Organizational change through balancing efficiency and flexibility at Lotte Department Store: the role of sotong ([TEXT NOT REPRODUCIBLE IN ASCII]).

Author:Park, Owwon
Position:Report
 
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  1. INTRODUCTION

    Organizational change as an effort to adapt to environmental features is critical to the survival of an organization. A key to successful organizational change is to get its employees to understand the necessity and reduce resistance to the changes (Murray & Richardson, 2002; Tichy, 1993). It is also important to help its employees emotionally relate to the changes, beyond reasonable and rational recognition, so that they can internalize the changes (Kotter, 2002). In short, it is important to move the employees emotionally.

    The purpose of this study is to analyze characteristics of sotong and organizational change process by looking into Lotte Department Store, which succeeded in transforming a hierarchical and directive organizational culture into an autonomous and participative organizational one by means of sotong. The term, sotong has not been clearly defined in an academic sense. According to the dictionary, sotong means (1) communication without any misunderstanding, and (2) delivery of meaning without a hitch. The term means not just simple communication but also the state where information, knowledge, experiences, and material resources are delivered without a hitch. One can think of a similar term, 'communication.' However, sotong in this study contains a far more comprehensive and deeper meaning than 'communication' in terms of scope and depth.

    The two main objectives of this study are as follows. The first is the role of sotong in the process of a successful organizational change. Sotong is expected to take different forms in type, subject, and content at each stage of the change. Especially when introducing cultural values different from the existing ones, an organization would face resistance from its employees. Our focus lies in what kind of sotong is adopted to manage such resistance. The second is the case or context-specific features found in Lotte Department Store. Firms like Sears, Southwest Airlines, Nordstrom, and SAS place much importance on customer satisfaction and high quality services. They share characteristics like information sharing, empowerment, participation in decision-making, autonomy, enjoyable working environment, etc. At the same time, each of them has its own features (Berry, 1999). By taking an in-depth observation at the subject case, we would like to understand characteristics of Lotte Department Store in pursuing organizational change and identify relevant implications.

  2. CASE ANALYSIS

    2.1 Data Collection

    In order to collect necessary data, we conducted interviews and analyzed secondary data and existing documents. The secondary data include books written by the CEO of Lotte Department Store, consulting reports and a wide range of internal materials drafted by Lotte. Mainly two criteria were adopted in the selection of the interviewees. First, we tried to interview employees with at least 10 years of service at the company as many as possible, as they were expected to compare the organizational cultures before and after the leadership of incumbent CEO Lee, Chul-woo. Second, we pursued job-specific diversity. In other words, we interviewed employees from various fields like sales, MD, planning and management. A total of 25 persons were interviewed, including regular employees of Lotte Department Store and 3 sales representatives working on an outsourced basis.

    Researchers sent out questionnaires to the interviewees for their reference and the interview was conducted based on the questionnaires. Each interview took about 60 or 90 minutes and was taped and recorded. All researchers participated in the interviews, and checked and discussed them in a bid to ensure objectivity. We also contacted the interviewees by telephone or e-mail whenever required in the course of the case study and made necessary corrections.

    2.2 Company Background

    Lotte Department Store, founded in December of 1979, is operating a total of 29 branches. It is the No. 1 department store in South Korea, ranking first in brand power and customer satisfaction according to the NCSI. Lotte Department Store is the cash cow of Lotte Group, the 6th largest conglomerate in the country, taking up almost half of the total income earned by the Group's shopping channels (discount stores, on line shopping mall, etc.). It also functions as an incubator of new businesses by expanding core competency through department store business. However, a slowdown in business, rapidly growing new distribution channels like on-line shops, and changes in customers and social trends called for changes. Consequently, Lee, Chul-woo took office as CEO of Lotte Department Store in 2007.

    When he took office, its net income fell approximately 20 billion won year-on-year. In addition, it saw many internal signs of change resulting from the appointment of new CEO. Its previous business style was characterized by expansion and direction and control-based management, which had been very efficiently applied. However, with the new CEO focusing on participation and voluntary attitude, the changes beyond expectations of the employees were planned and carried out. At first, the new business style and focus led to strong backlash from many executives and employees. Making things worse, its year-on-year income dropped. However, his consistency and strong driving force bore fruit and the employees began to have faith in the changes. The revenue started to rise again in 2008 based on such trust. In 2010, it recorded current account balance of over 1.0 trillion won for the first time in the distribution industry.

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    Lotte Department Store, in the process of changes, aims to become the largest distributor in the Asian market and grow into a global player. We would like to take a detailed look into its successful transformation of the organizational culture.

    2.3 Invitation to Change: Beginning of Sotong

    On his first day as CEO of Lotte Department Store, Lee, Chul-woo requested all executives, heads of branches, and product team leaders to present opinions on 'Pending Challenges Facing Lotte Department Store in Growing into Super-healthy Company and Suggestions.' He made such decision, believing that the best way to identify the current status and problems of the organization would be to listen to the employees, i.e., all middle or higher-level managers. While leading subsidiaries of Lotte Group such as Lotte Mart and Lotteria, he consistently pushed for an initiative entitled '3.6.5. Process.' In specific, he spent three months identifying the status and problems of an organization and six months presenting necessary changes to be pursued and encouraging employees to participate in the process. He also announced visions and plans for the coming five years so that all employees will move forward towards the same goal. This is '3.6.5. Process' he has been talking about. For the first three months, CEO Lee, Chul-woo noticed the 'lack of sotong within the organization.' Lotte Department Store had been an industry leader for a long period of time, and been heavily dependent on financial control of management and directions. However, such rigid corporate culture and structure were no longer suitable for the changing environment.

    He thought that changes should be made, as it was no longer a corporation where just a word from the top is enough to run the entire organization. He recognized that the organization became too big for him to take care of everything alone including growth, countermeasures, etc.

    The industry faced many changes in its business environment, including individualization, increasing interest in emotions, polarized purchase, social and cultural changes, emergence of new business practices, and rivals' aggressive marketing tactics. Amid these changes, it become more important to draw up a Korean-style business...

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