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.