Resistance to change can sink companies

Resistance to change can sink companies

By James O'Hara

This is the first of two parts of an article on corporate
management.

JAKARTA (JP): Change is difficult. Management change is even
more difficult, when managers are asked to change the way they
manage; it is like telling them that they were wrong. This can
result in a loss of face, which for Asian managers is disturbing
and extremely difficult to accept. The implication is that there
will be a high resistance to management change in Asia.

Recent discussions with directors of large Indonesian
companies tend to confirm this. Requests for consideration of new
management approaches were rejected out of hand. Consideration of
the possibility that management could improve was avoided by
asserting that companies were already operating at international
standard. Senior executives maintained that they had benchmarked
their company against international companies, used ISO9000, were
registered on international stock exchanges and, last but not
least, employed expatriates.

These kind of statements are not unfamiliar; many companies in
Europe and the United States of America gave similar excuses when
challenged to change their way of management in the late 1970s.
It is thus useful to reflect back at some of the reports,
published in the early 1980s, advising management change.

But, first, a comment on the current excuses.

Claiming that ISO9000 in Indonesia leads to best practice
management presents a number of difficulties. ISO9000 can be
bought in Indonesia. Even if established correctly, the ISO
systems are not always operated as designed. However to avoid
loss of face for their clients, external auditors are loath to
revoke ISO9000 registration. Last but not least, ISO9000 does not
ensure quality of product or service, which depends upon the
specification of the product or service. ISO9000 sets out to
document and standardize ways of carrying out administrative work
related to managing operations. If the specifications or
operating systems are inappropriate, ISO9000 will not change
them. In fact, the standard will tend to guarantee that they
continue to be inappropriate.

Similarly, the idea that being registered on an international
stock exchange means that a company's management cannot be
improved is almost laughable. It would appear, if anything, that
membership of an international stock exchange is less secure than
membership of the Jakarta Stock Exchange. Very few companies on
the Jakarta Stock Exchange have gone bankrupt. This is not the
case for the New York, London and Tokyo stock exchanges.

Finally, the employment of a few expatriates does not
guarantee management excellence; otherwise one would find that
all foreign companies are well managed. This is definitely not
the case, as we shall see.

European and U.S. companies gave objections in a similar vein
to management change more than 20 years ago. To counter these
objections a number of studies were published to highlight the
need for change. These included a 1977 study carried out at Hertz
at a time when U.S. companies still considered that the Japanese
made low quality products. The study reported that U.S. cars of
Ford and Chevrolet required 5.6 times the number of repairs per
100 vehicles than did Japanese Toyota cars hired under the same
conditions.

American business reacted to this by saying that Japanese
workers were better trained, more diligent and did what
management told them to do. American workers, on the other hand,
were less educated, tended to be the careless and did not respond
to management. According to Rasmussen, Europeans were just as
defensive.

To rebuff the claim by management that the poor product
reliability was the workers' responsibility, researchers produced
follow-up reports. One such report compared the productivity of
the same plant and workers under American and Japanese
management. The Motorola Quasar Plant in the U.S. was taken over
by Matsushita in 1977. Two years later, with the same 1,000
workers, 50 percent less indirect labor, daily production of
televisions had doubled to 2,000 per day. At the same time
assembly repairs had reduced from 130 percent to 6 percent and
annual warranty costs from US$16 million to $2 million. This was
a result of a change in the company's approach to managing its
operations as opposed to changing its workers.

Even after the publication of similar research throughout
Western business circles, Japanese companies continued to
dominate world markets. In 1987 Japanese companies held more than
80 percent of the world's market of 35mm cameras, watches and
VCRs; 70 percent of the microwaves and calculators; 60 percent of
the telephones and 50 percent of the world's market of
motorcycles and color televisions.

It is clear that resistance to change is universal and
extremely strong in situations where there has been positive
stability for a long time. Where those in power not only had
stability but also benefited greatly from the past situation,
resistance to change is reinforced. Decision-makers and power
brokers often believe that they can continue to manage in the
same old way. That nothing they do needs to change. Their
difficulties are caused by external factors.

The author is an adviser to management consultant PT Johara
Indah Mulia. He has been associated with the management of
enterprises in Indonesia since 1978.