CREATING A CONTINUOUS SUPPORT FOR SUSTAINABLE CHANGE
Master thesis
Master of Science Business Administration Specialization Organizational & Management Control
University of Groningen Faculty of Economics and Business
July, 2012
VINCENT JORNA Student number: 1831429
Tidorestraat 175 1095 KT Amsterdam
0636567536 vincentjorna@hotmail.com
Supervisor: dr. E.P. Jansen Co-Assessor: prof. dr. D. Swagerman
2 ABSTRACT
This research contains a number of recommendations for managers and companies that are dealing with organizational change. It is tested how organizational change can sustain within a company by looking at 1) leadership style, 2) barriers to change and 3) employee commitment. These three concepts were identified as being of influence on sustainable change. Data was collected from eleven semi-structured interviews performed at two districts in a leading Dutch bank. This research shows that there is a relation between the leadership style of a manager and creating employee commitment to change. A recommendation is that leaders should focus on intrinsic motivation of the employees, which seems to support the change. A leader can create this by involving employees to the change, being a role model, showing the need for change and using a clear communication plan.
Limitations of this research are that just two districts were analyzed. Also, next to intrinsic motivation extrinsic motivation could be related to employee commitment and sustainable change. This should be investigated in future research.
KEY WORDS: organizational change, sustainable change, leadership style, barriers to change, employee commitment.
3 TABLE OF CONTENTS
ABSTRACT ... 2
TABLE OF CONTENTS ... 3
MANAGEMENT SUMMARY ... 5
1. INTRODUCTION ... 6
1.1 The Case: ABN AMRO Bank ... 6
1.2 Context of the problem ... 6
1.3 Sustainable change ... 7
1.4 Problem statement ... 8
1.5 Preview ... 8
2. THEORETICAL REVIEW ... 9
2.1 Leadership style and sustainable change ... 9
2.2 Barriers to change and sustainable change... 11
2.3 Employee commitment and sustainable change ... 12
2.4 Conceptual model ... 13
3. CASE SETTING AND RESEARCH METHODS ... 14
3.1 Case setting ... 14
3.2 ABN AMRO Bank of today ... 15
3.2.1 ABN AMRO Bank background information ... 15
3.2.2 Content of Customer Excellence ... 15
3.3 Research method and data collection ... 17
4. RESULTS ... 20
4.1 District Friesland ... 20
4.1.1 Leadership style ... 20
4.1.2 Barriers to change ... 22
4.1.3 Employee commitment ... 23
4.2 District Drenthe ... 24
4
4.2.1 Leadership style ... 24
4.2.2 Barriers to change ... 26
4.2.3 Employee commitment ... 27
4.3 Comparison between District Friesland and District Drenthe ... 28
5. CONCLUSIONS AND RECOMMENDATIONS ... 29
5.1 Conclusions ... 29
5.2 Recommendations... 31
5.3 Limitations and future research ... 32
Appendix I Organizational chart of Customer Excellence organization ... 36
Appendix II List of interviewees and related departments ... 37
Appendix III: Interview guide ... 38
5 MANAGEMENT SUMMARY
Given the complex environment in which modern companies operate, successful organizational change is of great importance. Since the financial crisis started in 2008, companies are trying to make their operation leaner and more efficient. Often an organizational change must result in internal improvements and a new way of working. However, a lot of change programs fail and companies have difficulties in creating a continuous support for a sustainable change. This research is focusing on the role of the leader in an organizational change and recommendations for improvements will be provided.
In this case study, two districts of ABN AMRO Bank (AAB) were compared and analyzed. The change in the first district did not result in a sustainable change, while the change in the other district did result in a sustainable change. The reason for the difference between both districts was not clear for AAB. In the literature the linkage between sustainable change and the following concepts were analyzed: leadership style of a manager, barriers to change and employee commitment.
The following lessons for the management of AAB can be derived from the results and conclusions in this research. First, the role of the leader has a major impact in making a change stick.
A manager with a transformational leadership style is more willing to change than a transactional leadership style. This is because a transformational leader find it easier to transform people in an inspiring and charismatic way. A transactional leader is focusing on protocols and setting targets. And when the employee retrieves the target, this person gets rewarded. Second, a transformational leadership style has less problems with overcoming barriers to change because he is giving personal attention to the employees. Finally, intrinsic motivation of employees seems to be a key issue in sustainable change. A leader can influence this by showing the need for change and by acting as a role model. Also, training and coaching on the job are positively related to employee commitment.
This research shows that, in order to successfully implement a sustainable change, a leader should focus on the intrinsic motivation of the employee. A leader should create a sense of urgency to change, which seems to support employee commitment. This could be facilitated by aligning employees to the change program, having a clear communication strategy and by selecting an internal change manager that has to challenge the leader in keeping the change alive.
It is found that transformational leaders are able to create a continuous support for sustainable change. This information can be used in other departments of AAB or other companies that are facing an organizational change. Furthermore it stimulates and motivates leaders to participate actively in an organizational change program.
6 1. INTRODUCTION
Although a change in rules can slowly transform into new routines (Burns and Scapens, 2000) which can be a source of organizational change (Feldman, 2000), it is hard to make an organizational change sustainable. A lot of initiatives to change do not reach their original goal, which will lead to disappointment of management. The study “An inconvenient truth about change management” of McKinsey in 2008 found that nearly 70 percent of changes in organizations fail. A lot of studies are focusing on the implementation of a change program (Van de Ven et al., 2011; Kumar et al., 2011), but there is little known about sustaining a change of routines. For most managers there is no blueprint or roadmap to follow and companies have difficulties with designing and sustaining an organizational change (De Caluwé and Vermaak, 2004). The key issue for managers is: how to manage a sustainable change?
This case study seeks to find a way for managers to ensure that a change will sustain within an organization and that the behavior of employees will not fall back into old routines.
1.1 The Case: ABN AMRO Bank
This research is based on a case study performed at ABN AMRO Bank (AAB). AAB is a leading financial institution in The Netherlands and is wholly-owned by the Dutch State1. In 2011 AAB started a program to change employee behavior into a continuous improvement culture. AAB wants to make their operations leaner and more efficient. Difficulties arise not in achieving the initial improvements, but in ensuring that the new way of working is sustainable in long term. Routines can be seen as a source of stability and therefore hard to change (Feldman and Pentland, 2003, p. 5), but changing routines are essential for sustainable change. The change of AAB has not only effect on the behavior of employees, but affects also the role of the manager.
In order to change the new way of working, a national program Customer Excellence (CE) has been introduced. This change program is implemented by the CE-project team, which consists of senior bank employees. The duration of the change program is 18 weeks and it consists of three stages:
1) Introduction phase, the tasks of each individual employee will be monitored;
2) analyzing phase, an analysis on the figures from the introduction phase is made;
3) implementation phase, the new working routine is introduced on the work floor and employees have to work by following these new rules.
The outcome of this program must be that managers and employees will change in their daily routines to a continuous improvement culture by focusing on the customer needs. This fits within the strategy of AAB to increase customer satisfaction. The top management of AAB states that a high employee satisfaction has a significant impact on a high customer satisfaction.
The content of the change program itself is very sophisticated and it combines several theories, which are often used in other change projects. Although the change program at AAB is well developed and has high priority from top management, success is not guaranteed.
1.2 Context of the problem
The main problem for AAB is to create a continuous support for a sustainable change. During the change program, the managers and employees receive support from the CE-project team and most employees work according to the new rules. However, when the CE-project team has left, the change ebbs away and the results declined. There are difficulties with the last phase of CE, the continuous
1 In 2008, the AAB was taken over by a consortium of banks including Fortis Bank. After Fortis Bank had fallen into trouble by the credit crisis, the Dutch State nationalized a portion of the Dutch activities of AAB and Fortis.
7 improvement phase. A lot of departments fail to create a new culture of continuous improvement, and new routines are not embedded.
This change program has been completed in two districts already, District Friesland (completed in September 2011) and District Drenthe (completed in December 2011). The results of the change program in these districts are interesting, because they differ considerably in the extent to which they resulted in a sustainable change. This was also noticeable in the productivity figures of both districts. After CE, the productivity decreased in District Friesland and increased in District Drenthe.
These differences between the districts were the starting point for this research.
District Drenthe was able to change routines and implement a sustainable change. For District Friesland it was hard to implement new routines and continuous improvement was not part of the taken for granted assumptions underlying the day-to-day activities. The reason that the change did not sustain in District Friesland consist of several issues which will be explained from a practical point of view. It is found that the manager at AAB District Friesland had difficulties in motivating employees and creating support to change. The manager was unable to convince employees to change and was putting too much focus on short term results. During the change, employees showed resistance which is supposed to be normal in an organizational change. However, the manager had difficulties to overcome resistance which resulted in a barrier to change. This barrier to change led to a division among employees where some employees did not participate actively in the change program. Finally, some employees felt that they did not need the change; they did not see the benefits of the change program and did see it as mandatory. These employees had no commitment with the change program, leading to a relapse of old routines.
Remarkably, the same issues occurred at District Drenthe. However, here the manager was able to motivate employees, overcome barriers to change and commit employees to change. Therefore, the failure and success of sustainable change is due to these three concepts: leadership style, barriers to change and employee commitment. This research will investigate how these concepts will have influence in a practical situation. Since the change program runs from January 2012 till May 2012 in district Groningen, some improvements could be made according to the results from other districts at AAB. For district Groningen the key issue is to change people’s behavior and to create a continuous improvement in daily work over the long term, without facing the same problems that occurred at other districts. Because the CE-project team is implementing the change program in all districts in the Netherlands, a lot of benefits could be made if the reason(s) for the declining results in other districts are indicated. For that reason, the results of this research are helpful for managers at AAB Groningen and also for other districts of AAB within the Netherlands.
1.3 Sustainable change
Since the results of many major changes initiatives are disappointing, the challenge for managing change and strive to a sustainable change is compelling for every company. Many companies are still looking for the key to leading change that succeeds and sticks (Covington, 2002).
There are several possible reasons for sustainable organizational change; here the focus is on one key reason: The influence of leadership on people in order to change routines. Without involved leaders, there cannot be a sustainable change (Kotter, 1996). A leader needs to convince and motivate people to change. Management has direct influence on organizational change; the performance of the management is also indirectly linked to the success or failure of organizational change (Atwater and Bass, 1994; Kotter, 1996). More often it takes a crisis to generate a radical change (Burns and Scapens, 2003; Gersick and Hackman, 1990). A crisis creates a sense of urgency and can be introduced by top management.
In this research, sustainable change is defined as a change that endures and is able to maintain, or support the momentum and growth of the improvement targets. The existing literature deals with several aspects of sustainable change and offers clues to explain which factors influence sustainable change (Cobb et al., 1995; Kasurinen, 2002).
8 A popular way to describe change is by using the concept of management accounting routines.
This can be described according to the institutional theory. Burns and Scapens (2000) define an institution as ‘a way of thought or action of some prevalence and performance, which is embedded in the habits of a group or the customs of people’. A very strong institution can be a key obstacle to sustainable change. An institution is a set of rules and routines (Burns and Scapens, 2000, p. 5). Rules are the formal rules used in working procedures and routines are the way of working that the organization actually uses. Both rules and routines are related, rules can change under the influence of routines and routines can change under the influence of rules (Burns and Scapens, 2000). But by changing rules, employees may feel uncertain when continuity is interrupted. This may lead to resistance (Giddens, 1984; Busco et al., 2006). A good manager has the leadership quality to motivate and steer the employees and overcome resistance. A recent study of Van der Steen (2011) advocates that routines can have different processes of reproduction. This means that there is not one single process of change in management accounting routines.
Hopwood (1974) stated that the way in which manager’s use accounting information is related to their leadership style. Bass (1990) classified two leadership styles, transactional and transformational leadership style. A transactional leadership style puts the focus on the physical needs of employees and a transformational leadership style is focusing on emotional needs. Jansen (2011) found that the leadership style is related to the success and maintenance of accounting change.
In this research the concepts of sustainable change will be further explained in terms of leadership style, barriers to change and employee commitment. This research will try to find out which of the elements in the change program are most important and cause the disappointing results in sustaining the change at AAB.
1.4 Problem statement
The main objective of this case study is to ensure that a change will remain within an organization and that the behavior of employees will not fall back into old routines. For a manager this asks for a different view on controlling employees. Managers need to increase the output of their employees, which will also affect their role as a leader.
Therefore, the following research question is drawn:
How can the management of ABN AMRO Bank Groningen ensure that it creates a continuous support for sustainable change after implementing an organizational change?
By answering this research question, factors that influence a sustainable change can be indicated and if possible, the outcomes of this research can be used to make recommendations for AAB Groningen.
1.5 Preview
This thesis has been divided into four parts. Chapter 2 begins by laying out the theoretical dimensions of the research and presents the specific research questions. Here the factors that affect sustainable change will be outlined. Chapter 3 describes the case settings and research methods of this study and will look further into the organizational change at AAB. Chapter 4 will provide the results of the research, consisting of the comparison of two investigated districts after which a discussion will be drawn. The last chapter deals with the conclusions and recommendations for further research.
9 2. THEORETICAL REVIEW
The purpose of the theoretical review is to provide a structure for the analysis of the AAB-case.
As discussed in the introduction, the key concepts in this research are: leadership style, barriers to change and employee commitment. This chapter defines these key concepts and shows how these concepts can provide directions for sustainable change. The theoretical review is divided in three parts, which all will be finished with a research question.
2.1 Leadership style and sustainable change
“We know that leadership is very much related to change. As the pace of change accelerates, there is naturally a greater need for effective leadership.”
— John Kotter In recent years, there has been an increasing interest in leadership styles (see Bass, 2008;
Hoozée and Bruggeman, 2010; Jansen, 2011; Jung and Avolio, 1999; Morhart et al., 2009). This section will discuss the role of the leader and how different leadership styles can influence a sustainable change.
As pointed out in the introduction, the support of management can be seen as a key factor to successful change (Atwater and Bass, 1994; Kotter, 1996). The number one reason for change efforts that fail is due to insufficient sponsorship (ProSci, 2003). Also at AAB it appeared that leadership style had an effect on the change. Because the traditional way of doing business in the banking industry is changing, AAB is asking for a different leader. Previously the role of a leader was result driven, by focusing on short term sales maximization. In the new way of working the role of the leader is integrated. It is expected that a leader can motivate people; therefore a change in leadership style may be necessary. For AAB, sales are still important, but it is not the only aspect that counts. This is also implemented in the reward structure, which is based on a combination of hard skills and soft skills. Hard skills consist of job results, like customer satisfaction and the level of sales. The soft skills consist mainly of the behavior of a manager, like work structure and coaching a team. The story above tells us that AAB is asking for a different leader after the change, which will influence the leadership style of a manager.
The way in which leadership comes to practice, depends on the character and leadership style of a manager. To get insight in the role of the leader in a change program, leadership needs to be defined. A manager with good leadership creates a healthy and profitable organization. Also, the manager is responsible for initiating and directing other people in an organization. Bass (1990, p. 19- 20) defines leadership as ‘an interaction between two or more members of a group. (…) Leadership occurs when one group member modifies the motivation and competencies of others in the group’.
The effectiveness of leadership is determined by many factors and characteristics. This fits within the contingency theory. This theory states that effective leadership depends on the characteristics of the leader and the situation in which the leader occurs (Vera and Crossan, 2004).
The distinction between different leadership styles is found in the role the manager plays with respect to its employees. Bass (1990) gives a total overview of leadership and comes up with a leading format in leadership styles between transactional leadership and transformational leadership. Transactional leadership is described by Bass (1985) as stable, risk avoidant leadership within the boundaries of an organizational culture. Because this form is task-oriented, it can be effective in clarifying expectations and goals, focusing on the improvement of results in the short term. If the results are accomplished, the employees are rewarded psychological or materially by the leader. If the results are not accomplished, punishment will follow. This appeal to the physical needs of an employee, like the need for income, security and stability (Hopwood, 1974). Transactional leadership works particularly well in stable organizations in a little changing market (Vera and Crossan, 1994).
10 Transformational leadership is described by Bass (1985) as inspiring subordinates, satisfy the emotional needs, stimulate intellectually and focus on the importance of the group and the organization. This appeal to the socio-emotional needs of an employee, like appreciation, respect, autonomy and status (Bass, 1990). Pawar and Eastman (1997, p.82) believe that change is the result of different factors, but that transformational leadership is one of the most important factors that affects organizational change. In this leadership style, employees feel part of the company itself and take responsibility for themselves. The leader is closely engaged with its followers without using power. The leader does this by motivating employees, see the higher purpose, set challenging expectations, create visions and be open for new experiences and other’s points of view.
Many organizations are facing rapid change and complex development, enabling flexibility and responsive necessity. Transformational leadership is especially effective in rapidly changing environment, for example in economical turndown (Vera and Crossan, 1994). This is because such an environment asks for a leader that can motivate and inspires employees. A leader can achieve this by several instruments, ranging from coaching to self-managing teams. According to an analysis of Avolio, Bass en Jung (1999) it seems to be widely recognized that there is consensus about the relation between transformational leadership and successful change (Atwater and Bass, 1994; Bass, 1985; Burke and Litwin, 1992). Avolio and Bass (1991) stated that transactional leadership is more laissez-faire leadership than more active leadership.
Burns (1978) first introduced the classification between transactional and transformational leadership, and stated that every leader has a preference for one of these styles which depends on their personality. For example if a manager has a transactional leadership style, the less transformational leadership style this manager has in his personality. Later studies suggest (Bass, 1985; Morhart et al., 2009) that a combination of these two styles is possible and that they are even complementary to each other. Previously, other skills were expected from managers. For example, the steering and motivating of employees within teams is a fairly new development. Today, a good manager has a combination of transactional and transformational leadership style (Jansen, 2011, p.
121). The differences between leadership styles as described above are summarized chronologically in Table 1.
Study Transactional Transformational
Bass, 1985 Short term oriented Long term oriented
Bass, 1990 Motivated by rewards Motivated by value and beliefs Avolio and Bass, 1991 Laissez-faire leadership Active leadership
Vera and Crossan, 1994 Effective in times of stability Effective in times of change Jansen, 2011 Appeal to physical needs Appeal to socio-emotional needs
TABLE 1: overview of the differences between leadership styles in the literature
For a manager it is hard to change their leadership style (Bass, 2008, p. 633). A recent case study by Jansen (2011) reported that managers with the desired leadership style of the new accounting routines are more successful in change programs than managers that have to change their leadership style. In adjusting the leadership style, it is recommended for the manager to receive coaching in managing his new leadership style (Jansen, 2011). However, as McClelland and Burnham (2003) point out, it is possible to transform a leadership style. In their example a leader was possible to change a managerial style because the manager was learning more about himself, he noticed that he had more success on the work floor by transforming his leadership style. Fuda and Badham (2011) say that leaders can change by learning and copying the success of others. This means that the leader has to identify and absorb the insights they find there.
11 This section showed that the role of a leader is essential in a change program. In this research it is important to see which leadership style fits within sustainable change. For AAB this means that the relationship between leadership style and readiness to change needs to be analyzed. Therefore, the first research question of this research is: does the leadership style (transactional or transformational) of a manager relate to the level of sustainable change?
2.2 Barriers to change and sustainable change
"People don't resist change. They resist being changed!"
— Peter Senge In almost every change, there is a chance that resistance will exist and will affect the process of sustainable change. In this section triggers for barriers to change and the influence on sustainable change will be described. Also expressions of resistance and possible solutions will be given. Barriers to change can be defined as ‘the factors hindering, delaying, or even preventing change’ (Kasurinen 2002, p. 324). For a leader it is essential to know how to deal with barriers to change and how to eventually overcome resistance to the change. In the change curve of Kübler-Ross (1997) one of the first stages that people feel are ‘denial’ and ‘anger’, which can be addressed as emotions of people that are ‘not in control’ and ‘frustrated’. Resistance may occur when daily routines, working practices and working environment of individuals are suddenly changed. People are conscious about their own achievements and fear they will be eclipsed or forgotten in the wake of new ideas or processes.
When the continuity is interrupted, people feel uncertain (Busco et al., 2006; Pilbeam and Corbridge, 2006). There is often a sense of security with the past and this produces a fear of the unknown, because people avoid being held accountable with more clarity and visibility (Bardwick, 1993, p. 82).
The reduction of resistance is a key concern of management and overcoming barriers to change will contribute to the chance that new routines will stick after a change.
For a leader it is good to know by whom resistance may occur. In every change there is a division of groups that have a different opinion about change. Hammer (2001) introduced in his book the rule of 20/60/20. This rule means that 20 percent of the employees would like to see the change coming and is positive to change. 60 percent of the workers do not know what they feel and are neutral. The other 20 percent show resistance and have a negative view on change. The task of a leader is to create enough support to convince the majority to change. According to Hammer (2001) a leader needs to focus on the majority of 60 percent of the people in a group; when they are motivated the rest of the group will follow. A leader can motivate the majority of a group by 1) showing the impact of the change by referring to examples of successful results at other companies, 2) showing that the leader self is willing to change, because the leader has a role model in the change program.
Already back in the 50’s Lewin (1952) developed a three stage model of the behavior modification overcoming resistance to the change:
1. Unfreeze – communicating the need for change and the resulting advantages;
2. Change – movement to the desired goal by change of attitude by consultation with the support of key change agents;
3. Refreeze – reinforcing and sustaining the new change trough supporting procedures and policies.
In the revised accounting change model of Kasurinen (2002), the types of barriers from the model of Cobb et al. (1995) are further specified into in confusers, frustrators and delayers. Cobb et al. (1995) emphasized the role of the leader, which has to overcome the barriers to change. To fully motivate employees, the leader should strive to demonstrate successful progress during each stage of the period of change. Resistance to the change is also likely to be lower if each step in the change program is not too large (Cobb et al., 1995).
Thomas and Hardy (2011) examine two approaches in the conceptualizing of resistance, known as demonizing and celebrating. Demonizing is viewing resistance as a pathology that obstructs attempts to change organizations (Dent and Goldberg, 1999). Consequently, some researchers have
12 recently argued for a different approach, to celebrate resistance. For instance, Ford et al. (2008) suggests that resistance may represent novel ideas for change. This means that resistance plays an important role in successful organizational change. It all depends on the way a manager is dealing with resistance. The goal of a leader must not to be to eliminate resistance but to minimize the impact of the resistance. If a manager does not encourage resistance, the employees run the risk that their responses are not considered as acceptable. In order to overcome these problems, Thomas and Hardy (2011) argue that organizational change should be viewed as an outcome of the dynamics of both power and resistance. A change is more likely to be taken on by members of the organization who played a part in the negotiations of the new meanings, practices and relationships (Thomas and Hardy, 2011).
Causes of resistance are widely discussed and come up with individual attitudes, self interested employees and emotions (Piderit, 2000; Van Dam et al., 2008). Solutions to resistance are diverse, easy solutions revolve around communication, education and participation of a leader. Other clarifications are about using power through various coercive methods to force employees to change.
This could be done by manipulation, withholding information, implying future benefits and coercion in the form of sanctions, edicts, threats and dismissals (Kotter and Schlesinger, 1979; Poole et al.
1989).
The literature as stated above seems to argue that resistance to the change is a common reaction of people that are introduced to a change. Also possible solutions to overcome resistance are given and this can serve as a basis for the analysis at AAB. For AAB it is important to see what the role of the leader must be to motivate and support employees in the process of dealing with resistance in a change program. Therefore, the second research question of this research is: What is a desirable way for a leader to overcome barriers during and after a change?
2.3 Employee commitment and sustainable change
"One key to successful leadership is continuous personal change. Personal change is a reflection of our inner growth and empowerment."
— Robert E. Quinn This section will give an overview of the literature in the field of employee commitment and sustainable change, including the role of a leader.
Commitment of employees seems to be a key issue in organizational change (Parish, Cadwallader and Busch, 2007). As Perryer and Jordan (2005, p. 382) notice, ‘committed employees feel the need to go beyond normal job requirements in order to make a significant personal contribution to the organization’. If a manager wants to introduce new rules by simply imposing it to the employees, there is a great change that a new routine will not emerge (Van der Steen, 2011). A manager needs to create expectations, because a change in behavior does not just happen. Behavior is driven by the mindset of people, which is the underlying attitude and feeling of a person (Zyphur, 2009). It takes time to alter the mind-set. But when people want to change themselves, intrinsic motivation rises. To stimulate intrinsic motivation, non-financial performance measures can be integrated in the reward structure (Banker et al., 2000).
Leaders can affect change and overcome opposition by inspire unmotivated staff trough exciting visions and managerial actions (Kim and Mauborgne, 2005). Engagement between leader and followers is important to raise the level of motivation and morality (Burns, 1978). Some companies rush to implement a change, without ensuring that the employees are prepared to work following the new rules. Therefore it is essential to demonstrate commitment to change in order to maximize the sense of urgency (Parish, Cadwallader and Busch, 2008). It is very important that a leader is someone who can influence people (McClelland and Burnham, 2003). By influencing people, the first steps to a different mind-set might be created. A pitfall in changing a mind-set is that the company is looking too much on procedures and policies, and is overlooking the soft side of the employee, which contains for example employee satisfaction (Fine, Hansen and Roggenhofer, 2009).
13 The need for change can come from both internal sources and external sources, like competitive pressures. Also, a sense of urgency can be created by introducing a radical crisis (Burns and Scapens, 2003; Schneider, Brief and Guzzo, 1996, p. 8). For example, forced redundancies or an introduction of new rules may lead to a crisis, because people may feel uncertain in those situations. If people feel uncertain, this may lead to more consciously behavior, whereby they are asking for structure. Gioia and Poole (1984) describe this as ‘sense making’.
Studies found out that there is a relation between leadership and motivating employees (Fine, Hansen and Roggenhofer, 2009; Zhang and Bartol, 2010). Bass (1990, p. 648) states that in particular a transformational leader can use many intellectually stimulating ways to move followers out of their conceptual ruts. A transformational leadership style will be more likely to advance employee commitment (Chen, 2004; Dubinsky, Yammario, Jolson and Spangler, 1995). As previously observed this style shows concern, support and appreciation. According to Bass (1985) transactional leaders are focusing on contractual relationships, mostly here the engagement with employees is inferior.
Another way to commit employees is by involving them to the design of the change program.
This may lead to support and confidence from lower level managers and employees can be created (Busscher, 2007). When employees are part of the implementation plan of a change, they are more motivated (Parish, Cadwallader and Busch, p. 45, 2007). Therefore a lot of change programs use the concept of the ambassador effect. The insertion for this effect is that participants can create a support to increase change by showing enthusiasm about the change to a department. One character that an ambassador needs is to get in front of a group (Rost, 1993). However, Van der Steen (2006, p.635) found that ‘despite extensive preparation, the ambassador effect is difficult to create’. This statement contends that the ambassador effect is no guarantee for acceptation.
To create an environment that employees will stand up and take responsibility, a transformational leader with charisma is recommended. This is partly because transformational leaders are highly motivated to influence their followers (House, 1977). This is confirmed by Pawar and Eastman (1997, p.82), who believe that transformational leadership affect organizational change by the creation of a congruence between followers’ self interests and their own vision.
Finally, the influence of the leadership style and employee commitment needs to be analyzed at AAB. The third research question of this research is: How should leaders motivate employees to create commitment for sustainable change?
2.4 Conceptual model
This section has reviewed the literature examining leadership styles, barriers to change, employee commitment and their influences on sustainable change. In summary, this chapter proposed how the leadership style of managers can affect employee commitment and sustainable change. Additionally, the effect of employee commitment and barriers to change on sustainable change is investigated. In this research we see sustainable change as a change resulting in new routines. This chapter explained that there is a relation between leadership style and sustainable change. Next, there must be taken into account that barriers to change and employee commitment affect sustainable change and this may result in resistance or support to sustainable change.
Figure 1 sets out the concepts and the relations between the variables that this paper seeks to explore through a case study at AAB. The figure summarizes the problems that lower level managers may encounter in a change that is imposed by senior management. Based on the literature review, the following framework is presented in Figure 1:
14
Sustainable change Barriers to change
Leadership style of manager
Employee commitment
FIGURE 1: Conceptual model
3. CASE SETTING AND RESEARCH METHODS
3.1 Case setting
The case company is AAB Netherlands which is wholly owned by the Dutch State since 2008.
AAB is a leading financial institution and employs approximately 26.000 people in 23 countries, with total assets of EUR 420 billion on 30 September 2011. AAB is serving six million clients and is focusing on retail banking, private banking and commercial & merchant banking. The retail division of AAB Netherlands is divided in five regions. This research will take place within the region Noord-Oost Nederland, which is subdivided in eight districts. In districts Friesland and Drenthe management introduced new working rules followed by the CE program. Interestingly, these districts differed considerably in the extent to which new rules resulted in new routines. As can been seen in table 2, this difference was also clearly noticeable by the figures of Customer satisfaction and Productivity selected for both districts. This research will make a comparative analysis of the differences between these districts, which will help district Groningen succeeding CE. A questionnaire was developed to interview managers and employees of District Friesland and Drenthe. This questionnaire focused on the degree of change in new routines during and after CE. This thesis is based upon a case study which is further explained in the next sections.
2011 – Q1
2011 – Q2
2011 – Q3
2011 – Q4
2012 – Q1
2012 – Q2
Friesland Start CE End CE
Customer satisfaction 15 5 35 25 26 39
Productivity 36 35 40 40 37 24
Drenthe Start CE End CE
Customer satisfaction 3 3 9 3 3 4
Productivity 21 39 35 11 10 11
TABLE 2: National ranking of District Friesland and Drenthe during and after CE (n=47)
Table 2 shows the development of the ranking between the districts Friesland and Drenthe.
From all 47 districts, Friesland and Drenthe scored a low ranking on Productivity in Quarter 1 for 2011. It can be seen that CE did not had an improvement for District Friesland in terms of Customer satisfaction and Productivity. On the other hand, for Drenthe the start of CE gave a rapid increase for Customer satisfaction and Productivity. More important, after CE was finished in district Drenthe the
15 ranking stayed the same. This overview of figures confirms the assumption that District Drenthe was more successful in creating a sustainable change than Friesland.
3.2 ABN AMRO Bank of today
The banking industry is a saturating market but constantly changing. It began with the introduction of the ATM in the 70’s and now internet banking and banking transactions by using a smartphone are normal. However due to the recent credit crunch, there is put a huge spotlight on the financial industry. Banks are dealing with critical customers, increased competition and are forced to be more transparent about internal processes and transaction costs.
Five years ago, AAB was the largest bank in the Netherlands. But the last years were not easy for AAB and a lot has changed internally. To understand why CE is introduced, it is admirable to understand how AAB is organized and how it changed over the last years. This can be read in the background information section. In the CE section the design of the change program is described and explained.
3.2.1 ABN AMRO Bank background information
While the roots of the bank date from 1824, the name AAB was created in 1991 after several mergers with other banks. The bank was owned by different private shareholders. AAB got acquired by a consortium existed out of Royal Bank of Scotland, Fortis Holding NV and Banco Santander at October 2007. The consortium agreed to split up AAB. International parts of AAB were divided by Royal Bank of Scotland and Banco Santander and Fortis Holding NV would take over the Dutch part.
But after a year time Fortis Bank Nederland was about to go bankrupt, this was unacceptable for the Dutch State so they took over Fortis Bank Nederland. By this action the Dutch State saved Fortis Bank Nederland and AAB. The State decided that the two Dutch banks would be united to one single strong bank under the leadership of former Dutch Minister of Finance Gerrit Zalm. This process was officially realized at July 2010, and since then the bank is called AAB Group again.
The Dutch State does not intend to hold a stake in the bank forever, so the Dutch State will hold it for a number of years and will not remain as a stakeholder any longer than necessary. According to the plan The Dutch State will return its ownership of the bank share to private hands in 2014.
As a result of the nationalization, the bank needs to cut costs and become more efficient. Since July 2010 the bank needs to integrate with Fortis Nederland and since then a lot of internal change programs and awareness programs has started. AAB is striving to make one uniform bank with simple products and services with entrepreneurial employees. AAB is trying to get all the employees within the bank on one line, where the interest of the customer is central. To achieve this, CE is introduced.
3.2.2 Content of Customer Excellence
AAB is dealing with a decrease of customer-and employee satisfaction in combination with a high cost-income ratio. AAB improved their cost-income ratio in 2011 to 63 percent, while in 2010 it was 70 percent. Nevertheless, compared to its main competitors in the Netherlands, ING (59.2 percent) and Rabobank (59.7 percent) the ratio is still much higher. One of the strategic goals of AAB is to become more efficient in their daily operations, so the corporate target is to bring this ratio structurally below 60 percent before 2014.
The change at AAB has elements from several theories, including the Japanese ‘Lean’ and ‘Kai zen’ technique, which implies to eliminate all inefficient processes. Between February 2011 and mid 2013, all employees of AAB Advice and Service in the Netherlands will be acquainted with CE. The CE program has duration of 18 weeks and this period is called ‘a wave’. During a wave of CE the CE- experts are working at the department where they support and coach managers with their communication of CE to the employees. To get more insight in the organization of the CE program, the different players are described in Table 3. Thereafter a global planning of the different phases will
16 be described. A total of 157 AAB employees are working for CE daily, an organizational chart can be found in Appendix I.
Function Description
CE-project management National point of contact, providing information and responsible for the control about CE
CE-project team This team consists of a CE-project leader and CE-experts
CE-project leader Responsible for CE in a district, this person will have a double role as CE- expert
CE-expert Senior bank employee, who is trained to educate and lead the change program. Their function during a wave is to support and enthusing of the local manager during employee sessions of CE. The CE-expert is also the trainer of a CE-ambassador
Table 3: different players within a CE process Pre-diagnostic phase (3 weeks)
In this phase the communication to staff and to employees takes place. For managers it starts with a boot camp, so that they get individual training en information from the CE-experts. An employee survey is set out for a better understanding of how people experience their work in their department and collaborate within the whole district. With the results of the survey it is possible to make a first picture of the current situation. The survey is focusing on the following subjects: process, problem solving, performance, teamwork, meaning and usefulness, people and work structure. The CE-project team also wants to get an idea of how people feel about the direction and cooperation with colleagues inside and outside the department.
Diagnostic phase and design phase (5 weeks)
The wave starts with the diagnostic phase where all employees within a district take part in a kick-off day in the first week. Here they get information about CE from managers and CE-experts.
This phase is dominated by quantitative and qualitative analysis performed under managers and employees at the department. Based on these results a ‘picture’ of the current situation is made. The results will be reviewed and presented to managers and employees. After this, improvement groups containing managers and employees from different departments will be composed. Next, a design phase follows in which detailed plans are made for implementing those improvements. Again this is a group activity and the outcome will be an operational desired state of the department in the future.
Implementation phase (10 weeks)
Finally, the implementation phase forms the majority of the wave. In this phase the improvement groups will develop a detailed improvement idea that will be implemented and experienced together. The goal must be that CE has an impact on the work floor, especially on short term process improvements, attitudes and behavior. Long term improvements will be prepared and planned for the future by the employees themselves.
Continuous improvement (continuous)
After 18 weeks training, workshops and surveys the CE-experts provides the tools and skills by which employees can further work on continuous improvement. From now on, the long term (process) improvements need to be implemented and there must be transition to continuous improvement. During the whole process, managers play an important role because also their way of
17 leadership style will change. For them a major point of focus lies in coaching staff and ensures that employees continue to evolve. In addition to process efficiency it is also about the customer, operational management, attitude & behavior and organization & skills. The idea is that employees going to look in a different way to their work. A sign that CE is stimulated from top management becomes clear by a quote of CEO Gerrit Zalm in the media: ‘the excellent service to our customers is the reason for our existence and the only sustainable way we can earn money’.
3.3 Research method and data collection
The purpose of the research is analytical research. This is particular useful when researchers want to analyze and explain why or how there is a causal relation among variables. The research technique for this study is a case study strategy. A case study focuses on understanding the dynamics present within single settings (Eisenhardt, 1989). Case studies typically combine data collection methods such as internal archives, interviews and observation.
The process of the research in this research is qualitative research, which tries to understand the perspective of the stakeholders. ‘Qualitative derived theory is a refined and tightened view of real world experience’ (Morse et al., 1998, p336). Qualitative research is especially used to understand human behavior and the reasons that control such behavior.
The data is collected through careful and systematic analysis of semi-structured interviews, documentary data and observations. These three collection techniques are necessary to obtain primary information and insight in the implementation and results of the change program.
Documentary data consists of AAB CE manuals and AAB internal reports. Observations are used to collect data that is focusing on ‘experience’ with ‘real world’ impressions in authentic environments (Goulding, 2002). The way in which observation was conducted is non-participant observation, which means observe and record what people do in terms of their actions and their behavior without the researcher being involved Collis and Hussey, 2003, p. 171).
A total of eleven formal interviews were conducted, which lasted approximately one hour each and are collected in an interview book. Interviews are a method of collecting data in which the participants are asked questions in order to find out what they do, think or feel. As more open ended questions allows the researcher to ask more complex and follow up questions (Collis and Hussey, 2003, p. 167-168). The participants for the interviews were selected upon their role with CE. The precondition was that the participants had already experienced the implementation of CE. The interviews were semi-structured because they create the possibility to explore the main subject and to restructure and add questions. Face-to-face interviews are used to enable the possibility for the interviewees to speak more freely and open (Kaplan and Duchon, 1988). By asking open questions, the interviewee is able to give their opinion in own words. Before the start of the interview, the purpose of the research is explained to the interviewee. The questions of the interview correspond with the purpose of the research. In this way the responses to the questions do measure with what the researcher intended to measure, this benefits a high validity. For all the interviewees the same interview format is used, resulting that the answers are easy to compare between different functions and districts. All interviews were recorded and afterwards a summary was sent to the interviewee for approval. By this way it benefits to the quality of the interviews and is a way to strengthen the validity. It is the researchers aim to gain full access to the knowledge and meaning of those involved in the change program. The validity is assessed according to external validity and construct validity.
External validity is proved because the analysis has captured the interactions and characteristics of the phenomena that has been studied. In this research, different teams with normal a normal number of members and dealing with standardized internal procedures were analyzed, therefore it is possible to generalize from this particular setting to another. In a case study there are two advantages concerning construct validity. First, because of active interaction with organizations and its participants, construct validity in case studies may grow during the research process (Stoecker, 1991). Second, in comparison with taking surveys a case study does not analyze specific micro events
18 in isolation (March, Sprouli and Tamuz, 1991). In this research the hypothetical constructs are leadership style, barriers to change and employee commitment. These concepts have a certain level of abstraction and need to be linked to indicators and entities that are actually measurable. In order to measure the leadership style of a manager, the Multifactor Leadership Questionnaire (Form 6S) is used. The MLQ is the most widely used measure of transformational leadership and was developed by Bass & Avolio (1999). The MLQ is made up of questions that measure followers' perceptions of a leader's behavior for each of the seven factors in the transformational and transactional leadership model, and it also has items that measure extra effort, effectiveness, and satisfaction. Barriers to change are measured by verifying the information from different perspectives, by interviewing managers, employees and CE-experts. Employee commitment was integrated in the analyzing phase of the change program, so the results could be adopted from the CE-project team.
After all interviews took place, the search for similar patterns and recurring events started by comparing the relative data. In this sense similarities are important in the way in which meaningful experiences are shared and expressed that form the basis of the interpretation by a researcher (Goulding, 2002).
There has been chosen to conduct interviews with managers and employees at the department Preferred Banking Friesland and Drenthe. At each district one Manager Preferred Banking, one Preferred Banker and one Commercial Assistant is interviewed. The results of both districts will be compared and can be copied as an example to other districts, including District Groningen. Also, both District Managers are tested via the MLQ since they are part of the Management Team. The Management Team consists of the District Manager, the Manager Preferred Banking and the Managers Retail. The District Manager reviews the Manager Preferred Banking and Retail Managers.
According to Abde-Halim (1983) there is a positive relation between the leadership style of a manager and his supervisor, because the manager wants to identify himself with the supervisor. Also, three CE-experts from the national CE-CE-project team were interviewed, using another questionnaire. In those interviews the content of the change program stood central, including their expectations, targets and first results of CE in other districts. An overview of these interviews and other formal meetings are listed in Appendix 2. In Figure 2 the structure of Region Noord-Oost Nederland is given, disaggregated by the research area.
Region Manager Noord-Oost
Nederland
District Manager Drenthe District Manager
Friesland District Manager
Groningen
Manager Preferred Banking
(3 offices) Manager
Preferred Banking (2 offices) Managers Retail
(9 offices)
Manager Preferred Banking
(3 offices) Managers Retail
(19 offices)
Managers Retail (10 offices)
Preferred Bankers
Commercial Assistents
Preferred Bankers
Commercial Assistents
Preferred Bankers
Commercial Assistents
FIGURE 2: structure of the research area (including number of offices per department)
19 The reason to interview Managers, Preferred Bankers, Commercial Assistants and Project Leaders is to get a full understanding of different views on the change process. All four functions have different interests in their daily working life. Trough different interests the results can be various and that is why it is so interesting to see how these interests match or mismatch each other.
Data is collected from districts Friesland and Drenthe because these districts already implemented CE and are large enough to get insight in the differences between the districts.
Friesland was even the first district in the Netherlands where CE took place. Next to that, these two districts are comparable in number and type of customers to district Groningen. Also, the three districts can be compared with each other because the preferred bankers have the same approach and culture since the districts are geographically close.
The interview questions are for the major part focusing on the results and impact of CE. More specific, in the way CE changed managers and employees. The goal was to find out how employees really changed after CE and equally important, what didn’t change. Also, the leadership style of the manager is reviewed and the barriers to change are asked. The complete list of the interview format can be found in Appendix 3. The interviews were divided into thirteen different topics, with several related sub questions. The several topics served as a guideline, but it depended on the answers of the interviewees during the interview which interview topics were treated.
The outcomes of the different interviews have been integrated. To analyze the data, each interview is coded according to the related variable from the conceptual model. Each variable is numbered and used as codes. The data is classified into four broad groups: 1. leadership style, 2.
barriers to change, 3. employee commitment and 4. sustainable change. Some answers of interviewees resulted in assigning more than one code, which meant that this answer was further investigated. This classification contributed to an understanding of the impact that the three concepts of sustainable change had on each other. During formal meetings, representative quotes were observed and well-structured in tables to provide a clear overview.
20 4. RESULTS
This section discusses the degree of sustainable change for District Friesland and District Drenthe. For both districts, the challenges that leaders faced during the change process are given for each of the three concepts. Section 4.1 discusses District Friesland, the district with only limited sustainable change. Section 4.2 discusses District Drenthe, the district where most of the changes have been fully implemented and sustained. The difference in ranking of Customer satisfaction and Productivity from both districts was already discussed in section 3.1.
Sustainable change is described according to the three selected concepts. Both sections have the same structure. First, the leadership style of the managers will be described to see how this influences the change. Second, the barriers to change are described and the differences will be explained. Third, employee commitment and the degree of support from employees are given. Data was required by interviewing employees of AAB, which will be presented in this section.
4.1 District Friesland
Starting in May 2011, District Friesland was in the first wave that implemented the change program in The Netherlands. The Manager Preferred Banking is directing 26 employees which are located at three different offices in the district. This manager fulfilled his function a year and a half when the change started.
4.1.1 Leadership style
Research question 1 is about the leadership style of a manager; on the basis of interviews and the Multi Leadership Questionnaire the results with regard to leadership styles are summarized in Table 4.
Before CE, AAB had the strategy of a commercial bank where managers were mainly rewarded on productivity. This way of rewarding requests for a transactional leadership style of the manager.
About five years ago, the bank transformed their strategy to a retail bank. Since then, the theme
‘coaching’ is attached to the job description of managers. In the new way of working, coaching is important and is added to the reward structure of the manager. AAB states that managers must be a role model and a facilitator for discussions, enterprising and structured behavior. Of course it is still about sales, but it builds on ‘result-oriented coaching’. This new way of working asks for a largely transformational leadership style in combination with a transactional leadership style. The function of a manager had transformed, which can be seen clearly from the following statement of a CE- expert:
Because the world has changed, a manager who previously was the right person for the function does not necessarily have to be the right person now. The current characteristics of a manager must also change. The consequence of this change in leadership has two options: a manager does not want to fulfill his new role or a manager cannot fulfill his new role. We can support the manager in this process, but only to a limited moment. When people really do not want to change, it is not going to happen.
In Friesland the Manager Preferred Banking has a largely transactional leadership style: he puts a lot of focus on protocols and is result-oriented. Next to that, he is managing three offices where he must divide his level of coaching. As a consequence he gives more freedom to the employees without giving them a lot of personal attention. He is committed to results from employees and he expects profits in return. The manager indicated that he wants to ‘score’ with this district and operate in the top 10 ranking of districts within AAB. He is satisfied when his sales are higher than District Drenthe and District Groningen. These characteristics are typical for a transactional
21 leadership style. Also employees felt that the level of coaching was too little. A Preferred Banker explained:
Partly due to the span of control of the manager, his level of coaching was little. After CE, this increased but still it is hard for him. The manager is always more interested and busy with the figures and analyses.
This statement is confirmed by the figures from the pre-diagnostic phase of the change program. The figures indicated that the Manager Preferred Banking spend just five percent of his daily time on coaching and supporting employees. In the desired case after CE, this percentage must be a minimum of 30 percent. The Manager Preferred Banking reports directly to the District Manager, who is ultimately responsible for the district. The District manager is determined in his decisions and is content with standard performance, corresponding to the factor management by exception from the MLQ. Also he is steering in a direct result-oriented way, by using reward systems.
This means that he tells others what to do in order to be rewarded and he recognizes their accomplishments. These characteristics apply to a transactional leadership style.
Leadership style
Manager Preferred Banking
Leadership style District Manager
Desired Leadership style during and after CE
Transactional Transactional Transformational and Transactional
(>30% coaching) TABLE 4: Leadership style of managers in District Friesland
It appeared that the Manager Preferred Banking did need structure in reserving time for coaching. It was not in his nature to spend such an amount of time on coaching. The CE-project team supported the manager in his new role; still the employees noticed little difference:
I think the coaching did a lot to the Manager Preferred Banking, he found new methods to structure his agenda. However, I wonder what kind of changes people on the work floor will see.
I think they see CE is the daily start and nothing more. While the outcome of CE must be a continuous improvement culture. (CE-expert)
Both Manager Preferred Banking and District Manager in Friesland have a transactional leadership style, which used to fit in the previous strategy of AAB. As described above, the new type of leader needs to have a transformational leadership style. To fully comply with CE, the managers in Friesland had to change their leadership style. Both managers were having difficulties in changing their leadership style from transactional to transformational, even while they were receiving support from the CE-project team. According to these findings a transactional leadership style of the manager is related negatively to the level of sustainable change.
22 4.1.2 Barriers to change
During the implementation phase of CE, some barriers were encountered. Especially in the beginning, employees showed resistance to the change program. There was one team of employees that wondered why they had to change. Here, a couple of employees were struggling, because in their opinion everything was going well at that moment. Another team of employees needed the change because they were asking for structure, which they were not facing in their current work routine. During observations, some remarkable quotes were noticed, which are listed in Table 5.
Quotes
“Here we go again, it is just another trick that we have to do.”
“The CE activities were besides our daily activities. People complained that they were too busy for this.”
“Sometimes the ‘daily start’ feels like a mandatory item.”
“CE will probably blow over.”
“The duration of three months was too short; we are not CE-proof yet.”
TABLE 5: Quotes from employees in Friesland on the work floor
In Friesland, the Manager Preferred Banking dealt with resistance by speaking to his employees as follows: “this change will not blow over, CE will definitely stay”. By this quote the manager showed that he did not see the change program as something temporary. From the beginning the manager embraced the change, because he was asking for change in his own work method. In one case the manager had trouble in resolving a team that was showing resistance and that did not want to change. This was hard for the manager because the employees from this team were very conceited.
Eventually, this problem was solved by involving the region manager into the process and leading a problem solve session.
Most resistance was shown during the implementation of the daily start. The daily start is a fifteen-minute meeting with all employees of a department, on daily basis. Themes like customer satisfaction, productivity and employee satisfaction are discussed. Because the manager was result- oriented, employees felt they were controlled on everything they did. As a Preferred Banker said:
It is all about productivity, we are controlled on everything. Our weekly contacts and our weekly productivity are monitored. This was already the case before CE, but now it looked like we just had to work for productivity.
There was even more resistance at the Retail department. This was reflected because the expectations of the employees were not corresponding with the content of the change program. The employees thought they could design the whole change program from begin to end. However the change program has room for influence of employees but still it has a fixed structure. Because the Management Team experienced this situation for the first time, they neglected to overcome resistance on the work floor. There were also complains about the duration of the change program:
The CE-project team thought they could change everybody in three months, but this was not realistic. Our experienced had taught us that three months is way too short. To get people involved with the change takes nearly three months, and after that you can make little steps forward that can be changed. (Preferred Banker)
One of the goals that come with CE is: agreement is agreement. It appeared that honoring agreements and addressing each other did not happen enough. As a result, resistance influenced the change program in a negative way. Afterwards this became also clear to the Management Team itself. Showed in this quote:
