Global Economic Crisis and Organizational Change - Example

Global Economic Crisis and Organizational Change Your name Course name Instructor’s name Date of submission ACKNOWLEDGMENTS I would like to give my heartfelt thanks to Dr. ………… and Dr. ……… in giving me support, direction and guidance. I particularly would like to acknowledge the input of Dr. …… which has proved invaluable in compiling this report. I also give my sincere gratitude to Dr………, Dr. ……… and Dr. ………… for their invaluable assistance in showing me how to collect materials and interpret it. I am also thankful to ……… the librarian who assisted me in searching for this information, my supervisor … and Mr. ……. for his economic assistance in data interpretation. Special thanks also go to my fellow students who assisted me in a variety of ways. Finally I give special thanks to my economics teacher who was a constant encouragement all through the writing of the report. LETTER OF TRANSMITTAL Mr. ………. ………….Department University of ……… Manhattan, New York83844 Dear Mr. ……… Enclosed is a copy of the report concerning the global economic crisis and organizational change: It is a summation of my findings from my work started on ………… and completed on ……... The report contains information on the global economic crisis, how it affected economic systems and organizational changes that resulted from it. In my research I found out that different countries were affected differently and reacted differently to the economic crisis due to differentials in policy. This report also gives recommendations on future policy regarding future reactions to similar economic happenings. This report also outlines recommendations for continued long-term monitoring of the population. Sincerely, John Doe Enclosure: Final Report EXECUTIVE SUMMARY This paper is intended to take a closer look into the global economic crisis and how it affected the economic systems of the world in a diversity of ways. The paper commences by taking a critical look at the types of change that are common in organizations then takes a look at various countries to determine what type of change occurred. This paper then takes a look into resistance to organizational change and the various reasons why this occurs. It further goes ahead to give solutions on how managers can reduce or control this resistance to change. Finally the paper takes a look at Australia and he kind of change that occurred in that country as a result of the global economic recession. Table of Contents ACKNOWLEDGMENTS 2 LETTER OF TRANSMITTAL 3 EXECUTIVE SUMMARY 4 Table of Contents 5 INTRODUCTION 5 GLOBAL ECONOMIC CRISIS AND ORGANIZATIONAL CHANGE 5 Table of Contents 6 ASSUMPTIONS 7 MAIN BODY 8 PLANNED AND UNPLANNED CHANGE 8 RESISTANCE TO CHANGE AND THE GLOBAL ECONOMIC DOWNTURN 11 GLOBAL FINACIAL CRISIS AUSTRALIA AND CHANGE 13 CONCLUSION 16 REFERENCE LIST 17 Balin, B. (2010). The Impact of the Global Economic Crisis on Sovereign Wealth Funds. Asia Pacific Economic Literature. vol. 12 pp. 6-78 17 Gilani, S. (2008). The Real Reason for the Global Financial Crisis…the Story No One’s Talking About. The Market Oracle. vol. 19 pp. 356-403 17 INTRODUCTION GLOBAL ECONOMIC CRISIS AND ORGANIZATIONAL CHANGE The global financial crises present organizations and governments with diverse challenges as they try to adopt change in response to these crises. Nations such as the United States, Australia and many other Western nations have had to battle with new issues brought about by the economic meltdown. There have been issues such as the reduction of credit to the market as financial institutions take more precautions in order to avoid a US like mortgage crisis. The effects of the economic recession have had a impact and will continue to have an impact on both the long term and short term fundamentals of financial institutions. The effects of the economic crisis while originating from the US have had a domino effect on the global scene due to interconnected networks. The crisis has necessitated the formulation of change policies in organizations all over the world in a bid to survive and create structures that are more sustainable. Change processes have always brought about resistance and questions of whether change processes being undertaken are appropriate. Table of Contents ACKNOWLEDGMENTS 2 LETTER OF TRANSMITTAL 3 EXECUTIVE SUMMARY 4 Table of Contents 5 INTRODUCTION 5 GLOBAL ECONOMIC CRISIS AND ORGANIZATIONAL CHANGE 5 Table of Contents 6 ASSUMPTIONS 7 MAIN BODY 8 PLANNED AND UNPLANNED CHANGE 8 RESISTANCE TO CHANGE AND THE GLOBAL ECONOMIC DOWNTURN 10 GLOBAL FINACIAL CRISIS AUSTRALIA AND CHANGE 13 CONCLUSION 16 REFERENCE LIST 17 Balin, B. (2010). The Impact of the Global Economic Crisis on Sovereign Wealth Funds. Asia Pacific Economic Literature. vol. 12 pp. 6-78 17 Gilani, S. (2008). The Real Reason for the Global Financial Crisis…the Story No One’s Talking About. The Market Oracle. vol. 19 pp. 356-403 17 ASSUMPTIONS Economic systems have fundamental differences Different countries reacted differently to the Economic crisis Different reactions led to differentials in the effect of the economic crisis The global economic system is interconnected Policy differences played a great role in how countries were affected by the economic crisis. MAIN BODY PLANNED AND UNPLANNED CHANGE There are basically three forms of change which may occur in an organization. Change may either be developmental, transitional, or transformational. Change in organizations can also be unplanned or planned. The global economic crisis led to change in many organizations which begs the question of whether it was planned or unplanned. Change that is unplanned normally happens due to major disruptions to external or internal events of an organization. Unplanned change in most instances makes the organization’s members respond in a chaotic and highly reactive manner (Mcnamara, 2011). It may result from the exit of the senior executives, poor product performance, legal changes alteration in the financial environment. Planned change usually results in instances of the recognition of the need for reorganization and major changes and put in place plans to that effect. It is normally a result of successful implementation of a strategic plan. It has to be noted that planned change is not always as smooth as envisaged and may at times be as chaotic and disorganized as unplanned change. The financial crisis led to the collapse of major financial institutions such as the Lehman brothers. The government of the US not having anticipated such a scenario was caught flatfooted. The US government reacted by bailing out some of the troubled institutions which were likely to cause more turbulence in the market. The fact that the US government took an unprecedented and unplanned action of injecting a massive $ 700 billion into a stimulus package was clearly a reactionary measure seeing that the US was massively in debt from the Iraqi and Afghanistan wars. The US government also took control of some financial institutions which is quite unlike the capitalist principles that it normally espouses. Free market policies suffered a blow when the US reintroduced regulation of financial institutions. The actions of the US government point more to unplanned changes in financial markets and ideology due to the unexpected financial crisis. The reaction of the Australian government while having been more successful in preventing a deep financial crisis, was not to a great extent different from the US response. The Australian organizations and city councils had heavily invested in the toxic US mortgages known as investment vehicles. The collapse of the US subprime mortgage was bound to affect these institutions. When the subprime mortgages went south, the Australian financial institutions ran out of credit and hence restricted borrowing. The crisis in Australia was also affected by its dependence on the robustness of the Chinese economy which had been affected by lack a slowdown of the US market. The Australian government though unlike the American one, had a budget surplus rather than a deficit (Gilani, 2008). The Australian government was to some extent prepared for contingencies though clearly not of the magnitude of the financial crisis. The Australian government injected A $10.4 billion into the economy and in addition offered bank guarantees of up to a million dollars on deposits. The government in addition reduced interest rates in a bid to increase spending and encourage lending. While the Australian government would seem to have had prior planning for unforeseen circumstances in having a surplus budget, it had not done enough planning for a major financial crisis as it could not inject as much money into the economy as a stimulus as was needed (Nilikan & Ramnaryan, 2006). Sudden and unexpected change in any organization usually results to transformational change. This type of change is usually reactive and is geared towards mitigating the effects of the current changes and preventing such occurrences from occurring in future. It involves a radical reorganization of the manner of doing things. The global economic is just the kind of crisis which results to transformational change. The reactions of the financial systems of the US and Australia were in reaction to mitigate the effects of the crisis. The injection of stimulus packages was meant to prevent a deepening crisis while the reintroduction of regulation was supposed to prevent future reoccurrences of such events. The US experienced reentry of the government into business by owning part of financial institutions and other businesses as opposed to the free market system (Lowler & Worley, 2009). RESISTANCE TO CHANGE AND THE GLOBAL ECONOMIC DOWNTURN In the face of the economic crisis, the governments and financial systems had to be altered in order to be more reflective of the events happening on the global scene. Change occurred in the running of both financial and non financial institutions. Change tough a necessary part of an organizations survival is in many instances not viewed positively by the people upon whom it is imposed. Much of the time the employees and some of the leadership of the organization may resist change due to a variety of reasons. The reasons for resistance to change can normally be categorized into two broad categories; leadership resistance and employee resistance. Loss of control and power In the restructuring that followed the global economic crisis many companies in Australia and the United states were subjected to more government involvement in their financial activities such as lending. Executives of such companies were in most instances resistant to such changes due to the fear of loss of power. Actions in the US of bailing out motor vehicle manufacturers and financial institutions were usually pegged to certain conditions such as government owning part shares in the company and as a result the government had a say to how the organization was run. The bailout money was also based on conditions of restructuring of systems which led to some loss of power by the executives. Not having enough experience and skills required to effectively manage the change The restructuring and reorganization that was required of financial institutions was in some instances a source of concern for the manager who were supposed to implement that change. The injection of large amounts of money also brought about heavy responsibilities of managing that money and changing the fortunes of the organization along new systems. The burdens of failure of the new systems weigh down heavily on the managers implementing them. Employees were required to learn new technologies in which they may lack enough skills in order to manage changes in the manner of doing things (Holtman, 2007). Threat to Job Status or Security The global economic crisis definitely led to the need for changing of systems and the introduction of new ones. The introduction of new systems usually presents employees with prospects either real or imagined of losing their jobs or their status. The involvement of government in regulation and as shareholders meant that policies such as cost cutting measures would be undertaken. Cost efficiency measures may at times lead to job loss and demotions which the work force will be apprehensive about (Goldberg, 2008). The economic crisis led to unprecedented job losses in the United States and Australia and workers were bound to feel that their jobs were at risk in case of more tightening of spending. Increase in Workload and Reduced or Same Pay Often times, change in organizations is usually accompanied by the employees being required to do more work due to the laying off of workers deemed to be unnecessary. This usually results to the remaining workers being required to undertake the duties of the exiting workers which increase workload. The workers often times also have to do with reduced pay. In the US senior executives of banks and financial institutions were prevented from getting bonuses and pay rises under new restructuring rules. Increase in Workload and Reduced or Same Pay Often times, change in organizations is usually accompanied by the employees being required to do more work due to the laying off of workers deemed to be unnecessary. This usually results to the remaining workers being required to undertake the duties of the exiting workers which increase workload. The workers often times also have to do with reduced pay. In the US senior executives of banks and financial institutions were prevented from getting bonuses and pay rises under new restructuring rules. GLOBAL FINACIAL CRISIS AUSTRALIA AND CHANGE The global financial crisis while not affecting Australia to such a great extent as the other developed countries however put a lot of pressure on the financial environment of Australia and necessitated change in organizations and government institutions. Change is usually categorized as transformational, developmental and transitional change. Developmental Change Developmental change is in most instances a more general process of goal setting and achievement for an organization. Developmental change is usually geared towards making a successful process or way of doing things even more successful (Woods, 2009). An illustration of this is the duplication of successful ideas, products and services and an increase in the number of clients that are served. Developmental change is usually contrasted with remedial change Remedial change is usually employed to set right situations such as budget deficits, burnouts in the workers and reactivity of the organization as opposed to proactivity. Remedial change is deemed more urgent and focused due to its addressing major pressing issues. The gauging of the success of remedial action is also easier to establish as its success is measured by goal achievement and problem solution. Developmental change and remedial change are perceived differently by different people according to how the importance the achievement of goals is for the individual. The need for remedial change usually necessitates the establishment of developmental change initiatives. Transitional Change Transitional change usually is more explicit than developmental change in that it substitutes existing systems and processes with others which are completely novel to the organization. The time of changeover from the old to the new is usually referred to as the transitional phase. Transitional change is usually as a result of acquisition, implementation of new technology or reorganization. Due to the necessity for significant modification in behavior or culture transitional change is more complex in its implementation than developmental change. In addition the future of the firm is uncertain which may lead to discomfiture for the employees. Transformational Change Transformational change usually involves a change in the fundamentals of operation. It entails a radical departure from the usual way of doing things to a newer or overhauled system. Such a change may be exemplified by structural and cultural change from a traditional top down hierarchy to decentralization into self directed teams. Another example is the Re engineering of the business process in which major processes and parts of an organization are taken apart and reconstructed for more efficient operation. This kind of change is in some instances called quantum change. Transitional change usually results from emergence of sudden unexpected situations such as changes in demand and supply, changes in revenue or credit sources which heavily impacts business operation. It may in some instances involve both transitional and developmental change. The Australian Response The Australian response to the economic crisis was more on the lines of transformational change though transitional and developmental initiatives can be perceived in some of the government interventions. In Australia the global crisis led to more government involvement in financial institutions and other strategic companies through ownership of shares. There was acquisition of companies which inevitably led to reorganization as governments which were now members of strategic companies had a say in how they were run (Breyfogle, 2008). There was also implementation of fiscal policies by the new part owners who were the government. There were behavioral and cultural changes to organizations which put governments in positions of influence in previously private companies The transitional change saw the government of Australia seek to reduce dependence on Chinese exports and a diversification of its market to other countries such as Brazil and India. Developmental change is also evident in the Australian response to the economic crisis. After the budget surplus helped in warding off financial calamity, the government took steps to increase the surplus. According to Shah (2010), the most visible change however in the Australian response to the economic crisis was in terms of transformational change. The economic crisis was first and foremost as a result of loose fiscal spending and a lack of financial regulation. In this regard the government had to step in and put in radical measures in order to salvage strategic industries from collapse. Policies of deregulation which had been in force since the early 2000s were put under review and new measures of regulation of financial institutions were put in place for instance government bailout and subsequent part ownership of financial institutions. The government undertook unprecedented measures such as guaranteeing of bank deposits of up to a million deposits. According to Balin (2010), the Australian change was transformational due to the recognition that practices of deregulation were not viable. It mainly resulted from the collapse of the credit market due to the failure of the American investment vehicles to honor expectations. CONCLUSION Change is a permanent phenomenon in all organizations. The only variation between organizations is the type of change that is undertaken or they are forced to undertake due to circumstances. In this regard there are planned and unplanned changes, transformational change, transitional change and developmental change. The global economic crisis due to its its nature of being unexpected caught many companies unaware and thus much of the interventions put in place and implemented were unplanned and reactionary. The ensuing change of the crisis led to restructuring were not as smooth as would be expected as employees and management were opposed to changes due to fears of ranging from job loss, lack of skills to deal with the restructuring among others. In this regard it was important for the implementers of change to recognize these fears and address them accordingly. The Australian case has been billed as having been a case of a mixed basket of good having come out of the crisis largely unscathed due to a surplus budget and quick interventions which led to minor losses. REFERENCE LIST Asma, Z., (2010). Change Management Training – Managing Resistance to Change, Custom Training and eLearning Blog Balin, B. (2010). The Impact of the Global Economic Crisis on Sovereign Wealth Funds. Asia Pacific Economic Literature. vol. 12 pp. 6-78 Breyfogle, F. (2008). Economic Crisis and Change Management. American Management Association vol. 5, pp. 236-52 Ford, J.D., et al. (2008), "Resistance to change: the rest of the story", Academy of Management Review, Vol. 33, pp. 362-77 Gilani, S. (2008). The Real Reason for the Global Financial Crisis…the Story No One’s Talking About. The Market Oracle. vol. 19 pp. 356-403 Goldberg, S.G., & Dent, E.B., (2008). Challenging Resistance to Change. The Journal of Applied Behavioral Science Vol. 35, No. 1, pp 56-98 Holman, T., et al. (2007). The Change Handbook. Los Angeles, CA: Berrett Kohler Lawler, E., & Worley, C. (2009), Built to Change: How to Achieve Sustained Organizational Effectiveness. New York, NY: Wiley McNamara, C. (2011). Organizational Change and Development. Field Guide to Consulting and Organizational Development. vol. 45 pp 347-76 Nilikan, V., & Ramnaryan, S. (2006). Change Management: Altering Mindsets in a Global Context. New York, NY: Response Books Shah, A. (2010). Global Financial Crisis. Global Issues. vol. 9 pp. 3-17 Woods, T.E. (2009). A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Washington, DC: Regnery Publishing Read More