On Change Management

Agida * de Leon * Estanislao * Gumabon * Lope * Rojas

The Company: Emerson Network Power - Asia

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 The Company: Emerson Network Power - Asia

• Industry: manufactures and sells equipment that powers machines

like ATMs (Embedded Power), outside plant, telecoms (Energy
Systems), and servers (Connectivity Solutions), UPS, ACDC power
units, etc.
• 2009 Revenue:  USD 5.5 B
• Manpower: 43,000 employees globally
• 70% of sales sold direct through projects (involving capital goods);
30% are off-the-shelf products sold through distributors
• Production facilities are in Australia, US, China and Europe;
factories sell mainly to assigned markets and therefore
manufacture a wide variety of products, although some factories
specialize in certain products.

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The Old System

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The Old System

•Comprised of 10 Business units (Manufacturing units or

MU’s) in 10 different countries in the Asia Pacific namely
Korea, HongKong, New Zealand, Australia, Philippines,
Indonesia, Thailand, Singapore, Malaysia and Vietnam
•All MU’s report individually to the Region Headquarters
•Each MU has its own supply chain
•MU’s, due to differences in operations (Proportion of
merchandised/ manufactured goods), Emerson Electric had
no standardized process of procurement and supplier
accreditation
•Efficiency vary among MU’s

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 Why CHANGE?

• To centralize procurement
• To leverage consolidated volume and shared services
• To efficiently monitor inventory
• To control orders (faster turnaround, more opportunity for
collaboration/synergy between markets)
• To reduce mistakes during order booking and processing
• To standardize business processes, policies and forms
• To take advantage of capabilities of newly implemented ERP
system (Oracle- one of the biggest players in ERP)

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The New System

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The New System

TM

Sup COP MU

DHL

Cus
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The New System

• Comprised of 10 Business units (Manufacturing units of MU’s) PLUS a logistics

and inventory handling partner (DHL), Regional Distribution Centers, and
Central Order Process (COP)
• Ordering center was reduced from 10 to 1
• All reports are centralized and a more powerful network is used.
• DHL was assigned to handle inventories and deliveries. Works as the messenger
of the COP
• Decision-making in terms of procurement, supplier accreditation, in-bound,
and out-bound logistics were standardized. Rules were set on whose scope of
responsibility a task is included depending on urgency, amount involved,
complexity, and other factors
• Regional procurement managers search for and accredit the best among the
would-be suppliers.
• COP is situated in the center of the firm’s network. It works as a filter and
monitor for the entire firm.
• The COP evaluates and advises MU’s on their performance efficiencies,
inventory levels and logistics

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Change in Summary

– Centralized the ordering process into a shared service unit

headquartered in the Philippines.
– The new unit acted as a conduit where orders are pooled from the
market units and then distributed to the factories that can supply the
order.

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 In relation to IKEA

• IKEA (Ingvar Kamprad Elmtaryd Agunnaryd) - privately held, international home

products retailer that sells flat pack furniture, accessories, and bathroom and
kitchen items in their retail stores around the world.
• pioneered flat-pack design furniture at affordable prices, is now the world's
largest furniture retailer.
• founded in 1943 by 17-year-old Ingvar Kamprad in Sweden.
• distributes its products through its retail outlets.
• has 313 stores in 37 countries as of May 2010, most of them in Europe, North
America, Asia and Australia.
• IKEA Group owns 276 stores in 25 countries
• 37 stores are owned and run by franchisees outside the IKEA Group in 16
countries/territories
• A total of at least 15 openings or relocations are planned for this year. 

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 In relation to IKEA

Old System
 
• Appeared to have come from founder Kamprad’s thrifty, hard-working, value-for-the-buck
mentality.
• Never used market research for business development but rather relied on the boss's
instinct.
• Chose the wrong locations for many stores, their stores were too small, and their prices
too high.

New System
 
• Much of IKEA's furniture is designed to be assembled by the consumer rather than being
sold pre-assembled.
• New system permits them to reduce costs and use of packaging by not shipping air; the
volume of a bookcase, for example, is considerably less if it is shipped unassembled rather
than assembled.
• Kamprad refers to the concept as "democratic design," meaning that the company applies
an integrated approach to manufacturing and design.
• The company implements economies of scale, capturing material streams and creating
manufacturing processes that hold costs and resource use down, such as the extensive
use of particle board.

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 IKEA and EMERSON
• Both IKEA and Emerson effected the change when they saw that it would
convey advantage to its customers. 
– For IKEA it was to change their way of packaging their products so that the
costs of distribution will be minimized with the saving passed on the
customers. 
– For Emerson, it was to change the complex (not to mention error-prome)
way of managing sales orders into an efficient, cost-effective model, with the
advantages (reduced ordering leadtime, better OTD/OTIF, error free orders)
directly impacting its customers
• Both applied Traditional Change Process

CHANGE IN FORMAL STRUCTURE AND RESPONSIBILITIES

CHANGE IN INTERPERSONAL RELATIONSHIPS &

PROCESSES

CHANGE IN INDIVIDUAL ATTITUDES & BEHAVIOR

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 The Change Process - EMERSON
Phases:
• Establishment of DHL as a logistics partner
• Regional Distribution Networks
• Centralized Procurement Accreditation
• Order Management Process
Piloting - Pilot MU’s are chosen depending on the complexity of their operations.
- 2 to 3 week interval per pilot opening
• Korea – where initial implementation was made because it is the easiest market
therefore the chances of success are greater than with the other markets.
– They don’t have any projects. Korea was mainly a buy-and-sell market.
– Build upon the successful implementation in Korea to roll-out change in the
other markets in a gradual and phased manner with the most difficult
markets being last in the implementation.
• HK – similar to Korea but with more manufactured goods and fewer projects
• Thailand – Language barrier therefore COP has to employ one person in Thailand
• Malaysia – has more projects
Time frame:
• They had 1 month to implement change in each MU
• Each MU should be stabilized in 6 months after implementation

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 Change Implementation

• The senior management has already defined their desired change.

Kit was hired to champion that change. She went across business
units to transfer knowledge and educate people of the impact of
change
Definition Analysis Communicatio Action Definition
of the of the n of the definition of the
existing impact of implications desired
steady the new
state existing steady
steady state
state

Team approach

Competent change leaders

Senior management support

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 How Change was Managed
• Communication, communication, communication
• Validation of new processes – like a teacher; repeat/re-inforce/remind
• Where job displacement was inevitable, reassignment of some of the affected
employees had to be done
• Some resignations were inevitable and had to be accepted as part of the change
process.
• Resistance was highest with the sales force. This was because they had to
change the entire ordering process. Whereas sales had the autonomy over how
to manage their ordering processes, they now had to follow standardized
procedures and their orders now had to undergo screening before being
approved. This was managed/mitigated through frequent roadshows and
training.
• Potential attrition was managed through bonds for people who had to undergo
training for the new processes.
• Hiring the right candidate in terms of attitude and work ethic. In this case, the
resource person valued attitude to work more than intelligence.
• control the thinking/mindset of the newly formed organization
• the resource person (implementor) had to have a strong personality in order to
drive change
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 Change Management Strategy

• Empirical-rational strategy
– Used for most of the markets.
– Primary tool used was “knowledge transfer” which mainly uses
presentations coupled with hands-on training
• Power-coercive
– Under certain circumstances where the resistance to change were the
highest
– Examples:
• They had to cut off access to system to implement change
• They implemented training bonds

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 Advantages and Operational Outputs of Change

• Stabilization – 6 months after implementation

• Headcount – reduced by 30% in Asia supply chain after
implementation but work and services increased by 30%
• Inventory turnover – improved from 6% to 18%
• OTD – 98%; OTD performance was not being measured before
implementation
• OTIF – 95%; OTIF performance was not being measured before
implementation
• Ordering leadtime – improved from 14 days to 2 days
– 98% -> 0-2 days
– 85% -> Within 1 day
• Each market unit had their own ordering processes – after
implementation ordering process standardized for all market units
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Advantages and Operational Outputs of Change

• Volume Discounting – because suppliers are shared.

• Inventory and logistics is managed by a partner company
(DHL) that is one of the “Best in class”
• Production efficiency, Quality, and Business process are
standardized.
• Volume of goods-in-transit (GIT), unnecessary inventories,
stock-outs, bad orders and delivery failures were managed
and reduced significantly.
• Possibility of corruption, and/or pilferage during
negotiations with suppliers, although not proven, were
likely to have been minimized.

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Emerson: A Powerful Force for Innovation

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Recommendations

• Continuous training for COP personnel. (Much is at stake

on the COP’s performance.)
• Adhere to very strict control strategies in handling the
COP. Being in the center of it all makes them very powerful
in the supply chain.
• People who were displaced must be managed very well to
avoid unnecessary conflicts
• Keep up with the need to continuously change processes
in order to meet or exceed customer expectations

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