A Case Study of Change Management in Interlock Industries

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The world in which business operates is continuously changing. Companies need to be susceptible and prepared to acknowledge the challenges that change presents and

try to overcome these in order for the company to benefit. Pressures for change within

a business can arise internally, from staff or management observing current processes,

or from external pressures like changes in the economy. There are several pressures

currently affecting large organizations, including changing markets, innovation

(technological or otherwise), Total Quality Management, organisational structures,

leadership status and HR perspective. Such pressures have been recognised and

effectively managed by leaders at Interlock Industries; a New Zealand based

multinational company concentrating most of their business at the Japanese market.

Interlock Industries' change management processes have been acknowledged as

successful based on the following of the philosophies of Stuart Young, the Executive

Chairman of the company. Through analysis of the Interlock case, it can be seen that

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Interlock is a company with a good relationship with foreign firms, strong leadership,

processes designed to assist with innovation, quality and research and development,

and the ability to continue to be prosperous and sustain competitive advantage into the

future. In spite of this, issues have been identified concerning internal operations,

patents, ineffective communications systems and leadership. Based on these findings,

solutions have been provided that can be adopted to avoid potential company demise.

Managing in a Changing Environment Case Study: Interlock Industries - 3 -

ANALYSIS

THE DRIVERS AND RESPONSES IN THE 21ST CENTURY

Changes approach

The ability to change and adapt is essential to survival in the uncertain business

environment (Paul 2005, 5). In an international customer-driven environment,

competitive advantage depends on an organisation's ability to focus on its unique

skills and capabilities, and build on and exploit these within a framework and culture

of continuous improvement and innovation (Graetz et al. 2002, 16) This

understanding is encouraged greatly at Interlock Industries and is demonstrated

through their employment of an innovation pipeline, total quality management system

and high standard of human resource practises.

Effectiveness

Interlock introduced workforce training in order to reach a higher level of confidence

and skill level among employees. They also took the initiative to improve

communication systems which provided benefits to the company in order to sustain

their competitive advantages. In addition to such improvements, their willingness to

operate in a global marketplace has increased the opportunities for the firm to expand

its revenue by selling around the world (Charles 2005, 5). For example Stuart Young

who came from New Zealand, targeted Japan as a new exporting market based on

profit opportunities.

Difficulties

The global marketplace is very competitive. Globalisation of a business generates

strong competition among companies. Interlock has to compete with products from

progressive Asian countries such as Hong Kong, Taiwan and South Korea. In order to

protect their products from becoming duplicated in these cheaper markets, Interlock

was forced to invest in expensive patents resulting in an increase in their operation

costs. Other than the cost increase, Interlock may face challenges in their products

appealing to Japanese consumer tastes as what sells in New Zealand may not sell in

Japan.

Managing in a Changing Environment Case Study: Interlock Industries - 4 -

MANAGEMENT AND META-MODEL APPROACH TO CHANGE

Approach

Sustainable change within Interlock industries is reliant on the company's ability to

appreciate their strategy and situational factors. Where a company considers their key

issues, and manages change accordingly, will undergo this endeavour successfully

(Burnes 2000, 251). There is little doubt that the early underpinnings, driven by Stuart

Young for a culture of innovation and quality, has provided the company with a

competitive advantage in the long run, attributing this success.

However it was this management approach in the form of cultural excellence,

fostering delineated hierarchies (factories), shared cultures (Japan) and encouraging

innovation (pipeline, R&D) which set the ball rolling for change. This instigated

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continual change (transformation) based on factors such as customer requirements due

to product customisation, requiring staff retraining/multi-skilling and acceptance (HR

facets), increasing competitor awareness, strain from economic factors such as

inflation, and minimisation of production defects. It is now the requirement of

Interlock to maintain this continual transformation process to stay ahead of

competitors, keeping their advantage.

Effectiveness

It could be argued that Stuart Young's starting point in the Japanese market saw him

inadvertently adopt managerial strategies used by Japanese manufacturing companies. - (opportunities recognise)

Those strategies in particular include Total Quality Management (TQM). It would

then be easy to attribute any success or effective outcomes to known successes,

because they have worked before (Arnotts example). This is not the case, given the

company's strategy has to marry the management and change approach to be effective.

Interlock's strategic advantage is in their ability to innovate (Gilbert 1995, 10)

evidenced by their winder-top-lock window mechanism; this fits directly into their

cultural excellence management approach. Furthermore, by innovation development,

Interlock ensures employee retraining and re-skilling fitting with continuous

improvement.

Managing in a Changing Environment Case Study: Interlock Industries - 5 -

Difficulties

The difficulties of both Interlock's direction of change and the approach in

management were dependant upon the environmental and cultural factors related to

the Japanese market. Firstly was the struggle to align with a business willing to deal

with the product type as environment forces dictate relationship/family oriented

business (cultural changes) (Yoshida 2006, 1). Secondly, a niche market approach still

provides competition, as other similar Japanese window manufacturers could

instantiate competition mimicry, which was the case.

DISCONTINUOUS CHANGE AND PROBLEMATIC CHANGE RESOLUTION

Approach

Graetz and others (2006, 44) characterises the global business environment of the

Post-Industrial Age as "complex, uncertain and turbulent". This maintains that

traditional boundaries are no longer sustainable, given market forces pressuring

operating speed. Interlock industries had to deal with heavy forces of discontinuous

change due to the pressures of the growth and structure of the Japanese market, from

both competitive pressures and macro-economic forces. By instantiating guiding

principles in managing this change, Interlock has seen a successful turnaround. Such

actions as alignment to market leaders, distributed leadership, increasing strategic

clock speed, and a learning focus incorporating customer value are only the icing on

the cake when promoting this stability. It is this distributed leadership where Interlock

has dissolved problematic change by maintaining sustainability through a strategic

thinking approach.

Effectiveness

It was firstly the way Interlock aligned themselves with potential large corporate

customers/suppliers that provided the foundation in which they could succeed. By

having this backing, provided a sense of stability in which to challenge this

discontinuity. This gave ground to Interlock valuing customer/supplier feedback, inturn

fostering a learning focus. Having this close relation provided knowledge of

market wants/needs then providing what was required when it was required, staying

ahead of competitors. This innovative focus saw Interlock shrink their product lifecycle,

increasing competitiveness and maintain market leadership. If this wasn't all

Managing in a Changing Environment Case Study: Interlock Industries - 6 -

Interlock could do to minimise this discontinuous change, by adapting strategic

thinking in involving managers to understand organisational scope (through training

and meetings), helped involve the entirety of the organisation by aligning them to

strategic outcomes, fostering support and commitment.

Difficulties

Little detail has been provided that suggests total acceptance by all levels of staff in

the direction and focus of the organisation. Given the change strategy might have

been successful in the environment of operation; sustainability heavily depends on

employee acceptance and ownership (Erez and Isen 2002). A delineated structure

suggests clear and open communication lines, however is the strategic message being

portrayed appropriately, given only team meetings and random spot checks from

Stuart himself are performed? Tying this to the assertions that Interlock lacks

incentive programs, could hinder employee acceptance and output.

CHANGE PROCESS

Approach to change

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Interlock Industries approach to change can best be described by Total Quality

Management, as can be seen from their use of the innovation pipeline. Further

Interlock uses high trust relationships with its customers and has a solid devotion to

continuous improvement. Stuart Young has created a workplace culture that supports

the TQM framework and also supports constant innovation (Dwyer 2002). Interlock

actually calls its TQM model an innovation pipeline, similar to the way that Arnott's

biscuits has personalized TQM by giving it a company name.

Effectiveness

Total Quality Management has proven to be very successful for Interlock. It addresses

all of the key concerns of their target market and also has much in common with the

management philosophies of that market. As Interlock is now one of the top suppliers

in the Japanese market one would have to say that Interlock's adoption of Total

Quality Management seems to have been very effective.

Managing in a Changing Environment Case Study: Interlock Industries - 7 -

Difficulties

It appears not many difficulties have arisen with this management philosophy for

Interlock. However, in the future the company may have difficulties with it as the

system relies heavily on the presence of Stuart Young. Unless Interlock finds a new

CEO that is equally as effective as Stuart Young, it may have difficulty sustaining

itself (Robbins et al. 2003) when he choses to retire.

CHANGE AND ORGANISATIONS

Changes approach

Changes to structure cannot take place without complementary changes of process

and boundaries (Graetz et al. 2002, 175). In this case, Interlock Industries

demonstrates complementary changes in structures, processes and boundaries.

Interlock implemented team-based work groups all throughout its plantation. It has a

flat management structure where the authority and responsibilities of senior

management and the employees are redefined. The empowerment of the employees

thus creates a more participatory management structure. Another important factor is

the changes in the processes whereby Interlock Industries focused on improving the

performance levels through the training of its workforce and further education.

Having an effective communication system is also one of its internal strengths. As the

company expanded internationally, Interlock decided a strategic alliance would be a

good choice for foreign direct investment. Interlock has become allied with Shibutani

because of its reputation as the best window hardware producers in Japan. This

provides Interlock, a totally new company in Japan, with some credibility and an extra

edge (Graetz et al. 2002, 174)

Effectiveness

The skill that an organisation possesses to identify and utilize the interconnectivity

between all the three variables provides the answer to thriving success in the long run

(Graetz et al. 2002, 165). Interlock has explored new forms of organisation around all

three areas and human resources practices have ensured the full spectrum of

organisational skill and capabilities whilst becoming increasingly competitive in the

marketplace.

Managing in a Changing Environment Case Study: Interlock Industries - 8 -

Difficulties

However, if the organisation implements change in one area without regard of the

impact on change in other elements, then negative performance will result (Graetz et

al. 2002, 151). For example, business negotiations conducted between Young and

Shibutani are done with the aid of a translator. This can be risky if the interpreter

lacks experience in the Japanese language as Young would be placing much trust and

confidence in the interpreter's explanation as decision would be made on the

information being received.

CHANGE AND STRATEGY

Approach to Change

Interlock Industries has tackled change head on. Change forms the largest part of

Interlock's strategic competitive advantage. The company spends ten per cent of its

sales on research and development. The CEO of Interlock directly attributes the

company's success in the Japanese market to innovation. The company builds both it

corporate image and its strategy around innovation (Hill 2004). Stuart Young has said

of Interlock, "Interlock is seen not only as the people who have changed the market,

but who also have new products coming all the time and they want to 'hook' on to this

pipeline." The use of creative strategies coupled with the Human Resource strategy of

hiring innovative people have shaped Interlock into a highly flexible company

(Werner et al. 2006). Innovation is at the core of everything Interlock.

Effectiveness

Interlock's strategy of change has been very successful. By using its innovation

pipeline and similar strategies Interlock has been very successful in the Japanese

Market. The use of patents has also helped Interlock to stay ahead of the competition.

Interlock industries has forced its competitors to play a constant game of catch up. As

Interlock keeps moving forward the competitors struggle to keep up (Robbins et al.

2003). Stuart Young has also fostered effective change in Interlock's way of doing

business. This was done by his willingness to change how he went about doing

business so as to enter the Japanese market. He also fosters effective change by

ensuring the company is manufacturing what the customer wants.

Managing in a Changing Environment Case Study: Interlock Industries - 9 -

Difficulties

The major difficulty that Interlock faces with this strategy is cost. The enormous cost

of constant research and development has meant that Interlock has had difficulty

keeping its prices competitive. Being based in New Zealand has provided much of

this difficulty due to the exchange rates of that country's currency.

ENTREPRENEURSHIP AND CHANGE

Change Approach

Coulter (2003, 3) defines entrepreneurship as new, innovative, flexible, dynamic,

creative and risk taking. Stuart Young's approach to product progress can be

considered all of these aspects as he adopts the role of the entrepreneur. Of the many

hats an entrepreneur wears, that of change agent may be one of the most important

(Godsey 1997, 52). The combination of innovation and need for change can be

witnessed in Interlock Industries' adoption of a development pipeline, designed to

appropriately foster the flow of ideas in a market that demands the latest products.

Effectiveness

According to Young, Japanese demand for innovation would have to be higher than

anywhere else in the world. Such an understanding has made Interlock successful in

this area as they were the first to offer the Japanese market the alternative to a sliding

window by providing a product that allows windows to open out. This idea led to a

decrease in the popularity of the standard sliding window and product life cycle, and

increase in demand for more original modern designs. Interlock was willing to take

such steps of uncertainty regarding their product range and mission to establish

themselves in the Japanese market, which is a trait not often seen by Japanese

businesses. However, their product development method, selection of creative

employees and willingness to recognise and listen to the consumer has helped

immensely to reduce the risk factor.

Difficulties

The greatest challenge Young encountered was convincing others of his original

innovative ideas when first introducing the company's products to the Japanese

market. Entrepreneurship usually requires a vision and the passion, commitment, and

Managing in a Changing Environment Case Study: Interlock Industries - 10 -

motivation to transmit this vision to others (Timmons 1994). Young was told at one

point that no market existed for Interlock products by a large Tokyo based

multinational. Another challenge Interlock has recognised as a future obstacle is to

further develop there recipe for quality and innovation. Yet for now, the strategy

appears to be yielding profitable results even through times of economic dismay.

LEADERSHIP IN INTERLOCK INDUSTRIES

Change Approach

Interlocks development and changes were headed by the Executive Chairman Stuart

Young. He has a charismatic personality. This attitude is underpinned by his way to

focus on efficiency, e.g. when he was looking for new market opportunities, he

decided to target on single market with economic growth. It might be an advantage he

acquired whilst his international work experience (more than 56 countries).

Effectiveness

Stuart used to change situations quickly, immediately and he involves himself always

in each process. A further strength was his identification with the changes that made it

easier to achieve the goals. He put the right people in the right position and made it

work, e.g. Manufacturing Director. He chooses people who believe in his approaches

to change. Furthermore he involves himself in nearly every stage of its Interlock

product pipeline. First the pipeline was his concept of developing new products. He

made himself to have control over the preparation and alteration of the design and

compliance of the customer needs. But at the same time many of the ideas came from

his own recognition, because he used to be in personal contact with the customer and

show them the prototype (next step). However, Stuart controls nearly every step of the

innovation pipeline, this makes him to a charismatic leader, to a key figure in this

processes. Another key fact is his personal approach to change. When he went to

Japan to start a relationship with a customer and he has been dismissed, he

immediately looked for an interpreter and moved back to Japan. Stuart also believed

in new technology as Interlocks road to zero defects shows. He changed the out of

date complaint sheets and put all raw materials under statistic control and occasional

audits. As well as he also was improving the use of new manufacturing methods. He

motivated employees to change by rewarding them for finding valuable improvements

(Graetz 2002).

Managing in a Changing Environment Case Study: Interlock Industries - 11 -

What he all over did was establishing clear directions, aligning people and motivating

or rather inspiriting them (Dunphy 2003, 263).

His effectiveness has to be assessed at the company's success. That means the more

successful Interlock is the effective are the changes had been performed. The

innovation pipeline shows the effectiveness best. Thought this tool Interlock became

the biggest to Japan exporting private company (NZ) and having a lot of patents. This

made Interlock to have a competitive competition in R&D.

Difficulties

Nevertheless, beside the difficulties with the interpreter in the beginning, Interlock

has a major weakness: It's too much dependent on Stuart. He formed the company,

created the relationships to its customer and he leaded the changes with his charisma.

It is comparable to IKEA and his founder Ingvar Kamprad. He was IKEA (Howard

2004). After he quitted his job it has been a big changeover, because the company was

what it was of his personality and that is equal to Interlock and Stuart. Their will be a

long way after Stuart, beginning with the distribution of responsibilities Stuart hold.

This change might be very difficult, because the former changes were leaded by him.

He will leave but shifts in the economic environment will go on.

Managing in a Changing Environment Case Study: Interlock Industries - 12 -

SYNTHESIS

Despite the overall prognosis that Interlock Industries is doing well, there are a

number of areas that have been identified where Interlock could be using change tools

more effectively. These issues must be resolved if Interlock Industries wishes to retain

its competitive advantage and market share.

ISSUE: INTERNAL OPERATIONS

Meetings are often criticised. As mentioned by John Galbraith (cited in Cole 2001,

183) 'Meetings are indispensable when you don't want to do anything'. Such is the

case that meetings can often waste time especially if they are called too frequently

(every morning for Interlock) causing meetings to have unclear objectives, rash

decision making, producing nothing. Meetings can also give to the illusion that the

team is being involved in a decision when they are only there to approve it (Cole 2001,

183). Such is the case that the inclusion of a more structured approach to include

clarity and increase decision making and awareness is beneficial.

Incorporating a balanced-scorecard strategic-management system and supportive

individualised goal-setting process will help employee motivation by conceptualising,

involving and taking ownership of personal and organisational objectives (linking

them). This will build trust and provide greater control to the employee, strengthening

the performance to outcome relationship (Kopelman et al. 1976, 255). This also

marries with the aforementioned strategic thinking approach by incorporating all

lower levels of the organisation through interaction, more clearly (sharing elements of

strategic planning) (Graetz et al. 2006, 79). This also has great potential toward

strengthening corporate alignment/synergies.

This concept of involvement and clarification can also benefit employee performance.

By addressing employee motivation and utilising Vroom's expectancy theory, gives

grounds to suggest successful application of a cooperative reward system. Outlining

both intrinsic and extrinsic rewards and aligning these to performance outcomes,

outcome types or individualisation, increases the expected value of outcomes. This

results in greater performance due to a level of individual ownership (Dewitte et al.

2004). This builds grounds for more confident employees, building the innovation

Managing in a Changing Environment Case Study: Interlock Industries - 13 -

pipeline through a greater willingness to share ideas (rewarded through intrinsic

means).

Without a clear concept of direction, focus and acceptance by employees, this could

have a drastic effect on organisational performance, leading toward a potential

collapse.

ISSUE: PATENTS

Interlock used patents to stifle competitors from copying or stealing their ideas. Hill

(2004, 57) defines a patent as granting the inventor of a new product or process

exclusive rights to the manufacture, use, or sale of that invention. However, it can be

argued that using patents may increase the company's production cost and diminish

their returns. With regards to the Interlock case, we see the company pay a fee of

$5000 per patent in order to protect their new products. To increase their returns,

economies of scale represent an important source. Economy of scale is to produce a

large scale of output in order to lower down the unit cost (Charles 2005, 162). Thus

Interlock could achieve the desired economies of scale through more efficient

production, subsequently reducing their overall cost.

ISSUE: INEFFECTIVE COMMUNICATION SYSTEM

Communication between managers and employees provide necessary to get work

done efficiently in an organization (Robbins et al. 2006, 612). However, ineffective

communication may create problems within the organization. As described in the case,

Stuart experiences communication problems with the Japanese interpreter, resulting in

a decision being made based on an inaccurate interpretation. Fortunately the actions

that followed this incorrect interpretation did not impact negatively on the company.

Yet, this is not to say that poor translation would not result in a potential downfall of

the company. An incorrect translation could also be seen as disrespectful, particularly

in the eyes of Japan, a country who has immense national pride and values respect

greatly.

In addressing this problem, it is essential Interlock places a greater emphasis on the

hiring process. Hiring two interpreters could also yield greater communication results

and reduce the opportunity for an error such as this to reoccur. Hence the

Managing in a Changing Environment Case Study: Interlock Industries - 14 -

effectiveness if the communication can be improved where the Stuart can better

understands the information given by the interpreter.

ISSUE: LEADERSHIP

Interlock also faces some serious concerns with regard to its leadership. Part of

Interlock's competitive advantage is based upon the relationships forged between

Stuart Young and the managers of Interlock's customers. Such relationships are very

important in the Japanese market (Dwyer 2002). While Interlock has other managers

only Young is used for communication with the customers. If Stuart Young were to

leave Interlock, established relationships would perish, resulting in the loss of these

valued customers. In the eyes of the customer, loyalty is to a person, not a company.

Stuart is viewed on a personal level, not as a representative from large multinational

corporation known as Interlock.

If Interlock wished to address this problem they would have to undertake a

cooperative customer relationship. This could be done in a manner such as that

suggested by Werner (2002) where by each customer deals with more that one

manager. Thus there is little damage to the company if one of the managers is ill or

leaves the company. Interlock could implement a similar system. Stuart Young could

employee another manager to co-administrate relationships with the customer base.

Such managers are available at Interlock as Young says that there are a number of

managers he trusts. Based on this understanding, such a hurdle can easily and

inexpensively be overcome.

Managing in a Changing Environment Case Study: Interlock Industries - 15 -

CONCLUSION

Change is inevitable in today's domestic and international marketplace. In order for

corporations to remain competitive in their fields, they must be prepared for change and the

effects of that change. Interlock industries is a change management success story. Their use

of change management components such as change processes, entrepreneurship, strategic

change, leadership and continuous transformation has helped to give Interlock Industries an

advantage in the tough Japanese market. This is not to say that Interlock Industries is

without imperfections, as areas of improvement have been identified and suggestions made

to maintain its market share and competitive advantage. Areas discussed and suggestions

provided were with regards to internal communication, patents and leadership. While the

company will have to manage the complications of such issues, they are currently in a good

position to deal with these challenges based on their approach towards the change

management process. Due to their ability to handle change, encourage innovation and

support employees throughout the company, the future of Interlock Industries looks to be

one of many years if such strategies continue and are encouraged throughout the times.

Managing in a Changing Environment Case Study: Interlock Industries - 16 -