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Strategic Change Management
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Introduction
Cost of labor in China is raising gradually and therefore the companies operating or manufacturing in China is facing high operating costs. This has led many organizations to consider changing the playing field in manufacturing their goods. Hong Kong is still relatively cost effective as per labor cost is concerned. Therefore a garment manufacturing company Grandison Garment Company is in the process to shift its manufacturing plant to Hong Kong.
The case of Grandison Garment Company has been taken for the analysis in this study. The company operates in Apparel and Textile products industry and was founded in 1995 and the line of business includes the wholesale distribution or men’s and boy’s apparel and furnishings. Its head office is in Lai Chi Kok, Hong Kong. Currently, the manufacturing plant of the company is located in China where it employs more than 6000 workers (South China Morning Post, 2015).
Another factor is environmental concern which is imperative to ponder over as manufacturing plants are major concern for local pollution which is gradually increasing the carbon footprints. If the Grandison Garment Company is certain over moving to Hong Kong, then it has to consider this factor too.
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Factors Driving Change and the Suggested Change
Mentioned below are the two factors that are currently driving change for Grandison Garment Company:
(i) Rising Labor Cost in China:
Economics 101 always teaches to use the concept of comparative advantage, which states that the company should go with the country or area where it can manufacture goods comparatively cheaper than its competitors (Economist, 2015). InterChina Consulting analysed that the China is now at the situation from where it cannot turn back as per its labor cost is concerned. The average annual cost of keeping an employee in urban areas had reached almost $4.5k in the year 2010 from $1.5k in the year 2003. The rate of growth of the labor cost in China is moving faster in comparison to countries like India or Mexico (China Buiness Review, 2012).
The credit to rising labor cost can go to China’s one-child policy. Human resource is getting older and willingness to sustain in the tiring session at factories is reducing. People have started to expect more from their organizations sighting the increasing profits companies are garnering from extensive exports (Maslow, 2015). Coastal regions has seen greater cost rise than the countryside. Therefore, most of the time importing thousands of workers from interior China to the industrial area has become a daily routine. It is obvious that the cost and availability of labor are connected and therefore, if the availability of labor goes down, costs move up.
The company like Grandison, which cannot handle the rising cost pressure, has to think some alternative to keep the cost low and product prices intact.
(ii) Environmental Concern:
Numerous NGOs and environmentalists have mushroomed in China who is pressing manufacturing companies and government authority to turn their orientation towards the changing environment of the China due to heavy land, air and water pollution (The Guardian, 2015). Large organizations such as Apple operating in China are moving towards more sustainable methods of using energy to imply with the changing governmental policy. Apple has established solar panels in China to harness the natural energy to conduct its business. The two raw material suppliers of Apple were coerced by local environmentalists for dumping factory wastes into the local rivers and lands. The local officials of China are into investigation of these two plants owned by Foxconn Technology and UniMicron Technology (Mozur, 2013).
Such issues are pressing manufacturing companies to consider alternative fields to conduct their business. Grandison, not yet, but might have to face the situation if it does not take immediate steps regarding the same. Moreover, investment into more sustainable policies will increase the operating cost of the company further, which is not viable option for the time being.
Suggested change for Grandison Garment Company
The case has identified rising labor cost as one of the issue, and the company will be suggested to change the playing field from China to Hong Kong where labor cost is comparatively lower. The case has considered rising labor cost as most important factor for the company than the environmental factors. The reason being, if the company moves out from one country to another then it will be following the respective countries’ rules and regulations which comes later for Grandison. Therefore, considering the labor seems more significant for at the moment Mentioned below are the benefits that the company will garner after moving to Hong Kong where labor cost is comparatively low:
The low labor cost will help the company in keeping its product prices at the same level without bothering about the rising prices in China. Reduction in the cost will help the company to maintain the efficiencies and therefore emphasizing the labor cost becomes imperative. The business of Grandison is labor intensive processes and therefore, labor is considered as the first criterion for decision making. The labor intense business of Grandison takes upto almost 65-75 percent of the operating costs. As the head quarter of the company is in Hong Kong, therefore, relocation of the manufacturing plant of the company to Hong Kong will ensure better monitoring and efficiency.
As mentioned earlier, that the company’s 65-75 percent of the expense are concerned with the labor costs, therefore, even a slightest reduction will have significant impact on the cost saving and the eventual profitability of the company. The garment manufacturing of Grandison can operate even with semi-skilled workers and therefore, it does not has to worry about the lack industry specific labor in Hong Kong. Though the labor market of Hong Kong is compatible enough with the manufacturing sector, Grandison might have to incur initial cost in training. However, it can be understood that in the long run, it will result into profitable business as the cost incurred on the training will be covered soon.
If the Grandison does not implement the change mentioned above then it has to follow drastic consequences (Area Development, 2012). For example, rising cost of products that might scare away the buyers, or the environmental issues that might press the company to incur more cost over the renovation of its energy consumption modules.
The rising cost of labor in China is not going to stabilize soon, and therefore, staying in the same country, might increase the Grandison’s product cost to such an extent that it will become difficult to sustain in the market against the competitors who are producing their goods in cheaper countries such as India, Myanmar, and Hong Kong.
Therefore, the company is suggested to take the decision of moving out of the China and setting up the manufacturing plant in Hong Kong. It is advised that it should start with initial establishment of few workers only and then move up gradually to prevent sudden investment shock.
Change Management
Any kind of change within an organization attracts resistance from various stakeholders be it employees, or the local suppliers. This chapter discusses the reason behind the resistance to change, identification of the stakeholders in Grandion Garment Company, and the strategies that should be adopted to manage the resistance to the proposed change including the involvement of stakeholders in the planning and management of change.
(i) Mentioned below are the reasons behind resistance to change (Torben Rick, n.d.):
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(a) If the staffs are unaware about the true purpose of the change then it leads to rumors which creates misunderstanding among them and they resist, particularly those who believe that the way things are going is great as what worked well for so many years will always work in the future.
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(b) Staffs fear from the change as they are unaware about what might come if the change takes place.
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(c) The staffs who lack enough competency, feels that the change might lead to their elimination from the work and they will lose their job and source of livelihood.
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(d) Most of the time staffs are adapted with the old way of doing things and therefore, they stuck in the inertia and do not want to come out to tackle the new settings where they are required to reconnect and learn new things.
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(e) When the employees believe that the company will not be able to manage the change itself, then it leads to resistance. The trust factor comes into play in such scenarios.
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(f) When people assume that the changes being proposed has no ground or it’s just a management fad which will pass by, then they do not get up to move with the management’s orders.
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(g) Generally changes in any organizations takes place after the decision of the management and the employees are rarely consulted. Thus an uninformed employee feels betrayed and resists.
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(h) If the management has not associated any benefits or rewards for accepting the change, then the employees find no special incentives to go along with them.
(ii) Stakeholders in the change management of Grandion Garment Company:
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(a) Factory Workers: They work at the company’s manufacturing plant based in China. If the company decides to change its location from China to Hong Kong, then most of them will have to lose the job. Those who can migrate to Hong Kong to work with the company might accept the change, but those who cannot due to various reason might face difficulty in accepting the change.
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(b) Local Suppliers: They supply raw materials to the company and they might not accept the fact that the company is migrating far enough which will lead to increased transportation and maintenance cost.
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(iii) Mentioned below are the strategies that will be adopted to manage any resistance to the proposed change in Grandion Garment Company (Harvard Business Review, 1969):
Employees should be encouraged to participate in the discussion, this way they will feel empowered and might bring constructive suggestions over the table. However, the discussion might lead to chaos rather than any constructive thinking. Therefore, adopting proper process for taking ideas from the employees should be in place for example, dropping emails or letter, and others.
The management should understand the true nature of the resistance. They should understand what is bothering their employees, the technical change or the social change. The employees do not want to change their social inertia and therefore, understanding the true cause will help better tackle the resistance.
Proper communication should be in place which will allow the employees to understand what exactly is being done and how they are going to benefitted from the same. If possible, proper rewards should be given to those who supports the change or give substantial contribution in the change implementation.
Top management should come forward in dealing with attitudes of staffs in a constructive manner. Understanding and discussing the concerns of the staffs can help in coming with actual solution rather than any hypothetical solution.
Implementing Change
(a) The two change models have been considered here for comparison and selection of the best one for the implementation in Grandion’s change management process. They are:
(i) Lewin’s Change Model:
Lewin designed the change model that included three steps, namely, Unfreezing, Changing, and Refreezing (Fossum, 1989). Unfreezing stage entails creation of awareness among the employees about the change and the importance of the change. The idea behind is that the more people will become aware about the necessity of change, more they will embrace the change. The next step Changing means implementing the required change. The third step is Refreezing which calls for reinforcement and establishment of the change. The new change is now accepted into the organization.
(ii) Kotter’s 8-Step Change Model:
The Kotter’s model calls for transforming the change process into a campaign. It includes creation of urgency among the employees, forming powerful coalition, creating vision for change, communication of vision, removing obstacles, creating short-term wins, building on change, and the last step anchoring the change.
Lewin’s model has certain disadvantages due to which selection of this model for Grandion will not be suitable. This model is more rational and does not consider emotional parts. It does not care about the feeling of the individuals and how the change will affect them. Therefore, implementation of this model will either attract more resistance from the employees or mere enthusiastic employees from some corners of the organization. It is obvious that in any organization, 100 percent participation cannot be achieved, which is the first criteria for the Lewin’s model. Therefore, lack of consensus might result into failed change implementation.
On the other hand, Kotter’s model is an easy to follow step-wise process. The steps are full of clarity and can guide the management to move forward easily. Transition will be smooth and it also fits great with the organizational culture.
Therefore, selection of Kotter’s model will be more beneficial than going with the Lewin’s model of change.
(b) Kotter’s 8-Step Change Model has been selected to implement the change. The steps are (Kotter, 1997):
i. Creating Urgency:
Creation of a sense of urgency for change shows how much serious the company is about implementing the change. The staffs should be made aware about what is going on in the market and how much important the change for the sustained growth of the company. As per the Kotter, at least 75 percent should accept the change for it to be successful. Therefore, the first step towards the proposed change becomes crucial. Identification of the expected threats and developing assumed situations mentally in the initial will help the company tackle any unprecedented shock from the surrounding.
ii.Forming Powerful Coalition:
Taking support from the authoritative figure can help instill the confidence in the employees easily. The coalition should consist of highly positive employees who are ready to accept the change and the people who have good network in political sphere and has expertise and sources to handle any kind of situation. Identification of true leader in the organization, ensuring emotional commitment from them, working on forming a team, and ensuring that formed team has members from diverse fields will help implement the change smoothly.
iii.Creating Vision for Change:
Management should have clarity in what they exactly want to achieve. This will help them communicate their vision in a proper articulated manner to the whole company. For the purpose, determination of the values which are considered important for the change, preparation of a short note about the how the management wants to see the future, ensuring that formed team (step 2) is able to communicate the vision in less than few minutes, and practicing the words to be spoken to the whole organization will help in the successful communication. Successful communication with the employees is imperative to successful implementation of change.
iv.Communication of Vision:
This step calls for taking about the vision for change every time and everywhere. Instead of calling a onetime meeting and discussing the vision will fade away from the mind of employees and they may retract to their previous notion. Therefore, discussing the vision whenever an opportunity is found, will keep the discussion going on forever and it will be easier for the management to put their new thoughts forward. It will also keep away the negative thoughts that generally generates among employees when any discussion cools down.
v.Removing Obstacles:
This step calls for removing any resistance that are yet to be eliminated and also thinking through the processes that might pose as obstacles in the implementation. Bringing on board a change leader will smoothen the process. Employees should be rewarded for supporting the change.
vi.Creating short-term wins:
Instead of taking a heavy long overhaul, change should be implemented in small packets. Opening the factory and employing few workers in the beginning will be beneficial. After that, gradually shifting machines and employees will be better than creating chaos.
vii.Building on Change:
Every short implementation should be analyzed and based on the feedback the required decision should be taken. In the case of Grandion Garment Company, assessing the benefits of the implemented initial project in Hong Kong will give idea over whether the project is a successful venture or not. Based on the feedback further improvements should be initiated.
viii.Anchoring the Change:
However, this step does not hold much importance in the case of Grandion, however, developing over the motivation after the change should be taken into consideration.
(c) Strategic Interventions in Change Implementation
As stated earlier, a task force have to formed to implement the change that will include people from various authoritative fields who has ample sources and are experts in their own domain. As per the HR processes are concerned, Grandion has to institute a new HR team to recruit or transfer employees for Hong Kong plant. The management has to act swiftly and politely to handle the change as it will result in loss of job many employees working in Chines facility. The HR has to give proper compensation to the employees who will not be able to join the company in Hong Kong. Also, lay-off of huge number of employees is not a social friendly way to take decisions, therefore, Human Resource department has to sort out ways that could be beneficial for employees as well as does not increase the concern of the local government.
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Area Development,. "Labor Costs: Generating Savings Through Lower Wages - Area Development". N.p., 2012. Web. 3 Jan. 2016.
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Fossum, Lynn B. Understanding Organizational Change. Los Altos, Calif.: Crisp Publications, 1989. Print.
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Harvard Business Review,. "How To Deal With Resistance To Change". N.p., 1969. Web. 3 Jan. 2016.
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Kotter, John P. "Leading Change: A Conversation With John P. Kotter". Strategy & Leadership 25.1 (1997): 18-23. Web.
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