Managing Change
Unit 3: Business Decisions and Strategy
Managing Change
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Change starts with a trigger: something inside the business, such as new owners or falling profit, or something outside it, such as customers, rivals or technology.
Something triggers every change, and naming the trigger explains why the change is happening and how urgent it is.
Internal triggers come from inside the business. New ownership: a buyer who has paid for a firm wants a return and often brings its own plans. Poor business performance: falling sales, profit or market share force managers to act. A change in organisational size: a firm that has grown needs more layers, systems and specialists than it did when it was small. A new leader: a chief executive appointed to turn a business round usually arrives with a plan to do exactly that.
External triggers come from the market and the wider environment: customers who want to buy in a new way, a rival with a cheaper product, a new technology, a change in the law, or a downturn in the economy. A disruptive technology that makes the old way of doing business obsolete is an external trigger the firm must respond to, not a choice it made.
Harbourline Insurance in Hong Kong has 2,400 staff and 60 branches. Its new chief executive, appointed after two years of falling profit, plans to move claims onto a phone app and close 24 branches, because a new online insurer is winning customers who never visit a branch.
Real Example: Harbourline's change has three triggers at once: poor performance (two years of falling profit), a new leader, and an external one — customers switching to an insurer they deal with only through an app.
Exam Matters: Identify the trigger in the case before discussing the change. The trigger tells you how urgent the change is, and urgency is what decides how fast it can sensibly be made.
Change is made to improve productivity, competitiveness and financial performance, but it affects every stakeholder, and the costs usually arrive before the gains.
The point of change is its effect. Four are worth separating.
Productivity. Harbourline has 600 claims handlers dealing with 90,000 claims a month, 150 each. With the app doing the form-filling, 480 handlers are expected to deal with 96,000 claims, 200 each — a rise of a third.
Competitiveness. Faster claims and lower costs let the firm match the online insurer on price and service. Financial performance. Closing 24 branches cuts rent and staff costs, but the app, the redundancies and the retraining are paid for first. Profit usually dips before it rises.
Stakeholders. Change is rarely good for everyone. Customers who like a branch lose one; 120 handler posts go; shareholders hope for higher profit later; suppliers of branch services lose contracts.
Real Example: A bank in Kenya moves account opening to its app. For six months, queries rise and staff are stretched; after a year, each branch worker handles far more customers than before.
Exam Matters: When a case gives output and staff figures, calculate productivity before and after the change and say what the figure leaves out, such as quality or customer satisfaction.
Incremental change is small and gradual; step change is large and sudden. Speed matters because change too slow loses to rivals and change too fast overwhelms people.
Incremental change is a series of small adjustments, each building on the last: a new form here, a new product feature there. It is cheaper, less risky and easier for staff to absorb. Continuous improvement, taught under quality management (2.3.4), is incremental change made a habit.
Step change is a large, sudden shift in what the business does or how it does it, such as Harbourline moving claims to an app and closing 40% of its branches. It costs more, carries more risk and meets more resistance, but it can get a firm to where it needs to be when small adjustments would take too long.
Time and speed are a key factor in whether change succeeds. The question is how fast the environment is changing compared with how fast the business can change. Harbourline's chief executive wants the change done in 6 months; a gradual plan would take 24.
Too slow, and customers leave for the rival before the app is ready. Too fast, and staff have no time to be trained, systems are not tested, mistakes reach customers and resistance hardens. Time to explain, train and test is part of the cost of change.
Real Example: A supermarket chain in Pakistan adds self-checkouts to a few stores each year, adjusting as it learns. A rival that installed them in every store in one month faced queues, errors and staff walkouts.
Exam Matters: If a case gives a timetable, judge it against the trigger: how quickly are customers or rivals moving? The best answers weigh the cost of being late against the cost of rushing.
A culture that values learning and trying new things makes change easier; one that values rules, routine and seniority makes the same change slower and harder.
Organisational culture is the shared values, beliefs and habits of the people in a business — "the way things are done here". It is a key factor in change because a change that fits the culture is carried along by it, and one that clashes with it is resisted by people who believe they are doing their jobs properly.
A culture that eases change values ideas from anyone, rewards trying new methods, and treats mistakes as something to learn from. Staff expect things to move and are used to being consulted.
A culture that blocks change values following the rules, doing things the way they have always been done, and deferring to seniority. At Harbourline, claims have been handled the same way for decades; long-serving handlers are proud of catching fraud by talking to customers face to face, and an app that bypasses that skill feels like an insult to it.
Culture can itself be one of the things a change has to change, which takes longer than changing a system. The types of company culture, and why an established culture is hard to change, are taught in 3.3.4; here the question is how the culture a firm already has helps or hinders the change it is making.
Real Example: A software firm in Singapore lets any team trial a new tool for a month and share what it found. When the firm changed its main system, staff had already tested it and asked for it.
Exam Matters: Use evidence of the culture from the case — how long staff have served, how decisions are made, how mistakes are treated — and link it to whether this particular change will be accepted.
Large organisations have the money and specialists to fund change but many layers and sites to carry it through; small ones can change quickly but may lack the resources.
The size of organisation changes both how easy change is and how much it costs.
Large organisations have more layers of management, more sites and more staff to persuade. A message passed down 7 layers at Harbourline is slower and more likely to be distorted than one told to a team directly. Different departments protect their own interests, and a system used by 2,400 people is costly to replace. Against that, a large firm has the cash to pay for new systems, specialists to run the project, and enough scale to try a change in a few branches before rolling it out.
Small organisations can change quickly. The owner may know every employee, decisions need no committee, and the reasons for a change can be explained face to face. But a small firm may not be able to afford new equipment or outside expertise, and a change that goes wrong affects the whole business rather than one division.
Real Example: A family-run pharmacy in Malaysia switched to digital prescriptions in a weekend after the owner trained all six staff herself. A national chain took two years to make the same change across its stores.
Exam Matters: Tie size to the specific change: count the layers, sites or staff the case gives, and weigh the slower communication against the resources available to fund and support the change.
A transformative leader sets out a clear vision of what the business will become, explains why change is needed, and inspires and empowers staff to deliver it.
Transformative leadership is leadership that changes an organisation rather than simply running it. A transformative leader:
It is a key factor in change because people follow a leader they trust through a period of uncertainty. Harbourline's new chief executive visits branches, explains that customers are leaving and why the app is the answer, and asks handlers to design how fraud checks will work in it.
It has limits. Change that depends on one person can stall if that person leaves, and an inspiring leader with the wrong vision takes the business confidently in the wrong direction. The everyday leadership styles a manager uses are taught in 1.3.4; transformative leadership is about leading a business through change.
Real Example: A new chief executive of a loss-making Gulf airline spends her first month working shifts at check-in, then sets one goal — the region's most punctual airline — and lets each airport team decide how to reach it.
Exam Matters: Look for evidence in the case of what the leader actually does — sets a direction, explains, involves — and weigh it against the risk of the change depending on one person.
People resist change when they expect to lose something, when they are uncertain what it means for them, or when they genuinely think it is a mistake.
Resistance to change is any unwillingness to accept or carry out a change, from quiet foot-dragging to open refusal. Managing it starts with knowing where it comes from. There are three broad sources.
Expected loss. Staff may lose their job, pay, status or skills that took years to learn. At Harbourline, 120 handler posts are going, and the handlers who stay will see the skill they are proudest of taken over by an app.
Uncertainty. When people do not know what a change means for them, they tend to assume the worst. Rumours fill the gap left by poor communication, and habit makes the familiar way feel safer than an unknown one.
Genuine disagreement. Staff may believe the change is wrong — and sometimes they are right. Handlers who warn that an app will miss fraud they would catch in conversation are raising a real risk, not just protecting themselves.
That is why resistance is worth listening to before it is overcome: it can reveal a flaw in the plan while there is still time to fix it.
Real Example: When a car-parts maker in Thailand announced robots on its welding line, the welders refused overtime. Most feared for their jobs; a few pointed out that the robots could not handle two of the parts, which proved true.
Exam Matters: Name the likely source of resistance for the group in the case — who loses what, and what they do not know — because the right way to manage it depends on that cause.
Managers can explain, involve, support, negotiate, bring resisters inside the project, or, as a last resort, impose the change. Each suits a different cause.
Managing resistance to change means choosing how to respond to it. Six approaches are used, running from those that build genuine support to those that only force compliance.
Harbourline uses several at once: it explains the app to every branch, invites handlers to design the fraud checks, and offers 70 of the 120 affected staff retraining as app-support staff.
Real Example: A bus company in Nigeria moving to cashless fares trained every conductor, asked drivers which routes to try first, and agreed with the union that no conductor would lose pay in the first year.
Exam Matters: Match each approach you recommend to a cause of resistance in the case, and say what it costs — in time, money or goodwill — rather than listing all six.
The right approach depends on the cause of resistance, how much time there is, and how much power the resisters have. Most successful changes combine several.
No single approach suits every change. Three questions decide the choice.
What is causing the resistance? Misunderstanding calls for communication; fear of not coping calls for training; a real loss calls for negotiation or support to find new work; a real objection calls for involvement, and perhaps a change to the plan.
How much time is there? Involvement and education take weeks or months. If the change must happen by a legal deadline, managers may have to negotiate quickly or impose it and accept the cost in goodwill.
How much power do the resisters have? A group that can stop the change, such as specialists nobody else can replace, must be won over or bargained with. A group with little power can be required to comply, but forcing them damages trust that the next change will need.
Real Example: A hospital in Hong Kong had eight weeks to meet a new records law. It trained all staff, involved the senior nurses in designing the forms, and made the new forms compulsory from the legal deadline.
Exam Matters: A strong answer recommends a combination for the case and justifies it by cause, time and power, rather than naming a single approach as the best one.
Contingency planning prepares for events that could stop a business. It starts by identifying key risks through risk assessment: how likely each is, and how harmful.
Contingency planning is preparing in advance for events that may never happen but would do serious harm if they did. It does not predict the future; it asks "what if?" and decides what the business will do. Contingency planning is narrower than scenario planning, which imagines several possible futures for a whole market.
The first stage is identifying key risks through risk assessment. A business lists the events that could stop it working, then scores each one on two scales: its likelihood (how probable it is) and its impact (how much damage it would do). Multiplying the two gives a score, and the highest scores are the key risks that deserve a plan first.
Three kinds of key risk matter most for almost any business: natural disasters, IT systems failure and the loss of key staff. The next two steps take them in turn.
Harbourline scores each risk from 1 to 5 on both scales. A typhoon closing head office is likely but does little lasting damage, because staff can work from home. A failure of the claims system is less likely but would stop every claim being paid. The chief actuary, who prices every policy, might leave, and no one else can do the job yet.
Real Example: A hotel group in the Maldives scores every risk it faces each year. A cyclone scores highest for its island resorts; a failure of its booking system scores highest for its city hotels.
Exam Matters: Where a case gives likelihood and impact, rank the risks by combining the two, and explain why a rare event with a severe impact can matter more than a frequent minor one.
Natural disasters can close sites and cut supplies; IT systems failure can stop a business trading at all. Both are key risks because their impact can be sudden and severe.
Natural disasters are floods, typhoons, earthquakes, droughts and fires. They can close offices and factories, destroy stock, cut power and transport, and stop suppliers delivering. The risk depends on where a business and its suppliers are: a warehouse on a flood plain faces a different risk from one on high ground.
IT systems failure is the loss of the computer systems a business runs on: a hardware fault, a software error, a power cut, or a cyber attack that locks or steals data. For a business that sells online or keeps its records digitally, an IT failure can stop trading completely, and lost customer data can bring fines and lasting damage to trust.
Both kinds of risk rise as a business changes. Harbourline's move to an app makes it more exposed to IT systems failure: once the branches close, a claims system that fails leaves customers with no other way to claim. Two years ago the system was down for 8 days.
Identifying the risk means asking what would stop, for how long, and what that would cost — here, about $250,000 a day in lost business and late-payment penalties.
Real Example: Floods in a Malaysian industrial park closed a chip supplier for three weeks. Electronics makers across the region that relied on that one supplier had to halt their own production lines.
Exam Matters: Link the risk to the business in the case: where it is located, how much it depends on its systems, and what stops if the risk happens. A general list of disasters earns little.
Losing a person whose knowledge, skills or relationships nobody else holds can stall a business, whether they leave suddenly or retire as planned.
Key staff are people the business depends on and cannot easily replace: a founder, a senior manager, a specialist with rare skills, or a salesperson who holds the relationships with the biggest customers.
Loss of key staff can be sudden — illness, death, or a rival offering more — or planned, such as retirement. Either way, the business may lose knowledge that was never written down, customer relationships, the ability to make certain decisions, and the confidence of investors or lenders.
The risk is greatest where one person holds something nobody else does. Harbourline's chief actuary sets the price of every policy using methods nobody else in the firm fully understands. If she left, the firm could keep selling at old prices, but it could not safely price new policies or react to a change in claims.
Change raises this risk too. Staff who dislike a change may leave, and the ones most able to leave are often the most skilled, because they are the easiest for rivals to hire.
Real Example: A restaurant group in Dubai lost its head chef to a rival. Three of its restaurants had menus that only she knew how to cook, and sales there fell for months while a replacement learned them.
Exam Matters: Identify who is key in the case and what exactly the business would lose — knowledge, relationships or decision-making — rather than writing that "staff might leave".
Business continuity planning keeps the most important activities running during a disruption, and gets the rest back as quickly as possible.
Once key risks are identified, a business plans for risk mitigation: reducing the chance of harm, or reducing the harm if it happens. Business continuity is the first of the two ways named.
A business continuity plan sets out, for each key risk, how the business will keep its critical activities going. It typically covers:
For Harbourline, a standby claims system at a second data centre would take over within 1 day if the main one failed. Staff already work from home when a typhoon closes head office, so that risk is largely covered.
Real Example: A bank in Singapore runs two data centres in different parts of the island. When one lost power, the other took over within minutes, and most customers never noticed.
Exam Matters: Tie each part of the plan you suggest to a risk the case identifies, and say how quickly it would restore the activity that matters most to this business.
Succession planning identifies the roles the business cannot do without and prepares people to step into them, so that losing a key person does not stop the business.
Succession planning is the second named way to mitigate risk, and it is the answer to the loss of key staff. It means deciding in advance who could take over each critical role, and preparing them before they are needed.
A succession plan starts with the roles whose loss would do the most harm, then looks for people inside the business who could fill them. Those people are developed through training, mentoring, acting as deputy and taking on parts of the role, and the knowledge held by the current post-holder is written down and shared. Where nobody inside is suitable, the plan may be to recruit from outside — which takes longer and carries more risk.
Harbourline has no successor for its chief actuary, who retires in 18 months. A deputy would need to be appointed now and shadow her; recruiting an actuary from outside could take most of that time on its own.
Succession planning also matters during change. A transformative leader who carries a change personally is a key person too: if the change depends on one chief executive, the board needs to know who could continue it.
Real Example: A construction firm in Kenya has each site manager train a deputy who runs the site one week in four. When a manager fell ill in the middle of a project, the deputy took over the next morning.
Exam Matters: Identify the key role in the case, say who could fill it and how long they would need to be ready, and weigh the cost of developing a successor against the risk of having none.
Mitigation costs money and time now to avoid a loss that may never come, so how much to plan depends on how likely and how damaging each risk is.
Planning for risk mitigation is not free. Backup systems, second suppliers, deputies and rehearsals all cost money and management time, and the event they prepare for may never happen. So a business has to judge how far each plan is worth it.
Harbourline's standby claims system costs $600,000 a year. Without it, an outage like the last one lasts 8 days and costs about $2m; with it, recovery takes 1 day and costs about $250,000. In any year with one such outage, the system saves more than it costs; in a year with none, it is $600,000 spent on something that was not used.
The case for a plan is stronger when the risk is likely or its impact severe, when the measure is cheap compared with the loss, and when the business could not survive the loss at all. It is weaker when the risk is rare and minor, or when the plan exists on paper but has never been tested.
A small firm cannot plan for everything, so it plans for the few key risks that would close it; a large firm with more exposed customers is expected to plan more widely.
Real Example: A small tour operator in Sri Lanka cannot afford a second office, so it keeps its bookings in cloud storage and has a named deputy for the owner. Those two measures cover the risks that would close it.
Exam Matters: When a case gives the cost of a measure and the cost of the loss, compare them and then qualify the comparison: how likely is the loss, and what else — reputation, customers, the law — is at stake?
Change starts with a trigger: something inside the business, such as new owners or falling profit, or something outside it, such as customers, rivals or technology.
Change is made to improve productivity, competitiveness and financial performance, but it affects every stakeholder, and the costs usually arrive before the gains.