Running head: PROBLEMS AT PERRIER 1Assignment #3: Problems at Perrier Shannon Goodwin Strayer University Managing Organizational Change HRM 560 Dr. Vanessa Graham August 12, 2012 PROBLEMS AT PERRIER 2 Abstract Perrier was once a company with a promising future. In the early 1980s, Perrier, one of the world’s largest producers of sparkling mineral water, was at the top of the industry. However, things quickly change in the 1990s. A trace of the toxic substance benzene was discovered in a bottle of Perrier and the company had to recall millions of bottles of water. This unfortunate mishap resulted in a decrease in United States sales. Before long Perrier’s annual production decreased by half and the company found itself on the brink of comforting what every company dreads – bankruptcy. However, Nestlé saw Perrier’s collapse as an excellent business opportunity and acquired Perrier for 2.7 billion. Perrier continued to struggle as it failed to remain a contender with Nestlé’s two other mineral-water brands. Nestlé’s management is now under pressure in an effort to transform Perrier by restoring it to the giant mineral water company it once was. Hence, this paper will identify three drivers of change and its impact on the organizations need for an effective change management process. It will discuss how employees reacted to change and how their reactions affected the change management process. It will identify three key elements of resistance to change portrayed at Perrier. It will provide the author’s recommendation for a change management strategy by identifying three approaches for managing employees’ resistance. Lastly, it will discuss senior management roles and responsibility in implementing change. PROBLEMS AT PERRIER 3 Problem at Perrier 1. Identify three drivers of change in organizations today and its impact on the organizations need for an effective change management process. In today’s highly competitive globalized economy, organizational change is inevitable. Simply put, change is without a doubt a necessity for the survival and relevance of an organization. Why? Because organizations have little to no control over the changing strategic environment in which they exist. Kotter (1996) argues that today’s globalized economy has created both risks and opportunities that are forcing organizations to make drastic improvements in order to compete, flourish and survive. Thus, organizations can remain relevant by avoiding risks, benefit from opportunities and becoming stronger competitors. This cannot be done without first understanding and acknowledging the forces that drive the need for major change in organizations. These forces are identified by Kotter (1996) as technological change – faster and better communication, transportation, and global network systems; international economic integration – fewer tariffs, fluctuating exchange rates link to currencies; and maturation of markets in developed countries – slower national growth, more assertive exporters, and more deregulation. These forces have a great impact on the need for an effective change management process. Without these forces, successful transformation will not happen for several reasons. Such reasons include: secretly absorbed philosophies, standstill bureaucracy, narrow to closed- minded politics, no trust or a lack thereof, the absence of teamwork, egotistical attitudes, little to no mid-level leadership, and fear of the unknown (Kotter, 1996). These reasons are deeply embedded within the organization and can only be overcome and counteracted by creating an effective change management process such as Kotter’s (1996) Eight-Stage Process of Creating Major Change. PROBLEMS AT PERRIER 4 2. Discuss the typical reactions of employees to change and the related effects on the change management process. Change is normal and good, but employees’ reaction to change can be impulsive and irrational. Why? Because change implies letting go of the familiar and adapting to new roles, responsibilities, policies, procedures, and structure that brings about uncertainties (National Defense University, n.d.). When employees are confronted with change they usually respond with some type of resistance. According to Palmer, et al. (2009), resistance to change is threefold – meaning it contains three elements – affective, behavioral and cognitive. Affective refers to how employees feel about change, behavioral relates to employees’ actions toward the change, and cognitive refers to employees’ thoughts concerning the change. Affective and cognitive elements may only be exposed if employees verbalize their feelings and thoughts. But the behavioral element is revealed by either passive or active responses (Palmer, et al., 2009). Passive responses may include – malicious compliance, inertia, stalling, claiming ignorance, permitting the change to fail and intentionally refusing to share information or provide assistance. Active responses include – criticizing, ridiculing, being fearful, using facts selectively, fault finding, intimidating or threatening, manipulating, twisting the truth, clocking, undermining, starting rumors, or arguing. As mentioned above, employees’ resistance to change can be either passive or active. However, such behavior can have negative effects on the change management process, whether passive or active in nature. As for reducing negative effects, Palmer (2009) suggested utilizing the “resistance profile”. This profile will help managers of change identify – those employees who are likely to be resistant, the reason why they are resistant, the possible strength of such resistance, symptoms of resistance and the probability that such resistance will undermine the change initiative. The results of the profile will assist managers in choosing the appropriate PROBLEMS AT PERRIER 5 course of action to take when confronted with resistance. This is why it is so imperative for management take into consideration the likelihood of resistance prior to recommending any change initiative. This preemptive thought process can make the different between success and failure of neutralizing resistance. 3. Identify three key elements of the resistance to change described at Perrier. Perrier, the world’s number one producer of mineral water found itself in big trouble after traces of benzene was discovered in a bottle of water imported to the U.S. As a direct result, Perrier’s U.S. sales rapidly declined and the company soon found itself heading down the path to bankruptcy. Nestlé, in an attempt to capitalize off a great opportunity, purchased Perrier for $2.7 billion. However, even under the new management Perrier continued to struggle. This forced Nestlé to initiate change. However, such change was met with three key elements – parochial self-interest, misunderstanding, and different assessments of the situation – of resistance as identified by Kotter and Schlesinger Six (6) Change Approach (as cited by Palmer, et al., 2009). The first element of resistance, parochial self-interest takes place when employees are more concerned with the implication of the change for them and how such change will affect their own interests. They can care less about the effects of the change in regards to the success of the business. Palmer, et al., (2009) refers to this as a perceived negative effect on interests noting that people are more supportive of change when they perceive it as none threatening to their lifestyle. This type of resistance can be seen in CGT, a union that governs 93% of Perrier’s employees (Palmer, et al., 2009) refusal to cooperate with management’s attempt to implement change. CGT’s refusal to cooperate is driven by a, “what’s in it for me” mindset. This mindset stems from the employees fear of losing what one may view as the “best of both worlds”, as Perrier’s employees worked less than 40 hours a week and earned salaries much higher than the PROBLEMS AT PERRIER 6 average factory worker. This mindset displays blatant resistance to management’s plan to downsize Perrier’s workforce by 15% (Palmer, et al., 2009). The second element of resistance is misunderstanding. Lack of understanding encompasses communication problems and inadequate information. The relationship between management and employees are estranged. Due to lack of understanding and inadequate information, the employees disagree with Nestlé’s efforts to improve Perrier’s financial performance and do not see the need for such change. Jean-Paul Franc, the head of the CGT, views Nestlé’s attempts as an ethical dilemma contending “Nestlé’s cannot do whatever it likes” (Palmer, et al., 2009, p.183). Nestlé’s CEO, Peter Brabeck-Letmathe, forewarned that the lack of compliance and development is endangering the future of Perrier’s brand. Management then tried to encourage healthy competition by placing the bottles of the competitor’s water in the cafeteria. But this attempt was also met with opposition, as the employees dump the bottles in front of the director’s door. All in all, Nestlé’s intended efforts to persuade employees to embrace change and develop a cohesive-front with management fell short. The third element is different assessments of the situation. This occurs when employees disagree with the reasons for the change, as well as the advantages and disadvantages of the change process. Although Perrier was operating below its usual level of productivity, employees failed to see this as a reason to downsize the workforce. The different viewpoints show a lack of effective communication on the part of management and a lack of understanding on the part of the employees. In regards to Franc’s remarks about morals, it also shows a belief that employees may perceive change as a great advantage with grave effects on their lifestyle. Because of this, management and employees are at a standstill; and therefore change is idled. PROBLEMS AT PERRIER 7 4. Construct a change management strategy for dealing with this situation. In doing so, identify three approaches to managing resistance you recommend and provide clear justification for your choice. I would construct a change management strategy for dealing with the problem at Perrier by employing the Congruence Model of David Nadler and Michael Tushman. This model maintains that organizations are comprised of four key components: 1) task – specific activities that must be carried out; 2) individuals – skills, knowledge, ability, expectation and the needs of employees; 3) formal organization – structure, processes and methods; and 4) informal organization – implicit, unstated values, beliefs, and behaviors. I believe this model works well with Perrier because the four steps of this process identify gaps between the intended and the actual outcome and the cost of these gaps as it refers to organizational performance. Although all eight steps in this model are crucial, this one in particular hits home in Perrier’s case, as it appears there is a vastly different perception of the organizational performance than its actual output. While implementing this change management strategy, it is imperative to be prepared to enact approaches to manage resistance. There are three different approaches I deem suitable for the resistance which has been identified in this case. They are derived from Kotter and Schlesigner’s six methods: 1) education and communication, 2) participation and involvement, 3) facilitation and support, 4) negotiation and agreement, 5) manipulation and occupation, and 6) explicitly and implicit coercion, to counter resistance to change (Palmer, et al., 2009). The first method is education and communication. This involves providing employees on all levels with the necessary information and rational for needed change. Next I would employ negotiation and agreement, although it has been known to weaken the key level of change. However, in the case of Perrier the outcome would outweigh such weakness, as the resistors are in a strong position to PROBLEMS AT PERRIER 8 undermine change. Thus, management needs to quickly get the change process moving forward. Finally, as a last result, I would utilize explicit and implicit coercion. This involves strongly warning people concerning the impact behind implementing undesired consequences – i.e., firing, suspension, etc. (Palmer, et al., 2009). 5. Discuss the role that senior management should have with implementing the changes. Senior management provides the authority and credibility necessary to effect successful change. Regardless of what the change might involve – whether it be new processes, new systems, new positions or new organization structures – senior management must demonstrate this, as well as the organization’s commitment to such change. Employees desire to witness senior management’s commitment to change for themselves (Change Management Learning Center, n.d.). Thus it is crucial to the change process that senior management remains an actively visible participate throughout the change initiative. Senior management must also build a guiding coalition of sponsorship and manage resistance. According to Kotter (1996), developing a successful guiding coalition requires four key characteristics – position power, expertise, credibility and leadership. And last, but certain not least, senior management must communicate the business reasons for implementing change effectively. The same way employees desire to observe senior management commitment, they also want to hear them verbally communicate it (Change Management Learning Center, n.d.). PROBLEMS AT PERRIER 9 References Change Management Learning Center. (n.d.). In Roles in change management. Retrieved August 7, 2012, from http://www.change-management.com/tutorial-job-roles-mod2.htm. Change Management Learning Center. (n.d.). In Executives and senior leaders: importance and role. Retrieved August 7, 2012, from http://www.change-management.com/tutorial-job- roles-mod3.htm. Kotter, J. P. (1996). Establishing a sense of urgency. Leading change. (pp.35-49). Boston: Harvard Business School Press. Palmer, I., Dunford, R., & Akin, G. (2009). Managing organizational change: A multiple perspectives approach (2nd ed.) New York: McGraw-Hill. National Defense University (n.d.). Strategic Leadership and Decision Making: Vision and the management of change. Retrieved August 7, 2012 form http://www.au.af.mil/au/awc/awcgate/ndu/strat-ldr-dm/pt4ch19.html