II. The management accountant taking on the role of a change agent.
The dynamic and pressure to change gather momentum in daily business life at both the personal and organizational levels. Changes take place ever faster and in a more intensified manner. Today’s technologies, products, and services might already be outdated and be substituted tomorrow. This progress pushes each organization not only to escort the change(s), but to actively shape and control them. Otherwise, inactive behavior may result in undesirable developments, frictional losses, or reform bottlenecks, if not even existential threats.
Retrospect: Part 1 of this four-part article series has already covered the increasing need of management accounting to provide information, which offers a more predictive value to its information recipients, instead of a solely descriptive one.
I. Raising awareness of predictive analysis by management accounting
Dealing with change is and will be a major challenge for every company, no matter its size or its business operations. In that context, as the following sections will show, management accountants also could and should expand their own role models further—in terms of being organizational change management specialists.
Change shifting management accountants’ role
If management accountants interpret their own role of being a shaping, driving force within the enterprise (“business partners”)—also shouldering some kind of strategic responsibility—it also includes taking part in adapting the company to internal and external changes. In that case, enhancing transparency and flagging negative developments/changes based on measurement and reports of the organization’s figures will no longer be sufficient.
Instead, as a second step, management accounting should also provide information, recommendations, or even direct actions, which support the company in dealing with difficult changes, bringing it back on track, and reaching its targets nonetheless (“initiate and drive change” approach).
The management accountant takes on the role of the change agent—enhancing his/her traditional role, responsibility, and tasks. But how can his/her function in change management be developed? How does it fit into the organizational structure? And how can management accountants in business practice meet the expectations (of their own/others) about their enhanced role? Are these realistic, or are they based on pure wishful thinking?
Lewin’s Change Management Model
To define management accountants’ potential participatory role in change management, it is helpful to first take a closer look at the different stages of a change process.
Back in the 1940s, Kurt Levin developed a cornerstone model to describe organizational change. Its theses are still valid. Lewin’s change management model distinguishes between three main phases of a change process: “Unfreeze,” “Change,” and “Refreeze.”
He used the picture of changing the shape of an ice block. At first, one has to melt the ice block to properly change its form (unfreeze). Then, one can mold the iced water into any preferred shape (change). Eventually, to preserve its new form constantly, one has to ice it up once again (refreeze). When that analogy is transferred to a more businesslike situation, the general theses stay similar.
The starting point (1. Unfreeze) of every successful change process within the organization is the creation of an awareness, understanding, or rather, acceptance that the change is necessary. To put it simply, motivation for change needs to be generated before change can take place. Employees have to be convinced that traditional beliefs, values, behaviors, attitudes, patterns, and models, which currently reflect the company’s status quo, are no longer enough to deal with current and prospective changes.
Changing such rooted structures and traditions will not go along thoroughly without points of friction and conflicts. Nevertheless, the reexamination of formerly cherished assumptions (“the ways things have always been done”)—taking people off balance—creates some kind of (controlled) healing crisis, which in turn may build a strong motivation to reach a new level of balance. The affected employees become motivated to accept it and actively participate in dealing with the changes and challenges.
The transition from “unfreeze” to the next stage (2. Change) is fluid. Once the organization’s staff has been confronted with the bad news—which criticizes beloved traditions and habitual behavior patterns, as well as announces change as being inevitable—they will sooner or later start to suspend their uncertainties and anxieties. Instead, the employees will begin to accept their “fate” (dealing with change) and look for new ways to do things. And finally, they (hopefully) will embrace the advantages of that change and act in ways that support the new direction.
However, successful change takes time. Changing environments and circumstances may harm some people, especially those who benefit from the status quo. And even if employees accept the fact that change is necessary and understand that their company benefits from it, they may not be willing to contribute to making the change successful. They may place personal interests over the organization’s goals. So, each employee should also get explanations and persuasive arguments on how the change will benefit him/her personally.
Eventually, the change is not meant to last only for a short period so that the company later relapses into its former status quo. The change needs to get internalized or institutionalized in the long run, making sure the new ways of doing things are embraced and incorporated into everyday business life. So, the third stage of the change management model is aimed at creating a new sense of stability within the organization (3. Refreeze). Outward signs of stabilizing the new state are, for instance, the consistent adaption of job descriptions, organization charts, or performance and compensation systems in accordance with the recent developments.
Let us assume an organizational status of constant change but no intentional anchors (“refreezing points”) in the corporate culture, which is equivalent to the improbability of change to sink in. This would ultimately lead to the loss of the personnel’s willingness to go along with the change. Over time, most employees would experience change as being “change for change’s sake”, not experiencing the necessity or advantages of change any longer.
Radical vs. incremental change
Change can be categorized according to its degree of impact into either radical, revolutionary change, or into incremental, evolutionary change.
In contrast to radical change, incremental change means basic change that develops slowly and gradually. Its direction of flow is mainly characterized by a bottom-up approach. Ideas and progress leading to change are initiated at lower levels of the workforce. Eventually, such driven change spreads across the organization or large parts of it.
Well-known triggers for such incremental change are the implementation of an employee suggestion system, also called Innovation and Idea Management, or the continuous accomplishment of improvement workshops. Appropriate organizational structures and processes, as well as an open corporate culture, activate employees to proactively unfold their creativity and search for solutions for mainly day-to-day business challenges in differentiated divisions, which might even have an impact on other departmental areas.
Radical change occurs more suddenly, and is often not foreseen, as there are drastic changes or developments in the company’s internal and external business environments. Since such change usually needs quick actions to mitigate its otherwise negative effects on the organization, the drive to adjust to that change is mainly initiated by the management and executive staff based on a top-down approach. Besides, it is also quite possible that certain developments in the future are predictable. So, instead of setting change retroactively and only reacting to a specific situation, the management remains at the wheel and acts proactively (differentiated pre-planning and targeted actions).
Performing the correct analysis of the change’s cause(s) and finding an appropriate solution on how to adapt to it are the critical first steps in dealing with radical change. Afterward, it is all about ensuring an adequate implementation of applicable measures to internalize and institutionalize the change properly.
Thereby, management accountants’ active participation, making use of an appropriate level of know-how and methodical expertise, can prove quite valuable in various stages of the management of radical change, as it can be seen in the following.
Management accountants’ contribution to successful change management processes
a) The “Unfreeze” stage
To activate people to reflect on the current situation of the company and deal with occurring change(s) seriously and promptly, it can be helpful to create some sense of urgency around the need for change. This sparks the initial motivation to get things moving. Otherwise, adaptation to new developments and circumstances—as employees naturally often tend to be fearful and/or reluctant to change at the beginning—will be put off and pursued only in a half-hearted manner.
The management accountant can be a valuable member of such a “change coalition,” which seeks to build urgency and momentum around the need for change. Based on a profound knowledge of figures, methodical expertise, and strong communication skills, management accountants enter into honest and convincing dialogues about what is happening in the market and competitive environment, for instance, as well as its influence on the organization’s management ratios and strategic development.
Simply talking about buzzwords like “increased competition” or “new technologies” does not do the trick. The relevance of those words needs to be highlighted and reasoned with, for example, poor sales statistics or desperate, actual financial figures. If the company is still in calm waters, the management accountant identifies potential threats and develops scenarios. These show what could happen in the future—whether the organization will not initiate change and adapt to prospectively occurring developments. Furthermore, he/she examines potential opportunities and chances that should be exploited.
Employees need to understand the current situation and recognize the negative impact of “non-changing” based on specific examples. Only then will they start talking and thinking about the proposed change and can be convinced that there is no alternative to it. Afterward, the sense of urgency will spread more and more within the organization, and people will begin to slowly accept their “fate” to change.
b) The “Change” stage
Normally, change is not a matter of days or weeks, but a long-term project of months or even years, especially if radical change threatens the organization’s sustainability. Therefore, it is important to keep employees motivated to participate in that change project constantly at a high level. In that context, it would be counterproductive to only set long-term milestones or goals.
Nothing produces more motivation than experiencing success. If the change project’s progress is paved with certain smaller wins and visible achievements in the short run, that will ultimately motivate change supporters to go on further, as well as silence critics or negative thinkers.
Management accountants can particularly contribute by providing adequate business reports that shed light on the realization of change management:
- Is the change project progressing as planned?
- Which milestones and successes have already been achieved?
- Is there any need to adapt the change processes in certain ways?
Besides, to reward people who help to succeed in the change project, management accountants could—if supported and approved by the management—create or establish appropriate performance, compensation, and feedback systems that further enhance motivational and monetary incentives in the change stage.
c) The “Refreeze” stage
Quick successes are only the beginning of what has to be changed. Besides, it cannot completely be ruled out that a supposed quick win in the change stage proves inappropriate and needs further change. As an example, just think of changing a production technique that at first seems to be cost-effective and successful overall. But soon, the products show a serious production defect and product sales decline. Improvements become inevitable then. Therefore, the change project’s victory—or rather, the beginning of the refreeze stage, which stabilizes and anchors the changes in the corporate’s culture and processes—should not be declared too early.
However, each small win provides an opportunity to identify what went right, and what wrong, and hence, needs improvement. Management accounting can accompany this transition from the change to refreeze stage while continuously analyzing the current situation. Again, management accountants report what supports or has supported the change process so far (telling success stories about it, backed by operational figures, for example), which barriers need to be dismantled in favor of sustaining change, and whether the change sticks and is eventually stable.
Read on with Part 3: III. Management accounting focusing on the company’s customers
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