Major changes such as downsizing, restructuring, Managing change: the human resources component * THE MANAGER S CORNER

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1 Managing change: the human resources component * Chris Koper A planned sequence of actions maximizes the likelihood that the organization will soon be able to accomplish its new purpose. Major changes such as downsizing, restructuring, corporate redirection or mergers happen for strategic, financial and marketing reasons. When the expected benefits are slow in coming, it is most often due to human reasons. 1 Yet in the flurry of (often secret) activity during the planning of such changes, the human factors are sometimes overlooked. In 1997, the London School of Business and Egon Zehnder International surveyed a group of chief Chris Koper, a Toronto-based consultant, works internationally as a human resource management advisor specializing in aligning an organization s human resources with its strategic intentions. He designs processes to facilitate the identification and development of high-potential talent and planning for executive continuity in line with the strategic staffing requirements of the future. Mr. Koper consults independently as CK Consulting and has worked in association with Johnston Smith International, People Tech and Coopers & Lybrand. Earlier in his career, he held senior executive positions with several multinational corporations. Mr. Koper has a BSc (Hons) in Industrial Psychology and an MBA, both from the University of Capetown (South Africa). He is also a Certified Human Resources Professional in Ontario. executives who were planning mergers. These executives were asked to identify the most important factors that would make their mergers successful. Of the twelve topranked factors, three related to HR issues. The same group was surveyed after the mergers had taken place. This time they identified seven HR issues among the top twelve. Clearly the consensus was that sensitivity to HR issues was critical to achieving the benefits expected from the mergers, but this was recognized by these executives only after they had been through the experience. 2 * This article is based on a discussion guide prepared for senior executives of a large company to help them in managing a merger with another large company. Both organizations had recently undergone overhead value analyses (OVAs) resulting in large cost savings, which were invested in product quality, packaging, store redesign and marketing. While these results boosted market leadership and revenue growth, they also contributed to existing employee morale problems, adding to the difficulties of managing the merger. The perspectives of change leaders in several organizations, selected reading by the author on the effects of large-scale change and the author s own observations resulting from his consulting work in this area have all been incorporated in this article. 48 Optimum, The Journal of Public Sector Management Vol. 27, No. 4 (48-52)

2 The change process and HR The right time for assessing the HR implications is at the beginning of the change planning process to ensure that maximum productivity is maintained throughout the period of change and uncertainty. Effective management of the human aspects of the process requires as much or more attention than the details of the new operating structure or strategic direction and needs a systematic yet personal approach. For example, of key importance in mergers or acquisitions are the cultural differences between the companies involved. These need to be defined and understood at an early stage so that their influence can be brought into decision making and communications. Since many decisions on organization and policy must be made quickly, it is important to take the time earlier to ensure that they contribute to the success of the change and not to its difficulties. When a major change is announced, a sequence of actions and reactions is triggered: 3 Employee responses Alarm: Rumours and anxiety occur. Concern is expressed about job loss and policy changes. Stress: Perceptions and assumptions of likely impact, uncertainty, actual changes of job, power, status, pay systems, work routines and location all contribute to stress. There are differences in how individuals manage ambiguity and the stress it creates. Those who lose power show a greater loss of morale than those who gain it, but the change adds surprising amounts of stress to those who are (or are assumed to be) winning. Evaluation: Next there is a period of more thoughtful assessment of the impact of change the employees assessment may still be inaccurate depending on the quality of information available. The emotional effects of stress are still strong and tend to create significant negative influence on thinking. depending on their stress level, personal situation and predisposition. 4 Employer responses General principles: Research shows that there are a number of change management concepts that management must learn. The main ones are described in the next section. They are important to achieving successful restructuring or refocusing and to reducing stress in the process. Communications: Communications should start immediately and continue until after the change process is complete. The best communications are short, timely and relevant, and demonstrate the advantages that will accrue to the company and the employees. Acceptance of the limitations of what is possible: The managers who are leading the change process cannot anticipate all of the effects of the merger. They must be prepared to admit oversights and fix them as they are identified. The employees should be advised that the managers may not respond immediately to each individual s concerns. For example, when two large Canadian businesses with head offices in Toronto recently merged, because of earlier overhead value analyses (OVAs), few layoffs were necessary. Each company had already eliminated most of the excess positions. But the effect of the many other changes on areas such as boss/subordinate relationships, job content and policies was not sufficiently anticipated. The challenge of managing people from the other corporate culture distributed throughout several locations was tougher than expected. A number of incidents were simply a function of not appreciating how employees from the other company would react. Some of the situations that resulted were not easy to resolve. Managing a major change Coping: Employees may adopt strategies that are effective or ineffective, constructive or destructive, There are several recommended steps for managing a major change. Optimum, The Journal of Public Sector Management Vol. 27, No. 4 49

3 Develop a master change management plan Establish a steering committee to oversee the management of the overall process and the multiple subissues that will arise. Senior executives should address organization and job design and establish the process for selecting other executives, managers and professionals for the new job structure. They will in turn endorse selection decisions to two levels down. PC-based software can ease the challenge of project management and schedule control to allow the central group to keep tabs on the progress of the tasks they have delegated. Learn each organization s personality Sensitivity is essential when identifying the important issues that may worry employees, in discovering the areas where changes will win support, and for ensuring employee involvement and input. 5 Well-timed climate surveys can be powerful in gaining insight and may also operate as a morale booster. Conduct the survey when the best payoff can be gained (e.g., soon after the change is announced, then another to share the good news when progress is a reality). Obtain feedback on the pace of change. Experience shows that change will be more stressful if it is too slow or too fast. Caution makes for better decisions but some benefits can be lost due to delays in taking action. Employees with marketable talents may not wait for the decisions about their jobs. does this mean to us? How do we achieve it? What specific priorities and projects does it imply? ). Define and describe the new organization plan to the employees. Clarify the operating policies, trade styles and logos to be used. Establish task forces The benefits derived from task forces are many and include tapping into the views and wisdom of a wider group of people. Distribute the research, evaluation and recommendations to groups and individuals to spread the load and generate involvement and commitment. Within the HR function, establish teams to research and recommend new policies regarding compensation and benefits, performance management, job evaluation, training and development, relocation, recruitment, job titles, employee relations. These should be assessed in light of new organizational needs as well as past practices of the predecessor companies, with active participation from line management. The same concept applies to other functional areas. This is a time when the value of an old policy manual may become evident. Adopt a cyclical pattern of plan announce act Companies have found a sequential series of decisions beneficial to maintaining momentum and dealing with the priority issues. Ensure that changes are made with care, that advance notice of the changes is given, and that implementation occurs after employee reactions have been considered. As one issue is resolved, the next is being dealt with, and progress becomes visible. Do some strategic planning Involve groups of managers from both sides of a merger or acquisition in the preparation of a one-page statement of mission, objectives and strategy. A high level of participation aids team building and helps the participants to understand how they can contribute. Involve divisional personnel in reviewing the statement and ensure clarity of the intent. They may also need help to translate it into divisional objectives (i.e., What Sell the new look Visioning skills are critical at this time employees need to know what they can expect from the new organization. Rather than leave their perceptions to chance, explain the new organization s purpose, operating style and values to encourage quicker acceptance of the new culture. Issues such as mission and strategies; how the organization will look and function; staffing procedures; performance planning, standards and 50 Optimum, The Journal of Public Sector Management Vol. 27, No. 4

4 evaluation; and compensation policies can all be addressed. If an opinion survey has been done, its conclusions and the resulting action steps should also be presented. Getting to know you Create activities that bring together people from both sides of a merger/acquisition and from all locations: open house sessions mixer social occasions product gifts from the other side symbolic gestures to bring the two groups closer together. Use team-building sessions to help in situations where people may need to develop new ways of working together or to deal with inconsistent values or predispositions. The senior management team especially needs to unify itself quickly to ensure that it is providing consistent leadership to the new organization. The rest of the employees cannot be expected to pull together until the leaders do. After the recent merger of two companies mentioned earlier, the manufacturing operations were faced with an unexpected challenge, since department heads of one of the companies now reported to different supervisors, all of whom were located on the other side of Toronto. Issues that had previously been resolved by the on-site superior now had to be dealt with by a team of peers. Operating problems soon became seen as personality conflicts. Help from a team-building consultant was instrumental in speeding up the learning of how to become a cooperative unit and act more independently of supervision. Provide ongoing communications Organizations will find it worthwhile to appoint a senior executive to attend to communications, perhaps even on a full-time basis. The payoff will be a higher level of trust and more positive direction of energy. Communications should be frequent, regular and use multiple media. Bulletins, videos, cascading meetings, presidential addresses and company newsletters all contribute in different ways. This may be the time to install an system, which allows continuous updates on progress. Issue timely and relevant weekly progress bulletins. A distinct logo for the bulletins and all other written communications can promote recognition and a professional look. Encourage the formation of problem-solving teams; use focus groups to test ideas or generate new ones. Set up a hot line to receive employee questions, comments and complaints. Keep a record of all calls, who deals with the issue and the response. Ensure that the response goes back to the originator (if known) or is included in the bulletins. Consider cascading briefing sessions to improve the communications flow from top management down and back up again. Ensure consistency by using a centrally developed talk sheet and by training the presenters. Educate the employees It should not be assumed that employees are equipped to deal with the changes being introduced. Provide an opportunity for them to become familiar with new methods and policy guidelines. Design workshops that explain mission and strategies, the desired HR culture and how to act in support of the common intentions, new policies, how employees will be assessed and how they can capitalize on developmental or job opportunities. Publicize training and counseling resources available through HR or outside resources. At one of the companies involved in the merger mentioned earlier, the design of the performance management system was reviewed, including how to connect individual key objectives with those of the newly refocused company. The revised system was introduced through a series of comprehensive workshops that presented the new method for defining performance expectations, supporting employees, evaluating progress and raising standards. Open discussion in the workshop and afterward increased the likelihood of acceptance. Transfer of the learning into practice Optimum, The Journal of Public Sector Management Vol. 27, No. 4 51

5 was supported by the appointment of HR representatives for each operating unit. They were charged with providing counsel to the managers who were implementing the unfamiliar process for the first time. Take care with staffing When combining four regions, a large international transportation company was faced with many staffing decisions that needed to be made quickly. It made them in a group meeting attended by the key decision makers, but it later became apparent that some of the appointments had been made without any real knowledge of the candidates. The hiring managers were relying on the comments of people in the room who had limited exposure to the candidates work and background. Personnel files, performance appraisals and current supervisor s comments were not always available, so incorrect assumptions were made about qualifications, talents and aspirations. Ensure objectivity and avoid later problems by establishing a logical process of setting specifications and selecting the best qualified people, level by level. Having a committee to oversee the selection process and compliance with the criteria builds employee support for the new appointments. In turn, this helps the new appointees to become effective more quickly when they take over. For the merger mentioned earlier, a combined set of competencies was developed for the sales forces that indicated capabilities in different aspects of sales, key account management, promotions, business development and supervision. Evaluating each employee on the entire set indicated where best to use each person s abilities regardless of his or her current role. Decide whether to fill current vacancies and how to handle redundancies. A policy statement showing a consistent matrix of termination benefits based on service, age, level and other relevant criteria help to ease apprehension. Career and relocation counseling support is essential to managing reassignment and redundancy in a professional manner. Conclusion Undermanaging a large-scale change results in too slow or too rapid a rate of integration. The result is loss of productivity and lack of support for the many operating and policy changes that have to be made. 6 The objective is to rebuild an integrated and proactive organization capable of maintaining top levels of operational effectiveness, competitive strength and service. Distractions arising from unexpected and unplanned crises result in the loss of organizational momentum and the competitive edge the change was intended to create. A planned sequence of actions maximizes the likelihood that the organization will soon be ready to accomplish its new purpose. The change leaders must first gain an understanding of the implications of the change, then develop a systematic approach to deal with all of the elements that need to be addressed. Endnotes 1. P.H. Mirvis and M.L. Marks. The Human Side of Merger Planning: Analyzing Fit, Human Resources Planning, Vol. 15, No. 3, pp J.W. Hunt, S. Lees, J.J. Grumbar and P. Vivian. Acquisitions The Human Factor (London: Egon Zehnder International, 1987). 3. See David Robino and Kenneth Deneuse. Corporate Mergers and Acquisitions: Their Impact on HR Management, Personnel Administration (now HR Magazine), November 1985, p. 33; David Schweiger and John M. Ivancevich. Human Resources the forgotten factor in mergers and acquisitions, Personnel Administration, November 1985, p Price Pritchett & Associates Inc., Dallas, Texas, has a number of publications that apply to mergers and human resources, such as The Employee Survival Guide to Mergers and Acquisitions, Mergers Growth in the Fast Lane, After the Merger Managing the Shockwaves and Making Mergers Work-A Guide to Managing Mergers and Acquisitions. 5. D.M. Schweiger, J.M. Ivancevich and F.R. Power. Executive Actions for Managing Human Resources Before and After Acquisition, Executive, Vol. 1, No. 2, pp D.L. Allen and J. Dharmapalan. When Your Merger Machine Backfires, Financial Executive, March/April 1997, pp Optimum, The Journal of Public Sector Management Vol. 27, No. 4