HULT International Business School EMBA

Carlo Giorgis

HULT International Business School Executive MBA CHANGE MANAGEMENT

The reorganization of the Group Internal Audit Department

FINAL assignment: Carlo Giorgis

Change Management

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HULT International Business School EMBA

Carlo Giorgis

EXECUTIVE SUMMARY
UniCredit is one of the largest European financial groups, operating in 22 European countries with around 160.000 employees worldwide and 9.500 branches. In 2005, following the merger with HVB and the appointment of a new Head of Department, the Internal Audit Department (IAD) was reorganized. The expected results were obtained later than planned, with large resistances, process and relationships disruptions and bureaucracy increase. Main reasons were due to a simplistic approach to change, an inadequate leadership style, lack of compelling vision and insufficient communication. The IAD restructure could have been managed more effectively with a different approach in terms of:      Organization metaphor: IAD has aspects of both Machine and Organism (Morgan, 1986); Model of change: William Bridges’s Model (Managing the transition, 1991) and Kotter Eight Steps (1995); People’s management, keeping into account the Behavioral (Pavlov, 1928 – Skinner, 1953) and Psychodynamic (Kubler-Ross, 1969 – Satir et al, 1991) approaches; Team’s management, building a project team taking into account the personal traits of team members (Belbin, 1981), involving external consultants and HR; Leadership Style, moving from Coercive towards a mixed use of Authoritative, Affiliative, Democratic and Coaching Styles (Goleman, 2000).

The change management plan, defined bringing together the Bridges’s and Kotter’s approach, focuses on:   creation of the need for change and of a compelling vision; constant, extensive communication to all involved employees, from the very beginning to the end of change, trough: o periodical IAD meetings; o one-to-one meeting between employees, Head of IAD and HR; o open and honest involvement of people into the change process. approach to people that takes into account the different feelings in the different phases of change; leadership style promoting risk taking and experimentation, responsibility, personal development; different rewards, to sustain people through the transition; ethical approach in dismissing and hiring decisions.

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HULT International Business School EMBA

Carlo Giorgis

Table of Contents
1 2 Overview ...........................................................................................................................................................4 Background .......................................................................................................................................................4 2.1 2.2 2.3 2.4 3 3.1 3.2 3.3 3.4 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 5 6 The Company ............................................................................................................................................4 Triggers for change ...................................................................................................................................4 The change ...............................................................................................................................................4 The outcomes ...........................................................................................................................................5 Organization’s metaphor & model of change ..........................................................................................6 Individuals.................................................................................................................................................8 Teams .......................................................................................................................................................9 Leadership style ........................................................................................................................................9 Purpose and scope ................................................................................................................................ 11 Leadership Style..................................................................................................................................... 11 Need for change .................................................................................................................................... 11 The change team ................................................................................................................................... 11 Vision and strategy ................................................................................................................................ 11 Communication ..................................................................................................................................... 11 Employees’ management ...................................................................................................................... 12 Short term wins ..................................................................................................................................... 12 Consolidation ......................................................................................................................................... 12 Institutionalization of new approaches ................................................................................................. 13

Analysis of the approach to IAD restructure ....................................................................................................6

Change Management Plan ............................................................................................................................ 11

References ..................................................................................................................................................... 14 Bibliography ................................................................................................................................................... 14

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HULT International Business School EMBA

Carlo Giorgis

1 Overview
The report, starting from the reorganization of the UniCredit Group Internal Audit Department (IAD) that took place between in 2005 and 2006, proposes a management plan that details how the change management could have been handled, based on models and tools of organizational change.

2 Background
2.1 The Company
UniCredit is one of the largest European financial groups, operating in 22 European countries in retail, corporate, private and investment banking, as well as asset management and insurances. It has around 160.000 employees worldwide and 9.500 branches.

2.2

Triggers for change

UniCredit – HVB MERGER

New HEAD of IAD

IAD RESTRUCTURE

The triggers for change were:  the merger between UniCredit, HVB and its Austrian subsidiary, Bank Austria. A big Integration Program was established to consolidate all the acquired legal entities into UniCredit Group, that involved also the Headquarters staff functions. The new Group was: o larger than before (from 90.000 to 160.000 employees); o more complex from an operational point of view; o with a greater degree of diversity. the retirement of the Head of UniCredit IAD, replaced by the Chief Administrative and Risk Officer.

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2.3

The change

IAD was composed by around 60 employees, allocated into units specialized by process (credit process, investment process, administration, operations) carrying out two main activities: o o coordination of the subsidiaries’ internal audit departments, agreeing with top management the annual audit plan and analyzing the results (relationships based activities); direct execution of internal audits at local level (on-site audit, technical activities).

IAD restructure was executed allocating the two activities to two distinct units: Audit Monitoring and Audit OnSite. Audit Methodologies was renamed Integration, Quality, Models & Controls and the new Audit Holding was created.
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Carlo Giorgis

2.4

The outcomes

The project ultimately obtained the expected results:  a standardized communication flow to the UniCredit Board of Directors;  the use of a standard audit methodology at legal entity level;  costs control, despite the large growth of the Group dimensions following the merger, but with the followings shortcomings:       implementation time longer than planned; large resistances; heavy impact on employees morale, motivation and collaboration; employees turnover (75%) higher than expected; increase of bureaucracy; it didn’t really integrated the different units operated within the different legal entities.
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Main reasons were related to:      approach to organization change (metaphor and change model); Head of IAD’s leadership style; lack of compelling vision; unclear criteria used to appoint new managers; poor communication.

The approach to the change was based on the MACHINE METAPHOR (Morgan, 1986). IAD, as a work group was:        Stable; Part of the management structure; Focused on managing daily activities; Hierarchically structured.

This led the following assumptions related to the organizational change approach: IAD had a low propensity to change; The change should be shaped and lead from the top; Resistance is expected and needs to be managed.

The applied model of change was BULLOCK and BATTEN (1985): the new Head of IAD created a blueprint, defined a new organizational chart, appointed a project manager to implement the changes following a project plan. Minor consideration was devoted to people, with lack of:   communication; people’s management.

The leadership style was COERCIVE (Goleman, 2000), requiring compliance to directives and discouraging risk taking.

3 Analysis of the approach to IAD restructure
3.1 Organization’s metaphor & model of change
The MACHINE METAPHOR (Morgan, 1986) doesn’t entirely describe IAD. A fully description also requires the use of the ORGANISM METAPHOR (Morgan, 1986), as IAD:     is adaptive (Internal Audit, as a control unit, reflects the company’s organization); changes following a modification in the external environment (the merger with HVB and the appointment of the new Head of IAD); implies that individuals and teams feel the need for change; needs individual and team well-being.

Based on the two metaphors, the reorganization of IAD could be designed based on two different change models: William Bridegs and Kotter.

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HULT International Business School EMBA

Carlo Giorgis

Organization metaphor

Approach to organization change

MACHINE

BRIDGES

ORGANISM

KOTTER

The reorganization of IAD, with clear “before” and “after”, can be effectively handled with the WILLIAM BRIDGES’ MODEL, managing the transition (1991)

Bridges (1991): endings and beginnings

This change model underscores the importance of emotions in change processes. Bridges focuses on transition, that is the internal transformation required to individuals to make the change work, that occurs more slowly than change (Bridges & Mitchell, 2009). Three phases are identified: 1) ending, when individuals let go the old way they were used to work and to be; 2) neutral zone, the uncertain time needed for the transformation to take place; 3) new beginning, when people start to behave in the new way. This approach focuses on people at all levels, individuals (both employees and leaders) and teams, providing directions to leaders on management individuals and team during transitions following a merger or a reorganization. Managerial actions should be different in each of the three phases: Ending:     figure out who are the winners and who are the loosers; communicate the need for change and the new vision; acknowledge the loss and peoples’ feelings; provide clear explanations about the future.
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Neutral zone:         explain the need of time to design and implement new organizational structure and processes; define short-range objectives; encourage risk taking attitude; ask for collaboration and proposal; communicate and listen.

New beginning communicate again the vision; incorporate the new in internal regulations, organizational chart, processes; mark the new beginning.

A second model that could be applied together with Bridges’ is KOTTER’S EIGHT-STEPS (1995): this model, fit to machine, political and organism metaphors, highlights the importance of creating the need for change and a compelling vision and of communicating constantly and effectively, while providing, a logical structure for building and managing the change plan.
Establishing the need for change Institutionalize new approaches

Building the change team

Consolidating

Creating vision and values

Noticing improvements and energizing Empowering others

Communicating and engaging

Kotter (1995): Eight steps model

3.2

Individuals

IAD restructure shouldn’t ignore employees’ behavior and emotions caused by the change. To manage this, the most relevant approaches are: Behavioral (Pavlov, 1928 – Skinner, 1953); Psychodynamic (Kubler-Ross, 1969 – Adams ,Hayes and Hopson’s, 1976 - Satir et al, 1991).

The Behavioral approach suggests to set up rewarding schemes from the very beginning, to motivate people to embrace change.

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HULT International Business School EMBA

Carlo Giorgis

The Psychodynamic approach helps managers in understanding people’s emotions and reactions to a change and in putting in place proper actions. It highlights that there is a time lag between leaders and employees in entering and exiting from the different change phases that must be taken into account by managers when dealing with people.

Adams ,Hayes and Hopson (1976): the change curve

Finally, people’s management could be improved with the use of tools as the Myers-Briggs Type Indicator, that classifies individuals in different types according to their approach to change, tailoring communication in coherence with the types of employees.

3.3


Teams
IAD units, that will face change of: o objectives; o roles and activities; o team members; o managers. IAD and its units are work team that should be managed according to the Tuckman’s model of team change (forming, storming, norming, performing).  The change management team is a Project team, with the goal to define and execute the change within a deadline. Taking into account its purposes, the team should be set up having in mind the different team roles (Belbin, 1981).

Two different types of teams are involved in the IAD reorganization:

3.4
  

Leadership style plan and control, driving to the achievement (machine); coach and support individuals (organism).

According to the two metaphors (Machine and Organism) leaders should:

According to the Bridges model of change, leaders should: in the ending phase, help people in:
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HULT International Business School EMBA

Carlo Giorgis





o becoming aware of the losses; o communicating their emotions; o replace the loss with something else; o communicate in the neutral zone: o explain the difficulties and the opportunities for individuals; o use rewarding tools to maintain the motivation; o promote risk taking; o communicate in the new beginning phase: o communicate the goals of the change; o support people in figuring out their future role; o underscore the conclusion of the neutral zone; o celebrate success.

Based on the Six Leadership Styles (Goleman, 2000), the Coercive Style used by the former and the new Head of IAD, as well as by the two deputies, is disrupting: it communicates disrespect to people, lowering sense of responsibility, motivation and loyalty. The leadership style should change towards the use of:     the Authoritative Style, creating a strong vision of the organization’s future; the Affiliative Style, focused on increasing and maintaining employees happy and collaborative, to create a sense of belonging and increase loyalty; the Democratic Sytle, based on the consideration that IAD was formed by professionals, in many case more experienced than the Head of IAD. With this style a two ways communication should established, asking for employees sharing their vision, ideas and suggestions on the proposed changes; the Coaching Style, focused on peoples’ development, even if it could be difficult to adopt in difficult times as neutral zone.

The Pacesetting Style, highly demanding in terms of expected performance, should be kept apart during the neutral zone, just trying to maintain a standard level of normal activities.

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HULT International Business School EMBA

Carlo Giorgis

4 Change Management Plan
4.1 Purpose and scope
The purpose of the plan is to define a change strategy aligned with the results of the analysis on the organization’s metaphor and model of change, individuals, team and leadership style in order to make the restructure effective and smooth and to reduce risks and disruptions. The scope is limited to Group IAD, composed by around 60 employees.

4.2
 

Leadership Style move from the Coercive to Authoritative, Affiliative, Coaching and Democratic leadership styles; promote the collaboration among IAD units and employees.

To increase IAD’s readiness to change and to create the conditions for change:

4.3

Need for change

A sense of urgency must be created informing the employees about the outcomes of the integration project and how it affects IAD:     the new Group is larger, more complex and diverse: thus, it needs to be organized differently; with the current organization, IAD won’t be capable to reach its goals effectively and efficiently; IAD needs to leverage more extensively on local Internal Audit activity; UCI and HVB are integrating the activities: IAD is not currently monitoring the integration project.

4.4
      

The change team one external consultant specialized in change projects (team leader), to provide the necessary expertize and detach from the organization; one employee from each IAD unit (4 members); one employee from HR department,

The new Head of IAD is the project sponsor. The change team should be composed by:

with the following objectives: build new organizational structures; define role and responsibility of the new units. size the new units; implement the new processes.

Minimum roles (Belbin, 1981) to be covered are plant, resource investigator, co-ordinator, monitor evaluator, implementer.

4.5
   

Vision and strategy development and delivery of standard audit methodologies and reporting models to be used locally; coordination of the audit activity planning for all the Group local entities; consolidation and reporting to UCI Board of Directors of the audit activity performed locally; reduced number of audits executed directly by IAD.

IAD as the Group coordinator of the audit activity, rather than direct executor of internal audits, through:

4.6

Communication

Communication must be intense, constant and directed towards the whole organization, to gain acceptance.
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Actions should be:  a first IAD meeting where the change sponsor (Head of IAD) presents: o the need for change; o the vision; o the change team. Periodical IAD meetings for providing updates on the projects. These meetings, rather than boring one-way reporting, should be turned into occasion for two-ways discussions about the change; One-to-one meetings between the Head of IAD and employee; Use of the group intranet to: o provide constant information about the group integration project; o share the information about the IAD reorganization; o collect suggestions from the employees to the change management team; o collaboratively exchange information.

  

The first IAD meeting will be the occasion to underscore the Ending Phase:      things are definitively changed: IAD must change to follow the group integration; the way IAD works starts changing from now; explain that the following phase will be difficult, but that good results could be achieved with the helps of all; honestly admit that the reorganization will create opportunities, but will also requires new skills and the availability to do different things in new way; don’t provide an already decided solution, but let the door open for proposals from the structures.

4.7

Employees’ management

The following actions should be put in place to deal with the most important stakeholder (employees) and to manage obstacles that might undermine the change during the Neutral Zone:          use fair, transparent, objective criteria to appoint any new manager; avoid to dismiss employees only to replace them with people loyal to the new Head of IAD; make the audit plan more flexible, to manage uncertainties; introduce new reward mechanisms: from rigid respects of deadline to customer satisfaction (i.e. satisfaction of the audited group legal entities); implement new collaborative IT systems to push people to co-operate; offer employees new learning opportunities (e.g. English courses, as the new official language is English, or courses developing social skills); talk to any manager whose behavior might obstruct change, trying to take her on board; plan with HR individual meetings to assess possible new career development; offer coaching opportunities to employees; promote the use of different leadership style in the middle management.

4.8
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Short term wins
Approval of a new reporting standard to the Board of Directors; Completion of audits carried out jointly by employees of UCI and HVB; Implementation of the new IAD organizational structure.

4.9
 

Consolidation
Constant communication: frequent meetings, continuous discussion with people; Implement new IT systems to standardize operations across the Group;
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   

Start new collaborative projects with local audit departments.

4.10 Institutionalization of new approaches
Replace people only if needed; Rewards to people that actually contributed to the change; Reinforce the culture with training to every new employee.

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HULT International Business School EMBA

Carlo Giorgis

5 References
Bridges W. & Mitchell S. (2000) Leading Transition: A New Model for Change – Berlin, Eaton & Associates Ltd Cameron E. & Green M (2012) Making sense of Change Management – Kogan Page Goleman D. (2000) Leadership That Gets Results – Harvard Business Review On Point Morgan G. (1986) Images of Organization - Sage, Thousand Oaks, CA Various authors (2003) Managing Change & Transition – Harvard Business Essentials

6 Bibliography
Fiona Graetz (2000) Strategic change leadership – MCB University Press Goleman D. (1998) What Makes a Leader? – Harvard Business Review Goleman D., Boyatzis R., McKee A. (2001) Primal Leadership: The Hidden Driver of Great Performance - Harvard Business Review On Point Herzberg F. (2000) One More Time: How Do You Motivate Employees? - Harvard Business Review On Point Quy Nguyen Huy (2001) In Praise of Middle Managers – Harvard Business Review

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