Change Management in Practice

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At any given assignment an Interim Manager is confronted with a variety of situations and challenges. Because of this, and due to the large baggage of experiences he has accrued over the years, he is also in a privileged position to implement organizational Changes. In this piece we would like to share our view on Interim Management in China as well as to discuss some of its practical aspects.

The Nature of the Change Assignment

There are, fundamentally, two types of Change assignments: re-active and pro-active.

Re-active Change assignments are difficult to control, with hard to predict outcomes. They often originate as a consequence of unexpected events such as worsening business results, unexpected leave of senior management and/or high performers, a rise in customer complaints, cost increases, etc.

Pro-active Change assignments, where top management outside China is not satisfied with the performance of the Chinese entity/BU, seeks Change through a more structured approach where the required resources are mapped out, implementation steps are drafted and acceptance within the organization is sought after.

Despite the particularities (and complexities) within each organization, the costs of a transition through re-active Change are much higher than those of a pro-active Change approach. See more on that at “The costs of Change” section that closes this piece.

Regardless of the different situations in each assignment, we design our change related interim assignments around three fundamental questions: What, How and Who?

“There is no single silver-bullet answer to the question of Who. Still, the involvement of professionals with sound China-management experience is highly recommended”

What needs to be changed?

Although this seems in appearance easy to answer oftentimes it is not. Whether we are dealing with re-active or pro-active Change, is not uncommon to find that top management at western Small and Medium Enterprises (SMEs) has but a limited picture of the current situation at its Chinese organization. This results in misleading assumptions that might turn into wrong corrective actions. Some examples based on real cases:

A General Manager (GM) of a local entity left the company on short notice. It was assumed by Head Quarters (HQ) that he left because of a very competitive offer from the competition. The Interim Manager (IM) was asked to fill in the role until a new candidate was identified. So, the main assignment was to continue business operations as usual and ensure a smooth hand over to the new GM a few months later. It turned out the former GM left because surmounting problems in the organization that could not be covered anymore, caused by lack of management ability. When taking over the IM could not run operations based on the systems and processes in place, and had to introduce changes in the organizational chart as well as other internal processes even though this was not his initial mandate.

HQ decided to replace the local Purchase Manager by an IM due to lack of progress in purchase costs reductions. The new Interim Manager was asked to re-assess and re-build, if necessary, the local supplier network. However, the IM found he actually had a very narrow margin to implement Changes in such direction for the local GM was involved as well in sourcing activities, with his own agenda. Once the IM was able to identify the real root cause and, bypassing the GM, inform HQ then effective measures could be implemented.

An IM was invited as the acting GM to the Chinese entity of a European SME to cover for the period until the old GM, who had to leave China due to heath issues, was replaced by a new one. The IM had actually no mandate for any organizational Changes. However, during the course of the assignment the IM discovered a large extent of compliance issues, which had the potential to bring not only the local entity but even the corporate group (stock listed) into trouble. A new organizational set up and staff replacements were then activated and commissioned to the IM.

In the opposite direction of the previous examples, behind the assumption that local management is not capable to conduct a profitable business operation in China, top management at HQs might be nursing the idea of replacing its Chinese leadership without considering to which extent their products lack sufficient adaptation to the local demands of their Chinese customers.

All the above examples are, for the Interim Manager, part of the job. To top management and HQ however, we cannot but advise to verify assumption-based transition plans through fact-finding audits coming from an experienced local Change Manager.

How to carry out the Change?

Once the question of What to Change is validated, stakeholders need to agree on How to proceed.

There are no secrets in the toolkit to implement Change. Tools range from soft ones, like training, coaching or company culture adjustments within the existing organizational setup to harder/deeper cutting actions, like organizational changes in reporting lines, departmental responsibilities or managing interfaces with foreign HQ among the most common. More drastic measures in the toolkit refer to active down-sizing, relocation or even total closure of the Chinese entity.

Two aspects are important at this stage:

Stakeholders involved align with the scope of the How, in order to prevent waste of resources. Examples:

a) Once initiated the scope of Change includes the replacement of key personal / contributors, but HQs’ representative in this project is not fully entitled to make these decisions;

b) A deep dive into the issue reveals that the reason behind low financial performance is the high cost of the specific local unit, with relocation being the solution. However, this needs approval from first level management who may not be open to undergo such big Change.

The scope of the How should be checked from time to time and, if necessary, adjusted. In addition, since it is not uncommon that the scope expands during the course of the assignment the circle of stakeholders should be enlarged consequently. An example of that: we experienced a case, where an initial approach by HQ to replace the local GM developed further into a strategic discussion about the positioning of the brand, its product portfolio and suitable distribution channels in the Chinese market.

Who can carry out the Change?

Having done the homework with regards the What and the How one last essential question remains: Who should do the job?

Resources are often scarce. This becomes especially true for SMEs, where the number of options available to carry out Change is very often limited:

The existing local GM: He might be a potential owner of this challenging task. Still, Change management is not usually among his core competences or he might not have the strong personality required to manage Change. In some instances, he might be part of the issue at hand or need external assistance to address it.

The existing middle management in China, usually Chinese staff: They might be open to Change, though they need often support to go through the new situation; or they might perceive the current situation is more beneficial for them than what it will be after Change is implemented, hence resulting in a low motivated driving force of Change.

Representatives from HQ, who might have all the required technical knowledge but are often at loss when trying to apply their management skills in a purely Chinese environment.

External parties, such HR consultants, training providers, management consultants, standardization bodies and their services, CPAs or other audit firms.

Because of the particularities at each organization as well as the specific context at a given time there is no single silver-bullet answer to the question of Who. Still, the involvement of professionals with sound China-management experience is highly recommended. The scope of Change, time lines, stakeholders and resources involved will determine whether this involvement requires just facilitation, or more accountability and/or leadership (e.g. by means of an Interim Manager). We strongly suggest involving independent expertise into this process.

Chinese Ingredients of Change

Change is a global challenge, but are there any particular Chinese aspects to be considered? Yes, definitely! Although bellow’s is not a complete and thorough account, owners of Change projects in China would do well to consider the following:

Chinese labor law: Letting people go can often not be avoided, and it can be very costly if the specifics of the labor law are ignored. In addition, the arbitration institutions are seldom on the company’s side.

Company culture: Traditional autocratic leadership style in China is still very present, even in foreign invested companies; this might undermine any well planned and intended Change. If the top management is not absolutely convinced and strongly supportive of Change, no one might follow and planed actions might not materialize.

Leadership capabilities: Strongly needed in any given Change situation, but scarce in midsized companies. Even higher-level managers, who might have excellent professional credentials, might lag behind when it comes to leadership capabilities.

HR effectiveness: Especially in SMEs, the HR function is often limited to payroll, recruiting, labor contracts, legal administration, etc. Effective tools which could be used to safeguard and motivate employees for Change are often not in place, or if in place not used in an effective manner.

Compliance: In cases where employees are associated with fraud or compliance issues, any attempt of Change might threaten the benefits they enjoy from the current situation and would constitute a conflict to their personnel interests.