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Challenges Of Cultural Change

By Marketing Research Team, 3EA
Challenges Of Cultural Change

'STYLE' was founded by Devakinandan Singh in a rented premise in 1970 in Kotolpur, a provincial town in West Bengal in the suburbs of Kolkata, a large metropolitan city in eastern India. Mr Singh began the business with four assistants as a sole trader producing hand-made wooden furniture for the growing domestic market of Kolkata. Mr Singh, who had no formal management education, went into business for himself because he never liked to work for a boss and wanted to do things "his way". Within next fifteen years, Mr. Singh let the business grow and expanded it with a considerable increase in the number of employees (Figure 1). As a consequence, 'STYLE' was moved to larger premises in Kotolpur with 15 employees in 1985. He registered his business as a private company specializing in lounge furniture, dining furniture, cabinets, coffee tables and side tables for the broader Indian market. Under histight control, the company continued to expand and make profit until late 1990s, when manufacturing growth and customer demand for wooden furniture hit a plateau (Figure 2). By that time, Mr. Singh's sons, Mohan and Bikash, had started to take care of their father's business.

Mohan, the elder son of Mr. Singh, loved making furniture. He started helping his father in the factory since he was a small boy and by the time he took over the ownership was a "hands-on" operator. Like his father, he also did not have the formal management education. But he was gifted craftsman who enjoyed working in the factory, coming up with new furniture designs and achieving production targets and was very much in the mould of his father. He also, like his father, took an autocratic approach to running the company's manufacturing operations and directing the daily activities of its employees. His style of managing staff was paternalistic in that he viewed the company's employees as inherently inadequate as workers, yet had a sense of immense responsibility for their welfare.

Bikash, on the other hand, differed from his father. He was a MBA graduate from a reputed Management Institute and was reluctant to enter into the family business. He wanted to start his own venture independently. He approached his father and brother Mohan to help him financially to start his own company. But they insisted that Bikash join their family business, gain adequate experience before he is ready to take on a nascent venture on his own. Since the business was gradually expanding, they also felt that an additional hand by way of having Bikash would be beneficial for STYLE. Reluctantly Bikash joined 'STYLE' and slowly built up his skills in general management and sales, but never really developed the passion for the industry held by his brother and father.

Most of the staff working in 'STYLE' were long serving. Many of them had started their careers as apprentices. All employees were engaged in the furniture manufacturing, which emphasized, under Mohan's directives, high quality and cost control. Production encompassed three departments: cabinet making, upholstering, and sewing. Each department had a supervisor who oversaw production, which relied heavily on skilled craftsmanship (e.g., cabinet assembly and upholstery) and expert machine operators (e.g., upholstery sewers). However, supervisors were also expected to be hands-on workers and to direct any matters requiring significant decisions to Mohan or, in his absence, Bikash. Essentially, the staff was not allowed to make decisions that could lead to mistakes, with Mohan demanding hand work and obedience rather than initiative in "his" factory, as Mohan calls it. If a staff member did make a mistake, Mohan often yells at them and then insults them in front of others.

Bikash was not a craftsman like Mohan. He rather preferred to be in the administration. He dealt with staffing issues, marketing, and financial management whereas his brother avoided any management matters not directly related to production or design. He administered the company wages system, which paid above-industry-average rates, but he, too, expected the staff to meet Mohan's expectations of loyalty, high quality and productivity. The brothers worked effectively together, looking to automate aspects of their manufacturing operation, expand the product range, and market locally to the national level targeting to serve the huge Indian middle class customer population. Elements of the strategy included introducing new product ranges, modernizing the companies remises and re-designing many company administrative and operational functions. Major capital expenditure from 1991 to 1998 including the following:

  1. Introduction of 'SARAL' computer system to support accounting, order processing, databases, and the collection and analysis of management-related information.
  2. The building of a 300 square meter warehousing facility adjacent to the existing 1,000 square meter manufacturing plant.
  3. Increase in the number of employees periodically to accommodate more production and sales.

These acquisitions, which were financed through retained profits and increased borrowing, brought about production efficiencies to specific work centres within the company. Unfortunately, by the late 1990s, sales growth of 'STYLE' had stagnated, with profits not showing the anticipated growth (Figure 3). By this time the number of employees had already risen to 25. Furthermore, inventory levels had risen alarmingly, delivery times were being extended to the point of creating customer dissatisfaction, and expenses were increasing in relation to throughput (Term used for totally computer-programmed and controlled machines).

Bikash found it difficult to determine the reasons for these events. He struggled with cash flow difficulties, production hold-up, delivery headaches, and growing staff apprehension brought about by the deteriorating situation. Mohan's response to the situation was to work harder and for more hours, which led to him becoming irritated, stressed and excessively fatigued. He blamed the company's problems on the country's economic liberalization process, non-protection to furniture industry and on what he saw as changing consumer spending habits, incompetent staff, and unrealistic customer expectations.

In 2001, Bikash and Mohan initiated a review of how the company operated and whether it was still heading in the right direction. The brother decided that Bikash would look at the attitudes and behaviours of staff and management within the company, how they interacted, and the extent to which they accepted or avoided risk-taking and change.

From the review Bikash and Mohan concluded that the organization had, in fact, used good judgement in deciding to compete nationally and invest in a modern high-tech manufacturing plant. At this time, on the contrary, the company let go an opportunity pass it by, when it declined to join hands with an approaching MNC, which showed interest in their business in 2000. Bikash also felt that many of 'STYLE's old outdated, attitudes and ways of doing things were no longer compatible with the company's strategic direction or the competitive market in which it now operated.

Mohan was rather sceptical about Bikash's assertion that there was something wrong with the way the company operated, as everyone worked hard and certainly no one worked harder than he did. However, he tentatively agreed that Bikash should examine 'STYLE's performance both as a stand-alone organization and within the context of the environment in which Indian Furniture Industry was operating (Appendix A).

'STYLE' at the cultural crossroads?

Bikash concluded from his review of the performance of 'STYLE' and the furniture manufacturing industry that the reason for the problems within his and Mohan's company had more to do with the culture and had evolved within 'STYLE' than present business environment. He concluded that although trading was difficult and business had never been so competitive, other companies were still making good profits, even though many of them were not as well capitalized or as technologically advanced as 'STYLE'. He, therefore, looked inward at 'STYLE's culture and decided that the entrenched behaviours and attitudes of staff and management appeared to be at the heart of the problem.

This culture, he realized, was very much a product of the fact that 'STYLE' had been established by his father with a tight control and authoritarian style. During the formative stage of the company, the survival was the utmost priority in the founder's mind. Moreover, the autocratic management and leadership styles held by the family owners of the business had established a climate that limited opportunities for critically examining and, where necessary, changing the established practices. Staff-held values like "Don't rock the boat", "Quality and quantity are paramount", "Don't take risks" and "Don't try anything new unless it is sanctioned by management" along with management's expectations of staff loyalty, respect and obedience, were no longer suitable in today's world.

To try and arrest this situation, Bikash, using tools he had acquired while completing his MBA, set out to examine more closely the values, assumptions and behaviours by which 'STYLE' was operating. This process confirmed his initial supposition that the company's culture needed to change if 'STYLE' was to improve its performance. He then developed, with the aid of Lewin's (1947) three-step change model, a prescription of changes designed to do just this.

Knowing fully how much patriarchal Mohan was in his management style, Bikash was nervous about suggesting changes that would alter the company's culture. He was unsure if his suggested changes were the right ones, and he certainly did not want to upset Mohan. Nevertheless, he strongly felt that 'STYLE' could not become an effective organisation within the current economic climate unless the staff and management alike were able to embrace, a culture characterized by innovation, self-responsibility and responsiveness to change.

One of Bikash's main change objectives was to have management move away from its autocratic, paternalistic way of operating, which had stifled innovation, expression of ideas and personal development within the company. He wished to move towards delegating responsibility to staff and allowing them to make mistakes as long as these provided a learning process for themselves and the company. He wanted to institute a culture where the staff would feel empowered to make decisions and to take responsibility for their actions. He also believed that the organisation needed to focus its production less on the need to maintain cost efficiencies and more on meeting consumer requirements and satisfaction. He also maintained that 'STYLE''s new culture required to be inculcated with a good dollop of common sense.

The Change Process

Bikash began the change process with a series of staff meetings outlining the negative impact that 'STYLE''s traditional modus operandi were having on the company's long term viability. Over several weeks of these meetings he discussed, in his customarily intense and serious manner, the need for change. He soberly highlighted the company's present shortcomings and the risks these posed to the company's survival. As part of his strategy, Bikash also presented examples of successful manufacturers, emphasising their new ways of operating and their clear focus on staff empowerment and customer satisfaction.

Throughout the meetings, he asked staff for their views of and concerns regarding the company's present practices. Staff comments tended to be limited and guarded, but Bikash hoped that his message was getting through. As for Mohan, he sat in on most of the meetings, listening as Bikash described the changes he wanted to introduce, and he did agree, rather begrudgingly, to relinquish some of his authority so that the staff could make more decisions themselves and take responsibility for those decisions. Within the factory, Bikash was quick to introduce some of the operational changes he had outlined in the meetings. He redesigned jobs to allow staff greater responsibility and accountability, thus reducing the need for all decisions to be directed through Mohan. He invited 'STYLE''S furniture retailers into the factory to meet staff and to encourage them to think of customer needs in their actions. He used praise and recognition of initiative to encourage staff to continually review the quality of their activities and to effect improvements whenever necessary. Bikash also invited his employees to enrol in a company-funded programme that offered not only training specifically related to the furniture industry but also personal development courses. He reconstituted staff meetings as forums wherein staff could question Bikash and Mohan about old practices and the new initiatives, and where suggestions for better ways of doing things in the future could be discussed. Finally, as part of his commitment to praise and acknowledge creativity and performance, Bikash released a proposal to reward staff through a profit-sharing scheme that would be introduced within 18 months.

Mohan, within himself, however, could not get himself to believe that the reigns of the company's working will be slowly transferred in the hands of his employees and that he, the 'big boss' would gradually be losing control over them and the company's affairs.

The Outcome, one year later

Although Bikash's recommendations were implemented, they failed to significantly alter 'STYLE''s organisational culture for the better. Twelve months on, staff forums had become infrequent and poorly attended, with staff viewing them as ineffective because Mohan dismissed out-of-hand many of the ideas put forward for improvements. Staff still seemed to be adhering to 'STYLE's long-term paternalistic culture. It was Mohan, they felt, who was responsible for running the business and who set the tone of how the business was run, so why, then, was Bikash suggesting all this change? As one long-standing staff member commented to Bikash after one of the first meetings back in June 2000, "Mohan has always got us through the tough times in the past, and I'm sure Mohan will do it again this time." Moreover, all the staff knew it was safer not to take risks or do things differently, regardless of what Bikash said. Sure, he was a nice guy and had some good ideas, but it was Mohan who ran the company, and it was Mohan who would come down hard on you if you made mistakes. One thing was for certain, you couldn't rely on Bikash to stick up for you when Mohan was being unreasonable.

These attitudes were reinforced by the fact that attempts to change the company's culture had inevitably created some initial operational difficulties, which had led to some staff making wrong decisions or errors, for which Mohan castigated them. This situation naturally made staff even more reluctant to take risks. They much preferred leaving decisions to Mohan; that had always been the safest way in the past. Mohan still tended to dictate to staff rather than communicate with them, and Bikash, acquiescing to Mohan's status as the elder brother and dominant personality in the company, was unwilling (for unable) to force him to change his ways. Also, Bikash's acute awareness that Mohan was far more capable in furniture manufacturing than he was undermined his confidence to press for changes to the way that 'STYLE' operated.

Bikash became increasingly frustrated with the whole process, and felt very much alone when making difficult decisions. He could see that the culture was not changing. While his efforts had met with some success in altering behaviours during the first few months of his change programme, he now realised that the company had reverted to its old ways. If anything, the autocratic, paternalistic and low-risk culture had become further entrenched. The staff considered that in trying to take on the values of a new culture, they had simply exposed themselves to greater criticism from management and so were even more apprehensive of taking chances.

Mohan was pleased to be back in control and felt vindicated in his belief that this "empowerment and responsibility stuff" was nothing but nonsense. The problems the company had encountered trying to implement this new thinking had proved his point that "tough" management and good control was what had really been needed all along. He had run the business for 20 years and did not need to rely on the latest MBA fad to do so.

Eventually, Bikash, quite disillusioned, lost the energy and enthusiasm to continue on in the business. His profit-sharing scheme was no closer to implementation and the staff had become suspicious of his intentions and his ability to lead. Realizing that he had lost much credibility in the eyes of the employees, a disillusioned Bikash started recollecting the past. How would it be if he could explore the possibilities of joining hands with the MNCs in the furniture sector? Would it not be great if he could start his own venture and run the company in his own way without the dictation of another person?

Bikash had to figure it out whether his dream organization would really be free and whether he would be able to operate and implement his ideas independently.

Proposed cultural change for 'STYLE' identified by Bikash using Lewin's (1947) unfreeze/implement/refreeze model.

                Present Culture                         Unfreeze                         Implement                         Refreeze                         New Culture
                        →                 →                 →                 →
1. Autocratic management Questioning of current practices A. Alter distribution of authority in organisational structure a) New roles with associated authority
b) Flat structure
Delegation
2. Paternalism Owner using his position as a change agent B. Incrementally increase staff decision making responsibilities and accountability c) New job designs outlining responsibilities and accountability
d) Rewards and recognition based on performance outcomes
Empowerment and responsibility
3. Cost Orientation i.e.
- Output per hour employee
- Cost- based
-Quantity focus
Highlight present shortcoming and associated risk to company survival C. Customer satisfaction philosophy
D. Quality management practices
e) New internal and external performance measures relating to
1. Throughput per employee
2. Customer satisfaction
3. Sock levels
4. Delivery times
"Throughput" orientation
4. Blaming low risk culture Benchmark with competitors Highlight individual concerns E. Training program:
- Individual and team development
F. Forum for questioning old practices
f) Accepting of mistakes
g) Elimination of "coercive power" of leader
Risk-taking
5. Informality G. Top- down bottom -up communication protocols h) Open communication system Informality with open communication

THE FURNITURE SECTOR IN INDIA

India's economy and population

With 1 billion inhabitants, India is the world's 4th largest economy after USA, China & Japan if expressed in purchasing power parity. The Indian's GDP at current prices was worth 430 billion Euros in 2001. The average GDP growth in the last years has been about a real 6%. India is 7th most attractive destination for foreign direct investments, after US, China, Brazil, UK, Mexico & Germany; India offers relatively higher rates of return and profitability than anywhere else in the world. Out of 1 billion inhabitants, the upper and up-middle classes constitute 20% or 200 million people (about 40 million houses).

  • 2 percent of Indians have an annual per capital income in excess of 14,500 Euros, which means 20 million people.
  • 8 percent of Indians have an annual per capita income of more than 3,900 Euros, which means 80 million people.
  • 10 per cent of Indians, this is about 100 million Indians have an annual per capita income in excess of 3,200 Euros.

Five states concentrate a high level of population and of wealth: Delhi with the capital, West Bengal with Kolkata, Maharashtra with Mumbai, Karnataka with Bangalore and Haryana with Chandigarh.

The furniture sector

The furniture sector in India only makes a marginal contribution to the formation of GDP, representing just a small percentage (about 0.5%). The furniture production in the year 2001 was around 2.1 billion Euros. That means an increase from 1999, where the furniture production was only 1.9 billion Euros. The furniture industry in India can be considered as a "non-organized" sector. Handicraft production accounts for about 85% of the furniture production in India. The office furniture segment is the one that boasts the most important companies, both from the point of view of size and of the technological innovation of the production. The furniture industry employs a total of around 300,000 workers.

The internationalization of the furniture sector is poor. In 2000, India ranked 48th among furniture exporters (140 million Euros) and 49th among importers (20 million Euros). This situation can be explained by the high import duty applied, and on the other hand, from the low technological level of Indian companies and the local tastes and traditions that influence the style of the products offered, making them difficult to export.

Usually, a manufacturer or a craftsman has his own store(s) where he presents products or imported furniture. Consumers choose in the store or order bespoke furniture. From the commercial point of view India shows good perspectives to sell furniture in the follow years. First of all because its size and secondly because Indian taste have started to be more refine looking Indian people for more western furniture style. Legislation on various ways of setting up business and on intellectual property rights exists as well as a lot of advantages for foreign companies to establish business alone or with partners in India.

Co-operation with Indian companies

The furniture for the furniture sector in India seems positive. Several agreements have been signed between local producers looking for technology and European companies trying to reach a market or to reduce their costs.

A recent on-field UEA research, co-funded by the European Commission, has allowed to identified some 150 Indian companies (furniture manufacturers and retailers but also banks, hotels, enterprises) wishing to start commercial and/or industrial co-operation with EU counterparts.

Managing Change and Culture

Three types of Change

  1. Technological
  2. Environmental
  3. Internal

Technological Change

New equipment and new processes

  • Machines
  • Computers
  • Equipment
  • New raw materials
  • Processes
  • Robots
  • Automation

Environmental Change

All non-technical change that occurs outside the organization

Laws Interest rates
Taxes Consumer trends
Social trends Competition
Fashion trends Suppliers
Political trends Population trends
Economic trends  

Internal Change

Budgets adjustments, policy changes, personnel changes

Policies Restructuring of jobs
Procedures Personnel
New methods Management
Rules Ownership
Reorganization Products/Services
Budget adjustment Sold

Lewin's (1947) Three Step Model for Change

STEP 1 - Unfreezing – Break down the forces supporting or maintaining the old behaviour
STEP 2 - New Alternatives - Other clear and attractive options representing new patterns of behaviour
STEP 3 - Refreezing - The change behaviour is reinforced by the formal and informal reward systems

Barriers to Manage Change

Barriers to Manage Change
Inadequate management skills
Employee resistance to change

Four basic reactions of employees to change
Resistance/neutrality - if effects are unknown.
Outright resistance - if change is seen as worsening.
Resignation/acceptance - if change is seen as inevitable.
Motivated to make change - if change is seen as beneficial.

Six common barriers (reasons for resistance) to change

Fear of the unknown -
employees fear changes in which they are uncertain of the outcome.

Economics -
employees fear any change that they think threatens their job or income.

Fear that skills/expertise will lose value -
employees fear being replaces by technological changes or other more experienced or educated people.

Threats to power - employees fear changes that may diminish their power within the organization

Additional work and inconvenience - employees may have to learn new technology, a new manager's management style.

Threats to interpersonal relations - friendships among employees for social reasons or team work.

The more trust and confidence that employees have in management, the more likely the employees are to accept change.

How to build employee trust?

  • Discuss change
  • Involve employees
  • Make sure changes are reasonable
  • Avoid threats
  • Follow a sensible time schedule

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Case Study by: Marketing Research Team, 3EA