Complete this Change Management Simulation: Power and Influence

Overview

Senerio Reading

You operate within Spectrum Sunglass Company, a 10-year-old, privately held company that designs, manufactures, and sells sunglasses. Spectrum is headquartered in Tremont, California, and all design and production capabilities are in southern California. A few years ago, a relatively short, mild recession caused revenues to fall nearly seven percent, to $91 million, and profitability to fall to essentially breakeven. As a result, the company initiated significant cost-cutting. Last year, sales rose to $101 million after the economy emerged from the recession, and the company returned to normal profitability.

The company currently employs 580 employees. Eight people are members of the top management team, and 20 individuals help lead the overall organization. The organizational chart for Spectrum is depicted in the Prepare tab of the simulation.

In recent years, the retail value of the domestic sunglass industry has been approximately $3.4 billion. Analysts normally divide the US market for nonprescription sunglasses into three price segments: low-end, moderate, and high-end. Low-end sunglasses are priced at less than $25 retail, and sold primarily through mass merchandisers, drugstores, grocery stores, and department stores. This segment represents roughly 50% of the industry dollars and 85% of the industry units sold. Moderately priced sunglasses range between $25 and $100 per pair. These glasses are sold through warehouses and sporting-goods stores, but they represent only eight percent of the industry dollars and five percent of the industry units sold. High-end sunglasses are priced above $100 per pair. These are sold through sunglass specialty outlets and optical stores. These glasses represent 42% of industry dollars and 11% of industry units.

Sunglasses address two basic functions in the marketplace. The first function is to protect the wearers eyes from harmful ultraviolet light. This is particularly important because of the earths thinning ozone layer, and it requires special expertise in eyewear manufacturing and sales. The second function focuses on fashion and aesthetics, and design expertise and celebrity endorsements help drive industry sales.

Spectrum offers a moderately priced brand of prescription and nonprescription sunglasses that are sold primarily in the United States. Originally targeted to swimmers and surfers, its products are expanding into other outdoor users. All sets of sunglasses feature UV-ray blocking scratch-resistant polarized lenses and lightweight frames, and all lines are marketed with an oceanic, sporty theme. Retail price points for its nonprescription products range from $59 to $99 per pair, both online and in sporting goods stores. Prescription sunglasses are sold through optical stores for $75 to $100 per pair.

Spectrums polycarbonate lenses require highly specialized resins, and the company has only one vendor that has been able to consistently deliver to its manufacturing specifications. As a result, the vendor has been able to pass through 100% of the incremental costs associated with rising oil prices. The rising oil prices, combined with Spectrums inability to effectively hedge against the resulting increases in raw material costs, accounted for approximately 3.25% of the erosion in its earnings before interest and taxes (EBIT) margina in the past fiscal year. This year, as oil prices have moderated, the companys margins have rebounded.

The recent volatility in Spectrum profitability resulting from softening demand has alarmed both management and the companys bank. Spectrum has a $10 million term loan and a revolving credit facility available for working capital with a maximum draw equal to another $10 million. Loan covenants associated with the borrowings require the company to maintain an interest coverage ratio of 3x.b In the event that Spectrum is out of covenant for more than two consecutive quarters, the bank can require the firm either to pay down the loan immediately or raise additional equity capital.

The companys business is very seasonal, with peaks occurring in late May and December. During both of those periods in the past fiscal year, Spectrum was at risk of being out of covenant with its loan agreements.

As Spectrum enters its second decade of operations, its immediate future is looking bright. Externally, the consumer sunglass market is growing again, and competitive pricing pressures have subsided. Spectrum recently rehired some of the workers laid off during the last recession, and many departmental budgets have been restored to well-funded, pre-recession levels. A potential new product design has received positive focus group feedback after the first phase of development; furthermore, some exciting branding deals with Hollywood celebrities are under negotiation. Everyone at Spectrum is looking forward to growth and enhanced earnings.

Selected Financial Information for Spectrum

Overview

You are the CEO and founder of Spectrum Sunglass Company.

While you generally feel good about the state of the business, you are beginning to think about your legacy. You are reading more and more professional articles emphasizing the importance of sustainable development for business and linking the themes of sustainability and innovation, such as Why Sustainability Is Now the Key Driver of Innovation. You are frustrated that you dont have any new sunglass products to offer to the vocal customers who increasingly express concerns about Spectrums environmental impact. Not only does sustainable development make sense to you personally, from both a moral and an economic standpoint, you also see this as an opportunity to differentiate Spectrums products and company from your competitors, which focus primarily on price and design. You have a potential new product design that has received positive focus group feedback as well as some exciting branding deals with Hollywood celebrities in the works. Even still, you are preoccupied with sustainability.

At Spectrums annual executive strategy retreat, you decide to ask for a special, unplanned session to discuss the conversations you recently had with a vice president at Spectrum Sunglass Companys largest retail customer, BigMart, which comprises 30% of Spectrums annual revenues. The VP explained he was now in charge of national sunglass procurement for BigMart, and that they had recently made a policy to promote all products which bear a Green Stamp manufacturing certification for environmental friendliness. He added that, notably, BigMarts market research revealed that even its most price-sensitive consumers were starting to prefer green products within their price range. The VP explained that BigMart was now considering recommending that all of its suppliers go through the Green Stamp certification process.

Paul Diaz (CFO): What exactly are BigMarts terms?

You: They want us to reduce petrochemical raw materials, such as polycarbonate plastics, in the manufacturing process from 90 percent to 50 percent within two years. The VP not-so-subtly threatened that, if we dont respond within three months with a detailed implementation plan, then BigMart will consider canceling all our contracts with them and shift to a competitor who will. While this is unexpected, this could be an opportunity to develop a unique product line for a mass market base, and I think were up to the challenge!

Leslie Harris (VP of sales and marketing): A sustainability feature will help distinguish us in the long term and this marketing angle may open up new consumer markets, such as exporting to more environmentally conscious countries in Europe.

Paul Diaz (CFO): We cant afford to start a sustainability project just because BigMart demands it! Green material substitutes for petroleum are probably expensive. Were highly leveraged as it is, so a drop in profitability might put our ability to meet our debt covenants at risk.

Aisha Farook (VP of operations): We just spent 12 months undergoing a grueling Six Sigma quality certification process. Our plant managers will absolutely refuse another major change in material inputs.

Louise Orysh (benefits administrator): Spectrum is still recovering, and has only recently begun rehiring workers; isnt a dramatic shift in focus to sustainability premature?

Mari Gopinath (VP of human resources): But we need to give this serious thought, theres a lot at stake at ignoring this. Why dont you head a cross-functional task force to come up with a compromise solution?

You agree, suggesting the following plan for the teams work:

1. The four additional members come from marketing, R&D, finance, and production.
2. They devote at least 75 percent of their time to developing a proposal for BigMart that is acceptable to all four departments.
3. You will devote 50 percent of your time to the task force while juggling your responsibilities as CEO.
4. The task force will present Spectrums senior management team with a financially acceptable plan to use petrochemical alternatives within three months.

The management team concurs with your task force proposal. As the retreat ends and everyone heads to dinner, you start pondering the numerous issues and obstacles to overcome in developing an acceptable plan for BigMart within three months. Your central challenge is to convince your team that a dramatic change in the organizations strategy and products is necessary and that environmental sustainability is critical to the companys futureno small task in a relatively short period of time. However, when BigMart tells Spectrum to jump, the usual response is to ask, How high? Fortunately, you also have the formal authority and widespread respect throughout the organization to tackle this challenge in a meaningful way.

DECISION (ACTUAL TASK)

Net Property, Plant \& Equipment Total Assets Liabilities \& Owners' Equity: \begin{tabular}{lrrrr} \hline Accounts Payable & 10,511 & 17.0% & 10,858 & 17.0% \\ Accrued Expenses & 7,508 & 12.1% & 7,756 & 12.1% \\ Total Current Liabilities & 18,018 & 29.1% & 18,614 & 29.1% \\ Long Term Debt & 17,854 & 28.8% & 18,802 & 29.4% \\ Owners' Equity & 26,106 & 42.1% & 26,610 & 41.6% \\ Total Liabilities \& Owners' Equity & 61,978 & 100.0% & 64,026 & 100.0% \end{tabular} Decide Select a lever to see its description and take an action Scenario 4 Lever Details Walk the talk Scope of impact: entire org. Weeks to implement: 2 Weeks before reuse: 8 When the change agent's actions are aligned with the change initiative, trust is built and effective change is much more likely. If properly executed, pulling this lever can increase the change agent's credibility as well as positively influence targets in any stage if the change is first communicated. Get consultant's support Scope of impact: entire org. Weeks before reuse: 4 Sometimes outside experts can gain the attention of organizational members and jolt them out of their complacency betterthan internal authorities can. If properly executed, pulling this lever can increase the change agent's credibility as well as positively influence change targets before the trial stage. Conduct private interviews Scope of impact: 4 Weeks before reuse: 1 Private conversations can reveal important information about the change target, such as who is in their social network and how the target feels about the proposed change initiative. If properly executed, pulling this levercan positively influence targets before the trial stage, as well as their friends. Issue e-mail notice Scope of impact: entire org. Weeks before reuse: 4 Organization-wide emails help convey the change vision and indicate progress. If properly executed, pulling this lever can positively influence targets before the trial stage. Weeks before reuse: 6 Town hall meetings can communicate the change vision and provide an opportunity for two-way dialogue about it. Attendance at these meetings is usually voluntary. If properly executed, pulling this lever can positively influence employees before the trial stage. Provide internal skill-building Scope of impact: 3 Weeks to implement: 2 Weeks before reuse: 10 Some associates want to adopt a change but they do not know how. By providing in-house training, you expand a trainee's capacity to adopt the change. If properly executed, pulling this lever can positively influence three individuals to adopt the sustainability initiative, as well as their friends. Provide external skill-building Scope of impact: 3 Weeks to implement: 4 Weeks before reuse: 12 External training can expand a trainee's capacity to adopt the change. If properly executed, pulling this lever can positively influence three individuals to adopt the sustainability initiative, as well as their friends. Conduct pilot project Scope of impact: 3 Weeks before reuse: 12 Pilot projects are relatively fast and inexpensive ways of learning by doing amongst coworkers. If properly executed, pulling this lever can positively influence the coworkers engaged with the project. Post progress reports Scope of impact: entire org. Weeks before reuse: 2 Posting progress reports is a common means of using visible cultural artifacts and symbols to redirect irvisible cultural norms. If properly executed, pulling this lever can positively influence adoption of the initiative by those in the aware or interest stages. Tell a 'success' story Scope of impact: 3 Organizational storytelling is a relatively slow but effective way to challenge and redirect the norms and values of the organizational culture. If properly executed, pulling this lever can positively influence the listeners as well as their friends to adopt the initiative if any of them are in the aware or interest stages. Build a coalition of support Scope of impact: 3 Weeks to implement: 4 Weeks before reuse: 4 Negotiations to create political alliances can be crucial for obtaining commitment to a change initiative. If properly executed, pulling this lever can positively influence adoption of the sustainability initiative by any targets in the interest or trial stages, along with their friend network. Recognize an adopter Scope of impact: 1 Weeks to implement: 3 Weeks before reuse: 10 Political power accrues to those who are formally recognized within organizations, and recognizing an advoca te sends a signal to others as to where the power is flowing. If properly executed, pulling this lever can positively influence adoption of the initiative by the advocate's coworkers. Privately confront resister Scope of impact: 1 Weeks before reuse: 4 Resistance to change is to be expected in all change initiatives, but sometimes the resistance is irrational and politically corrosive. If properly executed with an actual resister, pulling this lever can positively influence adoption of the initiative by the resister and their friends. Announce goals \& deadlines Scope of impact: entire org. Weeks before reuse: 10 Organizational goals and deadlines provide targets to aim for. Organizational attention and focus are precious resources. If properly executed, pulling this lever can positively influence adoption of the sustainability initiative throughout the organization. Revise reward system Scope of impact: entire org. Weeks before reuse: 20 Weeks before reuse: 20 This is a formal control system for recognizing and motivat ing desired behaviors while discouraging urwwanted ones, but it requires considerable credibility and careful timing. If properly executed, pulling this lever can positively influence adoption of the initiative throughout the organization. cture organization fimpact: entire org. Weeks to implement: 16 Weeks before reuse: 10 Organizational structure refers to the formallines of communication and authority within an organization, but it requires quite a lot of credibility and carefully timed to be effectively changed. If properly executed, pulling this lever can improve information flow and reallocate authority so that support is built for the sustainability initiative throughout the organization. Net Property, Plant \& Equipment Total Assets Liabilities \& Owners' Equity: \begin{tabular}{lrrrr} \hline Accounts Payable & 10,511 & 17.0% & 10,858 & 17.0% \\ Accrued Expenses & 7,508 & 12.1% & 7,756 & 12.1% \\ Total Current Liabilities & 18,018 & 29.1% & 18,614 & 29.1% \\ Long Term Debt & 17,854 & 28.8% & 18,802 & 29.4% \\ Owners' Equity & 26,106 & 42.1% & 26,610 & 41.6% \\ Total Liabilities \& Owners' Equity & 61,978 & 100.0% & 64,026 & 100.0% \end{tabular} Decide Select a lever to see its description and take an action Scenario 4 Lever Details Walk the talk Scope of impact: entire org. Weeks to implement: 2 Weeks before reuse: 8 When the change agent's actions are aligned with the change initiative, trust is built and effective change is much more likely. If properly executed, pulling this lever can increase the change agent's credibility as well as positively influence targets in any stage if the change is first communicated. Get consultant's support Scope of impact: entire org. Weeks before reuse: 4 Sometimes outside experts can gain the attention of organizational members and jolt them out of their complacency betterthan internal authorities can. If properly executed, pulling this lever can increase the change agent's credibility as well as positively influence change targets before the trial stage. Conduct private interviews Scope of impact: 4 Weeks before reuse: 1 Private conversations can reveal important information about the change target, such as who is in their social network and how the target feels about the proposed change initiative. If properly executed, pulling this levercan positively influence targets before the trial stage, as well as their friends. Issue e-mail notice Scope of impact: entire org. Weeks before reuse: 4 Organization-wide emails help convey the change vision and indicate progress. If properly executed, pulling this lever can positively influence targets before the trial stage. Weeks before reuse: 6 Town hall meetings can communicate the change vision and provide an opportunity for two-way dialogue about it. Attendance at these meetings is usually voluntary. If properly executed, pulling this lever can positively influence employees before the trial stage. Provide internal skill-building Scope of impact: 3 Weeks to implement: 2 Weeks before reuse: 10 Some associates want to adopt a change but they do not know how. By providing in-house training, you expand a trainee's capacity to adopt the change. If properly executed, pulling this lever can positively influence three individuals to adopt the sustainability initiative, as well as their friends. Provide external skill-building Scope of impact: 3 Weeks to implement: 4 Weeks before reuse: 12 External training can expand a trainee's capacity to adopt the change. If properly executed, pulling this lever can positively influence three individuals to adopt the sustainability initiative, as well as their friends. Conduct pilot project Scope of impact: 3 Weeks before reuse: 12 Pilot projects are relatively fast and inexpensive ways of learning by doing amongst coworkers. If properly executed, pulling this lever can positively influence the coworkers engaged with the project. Post progress reports Scope of impact: entire org. Weeks before reuse: 2 Posting progress reports is a common means of using visible cultural artifacts and symbols to redirect irvisible cultural norms. If properly executed, pulling this lever can positively influence adoption of the initiative by those in the aware or interest stages. Tell a 'success' story Scope of impact: 3 Organizational storytelling is a relatively slow but effective way to challenge and redirect the norms and values of the organizational culture. If properly executed, pulling this lever can positively influence the listeners as well as their friends to adopt the initiative if any of them are in the aware or interest stages. Build a coalition of support Scope of impact: 3 Weeks to implement: 4 Weeks before reuse: 4 Negotiations to create political alliances can be crucial for obtaining commitment to a change initiative. If properly executed, pulling this lever can positively influence adoption of the sustainability initiative by any targets in the interest or trial stages, along with their friend network. Recognize an adopter Scope of impact: 1 Weeks to implement: 3 Weeks before reuse: 10 Political power accrues to those who are formally recognized within organizations, and recognizing an advoca te sends a signal to others as to where the power is flowing. If properly executed, pulling this lever can positively influence adoption of the initiative by the advocate's coworkers. Privately confront resister Scope of impact: 1 Weeks before reuse: 4 Resistance to change is to be expected in all change initiatives, but sometimes the resistance is irrational and politically corrosive. If properly executed with an actual resister, pulling this lever can positively influence adoption of the initiative by the resister and their friends. Announce goals \& deadlines Scope of impact: entire org. Weeks before reuse: 10 Organizational goals and deadlines provide targets to aim for. Organizational attention and focus are precious resources. If properly executed, pulling this lever can positively influence adoption of the sustainability initiative throughout the organization. Revise reward system Scope of impact: entire org. Weeks before reuse: 20 Weeks before reuse: 20 This is a formal control system for recognizing and motivat ing desired behaviors while discouraging urwwanted ones, but it requires considerable credibility and careful timing. If properly executed, pulling this lever can positively influence adoption of the initiative throughout the organization. cture organization fimpact: entire org. Weeks to implement: 16 Weeks before reuse: 10 Organizational structure refers to the formallines of communication and authority within an organization, but it requires quite a lot of credibility and carefully timed to be effectively changed. If properly executed, pulling this lever can improve information flow and reallocate authority so that support is built for the sustainability initiative throughout the organization