Pago 2 2BIGMOGG IVEy Publishing How would they implement all of this change while at the same time avoiding employee bumout and still keep the business running smoothly? Would it even be possible to change such an embedded culture? There 9816M066 were no easy answers to these questions. FEDERATED CO-OPERATIVES LIMITED FEDERATED CO-OPERATIVES LIMITED: CHANGE MANAGEMENT The origins of FCL could be traced back to the early 20th century when farmers established purchasing associations, By 1970, several provincial wholesale co-operatives amalgamated to serve a network of retail co-operatives across Western Canada, with a home office located in Saskatoon. ' FCL provided central levine Pohler wrote this case solely to provide material for cian dicussion. The author does not fiend to illustrate miner effective wholesaling, manufacturing, marketing. and administrative and technical services to its retail member- or ineffective hariling of a managerial situation, The author may have disguised cartain names and other identifying information fa protect confidentiality owners. FCL was a second-tier co-operative because it was owned by 210 retail consumer co-operatives spanning Manitoba, Saskatchewan, Alberta, and British Columbia, which in turn were owned by individual This publication may not be vexemitted photocopied, digored, or offveraise reproduced in ary form or by ary means without De member-owners who purchased the goods and services supplied by these local retail outlets. FCL and these permission of the copyright holder. Reproduction of this material is not covered under surtortration by Bry reproduction rights 210 co-operatives made up what was known as the Co-operative Retailing System (CRS). not Jan 12. 3072 organization To order copies or request permission to use materials. contact frey Publishing Ivey Business School Western Liniversity London Ontario Canada, NEG ONT; (0 518 851, 3204 () cases@ivey ca: www.iemycases norms As a second-tier co-operative business, FCL had a different ownership and governance structure than its investor-owned competitors. In co-operatives, the owners used the services or purchased the goods that the co-operative business supplied. Selection of board members at FCL was done through a democratic election process, where retail members were allocated voles based on the amount they purchased from FCL. The Scott Banda, chief executive officer (CEO) of Federated Co-Operatives Limited (FCL), sat down at his democratic election of board members made it difficult to ensure consistent levels of board members' desk in June 2013 to read through the results of the second employee engagement survey conducted by experience and expertise. The democratic governance structure also made decision-making processes FCL's human resources department. Since Banda took over the CEO position at FCL in February 2010, the cumbersome. As a result, attempts at system-wide change proved difficult. According to Bands: company had undertaken massive, system-wide changes intended to address major areas of weakness. FCL's information technology (IT). marketing. and people-management processes were described by both Our members own us. . . . We're not a head office; we are a home office for all the various retail insiders and outsiders as being outdated, and the organizational culture that Banda inherited was described co-ops. . . . It's not a top-down decision-making structure. .. . Trying to get all the retails to move as hierarchical and controlling. in the same direction all at once is incredibly challenging. Banda returned from a meeting with FCL's senior leadership team (SLT) where there was a discussion The vice-president of corporate affairs, Vic Huard, stated: about the progress that had been made and the obstacles that were overcome to date. The SLT also held a frank conversation about where progress was still lacking and the challenges that were ongoing. There was The way the governance model works and the expectations around democratic elections of board still a long way left to go in updating FCL's IT and marketing, and improving its people-management members . . . offer a fascinating peck into the "you get what you get" version of governance. processes. Given that the vast majority of organizational changes fail, Banda knew there was still a lot to be done for success." In addition to the challenges associated with co-operative governance. FCL was a complex business, It had operations across multiple industries including energy, food, home and building supplies as well as feed The pace and magnitude of change felt overwhelming to him (and to his SLT) at times and based on the and crop protection, FCL also owned and operated a large petroleum refinery complex, including an comments he was reading in the engagement survey, many employees felt the same way. The next day, upgrading component, in Regina, Saskatchewan. FCL's complexity increased with the geographic scope of Banda was scheduled to address FCL's home office employees in the city of Saskatoon in Saskatchewan. its operations and the vast difference in the size of its retail members. (FCL members included retail co. Canada, at a Q& A session. Banda scheduled this kind of session once each quarter because he believed that operatives in Calgary and Saskatoon as well as in smaller towns and rural areas.) Part of the complexity direct and open two-way communication with FCL.'s employees was integral to changing the deeply also included the large array of centralized technical services FCL offered to its retail members in the areas embedded command-and-control culture, The recent introduction of engagement surveys was another way of logistics, technology, marketing, and human resources. Huard elaborated: to ensure employees would feel comfortable about voicing their concerns to the senior leadership team. We're not in one particular business line and we're not an integrated company. . . . We have to As Banda ruminated over the employee engagement survey comments and the concerns the SLT raised that balance the competing interests of the various sizes of retails, geographic scope, and democratic morning, a number of questions surfaced, Had FCL. taken on more than it could manage? Should they slow governance processes. . . . Making decisions and implementing programs is challenging. down the changes being made to processes and systems?' What major obstacles could derail the process in both the short and long-term? Had the SLT developed a vision for what success would ultimately look like? John Kotter, "Leading Change: Why Transformation Ellots Fil," Harvard Business Review 85 (2007) 59-67, Available Brett Fairbairn, Building a Dream The Co-operative Retailing System in Western Canada, 1828-1989 (Saskatoon rom Way Publishing, product no. ROTO1J. Westom Producer Prairie Books, 1980)Page 3 9816M066 Page 4 98 16M066 Notwithstanding these challenges, FCL was successful. In 2013, FCL was named the largest company in Banda was promoted from vice-president of corporate and legal affairs to CEO in February 2010. Though Saskatchewan (with sales of 594 billion), and was consistently listed among the largest 50 companies in Banda had been raised around the co-operative movement and had been with FCL since 2002, the internal Canada.' Though it may have been tempting to become complacent with this level of financial success, support for Banda's appointment was not unanimous. In his interview with the PCL Board of Directors for FCL competed with large organizations across a variety of industries in both the wholesale and retail the CEO position, Banda commented that although what FCL was doing had worked for them in the past sectors, including, but not limited to, companies such as Walmart, Sobeys-Safeway, Loblaws, Costco, Esso, the competitive landscape was quickly changing. He was worried about the future sustainability of the Shell, Rona, Home Hardware, and Cargill. And the competition was intensifying. Banda said, "We have to company and identified a need for change. Banda bluntly stated to the Board at the time, "If you are looking compete with major organizations . . . and so if we aren't generating the profit at the end of the day from for the status quo, then I'm not your guy." our business model, we wouldn't be here." However, a major difference between a for profit co-operative and an investor owned firm was what Areas of Change happened with the profits. Vice-President Treasurer, Randy Boyer, described the difference: Although Banda self-admittedly did not have a master plan, immediately upon being instated as CEO, he For our large private and publicly traded competitors, profits are returned to the shareholders who initiated change in three major areas: talent management, branding, and IT. A complete overhaul of FCL's have a much different reason for investing in those entities: it's primarily for economic gain. In our talent management processes included changes to the organization's structure, talent acquisition, and board case, those profits are returned to our retail co-op shareholders, who also happen to be our unit Jan 12. 2028 and leadership development. Not everyone agreed with the direction Banda wanted to take the company. customers, for investment in their local retail co-operatives, or for further distribution to their own and there was initially some turnover at the highest levels. Reflecting on this, Banda said: individual member owners across Western Canada. The first step was with senior management. One of the changes we made was changing our team Co-operatives also historically developed in locations where other private organizations would not invest. from a senior management team to a senior leadership team because within our company. we were or would divest. FCL was deeply embedded in geographic communities and often served broader social very tactical. It was an evolution to get the leaders of the organization to really lead the teams. .. . is a copy git volador objectives in addition to meeting the economic objectives of its members. According to Banda: "Our owners God knows I didn't have all the answers and I knew we had to empower our people. are our members, so they're vested in the business. They live in the communities in which our co-ops operate. They buy the goods and services we provide." Banda hired Quilty as the new Director of Organizational Development, who in the short term reported directly to Banda. A major task for Quilty was to develop a framework that identified the different levels of leaders in the organization, For Quilty, leadership was critical: A COMPANY FALLING BEHIND We don't create competitive advantage through things like products. Things like culture and brand Even with increasing competition, FCL. was doing well, at least when measured by its financial position. are much more difficult to imitate. . . . It's really about building capacity. . . . The area to focus on This resulted in a lack of urgency for change. The adage "If it isn't broke. why fix it?" became the was with leaders because leaders have a disproportionate impact on the organization. If you can philosophy of many who did not feel change was necessary. FCL's strategy had been focused on providing make small changes in the leadership and help them be effective, that has a huge ripple effect value by returning the largest possible patronage refunds to its members, often at the expense of investing in innovation, employees, or social responsibility. As a result, FCL's processes and systems were outdated At the same time. the challenges in upgrading FCL's IT systems were staggering. Farahani, said: senior executives didn't even have computers or personal email until the mid-2000s), and the sustainability of the status quo was being called into question. Banda was often quoted as saying that one of the major Our IT was very outdated. To be honest with you, when I came. I never thought that I would run threats facing any organization is irrelevance. A change in culture was seen as necessary to move the into so many issues. There are many other organizations out there that have run into or are currently organization forward. facing one of these issues, but not an organization that has all of them at the same time." Aunt Faramarz Farahani, vice-president of information technology, who was hired from outside the organization One of the first major IT projects was to migrate off the mainframe legacy application system. This was by Banda, commented, "When I joined, there was a very dormant culture. There had been a very made all the more difficult because the change would inevitably result in job losses, which could derail the homogenous senior leadership team that was very comfortable with where they were." change early in the process. However, instead of laying off these employees, FCL struck an outsourcing deal with a company that took on almost all of the outsourced, unionized employees and kept them in The director of organization development, Teresa Quilty, added: Saskatoon as part of the contract. People describe the old culture to me as being one that I've called a "culture of followership." There Finally, both internal and external marketing communications were vastly outdated. Paper-based were a few senior leaders that really held most of the decision-making authority and the rest of the communication was still used to inform the retail oulets and employees about changes. Vic Huard, vice- organization followed. Even people in management roles really were followers. They were president of corporate affairs - and in charge of FCL's marketing and communications - noted that following orders and they were just getting things done. because so much was happening all at once, internal messages were often reactive rather than proactive, and there were often too many messages coming out at the same time. To address this, FCL. developed a strategic communications calendar so that important messages were not lost or ignored. All currency amounts are in CA$ unless otherwise specified CA$1.00 = US$0,7148 on January 6, 2016.Pago 5 9816M066 Page 6 9816M066 Externally, FCL conducted an online and telephone survey of 1,600 randomly selected individuals across Because the co-operative was local and rooted in communities, and board delegates and members were Western Canada to determine how well the primary co-operative visual mark - known in the CRS as "The elected from local communities across Western Canada, FCL also had information that may not otherwise Shield" - was recognized and what feelings it evoked. This marketing research showed that the co- be as easily accessible to other types of organizations. "Another advantage of our model and structure is operatives's visual brand was highly recognizable and elicited positive emotional responses. However, that we're local. .. . We have the best local intelligence network of any other organization. Our network there was an inconsistency in visual branding. identity, and messaging within FCL's various commodities can feed us information a lot quicker than anyone else can if we utilize it." Banda explained. and across the different retail co-operatives. There was also, initially, a sense among some of the retail outlets that promoting their image as a co-operative was not all that important. "There was always a sense of pride, but it was kind of ignored. People felt that it's not really that important to be proud of being a co- The Major Challenges op. .. . We saw ourselves as a business. We didn't tell our story very well," explained Huard Given that the company had fallen so far behind, the magnitude of change appeared daunting to Banda: FCL worked on a completely new marketing and branding strategy to be rolled out over the next couple of years. Although IT and branding were obvious priorities, Banda also saw the need for a deeper culture I underestimated the size of the task. It was one thing to say we [needed] to evolve our technology change at FCL. He believed that this would ultimately determine whether changes in other areas would be but I honestly didn't know what that meant .. . the size and the scale and the scope of what had successful. Banda stated: to be done there and how fast I thought we could evolve some of these processes. We pushed hard. In hindsight, I think I'd back up and just slow that down a little bit. People who don't want to change are a major risk to a successful change process, We're over 23,000 employees [ in the CRS] and we're going to try and change a culture. It's one thing to change an IT Quilty noted, "Just the cumulative volume and pace of change [are] what [are] probably most challenging or talent management system, but we were fundamentally changing a culture, trying to empower for us right now. We certainly bit off a lot and I think many of us say that we're trying to do 30 years of our people, to provide leaders with the ability to lead their organization, to really reframe our brand a maynight violation change in about three years." as that local alternative, and to celebrate our business model. Farahani explained, "We have 36 active projects in IT. Out of those, seven of them are considered multi- According to Huard Change across each of these areas was made more difficult by the co-operative million dollar, multi-year foundational projects which impact how we operate. When you put those numbers structure: together you realize that you really have to be focused because it is challenging." washoetend to this only'it educa lone programs al Core dogs Colege ull Jan 13, 1022 The challenge is that you don't direct anything. You lead by example, you lead by influence, you Banda believed employee involvement early in the change process was critical to its ultimate success, He lead by persuasion, by demonstrating excellence, but you can't make it happen because, put bluntly. involved employees early in everything from changing the dress code (to a less formal guideline) to the they own us - "they" being the retails. The concept of a system-wide approach to anything is selection of the organizational values. "We let the employees pick the values of the organization because much more challenging here than it is in an integrated company. Up orbe Timepa they're the ones that have to live with them, I believe in excellence, integrity, and responsibility; but we decided on and locked down the values in a way that they're not mine; they're ours." Notwithstanding these challenges, the co-operative model also offered advantages over other types of organizations with regard to the ability to plan for the long-term. There was a commitment and loyalty Employees appeared to be excited, There was a feeling that something big was happening with this once among co-opcrati've member-owners and employees that did not always exist elsewhere. Banda elaborated: sleepy, landmark company. Yet many also felt overwhelmed, as Quilty acknowledged We have a stable shareholder network. These member-owners are committed and are invested very It's a challenging time that we're in right now. People are very excited about the change; they know deeply in our organization, and that gives us the ability to plan. . . . It's a function of the [co- that it's good. Even intuitively they just go. "Yeah this feels good: it's exciting; we like where operative] model. . . . We have a very strong economic, philosophical, emotional attachment that we're going. " But it's hard. There's a lot happening and we don't always know how to do it. I think exists in our members that makes them very loyal, ... . To contrast that with a publicly traded for many employees who have been here a long time - and we have lots of long-term employees company where the shareholders and the capital base [are] constantly moving and evolving - that - we're now asking things of them that have never been asked of them before. puts a lot of pressure to drive to those quarterly results. In our organization, to initiate a major brand re-introduction which is a three- to five-year, maybe a ten-year process, you've got to have some The vice-president of human resources, Gary Mearns, added: capacity to have the vision, but you also have to have an organizational model that allows you to do that. Probably 20 per cent of your employee group immediately adopt these changes and love them because they just like change generally. You've got a big cohort in the middle that are saying, "Well Quilty said: I kind of see the change as being something that's valued, but prove it to me first and then I'll jump on-board." And then there's a certain group that will resist change no matter what just because it is We have so many people in the organization that are really truly dedicated, that live the values and a change. We've seen examples of all of that in our management ranks where there's been the really believe in our values - they're very meaningful to them. People here really care and want greatest amount of change. . . . And there's no question: the pace of change has been phenomenal to make a difference. I've seen that here more than [ in] any other organization I've worked in. the last two or three years and it's been challenging for everybody because of that.Page 7 9016MOGG Pago B 90 16MOGG Furthermore, there wasn't always a clear roadmap for how to undertake a change of this scope and Branding magnitude, As Quilty put it: On branding. Huard explained: This is true for any organization: senior leaders set a direction and they set some challenging goals - stretch goals - and that's where we want to get to. That's their job and that's hard to do, to Are we selling more product? Are we gaining more market share? Are we effectively working at know where we should go to. But then the task becomes, how do we execute that? "How do we building relationships on a one-on-one basis with customers at the store level and getting a bigger execute?" is a whole competency set that is not in wide supply and people often don't know how share of their wallet? That's really important. There's a lot of wallet-share growth that can happen to execute change well. Most change literature says something like 70 per cent of change efforts if we do things better. Are we seeing membership numbers at the individual co-op retails go up at fail. . . . They either fail to be on time or to meet the scope that they had set out, to get the result an accelerated pace? Are we seeing more young people getting involved as members of their co- they really wanted, to have the impact that they had hoped as an organization, or to be on cost. The ops and getting interested in serving on their local co-op boards? Are we getting the message odds are stacked against us: achieving everything on time, on budget, and the way we want. through to young people that there's a good reason to join [a] co-op and shop there? Those are hard metrics around brand and really important ones. These problems were amplified by the fact that the organization was engaged in a lot of hiring. According to Mears, "A total of three-quarters of our HR home office team had been in their roles less than two years. When you get that many people that are new, it's challenging. They are learning as they go about their jobs, until Jan 12, 2022 Alignment but we're also expecting them to be involved in the changes." With regard to alignment, Banda said: Responding to these concerns, Banda was becoming known for adopting an approach that emphasized learning, which reduced employee fears about making mistakes. Quilty described Banda: One of the biggest potential threats to our organization is lack of unity. A major indicator of success will probably be the degree of alignment in the [CRS]. When we have the various business units Our CEO has sent the message loud and clear to give permission for all of us to learn and figure that we have and a retail sector that's as big as it is all pushing our brand in the same direction, all things out and make mistakes. I think this is very wise and has been great leadership on his part. pushing technology and supporting technology initiatives in the same direction, all working on the He's not saying. "Hey, we're going to go and try anything and make lots of mistakes," but [he] same talent management structure, and using the ability of our business model to plan for the future recognizes that people are trying to do the right thing. Often people get concerned that they have . . then we'll be in pretty good shape. to come up with the right answers now. That's a natural behaviour that people have. By him giving us a little bit of space to acknowledge that the fact is we are just learning, the fact is we don't know It was also identified as critically important that throughout these changes, FCL. remain true to being a co. all the answers - it's realistic. operative, which meant also rediscovering internally what that meant. As Huard put it, repeateding Peter Couchman, CEO of the Plunkett Foundation, a co-operative development organization based in the United The growth in management and increase in staff at FCL raised a concern about hiring a number of people Kingdom, "You can choose to be a business that happens to be a co-operative, or you can choose to be a who may not understand the unique nature of the co-operative business model, and how this would impact co-operative business. We're choosing to be a co-operative business." the operation of the company. There was a fear that losing touch with what it meant to be a co-operative could undermine many of the strengths that came from the model itself, which differentiated FCL and its Co-operatives around the world often differentiated themselves from other organizations based on a retail member co-operatives from their competitors. Banda appreciated this so focused on hiring values- common set of values, which included self-help, self-responsibility, democracy, equality, equity, and and for based people from outside the co-operative sector who could quickly learn how to work within, promote, solidarity. Inspired by the Rochdale Pioneers, the founders of the modern-day co-operative movement, co- and defend the co-operative model operatives often also chose to uphold ethical values of honesty, openness, social responsibility, and caring for others." FCL created an operational balanced scorecard to continuously remind them of these values, and a co-operative's multiple objectives. The new scorecard placed an emphasis on the long-term INDICATORS OF SUCCESS sustainability of the second-tier co-operative, and on its broader social responsibilities. According to Quilty: Although the senior leaders agreed that the change process would be ongoing and would take at least Our balanced scorecard is based on five pillars in our organization. Our five pillars have to do with another three to five years before it could slow down, they began to articulate what future success would not only financial success, but also people, market performance and growth, operational efficiency look like in three key areas. and effectiveness, and social responsibility. Those pillars are our way of saying we need to pay attention to all five areas for us to be sustainable as on organization and to be successful over the long term Talent Management "A key measure will be that we are not only attracting and retaining [high performers], but that we're promoting those people as well - the people who are high performers and high-potentials and that arePage 9 9016M065 Page 10 90 16MOGG And for Banda, a continued focus on checking in with employees was critical: EXHIBIT 1: FCL'S VISION, MISSION, VALUES An employee once asked me. "How do you know when you'll have gotten there?" I had no idea how to answer that question at the time, but I said, "I'm going to sit in the lobby of this building FCL's Vision and watch the employees walk in. When you walk in with a smile on your face because you know you're valued at FCL, you know you can contribute everything you can contribute, and you know Federated Co-operatives Limited will set the world standard in consumer co-operative excellence. we're going to recognize that contribution and make this place feel like home for you, then I would have done it." This was an off-the-cuff answer three years ago, but that's really the answer. Our FCL's Mission success will ultimately come down to the culture change and engagement of our people. To provide responsible, Innovative leadership and support to the co-operative retailing system, for the benefit of members, employees, and Canadian communities. THE ROAD AHEAD While Banda was convinced FCI was headed in the right direction, he was concerned about employed FCL's Values burnout, and his SL.T was showing signs of fatigue. The organization was starting to introduce certain elements of change to the unionized employee groups, bringing with it a new set of challenges. And there Excellence: Strive to be the best. was the constant need to keep the retail member-owners engaged with the process by showing them how Integrity: Be honest and trustworthy. they would benefit from the changes being undertaken at FCL. Banda often questioned whether they should Responsibility. Accountability matters. if Cook moga Colage wantit Jain 12, 2002 slow down the pace of change a little bit. However, there had been a number of early wins and Banda didn't want to lose momentum, FCL's Aspirational Statement a copy ed viola Banda knew the importance of trying to outline a roadmap for employees to show not only where they were Strong co-operative governance is the foundation upon which we pursue a common purpose with our retail headed, but also how to get there. However, given the scope, scale, and pace of change, the situation was owners. Working together, we sustain a vibrant Federation by creating shared value. constantly evolving. Banda thought that, at best, he might be able to lay out some guiding principles to and decision-making. He attempted to achieve this through constantly orienting FCL's senior leadership and We leverage our financial strength to steward the sustainable growth of our Co-operative Retailing System. employees to the greater purpose and values of the co-opcrative business (see Exhibit 1). At Co-op. our members/customers feel at home, because we are part of the fabric of the communities we serve. We foster meaningful careers and inspire our employees to bring our brand to life every day, We Finally. Banda pondered the potential impact of the large number of new employees at FCL. Although model and celebrate a culture of teamwork, learning and innovation. some of the turnover in management had helped the culture change, there was a shortage of talent. not only Source: Company documents. with the relevant business knowledge and skills in key areas, but also with a deep understanding of the co- operative business model. This could pose a major threat to FCL's ability to sustain and leverage its unique Authorized for use only in educational p advantages in an increasingly competitive environment. With all of this in the back of his mind, Banda carefully considered what to say to FCL's home office employees the following day at the Q&A session. Based on some of their responses to the engagement survey, many were obviously worried about similar issues. The authors acknowledge and thank the Centre for the Study of Co-Operatives at the University of Saskatchewan for providing funding to support the development of this case