Session A
Changes, ideas and
projects
You will be regularly faced with decisions about changes at home, such as whether to buy a new three-piece suite or a multimedia computer to help you and your partner or children better understand the new technology and improve future work prospects. What influences you to think about these changes in the first place? And what makes you have these particular options, where other people may choose between a replacement car or a holiday in similar circumstances?
Everyone has different needs, wants and tastes. In each case, something needs to be satisfied. And it is the same in organizations, the managers and owners of which will want to improve service, enhance profits and ensure survival.
In organizations there are likely to be a number of individuals, all with their own ideas about how changes will improve matters for themselves and their customers. Perhaps you would like new equipment to help you and your workteam be more effective, or would like to see more money spent on training to improve the productivity of your team? Ideally senior managers will undertake thorough analysis of these ideas and prioritize the options to ensure that the best use is made of resources available, and ideas are turned into effective projects.
In this session we will look at how ideas arise from changes, why some are given greater attention than others, and why some are finally turned into viable projects and others are not. By understanding what makes a project viable in your organization, you will be better able to appreciate what those who authorize the spending of money are looking for.
As a first line manager you have your ear very ‘close to the ground’ with regard to what is going on in your organization.
Activity 1
How do you think your position as first line manager puts you in an excellent position for spotting changes in the organization?
You probably came up with a range of factors:
Contact with customers – so you know whether or not they are satisfied, and whether they are asking for new products and services which you are currently not providing.
Contact with staff engaged in day-to-day operations – so you know whether they are happy or frustrated, whether they need more training or better conditions, whether they are tempted to join competitors or believe they are already in the best organization.
Contact with suppliers making deliveries and taking returns – so you know what they can do well and what they do badly, and have some idea of new products or services they are offering, or new customers they have taken on who are competitors of yours.
Contact with competitors at trade fairs or ‘on the road’ – so you have the latest gossip on their staff, finances, products and services, technology and future plans.
These types of information are vital to any organization. It needs to keep up with the pace of developments in the world around it, or what we can call its overall ‘external environment’, and the constant developments within itself, or what we can call its ‘internal environment’.
But remember that the information you pick up about changes is probably confined to the operational level of the organization. Of course changes also take place at higher levels of management, such as:
at the tactical level, where middle managers may pick up on an opportunity to form an alliance with a major supplier, or a joint venture with a competitor;
at the strategic level, where the most senior managers may have to cope with a major change in technology or markets, or may have to refinance the business due to a fall in the stock markets.
Try to think of a recent change that has affected you and your workteam. It may be an increase in staff numbers, a new procedure or product, a new piece of equipment or a change in working times.
Who first suggested the change?
Where do you think the impetus for the change came from?
Was the change brought about because of developments in the external environment or because of ideas in the internal environment, or a combination of the two?
Even if you were the first person to suggest the change, because of your knowledge and experience ‘at the coalface’, it is unlikely that a change of any size would be successfully implemented without the support of your immediate manager and possibly of other managers as well. The impetus for seeing change through is often a team effort on the part of the management group.
As to whether changes are the result of internal or external forces, you may have struggled to identify this point. In the next section we will look at a few techniques for analysing the forces for change which will help us here.
The important point, however, is that some changes are unavoidable – they are effectively imposed by forces which cannot be withstood. This is particularly the case with changes caused by legislation or regulations, and changes caused by economic or market forces.
2.1 The need to make a financial case for change
Where a change is needed, or an idea is developed that requires a change, you and/or your senior manager will need more resources to make that change effectively. As we saw in Activity 2, these resources may be an increase in staff numbers or a new piece of equipment, both of which obviously require extra resources in the form of money.
But what about other changes – do these require resources?
Activity 3
What resources are needed for the following changes to be implemented effectively?
A new procedure or product
A change in working times
Well, introducing a new procedure or product nearly always requires some staff training, which requires the resources of money (to pay for the training cost, say) and time. And implementing a change in working times may mean taking on some part-time staff to cover for gaps, or the payment of some sort of bonus for the inconvenience involved, or the subsidy of transport costs if staff have to travel home late at night.
What we are concentrating on here are the costs of change. Clearly there must also be some benefits, otherwise there would be no point in making the change. So when you are trying to persuade ‘the powers that be’ that a change should be made, you need to put forward a case based on the financial costs and benefits as well as the operational costs and benefits. Ideally the financial benefits will be greater than the financial costs, so your organization can profit from change.
Sometimes, though, a change will result in a net cost. An example is where a change has been imposed by, say, regulations. Then the only (non-financial) benefit may be the knowledge that the organization has acted in compliance with what is legally required.
In such cases, the financial case you are making is not so much for whether the change should be made, but rather for how it should be made at the least cost and maximum effectiveness.
Where changes are discretionary – that is, they are much more a matter of genuine choice, between maintaining things as they are, or making a change – then the financial case will be to present the change in terms of its overall financial and non-financial benefits.
We shall see in the next session that this distinction affects how the financial evaluation of costs and benefits is made. In this session we shall concentrate on what leads to changes.
Most projects for which you will be making a financial case will be directly associated with your immediate workplace. And the ideas leading to projects will come from changes in working practices.
Activity 4
Write down two changes which have meant expenditure on projects in your workplace.
There are a number of possibilities you may have suggested. Among them may be:
new health and safety regulations necessitating new safety equipment;
new contracts requiring the purchase of specialist machinery;
general technological developments improving efficiency and productivity;
the impact of competition from rivals.
3.1 SWOT analysis
As circumstances change, organizations must change to ensure that they survive and grow. They may undertake a SWOT analysis from time to time which means identifying:
| S | trengths | and capitalizing on them |
| W | eaknesses | and limiting the effect of them |
| O | pportunities | and making the most of them |
| T | hreats | and taking action against them. |
Activity 5
CD Productions specializes in reproducing compact discs (CDs) for the music industry. It is a small manufacturing organization with limited funds but has a reputation for quality products and good contacts with other production companies.
The marketing department's projections for the digital video disc (DVD) suggest that the music industry will be producing all new albums on DVD within five years, although there is a chance that take-up of DVD technology will never match that of CDs.
CD Productions does not have the finance to buy DVD reproduction equipment at present.
Identify the Strengths, Weaknesses, Opportunities and Threats posed by this situation. How should CD Productions react to the situation?
A SWOT analysis should have drawn out the following:
Social factors like interest in the Internet, home banking and teleworking drive change forward.
Strengths – reputation and contacts, established technology;
Weaknesses – lack of finance and equipment;
Opportunities – possible long-term viability of CDs over DVD;
Threats – going out of business.
As the only opportunity relates to the chance that CDs will survive, there is limited action that CD Productions can take in a situation like this. It could use its reputation and contacts and sell out its expertise in the music business to ‘friendly’ competition; wait in the hope that DVD production equipment becomes cheaper or that DVDs do not sell; or try to create a niche market in specialist CDs for those who continue to use the older technology. Perhaps the business could build an export market.
You may have suggested any of the above and perhaps thought through more than one option. This is a good example of how changed circumstances lead to ideas which need to be explored. CD Productions needs to fight for survival and the organization cannot afford to ignore the future.
EXTENSION 1
Take a look at Part II for more information on PESTLE and SWOT.
SWOT analysis focuses on the strengths as well as weaknesses of an organization.
3.2 PESTLE analysis
PESTLE analysis considers the following influences
| P | olitical | such as the privatization of British Rail and the subsequent fate of Railtrack |
| E | conomic | factors like low inflation and interest rates |
| S | ocial | matters like the impact of the Internet |
| T | echnological | improvements like digital broadcasting |
| L | egal | issues such as the Working Time Directive |
| E | nvironmental | matters such as emission control and ‘polluter pays’. |
The factors can be either beneficial or disadvantageous.
This Activity may provide the basis of appropriate evidence for your S/NVQ portfolio. If you are intending to take this course of action, it might be better to write your answers on separate sheets of paper.
Think about the products or services which your workteam produces or delivers (select no more than three). Perform SWOT and PESTLE analyses on them.
Identify and make notes about areas where change seems inevitable.
Use of natural materials and creation of a caring image developed a strong niche market for the Body Shop. Retail multiples reacted by adopting a similar environmentally friendly approach.
If you are compiling an S/NVQ portfolio you may be able to develop your notes into a full report about necessary changes to provide to management. You may be able to use your report and feedback on it as the basis of possible acceptable evidence.
You may have identified changes in standards required by the European Union (EU), or a need to develop niche markets because cheaper imports are damaging sales. Or perhaps social changes, such as people taking more holidays abroad where they have seen higher standards of service, are meaning changes in customer relations in your industry. No matter what industry you are working in, change is likely to be on the horizon.
Having analysed the forces for change and thought about them and the possibilities for the future, the next step is to design and develop ideas for how opportunities are to be exploited and threats are to be countered. Then, of course, the developed idea needs to be implemented as a project.
A major part of this process is knowing when changes need to be made. No doubt you have experienced situations when, in hindsight, changes have been made too early or too late. Experience, good instincts and practice will help you identify the best time to make changes. This is an important management skill.
Some organizations welcome change. Others are forced into it. Certain organizations seem to have been in the right place at the right time. Any manager who can spot not only the need for change but also get the timing right is a valuable asset.
Look at the following examples and say if you think it is the right time for change. (Encircle your answer.) Give a brief reason for your answer.
1 A product which is built by hand has been on the market for a few years. Many more people are interested in purchasing it and have the money to buy.
The organization is considering bringing in new automated production techniques.
| Is it time for change? | YES/NO |
2 Branch banking services have been provided by most banks for many years and have become increasingly expensive to run. They are not effective in retaining and gaining customers and the value of the premises owned has risen in recent years. A bank is considering selling its branches and offering telephone, postal and computer banking from a few regional centres.
| Is it time for change? | YES/NO |
3 Massive investment in new plant and machinery has been made by an organization to take advantage of a potential new market which has not materialized. It cost £100,000 and only £15,000 has been generated from sales. A further £15,000 is expected in the next year and then £10,000 a year for another five years after that.
| Is it time for change? | YES/NO |
1 A new, potentially strong market is growing and it is now time for change to take advantage of this. Such an opportunity was spotted by Henry Ford when he set up one of the first production lines. Unfortunately, further suggestions for changes to improve gearboxes, transmissions, engines and hydraulic brakes were turned down and Ford lost its lead to General Motors.
The time for change may not be just one time but all the time.
2 This again appears to be time for change, to take advantage of new opportunities in technology, and the motive may be to stay ahead or keep up with competition.
However, the bank has to be sure of its ground. Do customers really want technology and no ‘friendly face’? Branch closures are often very unpopular. It may be time for a change, but not for the closure of branches on a grand scale. Sometimes change must be done slowly.
3 It is difficult to think of change, having spent a lot of money and not seen a good return. However, if other opportunities exist which will provide a better return on the money spent, change should be made.
The £100,000 spent on the plant and machinery is a sunk cost, expenditure which has been made and is now past. When looking at future opportunities you should not try to include a recovery of past mistakes in your calculations.
4.1 The life cycle
The best times to make change are at clearly defined stages of the life cycle of a product or service.
Introduction
The design may need to be altered to meet customer needs. Staff training in all aspects will be required, products will need careful control to avoid overproduction or under-production to meet market needs, and distribution and marketing will need to be developed. All of these changes will lead to investment in human resources, equipment and marketing.
Growth
More highly productive ways of producing and delivering the product or service, to counteract competitive pressures of entrants into the marketplace, will be the target of investment.
Maturity
Market share becomes difficult to increase or even keep. Investment will be geared to niche markets and marketing.
Decline
The organization will look for new ideas and needs to decide when to drop a product or service.
You and your workteam will feel the effects of change from each of these stages.
Activity 8
Kerry is the floor manager of a high street multiple store selling women's clothing. Her company has decided to introduce a store credit card.
Suggest two possible consequences of this for Kerry and her workteam.
You may have identified the need for staff training in the use of the new card. And new equipment and documentation may be needed for the new credit card. Staff will need to become familiar with these.
Providing customers with credit cards is likely to increase sales and, perhaps, the volume of customers. This may place extra stress on staff and perhaps lead to sickness and absenteeism. Kerry will need to prepare for these changes, which could affect her budget for staff and training.
EXTENSION 2
Various aspects of change are discussed in this very accessible book.
You may be faced with similar situations. The more you can predict changes, the easier it will be for you to implement strategies to cope with them and be aware of their possible consequences. This will mean you will be clearer about potential costs and their impact on the resources under your control, so when you need to make a financial case, you will be less likely to overlook anything.
Have you ever had what you saw as being a good idea and not had it taken forward by your management? Do you know why?
Hopefully you were given feedback and appreciate better why senior managers did not want to spend money on the idea at the time or why it did not fit in the overall plans of the organization. But you may have spent some time working out your idea and felt frustrated at the lack of response.
All projects arise from ideas but not all ideas make it to project stage, especially when the proposed change is not vital, as opposed to unavoidable. Let's have a look at the process of project evolution so that you will better appreciate whether to spend time developing an idea or not. Putting an idea aside early is just part of evaluating the viability of projects.
Activity 9
Peter and Ken Browning are jobbing builders with a reasonably successful small business which earns the partners a profit of about £25,000 each annually from a turnover of £120,000.
Which of the following would be discretionary projects that the partners might consider? (Encircle your answers.) Briefly explain the reasons for your answer.
1 Erecting the double garage seems to be a job well within the capabilities of the partners and this is a discretionary project which the business would consider.
2 You should appreciate that the car park is a major construction project and is likely to be beyond the capabilities, financially and physically, of this partnership.
3 You may equally have said that Peter and Ken Browning would or would not consider the resurfacing job. There is clearly no profit in this option so financially the project does not appear to be viable. But the partners may consider, for charitable reasons, or for the publicity that it attracts, that the project is worth taking on. In taking on such a project, its ‘value’ is considered with regard to the overall plans of the organization.
As you can see, certain discretionary projects can clearly be turned down because they are beyond what a business would usually contemplate. Small jobbing builders would not have the experience, equipment or labour available to build a car park. And, in the unlikely situation of the partners being given this job, the business would probably run out of money well before the car park was built. Indeed, taking on overly ambitious projects commonly leads to the failure of small businesses. It might, of course, be possible to join together with a consortium of other businesses to take on larger projects. Large construction projects such as the Channel Tunnel are often built and financed by a number of organizations, to spread risk and expertise.
Other jobs are well within the usual day-to-day work and, providing timing is right, a business would carry them out.
We will look at financial techniques for evaluating projects in the next session but you have seen that viability can be measured in ways other than purely financial ones. A larger organization than the Browning partnership might have a specific budget for charitable work and to benefit local communities.
We now effectively have a first-stage set of criteria by which organizations select ideas and consider them for projects.
Does the organization have to undertake the project, or is it discretionary? Assuming it is discretionary, further criteria must be applied.
Has the organization the experience to deal with the project?
Does the organization have the physical resources to carry the project forward?
Is there the financial muscle to see the project through?
Has the organization time within its other work to complete the project on schedule?
Does the project fit within the organization's plans?
If the answer to any of these questions is ‘no’, the project is unlikely to be considered viable.
Projects can be offered to organizations or can come from within. The above criteria apply both to external and internal opportunities.
Most people have made plans which have not gone quite as they would have wished. Perhaps a holiday is delayed because of bad weather at the airport. This leads to additional costs for tea, coffee, amusement and, perhaps, hotel bills.
In organizations, things do not always go according to plan. Remember this when you are making a financial case. Senior managers prefer to be given advance warning of possible difficulties rather than continual reports of problems and additional costs after a project has been implemented. A bottleneck in one department may seem a small problem to those in that department but if it affects everyone else in the organization it is not surprising that senior managers become upset.
Activity 10
A new computerized invoicing system failed to work effectively, which led to a delay of two weeks in invoicing customers for £520,000 worth of work. This led to extra overdraft interest for the business because of the two-week delay in receiving money.
Assuming 10 per cent interest per annum was charged on the overdraft, calculate the cost. Use the following formula.
You should have calculated the cost as:
Almost all problems have an identifiable financial cost, although an unpredicted success may have financial benefits.
Typical problems which arise with projects are:
implementation taking longer than expected
An example would be computer software not being compatible with existing systems, and the need to improve the ability of the organization's computers to ‘talk to each other’.
major unforeseen problems occurring
such as a shelter for the homeless being run by a charity attracting people from other areas of the city. This could lead to the facility being unable to provide sufficient food and accommodation for everyone.
unpredictable external events occurring
a new butcher's shop facing a renewed scare about brain disease in cows being transmissible to humans.
short-term crises and competing activities deflecting efforts within the organization
For example, a health centre may be unable to provide well-man and well-woman clinics if a major flu epidemic occurs, requiring additional resources to be temporarily diverted.
poor co-ordination
such as where markets are identified and production increased without an adequate distribution network being set up.
Well-run organizations need good planning, with appropriate targets and forecasts and proper control. The plans need in-built tolerance levels to allow for some difficulties. Tolerance means the agreed level by which you recognize that performance, and therefore costs, are likely to vary from what is planned.
When preparing cases for projects, you should not assume that everything will run smoothly. A risk assessment is simply an assessment of what could go wrong and the likelihood of it happening. Your assessment should be based on experience and reflect a well-planned operation.
Remember that financial commitments may be major and you should bear in mind the danger of obsolescence, a common problem in industries where there are rapid changes in technology. Watch also for the dangers of particular arrangements. If you suggest changes in fixed assets, like equipment, which are implemented, this may limit further changes. For instance, printers who invested heavily in a litho press for short-run work would be unable to compete in the market with Docutech printers, but also would be unable to raise new finance to invest in Docutech machines themselves.
In addition, any licensing agreements, agreements with labour, suppliers and competitors can limit future opportunities for change.
Activity 11
Take a look at the operations in your workteam in the last six months.
1 Identify TWO changes that have occurred during that time.
2 Identify what forces prompted the changes.
3 Identify who was responsible for making the financial case for that change.
4 Find out what sort of financial case was put forward for the changes. Were they coherently planned for and set out, or were they just ‘allowed to happen’? If the latter was the case, what effect did this have on overall budgets and performance?
If you are compiling an S/NVQ portfolio you may be able to develop your notes into a full report recommending improvements in how changes are identified or how financial cases for change are put together. You may be able to use your report and feedback on it as the basis of possible acceptable evidence.
1 Fill in the missing words in the following sentence.
Organizations select ideas for projects if they have appropriate ___________, physical and financial ___________ and if they have sufficient ___________ to complete the project on schedule.
2 
Kitchen Caterers run the local school catering service for the county. Their contract is coming up for renewal and they and four other organizations are competing for the contract. Kitchen Caterers have a good reputation for quality of the food prepared, service and cleanliness and they charge premium prices to reflect the high quality.
Identify Kitchen Caterers':
Strength
Weakness
Opportunity
Threat
3 List the defined stages of the life cycles of products and services at which change may be useful.
4 Why is it important to allow for problems when planning projects?
5 Why are different criteria applied to unavoidable and to discretionary projects?
Answers to these questions can be found on pages 84–85.
First line managers are well-placed to generate ideas for projects, but their implementation needs the support of more senior managers too.
SWOT and PESTLE techniques are useful in identifying future projects so that the organization can make best use of its strengths and limit its weaknesses.
Timing is very important. Change at crucial stages of the life cycle of products and services is likely to be most effective and these are appropriate times to make a case for change.
It is important to think through potential consequences of investments and to build tolerances into plans for potential problems.
Projects are selected for consideration which best fit the organization's
experience;
physical and financial resources;
schedule of other commitments.
Projects undertaken should aim to leave the organization as flexible as possible so that it can take advantage of future opportunities and not commit itself to onerous agreements.