MINOR PROJECT REPORT

ON
ORGANIZATIONAL CHANGE

Submitted in partial fulfillment of the requirements

for the award of the degree of

Bachelor of Business Administration (BBA)

To
Guru Gobind Singh Indraprastha University, Delhi

Guide: Submitted by:

Ms. JA. YOGALAKSHMI MOHIT JAIN

06513701709

Institute of Information Technology & Management,

New Delhi – 110058
Batch (2009-2012)
 Certificate

I, Mr. Mohit Jain, Roll no.06513701709 certify that the Minor Project Report (BBA211)

entitled “ORGANIZATIONAL CHANGE” is completed by me by collecting the material

from the referenced sources. The matter embodied in this has not been submitted earlier for the

award of any degree or diploma to the best of my knowledge and belief.

Signature if the student

Date:

Certified that Minor Project REPORT (BBA211) entitled “ORGANIZATIONAL CHANGE”

done by Mr. Mohit Jain, Roll no.06513701709, is completed under my guidance.

Signature of the Guide

Name of Guide: Ms .Ja.Yogalakshmi
Designation: Assistant professor
Date:
 Acknowledgement

Countless thanks to all our tutors, college staff and my friends who have

helped and supported me.

Special thanks to my Guide Ms. JA.YOGALAKSHMI for her great support

who has constantly supported and guided me to the completion of this project.

I can’t remain silent for the support of MRS. ALKA SANJEEV who

constantly acted as a guide for this project on each and every moment I am

thankful to her as well.

Mohit Jain

06513701709
 List of Contents

Chapter: 1
Introduction to organizational change
1. Meaning of Organizational Change ……………………………………………………..1
2. Characteristics of Organizational Change ……………………………………………….4
3. Forces of change ………………………………………………………………………...5
4. Managing in 21st century…………………………………………………………………8

Chapter: 2
Scope and objective of organizational change
5. Scope of organizational change …………………………………………………………10

6. Objective of organizational change ……………………………………………………..11

Chapter: 3
Types and utility of organizational change
7. Types of organizational change …………………………………………………………12

8. The change process ……………………………………………………………………...16

9. The stages of change process ……………………………………………………………23

10. John Kotter’s eight steps to successful change ………………………………………….24

11. Edgar Huse’s seven stages model of change ……………………………………………26

12. Reasons for resistance to change ………………………………………………………..28

13. Overcoming resisting to change …………………………………………………………32

Chapter: 4
Case study
14. Case study on organizational change ……………………………………………………35

BIBLIOGRAPHY
 LIST OF FIGURES

S. NO. TOPIC PAGE NO.

16
1. THE CHANGE PROCESS

2. LEWIN’S CHANGE THEORY 22

3. JOHN KOTTER CHANGE MODEL 24

 CHAPTER: 1

INTRODUCTIO

N TO
ORGANIZATIO

NAL CHANGE
1. MEANING OF ORGANIZATIONAL CHANGE

Organizational Change refers to any alteration in the organization that aims at the improvement

and development of organization. Change is in regard to organization-wide change, as opposed

to smaller changes such as adding a new person, modifying a program, etc. 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 also maximizing the effectiveness of the change effort.

Organizational change can also be defined as change that has an impact on the way that work is

performed and has significant effects on staff. This could include changes:

• In the structure of an organization

• To organizational operation and size of a workforce

• To working hours or practices

• To the scope of a role that results in a change to the working situation, structure, terms

and conditions or environment.

Increasingly, organizations that emphasize bureaucratic or mechanistic systems are ineffective.

Organizations with rigid hierarchies, high degree of functional specialization, narrow and limited

job descriptions, inflexible rules and procedures, and impersonal management can’t respond

adequately to demand for change. Organizations need designs that are flexible and adaptive.

They also need system that both require and allow greater commitment and use of talent on the

part of employees and managers.

Definition of organizational change by authors:

‘A change towards a higher level of group performance is frequently short-lived, after a "shot

in the arm", group life soon returns to the previous level. This indicates that it does not suffice

to define the objective of planned change in group performance as the reaching of a different

level. Permanency of the new level, or permanency for a desired period, should be included in

the objective’.

-Kurt Lewin

‘Organizational change may be defined as the adoption of a new idea or a behavior by an

organization’. - Daft

‘Change is the norm in organizational life’. -Connor

‘Any significant alteration of the behavior patterns of the large numbers of the individuals

who constitutes the organization’. -Dalton

‘Organizational change is the planned attempt by management to improve the overall

performance of individuals, groups, and organization by altering structure, behavior, and

processes’.

–Gibson, Donnelly
2. Characteristics of Organizational Change

 The term organizational change refers to any alteration which occurs in the overall work

environment of an organization.

 Changes mean alteration of status quo or making things difference.

 The term change refers to any alteration which occurs in the overall environment.

 Change as a process, is simply modification of the structure or process of a system. It

may be good or bad.

 It is the whole of the organization which is affected by any type of change in

organization.

 When organizational system is disturbed by some internal or external forces, changes

frequently occur.

 Changes take place in all parts of the organization but at various rates of speed and

degree of significance.

 Change may be reactive or proactive. When change is brought about due to pressure of

external forces it is called reactive change. But proactive change is initiated by the

management on its own to increase their organization

3. Forces of change

Globalization, technological changes, knowledge management and cross boundaries

collaboration are four factors that are major forces creating change in organizations today. These

changes affect decision-making as organizations are forced to recognize that they need leaders

who are innovative, creative visionaries who understand the various environments that their

organizations are operating in, and are able to differentiate between these different environments.

Faced with such complexities leaders need to be equipped with appropriate skill-sets such as

flexibility, good communication, and critical thinking and negotiation abilities. They must also

be supported with the necessary resources in order to make good decisions that will benefit their

organizations.

3.1. Globalization

Globalization describes a process by which regional economies, societies, and cultures have

become integrated through a global network of communication, transportation, and trade.

Globalization is usually recognized as being driven by a combination of economic,

technological, socio-cultural, political, and biological factors.

A convergence of international activities such as the increase in overseas production of goods

and services; increasing consumer demands in emerging markets worldwide; declining barriers

to international trade aided by rapidly changing technology, have created a globalized economy

in which inter-dependency among countries has emerged as the norm today. Therefore the hiring

practices of companies who are seeking the best talent have changed because the best talent

might no longer be resident in the home country. Therefore organizations must be sensitive to

these differences when formulating operational and human resource (HR) policies for
implementation abroad for, in this global environment, it is hardly likely that companies can

apply the domestic policies that work at home, abroad.

3.2. Technological Change

Technology is like a two-edged sword that can make our lives easier or worse. The Internet has

revolutionized the way in which information is exchanged, communication facilitated and

commerce conducted. Technology is rapidly changing and effective management demands more

knowledge in these areas in order for companies to manage their resources and develop, maintain

or keep their competitive edge.

While technology has enabled firms to save time and money by conducting business such as

negotiations, trade, and commerce in real time, it can also facilitate the dissemination of sensitive

information about a company's practices, trade secrets and new product development in a matter

of seconds. Additionally, technology has ushered in an array of high-tech devices that aid and

facilitates companies in gathering and managing information, maintaining contact with their

employees globally, making and communicating decisions instantaneously. This can be both a

boon and a source of stress for managers and leaders who must learn to manage their choice and

use of these devices. In a global economy technology can aid in knowledge management

3.3 Knowledge Management

Driving forces such as shifts in buyer demographics and preferences; technology, product and

market innovation; changes in society, consumer attitudes and lifestyle all demand new ideas.

This has created a need for knowledge workers. Knowledge workers comprise a company's

intellectual capital and are made up of creative people with novel ideas and problem-solving
skills. Managing its knowledge assets can give a company a competitive edge as it effectively

utilizes the expertise, skills, intellect, and relationships of members of the organization.

For example, a company's strategic management efforts can be greatly enhanced when

knowledge that is resident in its international talent pool is tapped at its source, since a manager

who is "closer to the ground" and part of the local culture might be better able to sense

environmental changes than one who is not. Keeping knowledge workers motivated and

incentivized by both intrinsic and extrinsic means may cause organizations to re-think and

change their benefits and compensation methods and, perhaps, even redefine the traditional view

of the employer-employee relationship into something new, such as a company-contractor

model.

3.4. Cross-boundaries Collaboration

An important part of knowledge management is effectively managing organization-wide

collaboration. Use of appropriate technology and applications such as a virtual private networks;

VoIP, e-mail, social networking websites such as Face Book, and even company-sponsored

blogs can facilitate communication between an organization and its stakeholders, and help in

different types of internal and external collaborative processes. An example of a tool that can be

used in cross-boundaries collaboration might be an easily accessible online database that

provides a central source of information to employees, customers, or suppliers.

4. Managing in the 21st Century

In the 21st Century change is the norm rather than the exception and leaders must be able to

embrace it. They need to be able to develop:

1. A vision and ability to communicate it to their organizations.

2. An orientation to serve.

3. An entrepreneurial mind-set.

4. A commitment to continuous innovation.

5. A global mindset.

6. Ease and confidence with technology.

7. Know-how in systems thinking (a broad view of the inter-relationship of an

organization's parts, rather than a narrow view that is focused on one part or event.)

8. A sense of ethics and appreciation of spirituality in the workplace.

9. A commitment to continuous learning, personal and professional development.

In order to respond effectively to the four major forces creating change in today’s global

economy leaders must be willing to embrace change; they must be curious and appreciative of

the richness and diversity of other cultures. The must be trust-worthy and flexible; and they must

have very strong time management, communication, conflict-management, problem-solving and

people-skills in order to effectively manage these drivers of change.

 CHAPTER: 2

SCOPE AND

OBJECTIVE OF

ORGANIZATIONAL

CHANGE
5. SCOPE OF ORGANIZATIONAL CHANGE

Organizational change plays an important role in any organization. The task of managing

change is not an easy one, since managing change means to make changes in a planned and

systemic fashion. Changes in the organization or a project can be initiated from within the

organization or externally. Organizations that do not bring about timely change in appropriate

ways are unlikely to survive.

Changes in the organizations play a vital role for its growth and the employee’s satisfactions. It

also provides a scope for the development of employees by applying the innovating ideas. With

the help of making changes we can also improve our decision making. The change process could

also be considered as a problem solving situation. The change that is taking place could be the

result of a problem that has occurred. Changes can be implemented in the various departments of

the organizations. For example in the SALES DEPARTMENT company can change its sales

policy that all the sales will be made in cash only. Similarly in the HR DEPARTMENT changes

can be in the decisions of promotion of employees or the allocation bonus among the employees.

These decisions can be decided on the basis of employees work performance, Means more the

efficiently work done by worker will get more chances of promotion and more of bonus.

PRODUCTION DEPARTMENT can also make changes in the criteria of the production by

innovating the new ideas and technology for the production. That will help to work more

effectively and efficiently.

Hence change management plays an important role in an organization. This allows the

organization to give a reactive or a proactive response to the changes that happen internally or

externally. Knowing the change management and its process would help an organization and it s

processes to be stable.
6. OBJECTIVE OF ORGANIZATIONAL CHANGE

Change is the law of nature. It is necessary way of life in most organizations for their

survival and growth. Man has to mould himself continuously to meet new demand and face new

situations, in context of that the objectives of organizational change can be as follows:

• Emphasize Effectiveness and Efficiency

• Greater Client and Stakeholder Orientation

• Clarity of responsibility and Value Addition

• For profit maximization of business.

• To improve the quality of the product.

• Minimize the short-term dip in employee productivity and increase long-term

productivity.

• To increase the knowledge of employees.

• Maintain Checks and Balances Consistent with Effectiveness

• Improve decision making.

• To maintain customer satisfaction

• Improve coordination and support long-term business benefits.

• Strengthen the dynamic and adaptive responses of the organization and build the

organization’s ability to handle change in the future.

These all above mention are the main objective of organizational change.
 CHAPTER: 4

TYPES AND

UTILITY OF

ORGANIZATIONAL

CHANGE
7. Types of Organizational Change

Typically, the phrase “organizational change” is about a significant change in the

organization, such as reorganization or adding a major new product or service. This is in contrast

to smaller changes, such as adopting a new computer procedure. Organizational change can seem

like such a vague phenomena that it is helpful if you can think of change in terms of various

dimensions as described below.

7.1 Organization-wide Versus Subsystem Change

Examples of organization-wide change might be a major restructuring, collaboration or

“rightsizing.” Usually, organizations must undertake organization-wide change to evolve to a

different level in their life cycle, for example, going from a highly reactive, entrepreneurial

organization to one that has a more stable and planned development. Experts assert that

successful organizational change requires a change in culture – cultural change is another

example of organization-wide change. Examples of a change in a Subsystem might include

addition or removal of a product or service, reorganization of a certain department, or

implementation of a new process to deliver products or services.

7.2 Transformational Versus Incremental Change

An example of Transformational (or radical, fundamental) change might be changing an

organization’s structure and culture from the traditional top-down, hierarchical structure to a

large amount of self-directing teams. Another example might be Business Process Re

engineering, which tries to take apart (at least on paper, at first) the major parts and processes of
the organization and then put them back together in a more optimal fashion. Transformational

change is sometimes referred to as quantum change.

Examples of Incremental change might include continuous improvement as a quality

management process or implementation of new computer system to increase efficiencies. Many

times, organizations experience incremental change and its leaders do not recognize the change

as such.

7.3 Remedial Versus Developmental Change

Change can be intended to remedy current situations, for example, to improve the poor

performance of a product or the entire organization, reduce burnout in the workplace, and help

the organization to become much more proactive and less reactive, or address large budget

deficits. Remedial projects often seem more focused and urgent because they are addressing a

current, major problem. It is often easier to determine the success of these projects because the

problem is solved or not. Change can also be developmental – to make a successful situation

even more successful, Example, expands the amount of customers served, or duplicates

successful products or services.

Developmental projects can seem more general and vague than remedial, depending on how

specific goals are and how important it is for members of the organization to achieve those goals.

Some people might have different perceptions of what is a remedial change versus a

developmental change. They might see that if developmental changes are not made soon, there

will be need for remedial changes. Also, organizations may recognize current remedial issues

and then establish a developmental vision to address the issues. In those situations, projects are

still remedial because they were conducted primarily to address current issues.
7.4 Unplanned Versus Planned Change

Unplanned change usually occurs because of a major, sudden surprise to the organization,

which causes its members to respond in a highly reactive and disorganized fashion. Unplanned

change might occur when the Chief Executive Officer suddenly leaves the organization,

significant public relations problems occur, poor product performance quickly results in loss of

customers, or other disruptive situations arise. Planned change occurs when leaders in the

organization recognize the need for a major change and proactively organize a plan to

accomplish the change. Planned change occurs with successful implementation of a Strategic

Plan, plan for reorganization, or other implementation of a change of this magnitude. Note that

planned change, even though based on a proactive and well-done plan, often does not occur in a

highly organized fashion. Instead, planned change tends to occur in more of a chaotic and

disruptive fashion than expected by participants.

7.5 Reactive vs. Proactive change

Reactive change is those changes when change is brought about due to pressure of external

forces whereas Proactive change is initiated by the management on its own to increase their

organization. Proactive change involves actively attempting to make alterations to the work place

and its practices. Companies that take a proactive approach to change are often trying to avoid a

potential future threat or to capitalize on a potential future opportunity. Reactive change occurs

when an organization makes changes in its practices after some threat or opportunity has already

occurred. As an example of the difference, assume that a hotel executive learns about the

increase in the number of Americans who want to travel with their pets. The hotel executive

creates a plan to reserve certain rooms in many hotel locations for travelers with pets and to
advertise this new amenity, even before travelers begin asking about such accommodations. This

would be a proactive response to change because it was made in anticipation of customer

demand. However, a reactive approach to change would occur if hotel executives had waited to

enact such a change until many hotel managers had received repeated requests from guests to

accommodate their pets and were denied rooms.

8. The Change Process

Change is a common thread that runs through all businesses regardless of size, industry

and age. Our world is changing fast and, as such, organizations must change quickly too.

Organizations that handle change well thrive, whilst those that do not may struggle to survive.

The concept of “change management” is a familiar one in most businesses today. But, how

businesses manage change (and how successful they are at it) varies enormously depending on

the nature of the business, the change and the people involved. And a key part of this depends on

how far people within it understand the change process. One of the cornerstone models for

understanding organizational change was developed by Kurt Lewin back in the 1950s, and still

holds true today. His model is known as Unfreeze – Change – Refreeze, refers to the three-

stage process of change he describes. Lewin, a physicist as well as social scientist, explained

organizational change using the analogy of changing the shape of a block of ice.

Figure 1: THE CHANGE PROCESS

STAGE 1: UNFREEZE

This first stage of change involves preparing the organization to accept that change is necessary,

which involves break down the existing status quo before you can build up a new way of

operating.

Key to this is developing a compelling message showing why the existing way of doing things

cannot continue. This is easiest to frame when you can point to declining sales figures, poor

financial results, worrying customer satisfaction surveys, or suchlike: These show that things

have to change in a way that everyone can understand. To prepare the organization successfully,

you need to start at its core – you need to challenge the beliefs, values, attitudes, and behaviors

that currently define it. Using the analogy of a building, you must examine and be prepared to

change the existing foundations as they might not support add-on storey’s; unless this is done,

the whole building may risk collapse. This first part of the change process is usually the most

difficult and stressful. When you start cutting down the “way things are done”, you put everyone

and everything off balance. You may evoke strong reactions in people, and that’s exactly what

needs to done. By forcing the organization to re-examine its core, you effectively create a

(controlled) crisis, which in turn can build a strong motivation to seek out a new equilibrium.

Without this motivation, you won’t get the buy-in and participation necessary to effect any

meaningful change.

STAGE 2: MOVING

After the uncertainty created in the unfreeze stage, the change stage is where people begin to

resolve their uncertainty and look for new ways to do things. People start to believe and act in

ways that support the new direction. The transition from unfreezes to change does not happen
overnight: People take time to embrace the new direction and participate proactively in the

change. A related change model, the Change Curve, focuses on the specific issue of personal

transitions in a changing environment and is useful for understanding this specific aspect in more

detail.

In order to accept the change and contribute to making the change successful, people need to

understand how the changes will benefit them. Not everyone will fall in line just because the

change is necessary and will benefit the company. This is a common assumption and pitfall that

should be avoided.

STAGE 3: REFREEZING

When the changes are taking shape and people have embraced the new ways of working, the

organization is ready to refreeze. The outward signs of the refreeze are a stable organization

chart, consistent job descriptions, and so on. The refreeze stage also needs to help people and the

organization internalize or institutionalize the changes. This means making sure that the changes

are used all the time; and that they are incorporated into everyday business. With a new sense of

stability, employees feel confident and comfortable with the new ways of working.

The rationale for creating a new sense of stability in our every changing world is often

questioned. Even though change is a constant in many organizations, this refreezing stage is still

important. Without it, employees get caught in a transition trap where they aren’t sure how

things should be done, so nothing ever gets done to full capacity. In the absence of a new frozen

state, it is very difficult to tackle the next change initiative effectively. How do you go about

convincing people that something needs changing if you haven’t allowed the most recent

changes to sink in? Change will be perceived as change for change’s sake, and the motivation

required to implement new changes simply won’t be there. This helps people to find closure,
thanks them for enduring a painful time, and helps them believe that future change will be

successful.

8.2 Practical Steps for Using the Framework:

UNFREEZE
1. Determine what needs to change

• Survey the organization to understand the current state

• Understand why change has to take place.

2. Ensure there is strong support from upper management

• Use Stakeholder Analysis and Stakeholder Management to identify and win the support
of key people within the organization
• Frame the issue as one of organization-wide importance.

3. Create the need for change

• Create a compelling message as to why change has to occur

• Use your vision and strategy as supporting evidence
• Communicate the vision in terms of the change required
• Emphasize the “why”.

4. Manage and understand the doubts and concerns

• Remain open to employee concerns and address in terms of the need to change.

MOVING

1. Communicate often

• Do so throughout the planning and implementation of the changes

 • Describe the benefits
• Explain exactly the how the changes will effect everyone
• Prepare everyone for what is coming.

2. Dispel rumors

• Answer questions openly and honestly

• Deal with problems immediately

3. Empower action

• Provide plenty of options for employee involvement

• Have line managers provide day–to–day direction.

4. Involve people in the process

• Generate short-term successes to reinforce the change

• Negotiate with external stakeholders as necessary (such as employee organizations).

REFREEZE

1. Anchor the changes into the culture

• Identity what supports the change

• Identify barriers to sustaining change.

2. Develop ways to sustain the change

• Ensure leadership support

• Create a reward system
• Establish feedback systems
• Adapt the organizational structure as necessary.
3. Provide support and training

• Keep everyone informed and supported.

CONCLUSION

Lewin’s change model is a simple and easy-to-understand framework for managing

change. By recognizing these three distinct stages of change, you can plan to implement the

change required. You start by creating the motivation to change (unfreeze). You move through

the change process by promoting effective communications and empowering people to embrace

new ways of working (change). And the process ends when you return the organization to a

sense of stability (refreeze), which is so necessary for creating the confidence from which to

embark on the next, inevitable change.

Figure 2: Lewin’s change theory
9. The stages of the change process

Managers wanting to introduce change should recognize that change occurs slowly and

moves through a series of stages. In the first instance, the need for change must be recognized.

Then it is necessary to define where the company stands relative to the problem, where it wants

to be, and how it is going to get there. With respect to the way the change process needs to be

managed

Lewin s three-step model can be expanded to show that the following sequential set of activities

needs to take place:

1. Recognizing the need for change

2. Defining the problems

3. Identifying where the company is relative to the problem

4. Searching for alternatives

5. Defining goals (identifying where the company wants to be after the change

6. Preparing for change

7. Unfreezing (loosening the organization so that it can change

8. Moving (consciously managing the process of change

9. Arriving (realizing when the goals have been met)

10. Refreezing (stabilizing and reinforcing the change)

10. John Kotter's 8-Step Change Model

John Kotter. A World-renowned change expert, Kotter introduced his eight-step change

process in his 1995 book, "Leading Change. “And the follow-up 'The Heart of Change'

(2002) describes a popular and helpful model for understanding and managing change.

For leaders of organizations, managing change is an important strategic task. In the last ten years,

there have been numerous studies which all confirmed that between 60-80% of all change

projects fail fully or partly. But that is not sure that change project will be successful, so John

Kotter, one of the leading management thinkers provides an eight step model for leading change.

Kotter's eight steps model is probably the best known and the most applied. Each stage

acknowledges a key principle identified by Kotter relating to people's response and approach to

change, and in which people see, feel and then change. Eight steps of john Kotter change model

are as follow:

FIGURE3: JOHN KOTTER CHANGE MODEL

 John Kotter's 8 step process - an overview
Steps Transformation Suggestions
• Examine market and competitive realities
• Identify and discuss crisis, potential crisis, or major
opportunities
1. Increase urgency
• Provide evidence from outside the organization that change is
necessary
• Assemble a group with enough power to lead the change effort
• Attract key change leaders by showing enthusiasm and
2. Build the Guiding
commitment
Team
• Encourage the group to work together as a team
• Create a vision to help direct the change effort
3. Get the Vision Right
• Develop strategies for achieving that vision
• Build alignment and engagement through stories
• Use every vehicle possible to communicate the new vision and
4. Communicate for strategies
Buy-in • Keep communication simple and heartfelt

• Teach new behaviors by the example of the guiding coalition

• Remove obstacles to the change
5. Empowering Action
• Change systems and / or structures that work against the vision
• Plan for and achieve visible performance improvements
6. Create short term
wins • Recognize and reward those involved in bringing the
improvements to life
• Plan for and create visible performance improvements
• Recognize and reward personnel involved in the improvements
7. Do Not Let Up
• Reinforce the behaviors shown that led to the improvements
• Articulate the connections between the new behaviors and
8. Make Change Stick
corporate success
11. Edgar Huse’s seven stage Model of Change

In 1980, Edgar Huse proposed a seven-stage OD model based upon the original three-stage

model of Lewin.

1. Scouting - Where representatives from the organization meet with the OD consultant to

identify and discuss the need for change. The change agent and client jointly explore

issues to elicit the problems in need of attention.

2. Entry - This stage involves the development of, and mutual agreement upon, both

business and psychological contracts. Expectations of the change process are also

established.

3. Diagnosis - Here, the consultant diagnoses the underlying organizational problems based

upon their previous knowledge and training. This stage involves the identification of

specific improvement goals and a planned intervention strategy.

4. Planning - A detailed series of intervention techniques and actions are brought together

into a timetable or project plan for the change process. This step also involves the

identification of areas of resistance from employees and steps possible to counteract it.

5. Action - The intervention is carried out according to the agreed plans. Previously

established action steps are implemented.

6. Stabilization & Evaluation - The stage of 'refreezing' the system. Newly implemented

codes of action, practices and systems are absorbed into everyday routines. Evaluation is

conducted to determine the success of the change process and any need for further action

is established.
7. Termination - The OD consultant or change agent leaves the organization and moves on

to another client or begins an entirely different project within the same organization.
12. RESISTENCE TO CHANGE

Resistance to change is the action taken by individuals and groups when they perceive

that a change that is occurring as a threat to them. In its usual description it refers to change

within organizations, although it also is found elsewhere in other forms. Resistance is the

equivalent of objections in sales and disagreement in general discussions. Resistance may take

many forms, including active or passive, overt or covert, individual or organized, aggressive or

timid.

Reasons for Resistance to Change

Resistance is an inevitable response to any major change. Folger & Skarlicki (1999) claim that

"organizational change can generate skepticism and resistance in employees, making it

sometimes difficult or impossible to implement organizational improvements". If management

does not understand, accept and make an effort to work with resistance, it can undermine even

the most well-intentioned and well-conceived change efforts. So the main reasons for the

resistance to change are describes are as follow:

12.1 Employee resistance

The top-five reasons for employee resistance are:

12.1.1 Lack of understanding around the vision and need for change.

Participants indicated that the primary reason for employee resistance was that employees did

not understand the vision of this particular change project. Employees did not clearly understand

why the change was happening, nor did they have adequate knowledge regarding the change

itself.
12.1.2 Comfort with the status quo and fear of the unknown.

Participants indicated that employees tended to be complacent, or that the current way of doing

business had been in place for a long time. The current processes and systems seemed fine to the

employees, and they were opposed to the change since it forced them out of their comfort zone.

Uncertainty and fear of the new system compounded the desire of employees to continue with

the “old way” to which they had grown accustom.

12.1.3 Corporate history and culture.

The organization’s past performance with change projects impacted the employees’ support of

the current change project. Employees were desensitized to change initiatives, as many had been

introduced and failed. The project was seen merely as the “flavor of the month,” and employees

expected it go away like those in the past.

12.1.4 Opposition to the new technologies, requirements and processes introduced by the
change.

Sometimes Employees were opposed to changes because may that increased the performance

and process measurement of their work. The change was seen as adding unwanted work,

responsibility and accountability. Lastly, some employees opposed the new processes, systems or

technologies because they felt the change would not solve the problems.

12.1.5 Fear of job loss.

Employees perceived the business change as a threat to their own job security. Some employees

felt that the change would eliminate the need for their job, while others were unsure of their own

abilities and skills in the new environment.

12.2 Manager resistance

The top-six reasons for manager resistance to change are:

12.2.1 Loss of power and control.

The leading reason for manager resistance to change was a fear of losing power. Changes often

eliminated something the manager had control of or introduced something that the manager

would not have control over. Managers perceived the changes as infringements on their

autonomy, and some participants indicated that the change was even perceived as a personal

attack on the managers. Managers reacted to the change initiative as a "battle for turf."

12.2.2 Overload of current tasks, pressures of daily activities and limited resources.

Managers felt that the change was an additional burden. Limited resources compounded the

problem. The change initiative seemed like extra work and resource strain at a time when the

pressures of daily activities were already high. In many projects, managers were expected to

continue all of their current duties in addition to the duties of implementing the change.

12.2.3 Lack of skills and experience needed to manage the change effectively.

Managers were fearful of the new demands that would be placed on them by the business

change. Several skill areas were identified as areas of concern. First, managers were

uncomfortable with their role in managing the change. Some feared recrimination while others

did not have the experience or tools to effectively manage their employees’ resistance. Managers

also were concerned about the demands and responsibilities placed on them by the new business

processes, systems or technologies.

12.2.4 Fear of job loss.

Managers felt that the business change would ultimately impact their own job security. Middle

management is often the victim of large-scale business change. One participant reaffirmed this

fear:

“They were eliminated in the change, so no resistance was recorded.”

12.2.5 Disagreement with the new way.

Some managers disagreed specifically with the change. They did not feel that the solution was

the best approach to fixing the problem. Managers who did not play any role or provide input in

the design and planning phases tended to resist the solution. Some participants felt that the

resistance was due to the solution not being the idea of the manager ("not invented here").
13. Overcoming Resistance to Change

Kotter and Schlesinger set out the following six (6) change approaches to deal with this

resistance to change:

13.1 Education and Communication

Where there is a lack of information or inaccurate information and analysis. One of the best ways

to overcome resistance to change is to educate people about the change effort beforehand. Up-

front communication and education helps employees see the logic in the change effort. This

reduces unfounded and incorrect rumors concerning the effects of change in the organization.

13.2 Participation and Involvement

Where the initiators do not have all the information they need to design the change and where

others have considerable power to resist. When employees are involved in the change effort they

are more likely to buy into change rather than resist it. This approach is likely to lower resistance

and those who merely acquiesce to change.

13.3 Facilitation and Support

Where people are resisting change due to adjustment problems, Managers can head-off potential

resistance by being supportive of employees during difficult times. Managerial support helps

employees deal with fear and anxiety during a transition period. The basis of resistance to change

is likely to be the perception that there some form of detrimental effect occasioned by the change

in the organization. This approach is concerned with provision of special training, counseling,

time off work.

13.4 Negotiation and Agreement
Where someone or some group may lose out in a change and where that individual or group has

considerable power to resist. Managers can combat resistance by offering incentives to

employees not to resist change. This can be done by allowing change resistors to veto elements

of change that are threatening, or change resistors can be offered incentives to leave the company

through early buyouts or retirements in order to avoid having to experience the change effort.

This approach will be appropriate where those resisting change are in a position of power.

13.5 Manipulation and Co-option

Where other tactics will not work or are too expensive. Kotter and Schlesinger suggest that an

effective manipulation technique is to co-opt with resisters. Co-option involves the patronizing

gesture in bringing a person into a change management planning group for the sake of

appearances rather than their substantive contribution. This often involves selecting leaders of

the resisters to participate in the change effort. These leaders can be given a symbolic role in

decision making without threatening the change effort. Still, if these leaders feel they are being

tricked they are likely to push resistance even further than if they were never included in the

change effort leadership.

13.6 Explicit and Implicit Coercion

Where speed is essential and to be used only as last resort, Managers can explicitly or implicitly

force employees into accepting change by making clear that resisting changing can lead to losing

jobs, firing, transferring or not promoting employees.

SUMMARY:

The minor project report identifies and discusses the importance and relevance of change in the

present day scenario. Some of the major issues that confront organizations today need to be

addressed for organizations to be able to survive in the long run. Different forces and

determining factors of change emanating from both external and internal environment force the

change to happen in organizations. The organizations can experience different types of changes

ranging from Organization-wide, Subsystem Change Transformational Versus Incremental

Change Remedial Versus Developmental Change.

 CHAPTER: 4

CASE STUDY ON

ORGANIZATIONAL

CHANGE
 ICICI BANK: CASE STUDY

The Change Leader

In May 1996, K.V. Kamath replaced Narayan Vaghul, CEO of India's leading financial services

company Industrial Credit and Investment Corporation of India (ICICI). Immediately after taking

charge, Kamath introduced massive changes in the organizational structure and the emphasis of

the organization changed - from a development bank mode to that of a market-driven financial

conglomerate.

Kamath's moves were prompted by his decision to create new divisions to tap new markets and to

introduce flexibility in the organization to increase its ability to respond to market changes.

Necessitated because of the organization's new-found aim of becoming a financial powerhouse,

the large-scale changes caused enormous tension within the organization. The systems within the

company soon were in a state of stress. Employees were finding the changes unacceptable as

learning new skills and adapting to the process orientation was proving difficult.

The changes also brought in a lot of confusion among the employees, with media reports

frequently carrying quotes from disgruntled ICICI employees. According to analysts, a large

section of employees began feeling alienated. The discontentment among employees further

increased, when Kamath formed specialist groups within ICICI like the 'structured projects' and

'infrastructure' group.Doubts were soon raised regarding whether Kamath had gone 'too fast too

soon,' and more importantly, whether he would be able to steer the employees and the

organization through the changes he had initiated.

Background Note

ICICI was established by the Government of India in 1955 as a public limited company to

promote industrial development in India. The major institutional shareholders were the Unit

Trust of India (UTI), the Life Insurance Corporation of India (LIC) and the General Insurance

Corporation of India (GIC) and its subsidiaries. The equity of the corporation was supplemented

by borrowings from the Government of India, the World Bank, the Development Loan Fund

(now merged with the Agency for International Development), Kreditanstalt fur Wiederaufbau

(an agency of the Government of Germany), the UK government and the Industrial Development

Bank of India (IDBI).

The basic objectives of the ICICI are to

• Assist in creation, expansion and modernization of enterprises

• Encourage and promote the participation of private capital, both internal and external

• Take up the ownership of industrial investment; and

• Expand the investment markets.

Since the mid 1980s, ICICI diversified rapidly into areas like merchant banking and retailing. In

1987, ICICI co-promoted India's first credit rating agency, Credit Rating and Information

Services of India Limited (CRISIL), to rate debt obligations of Indian companies. In 1988, ICICI

promoted India's first venture capital company – Technology Development and Information

Company of India Limited (TDICI) – to provide venture capital for indigenous technology-

oriented ventures. In the 1990s, ICICI diversified into different forms of asset financing such as

leasing, asset credit and deferred credit, as well as financing for non-project activities. In 1991,
ICICI and the Unit Trust of India set up India's first screen-based securities market, the over-the-

counter Exchange of India (OCTEI). In 1992 ICICI tied up with J P Morgan of the US to form an

investment banking company, ICICI Securities Limited. In line with its vision of becoming a

universal bank, ICICI restructured its business based on the recommendations of consultants

McKinsey & Co in 1998. In the late 1990s, ICICI concentrated on building up its retail business

through acquisitions and mergers. It took over ITC Classic, Anagram Finance and merged the

Shipping Credit Investment Corporation of India (SCICI) with itself. ICICI also entered the

insurance business with prudential plc of UK. ICICI was reported to be one of the few Indian

companies known for its quick responsiveness to the changing circumstances.

While its development bank counterpart IDBI was reportedly not doing very well in late 2001,

ICICI had major plans of expanding on the anvil. This was expected to bring with it further

challenges as well as potential change management issues. However, the organization did not

seem to much perturb by this, considering that it had successfully managed to handle the

employee unrest following Kamath's appointment.

CHANGE CHALLENGES – PART I

ICICI was a part of the club of developmental finance institutions (DFIs – ICICI, IDBI and IFCI)

who were the sole providers of long-term funds to the Indian industry. If the requirement was

large, all three will pool in the money. However, the deregulation beginning in the early 1990s,

allowed Indian corporate to rise long-term funds abroad, putting an end to the DFI monopoly.

The government also stopped giving DFIs subsidized funds. Eventually in 1997, the practice of

consortium lending by DFIs was phased out. It was amidst this newfound independent status that

Kamath, who had been away from ICICI for eight years working abroad, returned to the helm.
At this point of time, ICICI had limited expertise, with its key activity being the disbursement of

eight-year loans to big clients like Reliance Industries and Telco through its nine zonal offices. In

effect, the company had one basic product, and a customer orientation, which was largely

regional in nature. Kamath, having seen the changes occurring in the financial sector abroad,

wanted ICICI to become a one-stop shop for financial services. He realized that in the

deregulated environment ICICI was neither a low-cost player nor was it a differentiator in terms

of customer service.

The Indian commercial banks' cost of funds was much lower, and the foreign banks were much

savvier when it came to understanding customer needs and developing solutions. Kamath

identified the main problem as the company's ignorance regarding the nuances of lending

practices in newly opened sectors like infrastructure. The change program was initiated within

the organization, the first move being the creation of the 'infrastructure group (IIG),' 'oil & gas

group (O&G),' 'planning and treasury department (PTD)' and the 'structured products group

(SPG)', as the lending practices were quite different for all of these. Kamath picked up people

from various departments, who he was told were good, for these groups. The approach towards

creating these new skill sets, however, led to one unintended consequence. As these new groups

took on the key tasks, a majority of the work, along with a lot of good talent, shifted to the

corporate center. While the zonal offices continued to do the same work - disbursing loans to

corporate in the same region - their importance within the organization seemed to have

diminished. An ex-employee remarked, "The way to get noticed inside ICICI after 1996 has been

to attach you to people who were heading these (IIG, PTD, SPG, O&G) departments. These

groups were seen as the thrust areas and if you worked in the zones it was difficult to be

noticed." Refuting this, Kamath remarked, "This may be said by people who did not make it.
And there will always be such people." Some of the people who did not fit in this set-up were

quick to leave the organization. However, this was just the beginning of change-resistance at

ICICI.

Another change management problem surfaced as a result of ICICI's decision to focus its

operations much more sharply around its customers. In the system prevailing, if a client had three

different requirements from ICICI he had to approach the relevant departments separately. The

process was time consuming, and there was a danger that the client would take a portion of that

business elsewhere. To tackle this problem, ICICI set up three new departments: major client

group (MCG), growth client group (GCG) and personal finance group. Now, the customer talked

only to his representative in MCG or GCG. And these representatives in turn found out which

ICICI department could do the job. Though the customers seemed to be happy about this new

arrangement, people within the organization found it unacceptable.

In the major client group, a staff of about 30-40 people handled the needs of the top 100

customers of ICICI. On the other hand, about 60 people manned the growth client group, which

looked after the needs of mid-size companies. Obviously, the bigger clients required more

diverse kinds of services. So working in MCG offered better exposure and bigger orders. The net

effect was that the MCG executive ended up doing more business than the GCG executive. A

middle-level manager at ICICI commented, "The bosses may call it handling growth clients but

the GCG manager is actually chasing non-performing assets (NPA) and Board of Industrial and

Financial Restructuring (BIFR) cases." Amath was quick to deny this allegation as well, "Just

because somebody is within the MCG does not guarantee him success. And these assignments

are not permanent. Today's MCG man could easily by tomorrow's GCG person and vice-versa."
Complaints against these changes put in continued and ICICI was blamed for not putting in

adequate systems in place to develop the right people.

The manner, which ICICI recognized an individual's efforts - the feedback process - was also

questioned. A manager remarked, "Last year the bonuses varied from Rs 30,000 to Rs 250,000

depending on the performance. In many cases the appraisal scores were same but the bonus

amount was not. And we were not told why." With Kamath's stated objective to make ICICI

provide almost every financial service, separating the customer service people from the product

development groups was another problem area. In the current scheme of things, an MCG or

GCG person acted as a clients' representative inside ICICI. The MCG or GCG person understood

the client's need and got the relevant internal skill department to develop a solution. Unlike

foreign banks, there were no demarcations between these internal skill groups and client service

person. (Demarcation helped in preventing an internal skills person from cannibalizing business

being developed by the client service group.) With no such systems in place at ICICI, this

distorted the compensation packages between the competing divisions.

While Kamath's comments in the media seemed to dismiss many of the employee complaints,

ICICI was in fact, putting in place a host of measures to check this unrest. One of the first

initiatives was regarding imparting new skills to existing employees. Training program and

seminars were conducted for around 257 officers by external agencies, covering different areas.

In addition, in-house training program were conducted in Pune and Mumbai. During 1995-96,

around 35 officers were nominated for overseas training program organized by universities in the

US and Europe. ICICI also introduced a two-year Graduates' Management Training Program

(GMTP) for officers in the Junior Management grades.

Along with the training to the employees, management also took steps to set right the reward

system. To avoid the negative impact of profit center approach, wherein pressure to show profits

might affect standards of integrity within an organization, management ensured that rewards

were related to group performance and not individual performances. To reward individual star

performers, the method of selecting a star performer was made transparent. This made it clear,

that there would be closer relationship between performance and reward. However, it was

reported that pressure on accountability triggered off some levels of anxiety within ICICI which

resulted in a lot of stress in human relationships. Dismissing reports of upsetting people, Kamath

said, 'much of the restructuring plan has come from the bottom.' ICICI also reviewed the

compensation structure in place. Two types of remuneration were considered – a contract basis

which would attract risk-takers and a tenure-based compensation which would be appealing to

employees who wanted security. Kamath accepted that ICICI had been a bit slow on completing

the employee feedback process. Soon, a 360-degree appraisal system was put in place, whereby

an individual was assessed by his peers, seniors and subordinates. As a result of the above

measures, the employee unrest gradually gave way to a much more relaxed atmosphere within

the company.

By 2000, ICICI had emerged as the second largest financial institution in India with assets worth

Rs 582 billion. The company had eight subsidiaries providing various financial services and was

present in almost all the areas of financial services: medium and long term lending, investment

and commercial banking, venture capital financing, consultancy and advisory services, debenture

trusteeship and custodial services.

CHANGE CHALLENGES – PART II

ICICI had to face change resistance once again in December 2000, when ICICI Bank was

merged with Bank of Madura (BOM). Though ICICI Bank was nearly three times the size of

BOM, its staff strength was only 1,400 as against BOM's 2,500. Half of BOM's personnel were

clerks and around 350 were subordinate staff. There were large differences in profiles, grades,

designations and salaries of personnel in the two entities.

It was also reported that there was uneasiness among the staff of BOM as they felt that ICICI

would push up the productivity per employee, to match the levels of ICICI. BOM employees

feared that their positions would come in for a closer scrutiny. They were not sure whether the

rural branches would continue or not as ICICI's business was largely urban-oriented. The

apprehensions of the BOM employees seemed to be justified as the working culture at ICICI and

BOM were quite different and the emphasis of the respective management was also different.

While BOM management concentrated on the overall profitability of the Bank, ICICI

management turned all its departments into individual profit centers and bonus for employees was

given on the performance of individual profit center rather than profits of whole organization.

ICICI not only put in place a host of measures to technologically upgrade the BOM branches to

ICICI's standards, but also paid special attention to facilitate a smooth cultural integration. The

company appointed consultants Hewitt Associates to help in working out a uniform compensation

and work culture and to take care of any change management problems. ICICI conducted an

employee behavioral pattern study to assess the various fears and apprehensions that employees

typically went through during a merger. (Refer Table I).

TABLE I: 'POST-MERGER' EMPLOYEE BEHAVIORAL PATTERN

PERIOD EMPLOYEE BEHAVIOR

Day 1 Denial, fear, no improvement
After a month Sadness, slight improvement
After a Year Acceptance, significant improvement
After 2 Years Relief, liking, enjoyment, business development activities

Based on the above findings, ICICI established systems to take care of the employee resistance

with action rather than words. The 'fear of the unknown' was tackled with adept communication

and the 'fear of inability to function' was addressed by adequate training. The company also

formulated a 'HR blue print' to ensure smooth integration of the human resources. Refer Table

II).TABLE II: MANAGING HR DURING THE ICICI-BOM MERGER

AREAS OF HR INTEGRATION
THE HR BLUEPRINT
FOCUSSED ON
• Employee communication
• A data base of the entire HR structure
• Cultural integration
• Road map of career
• Organization structuring
• Determining the blue print of HR moves
• Recruitment & Compensation
• Communication of milestones
• Performance management
• IT Integration – People Integration –
• Training
Business Integration.
• Employee relations

To ensure employee participation and to decrease the resistance to the change, management

established clear communication channels throughout to avoid any kind of wrong messages

being sent across. Training program were conducted which emphasized on knowledge, skill,

attitude and technology to upgrade skills of the employees. Management also worked on

contingency plans and initiated direct dialogue with the employee unions of the BOM to
maintain good employee relations. By June 2001, the process of integration between ICICI and

BOM was started. ICICI transferred around 450 BOM employees to ICICI Bank, while 300

ICICI employees were shifted to BOM branches. Promotion schemes for BOM employees were

initiated and around 800 BOM officers were found to be eligible for the promotions. By the end

of the year, ICICI seemed to have successfully handled the HR aspects of the BOM merger.

EXHIBIT I: EMPLOYEE STRENGTH OVER THE YEARS

NUMBER OF
YEAR
EMPLOYEES
1993 1117
1994 1237
1995 1237
1996 1239
2001 8275

EXHIBIT II: ICICI PROFITABILTY OVER THE YEARS

YEAR PAT
1994-95 3.1
1995-96 3.9
1996-97 4.36
1997-98 7.52
1998-99 10.86
1999-00 10.01
2000-01 12.06
According to a news report, "The win-win situation created by….HR initiatives has resulted in

high level of morale among all sections of the employees from the erstwhile BOM." Even as the

changes following the ICICI-BOM merger were stabilizing, ICICI announced its merger with

ICICI Bank in October 2001.

The merger, to be effective from March 2002, was expected to unleash yet another series of

changes at the organization. With Kamath still heading ICICI, analysts were hopeful that the

bank would come out successfully in the task of in the task of integrating the operations of both

the entities this time as well.

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