interventions to make it happen.
After autonomy, the report cites scope. Enterprises are managing scope so as to focus on their core capabilities, giving themselves access to knowhow that they could not possibly develop as efficiently or effectively in-house. They are simplifying operations through outsourcing, and achieving improved service and lower cost as a result. While simplifying their internal organisation, many are also embarking on more complex external relationships.
Lastly there’s vision. Changes in structure, process and scope are important in changing behaviour. To produce enduring shifts in attitudes and value, however, top management has to provide a vision that gives coherence and meaning to those changes. It has to build an environment in which people will be able and motivated to play their part in realising the vision.
This includes mission building activities and providing leadership at all levels to develop an environment that encourages the desired behaviours, attitudes and values.
The report concludes with a series of questions for enterprises to put to themselves. What main policies and change initiatives is the enterprise pursuing in the above areas? Are these internally consistent and complementary with each other? Are they ambitious enough to have impact and capture enthusiasm across the whole enterprise? Has the leadership of the enterprise articulated the vision and values underpinning these policies and programmes of change? How far are people aware of and committed to the vision and the values? What information about employee attitudes has been obtained to support this view? And lastly, what initiatives should be taken to reinforce the vision and values?
Guy Matthews is a freelance journalist.
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