First, I’ll outline what you might get by reading this “human resource management basics” article. In the beginning, I briefly reviewed what human resource management is. In the next section, human resource planning is the topic. Then, I break it down into subtopics such as hiring, training, employee appraisal, dismissal, and redundancy. The next section is about leadership and management, including management functions and leadership styles. The next topic is about motivation, describes several related theories, and details financial and non-financial motivation. Lastly, I will review industrial relations.
What is human resource management?
Human resource management is a business function dealing with individuals within a company. Sometimes we call it personnel management.
Its basic functions are recruiting, training, establishing an appraisal system, termination policy, and managing industrial relations. It aims to ensure the company has the best talent and optimize them in supporting value creation activities to achieve its goals and strategies.
- Human resources – those who work within a company, either as employees or management. They are human capital because their skills and knowledge provide economic benefits to the company.
Two approaches to human resource management:
- Hard human resource management (hard HRM) – treating employees in the same way as other resources such as machinery and equipment. It emphasizes controlling the employees to optimize them at the most efficient cost. Thus, the company can maximize profits and returns to shareholders.
- Soft human resource management (soft HRM) – treating employees as valuable assets, contributing to competitive advantage. It focuses on developing employees, keeps them motivated to work hard and be loyal to the company.
Guide to Business and Management
Human resource planning
Human resource planning is about how a company determines how many employees and their qualifications, including their skills, are needed to meet its objectives. It also involves determining the steps the company should take to prepare for future staffing needs. Also known as workforce planning.
- Planning aims to anticipate both current and future staff demand. Thus, it minimizes hiring errors and avoids wasting time and money.
A workforce plan or human resource plan details the number of workers – and their skills – needed over a future period. It requires a workforce audit as a starting point.
- Workforce audit – a formal examination of the skills and qualifications of all employees within the company as well as examining human resource management policies and procedures. It is important to identify areas for improvement, keep goals and targets, and comply with labor laws and regulations.
The workforce plan usually contains the current and future labor demand situation aligned with the company’s goals and objectives. Then, the human resources department identifies gaps and considers ways to address them, including developing policies on training, recruitment, assessment, etc.
- Aspects considered when calculating employee needs are the average length of service, turnover rate, workload, qualifications, and other factors such as production targets and capital intensity (whether the company uses more capital or labor).
Labor turnover refers to the percentage of workers who leave the company within a certain period. We calculate it by the following formula:
- Labor turnover = (Number of staff leaving / Total number of staff) x 100
High turnover indicates poor job satisfaction or due to incompetent employees.
Recruitment is about finding and hiring qualified individuals to work for a company. It includes identifying the company’s needs for new employees, creating job descriptions, making applicants’ specifications such as education and skills, attracting suitable candidates through advertisements, screening applicants, and selecting the best.
The recruitment process typically includes the following activities:
1. Identify the needs of employees, both in number and qualifications. It starts with doing a job analysis and writing a job description.
- Job analysis – a detailed examination of jobs within a company. That is to determine the activities and responsibilities covered by each, their relative importance to the company, the qualifications required, and the expected performance level. In recruiting, it is also to determine which positions require new employees.
- Job description – describes the position, responsibilities, tasks, hours of work, salary, whom to report, and the qualifications or skills required for a particular job. It accompanies job advertisements when companies are looking for candidates.
2. Then, human resource management determines the person’s specification.
- Person specification – details the qualities, skills, and qualifications the applicant must possess. It provides the necessary requirements to fill a particular job.
3. The next process is to prepare job advertisements.
- Job advertisement – an advertisement, not to promote a product, but to inform about job vacancies in the company. It is designed in an engaging tone and contains information about the vacancy position and the company and its benefits.
4. List applicants and screen them based on their application form and personal details, often listed in the curriculum vitae.
5. Carry out the selection process, including interviews and negotiations on employment contracts, usually related to salary.
Internal recruitment fills job vacancies by offering them to existing employees. For example, a company may appoint an employee to be promoted to a higher-level position such as a manager instead of filling it with individuals from outside the company.
Internal recruitment is more cost-effective and less risky. In addition, because applicants are familiar with the company culture, they need less time to adapt.
External recruitment fills vacancies with applicants from outside the company. It allows the company to get fresh resources with new ideas. Companies also have more candidates to choose from. However, the process is longer. Choices may also be relatively few, perhaps because of the company’s bad reputation. Therefore, the process is also relatively longer.
Training is a company’s planned effort to facilitate employee learning about job-related skills, knowledge, and behaviors. In addition, it aims to increase their productivity and satisfaction in their current roles by ensuring they acquire the right professional development and skills.
- Development focuses on the long-term capabilities of employees, unlike training. The process is relatively similar, such as assessing the company’s needs for future human resources, carrying out related training, and evaluating the effectiveness of training and post-training employee performance. It is usually to prepare employees to become specialists or occupy higher positions.
Training is important to make employees more effective and flexible. It is also a way to reduce boredom and motivate them to be more productive.
However, companies have to spend money to train their employees. And, employees may also leave the company when they feel they have adequate post-training skills and knowledge. Or, they renegotiate a higher salary; if not met, they leave the company.
Types of training
Induction training – to help new employees adapt quickly and efficiently to their new roles. That may include an introduction to company policies, key personnel, organizational structures, procedures during an emergency, and for factory workers, introducing the machines or equipment they will use.
On-the-job training – an informal job training method, where employees learn by doing and learn from colleagues through experience. Another form is through coaching and mentoring by senior employees.
Off-the-job training – training outside the workplace and away from the actual work environment. Employees learn from third-party specialists, perhaps coming from universities, professionals, or training institutes. They may learn skills and knowledge through simulations, case studies, and role-playing, depending on the type of training they are involved in.
Cognitive training – to improve employees’ brain abilities, including memory, reasoning, and information processing. It is theoretical training. Thus, post-training, the company expects them to function more effectively and have adequate core abilities and self-control.
Behavioral training – to improve employee interpersonal skills such as communication, negotiation, conflict management, presentation, and networking skills. It aims to make employees more effective when interacting with others, both internally and externally.
Employee appraisal refers to the process or system used by companies to assess how effective an employee is in their current role compared to pre-set criteria, targets, and goals. Long story short, it is a mechanism used by companies to evaluate an employee’s job performance.
An appraisal is a basis for aspects such as a raise, bonus, or promotion. Apart from that, it is also an important component in employee development programs, where the company identifies barriers in a particular job and determines the appropriate training.
There are several methods for employee appraisal:
- Essay appraisal – written assessment of employee performance, strengths, and weaknesses by superiors based on facts and supporting information. Also known as the free form method or a traditional form of an appraisal.
- Rating appraisal system – employees get a rating for each aspect measured, reflecting their performance during the appraisal period. It may be related to their accomplishments, progress towards achieving goals, and their impact on coworkers.
- Peer appraisal – appraisal is done by colleagues in the same division, team, and at the same level. This method can provide constructive feedback.
- Upwards appraisal – appraisal of more senior employees by those who are more junior. It is similar to peer appraisal but involves a different level.
- Self-appraisal – asking employees to evaluate their own performance, how well they did the job. They fill out an evaluation form, which is then submitted to the supervisor for review and discussion for a final evaluation.
- 360-degree appraisal – involving the closest parties to evaluate employee performance, including coworkers, subordinates, superiors, or even customers. It makes it possible to get a comprehensive perspective but is more time-consuming.
- Formative appraisal – combining formal and informal appraisal methods to monitor employee progress and provide support and guidance for improvement. It focuses on the details of performance and how to improve it by involving qualitative feedback.
- Summative appraisal – relying on benchmarks to assess employee performance and success. Benchmarks are discussed and agreed upon in advance with them. It is usually used to determine annual bonuses, employee pay rates, or promotion opportunities.
Dismissal is when the company asks or allows an employee to leave his job. When an employee is incompetent, the company may issue a warning letter and provide counseling for improvement. It may also involve dialogue about the worst possible consequences if he doesn’t improve his performance.
The company must have a valid reason to fire an employee. Otherwise, it can lead to lawsuits against the company. Legitimate reasons include employee incompetence, intolerable wrongdoing, and breaking the law or breaching an employment contract.
- Unfair dismissal – when an employee is dismissed from his job for reasons deemed unfair by law. They often have the right to take their cases to industrial courts.
- Contract of employment – a written legal document setting out the terms and conditions of employment. It is agreed upon between the employee and the employer.
Redundancy is when a job is no longer needed. The employees who do the work are redundant but through no fault of theirs. They are usually the first option for layoffs when companies need to reduce their employees.
Redundancy often arises after changes in company structure and downsizing. Companies usually offer compensation (redundancy packages) to encourage employees to resign voluntarily.
Work patterns and practices
Teleworking – a work practice in which workers perform their tasks and work from a location other than the office, such as a home (home working) or cafe, and stay connected to the office utilizing information technology. This practice is becoming increasingly popular today because it offers several advantages for employers and employees, including providing time flexibility and reducing office rental costs.
Portfolio working – taking on several jobs simultaneously at one time. It has become more popular lately and gave rise to the gig economy, where freelance work and part-time work are gaining popularity. People increasingly prefer to work part-time and do it anywhere rather than sitting at an office desk.
Project-based working – taking work on a specific project for some time until the project is completed. It doesn’t have to be done in the employer’s office. However, employers usually require workers to sign and agree to the contract terms before they start work. Thus, it is often called contractual working.
Part-time job – working less than normal hours, say, eight hours a day. It provides more flexibility for employers and workers. For example, employers can save money because they don’t have to incur costs such as insurance and retirement benefits. Meanwhile, workers can take several jobs and do them in their favorite places, such as homes or cafes.
Flexitime – a work practice in which the employee can choose a start and finish time as long as the total amount corresponds to the normal hours permitted by the employer.
Brain drain – when talented and professional workers leave their home countries to seek better opportunities in other countries. They may pursue higher salaries, higher education opportunities, or better use of their profession because they are undervalued in their home country.
Labor mobility – about how easily workers move between jobs or between regions. It is divided into two:
- Occupational labor mobility – how easily workers move between jobs, which may require different skills. It is important to achieve economic efficiency, where those who are unemployed can easily find new jobs. Availability of adequate education, training, and labor market access are the determining factors.
- Geographical labor mobility – how easily workers move between different geographic areas. It depends on factors like infrastructure.
Outsourcing or subcontracting – transferring internal business activities to an external company, usually for support functions such as a call center. They are not strategic to the company’s competitiveness. In addition, the company also does not have special skills to manage it effectively and efficiently. So, outsourcing it to a third party is a viable option.
Offshoring – outsourcing but involving a third party abroad. In other words, firms outsource non-core activities to foreign firms, usually to countries with low minimum wages.
Reshoring – bringing business activities outsourced to foreign companies back to the home country. That may be because labor costs abroad are more expensive. Or, the company is having problems with the delivery, thereby disrupting internal business processes.
Leadership and management
Leadership is about influencing and leading others towards achieving a goal or vision. Leadership styles vary, including authoritarian, democratic, laissez-faire, and paternalistic leadership. Each has its positives and negatives, as they are appropriate and needed in different situations.
Manager vs. leader
Leaders refer to people who can influence the behavior of others and encourage followers to move towards a better vision. They have a clear vision, have integrity, courage, honesty, humility, and a clear focus.
- The leader is also a good manager. They are good at motivating others and empathize with others to realize their vision.
A manager is an individual whose primary responsibility is to carry out the management process. They are responsible for setting goals, managing resources, and motivating staff to achieve company goals. They can refer to directors, top managers, middle managers, or supervisors.
- Directors – these senior managers are elected to the highest positions in a company’s functional departments, such as director of finance, director of marketing, and director of operations. Then, there is the president director, who is the leader among the other directors.
- Middle managers – are responsible to top management for the functioning of their department. They include departmental managers, branch managers, and general managers.
- Supervisors – those appointed by management to oversee the work of others. They have the responsibility to lead the team, although they may not be the decision-makers.
According to Henry Mintzberg, there are ten general roles of a manager, which are grouped into three categories:
- Interpersonal role – dealing with employees and motivating them.
- Informational role – acting as a source, receiver, and transmitter of information.
- Decision-making role – making decisions and allocating resources to meet company goals.
Henri Fayol identified five management functions:
- Planning- setting goals and plans. Senior managers set the company’s strategic goals, which are then translated into strategies and tactics for their subordinates.
- Organizing – compiling and allocating company resources into a structured unit. It includes structuring activities, operational processes, and personnel to complete assigned tasks.
- Commanding – guiding, leading, and supervising employees to achieve company goals. It’s not just about giving instructions, but it also involves delegating and dividing up tasks. It also includes motivating and developing them.
- Coordinating – ensuring synergies are achieved between departments within the company. So, they work together for the same goal.
- Controlling – assessing performance against pre-set targets and taking corrective action if necessary.
Autocratic leadership – leaders make decisions and sets goals independently without involving subordinates in the decision-making process. They closely supervise subordinates and involve only one-way communication. As a result, they make decisions more quickly but demotivate staff because they are not involved. Also known as authoritarian leadership.
Democratic leadership – the leader delegates authority and promotes consensus decision-making as a management policy. Subordinates are involved in the decision-making process. Greater participation generates more ideas. Employees are also motivated because they will feel more involved in the decision-making process. However, the consensus is difficult to achieve when the decision alternatives conflict with each other.
Paternalistic leadership – the leader uses power to control and protect employees who are expected to be obedient and loyal. It’s like a father trying to protect his child while making sure they stay independent. They care about keeping their subordinates happy and motivated. Therefore, they make decisions with the best interests of subordinates in mind. However, some subordinates may not like it: what is considered the best by a father is not necessarily the best according to the child.
Laissez-faire leadership – the leader gives employees broad freedom to make decisions and carry out tasks to accomplish the goals set by the leader. Likewise, the leader gives broad autonomy to subordinates. But, it’s also too loose control and inadequate feedback because managers don’t monitor progress closely.
Situational leadership – the leader is relatively flexible to adapt to the situation, task, team composition, and environment. Leaders adapt their style to each situation.
Ethical leadership – the main emphasis lies on normatively appropriate behavior through personal actions and interpersonal relationships. Leaders promote it through two-way communication, reinforcement, and decision-making.
Informal leaders – individuals who are involved in leadership despite not having formal authority. Coworkers respect him, so the leader has some power over them.
Motivation is the desire and passion for achieving something. Ensuring staff is motivated is important because it has a direct impact on productivity levels and business competitiveness. Apart from that, it also reduces employee turnover. It can be influenced by intrinsic factors or extrinsic factors.
- Extrinsic motivation – comes from external rewards or punishments for a task or job, for example, salary, bonuses, and other benefits.
- Intrinsic motivation – comes from within the employee in doing the job or completing tasks without a clear external reward. For example, they enjoy their work because it is interesting, challenging, and in line with their interests.
Motivation theory explains what causes people to be excited to achieve goals.
According to Taylor, the only thing to motivate employees is money. So, companies attribute their productivity to the payments they receive. They structure individual jobs to maximize efficiency and productivity. For example, they divide the work and specialize the work process to find the most efficient way.
Normal compensation is based on the standard output level produced. If employees exceed that, they get extra pay.
Maslow’s Hierarchy of Needs
Maslow explained that individual motivation lies in the extent to which they can meet their needs. He divides these needs into five levels:
- Self-actualization – related to the need to grow and discover oneself. For example, employees may want to be promoted, may take on a challenging new job assignment, or be allowed to introduce their ideas.
- Esteem needs – related to self-esteem, achievement, and respect for others. For example, employees like it when their well-done job gets recognition, perhaps from their boss or coworkers.
- Love and belonging – related to intimacy and kinship. For example, employees are happy to have supportive coworkers and a cohesive work environment.
- Safety needs – related to safe working conditions and job security.
- Psychological needs – related to the compensation they receive to meet various personal needs such as basic needs and shelter.
The last point is the most basic need because it relates to their survival. When it has reached a higher level, lower needs must be met and although less important in determining motivation.
McClelland’s theory of needs
McClelland formulated three determinants of employee motivation:
- Need for achievement – employees are happy if they get a promotion or salary increase. They enjoy getting relatively easy tasks because they are proficient at them, increasing their chances of getting promoted. Instead, they avoid high-risk situations because they reduce the chances.
- Need for power – employees are happy when they are valued and have influence and power over others. They are motivated to pursue status recognition by winning the competition.
- Need for affiliation – employees like to work in a friendly and close working environment because they are social creatures.
Herzberg’s theory proposes two factors determining motivation:
- Hygiene factors – factors to eliminate dissatisfaction and to meet the basic needs of employees. They have to be there to keep employees satisfied. But, in the absence of it, it demotivates the employee. Even if they exist, they are not the reason employees are motivated. Examples are salary, company policies, and supportive working conditions.
- Motivators – factors to increase satisfaction and encourage employee motivation, including achievement, recognition, and career advancement. In increasing employee motivation, management can apply job enlargement, job enrichment, and empowerment.
Adam’s Equity Theory
Adam’s equity theory explains that employee motivation and satisfaction lie in how fairly the company values them. Is what they give to the company worth the compensation they receive? The remuneration received should reflect their efforts and competence. They will naturally compare their efforts and rewards with others at work.
Pink’s theory explains the sources of intrinsic motivation. They are:
- Autonomy – employees want independence and are happy when they can actualize their skills and abilities. They should have control over when, how, and what they do and with whom they do it.
- Mastery – employee motivation lies in the desire to progress, become more proficient at doing work, and have higher abilities. Hence, companies can motivate them by providing them with learning opportunities, for example, through training and development programs.
- Purpose – employees are motivated if their work is an important part of achieving a company’s goals. If they see the benefits of what they have been working on so far, they are more motivated. It requires management to break down the company’s goals and vision into a series of tasks and jobs and then communicate them to employees.
McGregor’s Theory X and Theory Y
Douglas McGregor divides workers into two categories:
- Theory X – deals with workers who are lazy and, therefore, must be supervised. They tend to avoid responsibility and have little ambition. They work because they want rewards and fear punishment (extrinsic motivation).
- Theory Y – deals with employees who are ambitious and enjoy their jobs. They have a strong intrinsic motivation to work hard and be creative. They are happy to improve themselves even without direct rewards.
Financial motivation involves monetary compensation or the like. It can be:
- Time-based wages – irregular payments according to the employee’s total hours worked. If they work less, they earn less.
- Piece rate – payment is based on a specific unit of output or per project. For example, a media company pays their freelance writers per article produced. Or, when it comes to covering a specific topic, the company may pay them per topic, where one topic contains several articles, depending on the contract.
- Salary – a regular lump sum payment usually paid monthly. It is not based on how many total hours employees work. So, if they are absent several times, they still get the same payout.
- Commission – payment based on a percentage of the total sales made. For example, the company offers a 5% commission on the sale price. If the salesperson sells 10 units of the product for $100, he earns a commission of $50 = 5% x 10 units x $100.
- Profit-related pay – compensation is based on company profits. That usually applies to annual bonuses. If the company exceeds the targeted profit, management distributes bonuses to their employees. If the target is not achieved, there is no bonus.
- Performance-related pay – compensation is adjusted according to an employee’s performance. If he exceeds the target set by management, he gets a bonus.
- Share ownership schemes – offering opportunities for employees to own company shares. It motivates them to work hard to improve the company’s performance, which increases the company’s stock price and wealth. Also known as employee stock ownership plan (ESOP).
- Fringe benefits – non-cash monetary rewards to employees such as insurance, pensions, gym facilities, and educational scholarships.
Non-financial motivation does not involve monetary compensation such as salary or anything else. But, it is related to the work and the employees themselves (intrinsic motivation). It can include methods such as:
- Job enlargement – increasing the scope of work performed by employees. Companies give employees more varied tasks and jobs, reducing their dissatisfaction or boredom when performing the same task repeatedly.
- Job redesign – restructuring the job to make the job more interesting, challenging, and satisfying. It usually requires employee involvement and agreement.
- Job enrichment – increasing the number of tasks and provide more autonomy and responsibility. Companies give employees more complex and challenging tasks, allowing them to reach their full potential.
- Job rotation – moving employees to different jobs and tasks than they are currently working on. It increases their understanding of the company’s operations and reduces boredom.
- Teamwork – assigning employees to a task together with other employees. They work as a team, collaborating to achieve a set goal or target. In addition to reducing boredom, it builds synergy and builds a greater sense of belonging.
- Delegation – entrusting the task or some less essential decisions to employees. It reduces the workload of superiors and develops and trains employees to be more responsible and accustomed to making decisions.
- Empowerment – giving subordinates autonomy, responsibility, authority, and tools so they can work effectively.
- Autonomy – giving employees flexibility and opportunities to do work, for example, concerning when and how they complete tasks.
Industrial relations is about the relationship between employers and employees, usually represented by trade unions. The poor working relationship between the two leads to conflict, low morale, and perhaps even strikes.
- Negotiation – the process of bargaining between two parties to reach a mutually acceptable agreement. Whether negotiations are successful or not depends on factors such as the strength of the union, the state of the economy, government involvement, media opinion, union experience, and the labor-capital substitution rate – how dependent the company is on labor compared to capital.
- Collective bargaining – negotiations between the employer and the union as the employee’s representative. It is usually agreed on aspects such as the employment contract, salary, and working conditions. Failure to negotiate can cause more problems, although it may not lead to industrial action.
Industrial actions are coordinated steps by employees or trade unions to pressure employers to resolve labor disputes. It can go through strikes, go-slows, and work-to-rules. It happened when collective bargaining reached a stalemate.
A labor union represents workers in negotiations with employers. It protects workers’ interests, provides job security, protects workers from unfair dismissal, and provides them with legal support and services. Hence, workers have a stronger bargaining position than when they negotiate individually with employers. Also known as a trade union or briefly, a union.
- Union recognition – the employer formally agrees to negotiate with a union rather than bargaining individually with each worker. That was before the collective bargaining took place.
Employer’s representatives represent the company to negotiate with the workers’ representatives (union). They may be people in the human resources department who are experts in industrial relations. However, it varies between companies, depending on their size. In specific cases, it may be an employer association representative if the negotiations aim to reach an industry-wide agreement.
Methods by employee
Employees want to get a higher salary and better working conditions. To increase their bargaining power (through unions), they seek to reduce business productivity.
First, they may negotiate or collectively negotiate to reach an agreement with the employer. But, then, if that doesn’t hit a dead end, they take industrial actions like:
- Go-slow – employees continue to work but with minimum effort and work more slowly according to the rules in the employment contract.
- Work-to-rule – the employee refuses to do any work outside the terms of the employment contract. They strictly limit their work and strictly follow the official rules and hours of work.
- Overtime ban – the employee refuses to work more than the contracted number of hours each week. It reduces the company’s chance to earn higher revenue when demand for the product increases because it cannot increase output by adding overtime.
- Strike action – the employee stops working for a certain period, causing production to stop and the business to close.
Methods by employer
Companies want maximum profit. They are trying to lower operating costs, which means they are reluctant to give employees higher salaries. Or, at least, if they are willing to raise salaries, the increase is less than the increase in employee productivity. They can use several methods to achieve this goal:
- Negotiation – reaching a compromise solution through bargaining with labor representatives. If it fails to reach an agreement, then the dispute may require arbitration.
- Public relations – using the media to gain public sympathy and increase bargaining power. If the public has more respect for companies, it pressures unions to accept compromise solutions.
- Lockout – closing a business or factory in the short term to increase bargaining power. Workers lost wages for some time and are stressed, pressured unions to agree on a reasonable dispute resolution.
- Threat of redundancy – the company may plan to remove certain lines of work if it has to agree to, for example, the high wages offered by the union. That increases the chances of dismissal, weakening the union’s bargaining power.
- Closure – similar to a lockout, but the company chooses to close its business or factory permanently, for example, by relocating it overseas. That’s extreme but necessary if other approaches have run out.
Employee-employer conflict resolution
Industrial conflicts hinder productivity, reduce morale, lead to internal politics, and be detrimental to employees and employers.
- Single-union agreement – the employer only recognizes one union to represent employees. That makes it easier for management in the negotiation process because it doesn’t have to negotiate with several unions.
- No-strike agreement – an agreement not to take industrial action while the issue or dispute is still being negotiated by the employer and the union. It usually happens when the management team has agreed on certain terms from the employee representatives.
There are several ways for the two to come to an agreement:
- Conciliation – bringing in a third party to mediate industrial disputes to reach an agreement without going through arbitration. It uses a third party (the conciliator) to encourage employers and trade unions to discuss acceptable compromise solutions. The conciliator encourages compromise and makes legally binding agreements.
- Arbitration – presenting an independent third party (the arbitrator) who has no interest in the conflicting party. Arbitrators judge, recommend solutions and make binding decisions in resolving disputes, much like a judge.
- Industrial democracy – involves workers in making decisions, sharing responsibility and authority in the workplace. Alternatively, it may be employee participation where the employee or union director serves on the company’s board of directors representing workers on key company issues.
Change management is about planning, implementing, controlling, and reviewing the company from its current state to its new one. It may be related to a new product, new policy, merger, or restructuring.
Change is necessary for progress and dealing with a dynamic environment. For example, consumer tastes and preferences evolve and change, and so does the competitive landscape. In addition, exogenous factors such as changes in government regulations, economic conditions, and technology can cause the current competitive advantage to become a competitive disadvantage in the future.
But, indeed, change can also cause problems.
Some companies choose not to change. According to Kotter, it may be due to self-interest, low tolerance for change, differing judgments, and misunderstandings. He proposes several ways to deal with resistance to change, including:
- Education and communication to build trust and clear misunderstandings.
- Participation and engagement by listening to the people involved in the change and using their suggestions.
- Facilitation and support such as through counseling and retraining.
- Negotiations and agreements through compromise, incentives, or contract amendments.
- Manipulation and co-option by changing the minds of those who do not want change to pro-change.
- Explicit and implicit coercion, for example, by threatening to remove them or fire those who are against the change.