Effective Change Management at MYOB - Case Study Example

Effective Change Management at MYOB {name} {course} {instructor} {date} Table of Contents Executive Summary 3 Introduction 4 Influencing Change 5 Fig. 1: Impact of Changes on Organisational Culture 6 Managing Change 7 Fig. 2: Choices to Solve the Dilemmas of Change 8 Outcome of Change 11 Recommendations & Conclusion 12 References 15 Executive Summary The basic issues of change faced by MYOB, or any other company for that matter, are: What are the objectives to be met? and, What needs to be done in order to achieve those objectives? Having retrenched from an unsatisfactory sojourn in the Chinese market and successfully streamlined some of its organisational processes, MYOB is facing a challenge to maintain its growth and commanding position in the market. The change that MYOB has decided to make is to introduce two new products: an online software package and a website-hosting service that will be a complete online business hub for its clients. The problems that MYOB are facing are how best to define its objectives and communicate them in a clear and measurable way to the organisation, and how to implement the cultural and structural changes needed to develop competitive new products quickly. This last challenge is not insignificant; upstart competitors like Xero and Saasu have already put their products on the market, and MYOB is losing customers of its traditional accounting software to the newcomers. To most effectively manage the organisational changes needed to support rapid and effective product development, the best course of action for MYOB is to adopt an open innovation development programme, and to develop and implement an organisation-wide change agent team to facilitate the changes needed. Introduction Every business will experience change, whether actively in order to improve its profits, products, or performance, or reactively as a consequence of outside circumstances such as economic conditions or government regulations that affect the business. Just as there are many different causes for change, there are many different forms change can take. Changes can be made in the way a business is organised, in the people who make up the organisation, or in the way the organisation does business. The case study of MYOB briefly describes two significant changes made by the company. The first was a shift in focus from international to domestic markets, which required the development of new products to maintain growth. The second change was in the method of accounting used by the company, a small thing in itself, but representative of a significant shift in the company’s mindset and manner of approaching innovation. In this report, the factors that influenced the changes at MYOB are first examined, followed by an analysis of the issues and indicators that could be used to measure and manage the changes. The outcomes of the changes are then briefly described, with recommendations for future directions for MYOB offered as a conclusion. Influencing Change As described by the case study, the changes faced by MYOB were made necessary because of three disadvantageous circumstances the company faced. First, the investment in entering the Chinese market was not paying off, and was in fact costing the company a great deal of money. Retreating from the international market created another problem for MYOB, that of finding a way to grow in a domestic market where it already held a commanding market share. The third problem was the identified need to change from the accrual accounting method for product development to a more straightforward system. This change was in some ways also made necessary by the market re-focus, because the existing accounting scheme was seen as a hindrance to new product development. Product development is critically important for MYOB, because the only way to increase market share in a market the company has already saturated would be to expand its product offerings. The changes needed by MYOB affect every part of its organisational culture, which has eight key dimensions. (Martins & Terblanche, 2003, p. 66) Mission and vision describes how the company’s values and mission are understood by its people, and how they can be translated into measurable goals. External environment describes the market and competitive forces that affect the company’s activities. Means to achieve objectives are the structural and organisation tools and processes by which changes must be implemented. Image of the organisation describes the perceptions of others of the company. Management processes are the ways in which the means to achieve objectives are directed. Employee needs and objectives look at employee goals and “psychological investment” (Neumann, Miller, & Holti, 1999, p. 217) of the employees. Interpersonal relationships focus on the interaction between management and workforce, and between different groups within the company. And finally, Leadership is just what it sounds like; does the organisational culture, or changes to it, strengthen or detract from the perceptions of leadership that the entire organisation has of its management? (Martins & Terblanche, 2003, p. 66) The following table summarises how the three changes initiated by MYOB – retreat to domestic markets, expand the product line, and change the accounting system – might affect the key dimensions of the organisational culture: Dimension Domestication Change New Products Change Accounting Method Change Mission & Vision Shift in overall focus of mission. Expanding the area in which the company wants to be a leader. Encourages innovation. External Environment Narrows and intensifies competition. New competition that have had a head-start. Encourages innovation. Means to Achieve Objectives Streamlining processes. New processes of development, production, and customer relations. Encourages innovation. Image of the Organisation Might be negative. Depends on quality and success of new products. Gives a clearer picture of company health, for good or ill. Management Processes Streamlining processes. Develop new processes and responsibilities. Spreads out responsibility. Employee Needs & Objectives Concern for job security. Training and developing new expertise. More responsibility, but greater opportunity to make a positive contribution. Interpersonal Relations Smaller focus should lead to better communication. Possible conflict between the “old” and “new” focuses. Makes company environment more collaborative. Leadership Requires decisive alternatives. Focus on conflict management, handling of unexpected situations. More “empowering” than “directing.” Fig. 1: Impact of Changes on Organisational Culture Retreating from the Chinese market, which, as the case study mentions, runs against conventional wisdom concerning that expanding market, could be perceived as a failure; this perception might be compounded by MYOB’s being acquired by a different company in the same period, although the case study implies that internally at least, this latter change was largely positive. To avoid a negative image – which affects competitors as well as customers – and more importantly, to manage a significant shift in focus from a broad market with a tried-and-true product to a narrower one with new products, the burden of creating a good environment and managing in a decisive, engaged way falls squarely on Tim Reed, the man who has made the key decisions to put MYOB in the changing situation it finds itself. Companies that have undergone successful organisational change more often than not credit some of that success to an “involved and visible” CEO, according to a McKinsey Company survey conducted in 2008; two-thirds of companies surveyed who characterised their own organisational change projects as “extremely successful” also characterised their CEO’s as “very visible” in the process. (The McKinsey Quarterly, 2008, p. 6) Being visible is one thing; in the following section, the key indicators and issues where the CEO should concentrate his ‘visibility’ for best effect will be described. Managing Change The changes at MYOB can be described in terms of Stace and Dunphy’s (2001) “five dilemmas” that must be managed in the change process. For example, shifting from trying to grow in international markets to focusing on the domestic market is an example of an adaptive, rather than a rational, strategy development in the sense that it is making the best of a bad situation. The entry into the China market simply did not work; if foregoing that for a focus on the domestic market was strategically preferable, that would have presumably been the company’s path all along. The other choices to resolve the ‘five dilemmas’ are summarised in the following table: Adaptive or rational strategy? Cultural or structural change? Continuous improvement or major transformation? Empowerment or command? Economic goal or social goal? Focus on domestic market Adaptive Both Mostly continuous improvement Empowerment Economic Introduce online software & web-hosting Both Both Continuous improvement Empowerment Mostly economic Change the accounting method Rational Mostly structural Continuous improvement Empowerment Mostly economic Fig. 2: Choices to Solve the Dilemmas of Change (described by Stace & Dunphy, 2001) Clearly, the changes cannot be easily categorised as being best answered by one choice of focus and not at least part of the opposite choice. This suggests two things. First, those solutions to the ‘dilemmas’ that are clear should be used as a foundation for managing the rest of the changes. Second, the solutions that are not easily prescribed and require aspects of both sides of the dilemma dichotomy should receive the greatest amount of attention. The change in the accounting method, for example, is a choice of rational strategy; it is a more efficient and accurate way to manage the company’s internal accounts, particularly in the areas of product development that often require a significant investment that may not show returns for several years. Even though it was done at a time of economic decline, the change was not dependent on that; rather it represented a strategy choice that was felt to be better for the company regardless of external conditions, and thus cannot be described as being adaptive. It is mostly a structural change, because it involves a change in process; the same knowledge and organisational tools will be used. The accounting department is still doing accounting; hence it is a matter of continuous improvement rather than a radical change. Nevertheless, it does have an aspect of cultural change as well, because it gives department-level managers greater control and responsibility, i.e., empowers them, to make development decisions and manage their budgets. The goal for the change in the accounting scheme is of course mostly economic, but because it has the effect of changing the way people work – through empowerment – it has an aspect of a social change as well. By comparison, the change represented by the planned introduction of new products – online software and web hosting – lies more in a ‘gray area’ and would therefore seem harder to manage. It can be described as a matter of continuous improvement because it is simply extending MYOB’s expertise in computer-based accounting and financial management tools. It is a rational strategy in a sense that it is a path to continuous growth for the company, but it is adaptive because where the company would ordinarily have two choices it could pursue (even simultaneously if it wished), either expanding the market for existing products or introducing new products in existing markets, its retreat from the international market has left it with only the latter choice. It is both a cultural and a structural change as well, because it will require new processes and communication and relationship pathways within the organisation to be successful. These are also dependent on the outcome of the change in accounting systems, because that change is intended, in part, to facilitate the change in products. The basic issues of change faced by MYOB, or any other company for that matter, are: What are the objectives to be met? and, What needs to be done in order to achieve those objectives? What is lacking in MYOB’s plans as described by the case study are clear answers to the first question; the changes answer the second but to what specific, well-defined, and measurable purposes those changes will be made is not stated. That is the crucial first step for MYOB’s boss Tim Reed: to clearly communicate to the rest of the company exactly – in a quantifiable way – what the changes are expected to accomplish. Among the respondents of McKinsey’s survey on organisational transformation, three-fourths of those who said their company’s change was either “very” or “extremely” successful also said that success targets were well-defined in financial or operational terms. On the other hand, roughly nine out of ten of those whose success targets were “not well defined” also characterised their change programs as “only somewhat” or “not at all” successful. (The McKinsey Quarterly, 2008, p. 4) The manner in which the targets are defined and accepted by the entire organisation can take a number of different paths. A “top-down” or systematic approach breaks down planning and tasks into hierarchical components and follows a stable set of rules; while there is considerable interaction between parts of the organisation, their boundaries are clearly defined. At the other end of the spectrum is a fully participatory, decentralised approach, with all parts of the organisation contributing to the strategic decisions and the setting of specific objectives. In reality, most companies occupy a spot somewhere in the middle of this continuum, partly directing and partly collaborating on goals and targets. (Storey, 1992) Once the targets have been defined and communicated, the final problem faced by MYOB is how, exactly, to best develop the new products the company has chosen to pursue. For MYOB, the market situation is the worst possible scenario: it has been beaten to the punch, so to speak, by new brands such as Xero and Saasu, and is also losing customers for its existing mainstay product, the accounting software package. The two new products described, the online software similar to that of its competitors and the web hosting program, will have to be developed quickly and be of competitive quality if MYOB hopes to be successful. For that, MYOB will have to consider the best way to effectively handle product development, which may mean adopting even more comprehensive organisational changes than the company may have envisioned. Outcomes of Change Despite showing a good profit, increased margins, and being able to increase R & D spending through 2009, the results of the major change of introducing new products are yet to be determined for MYOB. Evidently, the good financial performance is the result of sound management practises, of which the change in the accounting system is the biggest example. Realigning and streamlining the sales, marketing, and product development on a customer-segment basis rather than having separate overall product management and development departments has also apparently helped MYOB be more responsive to customers and deliver its products more efficiently. Nevertheless, there is still a sense that MYOB is falling behind the competition; the number of customers for its traditional accounting software is expected to decline at an accelerated rate, and while Reed is quoted by the case study as saying he “is confident that MYOB's online software offering will be technically superior to anything now on the market”, he should be saying that it already is. Likewise, the two hosting companies that are intended to be the vehicles for the online business hub product have not yet been developed, despite being on MYOB’s books since 2008. All things considered, the best that can be said about the changes at MYOB is that they are incomplete; at worst, they are not progressing effectively, or at least not quickly enough. Recommendations & Conclusion As described by the case study, MYOB has shifted its focus from international markets to its home market in Australia and made a number of managerial and process improvements that have allowed it to profitably weather the recent economic downturn. Despite the company’s current good condition, however, its strategic direction and objectives moving forward are not entirely clear, and new products critical for continued growth are yet to be introduced. To help make MYOB’s changes more productive, two general recommendations can be made: 1. Recruit a “Change Agent” team from within the company: A change agent team is a group of people within the organisation that functions to manage and monitor an organisational change. It can be formed in different ways, and operate separately from the rest of the organisation or in complete integration depending on what the needs and characteristics of the company are, but always includes the roles of executers who give direction to implement solutions, experts to assess and solve technical or operational problems, coaches to train line staff and gather feedback, custodians to ensure that information and organisational knowledge is shared among different units, and controllers to monitor progress and what remains to be accomplished. (Arrata, Despierre, & Kumra, 2007, pp. 1-2) This approach is an expansion of what MYOB has already done with making a single person responsible for sales, marketing, and product development for each customer sector. It applies that same thinking, which has already been successful for MYOB, to the overall strategy and objectives for the entire company, and also avoids a situation wherein different units or managers are pursuing different, and possibly conflicting, change methods. One problem that is often encountered in organisational changes is that those responsible for implementing them do so from the perspective of their own expertise, which is quite natural; for example, the manager of a production department looks at a required change from the perspective of production, rather than human resources or overall organisational strategy. (Neumann, Miller, & Holti, 1999, p. 218) Having a change agent team that can work smoothly across organisational boundaries is essential to making certain progress in one area does not mean a hindrance for another. 2. Seek opportunities to move toward an “open innovation” model for product development: “Open innovation,” where innovation and development is accomplished by some degree of collaboration with partners outside the company, has three basic advantages (Munsch, 2009, p. 48): New ideas are contributed from a much larger number of sources and perspectives than what is available to the company internally. Design, development, and testing costs and efforts can be shared, reducing the financial risk for the cooperating parties, which can be translated into greater market scale once products are developed. Most importantly for MYOB, speed-to-market can be greatly increased for new products which are developed along multiple pathways. Open innovation is not without its pitfalls; practical matters such as proper management of intellectual property, contractual obligations, and even seemingly-mundane issues such as common terminologies must be carefully worked out. (Munsch, 2009) From a larger perspective, the mindset towards open innovation within an organisation must be reflected in the organisation’s structure in order to be effectively utilised (Burnes, 1998, p. 101), something which can be facilitated by the use of a change agent team. The indication for an open innovation model for MYOB is clear; the classic problems of doing things with replicability, in increasing scale, and with a goal of increasing efficiency solved by existing organisational models continually lags behind technical innovation (Barsh, 2008, pp. 64-65), and this shortcoming may be acutely felt by MYOB as it seeks to launch its business web hub product, something which is beyond the usual scope of its present expertise. Even in terms of online software products, something which is not too far removed from what MYOB is already good at, the company has to catch up to its competition. If help in successfully doing that is available, there is no reason MYOB should not take advantage of it. References Arrata, P., Despierre, A., and Kumra, G. (2007) “Building an Effective Change Agent Team”. The McKinsey Quarterly, 2007/4. Available from: . Barsh, Joanna. (2008) “Innovative management: A conversation with Gary Hamel and Lowell Bryan”. In: Cultivating Innovation, McKinsey Quarterly 2008 Anthology: 62-73. New York: McKinsey & Co. Burnes, Bernard. (1998) “Recipes for Organisational Effectiveness: Mad, Bad, or Just Dangerous to Know?” Career Development International, 3(3): 100-106. Available from Emerald: . Martins, E.C., and Terblanche, F. (2003) “Building Organisational Culture that Stimulates Creativity and Innovation”. European Journal of Innovation Management, 6(1): 64-74. Available from Emerald: . The McKinsey Quarterly. (2008) “Creating Organizational Transformations”. July, 2008. Available from: . Munsch, Kenneth. (2009) “Open Model Innovation”. Research·Technology Management, May-June 2009: 48-52. Available from BNET: . Neumann, J.E., Miller, E.J., and Holti, R. (1999) “Three Contemporary Challenges for OD Practitioners”. Leadership & Organization Development Journal, 20(4): 216-221. Available from Emerald: . Stace, D., and Dunphy, D. (2001) Beyond the Boundaries: Leading and Re-creating the Successful Enterprise, 2nd Edition. London: McGraw-Hill. Storey, John. (1992) Developments in the Management of Human Resources: an Analytical Review. Oxford, UK; Wiley-Blackwell. Read More