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This is the ultimate deciding factor for any business of today. With reference to Fabrication International (FI), crucial choices had to occur as a result of market forces impeding on the growth and success of the business. The organisation faced a dilemma which could have resulted in the reality of remaining stagnant with a declining market share and heightened competitive rivalry. The alternative to this morbid option was to adapt and to make the decision to make a change to become more marketable.
The latter option proved to be one that was a favoured approach to the strategy of the organisation from a long-term perspective. This assignment will analyse the strategic investment decisions made by Fabrication International with a view to understanding the implications of the decisions made as well as the learning's thereafter from this change initiative. In addition, the assignment will include an analysis of Kurt Lewin's contribution to change management with the relevance on modern organisations.
Evaluation of FI's investment-appraisal process
Successful change within organisations requires more than change management techniques. Changing requires that organisations address the strategy (what they are trying to change), the skills (the capabilities of the organisation) and the structures (the tools that support the organisation) (Carter, 2008). The alignment of these aspects is also crucial to achieve the desired outcome of change. Fabrication International (FI) was considered as the leader in the fabrication of small and complex structures.
This is an ideal position for most organisations, however, it is one that is envied and that needs to be well protected and sustainable. Market changes, developments and competitive threats as a result brought in new competitive players to the market and Fabrication International subsequently lost the title of market leader. The nature of the industry that Fabrication International operates in is highly competitive, with the bulk of competitors being at the forefront of automation and technology.
In order to regain market share and leadership, it is crucial for Fabrication International to be able to compete successfully and to be innovative. Strategy and strategic thinking has culminated into the in-house investment appraisal process which involves a 4 step process. This process comprises of (Burnes, 2009):
Step 1: Each departmental head generating a wish list. This does not involve a financial case analysis for the investment. The rational at this step of the process is to gauge how the investment would address a pertinent strategic issue being faced by Fabrication International.
Step 2: The Head of Department has a discussion of the wish list with relevant role players, not connected to the department. The purpose of this is to reduce the wish list to five pertinent items for the strategic investment of Fabrication International.
Step 3: Detailed prioritisation and a financial case analysis occurs to determine the rationale of the investment.
Step 4: The Board of Fabrication International and each department head analyse the investment proposals. Thereafter, the decision is made.
The investment appraisal procedure of Fabrication International is a strategy driven process which is driven by three rules (Burnes, 2009):
The organisation has a limit on the investments being made each year and therefore has a cut-off point on the number of projects being supported.
The organisation only supports projects with a two to three year investment payback period.
Each department, within Fabrication International will receive the go ahead for one project. This project may not necessarily be the department's number one project but rather a project with a higher expected payback and one more beneficial to the organisation.
Thus, the decision making of the appraisal process involves assisting the organisation into making the right purchases in order to get a value for money and to enhance strategy. The investment appraisal approach of Fabrication International has designed as a strategic tool to guide investment as well as a financial tool to instil financial prudence (Burnes, 2009).
According to (Burnes, 1997), organisations can choose to adopt an approach which matches the circumstances, or change the circumstances to make them appropriate to the way they prefer to operate. The strategic decisions that an organisation makes is dependent on the strategic type of the organisation. The strategic type of the organisation refers to the ability of some organisations to control their own destinies and the ability of some organisations to have no control (Burnes, 1997).
The Choice Management-Change Management Model by Burnes (2009) can be used to understand and implement any organisational change. The choices and changes undertaken by organisations are as a result of this model. The model comprises of three interdependent organisational processes:
Choice: this is the process whereby an organisation makes decisions regarding change. These choices are seen as being the outcome of the context in which an organisation operates, the focus of its decision making attention (especially whether issues requiring decisions were identified in a proactive and consistent fashion, or a reactive and ad hoc one) and its route.
Trajectory: this process is in effect an organisations "career path". It comprises of an organisation's past actions and proposed future direction, and is seen as the outcome of the combined effects on the organisation of its vision, strategy and past changes. The clarity and acceptability of an organisations trajectory are related to the consistency and success of its past actions, and the support for and compatibility of its future plans.
Change: this process covers an organisation's approaches to, mechanisms for achieving, and experience of change, especially in terms of objectives, planning and people.
Figure : The Choice management - Change management Model (Burnes, 1997)
Figure 1 above depicts the interdependencies between the aspects of change, choice and strategy (trajectory). All three processes are heavily influenced by an organisation's past experiences and perceived future plans like the Computerised Welding System (CWS) for Fabrication International. According to (Burnes, 1997), the strategy emerges from and is the product of many and varied changes that takes place in an organisation. This is turn shapes the choices that organisations make and drives the current change processes (Burnes, 1997).
The decision to implement the CWS at Fabrication International was one that was strategic and driven by external competitive pressures. This approach to strategy by Fabrication International as a result of the investment appraisal process is considered as evolutionary. According to (Burnes, 1997), this approach is viewed as an emergent view of strategy where the organisation is at the mercy of the changing environment where there are unpredictability's. The strategy emerges from the changes that Fabrication International is making (CWS) to be able to align itself to the market and its external environment.
In addition, (Burnes, 1997) also suggests that organisations exercise a considerable degree of choice when considering the operations of the organisation. The strategic investment decisions of organisations like Fabrication International are also dependent on the constraints of an organisations decision-making freedom (Burnes, 1997). The constraints develop from:
The industry or sector the organisation operates in
The Business environment
It is essential that the leadership within organisations avoids or manages these constraints to allow for effective strategic investment decisions. According to (Burnes, 1997) a virtuous circle exists whereby organisations perceive that their choices they have place them in a position to implement strategies that will allow for them to exert and influence the circumstances in which they operate, like with Fabrication International and the implementation of CWS.
Fabrication International, like many other organisations is an organisation with a long-term view and is driven by ambitious goals and vision. However, it remains crucial that these organisations are able to shape events rather than continually responding to it. The ultimate objective of the strategy of the organisation is to align or re-align the organisation with its environment (Burnes, 1997). Fabrication International's investment appraisal approach allows for strategic investment in the form of projects and investments to boost the strategy of the organisation.
Specifically, the aim of the organisation, with the introduction of the CWS was to adapt to the environment, become more competitive with an aim of business growth. At Fabrication International, the rationale for all investments being analysed through the rigorous investment-appraisal process is always strategic. This process allows for the focus on the enhancement of the organisation, internally and externally. This investment appraisal approach is therefore beneficial to the strategic investment decisions. The strategic benefits of the approach are indicated below.
Figure : Strategic benefits of the Investment-Appraisal Process
Question 1.2: The CWS Introduction
Most new changes to organisations encounter difficulties at the onset. The challenges experienced allow for the organisation to be more prepared for future change. In a similar manner, Fabrication International experienced difficulties with the Computerised Welding System (CWS) introduction.
What went wrong?
The proposal postulated by the Senior Engineer at Fabrication International highlighted the need for the CWS. He was determined to have this system purpose built for the organisation by a reputable supplier who would thereafter act as a turnkey contractor for the roll-out of the system. The turnkey contractor would take the responsibility and accountability of designing the system, purchasing and integrating the separate parts and ensuring that the final product would match the performance criteria of Fabrication International.
The critical concerns that led to the problems experienced by Fabrication International were:
There was the perception that this was a time consuming investment decision. This suggested that some felt that the costs and time of such an investment would outweigh the benefits.
Mixed support from Senior Leadership at Fabrication International. The Financial Director opposed this investment whilst there was strong support from the Marketing Director and the Design Engineering Director
A request by the Board and the Investment Panel to have a three year payback period. This would involve cutting of the cost/budget by two hundred thousand.
Dispensing of the turnkey contractor. This was the most crucial concern to the problems experienced with the CWS. This action brought about immediate savings to the organisation and the investment pool. However, this action would prove to be one that was one that was costly to Fabrication International in terms of time and money.
The engineers of Fabrication International had the task of integrating the separate elements of the CWS, a system that was not familiar to them.
The cost of equipment was lowered, thus presenting the project team with lower specification components.
These critical concerns ultimately culminated into a system that was challenging for Fabrication International. As a result, the organisation faced many problems at the introduction of the CWS. The following issues arose at the introduction of the CWS (what went wrong):
The CWS could work, but not at the desired level that was originally anticipated by Fabrication International and the project team. The benefits of this system were not visible.
Equipment of lower specification was purchased. This brought about savings and lowered costs for the organisation. This decision was made at the expense of Fabrication International and the project team.
Increased costs and extended delivery times from the suppliers. The prices and service level agreements that were discussed initially were specific to the turnkey contractor. These benefits were based on the repeat business relationship of the turnkey contractor with these suppliers. The absence of the turnkey contractor suspended these preferred options and Fabrication International was subject to higher costs and extended delivery times as a result.
Delivery of equipment after a period of nine months. Assembly of the CWS occurred thereafter. This was a major concern and resulted in huge time delays. The use of the turnkey contractor would have resulted in the CWS being operational at this point in time.
Lowered morale and despondency within the project team. The negative hype and criticism surrounding the introduction of the CSW led to project team themselves not having enough belief in the CWS.
Incompatibility of components which led to a system that was able to operate in a limited, yet unsatisfactory manner. In addition, there was a monumental loss of eight hundred thousand and a time period of fifteen months had lapsed with an organisation that still did not have a system that could operate effectively.
Lack of support from senior management and the Board at Fabrication International. These management bodies displayed hostility to the project. As a result, the Senior Engineer did not have any assistance or support and was left to his own devices. This lack of belief and support of the CWS was a concern that should have been addressed at the outset of the investment decision. In addition, good communication between stakeholders is key to the success of any project.
The problems discussed above resulted in the turnkey contractor being re-appointed. This lead to an increase in cost of four hundred and fifty thousand and an additional time period of six months. The system was finally able to operate in the intended manner. The problems that occurred as a result of the CWS have led to Fabrication International being more risk averse with the investment decisions being made. The poor decision making and choices made during the introduction of the CWS has been to the disadvantage of future strategic investment decisions at Fabrication International.
How could it have been avoided?
The poor management of the CWS roll-out at Fabrication International was primarily a result of poor decision-making and choices. This change process was a necessity for the organisation and was a key strategic driver for the future of the organisation. This change process was however not supported by everyone and this lack of support was instrumental to the poor execution and implementation of the system.
The problems faced by Fabrication International could have been avoided in the following manner:
The appointment of the turnkey contractor which would have resulted in:
Reduced delivery times as a result of the preferred supplier arrangements
Reduced costing available only to the turnkey contractor
Success of the project and an earlier payback period
No loss of job for the Senior Engineer
Shorter project lifecycle suggesting the organisation would have focussed on other projects rather than focussing on the concerns of CWS
Acceptance of the initial proposal would have resulted in:
Appropriate specification of goods being purchased for the CWS assembly
Use of specialists from the turnkey contractor to assemble the system. The CWS was assembled by the engineers from Fabrication International. This was concerning as this system was purpose built for the organisation.
Lower costs and time delays. The CWS would have been operational in nine months, as specified with no further increases in timelines and costs.
Enhanced involvement by all relevant stakeholders:
Support from senior management, especially the Head of Department that requested for this investment.
Acceptance and belief in the project by the project team.
Open communication within the project team to alleviate the stress of the project.
Involvement by senior management was critical to the decisions being made.
A culture that included support, teamwork and reliance by all parties crucial to the success of projects.
Strong and Supportive Leadership that believed in the benefits of this investment decision.
This would have allowed for relief and would have alleviated stress experienced by the Senior Engineer
Reduction in hostility to the investment
Increased involvement and support for the project
Enhanced belief in the project
Creation of a strong culture that would enhance acceptance and belief in projects.
After much deliberation, it was the decision of the senior management at Fabrication International to re-appoint the turnkey contractor. This was unfortunately at the expense of the job of the Senior Engineer. The poor decisions made initially could have been avoided as per the reasons discussed above. This change process has resulted in Fabrication International being more risk averse. This will be done to avoid the scenario that was experienced with the introduction of the CWS. According to (Burnes, 1997) change is determined by an organisation's past as well as the future. It is imperative that organisations are able to prepare for change and to grow from past experiences.
Question 1.3: If I were the Senior Engineer, what would I have done?
Fabrication International initiated the implementation of the CWS as this system was seen as a strategic necessity. There was an urgent need for the organisation to regain its competitive edge and to become more technology driven and automated, like their associated competitors. The costing for this strategic investment was justifiable in terms of the advantages that this system could provide. Enhanced competitive levels, market share and business growth was at the forefront of this strategic decision.
The fundamental element of the success of the investment was the budget (a figure ranging from minimum of 1 million and a maximum of R1, 2 million) and the turnkey contractor. The turnkey contractor would be responsible for overseeing the design as well as installing and assembling the CWS. The successful output of the system was not experienced as a result of decisions and choices made by senior management at Fabrication International.
The following recommendations are presented with reference to an alternate Senior Engineer:
Detailed research, reports, cash flow projections and feasibility studies to justify the spending of a maximum of R1, 2 million. The reasoning of the reports would assist in highlighting the plight for a system such as the CWS. The reports should also indicate the benefits of such a system as well as highlighting how these benefits would outweigh the large costs. In addition, firm belief and reasoning by the Senior Engineer is also critical to obtain the support of the investment-appraisal panel as well as senior management. In addition, if the cost/budget was reduced, it is imperative that the Senior Engineer has room for negotiation, especially when concerned with a strategic investment of this magnitude.
A compilation of a detailed value chain analysis which would aid in identifying the various role players of this investment and their respective levels of involvement. This analysis would also assist the organisation in determining the benefits to each concerned role player and ultimately, the strategic benefit to Fabrication International and the financial reasoning for the requested budget. In addition, as this is a strategic investment, the fruition of an investment such as this cannot be experienced immediately. The pay-back period of three years would not be achieved. Instead the organisation would experience the benefits on a longer term horizon. This realistic view would allow for the organisation to be reactive to current competitive pressure whilst being proactive to future change processes.
The need for this system stemmed from the need for Fabrication International to become more competitive, automated and technology driven. It is therefore crucial for the Senior Engineer to perform a competitor analysis. This is very critical as this analysis would have highlighted the huge competitive pressures that were faced by Fabrication International. In addition, the necessity of such an investment would be coherent. This system was being purpose built for Fabrication International and would therefore be unique to the organisation. This strategic investment and the success of it would have provided Fabrication International with a competitive advantage.
Provided the Board with a detailed PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analysis. This is also a crucial tool in analysing the environment that an organisation operates in. This analysis is crucial as it allows for the viewing of how technology driven the business markets are in contemporary society. With changing times and changing markets, it is imperative that organisations change and adapt in order to survive. This analysis would assist in providing the Senior Engineer with a justification for undergoing this technological change and for the budget required.
It is also essential that the organisation is aware of the competitive arena in which they operate. Porter's Five Forces Model assists with the analysis. The need for the CWS model occurred as a result of diminishing competitiveness by Fabrication International. Porters Model assists in analysing the competitive environment of the organisation by obtaining an understanding of all competitive threats the organisation faces.
Figure : Porters Five Forces Model (Ward, 2010)
Transparency is essential to the success of any business objective. The degree of transparency and efficacy of the choice process and decision-making are heavily influenced by the organisations ability to turn choices into workable strategies and to in turn change strategies into successful actions (Burnes, 2009). This is crucial for future choices. This would have been essential to the success of the introduction of the CWS at Fabrication International as this would have resulted in the organisation not being so risk averse for future strategic investments.
A comprehensive SWOT analysis of the business and the environment to highlight the weaknesses of the business as well as the threats that are present. The benefit of this strategic tool is that it also has the capability of highlighting the necessary opportunities and strengths of the organisation.
Figure : SWOT Analysis
This analysis would allow for Fabrication International to identify key internal and external issues that need to be understood in the context of which the organisation operates. This strategic tool would have allowed for Fabrication International to make the correct choices in terms of strategy and investment.
As the Senior Engineer of Fabrication International, it was crucial that the thinking and rationale for the investment be on a strategic level. The Board's decision to reduce the budget will therefore have a negative strategic impact. As the Senior Engineer, this would be a prime motive for not allowing this disruption to occur for the investment. The strategy of Fabrication International, like any organisation can be seen as a link to a chain of events in the growth of the organisation. This strategic investment will allow for the organisation to move from the present to its indeterminate future where the vision of the organisation lies (Burnes, 1997).
The decision to reduce the budget for the CWS also stemmed from the lack of belief or support from various key role players in Fabrication International. It is the responsibility of the Senior Engineer to obtain the acceptance of the investment as well as to obtain the commitment of these key individuals. The Finance Director and the lack of support was a negative impact to the project and subsequently, the budget was reduced. Communication to these role players would have assisted in gaining the acceptance of the project. In addition, this would have eliminated the level of uncertainty and the fear of the unknown.
Question 2: Kurt Lewin's contribution to Change Management
Organisations change with the business dynamics of the world. The process in today's business world has become a part of everyday life, where changes take place simultaneously. Organisations that are involved in constant innovation undergo continuous change and this phenomenon is adapted into the ethos of the business. In order for change to be effective, certain structures and capabilities need to be in place.
The change model by Kurt Lewin was considered as a simple one, with the change process consisting of three phases, namely unfreezing, changing (moving) and refreezing (Burnes, 1997). This model has inspired the creation of other change models. Over the years, many change models are based on this model and the relevance of this model is very prevalent.
According to (Burnes, 1997), Lewin's theory conceptualised the present conditions or level of activity of a system as a dynamic social equilibrium that is a state of balance maintained by active driving and resisting of social forces. Change thereafter consists of altering , driving and resisting forces thereby facilitating the movement of the system to a new level of equilibrium (Burnes, 1997).
Figure : Lewin's Three Step model of Change (Burnes, 2009)
Step 1 - Unfreezing
This step is highly relevant to the business world of contemporary today. This step involves an organisation that is getting ready to change. Unfreezing to create change requires a re-structure of an individual's thoughts. Individuals would feel a sense of anxiety and discomfort. This can result in great difficulty in the acceptance of the change (Burnes, 2009). The contemporary business world and the business markets are volatile and unpredictable. This results in the organisations getting to a point of understanding that sees change as being necessary.
Thereafter, the organisation prepares to change and move away from the current comfort zones. The first step in Lewin's model involves the preparation of the organisation for the change and the creation of an environment where the change is welcomed and wanted. The motivation for the change is created in this step and thereafter moves onto becoming a necessity and urgency for the organisation. The relevance of this step to contemporary organisations is essential as most organisations experience this.
Within this step of the model, organisations undergo a Force Field analysis. This refers to an analysis of factors or forces that are for and against the change decision.
This analysis is a useful decision-making technique as is assists organisations making a decision by analysing the forces for and against a change, and it also helps with the communication of the reasoning behind your decision.
Figure : Force Field Analysis (Connelly, 2012)
The resultant outcome serves as the determinant for whether the change will take place or not. Organisations in today's business world work within the realms of deadlines, milestones and service level agreements. This leads to an environment with a heightened sense of urgency and competition which results in a need to create necessary change. Environments with high comfort levels and low levels of urgency do not promote the welcome of change and it is not seen as a necessity. Consequently the urgency within today's business world creates the need for change.
Step 2 - Changing/Moving
Lewin's model of change management indicated that change is not an event but rather a process. This was process was called a transition which is defined as the movement that is made in relation to a change. People of the organisation are "unfrozen" and move towards the new preferred way of being. This step is considered as one that creates fear within the organisation. There is a high level of uncertainty as the outcome of the change impacts on the fear felt by individuals in the organisation. At this step, the organisation is gaining knowledge of the change.
It is therefore essential that individuals within organisations are given the required time to understand the change and to work with it. The support of management is essential and this comes in the form of training, coaching, mentoring and expecting mistakes as a part of the change process. This step in the model involves a re-enforcement in the belief of the change and the idea that the change is positive. Once this occurs, individuals are more accepting and are encouraged to find out more about the change by researching and making enquiries (Burns, 2009).
Contemporary organisations allow for the use of role models to convey the positive aspects and benefits of the change. These individuals highlight the positive impact of the change to the organisation and its people. In addition, people are given the opportunity to learn from the change by developing themselves and finding solutions that will assist in the change process. Constant communication and feedback also assists in organisations of today being able to highlight the benefits and end results of change. This reinforcement of the change allows for easier acceptance and implementation.
Step 3 - Freezing (or Re-freezing)
Kurt Lewin referred to this stage as freezing although a lot of new researchers refer to this stage as "refreezing". This stage involves establishing stability once the changes have been made, within the organisation. These changes thereafter go through an acceptance process and become the new reality within the organisation. Individuals within organisations move on to forming new relationships and become comfortable with the new routines following change. This stage is considered as time-consuming as it involves the acceptance of people.
In today's world of change and in contemporary organisations, the next new change process can happen weeks apart or even simultaneously. The model does not accommodate for a time gap to allow for the organisation to settle with the change. Change in contemporary organisations and in life is therefore seen as a constant. The rigidity of this step suggests that freezing does not fit in with modern contemporary thinking about change as being a continuous, constant and sometime chaotic process in which great flexibility is often demanded.
When applying to the business world of today, the last step of Lewin's change management model can be adapted to being more flexible than a rigid process. Lewin's concerns at this step of the model stressed the importance of reinforcing the change and ensuring that the desired change is accepted and maintained into the future. If this does not occur, organisations tend to moving back to what they were used to doing. This step is to support the desired change and to ensure that the change continues and is not lost within the organisation.
Lewin's model and his contribution to change management has become and accepted norm into the change process, with various adaptations and additions over the years. Lewins's model was a simple one with organisational change involving three steps. Contemporary organisations are more fluid in nature and can be seen as entities with many personalities (Burnes, 2004). According to (Burnes, 2004) Lewin's theory has proved to be useful in understanding planned change under relatively stable conditions.
However, with the continuing and dynamic nature of change in today's business world, it is no longer necessary to implement a planned process for "freezing" changed behaviours. In addition, for organisations to survive, organisations need to have the ability to change themselves continuously in a fundamental manner.
Criticisms to Kurt Lewin's Model of Change
Even though highly successful and arguably one of the most famed models of change management, criticisms still exist. Adapted from (Burnes, 2004):
The approach by Lewin was too simplistic and mechanistic for a world where organisational change is a continuous and open-ended process.
Lewin's work is relevant only to incremental and isolated change projects and is not able to incorporate radical and transformational change
The model by Lewin stands accused of ignoring the role of power and politics in organisations and the conflictual nature of much of organisational life.
Lewin is seen as an advocate of a top-down/management driven approach to change and ignoring situations that require bottom-up change.
Lewin's model of change management has had an enormous impact on the field of change management. This model, through adaptation to the contemporary business world can still be considered as relevant.
Contemporary businesses exist in an environment that is fluid and volatile in nature, so much so that change is expected and necessary. In order to compete, be innovative and survive, change is welcomed and accepted by contemporary businesses of today. The leadership within these contemporary organisations can be considered as the driving forces behind the change efforts in an organisation. Leaders have the ability to identify required change and set in motion the change process, with the acceptance of change being at the forefront of leadership responsibility.
Great leaders are often the pivot of most defining moments in history and their presence and influence is usually magnified by their ability to inspire and motivate those around them. Remarkable leaders are therefore instrumental in fundamentally transforming organisations into success. Experiencing change is therefore not something that should be unexpected. The leadership of an organisation has the task of ensuring that this continuous process is accepted and understood by the employees of the organisation in order to have seamless adaptation to the environment.