Network Change Programme and Post Office Limited - Case Study Example

Network Change Programme – Post Office Limited Table of Contents 1. Strategic management 1 2. Stakeholder theory 2 3. Core rigidities and core capabilities 5 3.1 Dimensions of core capabilities 6 4. Chaos theory 8 5. Path dependency 9 6. Change management 11 7. Discussion and recommendation 7.1 Synthesis 13 7.2 Recommendations 18 References 19 Appendices 22 1. Strategic management Strategic management has always been described as “top level decision-making” (Shrivastava, 1986) and this is precisely what has taken place in the case of Post office network change programme. The social value of the network was totally overlooked by the top management (NAO, 2009) as the viability of the network came under threat. With the support of the government subsidy and the closure of several post offices, the top management at BERR took the decision to improve efficiency and the financial performance of the Post Office Ltd. The top management has not been able to effectively manage the change as the expected outcome has not been achieved. This has been due to no efforts on the part of the management to derive facts and determine the action norms, which is a pre-requisite, according to Shrivastava (1986). Moreover, the management had a sectional interest (financial results) while they overlooked the conflicts that could arise in the process. This was cleverly avoided by the management as the external stakeholders were not allowed to participate in the consultation process. Sectional goals and sectional interests took precedence. These impose constraints on the managers and they receive a free hand to manipulate strategies. Their vision was limited as their goals were limited to narrow economic terms and financial performance. They have been claiming that the post office revenue fell from 43% in 2003-04 to 26% in 2007-08 (NAO, 2009) but there are counter claims that these figures are false (Mayall, 2009). This suggests that the management had a narrative perspective (Barry & Elmes, 1997) of the decisions taken because there was no comprehensive scanning of the external environment, no objective planning in place. There is no monitoring of feedback system in place. It was practically thrust upon the society and the stakeholders. Strategies, when disconnected from reality, have limitations. Thus, all decisions at Post Office were based on assumptions or hyper realities. They have been harping that the mail volume declined and the pension payments went online. However, they never considered the increase in volume generated due to internet – books and CDs from Amazon, packages from eBay, DVDs, clothes, gifts and other items purchased online (Mayall, 2009). This gave them a restricted view of the realities and this is what Grandy and Mills (2004) refer to as strategy as simulacra as it becomes difficult to discover an ‘absolute level of the real’. This leads to a gap between strategic thinking and organizational success. The top management failed to respond to the external and internal factors even after the change programme was implemented. This becomes a reason for the faltering firm to continue to decline (Lohrke, Bedeian & Palmer 2004) which are evident from the results posted (Appendix C). In addition, no efforts have been made to reverse the firm’s decline as the post office network decreased to 14,219 sub post-offices in March 2007. Losses had been seen since 2000 but no efforts were made to stall the decline. The decline has to be first stalled and then an appropriate recovery strategy devised. 2. Stakeholder theory Conflicts of interest with different stakeholders can be in different forms. In this case, the community has been affected in various ways. The local economy has suffered as several small businesses have been impacted. The psychological bonding of the people has been affected. The stakeholder theory suggests that the corporation is responsible for many sections of the society although the important ones are the employees, stockholders, the customers and the public, including the government. The firm behaviour, according to Freeman, has to take into effect the economic model or the profit and efficiency (Key, 1999). It is difficult to identify the stakeholder groups but the interests of the group can be identified, which becomes the critical variable. Post Office Ltd. did not consider the interest of the stakeholders, namely the customers that were benefiting from the network. There are people who survive on the running of the local post offices, which means their livelihood is affected (Savill, 2007). In addition, people would have to travel several miles to find an alternative. There are customers that catch up on community events and news when they come to collect their pensions. In addition, small local businesses would suffer. These costs were not part of the economic model, and the interests of this stakeholder group have been totally ignored. No environmental scanning and exchanges with the external stakeholders were undertaken, which is essential according to Key (1999). The DTI authorities cite that they “recognize the wider social role of the post office in communities” (BBC News, 2006) but since the size is unsustainable, the decision to close them down was taken. The fact that the post offices were used by the elderly, who do not have a bank account or who used the post office as a way of accessing cash, was not taken heed of (Consumer Focus Wales, 2010). The consumers were not allowed to exercise their choice to access services. In fact the consumers had limited information on the closure of the post offices. The stakeholder theory thus does not adequately address the system or the environment in which the business exists. The stakeholder theory is subject to further criticism like the geographical range of the community. Managing relations within a single community can be difficult if the areas are not demarcated (Lépineux, 2005). As far as the Post offices are concerned, each post office had its own coverage area and was responsible for serving the community. For instance, the people of Somerset village of Buckland St Mary would have to walk four miles to find an alternative (Savill, 2007). The change management programme at Post Office Ltd. did have in its agenda the development and expansion of new business (Appendix A). However, the only concern was the financial stability and hence the stockholders. The interests of the other stakeholders, namely the society and the community at large, were not given due importance. Social cohesion was lacking because the strategy failed to unite its members against all dislocating forces that threatened its existence (Lépineux, 2005). There is an organic bond created between them which binds them and goes beyond each individual. The local people were disturbed because the closure of the post offices would deny them this facility of a common platform to meet and exchange news and events (Wilson, 2007; Savill, 2007). Thus, if the stockholders are the primary concern of an organization, the stakeholder theory diminishes the political and institutional nature of an organization (Pesqueux & Damak-Ayadi, 2005). A firm is an organization and it is expected to offer substance to what institutions are really made of. This case of Post Office also brings to light who is actually working with and in the firm. It only implies that strategic decisions are taken unilaterally and the stakeholder theory is a pseudo concept. The UK Government is the sole shareholder of the Royal Mail Group, and the decision to shut down offices was taken in an unmanaged way. According to an extended stakeholder theory, business should be sustainable, pro-social and future-respecting (Zsolnai, 2006). If this approach is adopted it could lead to transformation of business. Businesses fulfill their obligations to the stakeholders if they are able to contribute towards the conservation and restoration of the natural world. They should be able to contribute towards the development of the human capabilities and grant freedom to the future generations. This theory to some extent could justify the closure of the network of the post offices because the ultimate aim of any decision is benefits. The fate of the future generation depends upon the way businesses conduct themselves today. The benefit need not always be immediately perceivable and the results could be seen in the years to come. 3. Core rigidities and core capabilities Core capabilities of an organization are “institutionalized” which means they are taken-for-granted reality (Leonard-Barton, 1992). Even in corporate history and decisions made over time need to be reviewed before bringing about any structural change. The core capabilities are deeply rooted in the corporate values. The four dimensions of core capabilities are demonstrated in the table below. This only serves to enhance the knowledge sets but in such a situation, managers normally collude to avoid responsibilities and actions so that the accepted forms of behaviour remain unchallenged. Thus core capabilities inhibit innovation and hence become core rigidities. Core rigidities can also create problems as they too are deeply embedded knowledge sets. Technology development, for instance, can create turbulence and can destroy the existing competencies in an organization (Akgủn, Byrne, Lynn & Keskin, 2007). This is the situation when the core competencies become core rigidities. Post Office Ltd. was aware that decline in its traditional business was due to alternative forms of payments of pensions and benefits – through the internet or through Paypoint. However, no efforts were made by the government to change the system. Internet as an enabling technology and a powerful set of tools was overlooked as a part of the turnaround strategy. The organization was confused by the distorted market signals. Companies have no choice but to deploy technology if they want to stay competitive (Porter, 2001). Post Office Ltd viewed technology as a cannibal instead of as a tool to compete and sustain the organization. Knowledge was not renewed and in the absence of “unlearning” the deeply embedded values were stuck to, resulting in losses. Unlearning must eliminate beliefs, routines and physical artifacts based on the insights. 3.1 Dimensions of core capabilities The board of directors in any organization has at least four different functions – managerial control, compliance with laws, advising managers and ensuring good relations with the external environment (Labelle, Gargouri & Francoeur, 2010). Such insights, if properly utilized could enhance the quality of decisions of the managers and directors. Gender, race and culture diversity has shown to have better control over the situation. Women at the helm of affairs are better able to control and constrain opportunistic behaviours but at the Post Office Ltd, this was not the case. Sue Higgins, the director responsible for the Network Change Programme, sent out letters to the Post-Masters, practically blackmailing them that their compensation would suffer if they did not cooperate in the closure of their respective branches (Wilson, 2007). The external environment, in fact was worsened by such high-handed attitude of the top bosses that it has been described as “Maoists” and “secret police”. The traditional values and norms were adhered to and hence core rigidities became the cause of decline. The Network change programme was expected to make loss up to 2011 but it was still considered an integral part of the overall strategy while ignoring the wider social and economic impact of the decision. When the decision to shut down several post offices were taken in 2005 (NAO, 2009), it was also decided to undertake development and expansion of new business. The organization wanted to retain the contract to handle the pension and benefit payment card accounts, but this was not a core capability of the Post Office (BBC News, 2008). Moreover, the top management delayed in deciding if they would retain the contract for handling pensions and benefits. If the contract was awarded to external parties, it would lead to further chaos and closure of more network offices. This means a butterfly effect because the chaos multiplies. This would destabilize the organization, the rural and the deprived urban areas. This was neither a strategy to quickly create economic value for the shareholders nor develop an open, long-term trusting culture with the stakeholders (Beer & Nohria, 2000). The reason for failure can be attributed to rush to change their organizations. The UK government had decided to invest £1.7 billion to make the Post Office Ltd. sustainable but this was a top-down model of systemic change when huge financial investments by governments give little return (Day, 2007). The real change that is needed is often not recognized, and no historical perspectives are synthesized. Managing the turnaround process requires leadership and the involvement of many people (Harker & Sharma, 2000) but at the Post Office Ltd. no stakeholders were involved. To make an organization sustainable requires time to manage the process effectively, but such considerations were not granted to the authorities in taking the decision to implement the network change programme. The authorities could have taken an approach based on Business Process Reengineering (BPR) which involves tearing down and rebuilding the entire business process as a whole, instead of taking up individual functional tasks (Hess & Gift, 2008). 4. Chaos theory Change, in unplanned, as the management at Post Office Ltd, did, can lead to heavy toll on both the human and the economic aspect. The butterfly effect of the chaos theory suggests that the smallest things can trigger great consequences even miles away. For instance, when Dubai World, the investment arm of Dubai, was unable to repay $60bn as debts, it sent shockwaves through out the world (Brandon, 2010). This was the company that wanted to buy US ports three years go and now they have sent shockwaves around the world. Leadership can bring about qualitative change in the system and even if there is one single individual willing to stand up to her ground, it could be effective. However, this can be counter-productive when leaders are asked to envision what is necessary (Galbraith, 2004). This can weaken the dynamism and the power to absorb the ever-changing business environment. Such leaders may not have the dynamism to destroy old cultural myths, stories and legends. The leaders at Post Office Ltd. did not operate within the “bounded instability”. The leaders did not seek any feedback but gave clear instructions on what was expected. The leaders must be sensitive enough to understand the response to the flapping of the butterfly’s wings. Sue Higgins did take into account the fact that the Post Masters would be questioned on the closure of their branches (Wilson, 2007). The Post Masters were however instructed on exactly what responses should be given. Higgins was not an interventionist and took decisions only in support of the closure. The decision to close down the network of post offices was taken on the basis of the financial costs and the benefits to the post offices where the evaluation of the social value of the network was ignored (Appendix B). 5. Path dependency While this approach has been much talked about, it appears to be another name for institutional inertia and the resistance to change (Sydow, Schreyögg & Koch, 2005). The authors however point out that once the path has been entered, it becomes difficult to quit; the consequences have to be borne. The post office has not been able to manage its change effectively based on the critical path dependency theory. The most efficient solution is expected to prevail but in the case of the post office, even though the primary motive was economic benefits and that too have not been realized. The National Audit Office (2009) has announced that the expected on-going net savings of some £45 million a year would not be met as scheduled. Decision such as these, without taking into account the cumulative effect, can lead to lock-in and the process becomes irreversible. The principles can be reversed if better solutions are available, but being a public institution, no other considerations were done. For instance, internet and communication technology was not incorporated to enhance the functioning of the organization. Had these been incorporated, a different economic picture could have emerged and the investments in technology could have been offset by the losses. Technology would have enabled a more efficient production and distribution system thereby resulting in achieving the economies of scale. The path dependency theory further postulates that the historical sequences set the institutional pattern. However, path transformation does not happen overnight and is a sequential process. To consider the historical sequences, consultations have to be carried out with the people that had been involved (Djelic & Quack (2007), in this case the sub-postmasters. While organizing change, the previous actions guide the current decisions but in the post office closure process (Schwarz & Shulman (2007), the 12-week national consultation period was reduced to six weeks and the six-week period was found to be too short (NAO, 2009). Organizational members need to reflect critically on the past decisions but this is seldom carried, as has been proved in the case of the post office. When they lack the ability to reflect critically, there is a tendency to recreate established structures. Inertia sets in and there is no initiative to monitor the previous changes. The management did not engage in introspection and reflection which would have enabled them to think deeply on what should have been done (Booth, n.d.). The basic assumptions were never questioned (Grandy & Mills, 2004) as the previous closure decisions that had suffered due to poor communications, were not taken heed of. Even before public consultations, they changed their plans for 261 branch closures. Orders were withdrawn for the branches selected for closure on an ad hoc basis. The consultations and historical sequences were not given due importance and there was limited structural change brought about through the network change programme. Had the management based their present decisions on the past experiences, the uncertainty and ambiguity could have been reduced. The managerial thought and managerial action are inseparable (Johnson, 1990) but when decisions are not based on the past experiences, it reflects weak observation skills. Even this sequential process has not been met by the changes implemented by the post office. It had been decided that 95 per cent of the population of each postcode district should be within six miles of their nearest post office outlet but the criteria has not been fulfilled. 6. Change management Any change management programme should involve identification of the intellectual capital (IC) elements but none such initiatives are evident from the decisions that were taken by the BERR in formulating the strategy. New theories of strategic management rest on the resource-based view that the resources of any firm are invaluable. They can be the drivers of superior performance and also differentiates it from its rivals. BERR conducted a limited evaluation of the social and economic benefit provide by the post office network. They took into account the network that would remain once the branches were shut down. They did take into consideration the ongoing Government support and the costs and profitability but they did not consider the repercussions that this decision would have because of the network that would be shut down. Social capital is a resource that reflects the character of social relations within the firm. What are important is the network of relationship between and among actors, and the content of these relationships (SCHIUMA, LERRO & SANITATE (2008). However, when deciding to close down the branches, the Post Office Ltd took the decision based on the commercial viability of the network. The community and social needs were not accounted for which shows that the evaluation was limited in nature. Survey conducted by Citizens Advice (2010) finds that closure of the network could create risks for local businesses. The government policy has been one-sided. They have taken into account how to reduce costs but did not consider that this would also bring down the income. Thus, it demonstrates what empowerment can do when left in the hands of a single entity; the development process cannot be managed by a single entity (Leonard-Barton, 1992). Since retrenchment was not possible for the post offices, they opened several outreach centres (mobile post offices) but this project too was not completed on schedule (NAO, 2009). They could manage to open only 433 outreach centres against the target of 507 apart from delay in the completion time. Such forms of retrenchment become a problem for public organizations because they are under a statutory obligation to provide service (Boyne, 2004). However, as far as the post office network change programme is concerned, they did devise the potential to deliver service through the outreach centres. Repositioning and reorganization in this case was not possible as to maintain and run post offices requires minimum costs. Following retrenchment or closing down of the network of the post offices, reorganization through outreach was limited. No efforts were made to redirect the resources towards successful turnaround and hence there was no recovery response (Pearce, 2007). While the decline phase was acknowledged, the re-direction and the re-establishment phases were not. No time gap was allowed between the downturn and the recovery phase. The petitions of the post offices and the communities remained unacknowledged. In the public sector, the performance of the organizations is cyclical (Moore, 2007). Inertia sets in and the cognitive abilities among the top management in public sectior begin to drift. This is when they cease to take note of the realities and the organization starts to decline. External intervention becomes necessary but this also calls for environmental scanning to know what exactly the desired standard of public services is. The performance forecast was not monitored or tracked and the top management does not know the projections despite the commitment to capital investments. The management at Post Office remained disconnected with the reality and the risk embedded in the strategy (Mankins & Steele, 2000). 7. Discussion and recommendation 7.1 Synthesis To manage change requires great insight into various perspectives. The strategy to change was based on making the Post Office sustainable but to what extent the goals have been achieved, remains questionable. Any strategy has to be based on realities. This would reduce the gap between the strategic decisions and the organizational performance. However, the top management is not always aware of the realities. It is also likely that the top management acts at the behest of the Board of Directors, in this case the UK Government. The strategic decisions had a narrative perspective in the absence of collection of facts, no scanning of the external environment and no objective planning. The managers responsible for closure had sectional goals and even to achieve these goals, the community perspective was not paid attention to. This suggests a very narrow approach to strategic management. When strategies do not reflect the realities, there are bound to be limitations. This is the reason that the management could not find the evident benefits from the proliferation of the internet technology. They only looked at the down side – the reduction in pension payments through the post office, but not on the increased in volume due to internet purchases. A narrow perspective can lead to strategies that are ineffective. The Post Office has not been able to manage change effectively – neither in financial terms nor in human and social terms. This suggests that except for the UK Government – the major shareholders – none of the stakeholders stand to gain from this change management programme. The community has been affected in several ways – loss to small businesses, a community feeling among the local residents who converged to exchange news and events and overall the local economy. However, to some extent, as per the extended stakeholder theory, any decision is based on the ultimate good of the stakeholders. Suppose, the closure is meant to give rise to some new development in the region, it would be acceptable that the generations in that region would benefit in the future. No such re-structuring has been seen in the case of Post Office Ltd except for opening some outreaches. Thus, based on the stakeholder theory too, the strategic decision did not allow the organization to manage change effectively. An organization must thrive on its core capabilities but at the same time, should not be rigid in its approach. When the internet has pervaded every stream of life and technology can be used as a tool, Post Office took only a narrow perspective of technology. Instead of incorporating unlearning and learning, instead of being flexible in its approach, the management overlooked that technology can be a part of the turnaround strategy. This shows that their core capability to serve the community through traditional channels had become the core rigidities when they were not keen to explore and expand. Development and expansion plans were a part of the network change programme but the entire process of strategy change was rushed and unorganized. Investments in the government sector are always followed by top-down approach and this usually does not fetch the intended results. It can add to chaos and there is bound to be trickling down effect. The repercussions of closing the post offices were limited to the financial calculations. The only financial consideration was to achieve profits by cutting costs. However, the local people had to travel miles away to find an alternative. The social and human impacts were not important which goes against the stakeholder theory. Any decision has to be taken based on the historical perspectives. This is the path dependency theory which postulates that based on past experiences the present decisions should be planned. Investment was made in clearing the compensation of the post masters and the sub-postmasters. If the investments were done to enhance technology and incorporate changes in the working of the organization, it could have brought in the expected results. Decisions were ad hoc and without taking into account the cumulative effect these would have on the change programme. The fact that the consultation period was reduced to 6-weeks from the 12-week period also suggests that no past performances were evaluated. The basic assumptions were never explored or questioned and the structural change was limited. However, the network change programme has improved the sustainability of the post offices. Though the expected benefits were delayed, the turnaround process not well managed, 2435 branches have been closed mitigated by outreach services (Post Office, 2010). The objective of opening 507 Outreaches fell short by about 70 by the end of 2009. Five out of 2,796 postcode districts did not at the time comply with the access criterion and out these too, five cases have since been resolved. These figures are purely the financial benefits to make the organization sustainable. This does not take into account the various other dependencies and the stakeholders. Moreover, this performance is based only on the targets set and the targets may not have been realistic. This could have been kept low to save face and ensure that performance as expected has been achieved. A public sector enterprise has to take decision on retrenchment after careful evaluation of the impact this would have on the entire process. The phases of decline, recovery and re-establishment were not demarcated. This could also be due to the debilitating cognitive abilities of the top management who run into inertia. They no more have the keenness to exert themselves or engage in reflective thinking. They often collude and avoid questionable or challenging decisions and actions. This perhaps explains the ineffective change management programme that was envisioned by the management of Post Office Ltd. 7.2 Recommendations Any change has to be sequential and must have a definite order. The Post Office had been registering losses since 2000 but action was taken only in 2005. The causes of the losses were never ascertained in the right manner, technology being used as an escape. The volume increase due to technology has not been accounted for. New development and expansion plans too were restricted to pension and benefits payments. However, the Post Office has made operating profits in 2009 by enhancing financial services, telephony services, even though the mail service and pension and benefit plan have reduced the income. This suggests that the Post Office should focus on upgrading technology, by training and development of its people. The targets that had been set appear to have been achieved but whether the targets were realistic, remains unknown. A strong team comprising of members from the private sector and the local communities would help to arrive at expected targets. The measure of performance has to be based on past performances. The community should be involved in any change management programme because they are the ones most affected by it. As of now the Post offices focus on the processing of social benefits, licenses, and postal services. The area of the services offered should widen and this means incorporating people from the private sector. This would bring in fresh perspectives on how to make the post offices and the entire network more profitable and supportive. The success of the strategic decisions depends upon the decisions made by others and also involves commitment of resources, which cannot be traced back. The government has to ensure commitment of resources towards upgradation of technology and the local regions. The Post Offices is currently positioned as mere postal service and the financial performance is based on this service. The positioning of Post Offices has to change and the image must undergo an upheaval. Positioning should be used effectively as a turnaround strategy and this has a positive impact upon performance. Any strategy must be able to create value for the organization or the stakeholders. This change management programme has not created any value except for registering some amount of profits and claiming to have become sustainable. Strategy is the art of creating value (Moore, 2007) and this would take the Post Office away from the traditional value system. This implies that core rigidities have to be done away with and fresh perspectives sought. Strategic decisions should involve co-producers as it leads to beneficial collaboration between suppliers and users. Original and valuable proposals could come forth which could enhance the service offerings from the post offices. The professional developers would have their own perspective but when innovative and creative ideas come from the stakeholders, it could add value. 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Society and Business Review. 1 (1), 37-44 Appendix A Source: Parliament Copyright 2009 Appendix B Appendix C Read More