Change Management @ICICI

Summary
'You cannot have a third generation strategy with a second
generation organization run by first generation workers'.
K V Kamath
So require change i.e. making things different. It is essential to grow and
sustain in the market.

This entire case study is about the implementation of change in an organization.

Kundapur Vaman Kamath is the man most credited with building the Industrial Credit and
Investment Corporation of India Ltd. (ICICI), Mumbai, into India's largest private sector bank.
When he took over as CEO and managing director in 1996, ICICI had total assets of Rs 21,000
crores.

In April 2009, when Kamath, 61, handed over the reins to Chanda Kochhar and took over as its non
executive chairman, ICICI's total assets had grown to a whopping Rs 3,80,000 crores, with an
annual profit of Rs 3,750 crores.

The visionary banker saw opportunities in both retail and corporate lending that few of his
contemporaries thought existed and in doing so changed the face of banking in India. Kamath
introduced massive changes (Planned change) in the organizational structure, stimulate
innovation, empowered employees, introduce work teams and the emphasis of the
organization changed from a development bank mode to that of a market-driven financial
conglomerate.

Background Note
In 1955- ICICI was established as a public limited company by the Government of India to
promote industrial development in India.

mid 1980s, ICICI diversified rapidly into areas like merchant banking and retailing.

In 1987, ICICI co-promoted India's first credit rating agency, Credit Rating and Information
Services of India Limited (CRISIL), to rate debt obligations of Indian companies
In 1988, ICICI promoted India's first venture capital company Technology Development
and Information Company of India Limited (TDICI)

In 1992 ICICI tied up with J P Morgan of the US to form an investment banking company,
ICICI Securities Limited. In line with its vision of becoming a universal bank

In 1998 ICICI restructured its business based on the recommendations of consultants

McKinsey & Co.

2001 ICICI acquired Bank of Madura (est. 1943). Bank of Madura was a Chettiar bank, and had
acquired Chettinad Mercantile Bank (est. 1933) and Illanji Bank (established 1904) in the 1960s.

2002 The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of ICICI,
ICICI PeIn May 1996, Kamath returned to ICICI as its Managing Director and Chief
Executive Officer. Kamath was instrumental in expanding the Group's services to
the retail customers. He initiated a process of a series of acquisitions of non-banking
finance companies in 1996-98, and led the way to the formation of ICICI Bankrsonal
Financial Services Limited and ICICI Capital Services Limited, into ICICI Bank. After receiving
all necessary regulatory approvals, ICICI integrated the group's financing and banking
operations, both wholesale and retail, into a single entity.

Also in 2002, ICICI Bank bought the Shimla and Darjeeling branches that Standard Chartered
Bank had inherited when it acquired Grindlays Bank.
ICICI started its international expansion by opening representative offices in New York and
London.

2003 ICICI opened subsidiaries in Canada and the United Kingdom (UK), and in the UK it
established an alliance with Lloyds TSB.

It also opened an Offshore Banking Unit (OBU) in Singapore and representative offices in Dubai
and Shanghai.

2004 ICICI opens a rep office in Bangladesh to tap the extensive trade between that country,
India and South Africa.

Change Challenges
K V Kamath as change agent
When K V kamath came back from ADB (Asian Development Bank)in 1996,working there for 8 enriching
years. Kamath, have seen the changes occurring in the financial sector abroad, wanted ICICI
to become a one-stop shop for financial services. But there were basic problems in the
organization like-

ignorance in the organization about the lending practices in the new sectors like
infrastructure, problem of atrophy ( which was deep rooted in the organization), lack of motivation to grow and
improve customer services and adapt to new technology( use of internet, atm for fast services).
So he initiated the change within the organization.

The first move being the creation of the 'infrastructure group (IIG),' 'oil & gas group (O&G),'
'planning and treasury department (PTD)' and the 'structured products group (SPG)', as the
lending practices were quite different for all of these. As these new groups took on the key
tasks, a majority of the work, along with a lot of good talent, shifted to the corporate center.
While the zonal offices continued to do the same work - disbursing loans to corporates in
the same region - their importance within the organization seemed to have diminished.

Another change management problem surfaced as a result of ICICI's decision to focus its
operations much more sharply around its customers. To tackle this problem, ICICI set up
three new departments: major client group (MCG), growth client group (GCG) and personal
finance group. In the major client group, a staff of about 30-40 people handled the needs of
the top 100 customers of ICICI. On the other hand, about 60 people manned the growth
client group, which looked after the needs of mid-size companies. Obviously, the bigger
clients required more diverse kinds of services. So working in MCG offered better exposure
and bigger orders.

This movement has challenged the status quo of the organization. And act as a catalyst to
resistance toward the change as it is threat to established power relationships, threat to
expertise.

The management had tremendous resistance in the first year. People were willing to come to blows and there were
emotional breakdowns also.

Change Challenges
Merger of bank of Madura (BOM) with ICICI bank
To face change resistance once again in December 2000, when ICICI Bank was merged with
Bank of Madura (BoM) Though ICICI Bank was nearly three times the size of BoM, its staff
strength was only 1,400 as against BoM's 2,500. Half of BoM's personnel were clerks and
around 350 were subordinate staff. There were large differences in profiles, grades,
designations and salaries of personnel in the two entities. This has come up with lot of
unrest among the employees of BOM and also among ICICI. As the work culture of the two
organization was totally different. This has created strong resistance among the employees
against the change of the management system, fear for unknown also originated in both the
organizations.

Question1 'The changed focus of ICICI to become a one-stop shop for financial services
necessitated the changes in the organization culture and goals.' Analyze the changes
implemented by Kamath in mid-1990s and comment briefly on the necessity and
efficacy of these changes.

Answer
For any system to grow in a dynamic and competitive environment requires adaptation,
sometimes call for deep and rapid responses. So there is a need of proper and planned
change in the system or Die as an organization. The following are the forces(necessity)

for ICICI that are acting as stimulants for change:

Forces Examples

1 Nature of the work force atrophy, new entrants with inadequate skills

2 Technology- faster communicating technology, Atm, new advance software

3 Economic shocks- 2000-2002 stock market collapse, low interest rate

4 Competition- Global competition, Mergers (BOM) and consolidations, Growth of e- commerce

5 social trend- adaptation of new technology by society, internet

6 World politics- opening up of new market .

Changes implemented by K V Kamath

(a)Moving towards the new sector (lending practices in the new sectors like infrastructure) and
expanding in the investment market.

(b)Restructuring the organization basically removal of atrophy and status quo.

(c)Implementation of new technology likes ATMs, Internet banking and software (like oracle) in the organization
strictly.

(d) Developing the system customer oriented.

(e)Better communication between the top level management to the employees.

(f)360-degree appraisal system was put in place, whereby an individual was assessed by
his peers, seniors and subordinates.

(g)Training programs for the employees through both in- house and external agencies for learning processes.

Effect of the change in ICICI:

In eight years organization has gone through five structural changes.

(1) ICICI is now changed from status driven to market- driven organization.
(2) Enhanced integrity within the organization.
(3) After implementing the change, By 2000, ICICI had emerged as the second largest
financial institution in India with assets worth Rs 582 billion.
(4) Now the company had eight subsidiaries providing various financial services and was
present in almost all the areas of financial services: medium and long term lending,
investment and commercial banking, venture capital financing, consultancy and
advisory services, debenture trusteeship and custodial services
Question 2 Compare and contrast the change management process at ICICI initiated
after Kamath became the CEO with the one following the ICICI-BoM merger. Also
explain the rationale behind the employee resistance in both the cases.

Comparison of Problem in implementing change in both the cases :

Implementing change in both both the cases are quite different as
(*)The working culture at ICICI and BoM were quite different and the emphasis of the
respective management was also different. So management paid special attention to
facilitate a smooth cultural integration. But for implementing change within the organization,
there is less complication involved, as management was aware of the working environment
of ICICI and know where and what is the problem in the organization.

(*)The company appointed consultants Hewitt Associates 8 to help in working out a uniform
compensation and work culture and to take care of any change management problems. So
company conducted an employee behavioral pattern study to assess the various fears and
apprehensions that employees typically went through during a merger.

There were some common problems in change implementation in both the cases like

(*)'Fear of the unknown' and the 'fear of inability to function. The earlier problem was
tackled with adept communication and the later part was addressed by adequate training.
The company also formulated a 'HR blue print' to ensure smooth integration of the human
resources.

(*) ICICI needed to take measures to technologically up gradation in both the cases.

Reason behind the employee resistance in both the cases.

At Individual level

(a) Habit- to cope up with the complexity of life each one rely on habits like in ICICI
atrophy was deep rooted in the organization. As they encountered with change, they resist
to it as per their tendency to respond in their accustomed way.
(b) Security- BoM employees feared that their positions would come in for a closer
scrutiny.
(c) Economic factors- changes in job tasks or established work routines can arouse
economic fears if people are concerned that they wont be able to perform the new
tasks or routines to their previous standards, especially when pay is closely tied to
productivity.
(d) Fear of Unknown- change substitutes ambiguity and uncertainty for the unknown.
(e) Selective information processing- they hear what they want to hear and ignore
information that challenges the world theyve created.
 At Organizational level:
(a)Structural inertia- Organizations have built- in mechanisms-like their selection
processes and formalized regulations.
(b)Threat to expertise- Changes in organizational pattern may threaten the
expertise of specialized groups.
(c)Threat to established power relationships- Any redistribution of decision-
making authority can threaten long-established power relationships within the
organization.
(d)Threat to established resource allocations- Groups in the organization that
control sizable resources often see change as a threat. They tend to be content with
the way things are.

Here Kotters Eight-step plan for implementing Change which was followed
by K V Kamnath for resolving the resistance:

1 Established a sense of urgency by creating a compelling reason for why

change is needed.

2 Formed coalition with enough power to lead the change. The management
created relationship groups both in the bank and in ICICI Corporation, kamath invited senior managers to tell him how
they plan to run their business. This was a complete departure from the way they used to do things earlier,

3 Created a new vision to direct the change and strategies for achieving
the vision.

4 Continuous communication about the vision throughout the organization.

Every time Kamath went to one of the offices, he would meet maybe twenty to thirty people, sit for three hours and
discuss why they are doing what they are doing. They would set targets and found that they were all achieved .

.5 Empowered other employees to act on the vision by removing the

barriers to change and encouraged risk taking and creative problem
solving. Training programs and seminars were conducted for around 257 officers by
external agencies and also house training programs were conducted
6 Plan for, create and reward short term wins that moves the
organization toward the new vision. management ensured that rewards were
related to group performance and not individual performances. This is to avoid the negative
impact of profit center approach, wherein pressure to show profits might affect standards of
integrity within an organization.

7 Consolidate improvements, reassess changes and make necessary

adjustments in the new programs. To reward individual star performers, the method
of selecting a star performer was made transparent. This made it clear, that there would be
closer relationship performance and reward. To make it more transparent.

8 Reinforced the changes by demonstrating the relationship between new

behaviors and organizational success. The 'fear of the unknown' was tackled with
adept communication and the 'fear of inability to function' was addressed by adequate
training. The company also formulated a 'HR blue print' to ensure smooth integration of the
human resources

As a result of the above measures, the employee unrest gradually gave way to a much
more relaxed atmosphere within the company.

Strength, Weakness Opportunities, Threat

Analysis (SWOT)
STRENGTH: (a)Change leads to expansion of the organization in new sector.
(b)Environment for learning new skills and adapting to the process
orientation.
(c)Open communication among the top management and the rest of the staff.
(d)Transparent promotion and bonus policy.
WEAKNESS:
(a)Constant monitoring and pressure to perform better put employees under stress.
(b) ICICI management turned all its departments into individual profit
centers and bonus for employees was given on the performance of
individual profit center rather than profits of whole organization.
OPPORTUNITIES
(a)Change can leads towards growth of the organization.
(b) Change stimulates innovation, empower employees and introduce work teams.
THREAT
(a)Constant change in the structure of the organization can lead to resistance, which
can sustain for days, months or year.
(b) Can lead to distrust to management.
(c) Can be the reason for collapse of the organization.