Change Management Models for Successful Execution of Change: Study by Daniela Blomqvist, Schemes and Mind Maps of Change Management

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Daniela Blomqvist

An examination of change management models for

successful execution of a change initiative

Daniela Blomqvist

Master’s Thesis

International Business Management

MASTERARBETE

Arcada Utbildning: International Business Management Identifikationsnummer: 18591 Författare: Daniela Blomqvist Arbetets namn: An examination of change management models for success- ful execution of a change initiative Handledare (Arcada): Andreas Stenius Uppdragsgivare: PricewaterhouseCoopers Oy (PwC) Sammandrag: Dagens värld präglas av ett konstant och ständigt flöde av förändringar. För att kunna konkurrera i dessa förhållanden krävs det att företag har tillräckligt tid och kostnadsef- fektiva sätt att bemästra förändringarna. Ett sätt för företag att handskas med förändringar är en ökad fokus på det som kallas ”Change Management”. Change Management som fenomen handlar om att företag fokuserar sig på den mänskliga sidan av förändringar. Man analyserar exempelvis frågor kring hur man bättre kan involvera människor i en förändring en organisation genomgår och hur man får människor mera motiverade att acceptera förändrade och nya sätt att genomföra det dagliga jobbet. Denna forskning handlar om “Change management” och hur människor påverkas av för- ändring samt hur man lyckas genomgå en lyckad förändringsprocess. Genom att under- söka de olika teorierna och analysera den insamlade informationen, kunde författaren av detta examensarbete konkludera riktlinjer och rekommendationer för uppdragsgivaren. Forskningen ger "en tankeställare" och ger rekommendationer vad som kan och bör göras för en framgångsrik förändringsexekvering i mindre proportioner. Nyckelord: Förändring, planering av förändring, framgångsrik föränd- rings process, beslutfattande om förändring Sidantal: 64 Språk: Engelska Datum för godkännande:

CONTENTS

• 1 Introduction
  • 1.1 Statement of the problem...............................................................................................
  • 1.2 Aim, motivation and research questions
  • 1.3 Limitations
  • 1.4 The Case Company
    • 1.4.1 Audit
    • 1.4.2 Audit transformation programme (ATP)
    • 1.4.3 The change process: General ledger analysis
  • 1.5 Structure of the research
• 2 Theoretical framework
  • 2.1 What is change management?
  • 2.2 Reasons for failed change initiatives
  • 2.3 Kotter´s eight steps to change
  • 2.4 Research on Kotter’s 8-step model
  • 2.5 Lewin´s 3 step model
  • 2.6 Usability and research made on Lewin´s 3 step model
  • 2.7 ADKAR model
  • 2.8 The ADKAR model used in practice
  • 2.9 Literature summary
• 3 Research method
  • 3.1 Participant-observation
  • 3.2 The interview
  • 3.3 The interview guide
  • 3.4 Validity and reliability
• 4 Results
• 5 Key findings for discussion
• 6 Discussion and reference to previous research
  • 6.1 Kotter´s eight step to change
  • 6.2 Lewin´s 3 step model
  • 6.3 ADKAR
• 7 Recommendations and conclusions
• List of References
• List of figures
• Figure 1: The current and the desired state in the change process…………………… FIGURES
• Figure 2: 10 principles of change…………………………………………………….
• Figure 3: The Kotter´s eight step of change…………………………………………..
• Figure 4: Lewin´s framework for change………………………………………….....

In the 1990´s came a new period in the concept of change management. In this period, change management became more familiar in the business world. From being a phenomena understood by academics, the phenomena now moved to boardroom and business meetings. Change management was formed into a discipline and guiding principles was introduced: the key aspect getting the people side of change into the mainstream management. (pro- sci.com, 2017) The first initiatives was to show that change did not happen by accident but with supported and guiding steps. (prosci.com, 2017) There were many companies and individuals who contributed to taking change management further into business aspects in the 1990´s. One of the contributors is John P. Kotter, who identified eight specific steps organisations would need to make, to succeed in their change initiatives. His eight step model influenced many organisations that still do business today. (mindtools.com 2007) From the start of the new millennium a new period begun concerning the change manage- ment phenomena. Organisations started to create specific job roles with the purpose to sup- port change management. More research was made on change management and companies were founded to offer change management consultation and research. (prosci.com, 2017) One of these companies was Prosci, a company specialised in change management, which introduced the ADKAR model in 2003. The ADKAR is an individual model that stands for awareness, desire, knowledge, ability and reinforcement. The words are identified as the elements that are needed for a successful execution of a change initiative. (prosci.com,

1.1 Statement of the problem

Today businesses phase innovative technologies, new markets, and higher demands from clients. Furthermore, new and tighten regulations force organisations to be on top of their change management efforts to survive the constant change, the competition, the demands and the regulation requirements. (Alpern and Aguirre, 2014 p.1) The business environment is dominated by constantly changing conditions. One of the con- ditions is big data, which is a key factor that forces the organisations to change. Big data

gives the initiative to take the business forward: helping organisations to discover, develop and test strategies. (Ianace, 2015) To start with, more advanced analytics and going into the world of big data in organisations, the change is more of a change in mind-set and in organ- isational culture, than it is to acquire tools and the skills for analysing and reading big data. (gartner.com, 2015) Furthermore, big data is much more than just data and technology be- hind the data. The key is to find the aspects from the data that can drive to big decisions that can solve real business issues in an organisation. (coursera.org, 2014) Organisations put a lot of money and effort into change initiatives, but the success rate of change initiatives is very low. (Alpern, 2014 p.1) Jeffrey M. Hiatt, author of the book “AD- KAR: A Model for Change in Business, Government and our Community” claims that change initiatives failure is not only a result of bad communication or bad training. Even though a organisation has a great vision, the best people in project management and a good solution to a specific problem, these factors do not necessarily amount to a successful change initiative. (Hiatt, 2006, p 1)

1.2 Aim, motivation and research questions

Firstly, the aim of this research is to examine the change management as a phenomena and to analyse how the people especially in the commissioned company are affected with the ongoing change, how the process is built and identifying the means and methods for a suc- cessful execution of a change initiative. Furthermore, the aim with this research is to exam- ine and analyse three specific theories of change management and how do these models and theories works in practice and how they are used in connection with other studies or re- searches. The motivation for the research is the participation in the case study. As the author has taken part in different change processes within the commissioned company, which is the target for the research and participated in other ongoing change initiatives, the author is in a par- ticularly suitable place to study in depth the questions and problems arising from change processes. A theoretically based case study also enables the author to increase the success rate in ongoing change initiatives within the company.

The case company for this research is PricewaterhouseCoopers Oy and the research and it´s results only apply on this specific entity. PricewaterhouseCoopers Oy has their main office in Helsinki but there are offices in over 20 cities around Finland. (pwc.fi, 2017) The operational organisation of PricewaterhouseCoopers Oy is divided into three main di- visions that offers clients services in:  Audit and Assurance  Tax&Legal  Advisory (Consulting, Deals, Strategy&) 1.4.1 Audit In the book “Tilintarkastuksen perusteet” (Korkeamäki, 2008) the function of an audit is introduced. When it comes to businesses, part of company owners and management are not part of the daily activities of the company. Especially in public listed companies’ owners and management are separated from the daily activities. (Korkemäki, 2008, p.9) The owners and management needs liable data on their company’s financial state and because there are legal and other issues when it comes to monitoring and auditing companies’ activities, the company owners delegate the work to outside auditors and experts, to get that data. (Korkemäki, 2008, p.9) The primary task of an auditor is to review the financial statements of a company and give an opinion on whether a company’s financial statements are presented fairly, in all material respects, in accordance with financial reporting framework. (Korkemäki, 2008, p.9- 11 ) An audit is made separately each year, and in the end of every audit, an auditor gives an opinion of the financial statements and the administration. As the aim of an audit is to give an opinion on the financial statements and communicate it according to the International standards on auditing (internal course material, 2016), the audit process is divided in various steps. From accepting the client engagement, the audit team goes through specific and planned steps that are supported by audit methodology, reg- ulations and laws. The key objective is for the audit team to gather enough evidence that the auditor can give an opinion on the financial statements. According to Korkeamäki when a

liable audit is done it decreases the need of supervision for tax and other authorities, addi- tionally increasing the organisations liability, which is good for the society. (Korkeamäki, 2008, p. 9) 1.4.2 Audit transformation programme (ATP) PwC Finland’s strategy is to create a competitive auditing approach that would result in cost efficient solutions and better quality. In addition, with these changes being made, Pricewa- terhouseCoopers Oy audit experts are introduced a better possibility for personal growth and to differentiate in the competition for clients. The aim of the audit transformation is the make manual work automated and more efficient by exploring new technologies and using different tools and methods. The objective is also to explore data in different parts of the audit process and with that give more value to the client. (Vieruaho 2017, internal material 2016) 1.4.3 The change process: General ledger analysis Part of the audit transformation program that is mentioned above is to get more efficiency in to the audit work and make it more standardized. Therefore, a general ledger analysis process is developed to be used for auditing small and mid-sized companies. (Blomqvist and Vieruaho, 2017 and internal material, 2017) The aim of the general ledger analysis process is to automatize and make the process of analysing the general ledger more effective by using analytical software and make the data accessible for all experts/auditors in the audit division. (Blomqvist and Vieruaho, 2017 and internal material, 2016) The main objective is to do audit work in a modern way by following the audit requirements and using technology to support that work. Furthermore, the aim is also to get the auditors in larger scale to use big data, learn how to read and examine data and get more information and value for the auditor but also for the client.

1.5 Structure of the research

This thesis is divided in 7 chapters. In chapter 1 the concept of change management, state- ment of the problem for the research is introduced. Additionally, the aim of the research, its limitations and the research case and case company will also be introduced in this chapter. The second chapter will cover the literature framework, that is the basis of the research and give an overall view of the examined models and recent articles based on change manage- ment, also giving an overview on benefits and criticism based on recent studies made on the models and theories. In the third chapter the research method and the empirical part of this thesis is introduced, namely the case study conducted at PricewaterhouseCoopers Oy. Furthermore, as the re- search is a semi-structured case study, interviews and participant-observation is used as method to collect evidence and for concluding the research. In the fourth, fifth and sixth chapter the author of the research goes through the results, discusses the findings and introduces usable means and methods for the ongoing change initiative and for future change initiatives for the ATP team. The recommendations and conclusions will end the research in chapter seven.

2 THEORETICAL FRAMEWORK

In this chapter, the author will provide an insight into different change management models. The theoretical framework focuses on how the change management models work and how other organisations and researchers use them. The author will start by introducing the con- cept of change management and the different perspectives of tackling change. Furthermore, the author will discuss the reasons for why change initiatives tend to fail. Conclusively, the author will analyse three particular change models by identifying and de- fining their general outline, how they are intended to work in instances of change and in which situations the models are used. The three identified models introduce the three dif- ferent time periods of change management and are often used in successful organisational

change. The models are also claimed to be clear, easy to implement and easy to understand, therefore they are used in this research. The chapter will be summarised by a comparison of the three identified change management models.

2.1 What is change management?

Change itself is a reaction to an opportunity, challenge or an event that sets in motion the path for change. (Creasy, 2007, p. 2 ) According to Tim Creasy in his article, “Defining change management” indicates that when changing something in an organisation there is a technical approach (project management) and a human approach. (Creasy, 2007, p. 3 ) Both the technical approach and the human approach aim to the same result, namely transforming the organisation from a current state to an improved state by, for example increasing efficiency. (Creasy, 2007, p. 3 ) The key aspect of change management is to focus on the people. Furthermore, as the goal of change management is to support each and everyone in the organisation that are impacted by the change, means that the key persons in charge of the change initiative must ensure that the people who are expected to change, make the required changes in their day-to-day work. This enables the organization to reach the desired results, like increasing efficiency by standardizing different work tasks. (Creasy, 2007 p.2- 3 ) Research on change management typically includes steps, guidelines or different processes that drives an organisation through change. According to “Managing change one day at a time” by Keith Ferrazzi, a change initiative is like an addiction treatment programs. To manage change, organisations has to do certain steps to change as an alcoholic need to go through alcoholics anonymous 12 step program, to be able to change. (Ferrazzi, 2014 p.1-

Ferrazzi explains that organisations cannot change the way things are done, if the individual in the organisation does not change its behaviour. Like in AA, when the alcoholic admits he/she has an alcohol problem the change can occur, so if the individual in an organisation does not understand why and how to change, the change process cannot begin. (Ferrazzi,

According to the “10 principles of leading change management report” written by Deanne Aguirre and Micah Alpern, conclude the reasons for failure on change initiatives. The re- sults for the conclusion are from Strategy&/Katzenbach Center survey of global executives on culture and change management. Part of results indicate that the success rate of major change initiatives is only 54%, which is very low. (Aguirre and Alpern, 2014, p. 3) For organisations failed change initiatives means (among other things) added costs and wasted resources, but also brings out a lot of confusion and cynicism. (Aguirre and Alpern, 2014, p. 3) In the abovementioned report, Aquirre and Alpern suggest that companies who go through a mayor change initiative have three obstacles they have overcome in order to get the change initiative to succeed, and becoming a part of company culture. (Aguirre and Alpern, 2014, p.3) The first referenced obstacle is “change fatigue”, which means that the employees in an organisation get tired of the pressure that result from making too many changes taking place at once. (Aguirre and Alpern, 2014, p.3) According to the results, the initiatives according to the results were badly planned, executed too fast and no time is put into preparing the change initiatives. (Aguirre and Alpern, 2014, p.3) The second obstacle to overcome in order for change initiative to be successful is sustaina- bility. In other words, the organisation has to have the needed knowledge to ensure that the change can be sustained over time. (Aguirre and Alpern, 2014, p.3) Often companies lack the know-how and how to root the wanted change in the company´s culture, because they lack the needed technology and know-how. This might lead to blaming on bad technology, to resistance or that the targets of the change which is now seen unrealistic. (Aguirre and Alpern, 2014, p.3) The third obstacle according to Aguirre and Alpern is that the change initiative is planned and decided at the top management level and not include people from any lower level to the decision making. (Aguirre and Alpern, 2014, p. 3) This can lead to that, part of information is left out and limit the opportunity for lower level management to take part in the change.

Figure 2. 10 principles of change (strategy-buisness.com, 2017) For organization who are going through change, Aquirre and Alpern conclude 10 guiding principles to lead organisations through a successful change execution that can be seen above in figure 2 :  Leading with culture The first guiding principle is leading with culture. According to Aquirre and Alpern leading with change is important for a change initiative to be suc- cessful. (Aguirre and Alpern, 2014, p. 3- 4 ) They claim that organisations should not change the existing culture but to draw “emotional energy from it”. This means that in organisations management needs to look into how the people already think, behave, work and feel in their organisation and using those implications as guidelines to encourage the change initiative. (Aguirre and Alpern, 2014, p. 3-4) By searching for components in the culture that are aligned with the change and emphasizing them and with that attract the people who goes through the change, the organisation can lead the change through the company culture which is familiar to the employees from the beginning. (Aguirre and Alpern, 2014 , p. 3- 4 )

 Act your way in to new thinking By implementing the new ways that the change initiative delivers are im- portant for a change initiative to be successful. Leaders have to lead by ex- ample so that the rest of the employees can see that a change is happening and the new ways are working and gives the possibility for employees to think about their day-to-day work in a new way. (Aguirre and Alpern, 2014, p.6)  Engage, engage, engage Repeating the change vision frequently is needed for a continual change. The misconception that a strong message in the beginning of a change initiative is enough for employees to understand and be committed to change is a com- mon mistake made by leaders. Ongoing communication efforts keeps the vi- son alive and makes the employees to understand and believing in the change. (Aguirre and Alpern, 2014, p.6- 7 )  Lead outside the lines In addition to those who are the leaders in an organisation, there are also these so-called informal leaders, “special forces”. These “special forces” are those who promote the change and supports the other in the company to be part of the change. According to Aguirre and Alpern they can be found in every level of an organization from the receptionist, supervisor to manager. By identify- ing theses special forces early organisations has a better chance to succeed to implement major change initiatives. (Aguirre and Alpern, 2014, p.7)  Leverage informal and formal solutions A successful execution of change initiative needs different methods that sup- ports the change, like having informal and formal solutions. (Aguirre and

Alpern, 2014, p.7) The formal solution is by redesigning structure, reward systems, operating systems, training and development in the organisation, preparing the employees to be willing to commit to the change. (Aguirre and Alpern, 2014, p.7- 8 ) The formal solutions are about changing the organisa- tions motto, if it does not support the change initiative. The formal solution creates the right mind-set for the change. For example, changing a shipping companies’ motto from “Ship by any means” to “if it’s not right do not ship it.” (Aguirre and Alpern, 2014, p.7- 8 )  Asses and adapt According to Aguirre and Alpern organizations does not measure their suc- cess in the change initiatives before moving on. By failing to do so organi- zation lack the information about how to support the process of change and the sustainability of it. By analysing what is working and what is not, re- quired improvements can be made and make the change to stick and be a part of company culture. (Aguirre and Alpern, 2014, p.8) The author explained in the Introduction part that to understand the change management phenomena and to organise the research, the author identifies three change management models. In the following chapters, the author will go through the models, analyse them and summarize this chapter.

2.3 Kotter´s eight steps to change

The first change management model that is identified is John Kotter’s eight step model of change. Dr. John Paul Kotter is a leading professional when it comes to change manage- ment. He is the Konosuke Matsushita Professor of Leadership, Emeritus at Harvard Busi- ness School and a world-renowned change expert. (En.wikipedia.org, 2017, mindtools.com, 2017 ) His eight step change process has been a base for many change theories. It has been broadly used for transformational change initiatives in large organisations and is named one of 25 most influential business management tools. (Kotter, 2012, mindtools.com, 2017)