Critical Success Factors for Managing Change as a Business Process

Abstract

Change management is an HRM-based business process that revolves around improving the performance of the company by introducing new ideas, processes, and tools and beneficially altering the existing status quo. It is a process that involves planning, preparation, and risk, making companies unwilling to change often. Kottler’s expanded framework provides a list of factors to be accounted for during the implementation of change. The effectiveness of this model is demonstrated by Microsoft’s reorganization of 2014.

Introduction

Business processes are characterized as sets of events and activities performed by the staff and equipment to achieve a particular business goal. Change is one of the major HRM (human resource management) business processes, as it enables the company to adapt to the chaotic environment of the market. Therefore, the ability to perform changes in the scope of an organization is critical for business success. At the same time, organizational change is a very complex process. An improper approach to the task would lead to the loss of time, money, opportunities, and employees. This trend was exemplified by Nokia in 2007, as the multinational supergiant of mobile industries failed to react to the appearance of the first iPhones on the market, effectively starting the era of smartphones and banishing button phones to obscurity. The reactive approach to organizational change by Nokia was too little, too late.

To conduct change as a business process, a business must take account of several critical success factors. These include creating a climate for change, engaging and enabling the organization, as well as implementing/sustaining change. The purpose of this paper is to review the literature and identify critical success factors related to the organizational change process based on John Kotter’s expanded framework.

Review of Literature

The importance of organizational change in project management, business management, and training processes has been at the forefront of academic research in business for some time. Hornstein (2015) highlights the necessity of integration of change management as a critical business process to determine the success or failure of a small-scale or a large-scale endeavor. According to the article, the change affects all nine bodies of management knowledge, which includes integration, scope, time, cost, quality, human resource, communications, risk, and procurement management (Hornstein 2015). Lastly, the author claims that to be successful, change must adhere to the following qualities (Hornstein 2015):

• Change must be planned;
• Change must be built on democratic values and principles of engagement;
• Change must implement contemporary psychological theories to be successful.

Therefore, the choice of a framework should be limited to the one that answers all of these basic qualities. Kotter’s expanded framework consists of 10 major factors that determine the success or failure of change implementation as a business process. Gupta (2011) identifies these factors as follows:

• Determining the necessity for change. This factor acknowledges the importance of timing in implementing change. Since this business process affects all other areas of expertise (Hornstein 2015), a company must be cautious about performing changes too early or too late.
• Assessing the capacity for change. Changes require time and resources to conclude. The scope of change must correlate with the company’s capabilities (Gupta 2011).
• Establishing a sense of urgency. This factor determines the level of zeal and psychological pressure behind the change. If employees do not feel that the proposed changes deserve urgency, they are less likely to comply with them (Gupta 2011).
• Initial support. Another critical factor in ensuring the success of change as a business process is to have a backbone of employees and managers understanding and supporting the necessity for change (Gupta 2011).
• Vision and strategy development. Without a clear understanding of where the company is going and how it is going to get there, any change endeavor is doomed to failure (Gupta 2011).
• Communication. This factor is very important for establishing rapport with employees. Many people are hesitant and resistant to changes, which requires clear communication of the company’s new vision to achieve success (Gupta 2011).
• Empowerment. Employees must become active in facilitating change for the business process to be effective. Establishing an agency is an important factor in the success of the endeavor (Gupta 2011).
• Short-term goals. Connected with communication and empowerment, this factor claims that long-term changes alone are not going to be effective, as the employees on the ground level would not be able to see any immediate benefits to the process (Gupta 2011).
• Consolidation and continuation. Many change endeavors die halfway through the process because of a lack of a follow-up. Systematic continuation of changes is necessary for success (Gupta 2011).
• New corporate culture. Finally, the last factor that affects the success or failure of change as a business process is the establishment of new activities and parameters as the new company norm (Gupta 2011). Without anchoring changes in the corporate culture, it is likely for employees to revert the moment they are out of the spotlight. These factors will be further developed and elaborated on in the following sections of the literature review.

The first factor in the list is the necessity of change. Since change is associated with significant rearrangements and risks, many businesses tend to avoid it and implement the business process only when necessary. Rosenbaum, Taksa, and More (2019) claim that reflection is one of the primary qualities associated with determining the necessity of change. The business must determine if their level of service could be improved, then analyze the potential risks and expenditures associated with the venture, and make an educated call on whether change is necessary at the current moment. While changes are inevitable, doing so at the wrong time or doing so in the wrong direction may be detrimental to the company (Rosenbaum et al. 2019).

Assessing the capacity for change in an organizational setting is invariably linked to cost-efficiency and resource management. If a company does not have the resources to produce the changes required, it must alter its strategy. McLean, Antony, and Dahlgaard (2017) highlight the importance of this factor by stating that the failure to provide the necessary support for a planned change process leads to poor implementation, interpersonal stress, neglect of core organizational activities, and the overall failure of the intervention. Therefore, financial, material and human resource support is a critical factor to success.

Urgency has always been considered a powerful psychological motivator. Isaksson (2019) states that a sense of urgency in employees is associated with faster levels of implementation, increases in personal responsibility for change, and better overall results in organizational development. At the same time, he highlights the increased levels of stress in employees associated with the urgency of change (Isaksson 2019). Therefore, it is important to balance the sense of urgency with a sense of accomplishment to avoid burnout and employee fatigue.

The importance of team-building about the success of change operations is highlighted by Das (2019) whose research compared Kotter’s and Hiatt’s models of change. It is noteworthy that both systems require change managers to form a backbone group of dedicated employees before the facilitation of change. Such a team is often formed informally based on interpersonal connections and personal convictions (Das 2019). The manager is expected to find individuals most interested in the upcoming changes to help prepare the others for it.

The importance of a clear vision and a coherent strategy for the success of change in business processes cannot be overstated. According to Al-Haddad and Kotnour (2015), the establishment of both serves several purposes, such as the provision of a greater overarching goal for the company and a step-by-step guide to achieving that goal. Employees are more likely to support a change that has a clear purpose and a plan behind it rather than an intervention that seems vague, unmotivated, and unnecessary (Al-Haddad & Kotnour 2015).

Communication is a critical factor in initiating and maintaining a change process. It is connected with the concepts of strategy and vision since it allows everyone to learn about the process and their place in it. Harmon, Green, and Goodnight (2015) state that rhetorical legitimation is critical in the success or failure of changes not only from a practical but also from a psychological perspective. An employee that knows what is being done and for what purpose is likely to be more engaged than an employee who is taught to follow orders blindly (Harmon et al. 2015).

Employee empowerment stands for the ability of an employee to consciously contribute to a project by providing opinions, insights, and labor that would further the company goals. There is a relationship between empowerment, readiness for change, and self-efficiency. According to Emsza, Eliyana, and Istyarini (2016), both of these qualities have a positive impact on change acceptance and participation. An employee that has accepted change typically performs above the call of duty and does not make any efforts to undermine and sabotage the enterprise (Emsza et al. 2016). Therefore, empowerment is a critical factor in the success of change management as a business process.

All change management involves planning for short-term, mid-term, and long-term perspectives (Shah, Irani & Sharif 2017). Although many change operations have long-term overarching missions and goals, short-term effects are often neglected. Ortiz-de-Mandojana and Bansal (2016) state that every action performed in a business environment provides various effects and bonuses in all three of these directions. For the scope of change management, it means that the managers are supposed to determine these short-term goals and focus on them to provide the company and the employees with incentives to continue. In addition, the effects of short-term successes would help bolster company performance through the change process (Ortiz-de-Mandojana & Bansal 2016).

Consolidation and continuation of the initial effects of change is a major stage not only in Kottler’s framework but in several others as well. Kurt Levin’s change management framework, as evaluated by Cummings, Bridgman, and Brown (2016), emphasizes determining which parts of the initial change proposal work and which ones do not. Alterations are typically made during the mid-term evaluation, after which the successes are being consolidated into the company routine (Cummings et al. 2016). This is one of the crucial factors in the success or failure of a change intervention.

The last factor related to the success or failure of change as a business process is sustainability. The purpose of any organizational transformation is to replace the old norms and practices with new ones, improving organizational effectiveness, the quality of goods and services provided, reducing turnover, and solving other possible issues. Engert, Rauter, and Baumgartner (2016) claim that sustainability revolves around changing not only the processes but the corporate culture as well. A corporate culture that was not built to sustain change will eventually undo the effects of any successful initiative. This point of view is supported by Saratun (2016), who states that performance and employee engagement are directly connected to corporate culture. Since change requires an increased amount of engagement and performance, a lack of appropriate culture would result in mediocrity. Therefore, every change intervention should make an account for altering certain aspects of the existing corporate culture as well, to achieve its maximum potential (Guiso, Sapienza & Zingales 2015).

Practical Evidence: The Case of Microsoft

Microsoft is a multinational supergiant that provides electronic and hardware products ranging from personal computers to smartphones, applications, and dedicated business products. The company was founded in 1975 when Bill Gates and Paul Allen established a vision of “putting a PC in every home” (Castelluccio 2015). The company’s major boom happened between the 1990s and the early 2000s when it grew tremendously from mounting sales across all of its positions, which included PCs, Windows, Bing, and Xbox. However, since 2007, Microsoft experienced stagnation and a gradual fall in sales, having been pushed aside by the technological revolution initiated by Apple and its new iPhone, which put many conventional competitors in the telephone industry out of business (Castelluccio 2015). Although Microsoft did not explore the mobile phone segment of the market, it recognized the potential threat to its dominion over the computing and programming industry, as the majority of its customers were increasingly becoming dual users, with a computer at home and a smartphone in their pockets. In 2014, Steve Ballmer stepped down as the company’s CEO, instead of being replaced by Satya Nadella.

Satya Nadella managed to turn the situation around for Microsoft and reinvent the company from the ground up, turning it away from being a PC-focused enterprise and announcing that the future of the company and the world lies in mobile services and cloud computing (Castelluccio 2015). To transform a multinational tech giant to conform to this vision, Satya Nadella had to launch a massive change process from the inside. It is important to evaluate his work from the perspective of Kottler’s theory of change to understand how each factor plays into the success of the entire venture:

• Determining the necessity for change. To Satya Nadella as well as his predecessor, Steve Ballmer, the necessity for change was obvious since as far as 2008, during which some intermediary changes were being made (Ibarra & Rattan 2018). Had Microsoft stayed on course with the PC-oriented company profile, their shares would have fallen even lower, and they would have lost many clients to the burgeoning Android-based programming market. Apple would have fortified its positions and pushed into Microsoft’s market share with its MacBook and macOS software.
• Determining the capacity for change. Microsoft could perform all and any alterations to its existing company profile. Being a multinational supergiant with billions of dollars in finances, assets, and personnel, the company could undergo a massive restructuring (Ibarra & Rattan 2018). In that regard, Satya Nadella had his hands untied, as he had plenty of untapped potentials to explore.
• Establishing a sense of urgency. Nadella exploited the sense of urgency in the company and its employees by sending an open letter to all employees, no matter the position and rank, announcing the state the company is in and how he was going to fix it (Ibarra & Rattan 2018). In so doing, he created the illusion of a sinking ship, mobilizing the internal resources of individual employees, and establishing a proper psychological climate to begin his intervention.
• Initial support. Satya Nadella was an employee at Microsoft in 1994 and managed to raise the corporate ladder based on his skills, connections, and ambition (Castelluccio 2015). He knew the system from the ground up and made friends and acquaintances across the entire chain, which enabled him to form a team of associates he could trust with propagating change among others. The predisposition towards future success was determined by that group.
• Vision and strategy development. Satya Nadella established his vision in his open letter, stating that “At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world” (Ibarra & Rattan 2018, p. 51). His strategy for achieving this goal included massive reorganization of the company, breaking up different branches of the company that existed as de-facto competing sub-companies under Microsoft’s umbrella. Nadella sought to eliminate inter-branch rivalry and establish a united Microsoft platform that would combine products for PC, mobile users, and cloud-based services.
• Communication. Satya Nadella made communication his primary priority, as he continued to generate feedback to and from the employees starting from the first day of his change implementation (Castelluccio 2015). The CEO used his initial rapport with close members of the company to pinpoint various issues with Microsoft on all levels to create a comprehensive change program and then refined it based on the feedback from everyone else.
• Empowerment. Satya Nadella empowered employees not only by allowing them to participate in the establishment of a new order but also by changing their renumeration programs. Under Steve Ballmer, Microsoft lost many prime specialists due to severe curtailing of corporate benefits and establishing an elaborate chain of upscale management that made new ideas and suggestions extremely difficult to process (Castelluccio 2015). Satya Nadella reorganized the company’s structure by making it horizontal rather than vertical, eliminating barriers for ideas to pass through, and assuming a hands-on approach in meeting and discussing ideas with staff.
• Short-term goals. Nadella’s proposed initial change program had to be completed in one month, taking up the whole of July of 2014 (Castelluccio 2015). This month saw the complete reorganization of corporate branches, a switch from a divisional to matrix form of organization, and the downsizing of over 7,800 employees (Castelluccio 2015). All of these goals were completed, allowing Microsoft to continue with its mid-term and long-term solutions. One year since the reorganization, the company’s profits started growing.
• Consolidation and continuation. Microsoft solved the consolidation and continuation problem in a rather unique manner. Nadella’s reforms were so radical and all-encompassing they left virtually nothing of the new order to return to – branches were dissolved, teams were mixed up, new objectives and goals were established (Ibarra & Rattan 2018). Lacking the fundamentals of the previous system, employees were forced to learn and adapt to a new one.
• Corporate culture. This was perhaps the most critical component of Nadella’s reform. Ballmer’s division-based system increased the influence of corporate politics, inter-branch rivalry, and separatism between members. As a result, products and services provided by Microsoft had little to no interaction with one another and lacking compatibility. Nadella introduced a collective-based corporate culture by uniting branches and separating employees based on occupation rather than projects (Ibarra & Rattan 2018). The negative traits of Ballmer’s systems were thus reduced, and greater cooperation between employees has been achieved. Since Microsoft aimed at further integration of different products into a singular platform, such a corporate culture was necessary to succeed.

As it is possible to see, Nadella’s massive success at reforming Microsoft was accomplished through the implementation of Kottler’s change framework and paying attention to all factors involved in the process.

Conclusions

Change management is an important business process that affects every aspect of an organization, from individual employees to branches, divisions, and even the directorial board. Kottler’s expanded framework provides an ample description of ten major factors that affect the success or failure of a change intervention. The importance of these factors is highlighted by the Microsoft case study, which illustrates the interconnectedness between different steps in the scope of a large multinational organization. Change management processes scale up, meaning that the larger the company, the more critical the implementation of Kottler’s framework is to the success or failure in the market.

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