UNIT 4
EMERGING TRENDS IN BUSINESS MANAGEMENT
Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social and environmental.
To engage in CSR means that, in ordinary course of business, a company is operating in ways that enhance a society and the environment, instead of contributing negatively to them.
CSR is a broad concept that can take many forms depending on the company and industry. Through CSR programs, philanthropy and volunteer efforts, business can benefit society while boosting their brands. CSR activities can help forge a stronger bond between employees and corporations, boost morale and help both employers and employees feel more connected with the world around them.
For a company to be socially responsible, it first needs to be accountable to itself and its shareholders. Often companies that adopt CSR programs have grown their business to the point where they can give back to society. Thus, CSR is primarily a strategy of large corporations. Also the more visible and successful a corporation is, the more responsibility it has to set standards of ethical behaviour for its peers, competition and industry.
Philanthropic (Welfare of people)
Traditional
Help i.e. poor people disadvantaged section of society
Philanthropic – supporting community to educate people
Ethical- avoid questionable practices
Modern Concept
Legal- obeying all laws – consumers/environment law
Economic- minimizing cost and maximize sales revenue
Observing recent trends of business, we find globalization and pressing ecological issues. That is why role of business is redefined. Corporate social responsibility (CSR) is the newest management strategy where we try to create a positive impact on society while doing business.
International organization for standardization (ISO) has developed an international standard to provide guidelines for adopting and disseminating social responsibilities ISO 26000 for social responsibility. It was published in 2010. These standards are encouraging voluntary commitment for social responsibility and also its methods of evaluation. The standards describe itself as a guide of dialogue for business.
Recent Trends in CSR:
Needs for social Responsibilities:
(1) Expectation of society: Business should change as per the market conditions, if it wants to survive and grow. The expectation of the public (society) too has changed. They now expect business to fulfil responsibilities their social obligations. Business now must adopt the motto of ‘profit through service’.
(2) Creating Favourable Public Image: Society now expects business to contribute towards social welfare. Hence if a company fulfils its social obligations, people regard such businesses favourably. It thus builds the company’s public image.
(3) Long term Self Interest: By fulfilling its social obligations, the business is indirectly serving its own long term self-interest. By providing quality goods at fair prices, paying fair wages etc. The company is ensuring not only its immediate survival but also is ensuring its future its growth as it gets the support of its shareholders, consumers etc.
(4) Minimizing Government Control: Government interferes through various regulations and control over such businesses which do not function as per the laws. Hence to avoid too much government control, businesses should not only follow all rules and laws but also fulfil their social duties.
(5) Pressure of Trade Unions: Trade Unions protect and promote the interest of the workers. These days they have a major role in maintaining industrial peace and stability. Hence businesses should conduct activities in such a manner that is fair to the employees.
(6) Pressure of Consumer Movement: Consumers to become more aware of their rights and now expect the businessman to be just and fair with them. It is due to the consumer movement that businessmen consider consumer satisfaction as one of their main goals next to profit making.
(7) Maximum utilization of Resources: Resources are scarce. It is said that only business has the ability to ensure that these scarce resources are used in a manner that will ensure maximum satisfaction of wants. Business should use resources in such a manner that will benefit the entire society.
(8) Protection of Environment: Business use natural resources for undertaking their commercial activities. In doing so, they may misuse these resources. Either they may waste the resources or may wrong use the resources, which directly or indirectly affects the environment. They are the ones who cause all kinds of pollution in the environment. Hence these days, business is supposed to take necessary steps to protect the environment.
(9) Principle of Trusteeship: Mahatma Gandhi said that businessmen should consider themselves as trustee of the society. The profits that they earn are not entirely their own. A part of it belongs to the society. Hence by fulfilling their social obligations they are giving back something to the society.
(10) Help to government: Government alone cannot tackle all the social, economic and political problems existing in a country. This is because it does not have enough resources or skills to handle all the problems. Hence the business community is supposed to help the government in solving the various problems faced by the society. It may either undertake social projects of its own or sponsor some government projects.
SOCIAL RESPONSIBILITIES TOWARDS DIFFERENT SOCIAL GROUPS:
(1) Job security: The Company should provide job security to its employees. The workers should not be kept temporarily for a long time. They must be given permanent jobs.
(2)Monetary factors: Workers should be paid proper wages and other incentives like bonus, medical allowance, etc. Prompt payment often results in higher motivation to the workforce. There should be increment and revision in wages.
(3) Working conditions: The workers should be provided with good working conditions. There should be adequate lighting and ventilations. Noise, dirt and dust pollution should be avoided. There should be proper working hours with rest pauses.
(4) Health and safety measures: The company should take proper measures to protect health of the employees. They should be provided with canteen facilities, and medical facilities. Proper maintenance of machines and building must be done to prevent accidents.
(5) Proper personnel policies: There must be proper personnel policies in respect of transfers, promotions, recruitment, training, etc. There should be no partiality in promotions and transfers of employees.
(6) Workers participation in management: The workers must been courage to take part in management. There are different ways of workers participation in management, such as quality circles, Works committee, suggestion schemes, profit sharing and so on.
(7) Grievance Procedure: There should be a proper grievance procedure to handle employees complaints. Any complaint of the employee must be immediately sorted by suitable grievance procedure.
(8) Recognition of workers union: To maintain industrial peace is the responsibility of management. Therefore, the management should recognition the rightful trade union, representing majority of the workers.
B. Social Responsibilities towards Shareholders (Owners):
The main motive of a business is to earn profit and this profit is utilized for growth and prosperity of the owners. If the business fails to satisfy its responsibility towards owners, it may not be able to perform its responsibility towards any other social group.
Following are the responsibilities of business towards it owners.
1. Opportunities: In business usually an organization which innovates and starts something new has a big advantage over than organizations. It is important that they keep looking for opportunities and exploit it as soon as it is available. This leads to success of the business.
2. Wastage of reduced: Organization need to work efficiently any kinds of wastage. No financial loss should be allowed. If an organization Is not working in an efficient manner, it may require more funds than necessary.
3. Need to keep updated: Business should keep its owners updates about its financial position and performance. Owners should be always know how well is a company performing. This information can be given by way of annual reports, newspapers, internet etc.
4. Efficiency and Effectiveness: Business should be efficient as well as effective. This will help in increasing sales as well as profits if company. Efficiency is to do the things in right manner so that cost can reduce. Effectiveness means to do right things and thereby increase sales.
5. Return: Business should generate sufficient returns. Reasonable returns shall keep the owners / shareholders interested in the business. Further, shareholder’s funds must be utilized in the best possible manner.
6. Standard practice on stock exchange: The price of the share of the company in the stock exchange is an indicating of the performance of the company for a shareholder. Therefore, business should follow standard and fair practice related to stock exchange. It should declare all material information and not provide any wrong information to stock exchange.
7. Goodwill: A company cans great goodwill by manufacturing world class products, following standards practices, giving sufficient returns, performing its social responsibility etc. It helps to create a respectable stand in market. Owners feel proud to be associated with such companies.
8. Growth: Business should undertake various plans which results in expansion of company. They should keep innovating which will help them to stay ahead of their competitors. Business must also concentrate on research and development. As a result, it will lead to the growth of the business and higher returns to shareholders.
9. Safety of Capital: Business should use the capital carefully. The management should take calculated risks. It should analyze the risk factor in every decision. Shareholders prefer safety of their funds over a high return.
C. Responsibilities of business towards its investors:
Investors are basically those who provide fiancé to the company. They are ones who provide capital for the functioning of business. Following are the duties of business towards investors:
1. Image: A company can crate goodwill by manufacturing world class products, following standard practice, giving sufficient returns, performing its social responsibility etc. It helps to create a respectable stand in market. Investors feel proud to be associated with such companies.
2. Need to maintain transparency: Investors are the true owners of a business. They invest their money with a possibility of losing the amount of invested. Since, an organization runs on the funds received from other people, it should maintain transparency in their operations. The organization should not hide any information from the investors.
3. Effective procedure to handle grievances: At time, investors have queries or complaints. There should be a proper procedure to handle such complaints. Investors’ grievances should be resolved at the earliest. Investors are satisfied if an organization listens to their problems and provides a quick solution.
4. Safety of Capital: Safety of capital and return on investment are the two most important objectives of investors. Safety of capital also includes no reduction in value of amount invested. Business should be ensure that the funds of investor are invested properly and efficiently.
5. Trust: Business should develop trust among its investors. This can be done by disclosing information completely, timely and correctly. The information can be disclosed by way of statement, reports, circulars etc.
6. Organize periodic meetings: Meetings with the investors should be conducted at periodic intervals. Investors should be sent notice as well as agenda for the meeting in advance. They should be informed about the usage of funds the future plans, profits, important decision etc.
7. Return: Investors invest in a business with an objective of earning satisfactory returns. Business should generate sufficient returns in form of interest/ dividends. Reasonable returns, appreciation of the amount invested and safety of the amount invested shall keep the investors interested in the business.
D. Social Responsibilities of business towards Customers:
No business can survive if can’t satisfy its customers. Besides good quality products, customers have various other expectations from business. Following are the Social Responsibilities towards customers.
(1)Quality: The Company should produce quality goods. The company should always giving importance to improve its quality. At no time quality can be 100%, and as such there is always a room for improvement.
(2)Fair price: The consumers will not like if they are being cheated. After all, the company will not be able to fool the consumers all the time.
(3)Consumer welfare: The firm should assist government and consumer associations in promoting consumer welfare.
(4) Market Research: The firm should conduct proper market research so that it produces the right kind of goods required by the consumers.
(5)Honest Advertising: The consumers expect true facts of the product, its uses, merits, side-effects and so on. The company should also alert from vulgar and unethical advertisements.
(6)After-sale-service: The consumers expect efficient and effective after-sale-service, especially in the case of consumer durables.
(7)Availability of goods: The consumers should be made available the goods regularly as and when they need it. The company should not create artificial shortage and hoard the goods in cooperation with unethical dealers.
(8) Redressal of complaints: The complaints of the consumers must be immediately solved by the Company. Valid suggestions of the consumers must be taken into consideration.
(9)Consumer safety: The consumers expect the company to produce goods which are customer-health oriented and environment friendly products. Unsafe products must not be marketed by the company. Consumers should be warned of any such unsafe goods.
E. Social Responsibilities of business towards Society:
Business takes all factors of production from the society. Business survives only because of the society in which it operates. Hence Business should satisfy the need of the society to ensure its existence. Following are the Social Responsibilities towards society.
(1) Protection of Environment: The organization should take all possible measures to prevent air and water pollution. Business firms should not misuse or over-exploit natural resources.
(2) Optimum use of resources: The business firms make use of scarce natural resources such as raw material of iron, steel, fuel, and so on. The business firm should not make wrong use of scarce resources in the interest of the society.
(3) Upliftment of Backward regions: The society expects that the companies should start industries in backward areas. This will generate employment facilities and increase in purchasing power of the rural public.
(4) Help to weaker sections of the society: The business Organization should also uplift the weaker sections of the society. Certain jobs may be reserved for economically weaker sections of the society.
(5) Financial Assistance: The society also expects donations and financial assistance to various social causes, such as eradication of poverty, illiteracy, etc. They expect the company to take part in anti- drug campaigns, anti-noise campaigns, and so on.
(6) Prevent congestion in cities: The companies should also work to avoid congestion in cities by spending their industries in different places or locations.
(7) Least participation in anti-social activities: The society expects that the companies should not take part in anti-social activities. They should not support and provide financial assistance to anti-social elements.
(8) Expansion: The society expects expansion and diversification of industries so as to generate employment opportunities and at the same time to enhance standard of living of the society.
(9)Employment Generation: Business firms should make all possible efforts to generate employment. Such efforts will help to solve problems caused to unemployment in the society.
F. Social Responsibilities of business towards Government:
Government is the authority, which governs the working of all business enterprises. Having a cordial relationship with government helps a business to function smoothly. Following are the Social Responsibilities towards government.
(1) Assistance in implementing socio-economic policies: The government expect cooperation and Assistance from the business sector to assist it in implementing socio-economic programs.
(2) Payment Taxes: The government expects the corporate sector to pay taxes and duties regularly. If the corporate sector does not pay taxes and duties on time, then it would be difficult for the government to undertake its plans.
(3) Observance of Government rules and regulations: The government expects strict observance of its rules and regulations on the part of the corporate sector. If the corporate has any valid suggestions to modify the rules and regulations, then it should do so in the interest of the society.
(4) Political stability: The corporate sector should work towards the political stability of the country. A stable government often brings more returns and peace in a democratic society. Therefore, corporate sector should not support those elements which are inducing in political instability.
(5) No seeking of unfair favors: The companies should not seek unfair favors from government officials by bribing or influencing them.
(6) Earning of Foreign Exchange: Companies, especially the large ones should enter in export trade to earn valuable foreign exchange for the country. This foreign exchange is necessary to pay for vital imports.
(7) Advising the Government: Corporate sector should provide timely advice to the government in respect of framing various policies, such export-import policy, licensing policy, industrial policy, and so on.
(8) Contribution to Government Treasury: The corporate sector should contribute funds during the times of emergencies or natural calamities, such as floods, earthquakes, etc.
G. Social Responsibilities of business towards Debenture holder:
The debenture holders are the creditors of the company. They provide medium term or long term funds by subscribing to the debentures issued by the company. The company has certain social obligations towards the debenture holders:
1) Proper Disclosure of information: A company must provide proper financial information at the time of issue of debentures. The financial performance of the company must be provided correctly so that the prospective investors can take the right decision whether to invest in the debentures or not.
2) Payment of interest: A company should make regular payment of interest to the debenture holders. As far as possible, delay in payment of interest to be avoided.
3) Handling Grievances: A company should handle the grievances of the debenture holders effectively. Also all queries of the debenture holders must be effectively answered.
4) Redemption of Debentures: A company must redeem the debentures as stated in the debenture certificate. If, due to certain reasons, the company cannot redeem the debentures on the due date, then proper explanation must be given to the debenture holders.
5) Conversion of Debentures: A company may issue convertible debentures. It must convert the debentures into equity shares, and send proper notice to that effect to the debenture holders.
6) Meetings: A company may call meetings of debenture holders affecting their rights and interests. Proper notice of meetings must be sent to debenture holders.
Key Takeaways-
Corporate governance refers to the accountability of the Board of Directors to all stakeholders of the corporation i.e. shareholders, employees, suppliers, customers and society in general; towards giving the corporation a good, efficient and transparent administration.
“Corporate governance means company managers its business during a manner that's accountable and responsible to the shareholders. During a wider interpretation, corporate governance includes company’s accountability to shareholders and other stakeholders like employees, suppliers, customers and native community.” – Catherwood.
“Corporate governance is that the system by which companies are directed and controlled.” – The Cadbury Committee (U.K.)
Certain useful comments on the concept of corporate governance are given below:
(i) Corporate governance is quite company administration. It refers to a good, efficient and transparent functioning of the company management system.
(ii)Corporate governance refers to a code of conduct; the Board of Directors must abide by; while running the company enterprise.
(iii)Corporate governance refers to a collection of systems, procedures and practices which make sure that the company is managed within the best interest of all corporate stakeholders.
Need for Corporate Governance:
The need for corporate governance is highlighted by the subsequent factors:
(i) Wide Spread of Shareholders: Today a company features a very large number of shareholders spread all over the nation and even the world; and a majority of shareholders being unorganised and having an indifferent attitude towards corporate affairs. The thought of shareholders’ democracy remains confined only to the law and therefore the Articles of Association; which needs a practical implementation through a code of conduct of corporate governance.
(ii) Changing Ownership Structure: The pattern of corporate ownership has changed considerably, within the present-day-times; with institutional investors (foreign also Indian) and mutual funds becoming largest shareholders in large corporate private sector. These investors have become the greatest challenge to corporate managements, forcing the latter to abide by some established code of corporate governance to create up its image in society.
(iii) Corporate Scams or Scandals: Corporate scams (or frauds) within the recent years of the past have shaken public confidence in corporate management. The event of Harshad Mehta scandal, which is probably, one biggest scandal, is within the heart and mind of all, connected with corporate shareholding or otherwise being educated and socially conscious.
The need for corporate governance is, then, imperative for reviving investors’ confidence within the corporate sector towards the economic development of society.
(iv) Greater Expectations of Society of the corporate Sector: Society of today holds greater expectations of the corporate sector in terms of reasonable price, better quality, pollution-control, best utilisation of resources etc. to satisfy social expectations, there's a necessity for a code of corporate governance, for the simplest management of company in economic and social terms.
(v) Hostile Take-Overs: Hostile take-overs of corporations witnessed in several countries, put a question mark on the efficiency of managements of take-over companies. This factors also points bent the necessity for corporate governance, within the sort of an efficient code of conduct for corporate managements.
(vi) Huge Increase in Top Management Compensation: It has been observed in both developing and developed economies that there has been a great increase within the monetary payments (compensation) packages of top level corporate executives. There is no justification for exorbitant payments to top ranking managers, out of corporate funds, which are a property of shareholders and society. This factor necessitates corporate governance to contain the ill-practices of top managements of companies.
(vii) Globalisation: Desire of more and more Indian companies to urge listed on international stock exchanges also focuses on a requirement for corporate governance. In fact, corporate governance has become a buzzword within the corporate sector. There is little question that international capital market recognises only companies well-managed consistent with standard codes of corporate governance.
Principles of Corporate Governance (or major issues involved in corporate governance)
The fundamental or key principles of corporate governance are described below:
(i) Transparency: Transparency means the standard of something which enables one to understand the reality easily. Within the context of corporate governance, it implies an accurate, adequate and timely disclosure of relevant information about the operating results etc. of the company enterprise to the stakeholders.
In fact, transparency is that the foundation of corporate governance; which helps to develop a high level of public confidence within the corporate sector. For ensuring transparency in corporate administration, a company should publish relevant information about corporate affairs in leading newspapers, e.g., on a quarterly or half yearly or annual basis.
(ii) Accountability: Accountability may be a liability to explain the results of one’s decisions taken within the interest of others. Within the context of corporate governance, accountability implies the responsibility of the Chairman, the Board of Directors and therefore the chief executive for the use of company’s resources (over which they need authority) within the best interest of company and its stakeholders.
(iii) Independence: Good corporate governance requires independence on the a part of the top management of the corporation i.e. the Board of Directors must be strong non-partisan body; in order that it can take all corporate decisions based on business prudence. Without the top management of the company being independent; good corporate governance is merely a mere dream.
Key Takeaways-
1) Corporate governance refers to the accountability of the Board of Directors to all stakeholders of the corporation i.e. shareholders, employees, suppliers, customers and society in general; towards giving the corporation a good, efficient and transparent administration.
Corporate citizenship involves the social responsibility of businesses and the extent to which they meet legal, ethical, and economic responsibilities, as established by shareholders. Corporate citizenship is growing increasingly important as both individual and institutional investors begin to seek out companies that have socially responsible orientations such as their environmental, social, and governance (ESG) practices.
Corporate citizenship refers to a company’s responsibilities toward society. The goal is to produce higher standards of living and quality of life for the communities that surround them and still maintain profitability for stakeholders.
The demand for socially responsible corporations continues to grow, encouraging investors, consumers, and employees to use their individual power to negatively affect companies that do not share their values.
All businesses have basic ethical and legal responsibilities; however, the most successful businesses establish a strong foundation of corporate citizenship, showing a commitment to ethical behavior by creating a balance between the needs of shareholders and the needs of the community and environment in the surrounding area. These practices help bring in consumers and establish brand and company loyalty.
In 2010, the International Organization for Standardization (ISO) released a set of voluntary standards meant to help companies implement corporate social responsibility.
Companies go through different stages during the process of developing corporate citizenship. Companies rise to the higher stages of corporate citizenship based on their capacity and credibility when supporting community activities, a strong understanding of community needs, and their dedication to incorporate citizenship within the culture and structure of their company.
The Development of Corporate Citizenship
The five stages of corporate citizenship are defined as:
Thus, corporate citizenship is a recognition that a business, corporation or business-like organization has social, cultural and environmental responsibilities to the community in which it seeks a licence to operate, as well as economic and financial ones to its shareholders or immediate stakeholders.
Key Takeaways-
Disaster management refers to the efficient management of resources and responsibilities which will help in lessening the impact of the disaster. It involves a well-planned plan of action so we will make effective efforts to reduce the risks caused by the disaster to a minimum.
Disaster Management is an attempt to inquire into the process of a hazard turning to disaster to identify its causes and rectify an equivalent through public policy. Therefore disaster management may be a policy issue concerned with minimizing and preventing the damaging impact of a natural or manmade hazard.
Some of the policy and administrative factors relevant to disaster management are like poor and weak or overcrowded buildings in earthquake prone zone, poor land use planning flooding prone areas, inadequate and faulty laws regulating various processes and facilities, general low risk perception towards among people etc.
Most importantly, one must understand that disaster management does not necessarily eliminate the threat completely but it decreases the impact of the disaster. It focuses on formulating specific plans to try to do so. The National Disaster Management Authority (NDMA) in India is liable for monitoring the disasters of the country. This organization runs variety of programs to mitigate the risks and increase the responsiveness.
Proper disaster management are often done once we make the citizens conscious of the precautionary measures to require once they face emergency situations. as an example , everyone must know we should always hide under a bed or table whenever there's an earthquake. Thus, the NDMA must take more organized efforts to decrease the damage that disasters are causing. If all the citizens learn the essential ways to save themselves and if the Government takes more responsive measures, we will surely save tons of life and vegetation.
Types of Disasters:
The classification of disaster differs as per the criterion of classification. For instance, on the basis of their origin, they're classified as natural and manmade.
(i) Natural Disasters: The disasters that are caused naturally are termed as natural disasters e.g., earthquake, cyclone etc.
(ii) Man-made Disaster: The disasters which are caused as a results of human activities are termed as Man-Made Disasters e.g., Road accident, terrorist attack.
If we take under consideration their severity, they will be classified as major and minor disasters.
However, a high powered committee constituted in Aug. 1999 by the Govt. of India, under the Chairmanship of J.C. Pant adopted origin because the criterion for the classification of disaster.
The fundamental task of the committee was to organize comprehensive model plans for disaster management at district, state and national level. The committee has identified 30 disasters and categories them within the following five groups.
1. Water and Climate Disaster: Such as flood, cyclones, hailstorms, cloudburst, heat and cold waves, snow avalanches, droughts, sea erosion, thunder and lightning.
2. Geological Disaster: Such as landslides and mud flows, earthquakes, mine fires, dam failures and general fires.
3. Biological Disaster: Such as epidemics, pest attacks, cattle epidemic and food poisoning.
4. Nuclear and Industrial Disaster: Chemical, industrial disasters and nuclear accidents
5. Accidental Disaster: Such as urban and forest fires, oil spill, mine flooding incidents, collapse of giant building structures, bomb blasts, air, road and rail mishaps, boat capsizing and stampede during congregations.
At central level, an administrative ministry has been identified as nodal agency for every disaster to coordinate the activities of disaster management operations at different levels.
Plan in Advance:
Under such unforeseen conditions, our managers got to plan some activities during the pre-seismic period and also discuss what should be done during the co-seismic period. Take every section of society in confidence and explain to them the bounds of earthquake prediction and how the administration plans to overcome the chances. It is a fact that the topic of earthquake prediction has not reached perfection. It is difficult to predict earthquakes. On the opposite hand, if the administration predicts an earthquake, and it doesn't occur, the administration has got to face public criticism.
The best way for disaster management offices is to create seismic awareness, inform people about reliable seismic precursors events and indicators which will be noted ahead of an impending earthquake.
Key Takeaways-
Change management is defined as the methods and manners in which a company describes and implements change within both its internal and external processes. This includes preparing and supporting employees, establishing the necessary steps for change, and monitoring pre and post-change activities to ensure successful implementation.
Significant organizational change can be challenging. It often requires many levels of cooperation and may involve different independent entities within an organization. Developing a structured approach to change is critical to help ensure a beneficial transition while mitigating disruption.
Organizational change management refers to an event or program that a business or enterprise wishes to initiate, which causes significant disruption to their daily operations. There can be a variety of factors that lead to change within an organization.
Changes are necessary if organisations want to:
(i) Be adaptive to environmental conditions,
(ii) Compete in the domestic and international markets,
(iii) Improve their performance, and
(iv) Enter into mergers and acquisitions.
A major challenge is reducing the potential for friction and resistance to change by ensuring all employees understand why change is important to the company’s future. Yet, ignoring the need for change can be far more threatening to your business than the change itself.
Importance of change for an organization:
In today’s dynamic world, change is not just a fact of life, but essential for survival. Organization and its employees have to keep themselves updated to new developments. Trends and technology evolve, which means that customers’ needs will constantly be changing. Information is transmitted faster and companies that cannot deliver on speed will lose out to those that can.
Whether it is installing a new software platform, reorganizing your business to make it more streamlined and efficient, or adapting to customer needs, it is essential as a business to ask yourself why as a leader change is imperative to your organization.
While it can be disruptive at first, organizational change will ultimately improve productivity among employees and therefore boost sales success. The goal of any business is to delight its customers. If customers are changing, a company must learn to adapt.
With every change comes the opportunity to learn. To prepare your staff adequately for new developments, employers must assess the skills and tools their employees already have and look for gaps. Down the line it will be easier to identify which areas should be a top priority for training.
Features of Organisational Change:
Change is characterised by the following features:
1. Movement from one state of balance to another: Change involves moving from the existing state of balance to a new level of equilibrium. It disturbs the old equilibrium and develops a new equilibrium where new ways of working become part of the system.
2. In whole or parts: It may involve change in some parts of the organisation (technology, structure or people) or the organisation as a whole. Even if change is introduced in part of the organisation, it affects the entire organisation. Change in one part, for example, technology requires change in learning of people and may be structure to adopt that technology.
3. Pervasive: The process of change is not restricted to one organisation or one country. It is a worldwide phenomenon. The whole world, all countries, every organisation, its members and all individuals change their pattern of working. However, the nature and magnitude of change is different for different organisations.
4. Responsive to environmental factors: Change is affected by factors external and internal to the organisations.
5. Continuous process: Change is not a one-time process. Organisations keep changing their policies to survive and grow in the competitive markets. While some changes are minor and get absorbed in the system through internal adjustments, major changes are introduced through change agents.
6. Essential activity: Change is not a force that organisations may or may not respond to. If organisations want to survive, change has to be accepted by them. They can, however, plan the change or react to change. The former approach to change is conducive to organisational development and growth.
7. Change agents: Change is initiated by change agents. Change agents can be internal or external to the organisation. Internal change agents can be top executives of the organisation. External agents are outside experts or advisors appointed by executives to initiate the change process.
Types of organizational change
Types of organizational change companies undergo are:
1. Organization-Wide Change:
Organization-wide change is a large-scale transformation that affects the whole company. This could include restructuring leadership, adding a new policy, or introducing a new enterprise technology. Such large-scale change will be felt by every single employee. Organizational change can be a sharp indicator in understanding how long-held policies have become outdated or reflect a company’s transforming identity. Achieving a successful organization-wide change demands comprehensive planning and communication throughout the organization.
2. Transformational Change:
Transformational change specifically targets a company’s organizational strategy. Companies that are best suited to withstand rapid change in their industry are nimble, adaptable, and prepared to transform their game plans when the need arises. Strategies to guide transformational change must account for the current situation and the direction a company plans on taking. Cultural trends, social climate, and technological progress are some of the many factors leaders must consider. However, given the rapid pace at which digital technology evolves, companies will be better positioned to succeed if they incorporate digital adoption platforms into their transformation strategies.
3. Personnel Change:
Personnel change happens when a company experiences hyper-growth or layoffs. Each of these types of organizational change can cause a significant shift in employee engagement and retention.
The threat of layoffs evokes fear and anxiety among staff members, and leaders should expect that employee morale will suffer. Nevertheless, the company must move forward. It is important to display genuine compassion and motivate employees to continue to work hard through difficult times.
4. Unplanned Change:
Unplanned change is typically defined as necessary action following unexpected events. While unplanned change cannot be predicted — it can be dealt with in an organized manner. Companies also experience unplanned changes. When a CEO suddenly leaves the company or a security breach occurs, chaos and disruption ensue. By setting basic organizational change strategies in place for these situations, organizations can minimize these unplanned risks and emerge as more adaptable and resilient.
5. Remedial Change:
Leaders implement remedial changes when they identify a need to address deficiencies or poor company performance. For example, financial distress is usually due to lack luster performance and requires remedial change. Other common examples include introducing an employee training program, rolling out new software, or creating a position to fix a pain point.
Other types of corrective action could include reviewing strategies that may have been in place for years but are no longer profitable. Issues stemming from leadership, such as a newly appointed CEO who turns out to be a poor fit for the company, might also call for remedial change. Although remedial change efforts must be tailored to the specific problem on hand, they still require effective organizational change strategies to be effective.
Measures to ensure successful organizational change:
Organizational change has many clear benefits but can lead to misalignment and company-wide confusion without proper implementation. In order to execute organizational change with glowing results, the following measures can be adopted:
1. Set clear goals and develop a strategy: Organizational change often transcends multiple departments and job functions. A variety of stakeholders are involved to guarantee their interests are heard and met. A strategy helps determine the vision for what the company should look like after the change. It is the role of management to develop that vision by listening to the feelings and opinions of those who will be affected. This will encourage buy-in across the company and make sure the strategy is carried out as intended.
2. Overcoming resistance and staff engagement: Organizational change can often be difficult, especially if your employees don’t see anything wrong with the status quo. To them, the change may appear disruptive at best. There will be new technologies to learn and platforms to navigate. Worse still, if the initiated change automates many of their existing tasks, some employees may feel threatened. Explaining to employees why these changes are necessary may also allay fears and reduce resistance.
3. Offering management support: For organizational change to be successful, it needs to be adopted across the business, from C-level down to managers. The CEO may have a vision for the change, but it will be up to the rest of the business to execute it. That is why it’s important to share that vision so that others know what their role will be in bringing it to fruition, and what will be required of them after the changes have taken place. If management wants its employees to invest in change, they need to demonstrate commitment from an ecosystem of leaders throughout the business. Having a consistent message of why change is needed will help garner support across the board.
4. Contextual learning for new technologies: It is inevitable that with any organizational change, there will be new tools to learn and understand. Learning is an ongoing journey and requires employers to provide contextual learning techniques. Using outdated training methods such as classroom lectures is a single-use solution that does not scale. Employees may watch or attend a lecture one time, and if the information is not clear or continuously refreshed, it would not be retained. Contextual learning like a digital adoption platform helps employees by personalizing their training experience. Using sophisticated algorithms and correlating data on factors such as their level of seniority, job function, and previous actions, these programs tailor training to the individuals’ needs. This comes in the form of pop-ups prompting the user with actions leading them to complete each step in the process while also providing deep insights.
5. Invest in agility training: Organizational agility refers to being able to react quickly to changes in business operations, strategy, and even culture. However, agility is not innate within an organization; it must be learned. Proper agility training enable business to pivot when the need arises. Organizational change will become just another task as opposed to an insurmountable challenge. This is also important for organizational health.
6. Strategize and prepare for change: Various types of organizational change necessitate different actions. Companies that fare best amid transitional periods are adaptable and embrace change, even when circumstances are not ideal. Having basic strategies in place also helps guide transformation efforts, including those that are prompted by unplanned events. When it comes to organizational change, preparation is a key.
Internal factors affecting organization change:
Internal factors are those which are originated from an organization itself. These are predictable factors because these lies within organization. Leadership and management has clear understanding and quickly analyze that what are internal factors and how can organization respond to these and embark on journey of making change. Following are some of the key internal factors which affect organizational change.
Some organizations are vision focused. Such organizations continuously make changes to achieve its vision. These organizations also have tendency to revisit and redefine vision. And this is key force behind accepting and executing changes.
2. Values-
Organizations core values are also driver of change. For instance, values like gender balance, cultural and ethical diversity etc. are some powerful principles that often lead to big changes in organizational strategies and processes.
3. Organizational Culture-
Organizational culture has a powerful impact on the future of the organization. If work place culture is vibrant, dynamic and leadership encourages creativity, then it is likely that organization accepts and implements change.
4. Core Expertise-
Core expertise of an organization also dictates change. If organization is strong in one technical area, it will create innovate solutions and disrupt the existing methods and culture of the entire industry.
5. Leadership-
Sometimes change in leadership is the reason behind organizational change. Every new leadership brings new vision, new strategies and new working culture to his/her organization. So, new leadership is a strong internal factor which affects change.
6. Performance-
This is perhaps the most important factor which drives change. Good Leaders makes strategic shift in their approach to business when performance of an organization is not satisfactory. Then, drastic changes are made in role and responsibilities of different players within organization to perform better in industry.
7. Employees-
Confidence of an organization to make change depends on attitude and skills of its employees. If employees approve and accept change and their skills are also in line with intended change then there are more chances that organization will be successful in managing change.
External factors affecting organization change:
Organizations function in a large environment. This environment around organizations includes customers, government, policy and laws, social norms, economy, technology, competitors etc. All of these exist mainly outside of an organization which has no control over these. Besides control, Leadership and managers even has less understanding and knowledge about external changes. So these external factors also drive organizational change. The external factors of organizational change are difficult to manage because these are unpredictable than the internal factors. Following are some of the key external factors affect organizational change.
Economic growth brings new business opportunities. And organizations expand when they seize new opportunities in the market. For this to happen organization make changes in their strategies, acquire new expertise and take new staff on board.
2. Fashion-
Latest trends dictate changes. For instance, people are becoming more sensitive about health and hygiene. So organizations are offering healthy products and communicating to their customers that how much they take care of health and hygiene of the customers.
3. Competition-
Competition is getting tougher every day. Organizations innovate new marketing tool and strategies and disrupt the entire trend of market. It is such a compelling factor that every player of the industry has to respond and develop it own strategy to survive and thrive in market.
4. New Technology-
Technology is also a powerful factor which shapes changes. In this digital world, organizations need to upgrade technologies in order to remain competitive in the market. For instance, it is absolutely necessary nowadays for every organization to have its presence on online marketing platforms which was not the case ten years ago.
5. Government Regulation-
Government laws and regulation such as trade policies, taxation, industry specific regulation, labour laws greatly affect the way of doing business. Organizations need to stay vigilant in connection to government policies and adapt to changes.
6. Politics and Economy-
Internal and external politics and economy also affect business. One single event can damage country’s economy. Organizations need to closely follow and analyse political events and economy and make changes as situations demand.
7. Social Change-
The social changes refer to change in norms, change in level of education, urbanization, migration etc. These social changes are also powerful external factors which affect the environment which push organizational change to make change.
Resistance to Change:
Change is basically a variation in pre-existing methods, customs, and conventions. Since all organizations function in dynamic environments, they constantly have to change themselves to succeed. Change management contains several strategies that help in facilitating the smooth adoption of such changes. One of the most important facets of change management is resistance to change. It is simply human nature to counteract any changes and maintain the status quo. But since change is inevitable, instead of resisting changes the organization must try to implement them with minimum hassle. Resistance to change may be either overt or implicit. For example, employees may react to a change in policies with outright rejection and protests.
They may even refrain from showing disapproval expressly, but they may do so implicitly by not accepting changes. Managers must understand these problems and help the employees adopt these changes smoothly
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Reasons for Resistance to Change:
In order to facilitate transitions and changes, managers must first be able to identify the exact reason for resistance. Such resistance to change is common in all organizations. The following are some common reasons for this:
Types of Resistance to Change:
Resistance to change may be of the following three types:
a) Logical resistance: This kind of resistance basically arises from the time people genuinely take to adapt and adjust to changes. For example, when computers became common, accountants had to shift from accounting on paper to digital accounting. This naturally takes time to adapt to.
b) Psychological resistance: Under this category, the resistance occurs purely due to mental and psychological factors. Individuals often resist changes for reasons like fear of the unknown, less tolerance to change, dislike towards the management, etc.
c) Sociological resistance: This resistance relates not to individuals but rather to the common values and customs of groups. Individuals may be willing to change but will not due to peer pressure from the group they are members of. For example, if a worker’s union protests against new management policies, all workers face pressure to protest together.
Overcoming Resistance
While change will almost always face resistance, it is certainly possible to overcome it. Managers must strive to help their employees adjust to changes and facilitate new variations in functioning.
1. Managers must be able to convince workers that the changes they are proposing are necessary. They should show how the workers and the organization itself will benefit from these changes.
2. The management can keep the following considerations in mind to implement changes smoothly:
a. Changes should not happen in one go because it is easier to implement them in stages.
b. Changes should never cause security problems for the workers.
c. Managers must consider the opinions of all employees on whom the proposed change will have an effect.
d. If managers portray leadership by first adapting to the changes themselves, employees are less likely to resist.
e. Sufficient prior training of employees can help them accept changes with confidence.
3. It is always a good idea to encourage the participation of employees when managers plan for changes. Since changes are meant for the employees, they must have a say in the planning process. Such participation will make them less likely to resist the implementation of changes.
4. The management can organize small informal meetings or conferences with the employees for this. Managers should explain all the relevant details of the proposed changes. Employees must be encouraged to offer their opinions as well.
Key Takeaways-
1.Change management is defined as the methods and manners in which a company describes and implements change within both its internal and external processes.
2.It is important to understand and analyze the reasons which lead to change.
3.There are two broad categories of drivers of change- internal and external factors.
4.One of the most important facets of change management is resistance to change. The management must adopt certain measures to prevent resistance to change.
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