managing change unit 4 a2 business

Managing Change:

Managing Change Causes of and Planning for Change

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Internal and External causes of change Change arises as a result of various internal and external causes Internal should be planned for External may be unexpected Examples can be seen below Of all the issues relating to change none is more crucial than when a business is having to cope with rapid growth

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Business effects of forecast rapid growth In certain circumstances managers can anticipate a period of rapid growth May be temporary or permanent The most successful will have a plan that is detailed but flexible When rapid growth has been forecast firms can Compare sales estimate with capacity Budget for changes in capacity and staffing Produce cash flow forecasts Discuss how to raise extra capital Timescales remain important There is a lot of scope for error

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Management reorganisation during growth Problem of adjustment from boss to leader/manager When the business starts the owner’s speed of decision making, attention to detail and hard work are fundamental With success comes the question of how to deal with the extra workload Staff may find it hard to accept a new manager The boss has to make the break Delegation is necessary Motivation is a problem The chief exec at Diageo came up with a solution for motivation – HAT – a Hairy Audacious Target

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Management reorganisation during growth Change in management structure/hierarchy Management structure will grow and change This may be worrying for customers and suppliers New people arriving puts a strain on team spirit Potential for chaos A good example needs to be set at the top The leader needs to make sure the staff keep sight of the qualities that brought success The leader could visit staff and act on their advice He/she should keep contact with the grass roots

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Management reorganisation during growth Risk of loss of direction and control Templeton college Oxford produces data on the Fast Track 100 The typical fast track company has gone from 25 staff to 136 staff in the past 3 years Their surveys show that staff and infrastructure are the key challenges The entrepreneurs who get swamped fail They become sidetracked They may open other businesses Their core business becomes harder to handle They have to focus on what they are good at

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Problems of transition in size From private to public The decision to move from a private ltd company to go to a plc is crucial Although a private company publishes accounts it an still keep its activities quiet The pressures on management are minimised Poor trading may disappoint the family but there is no publicly quoted share price to embarrass the firm Switching to a plc is not a difficult or expensive process The big change comes when shares are floated Enter the glare of public scrutiny

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Problems of transition in size From private to public The purpose is normally to raise large capital from shares This can enable a highly geared private firm to achieve a more balanced capital structure as seen below Insert table 49.2

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Problems of transition in size From private to public In the case of sharps plc the capital allows major expansion May be under pressure to make a big move The risks are substantial Insert table 49.2

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Problems of transition in size Retrenchment Just as big steps forward can lead to problems so can steps backward Retrenchment means cutting back Most often it will mean rationalisation When forced to cut back firms have several options as seen below Insert table 49.3

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Planning for change For managers who can foresee significant change a strategic plan is needed Should help manage the change process The planning process is carried out by senior management They need to ask: how do we turn this change to our advantage? Strategic planning is necessary because firms operate in a changing environment It is change that creates the strategic gap Financial targets will have been set The difference between the profit objective and the forecast is known as the strategic gap Insert 49.2

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Closing a strategic gap Strategies need to devised to close the gap Part of this may be to be more efficient but it is unlikely to solve the whole problem The analysis of the strategic gap should show how difficult it will be to cope with the change Something a firm will do during the strategic planning is have a contingency plan It will look at all of the things that could go wrong and have a plan for it This will reduce the risk of unforeseen difficulties Insert 49.2

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Issues for analysis When answering questions about the causes of – and plans for – change, the following should be discussed Planned or unplanned? Leadership style Financial resources How well does the firm cope with growth shocks and can the management keep focused? Can managers who have handled growth handle retrenchment? Only if they have and deserve the trust of the staff!

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Evaluation Change is normal Firms need to be alert The same problems have to be faced when organisations don’t have formal planning – they just do it as they go along The advantage of setting time aside is that manager’s minds are concentrated on key questions