Challenges in Change Management and Process Optimization

Like the saying goes, “Change is the only constant”, in the new economy organizations are under tremendous pressure to continuously change due to a variety of factors – market pressures, regulations, disruptive innovations and competition among others. This article highlights some of the key challenges that can arise while implementing change or optimizing processes in organizations.

Why do organizations need to change?

Organizations have to undergo change under a variety of circumstances.

Some of the key events that force organizations to change their processes include:

• Mergers & Acquisitions
• Private entities getting Publicly listed
• Diversifying into new markets/business/products/services
• Introduction of new reforms/regulations - Healthcare, Finance, Pharmacy
• Divesting business/assets
• Arrival of new players in the market
• Market disrupting innovations

Mergers & Acquisitions (M&A)

Organizations look to acquire or merge with other organizations to better exploit the emerging market trends. Most of the mergers and acquisitions result in some duplicate or conflicting business process and functional units. It becomes crucial for the Organizations to carefully manage and implement changes to the business processes without negatively impacting the productivity of the functional units involved.

When an IT technology services company acquires a new product company, the sales process around the product offering changes. The marketing teams have to work in synergy to offer an integrated solution that includes product and services combination. The training process for the consultants in the services arm has to be modified to include the training on the new product as well. A new process for integrating the new product with any of the existing product offerings has to be implemented.

Mergers & Acquisitions (M&A)
Type of Event	Units/Processes Impacted
Acquisition of New Product Company by an IT Services company	•       Sales process around the product offering
	•       Marketing method to include an integrated solution of product and services combination
	•       Training process for consultants
	•       New process to integrate new product with existing product offerings

Getting Publicly Listed

When organizations decide to become publicly listed, a high number of rules and regulations become applicable to them. Many critical processes and functional units are forced to follow the procedures and business rules set forth by these regulations. Incorporating these changes within a short time period becomes crucial under such scenarios.

When an organization decides to get listed in the stock market, the accounting structure has to be modified to be able to support auditing procedures. The financial reporting processes and expense approval processes have to be modified to conform to the regulations. 

Getting Publicly Listed
Type of Event	Units/Processes Impacted
Organization get listed in stock market	•       Accounting structure to be modified to support auditing procedures
	•       Financial reporting process
	•       Expense approval processes

Diversification

Entering New Markets

When Organizations enter new markets, the new market conditions forces them to tailor their business processes to the new conditions. In order to gain a competitive advantage in the new market, organizations have to tinker their business processes as per the new needs.

When a Consumer Packaged Goods (CPG) company decides to enter into an emerging market, its product offering and inventory management processes have to be modified to cater to the needs of the emerging market consumer. Product preferences and shopping habits of the consumer impact these decisions. The sourcing processes will have to be changed based on the geography of the market and sourcing regulations of the local governments.

When a financial company or a services company enters a new market, the process of opportunity or lead generation and tracking has to be tailored to the needs of the new market.

Enter New Market
Type of Event	Units/Processes Impacted
CPG company enters a new emerging market	•       Product Offering process to be tailored to emerging market consumer
	•       Inventory management process to be tailored to emerging market needs
	•       Sourcing processes changed based on new market  geography and sourcing regulations of the local governments
Financial Services or a IT services company enters a new market	•       Process of opportunity or lead generation and tracking has to be tailored to new needs

Offer New Product

For Organizations offering new products in existing markets, the processes of product management have to be modified to include the new product offering.

If an e-Commerce retailer decides to include a new product as part of its offerings, the processes related to product sourcing, inventory management, devising business rules around the product, product placement on their website have to change. The approval process for going live with the product and the order fulfillment process will have to be modified as well.

New Product Offering
Type of Event	Units/Processes Impacted
e-Commerce retailer offers a new product	•       Product sourcing process
	•       Inventory management process
	•       Business rules for new product offering
	•       Product “go-live” approval process
	•       Order Fulfillment process
	•       Supplier on-boarding process

Offer New Service

Similar to Organizations offering new product (s), when an Organization decides to offer a new service, the process of opportunity or lead generation and tracking has to be updated. The marketing team has to include the new services offering in the marketing process. The training process for the consultants has to be modified to include the training on the new service as well. Resources with skills in the new service have to be hired. A new process for integrating the new service with any of the existing product and/or service offerings has to be implemented.

New Service Offering
Type of Event	Units/Processes Impacted
Company offers a new service	•       Process of opportunity or lead generation and tracking to be modified to include new service
	•       Marketing strategy to include the new service
	•       Training process for consultants
	•       Hiring resources with skills in the new service
	•       New process to integrate the new service with existing product and/or service offerings

Introduction of New Rules & Regulations

Organizations in sectors such as Finance, Healthcare, and Pharmacy etc. are subject to ever changing regulations. Regulations can change rapidly and organizations that are not quick enough to respond to these changes will face negative implications.

Organizations can respond to the changing regulations effectively by incorporating changes in their existing processes making them flexible to incorporate changing regulations and by externalizing & consolidating enterprise business rules.

When a healthcare insurer was subject to a stream of regulations as part of the Healthcare Reform Act, the insurer moved away from its in-house enrollment system to an external shared enrollment system that is better equipped to quickly enroll groups. The external enrollment system also offers automated and faster triggering of ancillary services such as Contract Letter, Billing Invoice, and ID card etc. The insurer externalized all the business rules, which were earlier hidden in each of the system applications, into a single rules engine that can better incorporate future regulatory changes.

New Rules & Regulations
Type of Event	Units/Processes Impacted
Healthcare Insurer subject to Healthcare Reform Act Regulations	•       Replacing existing enrollment systems with flexible enrollment system
	•       Ancillary systems - Contract Letter, Billing Invoice, ID card etc.
	•       Externalizing business rules hidden in system applications to single rules engine

Divesting Business/Assets

Organizations decide to divest from certain markets or assets for a variety of reasons such as return on investment, changing market conditions, increased competition etc. Divesting any business units or assets requires process changes, functional structure changes, sales approach changes, marketing strategy changes, financial reporting structure changes, etc.

When a Beverage manufacturing company decides to sell a part of its package food business unit in one or all the region it operates in, it has to package the deal with the associated sales channels, inventory management unit, suppliers, operations unit, marketing arm and the HR unit. All the respective parent units in the parent company have to absorb the changes.

Divestiture
Type of Event	Units/Processes Impacted
Beverage manufacturer sells its packaged food unit	•       Sales channel for packaged food unit
	•       Inventory management unit
	•       Manufacturing unit of the packaged food
	•       Marketing and HR unit associated with packaged food
	•       Supply chain for packaged food unit

Market Disrupting Innovations

Big Data: 

Innovations in the methods of collecting and measuring data is disrupting the playing field and forcing organizations to adopt. Advanced data analytics enable organizations to collect hitherto unavailable huge amount of data and predict customer behavior. Organizations have to re-orient their processes and units to collect useful information and analyze it. It involves not only a functional change but also a cultural change to be more data oriented. By effectively utilizing data analytics, organizations can focus their resources in the right direction and achieve productivity gains. 

Cloud:

Advances in network speeds and superior cloud technologies has enabled organizations to have nimble IT units. Organizations have to no longer invest highly in housing expensive software applications and can instead “pay per service” for utilizing the applications hosted in the cloud. Especially small businesses with limited IT budget stand to gain by moving to a “SaaS” (Software as a Service) model. Cloud also ensures confidential organization data is not distributed across multiple application systems, instead residing in a central application(s) in the cloud. Cloud technologies allow organizations to get away with minimal IT resources.

Social: 

The onset of Social media has had a positive disruption in the market. It has enabled organizations to directly collect the customer feedback but can also backfire if not handled properly. It has opened up a new marketing channel for the organizations and helped them to use customers as their brand ambassadors. It has also made it imperative for the companies to deliver high quality product/services since it will be difficult to influence consumers without quality.

Crowd-sourcing ideas have enabled collaboration across geographies and have led to innovative ideas. The Research & Development work in organizations has been open sourced and ownership of new ideas shared across the multiple contributors. Crowd-sourcing both within the organization employees and with external contributors (including end consumers) has created an ocean of ideas.

Crowd funding has enabled many start ups to sell their ideas directly to investors across the world and secure funds.

These disruptions have caused a change in the cultural mindset of organizations and in the method of functioning of the various units of the organizations.

Mobile: 

The onset of smartphones has not only armed the consumer with access to information at their fingertips, but it has also allowed the companies to gather critical information on consumer preferences and behavior.

Mobile apps from retailers allow them to customize products or drive consumers to their nearest stores based on the locations of the consumers. The service industry such as restaurants can gather information on consumer movements and use data analytics to offer the relevant services at strategic locations.

Mobile process applications enable process owners and process participants to have visibility to process analytics on their phones. Mobile revolution has enabled organizations to present information to the consumer on the go.

Challenges in Implementing Change

 

When organizations embark on implementing changes, they encounter challenges of varying nature and scale. These challenges can be Political/Cultural, Quantitative or Strategic. The chart below explains these challenges

Challenges Faced By Organizations
Challenge	Participants	Description
Political/Cultural	Stakeholders	Resist Changes due to individual agendas not in line with organization strategy
	Employees	Fear the Unknown
		Fear their skills will be considered out dated
		Fear they might not adapt well to the changes
		Fear they might even lose their job
		Familiarity & bias towards legacy systems
		Lack of understanding of the changes/improvements
Quantitative	All Functional Units	High cost of implementing change
		High scale of changes
		Impact to productivity
		Unrealistic deadlines to implement improvements
		Lack of resources to implement change
Strategy	All Functional Units	Lack of change ownership/sponsorship
		Poor communication of the changes about to be implemented
		Lack of alignment of multiple functional units to implement change
		Changing scope during implementation

Case studies:

Transportation Division at a Retailer

A fortune 500 retailer in North America was dealing with a document management problem in its Transportation division. The retailer has a huge transportation fleet and federal auditing regulations mandate the retailer to maintain the legal documents of drivers. Because of periodically expiring driving documents and high driver turnover rate, the transportation division regularly received large number of legal documents and the documents were distributed all over its regional offices.

In order to overcome this issue, the retailer decided to migrate to an online application and required the regional offices and drivers to scan the documents into the online application.

The retailer faced the following challenges:

·         Employees at the Regional offices feared loss of job since the amount of manual work required to deal with paper documents was reduced. They resisted the change

·         Similarly the employees at the Transportation headquarters feared for loss of jobs

·         The skill sets required by the employees in the new process was different. Employees had to be trained to use the new application

·         All the regional offices had to be upgraded with high quality scanners to capture legal documents

·         Although the web application was a “thin client”, the document management and auditing application had to be deployed to all the transportation regional offices

·         The network capacity of the transportation regional offices and the headquarters had to be ramped up to deal with the increased network load

·         Employees had to take time out from ongoing work and provide help to draw out the existing process and get trained on the new system. This impacted productivity

Beverage Manufacturer

The bottling unit of a Beverage manufacturer in North America negotiates the rates for raw materials from its suppliers on behalf of its bottling subsidiaries. The negotiation process involves collecting the order forecasts for each quarter from its bottling subsidiaries, consolidating the forecasts and negotiating discounted rates with the suppliers based on these orders forecasts. The legacy process of collecting order forecasts involved email exchange between the bottling subsidiaries and the beverage manufacturer and was a manually intensive work. There was a lot of scope for manual error and misplaced forecasts while consolidating the forecasts.

The beverage manufacturer decided to move away from email exchanges to a web application for collecting, consolidating, sorting and maintaining the forecast history. This migration involved changes to the employee responsibilities at the bottling unit of manufacturer.

·         The nature of work changed for the employees, since they no longer had to initiate the email requests to bottling subsidiaries but instead review the forecasts entered in the web application and follow up with the subsidiaries if needed.  Employees had reservations on the new application since they had to get used to a new system.

·         The senior management at the manufacturer now had a centralized dashboard to compare the historic forecasts and make informed decisions on the rate negotiations. The new application also compared forecasted orders with actual orders for the quarter, which enabled the manufacturer to hold the subsidiaries accountable. Hence the subsidiaries offered resistance to the changes

·         The employees at the subsidiaries had to adapt to the new web application and enter the order forecasts using a brand new user interface. They had to get used to the entering forecasts data without getting a request from the manufacturer.

·         This change also required training on the usage of the new forecasting web application to be imparted to the manufacturer and subsidiaries employees, impacting their productivity

Commercial Banking

A regional bank in North America was facing a severe challenge with its customer on-boarding process. Its Cash management division was responsible for on-boarding commercial customers belonging to three market value segments - $5 to $25 million, $25 to $500 million and More than $500 million. Its existing on-boarding process was inefficient, lengthy, cumbersome, involved a lot of queries sent to the customer at multiple stages of the process and involved high amount of document work. The existing process involved high amount interdependency between Sales, Account Implementation, Product Fulfillment and vendors and the communication was mainly phone or email based. A customer survey revealed increasing dissatisfaction. Most of the customers were unwilling to sign up for additional financial products because of the lengthy set up process.

The bank decided to revamp its on-boarding process with an automated process.

The new automated process:

·         integrated the opportunities/leads from Salesforce

·         converted won opportunities into customer applications

·         gathered legal agreements from customers via an online channel

·         made it easier for the Account Implementation users to enter customer data via an interface

·         provided a single place for consolidating all the required information for all the financial products that had to be set up for the customer

·         automated the fulfillment for all the financial products

Although the new solution provided significant productivity gains and increased customer satisfaction, the employees belonging to Account Implementation, and Product Fulfillment viewed the new process with skepticism.

·         In the legacy process, the relationship managers in the Account Implementation team spent their primary amount of work reaching out to the new customers and gathering required information. The feared their utilization time at the bank would be drastically reduced with the onset of online agreements

·         Reduced manual work in the account set up process meant the budget allocated for Account Implementation and Product Fulfillment would be reduced. Both the units were trying to resist proposed changes within their respective units

·         Some of the fulfillment work, such as manual entry into fulfillment systems, was performed by an offshore vendor in the legacy process. Even though the legacy process was highly time consuming, the cost benefit offered by the offshore vendor outweighed the cost of implementing an automated process.

·         The high number of financial products offered by the bank and number of systems to be integrated meant the productivity of the employees in Fulfillment unit would be severely impacted while implementing the proposed changes

·         The high number of financial products offered by the bank  and the complex nature of fulfillment system for each of those products meant understanding the process and streamlining them was a lengthy and a time consuming task

Key to implementing successful transformation initiatives:

Some of the critical steps to be followed by the change management team in order to effectively implement a transformation initiative are:

Change Management Strategy

Understand the strategy of the organization

Identify the goal of the process improvement/change management initiative (s)

Establish a relationship with key change management sponsor

Identify the critical business processes

Identify the process owners

Identify the business units involved

Set the initial expectations and goals with the business unit heads

Collect the metrics around the existing business processes

Perform a quantitative analysis of the improvement initiative/business processes (Cost benefit analysis)

Identify the stakeholders in the critical business processes

Perform an Impact Analysis of the change

Gather the "As-Is" process details

Review "As-Is" process with business stakeholders

Perform Process Analysis

Formulate the "To Be" processes

Ensure the "To Be" processes are in line with the strategy of the organization

"To Be" processes can include a combination of Technology and process changes

Maintain efficient & continuous communication with ALL the stakeholders throughout the change effort

Get early feedback on "To Be" processes

Formulate a "Change Implementation Plan" document

Ensure sufficient resources are allocated to the transformation initiative

Implement the new process with minimal impact to the productivity of the organization

Continuously monitor the changes and collect the metrics for next iteration of optimization

Conclusion

Although change implementation can be stressful, if implemented with a proper strategy it can result in productivity gains to the organization. Early and continuous communication of the impact of changes to all the stakeholders is one of the key factors that influence the outcome of any change management initiative.