Enterprise Software Companies and Disruptive Change

Coping With Organizational Change

A Study of Enterprise Software Companies and Disruptive Change

New developments in an industry are as disruptive as the fundamental re-ordering of their economics with a corresponding shift in the balance of political power that defines boundaries of influence. Organizational change and its many dynamics take on added significance in the study of how disruptive technologies re-order organizational cultures with significant cultural, economic, social and political implications (Bordum, 2010). The role of transformational leaders in successful change management initiatives is that of stabilizing force for employees on the one hand, and visionary defining the future direction of the enterprise on the other (Boga, Ensari, 2009). One of the most volatile industries today is enterprise software, and the transformational change that is happening at a strategic level in this industry today. This transformational change at a technological level is revolutionary, as is evidenced by the rapid $1B+ market valuations of companies including Salesforce.com and others on the Software-as-a-Service (SaaS) platform. SaaS-based software is bringing rapid transformational change to the business models of enterprise software companies with increasing intensity, shifting long-standing evolutionary business models based on recurring software revenue streams in the process. Within these dynamics of revolutionary change are ample examples of how organizations are structuring and executing their change management initiatives. Implementing key parts of their Organizational Change Models, and averting resistance to change through effective transformation through change management participative leadership and planning (Herold, Fedor, Caldwell, Liu, 2008). While there are many enterprise software companies struggling with this aspect of their core business models, the subject of this analysis is privately-held Cincom Systems, headquartered in Cincinnati, Ohio with operations throughout seventeen nations and employing over 700 associates globally. What makes the study of Cincom Systems relevant to organizational change management is the high level of dependency the company has today on its core enterprise software companies, who in most cases for decades paid maintenance fees, contract amounts, and despite the value of SaaS-based economics and the potential to gain even greater leverage and value for their investments, continue to hold onto their on-premise licensing models. Cincom Systems is facing the urgent challenge of change management with its customer base, and secondarily, with its engineering, services and support teams as well. The resistance to change that emanates from the customer base permeates parts of the organization, making the disruptive nature of SaaS applications and platform economics even more abrupt, and if unanswered, severe in the coming years. This analysis will concentrate on how change management can be implemented within Cincom Systems to bring both customers and employees into a more transformative role. Second, how the leaders at Cincom can overcome resistance to change, and hwo the lessons learned from using the Force Field Analysis Model can be applied to Cincom specifically and enterprise software vendors strategically. The Culture Web is used as a means to analyze the current climate within Cincom and provide prescriptive guidance for the future. Finally the role of transformational leaders is also assessed. The enterprise software industry is going through a massive level of change today as the collection fo SaaS- and Cloud-based application technologies and the economic advantages they offer customers continues to increase. The economics of Cloud computing and SaaS applications are having a reverberating effect throughout Cincom Systems and the entire software industry. The impacts of this disruptive, transformational change are the primary catalysts of this analysis.

Assessing and Defining Resistance to Change

The concepts surrounding resistance to change are highly varied, yet all share a common catalyst or foundation: when organizational members have little if any perceived control over change they make every effort to ensure it fails. The extent and depth of fear and mistrust of change is directly proportional to the level of effort made to ensure new initiatives don’t succeed (Stensaker, Langley, 2010). When the change is directly related to a person’s job, there must be a focus on creating a level of transformational readiness, even from an operational level, for a change management program to succeed (Armenakis, Harris, 2002). The dynamics of change management become more complex when the constituents are not employees or associates within a firm. This is the fundamental challenge that Cincom is facing today in the context of resistance to change. Cincom’s customers are very effective in resisting change and making their economic biases known throughout the company and often have influenced pricing, licensing, and product development plans. Cincom has at times been too lenient with these shifts in strategy based on resistance to change, at one point allowing product strategies to be driven by the top five customers of their ERP systems for example. Having chosen an evolutionally transformation strategy, Cincom chose to allow for their customers to define the pace and rate of change.

Instead of allowing this to occur, Cincom needed to define a framework for organizational change management that would allow for operational change while still setting the foundation for strategic, intentioned change (Chapman, 2002).

This dichotomy of change management strategies within Cincom driven by the strength of their customers on the one hand who strongly resisted SaaS-based application development of their applications. The majority of these customers resisting the change, and their vocal supporters internally, are Chief Information Officers (CIOs) who fear with a SaaS-based version of Cincom’s software, they will lose prestige and power in their companies. SaaS is clearly a very disruptive, transformational technology in the industry, carrying political ramifications as well. The long-standing CIOs who have in some cases paid annual maintenance fees up to 22% of the purchase price of software for years, have significant influence in the company. This is counterbalanced by an entirely new series of customers who want to use the Cincom ERP systems on SaaS-based platforms, entirely accessible over the Web. Sales and marketing are the champions of the new potential group of customers, and service, support and programming teams side with the CIOs. Resistance to change is very strong when it comes to supporting CIO interests within the teams most loyal to this group, as they see their status and importance being degraded indirectly by the SaaS initiatives.

Yet the most powerful change management catalyst of all, the economics of these applications, favor their adoption by a much broader base of customers. In looking to facilitate transformational change, Cincom has continued to show the financial benefits to their customers of using SaaS-based applications, with a lower maintenance fee per year, and the potential to only invest in the smaller modules delivered via the new platform. A change management strategy has been put into place that illustrates through case studies and examples how SaaS-based ERP and CRM software can actually save more in maintenance fees. In constructing effective change management strategies the core focus must be on creating an incentive to change while also defining foundational elements that will lead to trust and transparency (Nutt, Backoff, 1997). One of the most effective means of enabling more effective change management is to also create a more well-define contributory role for each person and team affected by the change, giving them ownership of the process (Hughes, 2007). The hard reality is that without a SaaS-based application within the next three years, Cincom will see nearly 50% of new business go to competitors. The CIOs of its customer base realize that the political influence they have in their companies and within Cincom will erode when this happens, hence the formidable obstacles they are creating within and outside the company. If Cincom’s senior management overcomes this change management dilemma, the business will grow at least 30% to 50% in the coming three years, and critical staff in support, services and programming will stay with the company. If not handled correctly or if the change management programs are not managed from a transformational leadership standpoint instead of transactional one, Cincom will eventually shrink in size and be increasingly controlled by a small group of CIOs who are driving the development requirements. The essence of transformational leadership is being able to create a highly effective, integrative framework that combines idealized influence, individualized consideration, inspirational motivation and intellectual stimulation to ensure long-term change occurs (Strachan, 1996) (Tucker, Russell, 2004). For Cincom to be a going concern in ten years, these change management initiatives must succeed, as SaaS-based applications will be the majority of the enterprise software market (Koslowski, Struker, 2011).

Applying Force Field Model Analysis to Enterprise Software

The fundamental forces that are driving disruptive transformational change globally throughout the enterprise software industry today are primarily economic. The ramifications of these shifts in buying power, from the CIOs to the line-of-business (LOB) managers, directors and vice presidents, is unprecedented in speed and impact. Today LOB managers, or those running business units who have Profit & Loss responsibility, have the ability to lease SaaS applications within their own budgets. There is called paying for enterprise software with operating expenses (OPEX). Larger, on-premise and more expensive enterprise software that CIOs are accustomed to controlling the purchasing of are paid for through Capital Expenses (CAPEX) (Koslowski, Struker, 2011). These are the two most powerful factors that anchor the Force Field Model analysis of the enterprise software industry. With the driving and restraining forces in continual interaction and at times conflict, productivity shifts drastically across the continuums of industries based on the impact of driving and restraining forces (Paquin, Koplyay, 2007).

Cincom is being affected by the disruptive driving forces of CAPEX and OPEX most severely as competitors are quick to create a competitive advantage for themselves by seizing these areas and exploiting them in the market. CAPEX and OPEX are driving such a high rate of disruptive innovation and transformation change that it is in turn disrupting cultures of companies and reordering stakeholder dynamics as well (Koslowski, Struker, 2011). The political and technological forces are also driven by these economic ones, with the restraining forces of the Force Field Model applied to enterprise software being led by CIOs who don’t want to see their political power base degraded (Koslowski, Struker, 2011). The driving forces of this change are LOB leaders who only have a certain amount of time to complete a given strategic goal, which is nearly always tied to sales and revenue targets. For these LOB leaders, the emphasis on time-to-value and the need for gaining a much greater level of impact for their it investments critical to their success (Koslowski, Struker, 2011). The Force Field Analysis indicates how strong these factors are as the very nature of how investments are made is changing rapidly today (CAPEX vs. OPEX) (Koslowski, Struker, 2011).

Finally the Force Field Analysis Model is invaluable from the Cincom standpoint and their decision to create more applications on SaaS despite resistance from CIOs as the productivity of these applications is so significant, that it has a neutralizing effect on the driving forces area of the paradigm. This dynamic of it-based disruptive transformation is eventually going to re-order the entire social fabric organization, as information and knowledge becomes more fluid and quickly applied to strategic plans and initiatives, not just the generation of reports (Yarberry, 2007). Inherent in the Force Field Analysis Model is also the need fro selecting leaders who can define, execute and own change management strategies specifically focused on SaaS adoption and growth. Aside from the most critical success factor of having transformational leadership strategies in place and ensuring a high level of ownership, selecting leaders and defining their relative roles from the operational to the strategic is critical for any long-term change management program to succeed (Doyle, 2002). Defining who will specifically drive the overall development of the SaaS applications and how they will be introduced is specifically what new leaders will need to concentrate on in the years ahead. Choosing them now will have a large impact on the overall direction of change management and balance of the Force Field Analysis. As the continual efforts of CIOs to keep the status quo deteriorate due to the pervasive adoption of CAPEX spending, the need for having transformational leaders with strong self-efficacy will accelerate (Fitzgerald, Schutte, 2010).

Leadership Analysis and the Cultural Web

The stories, symbols, power structures, organizational structures, control systems, rituals and routines all are directly impacted by any level of change. These core components of the Cultural Web in any organization often inhibit and potentially slow down change as the paradigm of organizations often is interlinked to all of these factors. The Cultural Web, in the context of Cincom Systems and their struggle to gain change management initiatives in the SaaS market, are strong in stories and symbols of how this new approach to development application is bringing in new customers. The greatest symbol of all in any enterprise software company are the financial results its customers produce on a consistent basis and the financially quantified value of the applications themselves (Koslowski, Struker, 2011). In the context of the Cultural Web, financial quantification of results and the focus on how to create change throughout it are critical success factors for any program to succeed (Nussbaumer, Merkley, 2010). For Cincom the need then is for a transformational leader who will be able to manage the diverse base of requirements inherent in the Cultural Web and create a unified, highly synchronized strategy that brings together all diverse and potentially distracting elements (Warrick, 2011). The little-discussed yet critically important area of energy and intensity applied to change management unified strategies in the Cultural Web is also important — and needs to be planned for to ensure synchronization of all elements (Wilbanks, 2011). Finally the leadership strategies and initiatives must also support the development of autonomy, mastery and purpose, three core functional areas of long-term motivational change and growth (Yolles, Iles, Guo, 2006).

A transformational leader to drive this significant of a change will also need to have idealized influence, individualized consideration, inspirational motivation and the ability to deliver intellectual stimulation to peers, subordinates and employees. These factors are critical for the entire organization to stay coordinated in the context of the Cultural Web (Doyle, 2002). In creating SaaS-based applications that can meet the needs of an entirely new and much more profitable customer base, Cincom will need to also create a more hybrid-based approach to their Cultural Web as wlel, integrating portions of the Microsoft culture in the process. This will be critically important for creating a unified and more knowledge-based ecosystem that can turn out SaaS applications rapidly. The partnership with Microsoft will also allow for greater agility and flexibility in meeting emerging customers’ needs. Finally, the alliance will be seen by CIOs as an investment in what they like best, which is risk mitigation (Koslowski, Struker, 2011). The creation of a broader ecosystem in the context of the Cultural Web will be critical for the overall growth of Cincom going forward.

Conclusion

Cincom Systems is going through revolutionary, transformational change today as its customer base is resistant to change at the product level that will lead to entire new markets. The situation Cincom faces is very similar to Apple when they chose to move forward with the iPod initially then iPhone and finally the iPad. The decision to seek out a new market at the expense of potentially alienating the old-line and very opinionate customer base was a difficult one for Apple, yet they were able, through change management strategies and respect for the Cultural Web, create a highly effective ecosystem at the economic and socio-cultural level as well. This is what Cincom must do in order to continually grow and expand with the nascent, high growth opportunities in the market.

References

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Boga, I. & Ensari, N. 2009, “The Role of Transformational Leadership and Organizational Change on Perceived Organizational Success,” the Psychologist Manager Journal, vol. 12, no. 4, pp. 235.

Bordum, a. 2010, “The strategic balance in a change management perspective,” Society and Business Review, vol. 5, no. 3, pp. 245-258.

Brown, a.D. 1994, “Transformational leadership in tackling change,” Journal of General Management, vol. 19, no. 4, pp. 1-1.

Chapman, J.A. 2002, “A framework for transformational change in organisations,” Leadership & Organization Development Journal, vol. 23, no. 1, pp. 16-25.

Doyle, M. 2002, “Selecting managers for transformational change,” Human Resource Management Journal, vol. 12, no. 1, pp. 3-16.

Regina Eisenbach, Kathleen Watson and, Rajnandini Pillai 1999, “Transformational leadership in the context of organizational change,” Journal of Organizational Change Management, vol. 12, no. 2, pp. 80-88.

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Herold, D.M., Fedor, D.B., Caldwell, S. & Liu, Y. 2008, “The effects of transformational and change leadership on employees commitment to a change: A multilevel study,” Journal of Applied Psychology, vol. 93, no. 2, pp. 346.

Hughes, M. 2007, “The Tools and Techniques of Change Management,” Journal of Change Management, vol. 7, no. 1, pp. 37.

Koslowski, T. & Struker, J. 2011, “ERP on Demand Platform,” Business & Information Systems Engineering,, no. 6, pp. 1.

Lewis, P. 1996, “Transformational change using stratified systems theory,” International Journal of Public Administration, vol. 19, no. 6, pp. 801-801.

Nussbaumer, a. & Merkley, W. 2010, “The path of transformational change,” Library Management, vol. 31, no. 8, pp. 678-689.

Nutt, P.C. & Backoff, R.W. 1997, “Facilitating transformational change,” the Journal of applied behavioral science, vol. 33, no. 4, pp. 490-508.

Paquin, J. & Koplyay, T. 2007, “Force Field Analysis and Strategic Management: A Dynamic Approach,” Engineering Management Journal, vol. 19, no. 1, pp. 28-37.

Strachan, P.A. 1996, “Managing transformational change: the learning organization and teamworking,” Team Performance Management, vol. 2, no. 2, pp. 32-40.

Stensaker, I.G. & Langley, a. 2010, “Change Management Choices and Trajectories in a Multidivisional Firm,” British Journal of Management, vol. 21, no. 1, pp. 7.

Tucker, B.A. & Russell, R.F. 2004, “The Influence of the Transformational Leader,” Journal of Leadership & Organizational Studies, vol. 10, no. 4, pp. 103-111.

Warrick, D.D. 2011, “The Urgent Need for Skilled Transformational Leaders: Integrating Transformational Leadership and Organization Development,” Journal of Leadership, Accountability and Ethics, vol. 8, no. 5, pp. 11-26.

Wilbanks, T.J. 2011, “Inducing transformational energy technological change,” Energy Economics, vol. 33, no. 4, pp. 699.

Yarberry, William a.,,Jr. 2007, “Effective Change Management: Ensuring Alignment of it and Business Functions,” Information Security Journal, vol. 16, no. 2, pp. 80-89.

Yolles, M., Iles, P. & Guo, K. 2006, “Culture and transformational change with Chinas accession to the WTO,” Journal of Technology Management in China, vol. 1, no. 2, pp. 147-158.

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