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Operations Management Best Practice

Reducing Costs through Change Management

by Beverly Goldberg

Executive Summary

  • When senior management decides to move a business in new directions or adopt new methods, processes, and/or technologies in order to remain competitive, it must work to prepare its employees for the changes that will take place as a result.

  • Making formal change management programs a part of the process of change from its inception is necessary to ease employees’ uncertainty and anxiety about the effects of the coming changes in their jobs. This can create resistance to change, slowing or even derailing the adoption of what is new.

  • The board and CEO must make it clear to everyone in the company that they fully support the planned changes, explaining the danger that the business will face if it does not change.

  • The CFO must ensure that change management programs are part of the financial planning for every new process and/or technology that a business intends to adopt, which requires recognizing the time change management programs take and the personnel needed to implement such programs, including staff from various departments such as public relations and human resources as well as outside consultants.

Introduction

Today, globalization, technological advances, scientific developments, and new business theories and processes are forcing businesses to make changes over and over again, often introducing yet another change before the last round undertaken has been implemented. The changes that must be made to ensure success in so highly charged a business environment requires changes in the work that people do, the way they do it, the environment they work in, and/or the skill sets they have. Unfortunately, change often meets resistance because it threatens the security and comfort of employees at all levels and in all areas of the business. Senior management must take responsibility for seeing to it that this natural resistance to change is planned for and that programs are put in place to overcome it before it can delay or even derail the new direction the business is taking.

Change management may be described as a process for opening an enterprise’s culture to new ways, gaining individual employee buy-in, and training employees to be a part of the new and better enterprise. If management fails to anticipate the need for change management, projects will inevitably cost more than anticipated—or fail. The CFO is responsible for making certain that plans for managing change and the costs of doing so are included in proposed budgets for implementing new processes and new technologies. By reducing resistance to what is new from the start, costly delays in implementation can be avoided and projects are far more likely to be finished on time and on budget.

Change Management Has Changed

In the past, change management theory involved three stages:1

  • first, unfreezing the current culture by making people understand that there would be a new way of doing things and that management was behind the change and would brook no arguments about it;

  • second, introducing what was new and providing training and education to open employees to the new processes and/or technologies;

  • third, refreezing the culture once the change was made.

Now that change seems to come about every twenty days rather than every twenty years, a different approach is necessary.

Although the first step in successfully implementing change remains explaining to employees that the organization is changing and senior management wholeheartedly endorses and supports the changes being made, it also requires:

  • providing people with information about the new ways of doing things;

  • convincing them of the validity of the new approach;

  • showing them the personal as well as corporate benefits that the change will bring.

The second stage begins when employees are brought to understand that in order to gain a competitive advantage or keep abreast of competitors, the company has to adopt new processes and new technologies. They also are shown that if they do not learn new ways to work, they will join the ranks of the unskilled. Putting those two facts together, they are helped to realize that if the company they work for suffers because it cannot produce as quickly and inexpensively as its competitors, they will be in the uncomfortable position of seeking employment without having the skill sets that are becoming the standard in their industry.

Then, breaking with the classic idea of refreezing the culture as a final stage, the culture is moved to a dynamic stage where people become comfortable with the new machines, processes, and/or technologies but await—and even anticipate—the next changes that will be made. In other words, openness to change and anticipating change become the organizational mindset, thus lowering the costs and time involved in subsequent changes.

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Further reading

Books:

  • Hughes, Mark. Change Management. London: Chartered Institute of Personnel and Development, 2006.
  • Jellison, Jerald, M. Managing the Dynamics of Change: The Fastest Path to Creating an Engaged and Productive Workplace. New York: McGraw-Hill, 2006.
  • Kotter, John. Leading Change. Boston, MA: Harvard Business School Press, 1996.

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