RESEARCH AND PRACTICE
IN HUMAN RESOURCE MANAGEMENT

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Menkhoff, T. & Kay, L. (2000). Managing Organizational Change and Resistance in Small and Medium-Sized Family Firms, Research and Practice in Human Resource Management, 8(1), 153-172.

Managing Organizational Change and Resistance in Small and Medium-Sized Family Firms

Thomas Menkhoff & Lena Kay

Abstract

Small and medium sized enterprises (SMEs) with their useful socio-economic funtions and ‘shock-absorbing capacity’ form the backbone of most Asian economies. To survive the current economic downturn and to stay in business in the age of globalization, the upgrading of management, systems, and operations are deemed to be necessary. While governments have provided various incentive schemes for such measures, it seems that many SMEs are reluctant to adopt such programs and to implement planned organizational change, i.e. transformations with regard to structure, technology, human resources and/or culture to increase their competitiveness. The example of Good Tools, a locally-owned manufacturing firm in Malaysia with a high level of resistance among supervisory staff, serves to illustrate some of the issues and challenges associated with organizational change in family-owned small firms. It is argued that the quality of corporate governance in terms of management structure, leadership style, compensation policy etc. in combination with certain family institutional characteristics of small businesses such as nepotism are central in understanding successful or unsuccessful organizational change processes. Another proposition put forward is that planned corporate transformations such as the implementation of modern management concepts (e.g. total quality management) are difficult to sustain if management adopts a paternalistic and authoritarian management style.

Introduction

“CHANGE OR GO BUST!” - SME DEVELOPMENT IN THE AGE OF GLOBALIZATION

Globalisation and increasing competition, new technologies, the knowledge revolution and unexpected economic shocks such as the curent economic and financial crisis represent crucial external environmental issues triggering change (Naisbitt, 1995; Ohmae, 1990; Yeung, 1999). Throughout Asia, SMEs are under strong pressure to upgrade the present level of technology and competencies so as to compete in both the local and foreign markets.

The growing internationalization of business requires not only new business strategies but also competent and motivated managers and workers receptive to change. Rapid technological developments and global structural changes imply higher and new qualification demands on managers, engineers, technicians, supervisors and production operators. Managers and lower-level employees must be prepared to constantly undergo re-training to equip themselves with the latest skills. Human resource development and investment in continuing education and training (HRD) are seen as crucial preconditions to sustain industrial competitiveness and to increase productivity.

Against this background, countries such as Singapore and Malaysia are promoting the concept of human resource development amongst SMEs to spur employers to upgrade their own management competencies and to equip workers with higher skills. This is evidenced by the implementation of Singapore’s Skills Development Fund (1979) and Malaysia’s Human Resources Development Fund (1992) as well as the establishment of SME upgrading bodies under the auspices of Singapore’s Productivity and Standards Board (PSB) or Malaysia’s Small & Medium-Sized Industry Development Corporation (SMIDEC) under the Ministry of International Trade & Industry (MITI).

The presumingly large number of firms who do not (fully) utilise existing SME promotion programmes indicate that many owner-founders of SMEs do not realize the winds of change and the benefits of having a systematic total HRD approach to upgrade the workforce and planned organizational change. This negligence might have serious consequences for the long-term survival of these firms and is incomprehensible considering the fact that most SMEs are encountered by several performance problems:

“At the moment, the small industry sector in Malaysia is quite inefficient and still relies largely on traditional organisation and techniques of production. Some small enterprises are no longer competitive because of new technological developments or changes in consumer tastes. Others are struggling for economic survival. They are neither retrogressive nor progressive. While they may appear to be successful, these small enterprises may be better termed as ‘non-failures’. There is a need for these smaller enterprises to modernise if they intend to grow. They need to change or modify their product lines and update their production technology” (Chee, 1986: 122-123).

Typical difficulties of SMEs in emerging markets and elsewhere include:

(Santiapillai, 1994: 39; Chee, 1986: 39).

Both sustainable development and competitiveness of SMEs can be fostered by the supply of management advisory services in areas such as Training Needs Analysis/Human Resource Management, General Management, Production and Quality Management, Technology Transfer, Computerisation, Marketing or Finance. Consulting is inseparable from training and can help to enhance managerial competence and organizational performance by inducing change. The small businessmen face numerous problems which include operational and institutional constraints in form of tight work schedules, employees job hopping in boom times, competition by MNCs, financing problems, traditional ignorance, mistrust and fear vis-á-vis consultants and (government) funding agencies. To work with small firms is a big challenge for external consultants and vice versa. Embarassment, fear of information leakage, fear to lose control, anticipated high consulting costs and unwillingness to get involved in ‘unnecessary’ paperwork act as strong deterrants to employ professional consulting services.

The authors’ consulting experiences in Southeast Asia indicate that the response of many family-owned SMEs to the new wave of economic and technological forces is insufficient. Many organizations fail to implement, for example, modem quality/productivity management concepts such as Total Quality Management (TQM) or Continuous Quality Improvement (CQI) due to lack of management know how, qualified staff and the organizational pecularities of small family firms which will be analyzed in the next paragraph. The implementation of associated requirements seem to be incompatible with ‘old-fashioned power cultures’ regardless of whether the underlying managerial culture is Chinese, Malay, Indian or German (Neubauer and Lank, 1998). These include continued communication and role modeling by knowledgable top management, formal quality training, the setting up of QI teams, delegation of responsibilities to lower level employees, benchmarking, formulation of key performance indicators, the integration of CQI priorities into budget and business plans as well as accountability for KPI performance and sufficient incentives. If adjustments in the ways they operate are made, middle managers and lower-level employees are not always willing to go along with organizational changes. While there are many reasons why people resist change, we believe that a paternalistic organizational culture, an authoritarian management style and poor corporate governance are central explanatory variables (Johns, 1973).

Corporate Governance and Organizational Features of Small Family Firms

A large number of small and medium-sized business organizations in Southeast Asia are owned or controlled by Chinese families (Hsieh, 1978; Lim, 1983; Wong, 1985, 1988; Limlingan, 1986; Chew, 1988; Chan & Chiang, 1994; Menkhoff, 1993, 1998; Tong, 1991; Tong and Yong, 1997). Since the 1960s, prominent local family businesses such as the Yeos of Yeo Hap Seng (one of the two biggest soft drink manufacturers in Singapore), the Kweks of the Hong Leong Group (finance business, hotels, commercial property, banking and manufacturing), the Tans of Sinsin (who dominate the local market for soya and chilli sauces) or the Hos of Wah Chang have expanded and become public (FEER, 5/12/1985: 81-87; Lee Siow Kim, 1987: 100-202; Chuang, 1982: 35). But the family influence is still very strong. Local transnational conglomerates may employ professional managers but seldom at the cost of diluting family control (Lim Mah Hui, 1986; Lasserre, 1988). The cohesiveness of the family, strong family ties, feelings of loyalty and kinship obligations have been highlighted as typical features and ‘secret weapons’ of small businesses (Freedman, 1979: 243; Goldberg, 1985: 20; Redding, 1979: 74). The security of the family and the continuation of the family are seen as strong motivating forces for entrepreneurial undertakings in Southeast Asia.

Very much like in the traditional Chinese family system, the management of the Chinese family business has been described as being paternalistic, personalistic and authoritarian (Tong & Yong, 1997; Chong, 1987: 136) as ‘could be expected from high power distance and collectivistic cultures drawn from the ancient traditions of mainland China’ (Hickson & Pugh, 1995: 171). Some analysts believe that social and organizational patterns such as familism, paternalism and personalism are derived from Confucian values, and thus are essentially Chinese (for a critique see Dirlik, 1997). In exchange for personal loyalty, the employer (owner-manager) is - as benevolent autocrat - expected to look after his subordinates, to ensure their ‘welfare’ and to provide ‘good’ working conditions and benefits such as meals, medical checks, interest-free car loans, hospitalization benefits or (subsidized) housing. The idea is that of a father looking after his children. In this way paternalism becomes institutionalized and part of the organizational culture. Often it also affects the employee after work, for example, when he/she lives in premises owned by the employer. Benefits in cash or kind are given selectively, a practice which favours internal group differentiation.

Figure 1
Traits of Chinese Corporate Governance in Southeast Asia
Management
  • Paternalism as management instrument to secure personal loyalty.
  • Autocratic leadership and centralized decision making power - usually with a single dominant owner, manager, entrepreneur, founder or father (benevolent autocrat).
  • Power culture and idea of business as patrimony.
  • Key positions filled with trusted family members (inner circle is closed for non-kin staff).
  • Monopolisation of information as power tool and steering of information flows in line with informal group structure.
  • No preference for participatory management and leadership styles, clear differentiation between leader and subordinates.
  • Communication based on personal contacts and reliance on personal relationships for business transactions.
Organizational Features
  • Loose and flexible organizational structure.
  • Few specialized departments, with more people responsible for a spread of activities across a number of fields.
  • Less standardization of activities and procedures.
  • Intuitive planning and relative lack of ancillary departments (R&D, HR, PR, Market Research).
(Source: Lasserre, 1988: 117; Redding, 1993; Hickson and Pugh, 1995: 172)

Only a few scholars criticize this ideology as patronizing such as not giving workers equal status and disguising the primary objective of related labor management strategies. The fact that employers seek to justify their power over the employee and to earn more profits are often underplayed in ‘scholarly’ accounts of Chinese family firms (Menkhoff, 1998; Yao, 1997).

The culture of many small business organizations can be described as power culture, and the structure of such firms is best pictured as a web. Control is exercised by the centre, usually with the help of trusted family members (despite the burden of social obligations) which are supported during their education and training, which may extend to post-graduate degrees. Other strategic posts are reserved for those who have worked with the company for a long time. Omohundro (1981: 141) has pointed out that the main theme of management in a family business is the one way flow of trust which is required for internal cooperation:

“The family head is by definition the business leader. Financial dealings, contracts, bookkeeping, and general policies are almost exclusively his to make and even to keep secret. The other members of the family business are expected as proper co workers to offer complete trust to this family head to carry out his duties in the best way and to the advantage of all. This attitude of trust is sanctioned by the fact that the business is the patrimony in which the others are destined to share if they remain on good terms with its present holder”.

Due to the emphasis on personal relationships, loyalty to subordinates, trust among family and friends and the absence of bureaucratic controls, formalization is low. Written instructions, procedures, reports etc. seldom exist.

The authoritative and paternalistic style of management and controlling of the firm is facilitated by the strong overlapping of ownership and management (Tong and Yong, 1997: 82). Authority, i.e. the legitimate use of power, is based on the leader’s ‘unrivaled’ experience, capabilities, knowledge and ideally moral integrity.

It is often assumed that the combination of owner and manager helps to avoid the “agency” problems that Western business face in getting managers to promote the interests of the owners and that most employees do not question the legitimacy of the leader’s authority, his decisions and that they accept their respective areas of job responsibility (Tong, 1991; Redding, 1993: 143-181). Empirical observations in local SMEs, however, indicate that the commitment of middle managers and lower level employees towards the company as a whole and their motivation to participate in company-wide organizational change projects or corporate improvement programs such as suggestion schemes (Reed, 1989; Bartol & Martin, 1991: 208-225) can not always be taken for granted. This aggravates management’s intention to streamline procedures and/or operations and often goes along with resistance to change as the case of Good Tools (see below) illustrates.

A crucial organizational dilemma of small firms is that information is treated as a ‘power tool’. Information is often monopolized by the boss and close family members. It is doled out in small pieces to subordinates who have to consult superiors for even minor decisions. Empowerment and delegation of authority are seldom practiced. The boss “... keeps his options open, leaving the direction of his organization or department to follow the lines detected by a somewhat nebulous but nevertheless powerful set of personal intuitions” (Redding and Wong, 1986: 278). The consequences of such barriers against the transmission of information to subordinates coupled with the fear of information leakages is that the owners of small firms are not very interested to employ the consulting services of tax advisors or management consultants.

Family Firms between Continuity, Change and Failure

SURVIVAL AND OPERATIONAL ISSUES

Family firms are encountered by a couple of general management challenges. Survival issues such as continuity or succession threaten the existence of many family owned businesses, both in the ‘East’ and in the ‘West’ (Schein, 1983; Lansberg, 1983; Kepner, 1983; Omohundro, 1981; Neubauer and Lank, 1998). There is a common saying among local Chinese entrepreneurs that the first generation creates a business, the second builds it on and the third lets it go downhill (Lau, 1974). In the past Chinese families grew rapidly and the family business had to flourish in order to support all family members. When the first or second generation offspring passed their business on to their sons (based on the practice of partible inheritance, each son may receive an equal portion of the father’s wealth), sometimes more than 20 people had to be cared for. In many cases these relatives, riddled by power struggles and internal disagreements on business affairs, were not able to create a workable partnership. The business had to be split into smaller firms and shared among smaller families to become workable again. This is usually seen as one important reason for the short life span of Chinese family firms in Southeast Asia and the fact that most of these organizations remain rather small (Hsu, 1984: 3, 13). Others are eroding traditional values such as filial piety as evidenced by children who do not want to succeed their fathers as CEOs since they have, due to their higher educational achievements, other attractive career options.

Operational issues include suppressing or avoiding conflict among family members, retaining non-family members, dealing with unproductive family members or participation of non-family members in decision-making processes. If not tackled properly, such operational issues may become survival issues. The issue of retaining non-family members arises since the majority of non-kin employees such as salaried managers, accountants, salesmen or minor partners are excluded from the decision making “inner circle” of family firms. They quickly encounter the limits of their authority, especially when they deal with family members who nominally report to them. As a consequence, capable and enterprising employees do often quit and start on their own, a pattern which has becn described as “fissioning” (Tam, 1990). Collaborative agreements and investments in form of (social) capital by ex-bosses into fissioned firms run by ex-staff members are not unusal, depending on market conditions, guanxi ties (Menkhoff and Labig, 1996) and expected gains.

There is little room for participatory management and leadership styles in small family firms. Typically, only close family members and trusted key managers do take part in decision-making processes. However, the issue of participatory leadership is closely linked with differences in status. In case of status equality, e.g. in partnerships of joint ventures, corporate decision-makers invest a lot of time and energy in order to establish a consensus and to avoid that one of the various negotiating parties involved loses face. Such differences prove that simple dichotomies such as collectivism vs. individualism are not always useful when it comes to an understanding of Chinese (or ‘Asian’) business behaviour. As could be observed during several consulting assignments in Malaysia, Chinese entrepreneurs can be highiy individualistic if they are the sole decision-makers in their own family firms, and they are collectivistic if they cooperate with people of the same status such as foreign joint-venture partners.

Many of these issues influence the survival prospects and competitiveness of small firms, internal career advancement opportunities, employee morale, quality of work life and the ability to change as the following example illustrates.

Change and Resistance in Small Family Firms

The Case of Good Tools

This case study provides insights into performance issues and associated management challenges of a small Chinese family-based manufacturing firm whose owners want to increase productivity and to move up the technological ladder. Management has initiated a systematic assessment of human resource development needs in collaboration with an external consultant and is trying to achieve ISO 9000 certification. The case is aimed at exemplifying some of the difficulties of planned organizational change in small family firms.

Company Profile: ‘Good Tools’ is owned and run by several brothers2. The eldest brother is the Managing Director (MD). The firm specializes in the production of tools for metal-processing machines and has about 100 employees. 50% of its production are exported. Business ties exist with local, regional and international business partners (OEM production). Annual turnover in 1996 was RM 20 Million.

Ambitious Plans: The strategic long-term goal of the firm’s MD is to become ‘a market leader in the ASEAN region and one of the top producers in the world’. Management believes that there is plenty room for expansion and that capacity should be able to move up another 50% given the required competent workforce. Management is working on an incentive scheme whereby, if the turnover exceeds a certain amount with corresponding productivity gain, a certain amount of the increased profits will be distributed among all employees as extra bonus.

The Reality: At the moment, however, the organization is not able to fulfill what management perceives as critical for successful corporate goal attainment such as competent and committed staff, consistent quality, no rejects, high productivity etc. One barrier to increase sales turnover, according to management, is that the current “production volume/output is not sufficient” due, among other factors, to “insufficient machine capacity utilization”. Only 30 to 40% of machine capacity is utilized. Management feels that “too much time is spent on programming / setting-up the machines”. A crucial bottleneck is the “shortage of skilled and experienced operators / machinists” with precision tooling / CNC skills. Another challenge in terms of customer satisfaction are “product defects and rejects”, ranging from 2-20% for certain types of products, including wrong handling of workpieces, lack of job-related machining skills, insufficient quality awareness / checks etc.

A related core problem is the “high labor turnover rate” which was quantified as 8% per month. Unskilled or semi-skilled new staff is trained and supervised on-the-job (unstructured) by busy supervisors who have little time to train and supervise since they are also engaged in production. Many newly recruited machine operators don’t stay long enough to acquire proper skills and they also leave before the probation period is over. Other staff leave for greener pastures after having gathered ‘enough’ work experience and competencies. Weaknesses in terms of skills, people management, supervision and housekeeping correlate with an insufficient performance appraisal and reward system. There are no job descriptions or job profiles. Salaries and pay increases are not systematically linked to the achievement of performance (quality) standards, departmental targets and corporate objectives. There is no common and objective basis to measure productivity.

Another critical issue is the “lack of coordination and cooperation between individual department/sections”. There are “too many teams in the company which are not well integrated”. “Departments do not take care of themselves”. “Mistakes are not pointed out”. Many of those who hold managerial, executive or supervisory functions are not formally trained and lack professionalism.

Supervisors Resist Change: Supervisors and management have different viewpoints on critical issues and their causes. While the MD believes that the set-up time is too long because the machinists (and supervisors) are not performing to sufficient standards, supervisors feel that they have “already tried their best and still management is not happy”. Due to tight work schedules and the fact that the supervisors are more involved in working rather than in supervising, they “have no time to train operators properly”.

At the root level of the problem hierarchy, several other issues complicate things: the constant noise affects performance, workers do not feel recognised, management is perceived as being unable to motivate staff, the reward system is seen as unfair (especially when it comes to ‘newcomers’ who can realise higher salaries in contrast to old staff) and teamwork can not be taken for granted.

Supervisors believe that management is unable to give clear directions and to specify goals. Due to visible quarrels within the management team about strategic company issues, they think that the firm’s management and leadership function is not performed effectively (although members of the top team attended a course on strategic management). Supervisors lament that they “are not encouraged to voice out things” and that they do not like management’s “top down approach”.

All these findings point to the cultural division between management, supervisors and workers. There are cliques and conflicts of interest within the workforce (and management itself) that work against horizontal flow of information. Some of these problems are caused by Good Tools’ family institutional characteristics. A relatively large number of the supervisors are relatives of the MD. Due to their formal technical qualification, their salaries are higher than those supervisors whom have acquired their skills informally on-the-job. Naturally these older supervisors are jealous and do not really trust their younger colleagues/superiors who, as they see it, have unfairly benefitted from their close (kinship) relationship with the MD. The same applies to the Sales Manager who is the wife of ‘the boss’ and one of the MD younger brothers who was in charge of production management temporarily. He had to give up this portfolio recently since his authority was not really respected at the shopfloor. He was ‘replaced’ by the MD who now has less time to manage the firm and who does not understand why his corporate vision does not inspire his workforce.

Organizational Change in Small Firms - Issues and Challenges

Types of Organizational Change

Good Tools illustrates some of the basic issues of organizational change and associated challenges in small family firms. There are two different types of change which, indirectly or directly, have an impact on the firm (Greenberg and Baron, 1997, Ch. 16). The first type is planned change based on strategic management decisions to alter the way the business is done and activities that are intentional, purposive in nature and designed to fulfill organizational goals. In Good Tools, planned change has been mainly confined to (i) changes in products and (ii) the introduction of new technologies (CNC). Corresponding adjustments such as changes in organizational structure and administrative systems have been neglected which explains some of the critical issues and performance gaps highlighted above (see Figure 2). Contrary to the literature which hypothesizes that highly mechanistic organizations tend to be more successful in introducing administrative changes than organic ones (Greenberg & Baron, 1997: 552), Good Tools’ management did not reflect this feature. Although Good Tools is highly mechanistic in its operations, it did not revise its company policies or reward structure in respond to the intended changes. This was probably due to limited knowledge on the imperatives of organizational change and restructuring as well as internal conflicts between members of the core management team about the ‘right’ management approach.

Figure 2
Types and Targets of Planned Organizational Change
  • Changes in Products and Services → New Types of Tools*
  • Introduction of New Technologies → CNC machines*
  • Changes in Organizational Size and Structure → Outsourcing of HRD Function
  • Changes in Administrative Systems → Policies, Reward Structure, Management Style

* These changes were implemented by Good Tools’ management.

The second type of change is unplanned change triggered by governmental regulations, economic competition and performance gaps (see Figure 3). An example of how governmental activities can drive organizational change is ASEAN’s planned liberalization of tariffs which will lead to the influx of new competitors. Increased economic competition usually forces firms to fight to maintain market shares which may necessitate change in form of increased marketing efforts, structural adjustments of the organization or even retrenchments. Information on poor performance based on performance indicators (measuring the gap between actual and expected performance levels) with regard to output, cost, customer service, work habits, time, quality and/or work climate may also provide an impetus for organizational change and innovations.

Figure 3
Forces of Unplanned Change
  • Governmental Activities
  • Economic Competition
  • Performance Gaps

(Source: Greenberg and Baron, 1997: 555-556)

The performance gap approach (Mager and Pipe, 1995) was used to mobilize management and staff of Good Tools to evaluate skills deficiencies at the organizational, operational and individual levels which culminated later in a needs-based, annual training plan to be submitted to Malaysia’s Human Resource Development Council for refunding under the so-called Annual Training Plan Scheme / Plan Latihan Tahunan (PLT). During the consulting assignment, several suggestions for the improvement of organizational structure, administrative systems and human resources (people) were made. Respective inputs were provided due to the insight that training measures alone would not have the desired impact without non-trainine related interventions and changes.

Targets of Organizational Change

According to Leavitt’s model (1965), there are three potential targets of planned organizational change: (i) organizational structure, (ii) technology and (iii) people. The approaches are all interrelated, i.e. the use of one approach will have an impact on the other approaches. As far as Good Tools’ organizational structure is concerned, certain job responsibilities were suggested for reassignment to resolve the problem of insufficient quality control. The clarification, modification and codification of responsibilities, rules and procedures do often help to manage change in response to critical issues. In Good Tools, this included the clarification of machinists’ job descriptions, the codification of HRD and quality assurance policies as well as standard operating procedures. To overcome the latent power struggle between the managing director and his brothers, various structural solutions were suggested such as the redelegation of authority over certain issues.

Figure 4
Targets of Organizational Change and Implementation Methods
  • Structure: Change of organizational structure, formal reward systems, redelegation of authority and responsibilities
  • Technology: IT, automation, computerization
  • People: Organizational climate surveys, follow-up
  • Task: Job enrichment programs, establishment of QC groups and/or self-managed work groups

(Source: Hellriegel and Slocum 1993:729)

The transformation from a centralized (top down) to a decentralized system where everybody is accountable for certain achievements and outputs turned out to be the biggest challenge for Good Tools. To lay the foundation for such a “revolution”, it was recommended to decentralize certain decision-making processes and to institute self-managed work teams (combined with changes in the reward structure). Another motive for this suggestion was to unburden top management and to increase work motivation. A few technological changes were recommended to improve work efficiency and organizational functioning. This included preventive machine maintenance, calibration and so forth. Based on the assumption that organizational effectiveness is greatly dependent on the attitudes, behaviour and competencies of management and staff, certain HR development measures were suggested aimed at altering the way employees in Good Tools’ behave by focusing on changing their skills, attitudes, perceptions and expectations.

CHANGING PEOPLE

The process of changing people is probably the most challenging part of organizational change. According to Lewin’s (1951) and Schein’s (1968) classical studies, there are three basic steps involved in the process of changing people. The first step is unfreezing which refers to the process of recognizing that the current situation is undesirable and in need to change. In the case of Good Tools, the assignment coincided with management’s decision to tackle various unacceptable issues such as high absenteeism and insufficient quality awareness whose root causes were analyzed by several working groups and systematised with the help of the consultant. If unfreezing is successful, changing may occur. This second step occurs when a planned attempt is made to create a more desirable state for the organization and its members. In Good Tools, this step included a thorough analysis of training needs based on individual interviews and group discussions with staff followed by the subsequent design of an annual training plan.

The HRD consultancy was finalized during the ‘changing stage’ during which two company visits were made to determine whether the training recommendations had been implemented. The results were mixed, indicating the complexities and difficulties associated with the ‘3rd step of changing people’: refreezing. This occurs when the changes made are incorporated into the employees’ thinking and the organization’s operations (Greenberg & Baron, 1997: 559).

Individual and Organizational Barriers to Change

Change is unlikely to occur when the people involved believe that the costs associated with the change outweigh the benefits. There are three factors which contribute to the benefits of making a change: (1) dissatisfaction with the current situation, (2) the availability of a desirable alternative and (3) the existence of a plan of action to achieve that alternative. If any one of these factors is very low (or zero), the likelihood of change is very low (or zero), too (Greenberg & Baron, 1997: 559). In the case of Good Tools, it became obvious after two visits that the readiness for change amongst the supervisory staff and general workforce was low despite management’s intention to streamline operations and to implement change. Respective issues can be attributed to individual and organizational barriers to change. The literature distinguishes six different types of individual barriers to change: economic security, fear of the unknown, threats to social relationships, habits, failure to recognise need for change and demographic background (Greenberg & Baron, 1997: 560).

As far as Good Tools is concerned, the last five types of individual barriers were prevalent. Many employees found it very difficult to change well-established comfortable patterns such as work habits and job responsibilities due to habitual job performance, perceived threats to social relationships with co-workers and fear. Besides their limited insight into the need for change, their low educational background and other demographic characteristics such as age made change very difficult. Organizational impediments such as structural inertia, work group inertia, threats to existing balance of power, previously unsuccessfiul change efforts and the composition of the management team (Greenberg & Baron, 1997: 561) acted as further barriers to change. Good Tools’ management team was apparently unable to turn the firm around and embark on a planned, long-range organizational development (OD) journey.

Discussion and Prospects for Further Research

This paper started with two assumptions: (a) that change is inevitable due to a myriad of external and internal forces of change, hence all levels of management, including lower level employees of small firms must be willing to accommodate these forces in one way or another if they want to stay in business and (b) that planned organizational change such as the implementation of modern management concepts (e.g. total quality management) is difficult to manage for local SMEs if top management adopts a paternalistic and authoritarian style of management.

The plausibility of the first assumption is further heightened by the Asian crisis which has brought along fundamental socio-economic and political changes. Some of the threats and challenges encountered by Asia’s corporate world include the lack of transparency, overexposure to non-productive sectors, paternalistic management methods, increased competition, lack of finance, bankruptcies and dependence on western technology. Many businesses were forced to initiate corporate transformations as a result of the economic downturn but some SMEs were found not willing to change for various reasons.

The case of Good Tools, a small locally-owned manufacturing firm in Malaysia, served to illustrate the plausibility of the second assumption above, exemplifying the prevalence of resistance to change in family-owned small firms. Although the MD of Good Tools was receptive to change, he had adopted a top down approach which was deemed unacceptable by his employees. In addition, many of his employees were contented in their “comfort zone” and saw no benefit to change. They had perceived change as a threat rather than as a benefit. Good Tools’ management also lacked change management skills and consequently, failed to develop a strategic change plan to facilitate the change process. In brief, the intended change process failed because many of the employees were not willing to change. Structural traits of local SMEs such as familism, nepotism and paternalism had contraproductive effects with regard to organizational development as illustrated by the reactions of Good Tools’ supervisory staff who resisted changes pushed by management. Moreover, organizational barriers in form of structural and work group inertia, threats to existing balance of power, previously unsuccessful change efforts and the composition of the management team also led to suboptimal performance. Hence, we can conclude that poor corporate governance in combination with rigid management structures and family institutional characteristics in business such as nepotism are central for an understanding of ineffective organizational change processes in local SMEs.

Whether there is something culturally unique about change and resistance in Chinese family firms has yet to be ascertained by empirical (comparative) research. Organizational forms and management styles prevalent in contemporary Chinese firms are to a great extent determined by the founder-owner’s qualificational background, the firm’s organizational culture, the operational field or domain or market in which the firm functions and the scale of operation or (small) size of the organization (Hickson and Pugh, 1995, Chapter 7). Structure rather than culture is probably one of the key independent variables when it comes to an understanding of change management processes in SMEs. Obedience and buy-in of management decisions by respectful and submissive subordinates can not be taken for granted in Chinese firms in contrast to popular notions of ‘Confucian values’ underlying management-labor relations in such business organizations. There is a great diversity of organizational structures and types of corporate governance in local Chinese businesses or SMEs. Therefore, it is possible to find dynamic business organizations receptive to change whose top managers are more successful in transforming the organization than Good Tools’ CEO. Critical success factors of organizational change processes in SMEs have yet to be identified by empirical research. Other important research questions include:

So far, little or no empirical research on change management of local SMEs has been conducted which would enable us to provide answers to the questions raised above, to verify the hypotheses outlined in this paper and to translate respective implications into viable SME policy recommendations. For that reason the authors have recently embarked on a research project in collaboration with the Singapore Chinese Chamber of Commerce & Industry (SCCCI) aimed at (i) generating baseline data on the management of change and resistance in local small and medium-sized firms by means of a SME survey supplemented by qualitative interviews with CEOs, and other informants; and (ii) generating and testing a theoretical model - based on Child’s strategic choice theory (1972) and other conceptual frameworks - about change and resistance in local SMEs. The model is currently being finetuned with reference to various sources such as the sociological and management oriented literature on the subject, interview transcripts and so forth. The study is expected to make a significant contribution to the sociology of small business, management and organisational change based on locally sourced materials.

1 The paper presents some initial propositions about change management issues in local small and medium-sized (chinese) family firms in Malaysia based on the authors’ consulting experiences in the area of human resource development. The manuscript was part of an application package for a major research grant entitled “The Management of Organizational Change and Resistance – The Singapore Case” to conduct a quantitative baseline survey of singaporean small firms supplemented by qualitative interviews with their CEOs, HR specialists and other employees. The project was approved by the National University of Singapore (NUS) in February 1999 and commenced in April 1999 in collaboration with the Singapore Chinese Chamber of Commerce & Industry (SCCCI). The authors gratefully acknowledge the assistance of David Wan, RPHRM’s Associate Editor, and two unknown reviewers.

2 Certain non-significant corporate details were disguised to ensure confidentiality and anonymity.

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