Recently, one of the concepts discussed, written about, and analyzed most frequently has been organizational change and the related concepts of resistance to change and management of change. Change has been variously defined as making a material difference in something compared to an earlier state, transforming or converting something, or simply becoming different. All of these definitions can be applied to change as it occurs within organizations and businesses. Organizational change may mean changing
technological infrastructures (e.g., changing network file systems), marketing strategies (targeting a new customer base), or management and decision-making practices.
Organizational change is not new to the American business landscape. Since the nineteenth century and the Industrial Revolution, corporations have had to deal with change on an increasingly rapid scale. The greater the technological developments and the greater the amount of products and information generated, the more necessary it becomes for corporations to provide effective management and develop solid organizational practices. The most revered business professionals of the United States have been those who were best able to exploit changes in business and the economy. For example, in the late nineteenth century, Andrew Carnegie greatly expanded his empire by purchasing the very businesses he depended on for his steel business, making his company one of the first successful examples of vertical integration.
The economist Joseph Schumpeter saw change and dynamism at the root of capitalism. His term “creative destruction” described the effects of capitalism's change. While newer activities were acts of creation, they simultaneously destroyed older forms, businesses, and ways of doing things by rendering them obsolete or putting them at a severe competitive disadvantage. Schumpeter noted that large, successful concerns tended to “automate” their processes. However, while many companies conducted business as usual, both in services and in operations, there were other individuals and firms who were quietly innovating; he referred to this as the “entrepreneurial response.” These entrepreneurial firms and people would then, and sometimes suddenly, introduce a change that would significantly shift the balance of power in a given market. Schumpeter's ultimate lesson for managers was that change is inevitable and can be ruinous to an organization if it is ignored.
Beginning in the 1990s, change came at an exponentially faster rate due to factors such as increased competition in a global economy, expanding markets, new ways of doing business (such as e-commerce), and the omnipresent task of keeping up with the latest technology. Management guru Peter F. Drucker devoted his book, Management Challenges of the Twenty-First Century, to that very topic. As a result, businesses had to revise (or devise) corporate missions and goals, management practices, and day-to-day business functions. Companies routinely began redesigning business strategies, often replacing traditional hierarchical organization charts with flatter structures centered around “empowered” teams.
The late 1990s also saw the rise of the Internet, which fueled a large amount of rethinking business processes and organizational structure. Kevin Kelley, in a widely read book, New Rules for the New Economy, echoes Schumpeter's mantra of creative destruction, arguing, among other things, that change needed to be at the core of business strategy. This period also saw the rise of business consultants who referred to themselves as “change agents.”
In their book, Corporate Cultures, Terrence Deal and Allan Kennedy assert that change is inevitable for an organization. However, they also note that there are specific circumstances requiring change that an organization must recognize. These include market changes, an under-performing company, and a rapidly growing organization.
INDICATORS OF CHANGE
There are four primary indicators of major workplace change. They are a change to the organizational structure, a new product or service, new management, and new technology. Organizational structure may change through major downsizing, outsourcing, acquisitions, or mergers. These actions are often accompanied by layoffs, particularly as certain positions become redundant. A new product or service has implications for changes in production, sales, and customer service. Additionally, by changing product or service the organization may face new competitors or new markets. New management, such as a change in chief executive officer or president, often brings a period of transition during which upper-level managers are likely to alter existing business processes and personnel policies. Finally, new technology can create vast changes to the organization. Technology can change the production process or the working conditions (i.e., telecommuting), and these changes may influence the skills that employees use on the job.
During a transition period, a company may bring in management consultants to help the business as it reinvents itself or some process. It can be argued that these management consultants are more or less in the business of change. Many of the modern consulting firms emerged in the mid-twentieth century specifically offering their services as agents of organizational and structural change. These firms' success and longevity are testaments to the importance of change in the business world.
ROUTINE VERSUS NON-ROUTINE CHANGE
There are changes in organizations that are routine (e.g., they are commonplace and often expected), and there are those that are not routine (e.g., unique and unexpected). Examples of routine changes are organizational turnover and staffing replacements, small changes to products or services, or changes in human resources policies. Routine changes are the easiest to manage, and employees are somewhat accustomed to routine changes. There is typically little concern over implementing such changes. However, if not handled properly by management, even
routine change can prove to be difficult. If changes are not implemented properly or are not well communicated, problems may arise. For example, a small change to the company vacation policy may seem insignificant to management, but if employees are not properly apprised of the change it could result in considerable difficulty if employees do not follow the new policy.
Non-routine change is much more difficult than routine change; it can be unpredictable, significant, or even radical, and employees are much less likely to adapt well to non-routine change. In general, a non-routine change is seen as threatening, and employees are likely to be resistant. For instance, if a company announces a merger with a former competitor, this non-routine change is very likely to create anxiety about compensation and job security.
TYPES OF CHANGE
In addition to some of the major indicators of organizational change and the broad distinction of routine versus non-routine change, change can be categorized even more specifically into four categories: structural change, cost change, process change, and cultural change.
Structural change occurs when there is an alteration to the company's organizational structure. This reorganization may occur due to a merger or acquisition, or it may be the result of a restructuring. For instance, an organization that is intent on increasing its innovation may reorganize its traditional functional structure into a more flexible matrix structure that uses small, self-managed teams. Or, an organization that is expanding into new markets may adopt a divisional structure in which different geographic locations operate nearly independently of one another.
Cost changes are those that occur when an organization attempts to reduce costs in order to improve efficiency or performance. Major adjustments may be made to departments to cut costs: reducing budgets, laying off employees in redundant positions, and eliminating non-essential activities may all be a result of cost change.
Process changes are implemented to improve efficiency or effectiveness of organizational procedures. This may occur in production settings; there may be changes to how a product is created, assembled, packaged, or shipped. Or, in a service organization, there may be changes to the procedures used to accomplish work; new computer systems may create the need to change how paperwork is completed, or a new manager may modify the process used to handle customer complaints.
Cultural changes are the least tangible of all the types of change, but they can be the most difficult. An organization's culture is its shared set of assumptions, values, and beliefs. A prototypical culture is the very bureaucratic, top-down style in which stability and standard processes are valued. When such an organization tries to adopt a more participative, involved style, this requires a shift in many organizational activities. Primarily, manager-employee relations are altered with a change in culture. Chris McKenna notes that consulting firms such as McKinsey and Co. regarded cultural change as so important that they began to focus on it in the 1980s.
To properly implement change, management must take a number of steps: involving key people, developing a plan, supporting the plan, and communicating often.
- The first step in implementing change is involving the key people; this typically means upper-level management and other executives whose processes and employees will be affected by the change. For instance, if a new computer system is to be installed in all areas of a company, key people would be not only top managers, but also lower-level managers who supervise the employees' use of the new technology. A different set of key people would be involved in a cost-cutting change. If the company is reducing its operating budget in a specific division, the managers of that division and also human resources personnel should be involved. In any circumstance in which there is a change to personnel policies or in which demotions, transfers, or layoffs occur, the human resources department should be involved to manage this change.
- After key personnel have been identified and properly involved, the second step in implementing change is to develop a plan for effective transformation. The plan should help to define the responsibilities of the key people involved while also laying out short-term and long-term objectives for the changes. Because change can be unpredictable, the plan should also be flexible enough to accommodate new occurrences.
- The third step in implementing change is to support the plan; this means that management follows through on the plan it created. Key to this step is enabling employees to adapt to the change. Employees may need training, reward systems may need to be adapted, or hiring may be required. If the organization does not provide the support necessary for the plan to take effect, it is unlikely to succeed.
- The final step in successful change implementation should occur throughout the change process. Communicating with employees about what is occurring, why the changes are being made, and how they will develop is critical. Because change can create a lot of fear, increased communication can be used to calm employees and encourage their continued support. In addition to downward communication, managers should pay attention to any upward communication that occurs. They should be available to take suggestions or answer questions that employees might have. Creating opportunities for employee feedback, such as holding meetings or having an open-door management policy, may facilitate change more successfully.
Heart of Change authors John Kotter and Dan Cohen also note that achieving permanent organizational change is only possible when that organization's culture also changes. Deal and Kennedy also highlight the role that internal culture plays in implementing and managing successful change. For example, they argue that the role of rituals can help members of an organization cope with change.
RESISTANCE TO CHANGE
As a general rule, it is not the proposed changes that people resist, but the impact that the changes will have on them, personally. People become comfortable in their jobs, in their areas of expertise, and in their relationships with coworkers and managers. Even when personnel are not very satisfied with the current workplace and therefore welcome change, they may find change to be stressful. Helping employees anticipate difficulties and informing employees of how these challenges will be handled can be a source of comfort to them. When an organization proposes large-scale change, those affected begin to worry about how their jobs will change, what new skills they will need, if their responsibilities will change, how established lines of communication will be altered, and how working relationships will change. The most successful members of a company may feel threatened because they were able to perform so well under the old organizational structure. Some common employee reactions to change include confusion, denial, loss of identity, and anger. And this resistance is not limited to employees—managers and executives may be just as prone as employees to experiencing problems with radical organizational change.
In their article, “Challenging ‘Resistance to Change,’” Eric B. Dent and Susan Galloway Goldberg discuss their research on the origins of this concept and the prevalent idea that managers must overcome this resistance or are doomed to failure. Kurt Lewin, the mid-twentieth-century social psychologist, introduced the term “resistance to change” as a systems concept affecting managers and employees equally. The term, and not its original context, was adopted and used as a psychological concept placing employees against managers. Dent and Goldberg feel that letting go of the term and its associations could help more useful models of change dynamics move forward.
There are theories of handling resistance to change that are related to this idea. While not explicitly questioning the use of the term, changing how organizations view resistance allows change to become an opportunity and not just a potential threat. Change is a personally challenging issue for everyone affected, but it also carries with it new possibilities. How corporate management responds to employee resistance can determine the fate of the organization. For example, a sense of confusion—usually represented by constant questioning from management and/or employees—usually means that not enough information has been provided. This can become an opportunity to convey additional information to employees, such as reiterating the big picture and why the company is working so hard to redefine its corporate culture. This is also a good time to provide assurances that management is going to take the time to address concerns.
Another common reaction is doubt or denial that actual change will occur. This reaction occurs sometimes because employees do not want change, and at other times because they do not believe management is fully committed to the idea. In any case, these reactions can also represent an opportunity for management to identify issues that may be present across the organization and address them. They can also alert management and higher-ups that actual implementation is not consistent with the plan that was put forth. A possibly related reaction is anger, sometimes accompanied by attempts to sabotage the company's efforts to change. Again, there can be benefits to this type of behavior. Employees who so visually make their feelings known let organizational leaders in on which impediments to change are likely to occur, and management can then formulate ways to address them. It also opens up areas for negotiation.
Peter Senge and his co-authors identified ten “challenges of change” (preferring the term “challenges” to “resistance”) in the 1999 work The Dance of Change: The Challenges to Sustaining Momentum in Learning Organizations. As reported in Fast Company, he formalized these challenges as common excuses that are offered as reasons for resistance. These excuses can then be countered by addressing the real concerns behind them. For example, “This stuff isn't relevant” indicates the need for continuous and open communication from people who can convince others of the driving need for change in an organization. “This stuff isn't working” indicates a need for management to provide measurable criteria for success and clear expectations. “They … never let us do this stuff” indicates that, while management may be claiming
to offer groups and teams more autonomy, they are really having trouble letting go of their control.
Another concern is the fact that people who consider themselves specialists or experts in a given area are often asked to start over (e.g., working in a different functional area or using different technology), sometimes more than once when companies make cross-training one of their goals. Again, this threatens the comfort zone for many people at all levels of an organization. Having proven themselves once, they are being asked to do so over again. In order to allay these fears, management needs to encourage people to ask questions, take initiative, and take risks. Fear of failure is possibly one of the strongest reasons for resisting change. Companies that hope change will be embraced need to view risks and failures as tools through which the organization can learn and grow.
Along these same lines, resistance need not be a dirty word. Whereas organizations once felt it was most important to put a positive spin on everything, corporate management is realizing that showing their own concerns about organizational change helps other personnel to deal with theirs. It also affords them the opportunity to teach others how to identify best practices under less than ideal circumstances, and to let employees know they empathize with their concerns.
Resistance to change, as put forth by Kurt Lewin, affects managers and employees equally when systems undergo change. As such, resistance is a naturally occurring phenomenon that can be dealt with in a constructive manner. In a sense, resistance is a sign that radical change is indeed occurring and that an organization is not just redefining the status quo. Management can help by anticipating common reactions and using them to their best advantage. For instance, if an employee is able to make requested changes to his or her performance but not willing to do so, some negotiation might be all that is required to convince that person to follow along with the company's new direction. For those who buy into the need for change but lack some of the necessary skills, targeted training could be all that is needed to quell the fears of those people. Whatever the resistance an organization encounters, it is almost a guaranteed part of change, which has become a constant in the business landscape. With the globalization of markets and speeding technological innovation, an organization cannot afford to rest on its laurels.
There are numerous recent examples of companies that have successfully managed change. In 2007, T+D ran a story on the Indian computer company, Satyam, offering it as one such example. Satyam was faced with the challenge of rapid growth. The company's response was to reorganize its structure; Satyam now has what it calls “full lifecycle businesses,” with each unit trying to emulate a small business. The article points out that this dramatic change was successful because the company carefully managed the process.
SEE ALSO Organizational Culture; Trends in Organizational Change
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———. Managing Change and Transition. Boston: Harvard Business School Press, 2003.
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Managing Organizational Change
Managing Organizational Change
Organizational change occurs when a company makes a transition from its current state to some desired future state. Managing organizational change is the process of planning and implementing change in organizations in such a way as to minimize employee resistance and cost to the organization while simultaneously maximizing the effectiveness of the change effort.
Today's business environment requires companies to undergo changes almost constantly if they are to remain competitive. Factors such as globalization of markets and rapidly evolving technology force businesses to respond in order to survive. Such changes may be relatively minor—as in the case of installing a new software program—or quite major—as in the case of refocusing an overall marketing strategy, fighting off a hostile takeover, or transforming a company in the face of persistent foreign competition.
Organizational change initiatives often arise out of problems faced by a company. In some cases, however, companies change under the impetus of enlightened leaders who first recognize and then exploit new potentials dormant in the organization or its circumstances. Some observers, more soberly, label this a "performance gap" which able management is inspired to close.
But organizational change is also resisted and—in the opinion of its promoters—fails. The failure may be due to the manner in which change has been visualized, announced, and implemented or because internal resistance to it builds. Employees, in other words, sabotage those changes they view as antithetical to their own interests.
AREAS OF ORGANIZATIONAL CHANGE
Students of organizational change identify areas of change in order to analyze them. Daniel Wischnevsky and Fariborz Daman, for example, writing in Journal of Managerial Issues, single out strategy, structure, and organizational power. Others add technology or the corporate population ("people"). All of these areas, of course, are related; companies often must institute changes in all areas when they attempt to make changes in one. The first area, strategic change, can take place on a large scale—for example, when a company shifts its resources to enter a new line of business—or on a small scale—for example, when a company makes productivity improvements in order to reduce costs. There are three basic stages for a company making a strategic change: 1) realizing that the current strategy is no longer suitable for the company's situation; 2) establishing a vision for the company's future direction; and 3) implementing the change and setting up new systems to support it.
Technological changes are often introduced as components of larger strategic changes, although they sometimes take place on their own. An important aspect of changing technology is determining who in the organization will be threatened by the change. To be successful, a technology change must be incorporated into the company's overall systems, and a management structure must be created to support it. Structural changes can also occur due to strategic changes—as in the case where a company decides to acquire another business and must integrate it—as well as due to operational changes or changes in managerial style. For example, a company that wished to implement more participative decision making might need to change its hierarchical structure.
People changes can become necessary due to other changes, or sometimes companies simply seek to change workers' attitudes and behaviors in order to increase their effectiveness or to stimulate individual or team creative-ness. Almost always people changes are the most difficult and important part of the overall change process. The science of organization development was created to deal with changing people on the job through techniques such as education and training, team building, and career planning.
RESISTANCE TO CHANGE
A manager trying to implement a change, no matter how small, should expect to encounter some resistance from within the organization. Resistance to change is normal; people cling to habits and to the status quo. To be sure, managerial actions can minimize or arouse resistance. People must be motivated to shake off old habits. This must take place in stages rather than abruptly so that "managed change" takes on the character of "natural change." In addition to normal inertia, organization change introduces anxieties about the future. If the future after the change comes to be perceived positively, resistance will be less.
Education and communication are therefore key ingredients in minimizing negative reactions. Employees can be informed about both the nature of the change and the logic behind it before it takes place through reports, memos, group presentations, or individual discussions. Another important component of overcoming resistance is inviting employee participation and involvement in both the design and implementation phases of the change effort. Organized forms of facilitation and support can be deployed. Managers can ensure that employees will have the resources to bring the change about; managers can make themselves available to provide explanations and to minimize stress arising in many scores of situations.
Some companies manage to overcome resistance to change through negotiation and rewards. They offer employees concrete incentives to ensure their cooperation. Other companies resort to manipulation, or using subtle tactics such as giving a resistance leader a prominent position in the change effort. A final option is coercion, which involves punishing people who resist or using force to ensure their cooperation. Although this method can be useful when speed is of the essence, it can have lingering negative effects on the company. Of course, no method is appropriate to every situation, and a number of different methods may be combined as needed.
TECHNIQUES FOR MANAGING CHANGE EFFECTIVELY
Managing change effectively requires moving the organization from its current state to a future desired state at minimal cost to the organization. Key steps in that process are:
- Understanding the current state of the organization. This involves identifying problems the company faces, assigning a level of importance to each one, and assessing the kinds of changes needed to solve the problems.
- Competently envisioning and laying out the desired future state of the organization. This involves picturing the ideal situation for the company after the change is implemented, conveying this vision clearly to everyone involved in the change effort, and designing a means of transition to the new state. An important part of the transition should be maintaining some sort of stability; some things—such as the company's overall mission or key personnel—should remain constant in the midst of turmoil to help reduce people's anxiety.
- Implementing the change in an orderly manner. This involves managing the transition effectively. It might be helpful to draw up a plan, allocate resources, and appoint a key person to take charge of the change process. The company's leaders should try to generate enthusiasm for the change by sharing their goals and vision and acting as role models. In some cases, it may be useful to try for small victories first in order to pave the way for later successes.
Change is natural, of course. Proactive management of change to optimize future adaptability is invariably a more creative way of dealing with the dynamisms of industrial transformation than letting them happen willy-nilly. That process will succeed better with the help of the the company's human resources than without.
see also Organizational Growth
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Wischenvsky, J. Daniel and Fariborz Damanpour. "Organizational Transformation and Performance: An examination of three perspectives." Journal of Managerial Issues. Spring 2006.
Hillstrom, Northern Lights
updated by Magee, ECDI
Traditional brick-and-mortar enterprises are finding it necessary to adopt some sort of e-business strategy as the Internet continues to become a powerful venue for exchanging information as well as for buying and selling products and services. According to Forrester Research, business-to-business e-commerce alone is predicted to generate $1.3 trillion by 2003. Managing the changes that go along with integrating traditional business strategies and e-business plans, however, can often be a multi-faceted and challenging task. Nevertheless, the ultimate goal for many enterprises embarking on an e-business mission is to become a holistic Internet-enabled entity. This entity is one that has fully integrated its e-commerce initiatives into its corporate vision.
Whether simply creating a company Web site or developing a plan to provide products and services via the Internet, an enterprise entering the e-business world is faced with several major issues. Developing an e-business vision and strategy, training employees, adapting to new technology, integrating the new e-business strategy into current operations, and handling new customer relationships, are all important steps in managing change.
MANAGING THE DEVELOPMENT OF AN E-BUSINESS STRATEGY
The shift from a traditional brick-and-mortar enterprise to a click-and-mortar entity typically begins with the formation of the e-business strategy itself, which is often a time consuming and labor intensive process. Many steps are involved in creating an effective business approach, and many levels of management are typically involved. The enterprise must first decide on the common goals it wishes to achieve by implementing an e-business plan. Management should decide why it is going online and what benefits the Internet can provide. It must decide if it is going to target existing customers or try to attract new ones. The enterprise also needs to select target markets and advertising methods, decide what it will be promoting online, identify competitors, and be in tune with conditions in its selected markets.
While these steps are no doubt important, managing the change that goes along with creating a new business strategy is often difficult, and even overlooked. According to a study done by Deloitte and Touche in 2000, 70 percent of online retailers surveyed did not have an e-commerce strategy. Many simply had established a Web site to test demand for their product or service on the Internet. The study did find that those who took the time to develop a strategy were outpacing their competition. According to a January 2000 E-Commerce Times article, "these e-tail leaders have developed a strategy that integrates their Web efforts with other channels. Their e-business effort is designed to win market share and mind share with innovative value-added service—not just to get a presence on the Web."
MANAGING STAFFING ISSUES
In order to successfully manage an e-business strategy, the enterprise must also have an employee base that is open to change. These employees must be adaptable to new technology and able to learn new skills. Major decisions management must make include deciding whether or not to use existing staff, hire new information technology (IT) employees, create new departments, or outsource e-business-related tasks. These employees, as well as the enterprise as a whole, must also learn how to interact with customers, suppliers, and colleagues, by utilizing new communication methods—Web chat or e-mail, for example—that will stem from the new e-business model.
Staffing issues can also be a major snag in implementing an e-business strategy. According the previously mentioned Deloitte and Touche study, nearly 50 percent of retailers surveyed in 2000 did not have a specified leader heading up their e-business initiatives. The study also reported that many executives believed they lacked sufficient staffing levels to support the business that the Internet could generate. Another study done by Andersen Consulting and the Economist Intelligence Unit in July 2000 also found issues concerning employee and enterprise adaptation. According to the report, e-commerce business plans were updated often, which required knowledgeable manpower. The report also predicted that by 2005, over half of e-business initiatives will have a planning life span of less than 12 months. In order to manage quickly evolving e-business development, enterprises need to have employees in place who can work effectively in a fast-paced, changing environment.
The Andersen study also found that financial executives must be will to adapt to new roles and responsibilities as e-business initiatives are set in place—these initiatives often necessitate different accounting methods than traditionally used in the past. Adopting an e-business strategy not only affects accounting executives, but other officers and executive managers as well. Those in key roles must adapt as their positions and job descriptions evolve due to the development of e-business initiatives that affect their area of expertise. Advertising and marketing executives, IT executives, and other key players must manage change effectively in order to keep the strategy in place.
MANAGING INTEGRATION AND NEW CUSTOMER RELATIONSHIPS
An effectively integrated e-business plan has the potential to increase profits, secure a competitive position in a market, and help establish strong relationships with customers. Integrating the e-business plan into existing operations, however, can be a major task. Along with traditional business operations, management is faced with setting financial budgets and allocating resources for e-business initiatives. The enterprise must also manage the increased business generated by entering the world of e-commerce and make sure staffing and systems levels are adequate to ensure quality customer service. Communication across departments is also crucial and management needs to be able to measure success and return on investment (ROI) in its e-business initiatives.
Providing high levels of customer service is also key to successfully integrating an e-business strategy. As the number of shoppers on the Web continues to increase, enterprises need to offer services on their Web sites that parallel a brick-and-mortar experience. Many stores that now have purchasing capabilities on their sites allow shoppers to buy an item online and return in a physical store, if they so choose. Many offer price comparisons. Dell Computer, for example, allows a consumer to build a computer online and track the machine's assembly and shipping status. Amazon.com, recognized as a leader in Web customer service, utilizes software that analyzes customer purchases to make suggestions on music and books in which a consumer might be interested. As Web consumers continue to demand high levels of customer service, enterprises that begin to offer products and services online must have adequate staffing levels in place to manage customer relations and to ensure that these products and services are issued in a timely manner.
Three companies that have successfully managed e-commerce business initiatives are Victoria's Secret, Eddie Bauer, and Cheap Tickets. Victoria's Secret, its online venture operating as a separate business entity, has integrated its catalog, Web site, and retail outlets effectively and has recorded profits from its initiatives. In 1999, the firm used the Internet to promote its fashion show, which was broadcast to over 10 million Web surfers by way of streaming video. By using cutting-edge marketing as well as integrating product data, inventory, and demographics of online shoppers, Victoria's Secret has increased customer transactions on its Web site. Eddie Bauer launched its Web site in 1996, and has also succeeded in recording a profit for its online ventures by integrating customer and inventory information. As a March 2001 E-Commerce Times article stated, "in order for e-tailers to thrive in the new e-commerce environment, companies must integrate their customer and inventory information across all channels and view every customer interaction as an opportunity to learn." Eddie Bauer has been successful with this integration by utilizing software that captures crucial customer information such as size and preference. The software then searches the inventory to come up with purchase suggestions tailored to customer as they shop online. Cheap Tickets, a travel ticket firm, has also managed its e-commerce ventures well. According to the company, its Internet bookings, which grew by 78 percent in 2000, accounted for more gross booking than any of its other distribution methods. Its Internet business was expected to continue to grow faster than any of its other divisions.
While many companies successfully integrate their e-business initiatives, there are enterprises that do falter. Toys 'R' Us Inc., for example, suffered many problems during the 1999 holiday season and was unable to deliver its products in time for Christmas. Many of the toy retailer's online customers were left scrambling to find substitute gifts at the last minute. At the time, the firm was utilizing its traditional distribution channel for its online sales and found itself ill-prepared to handle an unexpected spike online ordering. A class action law suit eventually brought against the firm alleged that Toys 'R' Us deceived its customers by stating it could deliver products on time when it knew this task was impossible. Toysrus.com also came under fire when claims surfaced that it was selling customers' private information to marketing firms.
The company did, however, facilitate a turnaround for the 2000 holiday season. It revamped its distribution methods and partnered with Amazon.com. Under the terms of the ten-year deal, Toys 'R' Us was able to utilize Amazon's experience in e-business by operating its Web site under the Amazon.com platform. Sales increased dramatically. In fact, the company secured holiday revenues of $124 million, a 218 percent increase over the previous year.
Most enterprises realize the importance of not only having a presence on the Web, but also of having an effective business plan that supports its e-business initiatives. Operating a company Web site that enables consumers to find information on products and services, as well as purchase those items, can be beneficial on many levels. A sound e-business strategy has the potential to increase sales, reach markets that traditional brick-and-mortar platforms are unable to access, and reduce operating costs. E-business can also provide an increased level of customer service and a faster exchange of information between the consumer and the enterprise. According to the Gartner Group, "enterprises that have implemented e-commerce as part of a business strategy have been more successful in reducing business cycle times, improving cash flow, reducing inventories, decreasing administrative costs, and opening new markets and distribution channels." While managing the change that goes along with ever-changing e-business initiatives can be difficult, successful management of these initiatives has the potential to pay off in the long run.
E-Business Systems Integration Center. "E-Business Strategy." Falls Church, VA: E-Business Systems Integration Center, 2000. Available from www.sic.nvgc.vt.edu/Thompson.
Enos, Lori. "Study: CFOs Not Ready for E-Commerce." E-Commerce Times. July 26, 2000. Available from www.ecommercetimes.com.
Hof, Robert D. "What Every CEO Needs to Know About Electronic Business." BusinessWeek Online. March 10, 1999. Available from www.businessweek.com/1999.
Mahoney, Michael. "Special Study: Look Who's Making Money Online, Part II." E-Commerce Times. March 29, 2001. Available from www.ecommercetimes.com.
Speigel, Robert. "Report: 70 Percent of Retailers Lack E-Commerce Strategy." E-Commerce Times. January 26, 2000. Available from www.ecommercetimes.com.
SEE ALSO: Shakeout, Dot-com; Integration
The Internet revolution of the late 1990s challenged the change management capabilities of businesses of all kinds. Many existing companies began to develop Web sites as marketing tools, while others began to sell their products and services via the Internet. Some companies even abandoned their "bricks-and-mortar" operations altogether to focus solely on online activities. In addition, dot-com companies like eBay, Amazon, and Yahoo! began to garner significant attention as their Web traffic exploded and stock prices soared. When the dot-com industry began to collapse in 2000 and the North American economy weakened, many of the firms that had wholeheartedly embraced Internet technology were forced to scale back their e-commerce operations and rethink management strategies. At the same time, however, the Internet continued to present opportunities for companies able to identify and serve various niche markets. The businesses that proved the most nimble at responding to these rapidly evolving market conditions tended to be more successful than those that struggled to implement changes.
The e-commerce industry remains a highly unstable one. Whether you are creating a brand new online business, simply developing a Web site as a marketing tool for your existing business, or planning to offer your existing products and services via the Internet, the one thing you can be certain of is continual change. To best handle the volatility of the e-commerce arena, you should consider carefully how the rapid pace of change in this industry will impact the following activities:
- Developing and modifying a business strategy
- Training employees
- Adopting new technology
- Handling customer relationships
DEVELOPING AND MODIFYING A BUSINESS STRAT EGY.
To create an effective e-commerce strategy, you must first develop goals. What do you wish to achieve via online operations? You should decide why you are going online and what benefits the Internet can provide to your business. You also need to identify your target market. Are you going to target existing customers or try to attract new ones? Other topics to consider include advertising methods, competition, and market conditions. One of the most important, and often overlooked, issues in developing an effective e-commerce strategy is how to manage change. A small business might follow a business strategy that proves successful during the first year of operation yet becomes obsolete shortly thereafter. A study done by Andersen Consulting and the Economist Intelligence Unit in July 2000 predicts that by 2005, more than half of Web-based initiatives will operate on plans that last no longer than 12 months, a practice that forces companies to revisit their strategies on a regular basis. At the same time, however, implementing too many changes can exhaust both employees and management. Being able to link planned changes directly to concrete goals is a key component of effective change management, as is the ability to clarify exactly how changes are going to be implemented.
The most successful e-commerce ventures have employees who are open to change and able to learn new skills quickly. If, for example, your company has decided to sell products online for the first time, employment issues to consider include deciding whether to use existing staff, hire new information technology (IT) employees, create new departments, or outsource related tasks. In each case, employees must be able to work effectively in a continually evolving environment that might include having to work with new short-term independent contractors or taking on new responsibilities themselves.
ADOPTING NEW TECHNOLOGY.
No matter how many individuals you employ, or plan to employ, their ability to adapt to new technology is crucial. As your company grows, the adoption of new technology will likely prove critical. In some cases, this might mean upgrading from an analog modem to a high-speed Internet connection. In other cases, you might decide to begin utilizing wireless technology. To manage changes like these effectively, you will need employees willing and able to undergo necessary training. While finding qualified IT employees proved difficult in the late 1990s, by the early 2000s, the bankruptcies of numerous dot-com firms had helped to fuel unemployment, particularly in North America. As a result, businesses found it easier to recruit individuals used to working in a fast-paced, high-technology environment. According to Tracy Tang in a July 2001 article in Entrepreneur, savvy business owners could take advantage of this abrupt change in the e-commerce landscape via online recruitment sites like Monster.com. "These unemployed workers are flocking to the Web to find you—and you should, too, to find experienced employees for your Web business."
CUSTOMER RELATIONSHIP MANAGEMENT.
Change management is also important to consider while devising customer service strategies. As Web consumers demand higher levels of customer service, enterprises that offer products and services online must be able to quickly and effectively respond to customer demands. Businesses with effective change management practices in place will find it easier to adapt to evolving demands and run less risk of losing customers. According to Jeff Pulver, an E.phiphany business development executive quoted in an October 2001 issue of CRMDaily.com, companies "must undergo a transformation that places the customers at the center of all activity. Core business processes must be reconfigured to reflect the new strategy." To make such a change, businesses must change with the needs and wants of their clients, and how they manage this change is crucial to their success.
Enos, Lori. "Study: CFOs Not Ready for E-Commerce." E-Commerce Times, 26 July 2000. Available from http://www.ecommercetimes.com.
Hendricks, Mark. "Don't Go Changing." Entrepreneur, March 2000. Available from http://www.entrepreneur.com.
McDonough, Dan. "How CRM Can Save the Economy." CRMDaily.com, 22 October 2001. Available from http://www.crmdaily.com.
Tang, Tracy. "Finding Employees for Your e-Business." Entrepreneur, 30 July 2001. Available from http://www.entrepreneur.com.