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Final Paper

Think of an organization you have worked for or one with which you are very familiar.  Diagnose the need for change and present a plan to transform the organization, utilizing Kotter’s 8-Step Approach.

Include the following sections headings and additional sections as needed:

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  1. Introduction
  2. Company Overview
  3. Diagnosis
  4. Kotter’s 8-Step Approach
  5. Conclusion

The Final Paper for the course must be submitted to the instructor by 11:59 p.m. of the time zone in which you reside on the last day of the class.


Writing the Final Paper

The Final Paper:

  1. Must be eight- to- ten double-spaced pages in length (excluding the title and reference pages) and formatted according to APA style as outlined in the approved APA style guide.
  2. Must include a title page that includes:

    1. Title of paper
    2. Student’s name
    3. Course name and number
    4. Instructor’s name
    5. Date submitted
  3. Must include an introductory paragraph with a succinct thesis statement.
  4. Must address the topic of the paper with critical thought.
  5. Must conclude with a restatement of the thesis and a conclusion paragraph.

  6. Must use at least five scholarly sources.
  7. Must use APA style as outlined in the approved APA style guide to document all sources.
  8. Must include, on the final page, a Reference Page that is completed according to APA style as outlined in the approved APA style guide.

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1 Organizational Change Management: An Introduction Didem Hizar/Hemera/Thinkstock Learning Objectives After reading this chapter, you should be able to do the following:1. Explain planned organizational change and analyze Kotter’s eight-step change process. 2. Compare and contrast the fields of organizational development and change management. 3. Examine Lewin’s force-field analysis and how it can be used to overcome resistance to change. 4. Describe the forces for change and organizational responses to these forces. 5. Summarize the various types and models of organizational change. 6. Differentiate between the balanced scorecard, contingency alignment framework, and stakeholder approach. wei82650_01_c01_001-056.indd 1 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes—it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm. —Peter Drucker Pretest Questions 1. True/False: Planned organizational change is a process that shields an organization from external legal and technological changes. 2. True/False: The fields of organizational development (OD) and change management are similar in that both are based in the discipline of operations management. 3. True/False: Change is the result of opposing forces that move with and against an organization’s status quo. 4. True/False: As a force for change, competitive advantage means advancing within an industry while maintaining some degree of organizational stability. 5. True/False: Tactical models of organizational change seek to address short-term issues and opportunities. 6. True/False: The stakeholder approach to change suggests that an organization can – not be socially responsible and seek profitability at the same time. The Chinese international commerce company Alibaba was founded in 1999 by Jack Ma, a visionary businessman with a knack for change in his DNA. He launched Alibaba.com—an e-commerce platform that focused on small export firms—from his Hangzhou apartment. It has since grown to an estimated market cap of $223 billion and has more than 24,000 employees (Alibaba Group, n.d.; China Internet Watch Team, 2014; Pearlman, 2014; Reeves, Zeng, & Venjara, 2015). This company is a good example of how organizations in complex, uncertain environments must continually change to remain competitive. This is especially true of technology-driven firms that rapidly expand in size and scope to gain and maintain market dominance. Alibaba, like Amazon, Google, and Netflix, uses automatic algorithms (a decision-making form of artificial intelligence) to routinely change, adjust, and leverage product choices for millions of customers in real time, a process known as self-tuning (Reeves et al., 2015). The company then extends this type of practice into its business plan by utilizing current consumer behavior to influence its vision, strategy, structure, and culture, as well as product offerings. As researchers Reeves et al. (2015) stated, “Self-tuning is related to the concepts of agility (rapid adjustment), wei82650_01_c01_001-056.indd 2 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction adaptation (learning through trial and error), and ambidexterity (balancing exploration and exploitation)” (p. 78). A quick examination of Alibaba’s brief history demonstrates how the company has used self- tuning concepts to adjust to—and even create—customer demand. The company moves quickly to diversify its product offerings and markets by creating spin-off companies. This practice characterizes Alibaba’s successful change and evolution—at least to date. For example, in 2003 Alibaba launched Taobao Marketplace to test China’s consumer demand. It then rapidly created yet another spin-off, Aliwangwang, in 2004 that enabled instant messaging on the Taobao website. Enlarging the company’s business model, Alipay was also started in 2004, creating an infrastructure that experimented with and strengthened consumer confidence in online business transactions. It worked. In 2008 Taobao was renamed TMall, which included a business-to- customer platform and e-commerce ecosystem. In 2009 Alibaba Cloud Computing was started to keep up with bleeding edge storage and retrieval technology. AliExpress was launched in 2010, which moved the company into a global position and provided it with an online international consumer website. In 2011 TMall and eTao (a shopping comparison website) became independent platforms in order to enable Alibaba to explore the future of customer demand and e-commerce in China. Cainiao, China Smart Logistics, was then launched in 2013, further enlarging the company’s scope from e-commerce to emphasizing infrastructure. In 2014 Ant Financial Services Group was formed, which further enlarged the scope of the company. In 2015 Alibaba’s innovative adaptation to Chinese customers surpassed Baidu’s (the Chinese version of Facebook) mobile ad revenue in China. The company’s leadership has and is likely to continue to balance experimentation with innovation and real-time data algorithmic analysis to form self-adjusting organizational systems ( for example, vision, strategy, culture, business models, and product offerings). Critical-Thinking Questions 1. Traditionally and currently, planned organizational change has been characterized by solving problems or crises that have arisen. Alibaba and other industry-leading technology-driven firms have employed organizational change to gain and expand market share and dominance. Briefly explain how Alibaba has used organizational change, and offer a few examples. 2. How would you feel about working within a fast-paced, ever-evolving company like Netflix, Alibaba, or Google? Explain your reasoning. wei82650_01_c01_001-056.indd 3 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Introduction: Importance of Organizational Change The prevalence of organizational change management is growing exponentially. Three decades ago, most university curricula did not include courses on change management. Now such courses are commonplace (Worren, Ruddle, & Moore, 1999; see also Project Manage- ment Institute, 2015). A McKinsey & Company study of 189,000 employees from 81 diverse organizations found that championing desired change was one of the most important leader – ship behaviors (as cited in McKeown, 2015). The growing popularity and need for organiza- tional change management is due in large part to the rapid and pervasive amount of change we regularly face. The world has changed dramatically over the past 30 years, as have how we think, what we think, and how we communicate. Globalization and technology have made the world far more interconnected, so what affects one business sector or one part of the world invariably affects everyone. Economic uncertainty in Europe and Asia affects exports in the United States. An oil spill in the Gulf of Mexico affects the restaurant industry in every corner of the country, from Boston to Seattle. Decades ago, events could be isolated; today change is everywhere and can occur at any time. To be effective in such a marketplace, it is essential to manage change. Lead – ing and managing organizational change has become a core competency for business profes- sionals. Companies not only need to manage change to survive, but to create a competitive advantage. Rival Internet companies Google and Facebook are good examples of the importance of using change to gain a competitive advantage. Although Facebook is the leading social network – ing website and has overtaken websites like Friendster and Myspace, larger competitors like Google, Microsoft, and Apple are not waiting for their territory to be encroached on—they are therefore continually moving forward with technological breakthroughs. In the words of David Rowan, editor of Wired magazine, Facebook and Google are “in the ultimate battle for control of the Internet” (Rowan, 2010). He asserts that Google hires the world’s smartest soft – ware engineers, and this, along with algorithm-based computing power, has helped them dominate the desk – top-Internet era for a decade. On the other side, he suggests that Facebook strives to know all of what society is thinking, doing, and purchasing, and this helps it play a critical role in all of its members’ big and small life deci- sions (Rowan, 2010; see also Nagarkar, 2015). As Facebook’s scope and reach con – tinues to grow, Google’s executives are taking note and ensuring they follow suit. Both companies are extending into markets that no one ever antici – pated. As this trend unfolds, more companies will no doubt implement change to maintain their competitive advantage as well. Christoph Dernbach/picture-alliance/dpa/AP Images Companies like Google and Alibaba continually scan their environment, buying and integrating new and innovative companies to stay ahead of rivals. Some of Google’s main revenue streams and major com- petitors include the Google website (versus Yahoo! and AOL) and total advertising (versus the Walt Disney Company, Facebook, and Twitter). wei82650_01_c01_001-056.indd 4 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Kotter’s Eight-Step Approach Change is not an issue for only giant corporate firms. Universities, hospitals, nonprofits, and small businesses (with 250 employees or less) across all industries must also plan for change. The U.S. Small Business Administration estimates that more than 50% of small businesses fail in the first year and 95% fail within the first 5 years (Scuteri, 2015). Note that 7 out of 10 new firms survive just 2 years. A major challenge for small businesses in general is competitiveness (the ability of a business or organization to succeed in meeting the owners’ broad business goals to serve customers). In particular, small firms fail for many reasons, which include being unable to gain access to needed capital and effectively innovate and market; failing to adequately control growth; demonstrating poor accounting and operational inefficiencies; not enabling employees to work smarter (using technology); and failing to address regulations (U.S. Small Business Administration, 2015; see also All Business, 2015). Not all changes are dramatic, or even involve the entire organization. Some divisions, busi- ness units, departments, teams, and individuals may require varying amounts of change to increase effectiveness and obtain desired results. As we discuss in a later section, experts in change management offer particular knowledge in diagnosing and addressing issues. Although we focus on large-scale change here, we also acknowledge and discuss different types, scales, and scopes of organizational change, grounded in models and skills with which to plan and implement these strategies. In large and small organizations, significant changes are typically not easy or linear to imple- ment. Larger changes tend to become overly complicated, especially if an organization lacks a realistic plan. Because organizational change involves people and their emotions, resistance is natural. Who wants to change jobs and routines they know? A survey of 3,199 executives worldwide found that only 1 in 3 transformational organizational change programs succeeds. Other experts estimate that between 50% and 70% of major organizational change efforts fail (All Business, 2015; Salim, 2015). Organizational change efforts could avoid failure if leadership followed different strategic and tactical plans and implementation steps. Leadership is particularly crucial to executing an effective change program. Effective change projects call for leaders and managers who are emotionally intelligent and mindful. Such leaders need to be flexible, creative, and good com- municators who work well with people. Also, companies must not only know what types of change to watch for, but how to implement effective strategies to survive and thrive. This chapter will provide a broad overview of types of changes, the forces that induce change, and organizational frameworks for dealing with change. We begin with two of the most well- known frameworks for planned organizational change. 1.1 Kotter’s Eight-Step Approach Broadly speaking, planned organizational change is a process that moves companies from a present state to a desired future state with the goal of enhancing their effectiveness. Ultimately, the goal of planned organizational change is to improve an organization’s capabilities, thus enhancing its value to stakeholders and stockholders (Beer, 1980). Organizational leaders, managers, and employees who do not—or cannot—use change to their strategic and opera- tional advantage may see change as threatening and may resist efforts to alter a problematic situation. Those leaders and professionals who work with change specialists are more likely to view change as a competitive advantage if change is conscientiously planned and implemented. wei82650_01_c01_001-056.indd 5 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Kotter’s Eight-Step Approach One of the most widely used planning methods is John Kotter’s (1996, 1998, 2008) eight-step change process. This approach is used as a planning diagnostic and implementation method:Step 1. Establish a sense of urgency. Step 2. Form a powerful guiding coalition. Step 3. Develop a vision and strategy. Step 4. Communicate the change vision. Step 5. Empower others to act on the vision. Step 6. Generate short-term wins. Step 7. Consolidate gains and produce more change. Step 8. Anchor new approaches in the culture (Kotter International, 2006). These eight steps are vital to producing change. Each step is discussed in detail in the follow – ing sections. Step 1. Establish a Sense of Urgency Kotter (2008) argued that significant change generally fails if a sense of urgency is not first cre- ated and realized. The sense of urgency refers to the “pressing importance” of action needed to address critical issues—those that are essential to a group’s success, survival, or failure (Lohr, 2015). This goes against conventional wisdom, which assumes that planning processes start with a vision or goal. However, Kotter believes that individuals are not motivated with – out an initial sense of urgency. Creating one involves examining markets and competitive realities and identifying and discussing crises, potential crises, or major opportunities. Small companies and start-ups usually have a greater sense of urgency to change than do large organizations, because their very existence is at stake. Kotter (2007) has found that more than 50% of companies fail during this first phase because executives (a) either underestimate the difficulty of moving people out of their comfort zones or overestimate their own ability to create a sense of urgency; (b) lack patience—or as some say, “Enough with the preliminaries, let’s get on with it”; or (c) become paralyzed by the pos – sible drawbacks, which can include defensiveness among employees, lack of morale among senior employees, or an overarching fear that things will spin out of control, business will suffer, stocks will sink, and they will be blamed for these and other mistakes. Kotter states the urgency rate is high enough when 75% of a company’s management actually believe that “business as usual” is no longer acceptable. Step 2. Form a Powerful Guiding Coalition According to Kotter (2007), the second stage of planning change is to form a powerful guiding coalition. This is accomplished by assembling a group with enough power to lead the change effort and encouraging the group to work as a team. The team can consist of top-level officers and/or involve other key influential people in the organization. Starting with one or two and including up to five people may be sufficient in large and small companies. A critical mass in this coalition is later needed for the effort to succeed. The highest top-level executives are needed for an enterprise change initiative, with another 15 to 50 leadership members (including senior managers), depending on the size of the wei82650_01_c01_001-056.indd 6 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Kotter’s Eight-Step Approach company and the scope of the change. The coalition can include board members, important customers, and union leaders. Without a powerful guiding coalition, the change will likely incur opposition and fail. Step 3. Create a Vision This coalition next creates a vision that directs the change effort and presents a picture of the organization’s future envisioned state once the change is achieved. Not only is the vision articulated, but strategies for achieving it are clearly laid out and communicated later in the process, based on this step. The process of creating a sensible, realistic statement and strate- gies can take 3 to 12 months. Large-scale change efforts that fail either have several plans and programs but no vision or a vision that is overly complicated and “blurry.” Step 4. Communicate the Vision Kotter (2008) states that the coalition must actively communicate the vision, which involves using every vehicle possible to ensure that employees understand the new vision and strategies for achieving it. Communication also involves teaching new behaviors, which the guiding coali – tion should model and exemplify. Vision should be simple, crisp, and concise: A vision that can – not be communicated to someone in 5 minutes will usually not work. Effectively communicating the vision can make or break the buy-in from employees, who may be required to make signifi – cant sacrifices if the change is to succeed. Kotter notes that employees will not make sacrifices if they do not believe the change is possible. Therefore, credible communication must win so- called hearts and minds if employees are to accept the changes. Moreover, a successful vision typically includes a plan for growth and certain assurances, such as if employees are laid off, they will be treated justly. The guiding coalition should use words and actions to communicate the vision. Leaders and coalition members must “walk the talk” rather than sim – ply “talk the talk.” They become exam- ples of the new corporate culture (an organization’s shared behaviors and values) and of its change. To that end, all types of communication channels are featured in successful transfor- mations. Messages contain essential information about business problems and the new vision and are framed and delivered to employees in interesting, exciting, and engaging ways. Step 5. Empower Others to Act on the Vision Communication alone, however, will not empower employees to adopt and adapt to the required changes. Enlisting competent and willing individuals to enact change is important monkeybusinessimages/iStock/Thinkstock If change is to be successful, the guiding coalition must effectively communicate the new vision to employees. wei82650_01_c01_001-056.indd 7 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Kotter’s Eight-Step Approach and is critical for success. The more people involved in trying new behaviors and changes, the better. It is therefore important to remove obstacles that hinder change. Organizational structures, compensation and performance criteria, or outdated technologies may have to be removed or altered. Obstacles can also be individuals, such as department heads or managers who do not believe in the change and/or refuse to adjust their attitudes, behaviors, and prac- tices. However, whether someone accepts or resists the change, everyone should be treated equally and in a manner that reflects the new vision (Kotter, 2007). Step 6. Plan for and Create Short-Term Wins Next, Kotter (2008) advises planning for and creating short-term wins , which involves estab- lishing visible and tangible performance improvements. Once these improvements are evi – dent, it is important to recognize and reward the employees that facilitated them. Change efforts are unsuccessful when executives do not systematically plan for or create short-term wins. Since large-scale transformations take time, employees need to see results around 12 to 24 months into the change; otherwise, resistance may set in. Step 7. Consolidate Improvements and Produce More Change After planning and celebrating short-term wins, Kotter (2008) says change leaders must con- solidate improvements and produce still more change . They can do this by using the credibility they have accrued from their expertise and experience to change systems, structures, and policies that do not fit together or with the new vision. They can also hire, promote, and train employees who can implement the vision and reinvigorate the process. It is important to note that Kotter warns about declaring victory too soon into a major change initiative and empha – sizes that real change takes time. As he says: In one of the most successful transformations that I have ever seen, we quanti- fied the amount of change that occurred each year over a seven-year period.… The peak came in year five, fully 36 months after the first set of visible wins. (Kotter, 2008) Step 8. Institutionalize New Approaches in the Culture Finally, it is important to anchor and institutionalize new approaches in the culture . This means making the change accepted and established in the organization’s culture. Organizations accomplish this by increasing their performance through customer- and productivity-related behaviors. It is also important to articulate and reinforce productive and empowering rela – tionships between the new behaviors and organizational successes so that employees do not misinterpret the effects of the change. This is the first step toward institutionalizing the new approach in the company’s culture. The second step is to cultivate the means to ensure leader – ship development and succession so that future leaders understand and embody the changes. Therefore, according to Kotter (2008), succession planning (that is, setting the next chief executive officer [CEO] and other leaders in place) is a worthy goal and one that helps an orga – nization anchor and institutionalize effective changes. When a strong leader guides an organiza – tion through an effective change but fails to select and ready a successor, the changes may not be sustained. However, finding a strong successor is easier said than done, especially for those who must follow superstars like Apple’s Steve Jobs and General Electric’s (GE’s) Jack Welch. wei82650_01_c01_001-056.indd 8 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Organizational Development and Change Management For example, Jeff Immelt, who replaced Welch as GE’s chair and CEO in 2001, has won over many critics who originally disapproved of Immelt’s leadership. During one of the worst economies in U.S. history, Immelt had to meet many unexpected difficulties in reshaping the company. As Immelt commented of his journey, “The trick, if you follow someone famous, is that you’ve got to drive change every day without ever pretending anything was ever wrong. It takes confidence and it takes time” (Lohr, 2015, para. 3). Tim Cook, Jobs’s successor, has his own share of challenges in maintain- ing Apple’s dominance (see Chapter 2). Cook has effectively transitioned into his role as CEO, sustaining the innova – tions Jobs created and moving on to newer ones. Anchoring and institu- tionalizing effective transformational changes from one CEO or management team to another is not easy, but effec – tive succession planning allows compa – nies to continue approaches that have worked in the past and plan new ones to meet future environmental challenges. Let’s now turn our attention to how planned organizational change is developed, by whom, and how an understanding of two types of change specialists can help organizations negotiate and manage changes that occur both internally and externally. Check Your Understanding 1. The first step in Kotter’s eight-step model is to establish a sense of urgency. How do you think companies like Apple, Amazon, and Google can create a sense of urgency when they are already leaders in their industries? 2. Kotter believes it is necessary to create short-term wins when establishing change. Why do you think this is important? 1.2 Organizational Development and Change Management Who plans and helps architect planned organizational changes? The larger the planned change, the more top-level leaders and human resources (HR) staff are involved, especially if the change affects most, if not all, of the enterprise. Organizational consultants and change specialists are generally called in to partner with internal staff to diagnose and implement changes. Depending on the organization’s size, high-level leaders may not be heavily involved if a change involves a division, a department, or work units. AP Photo/Eric Risberg Steve Jobs’s successor at Apple, Tim Cook, has a dif- ficult task in living up to Jobs’s legacy and in helping Apple stay strong and competitive—but so far, he is succeeding. wei82650_01_c01_001-056.indd 9 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Organizational Development and Change Management In this section, we compare and contrast the two fields that created the modern principles of planned change: organizational development and change management. The approaches used by specialists in these fields are essential for achieving planned change in organizations, and these specialists are in high demand. Organizational Development The field of organizational development (OD) is “the practice of changing people and orga – nizations for positive growth” (OD Portal.com, n.d., para. 1). OD is the planned, organization- wide improvement of business processes to increase a company’s effectiveness and overall health. The planned changes are managed by executive leadership and based on behavioral science knowledge. OD was the first professional field in management/organizational behavior and development to establish social science–based strategies and tools to diagnose, plan, and help business leaders implement organizational improvement changes. OD as a specialized area has been described as a “data-based process supported by survey feedback, a sociotechnical approach that is centered on job tasks and characteristics, and an interpersonal process approach led by group dynamics” (Waclawski & Church, 2002; see also Burke & Noumair, 2015, p. 16). This field differs from those such as accounting, law, or politics, because it overlaps with other fields such as organizational behavior, change management, and consulting processes. Other disciplines have a focused sense of purpose, whereas OD is always evolving and does not yet have basic boundaries or parameters, despite discussion and debate from OD practitioners regarding the nature of the field (Church, Hurley, & Burke, 1992; Friedlander, 1976; Greiner, 1980; Weisbord, 1982; Waclawski & Church, 2002). Pioneers and those active in OD pride themselves on the inclusivity and diversity of their pro- fession’s values and methods. Organizational development specialists , many of whom are academics and organizational behavior professionals, are a major source of organizational change expertise, both theoretical and applied. OD differs from change management in several ways. OD is based on humanistic, egalitar- ian, and process-oriented values; in short, it is grounded more in the “people side” of things. Change management, on the other hand, is based on the content-based disciplines of busi – ness, finance, strategic, and operations management. Both fields have expanded to include parts of each, while still maintaining certain subject matter expertise. Leaders and consul- tants from both fields are important and complementary to planning organizational change. We use the term specialists for both OD and change management experts. This term encom – passes consultants, practitioners, and others with expertise in these areas. Specialists use organizational development methods that focus mainly on people and the human dimensions of organizations, such as culture, climate, leadership, and communication. These methods involve team building, survey feedback, quality of work life, restructuring work and positions, and job satisfaction (French & Bell, 1978). As the field of OD has evolved, it has incorporated change planning and interventions that also focus on structural, work process, and organizational design changes for top-level leaders as well as the entire organization. Consider the following example of an OD specialist’s work. Suppose the leaders of a mid- size firm need to identify objective criteria for the outputs of key goals of a major division. wei82650_01_c01_001-056.indd 10 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Organizational Development and Change Management The CEO and the division manager want to hold employees accountable for the stated goals, the criteria underlying the goals, and the desired results from the goals. However, no one at the company has this expertise. An OD consultant is hired to identify the criteria of each goal and articulate the goals that match those criteria. The consultant meets with the hiring manager to clarify the desired work and outcomes. She submits a proposal outlining the work to be done, how it will be done, and the anticipated deliverables. This type of project requires interviewing, examining goals and documents, and constructing criteria that support the goals. After the consultant successfully completes this project, she may be asked to train teams in that division on how to effectively implement these goals. During her work with this division, she may discover that the goals do not connect well with the company’s overall strategy. When reporting her findings to the hiring manager, she shares this discovery and perhaps extends the contract to address larger related issues in the organization. OD specialists rely on a variety of theories, concepts, and practical applications that are dis- cussed in more detail in the following chapters. For example, specialists use systems theory. This is the idea that organizations are a system comprising interdependent subsystems that have individual components that include people, technology, work, and culture, all of which operate together to respond to external environmental changes such as competitors, custom- ers, or government regulations (Katz & Kahn, 1978). OD specialists also conceptualize organizational systems using contingency theory, which views organizational dimensions (strategy, structure, people, work, rewards) as parts of a whole that “fit” together. Issues emerge when one of these dimensions is out of sync with the others. When all subsystems function together and fit into the external environment, the organization has a higher probability of fulfilling its goals (Burke & Bradford, 2005). OD specialists use a wide array of skills and tools in their change work, including intraper – sonal (self-management and emotional intelligence) skills; interpersonal skills; one-on-one coaching and mentoring; group facilitating; interviewing and surveying; collecting, analyz – ing, and diagnosing data and information; problem solving; assessing; program planning; and implementing. Specialists need to look at an organizational problem in a number of differ- ent ways to accurately diagnose what is wrong and to implement the most effective strategy. Major approaches that OD specialists may take include: • A long-term change approach that focuses on lasting effects through cultural norms; these changes include interventions that alter attitudes, behaviors, processes, knowledge, and structures. • A top-down approach that seeks to gain top management commitment and involve- ment in order to have the authority and legitimacy to significantly effect intended changes. Although change begins at the top, it is implemented throughout the organization. • A collaborative approach that involves professionals who are affected by the changes and support them. • An analytical approach that examines data, diagnoses problems, and motivates change to resolve issues. Accurate diagnostic skills are a core competency of OD change agents. • A facilitation approach that uses skilled dialogue and discussion, listening, and feedback when helping professionals identify the organization’s weaknesses and wei82650_01_c01_001-056.indd 11 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Organizational Development and Change Management strengths. It also involves planning for change; managing the change process; and employs implementing, coaching, and problem solving during the change. • A design approach that helps leaders and managers develop meaningful work cli- mates in which organizational members can accomplish their goals and objectives in healthy ways (Cummings & Worley, 2015; Church, Burke, & Van Eynde, 1994). An OD specialist may choose to join the Organization Development Network ( http://www .odnet work.org ), an OD international professional association. The OD Network has commit – ted to expanding the practice and theory of OD by supporting and developing individuals who wish to practice it. It pledges to represent the discipline by promoting visibility, credibility, and influence for all members and has clearly defined core values, principles of practice, and ethics by which its members must abide. There are several notable trends in the field of OD. One involves ensuring that process inter – ventions in organizational change are “transparent, possess integrity, treat people with dignity, and serve diverse stakeholders,” and have a primary goal of “help[ing] organizations create such processes; whether they subsequently lead to performance outcomes is of secondary import” (Cummings & Worley, 2009, p. 694). Another pragmatic trend calls for increased pro – fessionalization and the need to provide relevant expertise to organizations (Church, 2001). Management consulting in general, and change consulting specifically, is an unregulated indus – try, which means almost anyone can claim to be an expert in these fields. Certification and degrees or concentrations in these fields should be a minimum requirement for practitioners. Finally, trends in the “context of Organizational Development” (Cummings & Worley, 2010, p. 697) indicate that the field is becoming more focused on “driving effectiveness in a broader range of organizations.” It is also helping both technical and managerial innovation, support- ing cultural diversity, and is more centered on ecological sustainability. As global, regional, national, and local economies, industries, and organizations change and evolve, so too will some change management and OD skills and practices. In many ways we are all involved in organizational change—as drivers and recipients. Hopefully, the readers of this text will become more informed and knowledgeable about change processes as a result. Change Management To review, OD emphasizes an organization’s human and behavioral dimensions organiza- tion (that is, explores ways to enhance motivation and productivity, which in turn enhances the organization as a whole) while, at the same time, improves the overall alignment of its systems (that is, large-scale changes are more acceptable when they are congruent with the organization’s strategy, culture, and reward system and meet employee satisfaction and effec- tiveness). We will now focus on a complementary field called change management, which has more recently expanded its domain to include both business and behavioral aspects of organizational change. Change management encompasses the approaches used by business content and behav – ioral process specialists to help leaders move entire organizations, or units, from a present to a desired state. Whereas OD specialists focus on process (how leaders, managers, and wei82650_01_c01_001-056.indd 12 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Organizational Development and Change Management employees communicate, relate, strategize, sell, and solve problems) and general systems- oriented interventions (how strategy, culture, structure, accounting, and HR systems work together to meet goals), change management specialists address issues and areas such as: • competitive business strategy; • strategic firm (HR benefits, budgeting, profit sharing) planning; • information technology (IT) and engineering solutions design and development; • IT infrastructure support; • business process engineering and reengineering; • marketing planning; • financial analysis, inventory control and analysis, work-flow analysis, and design solutions; and • project management methods. Part of a change management specialist’s role is to align a business’s objectives and practices with the new or desired strategy, structure, and system. To do this effectively, change special – ists must focus on both the content and process; for example, they must be concerned with how organizational leaders commu- nicate business strategy to IT teams, although this may not be their primary expertise. Change management con- sultants usually specialize in particular content areas such as strategy, manu- facturing and operations, marketing, and IT, whereas OD consultants deal with identifying and solving broader organizational integration issues—for example, structuring organizational units for effectiveness, coaching and advising leaders on communication and relational skills, working with teams to improve their project man – agement processes, and other organi – zational behavior topics. One expert in the field noted that technical experts such as manufacturing engineers focus on how to standardize and regulate tasks, so these can be consistently repeated. Such is the role of a change management specialist. In contrast, OD specialists find that these regulations and procedures suppress creativity and cause dissatisfaction in an organization (Worren et al., 1999). In larger organizations it is common to find change management teams from different con – sulting companies that are composed of people with complementary skills. For example, members may come from entirely different segments of a business, such as IT, marketing, engineering, and organizational design. michaeljung/iStock/Thinkstock Change management specialists often work in teams and must coordinate many facets of an organization to effectively execute a change plan. wei82650_01_c01_001-056.indd 13 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.3 Lewin’s Force-Field Analysis and Resistance to Change Check Your Understanding 1. List five of the major skills or tools that OD specialists must use in their change work and explain why they are important. 2. Describe the major differences between OD and change management specialists. Provide an example of when each type of specialist is needed. 1.3 Lewin’s Force-Field Analysis and Resistance to Change The term resistance to change was first introduced by Kurt Lewin in his field theory and work on group dynamics (Lewin, 1947; Gravenhorst, 2003). Lewin’s force-field analysis is such a widely used method that its use has become commonplace. When used systematically, the method can help individuals, groups, and organizations understand and overcome resistance to specific changes. Force-Field Analysis Lewin views change as the result of opposing forces that move with and against the status quo at any given time. Change comes to a standstill when the opposing forces are of equal strength. To move the state of change in one direction or the other, one set of forces must be increased, decreased, or both. This model is based on the law of physics that holds that an object at rest will remain so unless the forces exerted on the object (to move it) are greater than the forces working against it (to keep it at rest). Therefore, behavioral change will occur if (a) the forces for change are strengthened, (b) the forces against change are weakened, or (c) a combination of the two is applied. Lewin’s method is also used to diagnose and develop strategies to alter the dynamics of change at any stage of a change process. It is an excellent method for engaging employees and managers in identifying hidden assumptions, issues, and perceived opportunities related to a desired end state to be achieved, a plan to be implemented, or an initiative to be tested. The following steps can be used to identify the forces for and against a particular situation, problem, or opportunity: 1. Describe the opportunity, problem, or issue. 2. Identify the desired end state. 3. List the potential benefits derived from having achieved the end state. 4. Identify the driving forces, strategies, and tactics for change toward the end state. 5. Identify the resisting forces against change toward the end state. 6. Identify tactics that can be used to weaken the forces against change. 7. List tactics to strengthen the forces for change to reach the desired end state. 8. Develop an action plan. Figure 1.1 uses an initiative to implement a new software program to illustrate Lewin’s force- field analysis. In this situation, a consultant collaborates with an organization’s leadership team to interview and survey a work group whose support is needed to implement the soft – ware. Their opinions of the change are indicated in this figure. Those who supported the change indicated that the new software would provide added capability, while those who opposed it countered with their fear and hesitancy of the change. Fo rces for change Equilibrium Fo rces resisting change Added capability Perfo rm work more quickly Maintain technological edge Net work everyone on same syste m Fear of change Resistance to new training Old habits No benefits of change identified Organizational initiative : Implement a new sof tware pr ogra m organization wide + Figure 1.1: Force-field analysis This chart shows the ways in which forces for change and its resistance meet in the middle at equilibrium. Source: Lewin, K. (1997). Field theory and learning. In D. Cartwright (Ed.), Field theory in social science: Selected theoretical papers (pp. 212–230). Washington, DC: American Psychological Association. wei82650_01_c01_001-056.indd 14 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Forces for change Equilibrium Fo rces resisting change Added capability Perfo rm work more quickly Maintain technological edge Net work everyone on same syste m Fear of change Resistance to new training Old habits No benefits of change identified Organizational initiative : Implement a new sof tware pr ogra m organization wide + Section 1.3 Lewin’s Force-Field Analysis and Resistance to Change Check Your Understanding 1. List five of the major skills or tools that OD specialists must use in their change work and explain why they are important. 2. Describe the major differences between OD and change management specialists. Provide an example of when each type of specialist is needed. 1.3 Lewin’s Force-Field Analysis and Resistance to Change The term resistance to change was first introduced by Kurt Lewin in his field theory and work on group dynamics (Lewin, 1947; Gravenhorst, 2003). Lewin’s force-field analysis is such a widely used method that its use has become commonplace. When used systematically, the method can help individuals, groups, and organizations understand and overcome resistance to specific changes. Force-Field Analysis Lewin views change as the result of opposing forces that move with and against the status quo at any given time. Change comes to a standstill when the opposing forces are of equal strength. To move the state of change in one direction or the other, one set of forces must be increased, decreased, or both. This model is based on the law of physics that holds that an object at rest will remain so unless the forces exerted on the object (to move it) are greater than the forces working against it (to keep it at rest). Therefore, behavioral change will occur if (a) the forces for change are strengthened, (b) the forces against change are weakened, or (c) a combination of the two is applied. Lewin’s method is also used to diagnose and develop strategies to alter the dynamics of change at any stage of a change process. It is an excellent method for engaging employees and managers in identifying hidden assumptions, issues, and perceived opportunities related to a desired end state to be achieved, a plan to be implemented, or an initiative to be tested. The following steps can be used to identify the forces for and against a particular situation, problem, or opportunity: 1. Describe the opportunity, problem, or issue. 2. Identify the desired end state. 3. List the potential benefits derived from having achieved the end state. 4. Identify the driving forces, strategies, and tactics for change toward the end state. 5. Identify the resisting forces against change toward the end state. 6. Identify tactics that can be used to weaken the forces against change. 7. List tactics to strengthen the forces for change to reach the desired end state. 8. Develop an action plan. Figure 1.1 uses an initiative to implement a new software program to illustrate Lewin’s force- field analysis. In this situation, a consultant collaborates with an organization’s leadership team to interview and survey a work group whose support is needed to implement the soft – ware. Their opinions of the change are indicated in this figure. Those who supported the change indicated that the new software would provide added capability, while those who opposed it countered with their fear and hesitancy of the change. Fo rces for change Equilibrium Fo rces resisting change Added capability Perfo rm work more quickly Maintain technological edge Net work everyone on same syste m Fear of change Resistance to new training Old habits No benefits of change identified Organizational initiative : Implement a new sof tware pr ogra m organization wide + Figure 1.1: Force-field analysis This chart shows the ways in which forces for change and its resistance meet in the middle at equilibrium. Source: Lewin, K. (1997). Field theory and learning. In D. Cartwright (Ed.), Field theory in social science: Selected theoretical papers (pp. 212–230). Washington, DC: American Psychological Association. After analyzing the number and strength of supporters and resisters, the consultant and orga- nizational HR professional might conclude that support for change outweighs the resistance. Also, evidence from interviewing and surveying the work group may also indicate that the consultant needs to educate individuals who doubt the new software’s additional capability and technological advantages. Doing so may encourage those who were initial dissenters to embrace the change and carry it out. The Three Stages of Change: Unfreezing, Moving/Changing, Refreezing in the Force Field Lewin’s force-field analysis also argues that there are three stages of change: unfreezing, moving/changing, and refreezing. The unfreezing stage focuses on creating an emotional need for change by increasing the motivation to change. Individuals are encouraged to abandon old behaviors and attitudes and become open to accepting new ones. Managers can participate in this stage by reducing barriers to change, creating incentives to change, and introducing rewards for new behaviors. Individuals begin to unfreeze old behaviors and attitudes when they can see and experience their uselessness. For example, imagine that directors of an organization have been required to use a new finan – cial reporting system that tracks their expenses. Most do so and immediately see its benefits, which include helping them make more objective decisions about activities and resources. However, those who refuse to use the new system start to fall further behind in their work. wei82650_01_c01_001-056.indd 15 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.3 Lewin’s Force-Field Analysis and Resistance to Change They feel discouraged and helpless. A few leave, whereas others realize it is time to change— that is, their attitudes and old behaviors start to unfreeze. In the moving/changing stage, employees experience changes in their attitudes and behaviors. New information, attitudes, and skills are introduced. A new organizational vision, mission, strategy, structure, and technology facilitate new directions for change. Mentors, role models, and training assist employees in the transition from old to new attitudes and behaviors. In the example of the new financial reporting system, responsible managers design and assign a training program with mentors to help the directors learn and adapt to the new system. The man- agers begin the training by relating the new financial system to the company’s new vision, mis – sion, and direction. This alignment process—linking the need to use the financial system to the company’s larger vision and goals—motivates the directors to change old attitudes and habits. Finally, the refreezing stage focuses on reinforcing and institutionalizing new behaviors and attitudes. Enabling employees to practice new behaviors with appropriate rewards helps stabilize changes during this phase. Managers must ensure that the culture, structure, and reward system support the new behaviors. The managers meet frequently with the directors and others in the company who have been positively affected by the new system. They discuss its issues and benefits. The managers also introduce bonuses and other perks to the directors and employees who have increased their productivity by using the system. An overall feeling of accomplishment and pride takes hold, and the company’s culture is revitalized. Managing Change Confronting Resistance Rather than reduce a large number of staff members, a financial services company chose cost-cutting measures to weather the financial crisis. These included consolidating its office space, renting out one of its floors, and overhauling employee health insurance options. The traditional health maintenance organization was still available, but at a much higher price, which offset the company’s rising cost of providing the benefit. A new high-deductible plan was also put into place. Open enrollment usually took place every year in November, and e-mails were sent out to employees notifying them of the changes at the end of September. Employees complained that as part of the high-deductible plan, they were required to pay more out of pocket to meet the deductible before any insurance benefits kicked in. Company executives explained the complicated process and pointed out that the company would contribute half of each employee’s deductible responsibility in a health reimbursement account and that employees could draw the other half from pretax dollars in a flexible spending account. Serious discontent flowed through the office; groups were meeting to discuss their dissatisfaction with the company and go to HR with complaints. Some employees even left (continued) wei82650_01_c01_001-056.indd 16 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations Check Your Understanding 1. Explain why so many people resist organizational change. 2. Use Lewin’s concepts to explain how planned change can be better understood and accepted. 1.4 Driving Change in Organizations Organizational change is generally triggered by external and/or internal forces. Such forces could include special industry events, an unforeseen opportunity for company growth, indus- try trends, or any myriad of pressures from inside or outside the company. Detecting signs of external change is important, since failure to do so could cause an organization to miss oppor – tunities or fail to see impending threats. Planned change begins with learning to interpret and respond to trends that are triggered in external environments. Macro-level external sources of change are depicted in Figure 1.2. These include government and political, economic, technological, sociocultural, and natural- and human-related forces. When planning a change, this broader level of analysis is completed before identifying more specific operational dimensions of change—that is, the particular industry and the niche of the organization in that industry. From a change perspective, these environmental forces can have many effects on an organiza – tion’s internal systems—that is, its leaders and employees, its strategy and operating systems (IT, HR, and so on), and even its very culture. See Figure 1.3 for a depiction of the external influences on an organization’s internal systems. To understand how organizational leaders and change specialists analyze environments, try this exercise. Think of an organization in which you work or have worked, or one you’ve learned about from the media. Then, answer these questions as you read this section. the company because of a perceived devaluation of health insurance benefits. Discussion Questions 1. What are some of the naturally occurring reasons to generally oppose this change? 2. Imagine you are an employee at the company who understands that these changes are being made to avoid layoffs. You therefore accept the change wholeheartedly. How could you help other employees advance to the moving/changing stage? 3. How could the unfreezing, moving/changing, and refreezing stages be applied to this situation? (See the end of the chapter for possible answers.) Managing Change (continued) wei82650_01_c01_001-056.indd 17 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Sociocultural Forces Demographic trends Lifestyle changes Av ailability skills Attitudes t oward work Gender issues Willingness to mo ve Ethics Te chnological Forces Information technology/the Internet New production processes C omputer ization of pr ocesses How technology is sold and serviced Economic Forces Globalization Competitors/suppliers Currency e xchange rates Employment and wage rates G overnment economic policies Lending policies of financial institutions Gove rnment & Political Forces Go vernment legislation International law Wa rs Local regulations Ta xation Trade unions activities Organization Natural Disasters & Human-Induced Forces Weather Extreme storms (hurricanes, tsunamis, volcanoes, earthquakes) Pollution Health, food, stress Political–Legal Forces Sociocultural Forces Technological Fo rces Internal Environment The Organization External Enviro nment Informal Subsys tem Managers, Cultur e, Norms, Relationships, Politics, Leadership Fo rmal Subsys tem Leadership, Strategy, Management, Goals, Marketing, Operations, Technology, Structure Economic Fo rces Section 1.4 Driving Change in Organizations Figure 1.2: Macro forces and organizational change The five macro-level, external forces of change are economic, technological, sociocultural, natural and human-induced, and government and political. These forces produce potential opportunities or critical issues for an organization. Source: Senior, B., & Fleming, J. (2006a). The leadership of change. In B. Senior & J. Fleming (Eds.), Organizational change (3rd ed.). Essex, UK: Prentice Hall, Figure 1.3, p. 17. Sociocultural Forces Demographic tr ends Lifestyle changes Av ailability skills Attitudes t oward work Gender issues Willingness to mo ve Ethics Te chnological Forces Information technology/the Internet New production processes C omputer ization of pr ocesses How technology is sold and serviced Economic Forces Globalization Competitors/suppliers Currency e xchange rates Employment and wage rates G overnment economic policies Lending policies of financial institutions Gove rnment & Political Forces Go vernment legislation International law Wa rs Local regulations Ta xation Trade unions activities Organization Natural Disasters & Human-Induced Forces Weather Extreme storms (hurricanes, tsunamis, volcanoes, earthquakes) Pollution Health, food, stress Figure 1.3: Environmental influence on internal organization The external forces of change influence an organization’s formal and informal subsystems. Source: Senior, B., & Fleming, J. (2006a). The leadership of change. In B. Senior & J. Fleming (Eds.), Organizational change (3rd ed.). Essex, UK: Prentice Hall, Figure 1.4, p. 32. Political–Legal Forces Sociocultural Forces Technological Fo rces Internal Environment The Organization External Enviro nment Informal Subsys tem Managers, Cultur e, Norms, Relationships, Politics, Leadership Fo rmal Subsys tem Leadership, Strategy, Management, Goals, Marketing, Operations, Technology, Structure Economic Fo rces wei82650_01_c01_001-056.indd 18 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations 1. Identify an influence (or influences) from Figure 1.2 that has affected the way an organization markets, produces, sells, and delivers its goods and/or services (also see Figure 1.3). 2. Can you think of a particular way the organization changed (Figure 1.2) or must change to compete as a result of any of the environmental influences in Figure 1.3? 3. Do you buy or avoid buying any products because of how the company that makes them does business? If so, what product, what company, and what do you admire or dislike about the way it does business? Your answers to these questions indicate changes that organizations need to make or plan for in order to meet new market and customer demands. External Forces of Change Let’s look more closely at Figure 1.2 to see how external forces and influences can create threats and opportunities for organizations. Technology Forces Technology is a primary driver of innovation and change. Organizations use information technologies in their strategies and operations to gain speed, scale, scope, and reach with customers and stakeholders around the world. IT has enabled the creation of new industries, business models, professions, products, and services. Take, for example, Google, Facebook, YouTube, and Amazon, to name just some of the promi – nent companies that have dramatically shifted customer-to-customer as well as business-to- customer relationships. Websites like Google have practically replaced the Yellow Pages and traditional map-printing companies like Rand McNally. Facebook created not only networks of friends but also those of clustered, self-promotional buyers. YouTube became an enter – tainment, educational, and journalistic resource center. Amazon took consumers from sifting through bookshelves in bookstores to online web pages—and then to Kindle. These companies, along with PayPal, have changed the practices surrounding payment for services and products, marketing, advertising, sales, and delivery. These firms and their many uses of technology have helped shift power to customers, since they can now select from a wider and more differentiated set of websites and digital stores. Technology not only drives changes within companies but has the ability to change industries worldwide. An example of the influence of technology on global health care comes from Zhu Ling, a Chinese student who became strangely ill in 1994. Her friend posted a description of the student’s medical condition on the Internet. After reading about her symptoms, doctors in the West diagnosed her with thallium poisoning and saved her life. Having the ability to receive diagnoses using technology is beneficial, since China had 1 general medical practitio- ner for every 10,000 individuals in 2013. wei82650_01_c01_001-056.indd 19 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations Mobile technology like smartphones and iPads has profoundly impacted the way we think about and do business, as well as how we conceive of personal time in relation to work time. Mobile technology has greatly diminished the need for physical office space and face-to-face business time, and it has drastically increased the speed at which business communication and transac- tions are conducted. Because people can be reached almost anywhere and at any time, tradi – tional work hours are falling by the wayside. The print media industries—newspapers, maga – zines, and books—have also been significantly impacted by the availability of digital e-readers like the Nook and Kindle. Moreover, blogs and YouTube now complement and replace network news. Hulu and Netflix complement and may one day replace the movie theater. Social networking technologies are changing politics and the way lead – ers interact with their constituents. It has become standard for an elected official or political figure to maintain a Facebook page and Twitter account to post updates, convey messages, and organize events. Moving forward, we can expect many social and politi – cal events—from election campaigns to grassroots social movements—to achieve their goals via social net – working technologies. Social media is also well used in are- nas outside politics. In a 2014 report on social media marketing, 92% of marketers surveyed agreed that social media is important for their business, up from 86% in 2013. Sixty-eight per – cent of marketers plan to increase their use of blogging, which was the top investment area for marketers in 2014. Fifty-four percent of marketers use Google+, and Facebook (54%) and LinkedIn (17%) were considered the two most important social net – works (Stelzner, 2014). Organizations, regardless of their size, are becoming more effective, efficient, connected, and “globalized” because of the Internet and related technologies. Real-time production that serves customized demand is the norm (Intuit, 2010). Many large firms with global supply chains are now networked to their suppliers, customers, and vendors through extranets and integrated internally through intranets, which are information networks that operate much like the Internet but are restricted to an organization’s employees. Extranets are intranets that also allow people outside of the business to access an organization’s system. According to Information Week, most IT managers expect a positive return on investment on these types of network infrastructure (“Intranets and Extranets,” 2011). Innovation in this field will lead to more widespread use by companies big and small. Organizations that lag behind in their use of technology—either for production processes or to get products and services to customers in timely and efficient ways—are usually in need of Rostislav_Sedlacek/iStock/Thinkstock Mobile technology and devices such as the smart – phone have changed the ways we do business and consume information. To remain viable and competitive, organizations must effectively plan for how technology will continue to evolve in the future. wei82650_01_c01_001-056.indd 20 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations organizational change. Changing a major production process affects other parts of an organi- zation’s internal system, from leadership to company culture, as indicated by Figure 1.3. Economic Forces Sharing or collaborative economy companies like Uber and Airbnb offer a digital way for buy- ers and sellers to exchange products and services. This enables people to buy what they need from one another, rather than solely from corporations (Owyang, 2013). Although there are regulatory and competitive issues among rivals in this growing and changing industry, these firms are changing the ways business is done and adding to economies in the process. As we discussed earlier, the world has become flatter, and what affects one region has direct and immediate consequences everywhere else. Previously, a troubled economy in a particu- lar country could be isolated to that region, but now it can quickly drag down economies the world over. This was evident during the Great Recession of 2008–2009. No country was spared in the fallout from the housing market crash in the United States. Likewise, uncertainty in the European Union (EU) from 2011 to the present has created economic instability in Asia and the United States. Economies and the governments that manage them are interconnected as in no other time in human history. Monitoring governmental decisions and economic con – ditions around the world has become a critical necessity for businesses of any size. A variety of economic conditions predicted through 2020 are expected to impact both organi – zations and consumers, including an increase in consumer spending in developing countries, depleted savings in the United States, and continuing debt and deficits throughout the West – ern world that will restrain spending rates. However, global economic growth is predicted, with more than a billion new middle-class consumers who will increase spending. The information technologies discussed in the previous section will grow in demand. Both large and small compa – nies will need new businesses and business models that can meet the dema nds of the new mid – dle-class consumers (Etsy, 2013, 2014; Intuit, 2010) and, at the same time, meet the demands of diminishing economies. Environmental Forces Environmental issues present another factor that drives change. Chronic smog and air pol – lution in cities throughout the world are major health hazards that must be addressed. Climate change and sustainability considerations (“green” initiatives) also present chal – lenges for organizations, but managing these forces is no longer a choice; it is becom – ing a competitive requirement, especially as companies try to dig their way out of the Great Recession or to compete in the new so-called purpose economies, in which consum – ers are interested in companies that “bring value to their lives and to society at large” (Fields, 2014). Consider Havas Media’s Meaningful Brands Index, a ranking of consumer-conscious compa – nies. The index measures various areas of customer well-being and ranks brands accordingly. The Meaningful Brands 2015 top global performers were Samsung, Google, Nestlé, Bimbo, and Sony. A Havas Media survey of 134,000 participants in 23 countries showed that they would not care if 70% of brands disappeared because they are “ultimately meaningless” (Fields, 2014). wei82650_01_c01_001-056.indd 21 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations Some companies—such as household products manufacturer Method, funding platform Indi- egogo, and media company Participant Media—are seeing higher profits resulting from the fact that they exhibit a clear purpose. This effect resonates with employees and customers throughout the value chain. Prices and resource supplies put pressure on a company’s growth, however, and influence, and are influenced by, regulation, taxes, and other restrictions that seek to reduce companies’ carbon footprints. In addition, consumers expect businesses to incorporate sustainable practices into their operations, products, and services (Fields, 2014; Watson, n.d.). In response to these pressures, some companies are taking the lead not only to manage these changes but also to make sustaining a healthy and clean environment a goal of change man – agement. For example, Apple, Starbucks, and Procter & Gamble are committed to powering all their factories with renewable energy within the next 10 years. FedEx committed to improve vehicle fuel efficiency by 20% by 2020. Walmart has pledged to sell $1 billion of fresh produce that was sourced from 1,000 small- and medium-sized farms (Ceres, n.d.). In 2013 Hasbro (2014) obtained 85% of its paperboard packaging from recycled materials; the company ranked second in Corporate Responsibility Magazine’s 100 Best Corporate Citizens 2015 list (ht tp://w w w.thecro.com/files/100BestList2015.pdf ) (Hasbro, 2015; Watson, n.d.). Corporations and organizations will be pressured to plan, budget, and implement green logic into their business strategies, production, and manufacturing. They will need to factor con – cern for the environment, sustainable energy use, and responsible waste disposal into all their strategies using the three Rs: reduce, reuse, and recycle. As technology allows for more ways to meet these environmental concerns, companies will be well served to remain on the innovative forefront by seeking cost-effective ways to implement such technologies. Manag – ing change in this regard will help companies become more efficient and appeal to a growing consumer base. Some industries and companies do not practice sustainable clean air and water strategies in their operations. Supporters of environmental sustainability contend that industries and firms that use coal particularly contribute to pollution (Johnson, 2011). It can be expensive to convert to clean energies and sustainable business practices, and pollution and other unhealthy consequences can result when governments do not offer industries and companies incentives to change. Health Care Forces With an aging population, ever-evolving medical innovations, and consumer demand for the highest quality medical products and services, the cost of health care has continued to rise at an alarming rate, with no end in sight. Globally, health spending is estimated to have cost $7.2 trillion in 2013, or 10.6% of the global gross domestic product (GDP). It is estimated that this spending will rise approximately 5.2% per year from 2014 to 2018, up to $9.3 trillion (Deloitte, 2015). These costs will likely increase the national debt in the United States and compete with funding for other government programs. Likewise, businesses are saddled with escalating insurance premiums for their employees, which contributes to a flattening of real wages and handcuffing what companies can offer in terms of compensation and benefits packages. It has wei82650_01_c01_001-056.indd 22 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations yet to be determined what ultimate effects the Affordable Care Act, passed in 2010, will have on these issues. However, one thing is certain: Companies will have to manage change on this front better than ever before. Health care expansion will present business growth opportunities, but it will also present potential dangers. Change management will be critical in determining these outcomes. Government and Political Forces Organizations and companies will also continue to cope with and respond to external politi- cal and governmental changes. Such uncertainty stems from regime changes, wars, terrorism, and global economic instability. Political unrest can have the same effect as economic unrest. A Harvard report on competitiveness illustrates business leaders’ opinions of actions they would like to see the government take to cope with uncertainty, including controlling fed- eral spending, reforming the tax code, and streamlining regulations. Divisive politics that do not address the root causes of lack of competitiveness prevent productive change (Denning, 2013). In this volatile era, the U.S. government waivers between a lowered and less-than-acceptable credit rating from the Standard & Poor’s credit rating agency. This signals a need to continue to decrease unemployment and increase job creation—particularly in critical sectors such as engineering, manufacturing, and technology; decrease the national debt; rebuild infra – structures; restructure the education system; and balance regulation with innovation in the financial, banking, and investment industries. At the same time, EU countries must absorb the soaring debts of several member countries like Greece and Italy. Corporate leaders must think innovatively to move their economies forward; this will involve investing in new industries and creating new jobs. Generating positive change in such unstable political and economic times is not easy. Accord – ing to the Global Competitiveness Report 2014–2015 (Schwab, 2014–2015), the United States ranked third in competitiveness, behind Switzerland (first) and Singapore, and was followed by Finland, Germany, Japan, Hong Kong, Netherlands, Sweden, the United Kingdom, and Norway. The United States rose to third from its fifth-place ranking in 2013, while Japan climbed from ninth place to sixth. Increasing global competitiveness will require innova- tive and bold organizational strategies and structures to meet external opportunities and demands. Transformational change is needed, which is discussed in a later section. Sociocultural Forces Brainpower and talent are the keys to reigniting corporate and economic growth and pro – viding opportunities for a new generation of students. At the same time, companies must provide meaningful and challenging work to employees who value learning, ethics, and flex – ible working conditions. Work/life and work/family issues are also major sources of work – force and workplace change. The increasing number of women (single with children and married with children) in the U.S. workforce has pressured management to rethink work schedules. Male and female employees from the “sandwiched generation”—so called because they are tasked with caring for both their children and their aging parents while working full wei82650_01_c01_001-056.indd 23 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations time—will require and benefit from flextime, telecommuting, and other forms of virtual work arrangements. The modern workforce features aging workers and the physically chal- lenged, highly skilled and unskilled international entrants, and dual- career couples with children. All of these changing demographics pres- sure management to think outside the box in terms of what organizational changes are needed to attract and retain an increasingly diverse and, in many instances, technologically savvy workforce. Globalization Forces With China’s quest for competitive research and its excellence in its man- ufacturing development growth, and India’s presence as a high-volume, low-cost labor manufacturer, Western countries are being pressured to find even more ways to innovative and compete. China is now the second largest economy. The Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) have emerged as advanced economies that serve as financial centers and IT innovators. This change, along with new technology, has enabled low-cost international competitors to drive down business costs and thus force companies to streamline structures and change strategies and business practices. The firm PricewaterhouseCoopers estimates that China will overtake the United States as the largest economy in purchasing power parity (PPP) terms by 2017 and in market exchange rate terms by 2027 (Hawksworth & Danny, 2015). It has been estimated that by 2050, India will become the third global economic giant and Brazil will rise to fourth. Russia may become the largest European economy in PPP by 2020 and in market exchange rates by 2035 (Simha, 2014). Although there are many negative aspects of globalization, there are many positive aspects too. As discussed earlier, international economies are more interrelated than ever before. International investments and movements in the U.S. stock markets affect American pension funds, corporate earnings, and market forecasts. Industry regulation and deregulation (espe – cially in telecommunications, banking, financial services, and the airlines) continue to stir large-scale downsizing and company restructuring. Mergers, acquisitions, and consolidations within and across industries have also created significant organizational change. Competition remains an important driver of organizational change on the global stage, as well as in local communities. Because of the Internet and information technologies, local communities are now global in reach. Monkeybusinessimages/iStock/Thinkstock Telecommuting and flexible schedules are among the ways companies are adapting to sociocultural forces. wei82650_01_c01_001-056.indd 24 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations Organizational and Managerial Responses to Change Companies have responded to the external forces of change in a number of ways. Some firms have surrendered. For example, Borders closed because its brick-and-mortar book- stores could not compete with the handheld, Internet-connected devices and services pro – vided by companies such as Amazon. Other organizations like Ford, Sun Microsystems, International Business Machines Corporation (IBM), Mitsubishi, and GE have strategically responded to external changes with innovative organizational structures, including net – works, strategic alliances, and virtual corporations. Solutions and pathways to navigat – ing change will definitely involve different information and communication technologies (Grajek, 2015). Businesses understand that they must change in order to survive and succeed in today’s envi – ronment and are thus working to become more streamlined, ecologically sustainable, and responsive to external demands. They are striving to be more proactive and taking the initia – tive in managing change (Cummings & Worley, 2015). It is important to point out that not all organizations will or should respond to external environmental change, and not in the same way. The external environment is not always a completely objective phenomenon. The ways in which the environment is perceived and responded to depend on individual interpretations—in this case, the interpretations of orga – nizational leaders and managers. How leaders and managers perceive pressures and forces in their environments affects whether and how they develop change strategies to respond (Smircich & Stubbart, 1985). Type 1 and 2 Errors Boyd, Dess, and Rasheed (1993) identified two types of errors that leaders and managers can make in perceiving and acting on change. A type 1 error occurs when the environment is stable, but leaders and managers perceive it as turbulent and take unnecessary actions in response. A type 2 error happens when leaders and managers perceive the environment as stable when in actuality it is turbulent, and they fail to take necessary actions, thus threaten- ing the survival of their organizations. An example of a type 1 error occurred in 2003 when President George W. Bush and his cabinet, with congressional approval, hastily declared war on Iraq based on the belief that its regime possessed weapons of mass destruction and intended to use them against its neighbors and the United States. This was shortly following the terrorist attacks of September 11, 2011, a time of high anxiety and upheaval. After years of war it was ultimately found that Iraq had no weapons of mass destruction; the costs from this misperception were and continue to be substantial. An example of a type 2 error occurred when U.S. auto manufacturers perceived the environ – ment in the 1980s as stable and failed to design and manufacture four-cylinder fuel-efficient cars, as opposed to the Japanese, who later won and maintained a sizable market share in the U.S. auto industry as a result of their first-move advantage with quality cars. The lesson is that trends and forces in the external environment must not only be monitored but also carefully scrutinized in conjunction with governments and companies. Individuals can also learn from type 1 and 2 errors when perceiving and planning a change. wei82650_01_c01_001-056.indd 25 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Driving Change in Organizations Balancing Forces for Change and Stability Organizational leaders and change specialists must consider the interaction and balance between the forces for change and for stability. The need or drive for change can sometimes be exaggerated or romanticized. In their consideration of hypercompetitive environments, Leana and Barry (2000) argued that there are forces for stability and for change, and both are essential for an organization’s long-term functioning. Table 1.1 lists these forces and the balancing effects of each in organizations. Table 1.1: Change and stability forces Forces for changeForces for stability Competitive advantage: flexible and responsive to changing markets Predictability and uncertainty reduction: stability enables, rather than impedes change Control: less hierarchy and more power through management performance targets Organizational social capital: trust among employ – ees is created as an asset Impatient capital markets: short-term investments favored over long-term ones Sustained advantage: created through stable inter – actions over time Cost containment: Human resources seen as a cost, not an asset Transaction costs: stability creates rational invest- ment in employee development Environment adaptability: stability impedes adapt – ability; flexibility adapts to change Institutionalism: power structures self-perpetuate, solidify relationships and practice Source: Leana & Barry, 2000; Palmer, Dunford, & Akin, 2009. Whether organizations need to change, and to what extent, involves the need to balance per – ception and decisions with wisdom and experience. As Figure 1.1 shows, performing a force- field analysis is one way that leaders, managers, and individuals can address if and to what extent it is helpful to move forward with a change to part or all of an organization. Table 1.1 shows the forces at play that can help decision makers weigh the benefits and costs of a change. Note in Table 1.1 that competitive advantage as a force for change is counterbalanced by the need to achieve predictability and reduce uncertainty. Competitive advantage requires organi – zational flexibility and responsiveness, but effective organizations also require stability and cer- tainty to thrive. Although control as a force for change means less hierarchy and more emphasis on performance targets, organizational social capital requires employers to develop and nourish coworker trust, which is an invisible force for stability. Impatient capital markets that demand immediate, short-term investment are indeed a force for change, but organizations also need to have sustained advantage that is gained over time through stable organizational relationships and interactions. Finally, organizations that wish to become competitive must adapt to multiple environments, but at the same time, organizations need to rely and draw on institutionalized best practices of what worked well in the past, including sound relationships. In summary, macro external forces affect organizations’ operational and internal environ- ments. Trends, events, and crises that occur in the global, technological, economic, govern – mental, political, and demographic/social environments influence organizations. These influences are felt by organizations through changing markets, laws and regulations, finances, natural disasters, and so on. Leaders and managers must create and change visions, strategies, wei82650_01_c01_001-056.indd 26 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Types of Organizational Change structures, systems, and talent to compete and survive in their industry sectors. Organiza- tions that excel in changing environments have become more streamlined and nimble, more responsive to external and customer demands, and more ecologically sustainable. They have also adopted information technologies in their marketing and operations to enhance speed, scale, and reach. It is important to consider those dimensions of an organization that need to be balanced with change forces. As a student of organizational change, your skills include the ability to identify which environments are exerting changes on organizations and, as this course progresses, to suggest different types of changes and change strategies that organizations can use to respond to environmental opportunities and threats. In the next section, we present specific types of organizational change that are used, depending on relevant criteria. Check Your Understanding 1. Find an example of a company that changed due to one of the external forces discussed in this section. What was the force, and how did the company change? 2. Explain why forces for stability and forces for change are essential to organizational functioning. 1.5 Types of Organizational Change Not all changes are the same. The nature of change and change frameworks presented here illustrate these differences. Some frameworks overlap and are complementary, whereas oth- ers have dissimilar change philosophies and approaches. However, all illustrate the multiple perspectives change specialists can use to understand change and gain insight into the types of interventions and strategies for effectively responding to it. At the most general level, Ackerman and Anderson (2010) identified three types of change: developmental, transitional, and transformational. Developmental change involves improving what already exists. For example, an organization may improve on a previously established process, such as an HR policy regarding employee leave time or a marketing department’s procedure for sharing expertise on certain projects. The change does not have to be large or complex. Consequently, little stress is created with this type of small-scale change. Transitional change involves achieving a known desired state that is different from the existing one. Examples of this more intrusive, larger change include organizational mergers or replacing an established process with a new one, such as installing a new technology sys – tem. Such changes can shake up an organization’s culture, disturb relationships, unsettle jobs, and require retraining and hiring. Finally, transformational change involves the emergence of a new, unknown state for the organization. Examples of such changes include a shift in radically different markets that require a new strategy and skills, a move to incorporate bleeding edge technologies, or a new CEO and top-level team that change the company’s structure and culture. wei82650_01_c01_001-056.indd 27 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Types of Organizational Change This model differentiates among the three types of change, each of which has a distinct pur- pose, requires different change interventions, and presents unique risks. The following mod – els expand on these three fundamental change types. Dunphy and Stace’s Four Levels of Change After determining whether the desired change is developmental, transitional, or transforma – tional, it is helpful to refer to Dunphy and Stace’s (1993) four levels of change. Level 1—fine tuning. This involves an ongoing process of matching and fitting an organiza- tion’s strategy, structure, people, and processes with the environment. This type of change occurs more at a divisional and departmental level, although for some firms like Alibaba, the enterprise is involved. It includes such activities as refining policies, methods, and pro – cedures; developing personnel; fostering group and individual morale; and commitment to the organization’s mission and departments. Fine tuning has traditionally required minimal effort and resources. Level 2—incremental adjustments . These are predictable changes within the organization that evolve slowly and systematically at a constant rate over time to fit the external environ – ment. No radical changes are needed, but modifications are made, such as shifting emphasis among products, expanding a sales territory, and modifying a mission statement to employ – ees. Incremental adjustments and fine tuning are comparable to developmental change. As Ashkenas (2015) observes, change management refers to implementing predetermined ini – tiatives that may or may not affect the entire organization; focus is placed on making a well- defined change to a process or procedure. Ashkenas (2015) provides an example that illustrates how a large technology company integrated specialized engineers into regional sales teams, which involved changes in roles, client assignments, compensation, goals, and teamwork. Hundreds of people were affected, but well-known change management principles and tools were used, including (a) making a case for the business change, (b) building a coalition of leaders, (c) showing early results, (d) involving stakeholders, and (e) executing by plan and with discipline. The new sales approach was effectively implemented and showed improved results. Level 3—modular transformation . Organizational change is radical in modular transforma – tion, but it is focused on subparts rather than on the entire organization. Examples of this level of change include restructuring departments or divisions, changing key executives’ and managers’ responsibilities, and introducing a new business process. This type of change is related to transitional change. Level 4—corporate transformation . Like transformational change, corporate trans – formation involves a radical shift in the business strategy and changes to the company’s vision, mission, culture, and systems—the company may essentially be reinvented. The plan and projected outcomes are more unpredictable, and there is experimentation and risk. New executives and key management positions are often recruited from the outside. Most, if not all, of the organization’s internal systems and dimensions are affected. Kot – ter’s eight-step change process addresses this type of planned change. At this level of wei82650_01_c01_001-056.indd 28 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Types of Organizational Change change, “a portfolio of initiatives, which are interdependent or intersecting” (Ashkenas, 2015) are involved, and the change may not produce the desired outcomes. For example, when Meg Whitman became CEO of Hewlett-Packard (HP) in 2011 and then chair in 2014, she realized she would be leading a transformational turnaround for one of the world’s largest computer and printer firms. With stocks trending downward and the company operating according to a seemingly confused strategy, she moved forward with her predecessor’s plan to divide HP into two companies: an enterprise-computing technologies company and a consumer products company, which sells products such as personal comput – ers and printers (Chenmay, 2015). The journey is not over, and though industry analysts have mixed reviews, Whitman remains in charge for now. Managing Change Organizational and Managerial Response to Change Suppose you oversee marketing and communications for a consumer bank. The business environment in the banking industry has undergone remarkable changes in recent years, given the merging and acquisition of companies, the effect of the economic recession on consumers, and the reputational impacts of corporate misconduct by banking executives, which in some cases has required extensive publicity campaigns and rebranding. In addition, the proposal of many national banks to charge fees on accounts is challenging customer attitudes about your bank. In a reactive decision, you and top leadership have decided to implement a new website with rapid-response online customer service functions. The goals are to strengthen competitive advantage, increase customer loyalty, and respond to growing consumer demands for adequate attention to customer needs. Technology frequently drives the need for organizational change, and IT is an integral part of change management within companies. Not only is the proposed change IT based, but technology can also be used to manage the change internally. In addition, the change will not only involve the IT department, but should be integrated with many other departments so that everyone embraces the goals of the plan and the firm overall—a mark of an effective organization. Discussion Questions 1. How do you get employees on board, both regarding the planned change’s urgency and the skill sets needed to implement it? 2. How will you communicate this change to employees and stakeholders? 3. What areas of the company will you direct the change management team to align in order to achieve this objective? 4. Which levels of change are involved in this type of initiative? (See the end of the chapter for possible answers.) wei82650_01_c01_001-056.indd 29 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Transformation Realignment Nature of Change End Result Rev olution Re construction Evolution Adaptation Incremental Big Bang Section 1.5 Types of Organizational Change Balogun and Hope-Hailey’s Change Model Balogun and Hope-Hailey’s (2004) model includes four types of change that combine into four strategies. Figure 1.4 illustrates these different types, which are organized along two axes: “nature of change” on the vertical axis and “end result” on the horizontal axis. The two clas – sifications of change under nature of change are incremental and big bang (a sudden change that occurs all at once). Such change can be significant in size, scope, and impact, depending on the situation. The two classifications of change under the end result perspective include transformation and realignment. Transformational change, as discussed earlier, has a sig- nificant impact on organizations, including their culture, people, and systems. Realignment types of change involve adjustment but do not generally entail a fundamental reassessment of the central assumptions and beliefs in an organization’s culture. Still, a major restructuring can have a large impact on an organization (Balogun, 2001). The four strategies for estimating the nature of a change and the desired end result are as follows: 1. Evolution: when the change is incremental but the end result is transformation. This strategy suggests proceeding in a progressive way by analyzing the internal and external environments while implementing the change. An example would be imple – menting a new software system in a division over a 2-year period. 2. Adaptation: when the change is incremental and the end result is realignment. This has the least intrusive impact on the organization and is the most commonly used. Examples include installing software applications, revising job descriptions, and using online training. 3. Revolution: when the change is big bang and transformational. For example, sup – pose a company is acquired by another firm. The new owner might request that the current leaders and managers change the vision and mission, and then replace a majority of the workforce. Figure 1.4: Balogun and Hope-Hailey’s change model Balogun and Hope-Hailey’s change model demonstrates the end results of immediate changes and those that occur over a longer period of time. Source: Balogun, Julia; Hope Hailey, Veronica; Johnson, Gerry; Scholes, Kevan. Exploring Strategic Change, Third Edition. Fig. 2.2, p. 20. Copyright © 2008. Reprinted by permission of Pearson Education, Inc., New York, New York. Tr ansformation Realignment Nature of Change End Result Rev olution Re construction Evolution Adaptation Incremental Big Bang wei82650_01_c01_001-056.indd 30 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Types of Organizational Change 4. Reconstruction: when the change is big bang combined with realignment. Recon – struction change strategies include cost cutting and sometimes downsizing. Focus will also shift to external markets but is also used symbolically to manage how change is perceived. For example, a university may start hybrid courses that combine online and in-class sessions. The strategy is to move more to online students but at the same time send the message that traditional courses are intact. The organization may experience turmoil as in a turnaround or large expansion, although the basic business model may remain intact. These strategies allow change to be classified based on its extent and how quickly it should be accomplished. Proactive Versus Reactive Changes Organizational change can occur by choice or by force—in other words, it can be proactive or reactive. Proactive change occurs when an organization changes the workplace and its practices so as to avoid possible issues or to capitalize on a future opportunity. Reactive change is imple- mented in response to an issue or opportunity that has occurred (Williams, 2005). Whether a change is proactive or reactive change can depend on a lead – er’s style in responding to change. Although change can be a disaster or crisis, it can also be less dramatic. Orga – nizational leaders deliberately choose proactive responses for different motivations, such as when the leader thinks there will be more gain than loss by actively responding to change; believes the risk taken by respond – ing can lead to even greater gains; or chooses to proactively respond even if losses will be incurred. Promis – ing market share growth, increased resources, and gaining ground with competitors are factors that encour- age proactive change responses. For example, in 2010 leaders of Groupon declined a $6 billion offer to be bought by Google. Groupon’s owners and investors judged its short track record and potential to be of more value than Google’s offer. Groupon’s business model, which is more recognized now than a few years ago, is unique: Groupon takes the old Entertainment Coupon Books that your mom used to buy and brings it to the social web. Groupon sells a “Deal of the Day” in each of its now 52 supported cities offering significant savings for local restaurants, service providers, activities and memberships, and takes a commission. The AP Photo/Mark Lennihan Andrew Mason, founder and CEO of Groupon, saw the company’s stock climb by nearly a third after rejecting Google’s offer to buy it in 2010. Since then, however, the company’s revenue from its “daily deals” has not grown, and investors are mixed on whether refusing to sell was the right decision. wei82650_01_c01_001-056.indd 31 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Types of Organizational Change trick is that the deal is only “triggered” once enough people buy in. This cre- ates the incentive to share the deal with friends and family, until “the deal is on.” It’s great for local businesses because they can set the parameters for the offer and they know a minimum for how many offers they will have sold in advance. (Carpenter, 2010) Although the company started with a bang, especially with its initial public offering, its rev – enue from daily deals has not grown since 2011. The company launched Groupon Goods, in which it sells an array of discounted items, from iPhones to jelly beans. This business earns the majority of Groupon’s income, but the margins are only 20% for goods, in comparison to 88% for daily deals (Griffith, 2015). In the spring of 2015, the company was valued at an estimated $4.9 billion. Therefore, analysts and investors are divided over whether Groupon should have sold to Google for $6 billion. Reactive change often occurs when external or internal influences pressure organizational leaders to respond. British Petroleum (BP) was slow to assume responsibility for its role in a disastrous oil spill in 2010. Similarly, Exxon avoided responsibility in 1989 when its tanker, the Valdez, hit a reef in Alaska, causing the largest oil spill in American history. Exxon’s CEO was hesitant to address the crisis directly, and afterward in court the company attempted to lay the blame on the ship’s captain, an Exxon employee. In a different example, Bill Gates chose not to go to court when Microsoft was charged with antitrust violations in early 1991 and continued responding to legal inquiries and lawsuits until 2001, and later with the Euro- pean Union from 2004 to 2008. He and his leadership team reacted defensively but eventually responded by making several technical changes to products. All of these companies have since recovered, although great damage was done to the environment, some competitors, and communities. When responding to crises, many corpo – rate executives are cautious about admitting blame, so as to avoid costly liability. However, it is interesting to note that crisis management experts advise corporate leaders to actively respond, face the facts, and communicate honestly and directly with all involved— including victims—and then act responsibly to help resolve a crisis. Acting with deliberation and com- passion can sometimes decrease the costs—emotional, reputational, and financial—it takes to resolve crises. Reactive leadership styles to change based on studies of crises indicate that the consequences to stakeholders are neither positive nor beneficial in the short or long term (Markovich, 2015). However, proactive leadership is more often preferred, since being proactive is more likely to herald solutions while decreasing stakeholder reactions. Reactive leaders act in fran- tic ways, since they are affected by constant activity while striving to meet company goals as best they can. Proactive leaders try to champion company missions and meet organization goals mindfully and with greater ease. Reactive leaders respond—or react—with events as they occur and often without a big-picture perspective; proactive leaders anticipate and plan accordingly. Proactive leaders also often show good citizenship, which increases a company’s social and reputational capital (Markovich, 2015). Strategic Change Versus Tactical Change Strategic versus tactical changes relate to the models presented earlier. Level 1 of Dunphy and Stace’s model and developmental changes are more likely to require tactical (hands-on) wei82650_01_c01_001-056.indd 32 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Types of Organizational Change specialist and managerial knowledge and expertise than changes that are transitional, trans- formational, or level 3 and 4 changes. Transformational, transitional, and level 3 and 4 changes require leadership styles that feature long-term thinking and vision, excellent people skills, and strong problem-solving skills. Two organizations that have effectively handled strategic change are Corporation and IBM. In the 1980s both companies were forced to change their direction, strategies, and mar- ket niches to survive and remain competitive. EMC, a leading information storage firm head – quartered in Massachusetts, decided to extend its direction and strategy into the software business. Based on the anticipation that the storage business had a lot of competition, decided to spread its risk and venture potential gain. When IBM extended its strategy from being a hardware firm to also becoming a global e-services technology company, it recruited new leadership and successfully expanded its vision, mission, and sales strategies. In 2015 IBM ranked 5th on Forbes’s World’s Most Valu – able Brands list and 44th on Forbes’s Global 2000 list (Forbes, 2015). is ranked 222nd on the latter list, with a market capitalization of $52 billion. Both companies continue to effec – tively change according to their environments and the competition. Tichy’s Three Types of Change Tichy’s (1982) framework explains change from a combination of external forces (technical, political, and cultural) that affect internal organizational systems. Figure 1.5, based on Tichy’s work, summarizes his views from a change specialist perspective. The technical system refers to external changes that influence an organization, such as tech- nological and economic pressures. Many of these external influences include IT systems such as enterprise resource planning and systems, applications, and products software that helps improve the enterprise’s operational efficiency and productivity of its business processes, to accommodate the external changes. The political system includes pressures for change that relate to power, influence, and resource distribution. This dimension also refers to the organization’s internal system, in terms of who the new sources of authority and power are and who will distribute rewards and allocate resources. The cultural system includes the norms and values shared by the members of an organization. Cultural forces for change also include the demographic com – position and cultural diversity of the labor pool, and societal values. Internally, the organiza- tion’s employees, cultural values, relationships, and norms must align to the change. Tichy (1982) argued that organizational leaders can successfully adapt to external change by strategically aligning their three basic organizational areas to specific pressures from these three systems of change. The three organizational areas include (a) the mission and strategy, which define the organization’s purpose, goals, and strategies, and the managerial processes used to implement them; (b) the organizational structure, which includes the means by which tasks are arranged, the employees who are coordinated to do the work, and the managerial processes that align structure and people; and (c) HR management, which refers to recruit – ing, selecting, hiring, training, evaluating, and developing people and systems to fit employees with other organizational systems. wei82650_01_c01_001-056.indd 33 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Types of Organizational Change Figure 1.5 demonstrates that when considering particular pressures from the technical sys- tem, leaders must be prepared with a change plan that addresses the following questions regarding the management area of their mission and strategy: Do the change plan and its accompanying interventions accommodate the new mission and strategy? Has an objective analysis been conducted inside and outside the organization to determine the new fit? The change plan should also address the following political pressures exerted on the organiza – tion: Have key stakeholders been informed of, and are they aligned with, the change’s strat – egy and direction? Finally, the change plan should address the key cultural question—that is, has the new vision, mission, and strategy been defined with the organization’s values? Figure 1.5 also describes key questions that can be asked about a particular change plan by the organizational structure and the HR management system, as well as technical, political, and cultural forces that pressure an organization to change. Managerial Areas Mission, vision, and strategy Organizational dimensions: structure and systemsHuman Resource management system Change Forces Technical system Does the change strat – egy accommodate these dimensions: new vision? Mission? Strategy? Has an objective analysis been conducted inside and out side the organiza- tion to determine the new fit? Does the change strategy, invention fit with the new culture? Values? Structure? Systems? Have new roles been integrated into division, regions, departments? Have performance crite ria been designed into new roles? Do people understand and accept their new roles and responsibilities? Is there training available for these adjustments? Political system Have key stakehold – ers been informed and aligned to the new strat egy and direction of the change? Has power been dis – tributed across func – tions, departments, business units, and roles?Have reward, appraisal, and promotion sys tems been rede- signed, updated, and realigned? Are new reporting sys tems in place? Cultural system Has the new vision, mission, and strategy been defined with regard to the values of the organization?Are new leadership and managerial styles defined and aligned with the new culture, structure, and systems?Have the right people been selected to develop and embed the new values and culture? Will people be rewarded for new behaviors? Figure 1.5: Tichy’s change framework Tichy believed that leaders who adapt to external change are successful because they align their mission and strategy, organizational structure, and HR management to pressures from technical, political, and cultural forces. Managerial Areas Mission, vision, and strategy Organizational dimensions: structure and systemsHuman Resource management system Change Forces Technical system Does the change strat – egy accommodate these dimensions: new vision? Mission? Strategy? Has an objective analysis been conducted inside and out side the organiza- tion to determine the new fit? Does the change strategy, invention fit with the new culture? Values? Structure? Systems? Have new roles been integrated into division, regions, departments? Have performance crite ria been designed into new roles? Do people understand and accept their new roles and responsibilities? Is there training available for these adjustments? Political system Have key stakehold – ers been informed and aligned to the new strat egy and direction of the change? Has power been dis – tributed across func – tions, departments, business units, and roles?Have reward, appraisal, and promotion sys tems been rede- signed, updated, and realigned? Are new reporting sys tems in place? Cultural system Has the new vision, mission, and strategy been defined with regard to the values of the organization?Are new leadership and managerial styles defined and aligned with the new culture, structure, and systems?Have the right people been selected to develop and embed the new values and culture? Will people be rewarded for new behaviors? Source: Based on Tichy’s Strategic Management Mix; from Tichy, N. (1982). Managing change strategically: The technical, political and cultural keys. Organizational Dynamics, 11 (Autumn), 59–80. wei82650_01_c01_001-056.indd 34 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.6 Organizational Effectiveness Frameworks Managing Change Becoming a Truly Global Organization As the strategic planning leader of a midmarket heating, ventilation, and air-conditioning manufacturing company, you are facing increased competition with emerging market manufacturers of very similar products. Your company weathered the Great Recession based on customer loyalty and a strong organizational structure built on a history of good performance and efficiency. You are predominantly U.S.-based but have some international customers. You must keep costs stable to generate growth, but you recognize the scale of business has enlarged and demands change. The solution agreed on in the organization is to go global. Although this effort will incur up- front costs, the consensus is that it is a worthwhile long-term investment. But how do you become global? Your company decides to send unit managers to Brazil, Russia, India, and China (the BRIC nations), as well as Indonesia, Taiwan, and Thailand, to assess the business environments and leading companies active in these countries. However, it is important to keep regulatory issues and differences in mind, as well as the risks associated with third- party suppliers of companies with whom you will potentially do business. Also key to doing business abroad is a clear understanding of the labor markets in those companies’ headquarter countries. Discussion Questions 1. As you embark on this initiative, how will you manage costs? 2. To achieve the goal of the needed change, what changes will you propose in the technical system, political system, and cultural system in your organization? 3. How will you utilize the four strategies in the change model to anticipate the effects of this change? 4. Since there are risks associated with doing business in emerging markets, how will you be proactive in your dealings with new companies? (See the end of the chapter for possible answers.) Check Your Understanding 1. Describe Ackerman’s three types of change. Have you experienced any of these types of change in a company that you have worked for? If so, please describe the change and its implementation. If not, find an example of one of these types of change and describe the change and its implementation. 2. List the advantages and disadvantages of proactive change and reactive change. Which type of change do you feel is more beneficial to organizations? 1.6 Organizational Effectiveness Frameworks What criteria determine an organization’s effectiveness, especially if the leaders decide a planned change is needed? For-profit organizations—which are publicly traded on the stock exchange and have obligations to shareholders—and privately held firms are driven by wei82650_01_c01_001-056.indd 35 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.6 Organizational Effectiveness Frameworks revenues and profits, market share, growth, product quality, competitiveness, customer satis- faction, and social (as well as financial) responsibility to the stakeholders and communities in which they operate, pay taxes, and do business. Public organizations that serve the interests of stakeholders and society are driven to fulfill their missions and responsibilities to those who fund and support them, as well as to those whom they serve. An important part of this field of practice is understanding what motivates organizations— and their owners, leaders, and teams—to change (or not change). Not all constituencies in organizations seek, promote, and sustain change for the same reasons, if at all. This concern is considered in some of the following frameworks. There are many effectiveness frameworks and models that apply to both private, for-profit, and nonprofit, public organizations. The three classic and contemporary approaches pre- sented here and referred to throughout the book are: (a) the balanced scorecard (Kaplan & Norton, 1992, 2004); (b) the contingency approach (Fiedler, 1967; Weisbord, 1987); and (c) stakeholder theory (Freeman, 1984). Balanced Scorecard Kaplan and Norton’s (1992) balanced scorecard is one of the most popularly used align – ment frameworks. Corporations from around the globe use it to track and align performance at the individual, team, and division levels to the enterprise’s overall vision and strategy. Bain & Company reported that by 2002 the balanced scorecard was used by 50% of the Global 1000 companies (Calabro, 2001; Norton, 2010). Another survey showed that 62% of organizations used the balanced scorecard’s approach and strategy maps as their main orga – nizational framework (Balanced Scorecard Institute, 2011). The scorecard is a contemporary, electronic version of contingency theory. As Figure 1.6 shows, the balanced scorecard adds “strategic non-financial performance measures to tra- ditional financial metrics to give managers and executives a more ‘balanced’ view of orga – nizational performance” (Balanced Scorecard Institute, 1998–2011). The idea dates back to the 1950s with the work of French engineers and to GE’s measurement system in the 1990s. As the Balanced Scorecard Institute (n.d.) notes, this approach evolved from a simple per – formance measurement model to a complete strategic planning and management system. The framework is currently used to transform organizations’ strategies into implementation guidelines. It is a management system, not just a measurement system. Kaplan and Norton (1992) state that though the balanced scorecard still contains traditional financial measures, these measures alone are not enough. They cannot help leaders guide and evaluate the process of creating future value by investing in customers, suppliers, employees, processes, technology, and innovation (Kaplan, 2010). Four Perspectives The four perspectives of the balanced scorecard, illustrated in Figure 1.6, include the finan – cial, customer, learning and growth, and internal business processes. The scorecard uses these perspectives to view organizations, develop metrics, and gather data for analysis. Figure 1.6: Balanced scorecard The balanced scorecard incorporates performance measures relating to financial, customer, learning and growth, and internal business processes with financial metrics to provide a balanced view of the organization’s performance. Source: Balanced Scorecard Institute. http://www.balancedscorecard.org/ Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a strategic management system,” Harvard Business Review (January–February 1996): 76. Financially “To succeed fi nancially , how should we appear to our share holders?” Internal Business Processes “To satisfy our share holders and customer s, what business processes must we e xcel at?” Vision and Strategy Customer “To achie ve our vision, how should we appear to our customers?” Learning and Growth “To achieve our vision, how will we sustain our ability to change and improve?” Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives wei82650_01_c01_001-056.indd 36 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Financially “To succeed financially , how should we appear to our share holders?” Internal Business Processes “To satisfy our share holders and customer s, what business processes must we e xcel at?” Vision and Strategy Customer “To achie ve our vision, how should we appear to our customers?” Learning and Growth “To achieve our vision, how will we sustain our ability to change and improve?” Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives Section 1.6 Organizational Effectiveness Frameworks revenues and profits, market share, growth, product quality, competitiveness, customer satis – faction, and social (as well as financial) responsibility to the stakeholders and communities in which they operate, pay taxes, and do business. Public organizations that serve the interests of stakeholders and society are driven to fulfill their missions and responsibilities to those who fund and support them, as well as to those whom they serve. An important part of this field of practice is understanding what motivates organizations— and their owners, leaders, and teams—to change (or not change). Not all constituencies in organizations seek, promote, and sustain change for the same reasons, if at all. This concern is considered in some of the following frameworks. There are many effectiveness frameworks and models that apply to both private, for-profit, and nonprofit, public organizations. The three classic and contemporary approaches pre- sented here and referred to throughout the book are: (a) the balanced scorecard (Kaplan & Norton, 1992, 2004); (b) the contingency approach (Fiedler, 1967; Weisbord, 1987); and (c) stakeholder theory (Freeman, 1984). Balanced Scorecard Kaplan and Norton’s (1992) balanced scorecard is one of the most popularly used align – ment frameworks. Corporations from around the globe use it to track and align performance at the individual, team, and division levels to the enterprise’s overall vision and strategy. Bain & Company reported that by 2002 the balanced scorecard was used by 50% of the Global 1000 companies (Calabro, 2001; Norton, 2010). Another survey showed that 62% of organizations used the balanced scorecard’s approach and strategy maps as their main orga – nizational framework (Balanced Scorecard Institute, 2011). The scorecard is a contemporary, electronic version of contingency theory. As Figure 1.6 shows, the balanced scorecard adds “strategic non-financial performance measures to tra – ditional financial metrics to give managers and executives a more ‘balanced’ view of orga – nizational performance” (Balanced Scorecard Institute, 1998–2011). The idea dates back to the 1950s with the work of French engineers and to GE’s measurement system in the 1990s. As the Balanced Scorecard Institute (n.d.) notes, this approach evolved from a simple per – formance measurement model to a complete strategic planning and management system. The framework is currently used to transform organizations’ strategies into implementation guidelines. It is a management system, not just a measurement system. Kaplan and Norton (1992) state that though the balanced scorecard still contains traditional financial measures, these measures alone are not enough. They cannot help leaders guide and evaluate the process of creating future value by investing in customers, suppliers, employees, processes, technology, and innovation (Kaplan, 2010). Four Perspectives The four perspectives of the balanced scorecard, illustrated in Figure 1.6, include the finan – cial, customer, learning and growth, and internal business processes. The scorecard uses these perspectives to view organizations, develop metrics, and gather data for analysis. Figure 1.6: Balanced scorecard The balanced scorecard incorporates performance measures relating to financial, customer, learning and growth, and internal business processes with financial metrics to provide a balanced view of the organization’s performance. Source: Balanced Scorecard Institute. http://www.balancedscorecard.org/ Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a strategic management system,” Harvard Business Review (January–February 1996): 76. Financially “To succeed fi nancially , how should we appear to our share holders?” Internal Business Processes “To satisfy our share holders and customer s, what business processes must we e xcel at?” Vision and Strategy Customer “To achie ve our vision, how should we appear to our customers?” Learning and Growth “To achieve our vision, how will we sustain our ability to change and improve?” Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives Objectives Measures Ta rgets Initiatives The financial perspective includes traditional financial and related data such as risk assess – ment and cost-benefit data. The customer perspective refers to metrics from leading indica- tors such as how customers evaluate the company’s performance and their satisfaction with the company, which reflects both the types of customers attracted to a company and the pro – cesses used to provide services and products. The learning and growth perspective includes information on individual and corporate atti- tudes related to self-improvement. Resources and metrics refer to employee training and funds to support a knowledge–worker organization. This perspective also includes mentors and tutors and technological tools for “high performance work systems” (Balanced Score- card Institute, 1998–2011). The business process perspective incorporates customized metrics on internal business processes that update managers on the status of their businesses and whether products and services meet customer requirements. From a change management perspective, the balanced scorecard offers a real-time auto – mated monitoring system for tracking and integrating an entire organization around its core wei82650_01_c01_001-056.indd 37 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.6 Organizational Effectiveness Frameworks strategy and mission. We will return to this and the other frameworks to examine applica- tions of these approaches as they relate to change management. Critique of the Balanced Scorecard Because of its broad contemporary appeal and widespread use, this framework has both critics and supporters. Like any organizational methodology, this approach is not perfect. Salterio and Webb (2003) provide a mixed review, stating that it may help organizations to express their strategy, measure performance indicators, and determine which strategy is best, but it has the same challenges as other performance-based compensation systems, namely associating the scorecard to performance evaluation and compensation. The Balanced Scorecard Performance Management group (2011) reported that the most conclusive evaluative study of the scorecard’s effectiveness was performed by Crabtree and DeBusk (2008). Their study compared 57 companies that used the balanced scorecard with 107 firms that did not. The comparison was based on three key performances that were eval- uated 2 years preadoption and 3 years postimplementation of the framework. The results showed that over a 3-year period beginning with the year of adoption, firms that used the framework significantly outperformed those that did not. However, widespread evidence of such efficacy is still scarce, and more research and evaluation needs to be done. Contingency Alignment Framework Contingency theory was developed in an organizational leadership context by Fiedler (1967), followed by Weisbord (1987). The theory has since been applied to numerous dis – ciplines and fields. Figure 1.7 illustrates a version somewhat related to the open-systems, resource-based approach. This contingency alignment approach (framework) is also similar to Tichy’s matrix, though it has several additional dimensions and also includes an internal input dimension. In this framework, the internal organizational dimensions (vision and strategy, struc – ture, people, measurement systems, nature of work, culture, and technology) should all fit and be integrated to add value and synergy to the organization’s output. When any of the dimensions do not cohere, or fail to create value through shared resources, a number of problems (human, technical, performance, team, leadership, environmental resource, and so on) could arise. Organizational leaders and change specialists could use this frame – work to anticipate how a change strategy and plan would affect the different dimensions’ interrelationships. An example of how this model has been used comes from the U.S. intelligence community, including the Central Intelligence Agency (CIA) and Federal Bureau of Investigation (FBI). With regard to the 9/11 terrorist attacks, the input-transformation-output phases were used to identify and assess the processes and outcomes of the organizations’ use of resources (products/services), which in this case was information about and actions leading to the fail – ure to detect and prevent the attacks. Figure 1.7: Contingency model The contingency model explains the integration and interrelationships of an organization’s internal dimensions (vision and strategy, structure, people, measurement systems, nature of work, culture, and technology) with its environment. Problems may arise if these dimensions do not fit together. Source: Developed by Joseph W. Weiss (2001) based on Weisbord, M. (1987). Productive workplaces: Organizing and managing for dignity, meaning, and community. San Francisco: Jossey-Bass; and W. Burke in Howard, A. (ed.). (1994). Diagnosis for organizational change. New York: Guilford Press. Customer Partnership Tr ansformation Curr ent to Future State Customer Satisfaction Outputs Customer Requirements Inputs Vision and Strategy Culture Nature of Wo rk Structure Technology People Leadership Environment History Resources Organizational Lev el Competitiveness Market share Product and service quality Responsibility (environment and community) Group Lev el Synergy Performance Effectiveness Satisfaction Individual Lev el Performance Satisfaction Development and g rowth Measurement Systems wei82650_01_c01_001-056.indd 38 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Customer PartnershipTr ansformation Curr ent to Future State Customer Satisfaction Outputs Customer Requirements Inputs Vision and Strategy Culture Nature of Wo rk Structure Technology People Leadership Environment History Resources Organizational Lev el Competitiveness Market share Product and service quality Responsibility (environment and community) Group Lev el Synergy Performance Effectiveness Satisfaction Individual Lev el Performance Satisfaction Development and g rowth Measurement Systems Section 1.6 Organizational Effectiveness Frameworks strategy and mission. We will return to this and the other frameworks to examine applica – tions of these approaches as they relate to change management. Critique of the Balanced Scorecard Because of its broad contemporary appeal and widespread use, this framework has both critics and supporters. Like any organizational methodology, this approach is not perfect. Salterio and Webb (2003) provide a mixed review, stating that it may help organizations to express their strategy, measure performance indicators, and determine which strategy is best, but it has the same challenges as other performance-based compensation systems, namely associating the scorecard to performance evaluation and compensation. The Balanced Scorecard Performance Management group (2011) reported that the most conclusive evaluative study of the scorecard’s effectiveness was performed by Crabtree and DeBusk (2008). Their study compared 57 companies that used the balanced scorecard with 107 firms that did not. The comparison was based on three key performances that were eval- uated 2 years preadoption and 3 years postimplementation of the framework. The results showed that over a 3-year period beginning with the year of adoption, firms that used the framework significantly outperformed those that did not. However, widespread evidence of such efficacy is still scarce, and more research and evaluation needs to be done. Contingency Alignment Framework Contingency theory was developed in an organizational leadership context by Fiedler (1967), followed by Weisbord (1987). The theory has since been applied to numerous dis – ciplines and fields. Figure 1.7 illustrates a version somewhat related to the open-systems, resource-based approach. This contingency alignment approach (framework) is also similar to Tichy’s matrix, though it has several additional dimensions and also includes an internal input dimension. In this framework, the internal organizational dimensions (vision and strategy, struc – ture, people, measurement systems, nature of work, culture, and technology) should all fit and be integrated to add value and synergy to the organization’s output. When any of the dimensions do not cohere, or fail to create value through shared resources, a number of problems (human, technical, performance, team, leadership, environmental resource, and so on) could arise. Organizational leaders and change specialists could use this frame – work to anticipate how a change strategy and plan would affect the different dimensions’ interrelationships. An example of how this model has been used comes from the U.S. intelligence community, including the Central Intelligence Agency (CIA) and Federal Bureau of Investigation (FBI). With regard to the 9/11 terrorist attacks, the input-transformation-output phases were used to identify and assess the processes and outcomes of the organizations’ use of resources (products/services), which in this case was information about and actions leading to the fail – ure to detect and prevent the attacks. Figure 1.7: Contingency model The contingency model explains the integration and interrelationships of an organization’s internal dimensions (vision and strategy, structure, people, measurement systems, nature of work, culture, and technology) with its environment. Problems may arise if these dimensions do not fit together. Source: Developed by Joseph W. Weiss (2001) based on Weisbord, M. (1987). Productive workplaces: Organizing and managing for dignity, meaning, and community. San Francisco: Jossey-Bass; and W. Burke in Howard, A. (ed.). (1994). Diagnosis for organizational change. New York: Guilford Press. Customer Partnership Tr ansformation Curr ent to Future State Customer Satisfaction Outputs Customer Requirements Inputs Vision and Strategy Culture Nature of Wo rk Structure Technology People Leadership Environment History Resources Organizational Lev el Competitiveness Market share Product and service quality Responsibility (environment and community) Group Lev el Synergy Performance Effectiveness Satisfaction Individual Lev el Performance Satisfaction Development and g rowth Measurement Systems In the contingency model, the throughput (or transformational) phase shows that an organi – zation’s vision, strategy, people, structure, and other dimensions should fit and interact with the culture to produce desired outcomes for customers—or in this case, the American people and system. Using the model to analyze The 9/11 Commission Report by the National Commission on Ter- rorist Attacks Upon the United States, which made recommendations regarding the intelli- gence agencies’ performance in response to the 9/11 attacks, would involve selecting one or more organizations in that community (such as the FBI, CIA, executive or congressional branches of the federal government, or the State Department). Then, information from the input phase would be identified and used in the evaluation. These inputs would include what organizational leaders did and did not know about the threats; the organization’s available resources for handling terrorist threats; and the organization’s recent history. wei82650_01_c01_001-056.indd 39 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.6 Organizational Effectiveness Frameworks At the transformational phase, all of the dimensions (vision and strategy, culture, structure, people, and technology) would be examined to determine how any information that was available about the terrorist threat was communicated, with whom, and how it was processed. Then, conclusions would be used to make decisions leading to the output phase. It is interesting to note that The 9/11 Commission Report is critical of the overly bureaucratic and closed way the intelligence organizations and leaders handled the available informa- tion. Moreover, the culture of most of the intelligence organizations seemed rather helpless and somehow stymied, preventing responsible action from being taken. As the report noted, the government and management showed “symptoms of a broader inability to adapt the way government manages problems to the new challenges of the twenty-first century” (National Com – mission on Terrorist Attacks Upon the United States, 2004). Had the leader – ship—at the executive levels of gov – ernment in particular, and at the FBI and CIA—taken the threats seriously, been prepared, used resources wisely, and acted more responsibly and aggressively in designing strategies and mobilizing structures, cultures, and people to detect and prevent terrorists attacks at the input and transformation stages of the contingency model, 9/11 may never have taken place. A decade after the attacks, Thomas (2011) stated: Among governmental institutions, the U.S. intelligence community was one of the most deeply scarred by the events of September 11, 2001. It was the intelligence agencies’ job, after all, to detect and intercept attacks on Ameri – can interests at home and abroad. The intervening 10 years has seen major changes at both the U.S. spy agencies and the terrorist groups they track. (para. 1) The National Counterterrorism Center was later created to increase information shar – ing and analyses among the CIA, FBI, National Security Agency, and all the other govern – ment intelligence agencies. Some experts knowledgeable about the agencies said that it was not lack of information sharing, but rather information overload, that hindered the agencies’ effectiveness (National Commission on Terrorist Attacks Upon the United States, 2004). This is a complicated example, and the analysis here does not include all of the fac – tors involved—politics, budgets, competition over resources, and other factors were and remain at play. Richard Gunion/iStock/Thinkstock Even government organizations such as the FBI and CIA must continually plan for change to keep up with national security threats, both domestically and abroad. wei82650_01_c01_001-056.indd 40 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Partners; alliances Owners shareholders Customers Go vernment Vendors Suppliers Creditors Community Employees Organization (board of director s, to p-level team) Section 1.6 Organizational Effectiveness Frameworks Still, the contingency model offers additional dimensions and information for studying how organizations prepare, plan, and respond to the threats and opportunities in their environ – ments. This model serves as another approach that specialists in organizational change can use to understand dimensions of effectiveness and efficiency. The last approach in this section—the stakeholder approach—adds yet another popular and useful perspective for analyzing organizational effectiveness and change. The Stakeholder Approach The stakeholder approach is discussed here because of its capacity to enable users to iden – tify groups, their stakes and interests in a situation, their ethics, and how each affects and is affected by an organization’s change (see Figure 1.8). Stakeholder theory originated as a strategic management approach to address the “principle of who or what really counts” (Freeman, 1984) when focusing on an organization’s strategic interactions with different groups. It emphasizes the morals and values that are involved when managing an organiza – tion. Freeman’s classic definition of a stakeholder is any group or individual that can affect or is affected by the achievement of organization’ objectives. The term stakeholder has become commonplace in organizations. The stakeholder ap proach is a popular and useful method for organizational leaders and change spe- cialists who wish to antic – ipate how a particular strategy will affect stake – holders before, during, and after a change plan is implemented. It has been used across disciplines such as IT, public admin – istration, hospital care, and bioethics (Esmail, Moor, & Rein, 2015; Yates, Weiss, & Gulati, 2010; Hardwig, 2010; Heath & Norman, 2004). More recently, the approach has been used to examine the values and ethics at play between the orga – nization and its different stakeholder groups. It requires that managers vocalize how they want to do business—particularly, the types of relationships they need to have with stakeholders— as well as a shared sense of value and what brings the organization’s stakeholders together. It is imperative that managers see the explicit connection between ethics and business (Freeman, Wicks, & Parmar, 2004). The steps used to begin this process include the following: 1. Who is currently our stakeholders in this situation, controversy, or opportunity? (See Figure 1.8 for possible stakeholders.) Figure 1.8: Stakeholder map This map demonstrates the stakeholders who influence the organization. Pa rtners; alliances Owners shareholders Customers Go vernment Vendors Suppliers Creditors Community Employees Organization (board of director s, to p-level team) wei82650_01_c01_001-056.indd 41 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.6 Organizational Effectiveness Frameworks 2. Who will possibly be our new or different potential stakeholders? 3. How does each stakeholder affect us? 4. How do we affect each stakeholder? 5. What strategies can we anticipate each stakeholder implementing with us? 6. What is the best strategy to implement with each stakeholder to accomplish our goal? 7. What are the ethics of each stakeholder’s strategy toward us? 8. What ethics do we choose to adopt when interacting with these stakeholders? 9. How can we achieve a win–win outcome with our stakeholders (Weiss, 2014)? Whether explicitly or implicitly acknowledged, ethics are part of the change management process. Simply stated, ethics involve saying and doing the right thing. Generally, ethical behavior is principle-based—that is, people think, speak, and act from principles such as hon- esty, integrity, causing no harm, openness, and concern for others. We can use a stakeholder approach to perceive different individual and group ethics by observing the values embedded in and underlying their goals, needs, and skills. People tend to act from some principle(s), regardless of whether they claim to. Managing Change Adapting Company Strategy to Consumer Demands Suppose your health care company faces continually rising costs for services and strained consumer budgets but increased demand for top-notch service. Insurance companies are contracting for lower payments to providers and their companies, which adds to the pressure. However, customers often need to utilize in-network benefits, so it behooves your company to participate in insurance plans. It is more important than ever to optimize resources. The management team decides on several measures of change to deliver on this, while keeping costs in check. These include: • a new scheduling system that enables the company to see more patients, which requires transitional change management; • a new payment plan system that allows customers flexibility in out-of-pocket expenses, which requires development change to the existing billing structure; and • employing top health care providers on a part-time basis, maximizing the level of care given without paying full-time expenses and without responding to the work/ life considerations of these individuals, which requires transformational change management. The management team is aware that cross-functional consideration will have to be given to these changes. It is critical that they be aligned to the company objectives, and they will impact all corners of the company. Therefore, several theories are used to implement the changes effectively. (continued) wei82650_01_c01_001-056.indd 42 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.6 Organizational Effectiveness Frameworks Because planned organizational changes can involve a wide range of both internal and exter- nal organizational stakeholders, there is a high probability of an ethical issue and dilemma occurring at any or all of a change program’s phases, depending on the type and scope of change. Figure 1.9 illustrates the types of ethical dilemmas that can occur, episodically or over time, in any change project. These dilemmas can occur among stakeholders and, in this case, between or among change agents (specialists) and the client organization. As shown, ethical antecedents, or precipitating experiences, involve the values, goals, needs, skills, and abilities of the change specialist and the client system (the organizational leaders, managers, or employees working with the change specialist). For example, change specialists may hold such professional—and personal—values as hon esty, integrity, and openness. On the other hand, a representative from the client system may place value on expediency (completing the job quickly regardless of the costs). Role conflicts and ambigu- ity are likely to occur during the change implementation process and can involve dif – ferences between a change specialist and the client orga – nization over values in goals, needs, skills, and abilities. Figure 1.9 illustrates some of the common ethical dilem- mas that occur over such differences, including mis- representations, misuses of data, coercion, value and goal conflict, and technical ANTECEDENTS PROCESS CONSEQUENCES Values Goals Needs Skills Abilities Role of the change agent Role episode Role conflict Role ambiguity Ethical dilemmas Misrepresentation Misuse of data Coercion and manipulation Value & goal conflict Technical ineptness Role of the client s ystem ANTECEDENTS PROCESS CONSEQUENCES Values Goals Needs Skills Abilities Role of the change agent Role episode Role conflict Role ambiguity Ethical dilemmas Misrepresentation Misuse of data Coercion and manipulation Value & goal conflict Technical ineptness Role of the client s ystem Figure 1.9: A role episodic model of ethical dilemmas This model demonstrates a three-stage process of solving an ethical issue based on values, goals, needs, skills, and abilities. Source: White, L., & Rhodeback, M. (1992). Ethical dilemmas in organizational development: A cross cultural analysis. Journal of Business Ethics, 11, 665, Figure 1. Reprinted with permission. Discussion Questions 1. Using the stakeholder approach, identify the shared values of different departments in the company. Evaluate how the proposed changes will affect all stakeholder groups. 2. How do the company’s different units fit together? Use the contingency theory to illustrate how the change will affect these interdependencies. 3. How would the balanced scorecard approach benefit the change initiative? 4. How do the four perspectives in the balanced scorecard play into the implementation of the proposed changes? (See the end of the chapter for possible answers.) Managing Change (continued) wei82650_01_c01_001-056.indd 43 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources ineptness. A misrepresentation could occur for any number of reasons. For example, a change specialist may exaggerate claims about the outcome of an intervention process. Misuse of data could occur if the organization uses client data collected by a change specialist to punish an employee. Coercion and manipulation refer to situations in which members of the client system are forced to participate in an OD or change management intervention against their will—for example, to take a survey that violates their rights. Value and goal conflict between change specialists and the client can occur when the goal of the change is ambiguous and/or when there is lack of agreement over how to achieve a goal. Technical ineptness may occur when there is a lack of certain knowledge or skills, and change strategies cannot be effectively implemented. In this text, we will explore how specific ethical principles can and should be part of all change management engagements. When different stakeholders practice fairness, honesty, and truthfulness (as depicted in Figure 1.9), everyone’s welfare and common good can be honored. Organizational change engagements are more likely to be conducted ethically and professionally when the leaders, managers, and members of both the client organization and the change specialist team: 1. are aware of their own values and obligations and are guided by values and practices that serve the interests of the common good as well as their own short-term needs; 2. act with integrity, honesty, and openness in all communications and transactions, focusing on delivering the contracted goods and services with the highest level of skill and professionalism; and 3. honor and respect the legal, human, and moral rights of all persons in the change engagement process. The code of ethics for the project management profession, ht tp://w w w.pmi.org/about-us /ethics/code-of-ethics.aspx , is also an excellent ethical guide for students and professionals of organizational change. Check Your Understanding 1. Review the balanced scorecard (see Figure 1.6). Why do you think it is one of the most popularly used frameworks? 2. Explain the role that ethics play in the change management process. Summary and Resources Chapter Summary Planned change has become a constant for most organizations and companies in the 21st century. Hypercompetition combined with weakened economies has created the need for innovation, creative thinking, and change expertise. Alibaba, Netflix, Amazon, Apple, and Facebook are some of the leading technology companies that have reinvented themselves to survive and thrive. However, there are many other less prominent companies and leaders who not only meet the external challenges they face, but also create value by anticipating and leading change. wei82650_01_c01_001-056.indd 44 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Innovators welcome change, whereas those less prepared for it often fear it. One thing is certain—we all must deal with change. Like consumers, local and national organizations are now facing an international environment of competitors. Lessons learned from those who have used cutting-edge technologies and practices globally can be used and modified by those operating locally. People in the workforce can learn organizational change. The fields of OD and change management provide theories, models, skills, and lessons for all. Seasoned change leaders, professionals, and students will at some point be called on not only to accept some type of organizational change but also to help diagnose, plan, and implement it. Understanding the source of change is the first step. Dominant forces that drive change stem from new technologies and elements in economic, governmental, legal, political, sociocultural, environmental, and globalization contexts. The three general types of change that character- ize ways organizations respond are: developmental (small-scale improvements to part of an organization); transitional (larger, more intrusive changes that can involve several parts of an organization); and transformational (significant changes that affect the entire organization). Organizational responses to change can be strategic, tactical, proactive, reactive, political, technical, and cultural. Knowing the elements of each dimension offers those planning a change more options for how to respond. Finally, there are three big-picture organizational effectiveness frameworks that can be used to align the internal organization to changing external markets and industry environments: the balanced scorecard, the contingency align – ment framework, and the stakeholder approach. Posttest Questions 1. According to John Kotter’s eight-step approach to organizational change, what must initially be established among an organization’s employees? a. a change vision b. a sense of urgency c. the organization’s future hierarchy d. the rules of organizational change 2. What does John Kotter most likely mean by the step in his model that says, “Anchor new approaches in the culture”? a. Communicate the need for change among workers. b. Convince management that the changes made will make their jobs easier. c. Institutionalize changes and ensure that future leaders embody them. d. Create visible and tangible short-term improvements. 3. Which of the following terms is LEAST associated with organizational development (OD)? a. marketing strategy b. team building c. survey feedback d. quality of work life 4. Which of the following jobs most likely falls within the field of change management? a. behavioral scientist b. group dynamics expert c. life coach d. accounting consultant wei82650_01_c01_001-056.indd 45 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 5. Lewin’s force-field model is primarily based upon a law of __________. a. physics b. chemistry c. mathematics d. thermodynamics 6. According to Lewin’s model, which among the following steps most directly results in overcoming resistance to change? a. describing the company’s problem or opportunity b. identifying tactics that weaken the forces against change c. pinpointing the company’s desired end state d. identifying the driving forces toward change 7. Organizations that successfully respond to forces for change are typically all of the following EXCEPT __________. a. more streamlined b. more responsive to customer demands c. less ecologically sustainable d. less vulnerable to crises 8. A type 2 error occurs when the external environment is perceived as __________. a. unstable when it is stable b. unstable when it is unstable c. stable when it is stable d. stable when it is unstable 9. Dennison Company’s new HR policy adds paternity leave to the existing policy of maternity leave. This scenario best describes a __________ organizational change. a. transformational b. developmental c. reactive d. proactive 10. Which model for organizational change includes the concept of “fine tuning”? a. Balogun and Hope-Hailey’s change model b. Lewin’s force field c. Tichy’s framework d. Dunphy and Stace’s four levels of change 11. Which effectiveness framework measures and aligns a work team’s performance to organizational goals and vision? a. a balanced scorecard b. a satisfaction survey c. an external versus internal alignment d. a stakeholder approach 12. The contingency alignment framework is most similar to __________, although it has additional dimensions. a. Lewin’s force field b. Kotter’s eight-step approach c. Tichy’s matrix d. Balogun and Hope-Hailey’s change model Answers: 1 (b), 2 (c), 3 (a), 4 (d), 5 (a), 6 (b), 7 (c), 8 (d), 9 (b), 10 (d), 11 (a), 12 (c) wei82650_01_c01_001-056.indd 46 12/22/15 10:09 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Learning Objectives Recap 1. Planned organizational change is a process that moves companies from a present state to a desired future state with the goal of enhancing their effectiveness. Ulti- mately, the goal of planned organizational change is to improve an organization’s capabilities. Organizations must change to survive and remain competitive by meet- ing customer needs and demands and other external requirements (for example, legal, technological, and cultural). Kotter’s eight-step change process is one of the most widely used planning methods. The eight steps are: (a) establish a sense of urgency, (b) form a powerful guiding coalition, (c) develop a vision and strategy, (d) communicate the change vision, (e) empower others to act on the vision, (f ) generate short-term wins, (g) consolidate gains and produce more change, and (h) anchor new approaches in the culture. 2. OD is an effort—planned, organization-wide, and managed from the top—that uses behavioral science knowledge to increase organizational effectiveness and health. Change management encompasses approaches used by business content and behav – ioral process specialists to help leaders move entire organizations, or units, from a present to a desired future state. OD change specialists focus on organizations’ human dimensions, such as culture, climate, leadership, and communication. Meth – ods involve team building, survey feedback, quality of work life, restructuring work and positions, and job satisfaction. They deal with strategy, structure, and other organizational dimensions but focus less on technical areas. Change management specialists deal with technical management, strategy, finance, marketing, engineer- ing, IT, and other functional content expertise areas, as well as with process. 3. Lewin’s force-field analysis enables change agents, planners, and individuals to iden- tify the forces for and against change. A force-field analysis enables people to better see options that may have a higher probability of working with a particular change strategy. Lewin identifies three general stages of change—unfreezing, moving/chang- ing, and refreezing—which help change specialists and those affected by a change see the bigger picture and prevent and overcome unnecessary resistance. 4. Technological, economic, political–legal, and sociocultural forces; natural disas- ters; and human-induced forces all affect organizations (see Figure 1.2). Figure 1.5 illustrates major forces for change (competitive advantage, control, impatient capital markets, cost containment, and environmental adaptability) and forces for stability (predictability, organizational social capital, sustained advantage, transaction costs, and institutionalism). 5. Three major types of change that affect organizations are developmental, transi – tional, and transformational. The models discussed include Dunphy and Stace’s four levels of change; Balogun and Hope-Hailey’s change model; proactive ver – sus reactive responses to change; strategic versus tactical changes; and Tichy’s framework. Dunphy and Stace’s four levels of change are fine tuning, incremental adjustment, modular transformation, and corporate transformation. Balogun and Hope-Hailey’s change model demonstrates the results of immediate changes and those that occur over a long period of time. Proactive responses to change are delib- erate and planned and involve actively attempting to alter the workplace and its practices. Reactive responses occur after a change has taken place and may involve less thoughtful and responsible actions. Strategic change responses seek to address more long-term opportunities and issues that require planning, whereas tactical change responses are more immediate and hands-on. Tichy’s framework explains wei82650_01_c01_001-056.indd 47 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources change from political, technical, and cultural systems that affect internal organiza- tional systems. 6. Three approaches address how organizations address effectiveness in responding to external requirements and demands. The balanced scorecard measures and aligns individual, team, and division performance to the organization’s vision and strategy. A contingency alignment approach deals with the way an organization’s internal dimensions fit together to meet external requirements. (The balance scorecard is also one form of contingency theory.) The stakeholder approach addresses all relevant stakeholders as well as stockholders’ interest and needs when dealing with change. Being socially responsible as well as seeking profitability is part of this approach. Discussion Questions 1. Identify an organization in which you are now working or are a member. If you par- ticipated in or observed a planned change, describe it; then apply a framework from the chapter to analyze the outcomes. If you were not involved, interview someone (a friend or family member) about a planned change he or she experienced using the questions here. You can analyze the experience using concepts from this chapter. What worked? What didn’t, and from whose point of view? Explain. 2. Describe how you (or the person you interviewed) felt before, during, and after the change. Did you (or the person you interviewed) resist? Why or why not? Explain. Describe how the human element of the resistance was managed using concepts from the chapter. 3. Explain why organizations must change, given the nature of the environments in which they operate. Then select a real organization that underwent or is undergoing a major change and analyze why it had to change. 4. In what ways do the fields of OD and change management differ and overlap? 5. What skills and knowledge do OD and change management specialists employ? 6. In which of the two fields do you feel you would work best, and why? 7. Describe a specific element of change that can be found in each of the following envi- ronments that affect organizations: economic, technological, sociocultural, govern – ment, and political. 8. What are the differences between type 1 and type 2 errors that leaders and manag – ers can make in perceiving change? Describe a perception and decision that you made that resulted in a type 1 or 2 error. In hindsight, what could you have done to prevent the error? 9. Describe some ways that Dunphy and Stace’s four levels of change can apply to and fit with Balogun and Hope-Hailey’s change model. 10. What are some differences and values that Tichy’s framework (see Figure 1.5) offers compared to other models discussed in this chapter? 11. Explain what you find interesting and different about each of the three change approaches presented in Section 1.6 (the contingency alignment, balanced score- card, and stakeholder approach). 12. Do you believe ethics matters for those who lead and implement planned organiza- tional changes? Why or why not? Explain. wei82650_01_c01_001-056.indd 48 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Key Terms adaptation This process occurs when the change is also incremental and the end result is realignment. balanced scorecard One of the most popularly used alignment frameworks by corporations globally to track and align per – formance at the individual, team, and divi- sion levels to the overall enterprise vision and strategy. change management This process encompasses approaches used by business content and behavioral process specialists that help leaders move entire organiza – tions, or units, from a present to a desired future state. competitiveness The ability of a busi – ness or organization to succeed in meeting the owners’ broad business goals to serve customers. contingency theory A theory that views organizational dimensions (strategy, struc- ture, people, work, rewards) as parts of a whole that “fit” together. corporate transformation This type of change, like the transformational change model, involves a radical shift in the busi – ness strategy and changes in the vision, mis – sion, culture, and systems. cultural system A system that includes the norms and values shared by mem – bers in an organization in Tichy’s change framework. developmental change This process involves an improvement of what already exists; for example, an organization improv – ing a previously established process or procedure. evolution A process that occurs when the change is incremental but transformation is the result. fine tuning This type of change involves an ongoing process of matching and fitting an organization’s strategy, structure, people, and processes with the environment. incremental adjustment Adjustments are predictable changes that evolve slowly and systematically at a constant rate over time within the organization to fit the external environment. modular transformation A type of change in which organizational change is radical but is focused on subparts rather than the entire organization. organizational development An effort that is planned, organization-wide, and managed from the top to increase an organization’s effectiveness and health through planned interventions in the organization’s processes, using behavioral science knowledge. organizational development methods A dimension of OD that focuses mainly on people and the human dimensions of organi- zations, such as culture, climate, leadership, and communication. organizational development specialists A major source of organizational change expertise, both theoretical and applied. Many are academics or organizational behavior professionals. planned organizational change A process that moves companies from a present state to a desired future state with the goal of enhancing their effectiveness; ultimately, the goal of planned organizational change is to improve an organization’s capabilities. wei82650_01_c01_001-056.indd 49 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources political system A system that includes pressures for change that relate to power, influence, and resource distribution in Tichy’s change framework. proactive change A type of change that involves actively attempting to make altera- tions to the workplace and its practices. reactive change A type of change that occurs when an organization makes changes in its practices after some threat or oppor- tunity has already occurred; such responses may be less thoughtful and responsible. realignment A type of change that involves adjustment but does not generally entail a fun – damental reassessment of the central assump – tions and beliefs in an organization’s culture. reconstruction A type of change that is big bang combined with realignment. revolution A type of change that is big bang and transformational. stakeholder Any group or individual who can affect or is affected by the achievement of the organization’s objectives. The use of the term stakeholder(s) has become com- monplace in organizations. stakeholder theory A theory that origi- nated as a strategic management approach to address the “principle of who or what really counts” when addressing an organization’s strategic interactions with different groups. As a change approach, it addresses the interests and needs of all stakeholders and stockholder. systems theory The ability to comprehend the whole and examine the interrelationship between parts in order to identify and solve problems accurately. technical system External changes that influence an organization and include tech – nological and economic pressures in Tichy’s framework. transformational change A type of change that involves the emergence of a new, unknown state for the organization. transitional change A type of change that consists of an implementation to achieve a known desired state that is different from the existing one. type 1 error An error that happens when the environment is actually stable, but lead – ers and managers perceive it as turbulent and proceed to take unneeded actions to respond. type 2 error An error that happens when leaders and managers perceive the environ- ment as stable when in actuality it is turbu – lent, and they fail to take necessary actions, thus possibly threatening the survival of their organizations. wei82650_01_c01_001-056.indd 50 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Additional Resources Worksheet for identifying types of change http://www.viha.ca/NR/rdonlyres/DFF67823-3989-489A-84E3-4F3502F3EC78/0 /TypesofChangeinOrganizations.pdf An interview with a human resources OD consultant, from DrKit.org ht tp://w w w.youtube.com/watch?v=X7QrV1Ng8uo The International Organization Development Code of Ethics ht tp://w w w.theodinstitute.org/od-library/code_of_ethics.htm Managing Change Sample Answers Managing Change—Confronting Resistance 1. When the human factor is neglected, the change initiative can result in derailment. In this case the communication plan was not put into effect with a reasonable amount of time for employees to adapt. Loss of the familiar and fear of the unknown play a significant psychological role as well. 2. It is important to properly plan and prepare such a proposition. Effective communi- cation and disclosure is paramount, so that employees feel included in the decision. It is helpful to let employees know they have a choice in plans, to listen to their con – cerns, and to provide ample opportunities for information and understanding. Invite a plan representative to host meetings with employees, and incentivize resistant employees to go to meetings by making it a positive experience, such as a brown bag lunch environment. While involving employees in the change may not be possible in the current year, the company can learn from its mistakes and involve employees in the plan changes and offerings for the following year. In addition, allowing leaderto own responsibility for their role in the debacle and show visible commitment to the new direction will help quell discontent. 3. Unfreezing refers to softening those resistant to change by motivating them for it. This stage involves clearly communicating the benefits of the new plan; reducing barriers by providing heightened customer service from plan representatives to shepherd employees through the change; and introducing rewards and incentives for participation. Incentivize employees to go to plan meetings, and perhaps reward to employees who embark on wellness initiatives that have proven to reduce com – pany health care costs. In the moving/changing stage, employees start to feel the change and put new information and practices into effect. The heightened customer service has made the transition less painful for employees trying to learn the new process of getting health care and submitting claims under the new financial struc – ture. Employees can put the change into context and see how the company has adapted to survive the economic downturn, and start to accept the plan change as part of that process. In the refreezing stage, managers can positively reinforce the new sense of community that has resulted from employees banding together, and implement various activities designed to reward employees for participating in the lower cost plan that overall helped the company meet its financial objectives. wei82650_01_c01_001-056.indd 51 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Managing Change—Organizational and Managerial Response to Change 1. When managing change, it is important to communicate the planned change thor- oughly throughout the organization and provide plenty of opportunities for training. Doing so can increase understanding and promote feelings of individual employee empowerment. 2. Studies have shown that people need to receive messages repeatedly for ideas to sink in. Ideally, give at least 6 months’ notice of the change. Communicate about it clearly and reinforce the message repeatedly over that period of time. Possible meth- ods for delivering messages include posting a Q&A on the company intranet, holding town hall–style meetings to open the floor to employee responses and concerns, and sending direct and down-to-earth e-mail communication from top leadership. 3. Employees are more engaged when they feel their daily tasks directly contribute to the positive outcome. Involve them actively in the change. Bring them into the process and make them an integral part of the transformation. This will not only benefit them in terms of fulfillment and career development, it will also benefit the company’s efforts. Leaders need their direct reports on board to achieve com – pany objectives. Show them how their new responsibilities will impact company objectives. 4. Modular transformation is most likely applied in this circumstance—the organiza- tion’s overall goals and function are not changing, but the ways to achieve them are. The change is focused on the several departments affected by the change and will affect the processes and daily responsibilities of managers and employees. Incremental adjustments and fine tuning could also occur to strengthen employee support of and commitment to the new initiative. Fine tuning can be applied from a micro standpoint to affected individuals, and incremental adjustment would be ben – eficial from a macro standpoint over time to positively communicate and reinforce the change. Managing Change—Becoming a Truly Global Organization 1. Many companies will immediately cut staff to reduce costs in the face of investing in a new part of the business. However, cutting staff can adversely affect productiv – ity and output, which are necessary for maintaining growth. To break into emerging markets, seek partnerships with local manufacturers and shared services organiza- tions to get the job done. This can result in other structural changes that will require management at headquarters. In addition, monitor supply chain costs and close gaps in efficiency to make the most of the supply chain. 2. Consider altering the mission statement to support tapping into new markets and engendering a global focus. Propose a change in organizational structure to support new partnerships and product sources and transport of items manufactured over – seas. Train human resources management to seek the necessary skill sets to trans- form your company into a global firm. Align all of these and all affected departments with the company’s new overall goals. 3. Although this transformational change can be described as “big bang,” meaning revo- lution and reconstruction would occur, it is not necessarily cost-effective to replace a majority of the workforce, which can incur huge expenses relating to onboarding and, in some cases, higher salaries and benefit levels to attract new talent. Instead, utilizing current leaders and managers and implementing principles of change wei82650_01_c01_001-056.indd 52 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources management to lead through the planned business enhancement can strengthen the company from within. It is important, however, to oversee realignment so that all areas of the company are functioning toward the common goal in the new structure. 4. With the risk management department, review the business processes and partner- ships of the companies you are doing business with. Continuously monitor political and labor market situations in those countries to proactively assess any potential risks. Have a contingency plan in place in case of a natural disaster or other disrup – tion that could interfere with your supply chain. Managing Change—Adapting Company Strategy to Consumer Demands 1. In a health care company, as in many service organizations, customer service is paramount—especially when customers’ welfare and health are concerned. While customer-facing members of the company embody this value, departments from financial to legal to operations help keep the company at its most efficient and allow it to continue to deliver good care. The changes proposed will require extra effort on the part of those who schedule customer appointments and those who sched – ule provider hours. The billing department will also have to upgrade tracking and correspondence structures to make sure that customers are meeting their payment responsibilities. 2. Internal organizational dimensions should ideally fit together and function in sync with each other. The various departments in this company are already intercon- nected, but when the proposed changes are implemented, the following relation – ships will be most important: The front office must communicate with the billing office on customers served and collect any possible dues owed at the time of service. The billing office needs to correspond clearly with customers and give them plenty of notice to remit payments. The billing office also needs to process insurance pay – outs not only to customer accounts but toward the compensation of the providers. The scheduling department must weigh the multiple circumstances of each provider that affect availability, while giving consideration to work/life needs. The operations department supports all functions by making sure the facility is stocked and ready, while controlling for cost. 3. The balanced scorecard model measures individual and unit performance and com- pares it with the unit’s and the company’s financial performance. When the change is implemented, change in company revenue can be analyzed and productivity can be measured to draw relationships to the improvement. While this model cannot neces – sarily be a determinant of compensation, it can identify areas where improvement is needed and where successful efforts need to be maintained. 4. Financial perspective: A cost–benefit analysis can be performed prior to implemen- tation to assess the anticipated benefit, and then financial measures can be per- formed after implementation to benchmark against actual progress. The customer perspective involves overall customer satisfaction, comments, complaints, positive interactions, and success in payment collection. The learning and growth perspec- tive comes into play as employees become engaged in the change initiative and learn new skills to support it, relying on each other for guidance through the change process. The business process perspective measures the efficacy of internal business processes and tracks performance of individual units, as well as the progress overall of the change initiative meeting customer requirements and generating increased revenue. wei82650_01_c01_001-056.indd 53 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Answers and Rejoinders to Chapter 1 Pretest 1. False. Planned organizational change is a process that enhances an organization’s effectiveness by moving it from its present state to a desired, better future state. Planned organizational change subscribes to the theory that organizations must change to survive and compete. 2. False. The fields of OD and change management are similar in that they both aim to help move an organization from a present to a desired state. However, change man- agement is more content oriented (strategies to improve business, finance, market- ing, and operations management), while OD is more people oriented (strategies to enhance motivation, culture, and productivity). 3. True. Kurt Lewin’s force-field analysis states that change is the result of opposing forces that move with and against an organization’s status quo. When opposing forces are equal at any given time, change does not occur. 4. True. Competitive advantage as a force for change means advancing within an indus- try while maintaining some degree of stability and certainty. Competitive advantage requires both flexibility and stability for an organization to thrive. 5. True. Tactical models of organizational change seek to address short-term issues and opportunities. These models are more immediate and hands-on than strategic models. 6. False. In the stakeholder approach to change, an organization can consider rel- evant stakeholders’ and shareholders’ needs and still be socially responsible and profitable. Rejoinders to Chapter 1 Posttest 1. According to John Kotter’s eight-step approach to organizational change, in the first step, a sense of urgency must be established among an organization’s employees. Kotter feels that people are not motivated without an initial sense of urgency and the pressing importance of change. 2. Step eight of Kotter’s eight-step change process, “anchor new approaches in the culture,” means “institutionalize changes and ensure that future leaders embody them.” In Kotter’s system, reinforcing changes among employees, along with succes- sion planning (training and naming future company leaders), are vital components of successful, sustained change. 3. The terms team building, survey feedback, quality of work life, and job satisfaction are most associated with OD. Conversely, marketing strategy, technical management, IT, and other functional content expertise areas and their processes are most associated with change management. 4. An accounting consultant most likely belongs to the field of change management, working with functional content and strategy; in this case, accounting principles and best practices. 5. Lewin’s force-field model is primarily based upon the law of physics that says that an object at rest will remain at rest until the forces exerted to move it are greater than the forces working against its movement. Consequently, behavioral change occurs only when the forces for change are strengthened, the forces against change are weakened, or both. 6. According to Lewin’s model, the step (among those listed) that most directly leads to overcoming resistance to change is identifying tactics that weaken the forces against change, and then implementing them. wei82650_01_c01_001-056.indd 54 12/16/15 11:52 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 7. Organizations that successfully respond to forces for change are typically more responsive to external and customer demands, more streamlined, and more ecologi- cally sustainable. 8. In analyzing the need for organizational change, a type 2 error occurs when the external environment is perceived by organizational leaders as stable when in real- ity it is turbulent. They then fail to make necessary changes in order to survive. 9. The Dennison Company scenario best describes a developmental organizational change. This kind of change improves something that already exists and does not have to be large-scale or complex. 10. Dunphy and Stace’s four levels of change include 1) fine tuning, 2) incremental adjustments, 3) modular transformation, and 4) corporate transformation. Incre- mental and fine tuning are comparable to developmental change. 11. The balanced scorecard measures and aligns an individual’s, a team’s, or a division’s performance to organizational goals and vision. Balanced scorecards are used in at least 50 percent of Global 1000 companies. 12. The contingency alignment framework is most similar to Tichy’s matrix, although it has additional dimensions. The contingency alignment approach explains the interrelationships of an organization’s external forces with its internal dimensions (vision and strategy, structure, people, measurement systems, nature of work, cul- ture, and technology). Tichy’s matrix explains change from external forces (techni- cal, political, and cultural) on internal organizational systems. wei82650_01_c01_001-056.indd 55 12/16/15 11:52 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_01_c01_001-056.indd 56 12/15/15 9:34 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.
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2 Diagnosing and Planning for Change Jupiterimages/Goodshoot/Thinkstock Learning Objectives After reading this chapter, you should be able to do the following: 1. Explain what it means to diagnose organizations for change. 2. Determine an organization’s reason for change using the open-systems theory and model, environment- industry-organization contingency model, and organizational life-cycle model. 3. Examine the assessment model and trigger questions used to identify what type of organizational change is needed. 4. Analyze the appreciative inquiry model. 5. Utilize the action research model to implement change. 6. Describe how organizations can address resistance to change. wei82650_02_c02_057-102.indd 57 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction By failing to prepare, you are preparing to fail. Benjamin Franklin Pretest Questions 1. True/False: The most critical factor in diagnosing an organization’s need for change is the opinions of its nonexecutive employees. 2. True/False: The organizational life-cycle model helps leaders understand how employees and managers cyclically join, mature, change, and leave or rejoin a rejuve- nated organization. 3. True/False: Trigger questions are questions that change teams or a change specialist might ask to identify who and what part of an organization needs to change. 4. True/False: Unlike traditional problem-solving approaches, the appreciative inquiry (AI) approach creates positive change by appreciating the best of what exists in an organization. 5. True/False: When implementing the action research model, a change specialist must be in charge of everyone else in order to teach the organization’s change team how to move forward. 6. True/False: Asking for feedback from those who strongly resist change often starts them on the path to accepting change. On March 24, 2015, Zappos’s CEO Tony Hsieh (pronounced “shay”) sent a company-wide memo stating Zappos’s change strategy of becoming a manager-free organization on April 30. His message was clear: Embrace self-management or leave the company (Feloni, 2015a). The online shoe and clothing retail firm is a wholly owned subsidiary purchased by Amazon for $1.2 billion in 2009. Zappos employs 1,500 people, has annual revenues of $2 billion, and is no stranger to new and unique organizational practices. Hsieh came to Zappos as an angel investor in 1999 after selling LinkExchange—which he cofounded—to Microsoft in 1998 for $265 million, and he became full time in 2000 (Hsieh, 2010). He and his team increased online sales from $0 in 1999 to $70 million by 2003, and in 2008 they reached $1 billion in gross merchandise sales before selling the company to Amazon. In 2010 Hsieh attributed the company’s success to “customer service, company culture, and employee training and development” (Hsieh, 2010, “What We’re Learning from Amazon,” para. 8). Continuing his drive toward greater growth, Hsieh began experimenting with a self- management organizational structure known as Holacracy in 2013. Holacracy is a horizontal type of organizational structure composed of circles where “equally privileged employees work autonomously in codependency with other circles, sometimes overlapping” (Feloni, 2015b, para. 5). The author of this concept is software engineer Brian Robertson, who operates HolacracyOne, a company that distributes software to help clients with the new arrangement. wei82650_02_c02_057-102.indd 58 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Hsieh is clear that he wants to break down Zappos’s previous structure, which featured silos/ circles of functional departments like merchandising, finance, and marketing, and replace them with self-organizing and self-managing business-centered circles. The new structure has fewer roles that align employees without the bureaucracy. Hsieh stated in the company memo that he realized the new self-managing, peer-based structure may not fit everyone; therefore, all employees in good standing had the opportunity to take a severance package. He also stated, “Like all the bold steps we’ve done in the past, it feels a little scary, but it also feels like exactly the type of thing that only a company such as Zappos would dare to attempt at this scale” (Hsieh, 2015, “From Tony,” para. 23). Fast-forward a month later: 210 employees (14% of the company) took the severance pay offer, and 85% went through the first part of the transition (Feloni, 2015c). In a company noted for its customer-focused, happy employee and “purpose with profit” culture, the announcement and somewhat radical shift to the self-managed system is another Hsieh experiment that may prove prophetic, or not (Pontefract, 2015). Critical-Thinking Questions 1. Why do you think 14% of employees took the severance pay? Could it have been due to resistance to change? Did they no longer enjoying working at the company? Was it a bad culture fit or something else? 2. What would you have done had you been an employee at Zappos at that time, and why? 3. How would you describe Hsieh’s style as a change leader? wei82650_02_c02_057-102.indd 59 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Introduction: Ready, Aim … Plan! “If you don’t know where you’re going, all roads lead there,” a Roman proverb states. The warning here is that if you don’t set a destination for yourself or have a goal, then your actions will cease to have meaningful consequence. Lacking a goal, of course, is the very opposite of effective change management. In an increasingly globalized world, in which change occurs at an ever faster rate, a good business must always have a set of short- and long-term goals and a detailed strategy for reaching them. As the Zappos transformational change suggests, having a goal is only part of a large-scale change process. There are other important elements involved in diagnosing a change as well. This chapter focuses on the first steps of that process: the diag- nosing and planning methods that effectively prepare organizations to respond to change. Diagnosing organizational change raises the key diagnostic questions to be asked by those planning an organizational change: the why, what, who, and how of the change. For example, the opening scenario raises the question of why Zappos’s CEO decided to move so quickly to adopt a completely self-managed structure. Were there forces in the external or interna – tional organizational environment that precipi- tated the need for this change? In addition, what exactly needed to be changed at Zappos? Were some of its internal systems not meeting expectations? Were any of the groups (sales, marketing, or operations) not performing according to plan? Why change the entire management and employee structure? The company had a collaborative, horizontal structure (Holacracy) that seemed to have been working the previous few years. Was there a need to change the structure based on Zappos’s organizational and leadership life cycle? The company was founded in 1999 but had successfully undergone several organizational life- cycle phases, showing increasing revenue and other effectiveness measures. Another question to be asked is who needed to change—the managers? It might seem so, since the reorganization was shifting to a self-managed, peer-based system. How would the other stakeholders in and outside of Zappos be affected—namely the surviving employees, managers, customers, and officers? Finally, how did and will this change continue to roll out? Hsieh’s e-mail jump-started the process, which seemed to many like a fait acommpli (that is, a decision already made without discussion). We will return to Zappos and these questions as we present different frameworks in this chapter. Zappos is not representative of the majority of organizations across industry sectors. It does, however, present organizational issues, questions, and lessons from which leaders, team members, and students of organizational change can learn. For example, is Hsieh respond – ing to a problem, opportunity, both, or neither? Do classic and contemporary organizational change models and concepts address opportunity creation as well as problems and threats to be solved? We would answer yes to the latter question and will address the former through the models presented here. AP Photo/The Grand Rapids Press, Cory Morse Zappo’s CEO, Tony Hsieh, raised many questions when he moved so rapidly to restructure his organization. wei82650_02_c02_057-102.indd 60 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.1 Diagnosing Organizations for Change Chapter 1 discussed the different types of changes that affect organizations. Here we present classic and contemporary frameworks for diagnosing ways that organizations can meet both external and internal needs, threats, and opportunities. We also explain strategies for under- standing and dealing with resistance to change. The methods used here and throughout this text are relevant for large, publicly traded companies, not-for-profits, community service, and government organizations. Most organizations continually plan and implement some type of change, whether transfor- mational or simple. Each day, organizations respond to different types of change in a variety of ways. The list is extensive: • Mergers and acquisitions • Reorganizations and restructuring • Spin-off businesses • Expansions • Downsizing • Introducing new products and services • Implementing new IT software Because nearly three quarters of large organizational changes fail (Dinwoodie, Pasmore, Quinn, & Rabin, 2013; Keller & Aiken, 2009; Kotter, 1996), it is important to diagnose lead- ers’ and managers’ motives for changing and understand what is to be changed, what type of change is appropriate, and the change’s strategy. Transformational changes are very costly in human, material, and financial terms, so they must be done correctly. It is important to note at the outset that large-scale planned changes are messy, nonlinear, and in general only as effective as the people leading and sustaining them. Such leadership includes knowing why, when, what, and who to change, but also knowing when not to change. Kesar (2001) cautions that change is not always the cure for all business problems. Instead, leaders should take the time to evaluate and prioritize change proposals and ideas, rather than imme – diately reacting to internal and external changes. In this way, failing to change can be positive. Kesar is suspicious of business trends that encourage organizational reconfiguration every 5 years and the symbolic value of change as a demonstration of management’s success (Czar – niawska-Joerges & Sevón, 1996). In the 21st century necessary change is more a constant than a luxury; nevertheless, organizational leaders have the responsibility to determine whether changes are needed and, if so, what type of change will work in their particular situations. 2.1 Diagnosing Organizations for Change Organizational diagnosis of change refers to the process of understanding the current state of how an organization functions and providing necessary information to design change interventions —that is, program elements used to manage an organization’s inter – nal relationship (resources, structure, operations) with its external environment to support a business strategy (Cummings & Worley, 2015). Interventions are designed by organiza – tional leaders, managers, and teams to change behaviors of individuals or of a population as a whole. Interventions are used in different settings, such as communities, work sites, schools, health care organizations, religious organizations, or the home, and include edu – cational programs, policies, environmental improvements, or promotional campaigns. The most effective interventions utilize multiple strategies to create a more lasting change (Inter- vention MICA, n.d.). wei82650_02_c02_057-102.indd 61 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.1 Diagnosing Organizations for Change Discovering and verifying the motivation for change is the first step to a planned organi- zational change initiative. Diagnostic change models are frequently used in this process. Although such change models are simplifications of reality, they provide both a context in which organizations operate and highlight the interrelationships among their internal dimen – sions, which helps identify desired effectiveness. Although change models do not necessarily provide the “one best way” or “the truth” about diagnosing organizations, they offer theoretical and practical ways to understand complex situations. Burke (2011) offered five purposes of organizational models: 1. Models help reduce the complexity of thousands of things “going on” into manage – able categories. 2. Models identify aspects of organizational activities and dimensions that demand attention. 3. Models highlight the interconnectedness of organizational properties like culture, structure, and strategy. 4. Models provide a common language and vocabulary. 5. Models offer a sequence of actions that users can follow in particular change situations. As stated earlier, the expertise of an organization’s leaders, managers, and change specialists are perhaps the most critical factors for diagnosing, planning, and implementing changes. Consequently, leaders are the ones who must ultimately make decisions based on model pro – jections. Diagnostic models can also help detect and prevent type 1 and 2 errors (discussed in Chapter 1.4) from occurring. We have selected both classic and contemporary models to discuss in greater detail. They include: (a) classic models that led the way and are still relevant, (b) models that are based on different assumptions and view change from various perspectives, (c) macro and micro dimensions that are emphasized in the models, and (d) models that require different quanti – tative and qualitative approaches to diagnose responses to change. This chapter organizes change models by the dimensions Why Change, What and Who to Change, and How to Change. These three dimensions and the models presented are in some ways interrelated. However, separating out major models with consultative ques – tions in each dimension helps leaders and change teams pay attention to the systematic process of change as well as the desired end results. We begin by addressing the dimension Why Change by asking what is the need and what is the source? The major models in the first section include open systems, environment-industry-organization contingency, and the organizational life cycle. Consider these tools and concepts that can be used to diag – nose change. Check Your Understanding 1. In your opinion, what can happen if organizational leaders and managers omit or minimize diagnosing change as a first step to planning an organizational change? 2. Why and how can change models help organizational leaders and teams assigned to plan and implement a significant change? Explain. wei82650_02_c02_057-102.indd 62 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. EnvironmentEnvironment Product, Service Outputs Output Thro ughput Input Transformational Organizational Pr ocesses -leadership -strate gy, structure culture, s ystems Resource Inputs Section 2.2 Why Change? Identifying the Need to Change 2.2 Why Change? Identifying the Need to Change How do organizational leaders and others determine why a change is needed? Sometimes the reasons are obvious, other times less so. In the opening case, it was not entirely clear why Zappos’s CEO called for a sweeping organizational change. Some observers also questioned the way the change was implemented. Diagnosing the reason and need for change begins with an analysis of both the external and internal organizational forces effecting a change. Open-Systems Theory Open-systems theory and model , based on Katz and Kahn’s (1978) work, provides a frame – work for studying how organizations interact with their environments in ways that affect the input, throughput, and output processes, along with interdependencies and outcomes. The model, shown in Figure 2.1, indicates how a product or service produced at the output phase is influenced by the organization’s environment and internal processes. This model is widely used by consultants and other organizations planning changes. As Figure 2.1 illustrates, an open-systems approach can serve as the first step in diagnosing an organizational change since it presents a big-picture approach for identifying the input, throughput, and output of resources comprising and needed in the change. As discussed in Chapter 1, diagnosing how the forces in the general environment (that is, the economic, tech – nological, legal, governmental–political, sociocultural, and natural disaster elements) affect an organization in any and all of the three open-systems dimensions provides insights into the need for an organizational response and, perhaps, change. An organization’s “task envi – ronment” takes a closer look at the forces that affect organizations more directly—that is, customers, interest groups, suppliers, competitors, employees, and regulations from govern – ing bodies. Perhaps Hsieh at Zappos reasoned that less managerial bureaucracy would serve a changing customer base more effectively and efficiently. Figure 2.1: The open-systems approach The open-systems approach is a process showing how the environment changes with the input of resources, followed by the throughput of transformational and organizational processes, such as leadership, strategy, structure, culture, and systems. This results in the output, or the product or service outputs. Source: Adapted from Katz, D., and R. Kahn. (1978). The social psychology of organizations (2nd ed.) New York: Wiley. Environment Environment Product, Service Outputs Output Thro ughput Input Transformational Organizational Pr ocesses -leadership -strate gy, structure culture, s ystems Resource Inputs wei82650_02_c02_057-102.indd 63 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change Consider an example from a different industry that illustrates the environment’s effects on an open-systems model. Nursing shortages in the United States and globally are a recurring problem. However, a third wave of such shortages appears to have different causes than pre- vious shortages. Specifically, there are general environmental factors external to the industry as well as task environmental influences that are aggravating this shortage. These include the aging of nurses, general workforce shortages in ancillary professions and support labor, fundamental changes in patient care in a managed care environment, decreased length of hospital stays, and demand for more acute ambulatory and home settings care (Ming, Lam, Fong, & Yuan, 2012; Nevidjon & Erickson, 2001; Rosseter, 2014). Although issues surround outdated images of nursing, new nurse recruitment, and retention of nurses, closer scrutiny of this shortage shows that one underlying cause of the problem is the level of expertise avail- able compared to what is needed (Ming et al., 2012.) From this partial diagnosis, nursing associations, educational programs, and care-providing institutions can consider strategies for change in how they attract, educate, and generate more specialized nurses. With this context in mind, we will look at the input, throughput, and output dimensions for a hypothetical educational institution with a large nursing program. First, note that the inputs are resources, information, or items that are intentionally put into an organization’s internal system that effect and/or will be affected by the intended change. Outputs are the results that occur after an organization’s interventions affect the targets of the change process. In other words, outputs are the results from a department, division, or entire organization’s change process (Krippendorff, 1986). At the input phase, a college program might analyze demographics and other statistics about its student nursing recruitment and the enrolled population to see what changes and innova – tions could be made. Administrators might investigate additional funding and resource acqui – sition initiatives for talent recruitment. At the throughput phase, institutions could analyze the retention rate, quality, and competitiveness of their courses and professors, as well as how they match external market demand and nursing requirements. At the output phase— that is, the results in an open-systems approach to planned organizational change—analyzing graduation rates, placement sources, and feedback from sources of employment and gradu- ates’ experiences could provide valuable information for decision makers regarding the input and throughput phases of the programs. Environment-Industry-Organization Contingency Model Related to the open-systems model is Duncan’s (1972) environment-industry-organization contingency (“fit”) model, which examines how effectively an organization is suited to its environmental niche. Organizations that are able to respond to external environments are more effective in meeting goals and serving end users and customers. Aldrich and Pfeffer’s (1976) resource dependency theory asserts that organizations are dependent on the envi – ronments in which they operate, and the main goal of the individuals running the organiza – tion is to survive and enhance the company’s autonomy, while also ensuring that its exchange relations remain stable (Davis & Cobb, 2010). wei82650_02_c02_057-102.indd 64 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Simple + Stable = Low Uncertainty 1. Small number of ex ternal elements, and elements are simliar 2. Elements remain the same or change sl owly Examples: Soft drink bottler s, beer distri butors, container manu facturer s, f ood processors Complex + Stable = Low–Moderate Uncertainty 1. Large number of external elements, and elements are dissimilar 2. Elements remain the same or change slowly Examples: Universities, appliance manufacturer s, chemical companies, insurance companies Simple + Unstable High–Moderate Uncertainty 1. Small number of ex ternal elements, and elements are simliar 2. Elements change frequently and unpredict ably Examples: E-commerce, f ashion clothing, m usic industr y, t oy manufacturers Complex + Unstable = High Uncertainty 1. Large number of external elements, and elements are dissimilar 2. Elements change frequently and unpredictably Examples: Co mputer firms, aerospace firms, t elecommunications f irms, airlines Complex Stable ENVIRONMENTAL CHANGE ENVIRONMENTALCOMPLEXITY Unstable Simple Uncertainty Section 2.2 Why Change? Identifying the Need to Change Drees and Heugens (2013) conducted a meta-analysis of 175 studies regarding companies’ use of resource dependence tactics (including interlocks, alliances, joint ventures, in-sourcing, and mergers and acquisitions). They found a positive association between environmental interdependencies and companies’ use of resource dependence tactics. Moreover, firms’ use of such tactics was positively associated with organizational performance (Davis & Cobb, 2010). The environment-industry-organization contingency model shown in Figure 2.2 can be used to understand an organization’s existing environment and to diagnose the direction in which it might need to move to increase its performance. Duncan’s model is a simple big picture and straightforward way to map an organization’s fit with environmental complexity . Figure 2.2: Environment-industry-organization “fit” How “fit” an organization is depends on the level of complexity and the stability of the environment. Source: Duncan, R. B. (1972). Characteristics of organizational environments and perceived environmental uncertainty. Administrative Science Quarterly, 17(3), 313–327; Daft, R. (2010). Organization theory and design (10th ed.). Mason, OH: South-Western, Cengage Learning, p. 157. Simple + Stable = Low Uncertainty 1. Small number of ex ternal elements, and elements are simliar 2. Elements remain the same or change sl owly Examples: Soft drink bottler s, beer distri butors, container manu facturer s, f ood processors Complex + Stable = Low–Moderate Uncertainty 1. Large number of external elements, and elements are dissimilar 2. Elements remain the same or change slowly Examples: Universities, appliance manufacturer s, chemical companies, insurance companies Simple + Unstable High–Moderate Uncertainty 1. Small number of ex ternal elements, and elements are simliar 2. Elements change frequently and unpredict ably Examples: E-commerce, f ashion clothing, m usic industr y, t oy manufacturers Complex + Unstable = High Uncertainty 1. Large number of external elements, and elements are dissimilar 2. Elements change frequently and unpredictably Examples: Co mputer firms, aerospace firms, t elecommunications f irms, airlines Complex Stable ENVIRONMENTAL CHANGE ENVIRONMENTALCOMPLEXITY Unstable Simple Uncertainty wei82650_02_c02_057-102.indd 65 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change The two dimensions of environments are shown as environmental change (that is, stable or unstable) and environmental complexity (that is, simple or complex). A simple–complex dimension of environmental uncertainty indicates the number and dis- similarity of external elements that affect an organization’s functioning (Daft, 2015). The higher the number of forces (such as inflation and changing client demographics) and the greater the number of dissimilar elements (such as different companies and competitors), the greater the environmental complexity. Such complex, unstable, and therefore highly uncertain environ- ments characterize companies in the aerospace, telecommunications, airlines, and computer industries. The following example from Zappos illustrates an interpretive use of this model. Referring to Figure 2.2, in which quadrant of the environment-industry-organization model does Zappos best fit? It is the number one online e-tail shoe and clothing company. It has chosen customer service, company culture, and employee training and development as com- petitive and distinctive competencies. In addition, it has a superior supply chain, excellent customer service, trained call center employees, a fast web interface, and large online product offering. Its culture emphasizes “Wow” (Zappos, n.d.) delivery services, accepting and driving change, creating fun and weirdness, being humble, and other passionate elements. The model suggests that the company may be in a simple + unstable, high-moderate uncertainty environment niche with other e-commerce, fashion clothing industries. However, because Zappos is also a technology company driving toward larger product lines and customers, as well as faster and higher sales and revenues, it seems Hsieh wanted to move into a complex + unstable, high- uncertainty environment. Toward which quadrant is he driving his internal structure? Which environmental niche would you recommend that he move in to be successful over the long term? We will now analyze two additional examples of organizations facing major change using the environment-industry-organization model. Hewlett Packard Why did HP recently need an organizational change? Facing a highly uncertain environment, HP CEO Meg Whitman (former eBay CEO) has been trying to move HP back to its previous position as a dominant global technology leader or face failing market share, which could ultimately result in the sale of the company. HP has been undergoing a transformation under Whitman’s leadership since 2011. She has laid off more than 55,000 employees and counting. One problem has been the lack of a unifying vision for the company, which is in a complex + unstable, high-uncertainty environment, according to Figure 2.2. Whitman has pursued a risky move based on her predecessor’s decision to split the giant company into two different entities: Hewlett-Packard Enterprises (focusing on the hypercompetitive businesses of cloud technology and cyber security) and HP Inc. (focusing on the slower businesses of personal computers and printers). This division was determined by Whitman to stimulate HP’s growth in an ever-changing technological environment (Chen, 2015). Each of the two independent companies is large enough to be listed on the Fortune 500 list. Fierce competitors seeking increasing market share in each company’s industry will either weaken the companies or provide them with more flexibility to succeed in their niches. Residing in a highly uncertain (complex + unstable) environmental niche that splits in two is not easy. However, HP’s wei82650_02_c02_057-102.indd 66 12/15/15 9:38 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change board of directors has been pleased with Whitman’s performance. When Whitman arrived in 2011, HP had a net debt of $12 billion on its operating company, and in June 2015 the company had $5 billion in net cash; the stock price has climbed from $11 to $34 (Johnson, 2015). From an organizational change perspective, the question arises: Has Whitman accurately diagnosed HP’s situation regarding why it should change? Universities Figure 2.2 suggests that universities in general inhabit complex but stable, or low-moderate uncertainty environments. The environments in this quadrant have traditionally had few ele- ments that cause instability and change but several dissimilar factors that create complexity. For this reason, the question of Why Change is not relevant. Could new competitive global and domestic forces in the environment move some universities to a more complex + unstable industry fit? A number of forces suggest this may be the case. For example, student debt is estimated at $1 trillion, rising administrative and tuition costs have not subsided, and since the downturn in the economy, many companies have dropped their tuition reimbursement programs, presenting additional challenges for universities. Cut – backs in budget-constrained state funding for public universities add yet another dimension of uncertainty. Some industries and companies have also questioned the value of traditional educational degrees, although data show that students with certain higher educational degrees earn more than those without them (Kurtzleben, 2014). The environment was more stable for nonprofit traditional colleges before competition from a number of sources emerged, including free massive online open curriculum courses and other Internet-based institutes and programs. For-profit universities like the University of Phoenix also provided a market jolt. Though not all nonprofit colleges were threatened by the for-profit universities, these new market entrants introduced innovative and convenient educational opportunities, especially for students who could not or did not wish to attend traditional classes. Even Harvard and Massachusetts Institute of Technology (MIT) started programs for the masses using online courses and programs. Larger environmental threats to con- temporary universities will not subside in the near future because of the mar – ket forces identified, including a lack of donor loyalty in giving to many uni – versities (Giménez, Martín- Retortillo, & Pires de Carvalho, 2010). Each college will have to determine which quadrant in Figure 2.2 it is currently positioned in and if it should strategically migrate to another to remain viable and competi- tive. Simply stated, creating stable orga – nizations to perform in an environment of complex and fast-moving change can be disastrous. Since the main motiva – tors of organizational effectiveness are Dan Whobrey/iStock/Thinkstock Traditional brick-and-mortar universities are evolving their course offerings and processes due to changes brought about by the increasing prominence of online institutions, such as the University of Phoenix. wei82650_02_c02_057-102.indd 67 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. LargeSmall Young1. Crisis: Leadership Needed 2. Crisis: Au tonomy 3. Crisis of control 4. Crisis of red tape 5. Crisis of ? Ag e of organization Size of organization Mature 2. Grow with: clear direction 3. Grow with: delegation4. Grow with: coordination 5. Grow with: collaboration, innovation 1. Grow with: creativityEntrepreneurial Stage: 1 Collectivity Stage: 2 Formalization Stage: 3 Elaboration Stage: 4 Revitalization or Decline Stage: 5 Section 2.2 Why Change? Identifying the Need to Change dynamic, the elements and process of strategy and organization must be as well (Lawler & Worley, 2006). Both private and nonprofit universities will change more now than in the past as environmental forces shift and competitive pressures mount (Carey, 2015). The Organizational Life-Cycle Model Another model that addresses the Why of change is Greiner’s (1972, 1998) organizational life-cycle approach, which remains a classic and highly used road map for diagnosing the types of crises and challenges organizations face as they age. Relevant to the open-systems and environment-industry-organization approaches, the organizational life-cycle model adds a historical dimension to understanding an organization’s developmental needs in terms of deciding why it may need to change, especially in regard to capabilities required of leaders to grow organizations along their life cycle. As organizations evolve and follow a somewhat predictable path, they move through punctu- ated equilibrium—periods of stability with embedded crises. If these predicted crises are not solved, leadership and management can be forced out of business and replaced by a team that can bring in the needed changes (True, Jones, & Baumgartner, 2006). Figure 2.3 illustrates the five phases of growth: creativity, clear direction, delegation, coordi – nation, and collaboration. Each period is characterized by a leadership style used to realize growth that is appropriate for that particular phase. Each stage is also characterized by a crisis Figure 2.3: The developmental life-cycle of organizations The organizational life-cycle model provides understanding of an organization’s needs based on its history, present capabilities, and potential. It consists of five stages, with a crisis in each stage, followed by a period of growth. Source: Adapted from Greiner, L. (1972, July–August). Evolution and revolution as organizations grow. Harvard Business Review, 50, 37–46; and Quinn, R. E., & Cameron, K. S. (1983). Organizational life cycles and shifting criteria of effectiveness. Management Science, 29, 33–51. Large Small Young1. Crisis: Leadership Needed 2. Crisis: Au tonomy 3. Crisis of control 4. Crisis of red tape 5. Crisis of ? Ag e of organization Size of organization Mature 2. Grow with: clear direction 3. Grow with: delegation4. Grow with: coordination 5. Grow with: collaboration, innovation 1. Grow with: creativityEntrepreneurial Stage: 1 Collectivity Stage: 2 Formalization Stage: 3 Elaboration Stage: 4 Revitalization or Decline Stage: 5 wei82650_02_c02_057-102.indd 68 12/22/15 10:15 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change that must be solved before growth can occur. The pattern presented in Figure 2.3 is assumed for organizations in industries with moderate growth over a long term. Greiner (1998) stated that companies in fast-growing industries may experience all five phases more rapidly, and organizations in slow-growing industries may experience only two or three phases over sev- eral years. As you look at Figure 2.3, notice that each stage has extended periods of growth without a sig – nificant change to the organization’s practices. Then a revolutionary phase occurs, denoting periods of extensive disturbance. Greiner (1972) originally hypothesized that the length of time in each phase of an organization’s life cycle varies by industry, company, and the chang – ing environment. He also proposed that an organizational crisis could occur at the end of each growth stage and that the organization’s ability to manage and solve these crises will deter – mine its survival (Simmons, 2005). This theory also assumes that each stage is both a result of the previous phase and cause for the next phase. In stage 2 the organization grows under leadership with clear direction—solving the previous crisis of leadership needed. However, over time, leadership with clear direction leads to a crisis of control, and then a leadership style that emphasizes coordination and delegation is needed. Examine Table 2.1 to understand the organizational characteristics and requirements of each stage, not only in terms of leadership style, but also with regard to structure, systems, strengths, weaknesses, and crisis points. Greiner (1998) hypothesized that during each period, leaders and managers are limited in what they are able to do for growth to occur. For example, a company experiencing a crisis of control in stage 3 cannot return to offer clear directive management for a solution; the leader must adopt a new style of delegation in order to move to the next stage of development and growth. Empirical research on substantiating effectiveness criteria in life-cycle theories of organiza – tions is mixed. Quinn and Cameron (1983) found support for one version of the theory but also noted that the predictions in these theories are often not substantiated in research, since organizational responses to the external environment differ across the stages of the life cycle. As you read about each stage, you will be able to see how these responses would differ across the life cycle and among companies. Refer to Table 2.1 as you read through each stage. Although its elements are explained in the text, there are descriptions in this table that reinforce the characterization and meaning of each stage of the model. Stage 1: Growth Through Creativity Stage 1, growth through creativity, occurs during the period that resembles a typical start-up. Greiner (1998) notes that the founders are generally technically or entrepreneurially ori- ented and that their energies are absorbed making and selling a new product or service. Com – munication is frequent and informal. Workdays are long and pay is modest. Decisions and motivation are directed to the marketplace. These individualistic and creative activities are necessary at this stage. But as the company develops, those activities and leadership styles become the problem. wei82650_02_c02_057-102.indd 69 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change Table 2.1: Characteristics of life-cycle growth phases Stage 1: creativity Stage 2: direction Stage 3: delegation Stage 4: coordination Stage 5: collaboration Structure • Informal • Functional • Centralized • Hierarchical • Top down • Decentralized • Bottom up • Staff functions • Strategic business units • Decentralized • Units merged into prod- uct groups • Matrix-type structure Systems • Immediate response to customer feedback • Standards • Cost centers • Budget • Salary systems • Profit centers • Bonuses • Management by exception • Formal planning procedures • Investment centers • Tight expenditure controls • Simplified and inte- grated information systems Styles/people • Individualistic • Creative • Entrepreneurial • Ownership • Strong directive • Full delegation of autonomy • Watchdog • Team-oriented • Interpersonal skills at a premium • Innovative • Educational bias Strengths • Fun • Market response • Efficient • High management motivation• More efficient allocation of corporate and local resources • Greater spontaneity • Flexible and behav- ioral approach Crisis point • Crisis of leadership • Crisis of autonomy • Crisis of control • Crisis of red tape • N/A Weaknesses • Founder often temperamentally unsuited to managing • Boss overload • Unsuited to diversity • Cumbersome • Hierarchical • Doesn’t grow people • Top managers lose control as freedom breeds parochial attitudes • Bureaucratic divisions between line/staff, head quarter/field, and so on • Psychological saturation Source: Clarke, L. The Essence of Change, 1st Ed. Copyright © 1994, pp. 12. Reprinted by permission of Pearson Education, Inc., New York, New York. wei82650_02_c02_057-102.indd 70 12/22/15 10:15 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change Observe in Table 2.1 that under stage 1, the structure used is informal. The systems reflect immediate response to customer feedback and styles of leaders and employees are individu- alistic, creative, and entrepreneurial. The strengths at this stage of development are fun and market response. The crisis point is that of leadership, and along those same lines, the weak – nesses often have to do with the fact that the founder may not be temperamentally suited to management and those in charge may be overloaded. According to Greiner (1998), a crisis of leadership develops during this stage. It could lead to a revolution if the major problems are not solved. Lack of structure and formalized man – agement systems and practices require a different type of leadership and management. If the existing leadership does not or cannot assume new responsibilities of organizing, then a more sophisticated, formalized leadership style must be brought in for growth to continue. Stage 2: Growth Through Direction Stage 2, growth through direction, occurs under more structured leadership and manage – ment styles. A functional organizational structure is adopted; that is, a basic arrangement of departments where sales and marketing, manufacturing, production, finance, and research and development are formed with expertise in each area. Specialized jobs are assigned. Systems are put into place, such as accounting, human resources, inventory, shipping, and so on. Budgets, pay systems, and working rules are also established. A more structured culture evolves where communication is formal and impersonal, titles and positions are developed, and managers assume more authority, with strategic decision making generally occurring at the top level. The second crisis and possible revolution Greiner (1998) notes evolves from a crisis of autonomy. The new directive styles work to spur growth but then become too constraining to integrate and control the organizational diversity and complexity that evolve. A central – ized hierarchy constrains and confines employees who know and have learned more about markets and customers than their leaders and managers. Employees are conflicted between following meaningless procedures and taking action themselves. To continue to grow, leaders must either give up some control, learn to delegate, loosen and change hierarchy, or be replaced. Part of this crisis stems from leaders and managers who are perhaps entrenched in past training or older procedural methods and unable to share responsibility with lower level managers and employees. Those leaders and managers who stay often cause disenchanted, talented employees to leave. In effect, the crisis of stage 2 is the opposite of stage 1; by formalizing processes in stage 2 to grow from stage 1, the pendu – lum swings too far in the other direction, becoming too fixed and rigid. Stage 3 then works to strike a more productive balance. Stage 3: Growth Through Delegation Stage 3, growth through delegation, occurs when more responsibility is given to managers and employees to accomplish organizational goals and their work. This stage is also achieved when the hierarchical structure changes to decentralized units, bonuses and profit centers are established, managers stop micro-managing, communication and decision making is less wei82650_02_c02_057-102.indd 71 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change top down and also decentralized, and managers are able to move into larger markets faster and begin innovating. Crisis and possible revolution occur at this stage if leadership and management try to take control of the entire organization and return to a centralized system of decision making, com- munication, and ways of managing. Greiner (1998) argued that this revolution would fail because of the organization’s expanded operations and its ability to find new solutions in special coordination techniques. Stage 4: Growth Through Coordination Stage 4, growth through coordination, occurs when formal systems are used to achieve greater coordination by more efficiently allocating corporate and local resources. As Greiner (1998) noted: Decentralized units are merged into product groups. Formal planning pro- cedures are established and intensively reviewed. Numerous staff members are hired and located at headquarters to initiate companywide programs of control and review for line managers. Capital expenditures are carefully weighed and parceled out across the organization. Each product group is treated as an investment center where return on invested capital is an important criterion used in allocating funds. Certain technical functions, such as data processing, are centralized at headquarters, while daily operat- ing decisions remain decentralized. Stock options and companywide profit sharing are used to encourage employees to identify with the organization as a whole. (p. 62) The crisis occurs over the accumulation of red tape. Systems and programs exceed their use – fulness. A lack of confidence and resentment grows between line and staff (“line” are profes – sionals in an organization’s departments that are revenue generators, such as manufacturing and selling; “staff ” are in organizational support departments that are revenue consumer, such as human resources and accounting), headquarters and the field, and different groups of employees, usually over bureaucratic procedures. In addition, there is a lack of innovation and a rigidity in obtaining information, making decisions, and completing work. Stage 5: Growth Through Collaboration and Innovation Stage 5, growth through collaboration and innovation, occurs as a result of and a reaction to stage 4. This stage endorses interpersonal collaboration, flexibility, and behavioral leader- ship and management styles. Whereas the previous stage emphasizes formal systems and procedures, this stage promotes spontaneity through teams and meaningful confrontation over interpersonal differences. Red tape and formal controls are replaced by self-discipline and social control. This stage is accomplished through quick problem solving by cross-functional teams; reducing and reintegrating headquarters staff members; instituting matrix types of structures with the right teams solving appropriate problems; holding frequent conferences with key managers to solve significant problems; launching educational programs to train managers; adopting wei82650_02_c02_057-102.indd 72 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change real-time information systems that are integrated into daily decision-making processes; offering economic rewards for team performance (rather than individual performance); and experimenting with new practices across the organization (Greiner, 1998). Although Greiner (1998) did not identify a particular crisis that would develop from stage 5, he stated that the revolution stemming from the crisis in this stage would probably result from a high number of employees who are physically and emotionally exhausted because of the extreme amount of teamwork needed and the pressure to create new solutions. If this happens, part of the solution would involve new programs and structures that permit employees to regularly rest and refresh themselves. The following scenario illustrates one example of this model. Steve Jobs and Apple Steve Jobs passed away from cancer in October 2011, but his legacy continues in the brand he created. Tim Cook, appointed by Jobs, assumed leadership of the company that year. The relationship between Jobs and Apple exemplifies the dynamics of the organizational life-cycle model. Few, if any, CEOs have successfully reinvented themselves as many times as Jobs did at Apple. It may be more accurate to say that few CEOs have reinvented a com- pany like Apple over its life cycle as did Jobs. Although there are no definitive dates that characterize Apple’s organizational life cycle, the following grouping of stages (based on and reconstructed from Geek, 2010; Linzmayer, 2006; Young & Smith, 2005) is an approximation designed to discuss and illustrate Greiner’s (1972, 1998) framework. Apple Computer’s entrepreneurial stage (stage 1), based on the logic of the organiza- tional life-cycle model, started before 1976 but lifted off April 1, 1976, when Jobs and Steve Wozniak launched their company. The Apple I computer sold for $666.66. In 1977 the Apple II was introduced as the first per- sonal computer; it came in a plastic case and featured color graphics. In 1980 Apple went public, selling 4.6 million shares priced at $22 each. It was an exciting and challenging time for the technically oriented Wozniak and the intellectually shrewd Jobs. Neither was a leader or manager, but both were pio – neers, blazing a new historical path in very informal but focused ways. The collectivity stage (stage 2) likely started in 1981 when Jobs brought in Mike Markkula AP Photo/Paul Sakuma The late Steve Jobs of Apple was an extremely innovative CEO who helped reinvent and revi- talize Apple over several stages of its organiza- tional life cycle. wei82650_02_c02_057-102.indd 73 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change to serve as Apple’s first president. Jobs and Wozniak acknowledged that they did not have the skills for running a growing company at that time. The company struggled to launch the Macintosh (the first computer with a graphical user interface) in 1984. The machines accu- mulated in storage and did not sell during the 1984 Christmas season. Apple announced its first quarterly loss in the company’s history and laid off 20% of its staff. The collectivity stage was coming to an end, since there was a need for clear direction. Jobs was fired after a power struggle with the newly appointed CEO John Sculley (former president of PepsiCo), who, as an older, experienced corporate ex-president, brought a sense of direction and order. There was a definitive crisis of leadership during this time. Wozniak left that same year, and Jobs started NeXT Inc., another computer firm. The formalization stage (stage 3) began and lasted during the years that Sculley, followed by CEOs Michael Spindler (1993–1996; former chief financial officer [CFO] of Apple) and Gil Amelio (1996–1997) took unsuccessful turns at leading the company. Although they each tried to manage and innovate while formalizing systems and bringing order to Apple, product innovation and quality suffered during this period. The bureaucratization, control, and lack of coherent delegation came to an end after Sculley’s last successor, Markkula, was let go. Jobs returned in 1997 as interim CEO, which marked the beginning of the elaboration period (stage 4). It is reported that very shortly after Jobs walked back into the Apple offices he was fired from 12 years earlier, wearing shorts, sneakers, and a few days’ growth of beard, he sat down in a swivel chair and spun slowly.… “Ok, tell me what’s wrong with this place?” … Executives began offering some answers. Jobs cut them off. “The products SUCK!” he roared. “There’s no sex in them anymore!” (Burrows & Grover, 2006, para. 2) He returned to Apple and stayed until the day he retired, in August 2011. His product inno – vations and the company he built (which some describe as a mix between GE and Disney) during this time remain legendary. In 2001 the iPod, a palm-sized, hard drive–based digi – tal music player, was introduced. In 2003 the iTunes Music Store, which sold music, audio books, and movies for Internet download, was launched. In 2005 the iPod that played video was introduced. During that year Jobs also announced that Apple computers would use rival Intel Corporation’s microprocessors. During 2006 Apple started selling Macs that ran on Intel chips, and in 2007 the iPhone and iPod Touch were announced. In 2008 the App Store— an update to iTunes—was added to Jobs’s list of innovations, and in 2009 Apple released the iPhone 3GS, which was later followed by the 4G version. Jobs brought the iPad to market in 2010, a tablet computer with an Apple homemade processor. The global popularity of these products and innovations speaks directly to the success of Jobs’s decision making in revital – izing Apple. Greiner (1972) placed a question mark after the elaboration stage in his original organi- zational life-cycle model, which indicated that an organization can either be revitalized to grow and prosper or it can decline. Jobs’s successor, Cook, has proved that he can and is revitalizing Apple, with introductions of new iPhone models along with the Apple Watch. In April 2015 Apple became the first company in U.S. history to reach a $700 billion valuation. wei82650_02_c02_057-102.indd 74 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.2 Why Change? Identifying the Need to Change The organizational change that has occurred from Jobs’s death to the leadership under Cook should not be overlooked. Organizational Failure The organizational development life-cycle model is a useful framework for understanding why organizations fail and succeed, and at what stage of their development. As Anderson (2015) wrote with regard to start-ups in the sharing economy, “Studying failure is a recipe for success in the collaborative economy” (para. 1). She reported on a study of 45 of the more significant collaborative economy start-ups across Europe/the United Kingdom, Asia–Pacific, and the United States between 2010 and 2014 that either closed their doors or faced a setback that could have destroyed the company. Thirty-five firms were based in the United States, seven were UK companies, two were European, and one was Australian. Firms included Accoleo, Arribaa, BlackJet, Car2Go, Crashpadder, Legit.Co, WhipCar, Neighborrow, Airbnb, Uber, and Lending Club. Major reasons for failure or significant setback included lack of scale (inability to achieve a level of business activity to sustain a business model), unclear value proposition (the product did not compel customers to become repeat users), insufficient funding, lack of and shift in product focus and target market, regulation and government issues, lack of market readiness, lack of trust and engagement with their customer community, invalidated product offering (lacking a sufficient market for the product), and competition. Referring back to Greiner’s (1972, 1998) organizational life-cycle model, we may assume that not only did the collaborative company start-ups fail from a potential crisis in leadership in the first stage, but their founders and teams made other mistakes as well. For example, start- up founders and leaders may misread or overlook the need for their product or service at the input phase of the open-system model. They may also misjudge the effects that environ- mental forces can have on their start-ups: namely, regulation, customer demand, and suf- ficient resources (funding). Moreover, not having a clear vision and business model is also a detriment. All of these issues may arise during the first phase of a start-up’s existence. Perhaps these fail – ings also contribute to the fact that more than 100,000 U.S. nonprofit groups will fail by 2017. Even a few large recognizable nonprofits that succeed do not account for large numbers in this area, despite about 1.4 million nonprofit organizations that are registered with the Inter – nal Revenue Service and that do account for 5.2% of GDP with 8.3% of wages and salaries paid in the United States (Alliance Trends, 2015). Check Your Understanding 1. Briefly explain why is it important to understand where an organization is in its life cycle and how it can be helpful in diagnosing and planning an organizational change. 2. What lessons can be learned about today’s Apple (and its products) by understanding its past life-cycle history? 3. Using the life-cycle approach, determine what type of leader would make the ideal successor for Cook at Apple. Explain your reasoning. wei82650_02_c02_057-102.indd 75 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Leadership Effectiveness Style Succession Strategy Global-International Co rporate Business/Functional Marketing, IT, Financial Culture Fit with environment Internal alignment Adjustment/Change Structure Enterprise Fu nctional Business process Global/International People Individual(s) Group/Team External stakeholders Sy stems Human Resources Financial/Accounting IT Pre senting Issues: Strategic, Tactical, Structural, Technological, Human, Legal, Values/Ethics, Political Markets, Competitiveness, Products/Services Effectiveness, Efficienc y, Pe rformance, Growth, Morale Type of Change Tr ansformational Tr ansitional De velopmental Level of Intervention Or ga nizational Team/Group Individual Section 2.3 Diagnosing What to Change 2.3 Diagnosing What to Change After identifying why change is needed within an organization, the questions turn to what, who, and what type of change is needed? In the previous section, we discussed models for diagnosing and assessing an organization’s present state, and where it “is” in its present state. Now we will turn our attention to diagnosing what needs to be changed. Assessment Model: Determining What Changes to Make Figure 2.4 shows three types of changes available to an organization, as well as levels of inter – vention, issues, and opportunities that trigger a change. Note that although this figure appears sequential on paper, the connecting arrows between the dimensions are multidirectional. Identifying what to change within an organization is not a mechanistic process but a messy, sometimes political, argumentative, but (hopefully) creative and productive one, so long as it is tempered by sound judgment. Figure 2.4: Diagnostic change issues, opportunities, and interventions When matching types of change interventions to organizational needs and issues, it is important to ask, “What types of changes are needed to produce optimal results in an organization’s internal systems?” Source: Adapted from Cummings, T. G., & Worley, C. G. (2015). Organization development & change (10th ed.). Stamford, CT: Cengage Learning, Chapter 5. Leadership Effectiveness Style Succession Strategy Global-International Co rporate Business/Functional Marketing, IT, Financial Culture Fit with environment Internal alignment Adjustment/Change Structure Enterprise Fu nctional Business process Global/International People Individual(s) Group/Team External stakeholders Sy stems Human Resources Financial/Accounting IT Pre senting Issues: Strategic, Tactical, Structural, Technological, Human, Legal, Values/Ethics, Political Markets, Competitiveness, Products/Services Effectiveness, Efficienc y, Pe rformance, Growth, Morale Type of Change Tr ansformational Tr ansitional De velopmental Level of Intervention Or ga nizational Team/Group Individual wei82650_02_c02_057-102.indd 76 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.3 Diagnosing What to Change Depending on what needs to be changed, different types of change can be used. We discussed three types of change in Chapter 1: developmental, transitional, and transformational. These changes are also referred to as first- and second-order changes. First-order ( adaptive) changes are incremental, small-scale, fine-tuning, and developmental. These changes involve adjustments to systems, processes, and structures rather than fundamental or radical changes to strategy, core values, or identity (Newman, 2002). Examples include installing a new soft – ware application in a department, revising procedures for a purchasing system, and revising a training system for business users on a new IT system. The level of intervention in Figure 2.4 may be departmental, divisional, by team, by group, or by number of individuals. Second-order (discontinuous) changes are radical, transformational, and sometimes tran – sitional in nature and involve the entire organization or different units (Bate, 1994). Such changes are also called “frame bending” and may be done with a big bang, as illustrated ear- lier by HP’s move to divide the company into two separate entities. Many change management texts focus on transformational rather than transitional and devel – opmental changes. Frohman (1997), however, argued that small-scale organizational changes that involve personal initiatives deserve more attention. Frohman emphasized the importance of people to organizations, especially people who initiate and bring about local organizational changes by exceeding their job responsibilities, striving to make a difference, being action oriented, and focusing on results. These people are known by staff members in their organi – zation but are less recognized by managers and higher-ups (Palmer, Dunford, & Akin, 2009). Individuals may trigger the need for a radical change, as was shown by Mohamed Bouazizi, a 26-year-old Tunisian street vendor who in 2011 took his life by burning himself in protest of a stodgy government bureaucracy that negatively affected his livelihood (Fahim, 2011; Ryan, 2011). The incident set off the Arab Spring, a wave of demonstrations, protests, and riots that ushered in frame bending changes in the Tunisian government and across the Middle East. However, although individuals like Bouazizi can be catalysts for change, it is still institutions and organizations—in this example, governments, military, and legislatures—that must fol- low through to implement and institutionalize changes. There are three levels of intervention—that is, planned actions to enhance an organization’s effectiveness that focus on the organization, group, or individual, shown in Figure 2.4. This is an important decision that could be wasteful and costly if misjudged. Zappos CEO Hsieh decided to make a complete structural and systems change by removing most of the formal management positions. This change decision was made by the leader, Hsieh himself, with the assumed intent of keeping a dynamic culture alive among employees, their peers, and groups in order to drive the hypercompetitive growth strategy of staying close to customers. Presenting issues are problems and opportunities that are believed, perceived, and/or argued to be of primary importance for requiring a planned change. Several classifications of issues that organizational leaders use to identify and justify changes are listed in Figure 2.4. For example, suppose a university is performing well with the exception of decreasing enrollments in its graduate degree programs. This becomes the presenting issue. At first, administrators may attribute the issue to increased regional and local competition. Closer scrutiny by a consultant and other staff members shows that the programs are not as attrac – tive or marketable as competitors’ offerings. Further analysis reveals that those responsible wei82650_02_c02_057-102.indd 77 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.3 Diagnosing What to Change for selecting and planning the courses were not knowledgeable about competitors’ programs. Also, there did not seem to be a compelling strategy or sufficient online marketing to promote the programs. The presenting problems, or what needs to change, then shift from focusing only on competition to analyzing each program’s strategy, marketing, and people responsible for selecting program content. Larger, transformative organizational changes may involve an entire organization, as is the case in many of the chapter’s examples. A question arises: How many of these large enterprise trans- formations are successful? As indicated earlier, 1 out of 3 transformations succeeds (Aiken & Keller, 2009; James, 2012). Although there is an abundance of theories, anecdotal conjecture, as well as some substantial evidence to explain this failure rate, it can be argued that the presenting issues of leaders whose rationales are not supported by evidence may also be a contributing fac – tor. Again, taking a big-picture systems view of planned organizational change requires system – atically diagnosing the why, what, who, and how of presenting problems and desired opportunities. Diagnostic Trigger Questions: Identifying the Level(s) of Intervention Internal change teams and change spe- cialists can use trigger questions to pinpoint specific change targets and interrelationships with and between leadership, strategy, structure, culture, people, and systems. The questions shown in Figure 2.5 are simple and straightforward. They serve as a first step for further investigation, planning, and decision making to identify what and who to change. In conjunction with the previous diagnostic approach, Fig – ure 2.5 provides a simplified view of what needs to change. For example, Atlassian, an Australian software company founded in 2002 with more than 1,100 employees, was organized into teams. Using a “best HR practices” performance review, employees reviewed their own and peers’ performance twice a year using a five-point scale in a 360-degree perfor – mance review—similar to Google’s and Salesforce’s. This system determined employee bonuses (Luijke, 2011). The Individual(s)? Competency? Leadership? Group/Team? Inter group? Development? Competitiveness? Performance? Entire sys tem? System and environment? Satisfaction? Tr igger Questions Wher e’s the pain (tension) in the system? How related is the subsyste m experiencing the problem with other parts of the organization? How high up and how fa r down the organization does the pain exist? Who (which system) is re ady for change? Locus of the P roblem : Where to Start? Figure 2.5: The focus of organizational change These questions help identify and diagnose who and what part of an organization needs to change, and why. Source: Adapted from Cohen, A., Fink, S., Gadon, H., & Willits, R., with Josefowitz, N. (1992). Behavior in organizations (5th ed.). Boston: Irwin, pp. 424–426. Individual(s)? Competency? Leadership? Group/Team? Intergroup? Development? Competitiveness? Performance? Entire sys tem? System and environment? Satisfaction? Tr igger Questions Wher e’s the pain (tension) in the system? How related is the subsyste m experiencing the problem with other parts of the organization? How high up and how fa r down the organization does the pain exist? Who (which system) is re ady for change? Locus of the P roblem : Where to Start? wei82650_02_c02_057-102.indd 78 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.4 How to Change Transformationally Using the Appreciative Inquiry Approach trigger question—“Where’s the pain, tension, in the system?”—became obvious: The model was not working as planned. The lengthy reviews were demotivating employees and manag- ers instead of uplifting them. So, what needed to be changed, and how? The vice president (VP) of Talent & Culture worked with a team to analyze the traditional performance review model in detail. Employees were asked what made them perform at a higher level and what sections of the reviews worked. The VP and his team talked with other tech companies about their experiences. They found nothing on the market, including HR approaches, that matched what they wanted. They therefore created their own more lightweight performance review that included coach- ing and focused on employees’ strengths and spending time on what they love to do. The new system also centered on motivation and recognition, including a “kudos model” in which coworkers can recognize great performance among each other without a manager’s approval. The new performance system was implemented. The result? Seventy-five percent of staff who showed outstanding performance were recognized by peers. Independent, internal staff sur- veys showed that 87% received extraordinarily high engagement scores. The company has been on a number of best employer lists and was named a best U.S. medium-sized company to work for. Check Your Understanding 1. Frohman (1997) argued that small-scale organizational changes that involve personal initiatives deserve more attention than transformational changes. Do you agree or disagree? Explain your reasoning. 2. Consider an organization you have worked for in the past. Describe a change this company may have needed based on your answers to each trigger question. 2.4 How to Change Transformationally Using the Appreciative Inquiry Approach Large-scale transformational change requires comprehensive planning approaches that both the organizational development and change management fields offer. The models in this chapter have thus far shown how to identify why a change is needed, where in an organiza – tion’s system the presenting issues are, and what needs to be changed. In this section, we present a model for further diagnosing how a change can be planned: the appreciative inquiry (AI) approach from Cooperrider and Whitney (1999). In the following section, we will present a second model, the OD action research model (also known as Kotter’s [1996] eight-step approach, which was discussed in Chapter 1.1). Note that the AI approach is used as a collaborative method. It is based on opportunity creation as well as problem resolution when there is sufficient time, supportive leadership, and willing fol – lowers, and a need to identify problems as opportunities for improvement. Kotter’s approach involves methods for planning and implementing change processes that address problems and issues requiring change. These models are based on different motivations and ways of wei82650_02_c02_057-102.indd 79 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.4 How to Change Transformationally Using the Appreciative Inquiry Approach thinking (philosophies) that serve different purposes at different times. One approach does not replace the other, nor is one approach superior. The eight-step approach and the AI approach are the two most popularly used multistep road maps (by all types of organizations). These approaches include leadership, a shared need, guidance, commitment, communication, empowerment, and ensuring that changes stick (Gilley, Gilley, & McMillan, 2009). Both approaches have been used for transitional changes that involve organizational divisions, departments, and business units of organizations. Examples of programs that result from transformational planning processes include merg- ers and acquisitions, restructuring, new leadership and management, cultural change, and crises requiring complete organizational turnarounds. Kotter’s model is more of a tradi- tional, top-down problem solving and opportunity-producing corporate process that has become a classic standard for corporate change planning. The AI approach centers on bot – tom-up opportunity-generating processes to identify the What and How elements of orga – nizational change. Unlike traditional problem-solving approaches, AI engages employees across the organization in creat- ing positive change that focuses on learning from success (Cooperrider, Whitney, & Stavros, 2003). As defined by Cooperrider and Whitney (1999), AI leads to discovering the best of what exists—such as the best in peo- ple, organizations, and the surround – ing world. It means asking questions and searching for what gives an effec – tive and capable system “life” so as to increase its positive potential. AI is commonly used in all types of organizations—profit, not-for-profit, governments, educational institutions, hospitals, and large private and pub – licly traded corporations around the world. It starts by asking, “What is possible? What do we wish to achieve?” The approach applies at any level: individual, group, department, division, or for the entire organization. At the organizational level, AI begins by involving a large group of individuals that includes leaders, employees, and members external to the organization (for example, customers, partners, suppliers), then moves across groups with designated individu – als in each group, recording main insights to be combined and analyzed. Figure 2.6 depicts the overall model. The process is explained from each of the four phases, or the four Ds: discovery, dream, design, and delivery. We will discuss the methods involved in each phase first before reviewing the approach in theory and practice. kaspiic/iStock/Thinkstock The AI method involves engaging employees from the bottom up and asking questions to diagnose and plan for change. Figure 2.6: Appreciative inquiry four Ds model The process of appreciative inquiry is explained using the four Ds: discovery, dream, design, and delivery. Source: Based on Cooperrider, D. & Whitney, D. (1999). Appreciative inquiry: A positive revolution in change. Fig. 1, p. 249. In P. Holman & T. Devane (Eds.), The change handbook: Group methods for shaping the future. Copyright © 1999 by Peggy Holman and Tom Devane. Berrett-Koehler Publishers, Inc. Disco very Appreciating that which gives life Dream Envisioning impact Topic of inquir y, change Delivery Sustaining the change Design Co-constructingthe future wei82650_02_c02_057-102.indd 80 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Discovery Appreciating that which gives life Dream Envisioning impact Topic of inquir y, change Delivery Sustaining the change Design Co-constructingthe future Section 2.4 How to Change Transformationally Using the Appreciative Inquiry Approach thinking (philosophies) that serve different purposes at different times. One approach does not replace the other, nor is one approach superior. The eight-step approach and the AI approach are the two most popularly used multistep road maps (by all types of organizations). These approaches include leadership, a shared need, guidance, commitment, communication, empowerment, and ensuring that changes stick (Gilley, Gilley, & McMillan, 2009). Both approaches have been used for transitional changes that involve organizational divisions, departments, and business units of organizations. Examples of programs that result from transformational planning processes include merg – ers and acquisitions, restructuring, new leadership and management, cultural change, and crises requiring complete organizational turnarounds. Kotter’s model is more of a tradi- tional, top-down problem solving and opportunity-producing corporate process that has become a classic standard for corporate change planning. The AI approach centers on bot – tom-up opportunity-generating processes to identify the What and How elements of orga – nizational change. Unlike traditional problem-solving approaches, AI engages employees across the organization in creat- ing positive change that focuses on learning from success (Cooperrider, Whitney, & Stavros, 2003). As defined by Cooperrider and Whitney (1999), AI leads to discovering the best of what exists—such as the best in peo- ple, organizations, and the surround – ing world. It means asking questions and searching for what gives an effec – tive and capable system “life” so as to increase its positive potential. AI is commonly used in all types of organizations—profit, not-for-profit, governments, educational institutions, hospitals, and large private and pub – licly traded corporations around the world. It starts by asking, “What is possible? What do we wish to achieve?” The approach applies at any level: individual, group, department, division, or for the entire organization. At the organizational level, AI begins by involving a large group of individuals that includes leaders, employees, and members external to the organization (for example, customers, partners, suppliers), then moves across groups with designated individu – als in each group, recording main insights to be combined and analyzed. Figure 2.6 depicts the overall model. The process is explained from each of the four phases, or the four Ds: discovery, dream, design, and delivery. We will discuss the methods involved in each phase first before reviewing the approach in theory and practice. kaspiic/iStock/Thinkstock The AI method involves engaging employees from the bottom up and asking questions to diagnose and plan for change. Figure 2.6: Appreciative inquiry four Ds model The process of appreciative inquiry is explained using the four Ds: discovery, dream, design, and delivery. Source: Based on Cooperrider, D. & Whitney, D. (1999). Appreciative inquiry: A positive revolution in change. Fig. 1, p. 249. In P. Holman & T. Devane (Eds.), The change handbook: Group methods for shaping the future. Copyright © 1999 by Peggy Holman and Tom Devane. Berrett-Koehler Publishers, Inc. Disco very Appreciating that which gives life Dream Envisioning impact Topic of inquir y, change Delivery Sustaining the change Design Co-constructingthe future Discovery Phase The discovery phase mobilizes a systemic inquiry into the positive change core (Cooperrider & Whitney, 1999). Each individual in each group (8 to 12 people) is interviewed and interviews others on the selected topic or question of positive inquiry that is grounded in the best of what exists. Topic selection starts the process. It requires searching for positive statements of what is desired by the organization. The topic represents what the organization wants to discover and/or learn and what will evoke dialogue about a desired future, or what people want to see develop in their organization (Stevenson, 2014). Examples of topical questions with regard to attorney/employee satisfaction in law firms include: “What situations or circumstances created your loyalty to this firm? Describe a situation in which you felt that you received exceptional mentoring. How are you best mentored?” The results of the discussions and reflections are recorded and serve as a resource during the next phase. Dream Phase In the dream phase , participants envision the organization’s greatest potential for positive influence and impact on the world. Participants share dreams through stories, recollections, wei82650_02_c02_057-102.indd 81 12/16/15 12:04 PM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.4 How to Change Transformationally Using the Appreciative Inquiry Approach and reflections collected during the interviews. The intent during this phase is to energize the participants and their insights through a mutually shared learning process. Possibilities and new ideas emerge about the topic as participants are encouraged to dream big. Design Phase During the design phase, each individual and the group as a whole begins to design an organi- zation to enact positive change. The design phase involves creating a provocative proposition, which bridges the best of “what is” in the organization’s present state toward a speculative “what might be” future state. This idea is provocative in the sense that it extends beyond the current status quo by challenging common assumptions or routines and suggests a realistic, desirable future for the company and its employees (Cooperrider, 2002). This phase creates a platform for developing the idealized state derived from the first two phases of the process. Actual organizational dimensions are discussed with concrete char – acterizations in terms of the leadership, culture, strategy, shared values, business practices, social responsibility, competencies, stakeholder relations, and desired results in financial, diversity, or other areas (Stevenson, n.d.). Destiny Phase Finally, the destiny phase involves an invitation to action inspired from the other phases. Dur – ing this phase, groups publicly declare intended actions and ask for support to consider next steps. Self-selected groups are organized to move the organization forward. The AI Approach Put Into Practice A case presented in the Harvard Management Update provides a good representation of the strengths of AI, as general manager John Cwiklik of the Santa Ana Star Casino in Barnanillo, New Mexico, used this approach to financially turn the entire organization around. The establish- ment opened in 1993 and had the largest market share in the region until competition arrived. Even with a $60 million facility expansion, the casino was ranked in fourth place (Kinni, 2003). Problems appeared in the form of poor customer service and a lack of employee attention and engagement with customers—few people smiled or talked. Cwiklik stated that employees felt that management did not care about them or wish to speak to them (Kinni, 2003). Cwiklik engaged the entire 820-member staff in an AI consultation focused on delivering a superior service experience to customers. However, when the casino was pressured to lay off 250 employ – ees in October 2002, many developed a mind-set that the AI effort played an unexpectedly helpful role. Cwiklik stated, “We had to do it to save the business but we wanted to do it in an appreciative way” (as cited in Kinni, 2003, p. 1). In an effort to use best practices, the casino achieved its goals and gave a generous severance and outplacement package to permanent employees. Cwiklik again turned to AI consultants in December 2002 and January 2003, with the aim of repositioning the business as “the hometown casino” to bring in local customers. He stated, “We did an AI in our table-games department and in our slots department. We asked employees wei82650_02_c02_057-102.indd 82 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.5 How to Change Using Action Research how to become this new hometown casino, and we took their ideas and implemented them in our marketing and operations” (as cited in Kinni, 2003, p. 1). One result, Cwiklik noted, was a $10 million turnaround in operating profits in fiscal year 2003. He stated, “AI has been instru- mental in making our numbers a lot better” (as cited in Kinni, 2003, p. 1). Effectiveness and Questions About the Approach Case studies, anecdotal evidence, and testimony demonstrate that as a transformational change method, AI has been successful at the individual, group, community, corporation, and national levels (Browne & Jain, 2002; Cooperrider, Whitney, & Stavros, 2008; Kelm, 2005). Still, some scholars argue for more empirical, longitudinal, and comparative studies to address such questions as: How long lasting are the effects of an AI consultancy? Does this method fit within a particular cultural or managerial orientation; that is, could the failure of an AI project be attributed to a certain consultative style, facilitator skills, or cultural context? Also, under what conditions would this method be considered an effective change process (Bushe, 2010, 2011)? These unanswered questions are reasonable and can be applied to any and all change methods. In the meantime, AI remains a respected and major change approach. Check Your Understanding 1. Briefly summarize AI and explain the ways it differs from Kotter’s approach to organizational change. 2. If you were to help plan and implement a sizable organizational change with a team, would you prefer Kotter’s (eight-step) or Cooperrider’s (AI) approach? Explain your reasons. 2.5 How to Change Using Action Research The best change strategies and plans can be compromised if the human factor is neglected. Ultimately, regardless of what diagnostic model is employed or what strategy for change is put into place, it is people who directly enact the change, and it is people who are directly affected. Not to account for such a critical factor in all phases of the change process is to greatly imperil the strategy as a whole. The following story is based on actual events and illustrates what can happen when an organization’s personnel are neglected in the change process. An organization asked its operations and IT departments to select a strategy to implement what they felt would best save costs. The departments decided to consolidate the use of printers: They would remove all personal printers and install conveniently located net- worked printers that employees could connect to wirelessly. This strategy was estimated to save the company $3 million annually. Leadership agreed to the plan, the printers were purchased, and employees were told about the new system and how they would benefit. A few weeks after the networked printers were installed, IT began removing personal printers from offices, which was met by much resistance. Employees objected to the new setup, com – plaining that they were not asked about the change and that confidential documents would be unprotected—despite the fact that the printers were only feet away from the employees. The resistance compelled the leadership team to revise the plan and instead gradually implement the changes over 2 years, significantly decreasing the projected savings. wei82650_02_c02_057-102.indd 83 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Identify the problem or opportunity Consult with OD/ Change Management Expert Collect data Fo rm ulate preliminary diagnosis Present feedback to client Jointly diagnose problem/oppor tunity/ fi ndings with client Plan action steps jointly Implement Collect data post implementation Section 2.5 How to Change Using Action Research Now that we have seen what can happen when the human factor is ignored in a change strategy, we turn to an action research model that presents a classic OD process. This useful teaching and learning method puts individuals in the driver’s seat if the change management team asks them to participate from the start. The action research model provides a step-by-step approach for identifying the problem or opportunity, researching and diagnosing the targets for change, and presenting the diagnosis in a plan to the client (a CEO, HR executive, or change team). This is a common process that can be used by an internal team, consultant, or student intern working with a change team. The action research model, shown in Figure 2.7, has been described as the dominant methodological logic and basis for planned change (Cummings & Worley, 2015). It was originally adapted to an applied OD context by Frohman, Sashkin, and Kavanagh (1976); Shein (2004); and Cummings and Worley (2001). This approach is designed to pro – vide objective information and anal – ysis that goes beyond the superfi – cial level of presenting issues. The model’s straightforward process is presented from the perspective of an external consultant. In practice, the change specialists are consid – ered “colearners” vis-à-vis the orga – nizational members with whom they are working. They are equal partners in the process, so neither party is dominant and tasks are shared (Cummings & Worley, 2001). Both bring different and important expertise and perspectives. The consultative, problem, and/or opportunity search process shown in Figure 2.7 illustrates how poten – tial sources of organizational prob- lems and opportunities are dis- covered from structured steps. As noted with other figures in this text, the actual change cycle is rarely as linear as this model suggests. There are usually continuous feedback loops (informal and formal) as con – tingencies, mishaps, and changes in the environment and the organiza – tion occur. Figure 2.7: The action research model The action research model provides a step-by-step process that OD and change management consultants can use when working with a change team. Source: Adapted from Cummings, T. G., & Worley, C. G. (2001). Organization development & change. Cincinnati: South-Western College, Fig. 2.1, p. 19. Copyright © 2001 by South-Western College Publishing, a division of Thomson Learning. Identify the problem or opportunity Consult with OD/ Change Management Expert Collect data Fo rm ulate preliminary diagnosis Present feedback to client Jointly diagnose problem/oppor tunity/ fi ndings with client Plan action steps jointly Implement Collect data post implementation wei82650_02_c02_057-102.indd 84 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.5 How to Change Using Action Research Identify the Problem or Opportunity The initial phase begins when a CEO or other top-level member of the executive team dis- covers a problem or realizes a potential opportunity that needs to be solved. Consider the following example: Kevin Rollins, former president and CEO of Dell, said his company was always “scouring for anything that could come up and bite us. In fact, we asked ourselves all the time, ‘What is our greatest fear?’ Whenever we find something, we try to figure out how we can embrace it” (as cited in Fishburne, 1999, para. 10). Jack Welch, former GE CEO, would talk to his managers about the industry and advise them to understand their competi- tors. They would then explore what they could to do to “change the game” (Fulmer, Gibbs, & Goldsmith, 2000). Consult With the Client—Initial Meeting The initial consultation between the change consultant and the client involves a mutual assessment of purpose, roles, and relationships. The client is generally interested in the con- sultant’s experience, expertise, methods, and fees. The consultant is likewise interested in the client’s methods, as well as the organization’s culture and goals. Culture and other assumptions should be clarified, including those of the consultant. For example, in international settings it is important to understand what roles, information, and level of involvement lower and midlevel employees can play in problem identification, diag – nosis, and other phases of the process. In some countries (for example, in Asia and the Middle East), relationships and power are more hierarchical than they are in the West. OD consul – tants whose values, perceptions, and practices view employees as partners and colearners in certain international or even local cultures could encounter problems. Value differences can also vary in both international and national cultural contexts. Some consultants view their role as identifying and solving problems, whereas top management may disagree. What happens when a consultant discovers systematic sexual harassment while diagnosing an inventory system? This problem is reported to management who may be uninterested, or even ask the consultant to avoid the issue. Communicating a clear understanding between the consultant and the client with regard to work and professional values and operating ethical principles and practices is important before and at the con – tracting phase. Another role-and-method question to be clarified at this phase is how proactive the consul – tant should be in the engagement. It is best to obtain this type of information and under – standing at the contractual phase where the consultant asks for clarification on cultural “do’s and don’ts” that extend from strategic to procedural decisions and ways of doing (or not doing) things. Collect Data As noted previously, the presenting issue or opportunity needs to be verified. The consultant and his or her team gain access and, depending on the problem or opportunity, begin the search and collection process using interviews, observation (in meetings, business processes, wei82650_02_c02_057-102.indd 85 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.5 How to Change Using Action Research transactions), questionnaires and surveys, performance reports, financial data, and other information relevant to the consultant’s search plan. This phase is usually an iterative process; that is, members of the consulting team may return for additional information to obtain a longitudinal set of observations rather than one-shot looks or interviews. Consultants may also interview customers, vendors, suppliers, and other external stakeholders relevant to the search. At this stage, confidentiality and privacy (as well as other ethical issues) must be strictly clarified, agreed on, and observed. For instance, how will the information be used? How will it be interpreted, protected, and disseminated? Who can be unintentionally hurt by this information? Some of the same cultural issues already discussed also apply here. For example, Mack, Woodsong, MacQueen, and Namey (2005) discuss ethical guidelines for observing confiden- tiality and privacy during this phase of data collection. They state that consultants should be unobtrusive and avoid disrupting normal activity, but they should also be open, so that individuals being observed and interacted with do not feel their privacy is compromised. Consultants’ manner is often dependent on the situation: sometimes consultants should announce who they are and what their purpose is, while other times it may not be appropri – ate to do so. It is the OD consultant’s responsibility to protect the privacy and integrity of all individuals who participate in surveys, interviews, and discussions that relate to the data collection pro – cess. However, it is also the consultant’s responsibility to provide truthful information and results to the sponsor of the consultancy. Make a Preliminary Diagnosis This diagnosis follows data collection and interpretation. The preliminary diagnosis is just that—preliminary. Because the consultant is reporting the findings and interpretation back to the client, it is important to note that the diagnosis could change as more information is collected. Also, additional hypotheses and different views of the problem or opportunity may arise after initial data is collected. This raises the question of whether the consultant is simply a messenger who delivers what she or he is told, or is a more active and inquiring participant. The consultant may have started with an initial request to find data that confirms top man – agement’s interpretation of a problem. However, he or she could later discover information that disproves management’s problem identification. This phase should anticipate how to present and discuss what happens if the consultant discovers another, radically different set of problems. In such a case, it is key to be honest and tactful. Feedback serves two purposes: to ensure the results are validly interpreted and to increase ownership among the members of the organization (McLean, 2006). For example, suppose a manager hires a consultant to prove that members of a sales team are lazy and not performing to their potential. However, the consultant has preliminary evidence indicating that the team’s leader is not setting an effective strategy. It is the consultant’s wei82650_02_c02_057-102.indd 86 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.5 How to Change Using Action Research obligation to report this evidence, even though it is contrary to what the hiring manager asserted. If preliminary results differ or even conflict with later discoveries, consultants can offer context and explain their findings. Again, the goal is to report what actually happened or is happening in order to find the root cause(s) of problems, issues, and possibilities for opportunities. Present Feedback to the Client This is also a preliminary phase in which the consultant presents an analysis of the data. Dur- ing this initial “show and tell,” no recommendations are made. This meeting presents strengths and weaknesses and confirms, disconfirms, or even extends the initial problem identification or opportunity statement. This meeting also provides the consultant with ini – tial impressions regarding the findings before the next step. During this phase, a consultant’s obli- gation is to report and emphasize findings and recommendations based on reliable evidence. Returning to the sales leader and team example, at this meeting, the consultant presents the evidence, data, and interpreta – tions showing that the sales leader could not articulate a strategy that motivated and effectively organized the team to meet or exceed its sales objectives. The consultant would also explain the methods used to discover and confirm this finding, and offer recommendations to address the problem. Jointly Diagnose Problem/ Opportunity/Findings With the Client This step in the process offers the consultant an opportunity to share the preliminary find – ings, the methods used in the diagnosis, and the diagnosis itself. If the consultant develops a common frame of reference in which the client can collaboratively discuss, share, argue, and ultimately reach agreement on the methods, problem/opportunity, and ways to proceed, the process can continue and the action research method can, to this point, be considered effec – tive (Schein, 1969). Involving clients as coparticipant observers in a consulting project, as discussed earlier in this section, facilitates reporting findings and diagnosing problems and opportunities. The Digital Vision/Photodisc/Thinkstock A critical aspect of a change specialist’s job is to pro- vide timely, comprehensive, and objective feedback to the client. wei82650_02_c02_057-102.indd 87 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.5 How to Change Using Action Research consultant from the sales team example can provide a framework to involve the hiring man- ager and/or staff members to also examine the evidence and help diagnose the team and leader’s issues. Instigate Joint Action Steps The consultant now directly involves the client in planning how to implement the change management process in order to reach the “desired state” of the initiative. The design of the interventions to be used is also agreed on in this phase, along with an assessment of the organization’s readiness, capabilities, resources, budget, risks, timelines, and responsibility chart (who does what, when, and how). Enterprise- or organization-wide change requires a communication rollout plan involving the organization’s leaders and its top-level manage – ment team. After the hiring manager and the consultant discover, verify, and agree that the leader of the sales team has a difficult time identifying and implementing an effective team strategy, the manager and consultant draw up a plan together to help the leader design and enact a sales strategy. The manager and consultant may have also found that leaders of other sales teams could also benefit from learning how to use new software to develop a more sophisticated sales strategy. In effect, the plan involved a much broader scale and scope of participants, and the president of the company as well as the hiring manager and vice president of sales were all involved in planning the new training, because the anticipated benefits would enhance revenues and reduce costs for the entire company. Implement Change This phase means “go.” It involves actually transitioning procedures, structures, work, jobs, technologies, and people into place. New behaviors and practices may require training, coach – ing, and advising to build new skills and reinforce desired behaviors. At this phase, interven – tions are required at the individual, team, business unit, division, and entire enterprise levels. In the sales team example, an implementation plan involved not only training to use new software, but also new reporting procedures, skills, and behaviors that affected all sales team members’ overall effectiveness. Managing Change The Change Consultant’s Role Suppose a large corporation utilizes an office services support company. The company has served the corporation’s needs in-house for 5 years, performing maintenance duties, cleaning, shipping/receiving, printing, mail delivery, and service to copiers. The manager of (continued) wei82650_02_c02_057-102.indd 88 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.5 How to Change Using Action Research Collect Postimplementation Data Collecting postimplementation data requires gathering further information from individuals, teams, business units, divisions, and top management—as well as from external stakeholders (vendors, suppliers, customers, and government agencies)—to ensure the effectiveness of the changes, both from an internal systems perspective and from an external view. Feedback from multiple departments helps identify whether the systems changes are aligned and their effectiveness. This information is then given to different client teams and individuals who evaluate the results and make adjustments as needed. In some cases, of course, additional diagnoses are required. Diagnostic Change Tactics: Identifying the Level(s) of Intervention Identifying the level of intervention, referred to in Figure 2.4, occurs during the action research process when an external consultant working with assigned organizational managers and members follows evidence leading them to specifics such as leadership, strategy, structure, culture, people, and systems, or interrelations among these dimensions. In addition to these organizational dimensions, the change components illustrated in Figure 2.5 are useful and more basic. the services company has a direct liaison in the corporation’s operations department, and the working relationship has been strong thus far. In recent months the number of complaints from employees has risen, regarding everything from cleanliness to printer outages. There have been equipment problems and the level of service requests has increased to a level that is challenging for the number of staff on duty at a given time. You are a change consultant brought in by the corporation to work with both the operations representative and the service company manager to systematically diagnose and implement needed changes. Discussion Questions 1. What phase of growth do you think this office services company falls into, and what type of leadership is needed to return to positive progress? 2. What type of change do you think is needed, in general? 3. As the change consultant, using the action research model, describe the process for diagnosing change in this circumstance. (See the end of the chapter for possible answers.) Managing Change (continued) wei82650_02_c02_057-102.indd 89 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.6 Why People Resist Change For example, after Jobs was fired from Apple, the locus of many of the company’s problems became obvious. The leadership styles of CEOs Sculley, Spindler, and Amelio were lack- ing. Because Apple was essentially a product company, without Jobs’s creative and innova – tive leadership, new products were not invented. Consequently, there was confusion and decline in the company’s strategy, structure, culture, and systems. Employee morale also suffered during that period. Revenues and profits tumbled while expenses mounted. Apple’s story before Jobs returned illustrates how the formal and informal components of an organization’s interconnected and interrelated systems and subsystems can work together unsuccessfully. Formal components generally include organizational strategies, structures, systems, and business processes. Informal organizational dimensions include culture, lead – ership styles, politics, groups, and team relationships. Both formal and informal systems are interwoven with the values, beliefs, and attitudes that employees bring to and adapt from their workplaces (Senior & Fleming, 2006b). When these systems and attitudes are not work – ing in harmony, change becomes imperative. Check Your Understanding 1. Explain the importance of including the human factor when planning and implementing a change strategy. 2. Describe each step in the action research model. 2.6 Why People Resist Change Ten reasons people resist organizational change are loss of control, loss of face, excess uncertainty, sudden surprise, everything seems different, fear of incompetence, increased workload, ripple effects, previous resentments remembered, and the hurt of change (Kanter, 2012). Significant organizational changes can cause emotional pain and hurt, especially when jobs are lost, perks are cut, salaries are lowered, and favorite customers and accounts are threatened, if not lost. Kanter (2012) suggests that although lead – ers may not be able to help those in pain feel comfortable, they can mini – mize discomfort by identifying each source of resistance in order to take the first step toward solutions. Even the process of asking for feedback from resistors can begin the process of accepting changes. Change—especially if sudden and without disclosure—can create a great deal of uncertainty and sur- prise, and threaten employees’ sense of competence. Not being able to prepare for such jolts can be discon – certing. Employee reactions initially ajkkafe/iStock/Thinkstock Change introduced without warning or adequate preparation can create uncertainty and resentment among employees. wei82650_02_c02_057-102.indd 90 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.6 Why People Resist Change include shock, then resentment and inertia. Leaders can help by creating structure and cer- tainty in schedules, processes, and other controllable tasks that are accompanied by simple, step-by-step instructions. It is also helpful to provide information, education, and training to employees who need support if they are assigned new tasks using different technologies. Such support can alleviate a loss of confidence in those who feel overwhelmed. Employees who are suddenly faced with increased work will also feel overwhelmed, more anxious, and resistant to the change. To diminish negative reactions and resistance toward the company and the change, provide time and opportunity for them to focus on the new tasks and reward them with perks, such as recognition for their efforts, parking privileges, and meals. Loss of face is another consequence for those who played a large role in or were associated with an organization’s practices and culture. With the loss of value of things past, those who were connected with that past might feel defensive or even to blame. According to Kanter (2012), leaders can help those affected maintain their dignity by honoring what worked and was val- ued while acknowledging the new changes for different times. Those affected may find it easier to let go and move on. Also, leaders can show empathy and provide guidance to help employees affected by change heal the past before assuming new roles and responsibilities. Sometimes it can help to simply acknowledge those who experience pain and show them respect. Resistance to the change can also have ripple effects—that is, those negatively affected can reach out to others in different parts of the organization, and even outside the organization, such as valued customers and neighbors. Leaders should consider enlarging their communi- cation with and attention to people affected by the change to minimize rumors and negative misinformation. Because most large-scale changes fail, resistance can be expected. If change is not led or man – aged competently, why wouldn’t people resist? We explore additional reasons for resistance and suggest some assessment and planning methods that detect, and can thus better prevent, resistance. However, if particular changes are not accurately or well-defined, led, and man – aged, resistance may be a legitimate response. What is your tolerance for change? To find out, please take Assessment 2.1. Assessment 2.1: Thinking About Change Instructions: Indicate whether you agree or disagree with the following statements. Mark your answers in the space provided. 1 = Strongly Disagree; 2 = Slightly Disagree; 3 = Neither Agree nor Disagree; 4 = Slightly Agree; 5 = Strongly Agree ___1. I look forward to changes at work. ___2. I usually resist new ideas. ___3. I am inclined to try new ideas. (continued) wei82650_02_c02_057-102.indd 91 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.6 Why People Resist Change Organizational inertia (the tendency of organizations to maintain the status quo) is a major rea – son people resist change. If inertia is strong and widespread in an organization’s culture, resistance to change can threaten the organization’s survival (Carr, Hard, & Trahant, 1996). Most people do not like to change unless it is to their personal benefit. Resistance to change is not only found at the individual level; it can also be identified at the group and organizational levels as well. At the organizational level, resistance is often part of having to give up bureaucratic command- and-control practices. Hierarchical structures also bring power and status, as well as control, to those in positions of authority. Leaner and more open organizational arrangements (for example, organic structures) have fewer “bosses,” rules, and procedures. There is less inertia. At the group or team level, resistance is found in cultural dynamics: values, norms, attitudes, and practices. Groups grow comfortable with routines and people they know and with whom Assessment 2.1: Thinking About Change ( continued) ___4. Change usually benefits organizations. ___5. I usually support new ideas. ___6. Most of my coworkers benefit from change. ___7. I don’t like change. ___8. Change frustrates me. ___9. Changes tend to stimulate me. ___10. Most changes at work are irritating. ___11. I often suggest new approaches to things. ___12. Change often helps me perform better. ___13. I intend to do whatever possible to support change. ___14. Other people think that I support change. ___15. I usually hesitate to try new ideas. ___16. Change usually helps improve unsatisfactory situations at work. ___17. I find most changes to be pleasing. ___18. I usually benefit from change. Scoring: Add your answers to questions 4, 6, 12, 14, 16, and 18, and then divide by 6. This is your “belief and opinion about change” score. Next, add your answers to questions 1, 7, 8, 9, 10, and 17, and divide by 6. This score reflects how “change makes you feel.” Now, add your answers to questions 2, 3, 5, 11, 13, and 15, and divide by 6. This score reflects how “change makes you want to act (behave).” A score of 4 and greater reflects a positive attitude toward change. A score of 2 and less reflects an attitude that is negative and potentially resistant to change. Source: Dunham, R. B., Grube, J. A., Gardner, D. G., Pierce, J. L., & Cummings, L. L. (1989, August). The development of an attitude towards change instrument. Annual Meeting of the Academy of Management, Washington, D.C. Reprinted with permission. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.194.9511&rep=rep1&t ype=pdf wei82650_02_c02_057-102.indd 92 12/22/15 10:15 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.6 Why People Resist Change they are comfortable. Also, groups that are risk averse generally resist change. Moving from known to unknown states can be risky. At the individual level, people experience any or all of three basic fears: failure, loss of the familiar, and fear of the unknown. Individuals resist change for both rational (self-interest) and psychological reasons. Those who resist change due to self-interests may also experience the three basic fears. When all three fears are experienced together, individuals may develop sig- nificant stress (Klein, 1984). Other common sources of individual resistance to change include: • Threat to one’s expertise • Threat to one’s resources • Threat to one’s status • Authoritarian attitudes • Fear of losing something of value • Lack of trust in the change initiators • Disagreement with the change • Cynicism (Robbins, 2001, p. 547) The opposite of each of these sources suggests an individual’s or group’s inclination to sup – port change in general. For example, having confidence in and satisfaction with one’s exper – tise, resources, and status, in addition to trusting an organization’s leaders, would suggest openness to change. OD change agents have the skills to analyze and help organizational lead- ers, individuals, and groups understand and, in many instances, overcome their sources of resistance to organizational changes. Addressing Resistance to Change The best approach to addressing resistance to change is competent direction, planning, and preparation for the change. Ultimately, the CEO and executive team members are responsible for planning and preparing employees and key external stakeholders and partners for the change. In addition to the frameworks, approaches, and intervention assessment methods discussed in this chapter, ways to address and deal with change are presented. Coaching individuals and teams can help overcome resistance and resentment to organiza- tional change. Organizational managers and OD consultants typically assist employees and teams in the following ways: • Let people know they have a choice. • Listen to employees’ ambivalence and reinforce their motivation (employees do not need total commitment to the change to start to embrace it). • Listen to employees’ concerns and involve them in the design and implementation of plans (when employees make choices, they are motivated). • Involve employees in the action of the new changes. • Train employees in new desired behaviors to prevent slippage to old behaviors. • Provide information and solicit top management support in continuing to provide training, especially to those who begin to “relapse” to old attitudes (HR Focus, 2002). It is important for leaders to be involved and to show visible and convincing support before and during the planning stage. Leaders need to be honest and authentic when communicating wei82650_02_c02_057-102.indd 93 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 2.6 Why People Resist Change and repeating the vision and the change’s end state. Additionally, they and their managers can make the incentives and rewards for change more enticing to employees. Appointing com- petent, respected “change champions” who engage and involve key stakeholders and con – tributors throughout the organization can also gain support. These champions need to take a positive but concerned approach to dealing with issues and resistance. Their role is not cheerleading but helping, supporting, providing real-time information, and listening. Kotter and Schlesinger’s Change Approaches In addition to Lewin’s force-field analysis that addresses strategies for preventing resis – tance that was presented earlier, Kotter and Schlesinger (1979) created six approaches for dealing with change. These are illustrated in Table 2.2, along with the conditions for which each approach is suited and the advantages and disadvantages of each. Although Kotter and Schlesinger do not define resistance to change, they state that one major duty of managers is to execute change, which also involves overcoming opposition to it (Gravenhorst, Werkman, & Boonstra 2003; Kotter & Schlesinger, 1979). Table 2.2: Change approaches Approach Commonly used in situations AdvantagesDisadvantages Education and involvement When there is lack of information or inaccurate information and analysis. Once persuaded, people will often help with the implementa – tion of change. Can be very time-consuming if many people are involved. Participa – tion and involvement When the initiators do not have all the information they need to design the change and when others have considerable power to resist. People who participate will be committed to implementing change. Can be very time- consuming if partici- pants design an inappropriate change. Facilitation and support When people are resisting because of adjustment problems. No other approach works as well with adjustment problems.Can be time-consuming and still fail. Negotiation and agreement When someone or some group will clearly lose out in a change and when that group has considerable power to resist. Sometimes it is a rela – tively easy way to avoid major resistance. Can be too expensive in many cases if it alerts others to negotiate for compliance. Manipula – tion and co-optation When other tactics will not work or are too expensive. It can be a relatively quick and inexpensive solution to resistance problems.Can lead to future problems if people feel manipulated. Explicit and implicit coercion When speed is essential and the change initiators possess consid – erable power. It is speedy and can overcome any kind of resistance.Can be risky if people become upset with the initiators. Source: Reprinted by permission of Harvard Business Review, An exhibit from “Choosing Strategies for Change” by J. P. Kotter and L. A. Schlesinger (March/April 1979), Copyright © 1979 by the President and Fellows of Harvard College; all rights reserved. wei82650_02_c02_057-102.indd 94 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources The strategies in Table 2.2 range from the best, most desired approach for dealing with change—that is, education and communication—to the less desired but perhaps necessary approach, explicit and implicit coercion. It is important to note that this model helps provide options that relate to different situations. Manipulation and coercion may be necessary tac- tics to solicit employee involvement in a change when other tactics will not work or are too expensive; however, its downside is that future problems can surface if people feel manipu – lated. Relationships between the manipulators and the manipulated can be damaged in the process and cause other performance and trust problems down the road. It is also worth stating that manipulation, co-optation, and explicit and implicit coercion approaches may violate people’s rights if done in unethical and illegal ways or if anyone is actually harmed. Lawsuits and human relations problems can arise. Consequently, although such tactics may be necessary under certain difficult circumstances, they must be employed with the utmost caution and care. Check Your Understanding 1. List the 10 reasons people are resistant to change. Have you used any to resist change in your own life (in your career or academically)? Describe the situation and whether you were able to overcome your resistance. 2. What approach to overcoming resistance to change do you feel would be most effective? Explain your reasoning. Summary and Resources Chapter Summary This chapter lays the foundation for understanding how leaders and change specialists diagnose, assess, and plan for organizational change. Key questions of why, what, and how to change are organized through diagnostic models and methods, starting with the open- systems framework. Examples from businesses such as Zappos, HP, and other companies are featured. Several approaches presented here were introduced in Chapter 1, including a section that discussed the fit between organizations and their environments to explain how organiza- tions change to effectively fit with different external markets. The organizational life-cycle approach shows the different stages of development through which companies evolve and the types of leadership and structural changes required for growth at each stage. The AI approach illustrates how organizations can change by searching for the best of what exists in people, organizations, and the surrounding world. The action research model used by OD consultants is explained in a step-by-step approach that students of change manage – ment can learn and apply to any part of any organization. Finally, strategies and methods for learning how to handle resistance to changes in organizations, groups, and individuals across different situations is discussed, along with a force-field analysis that can be applied to any planning process. This chapter prepares the way for a discussion on how to imple- ment change. wei82650_02_c02_057-102.indd 95 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Posttest Questions 1. The author discusses the following dimensions related to diagnosing organizational change EXCEPT __________. a. how to change b. what and who to change c. how often to change d. why change 2. The primary reason to use an organizational change model is because it __________. a. is the only way to diagnose the need for change b. offers theoretical and practical ways to understand a complex process c. defines the truth about organizations and their common needs d. saves a lot of time compared to using a change consultant 3. Which change model studies an organization’s processes of input, throughput, and output? a. the environment-industry-organization contingency model b. the organizational life-cycle model c. the appreciative inquiry model d. the open-systems model 4. According to Greiner, a crisis of leadership most often occurs during the growth through __________ stage of the organizational life-cycle model. a. creativity b. delegation c. direction d. coordination 5. Glolites, a new company that sells light-emitting diode (LED) lamps online, learns that most customers want to examine the lamps in person. This discovery is a(n) __________ that may require a planned change. a. frame bending b. appreciative inquiry c. presenting issue d. level of intervention 6. Which of the following best represents a second-order change? a. hiring a different diversity trainer b. switching most assistants from PCs to laptops c. moving from a hierarchical to a manager-free structure d. printing all procedures and manuals in two languages 7. A manager explains to her employees a bottom-up approach that will empower them to dream, design, and implement changes to their new offices and workspaces. Which of the following methods does this approach most reflect? a. the Kotter eight-step model b. the appreciative inquiry model c. the open-systems framework d. the contingency framework 8. With which of the following statements would the author most likely agree? a. The appreciative inquiry model focuses on the problems an organization faces. b. The appreciative inquiry model focuses on the surrounding industry environment. c. The appreciative inquiry model focuses on how employees should improve their production. d. The appreciative inquiry model focuses on how employees add value to their organization. wei82650_02_c02_057-102.indd 96 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 9. During the initial meeting with the client organization, the change specialist in an action research model is interested in learning about all of the following EXCEPT __________. a. the organization’s culture b. possible value differences c. the organization’s goals d. interview and survey data 10. Which step in the action research model directly follows “present feedback to the client”? a. “diagnose findings with the client” b. “formulate a preliminary diagnosis” c. “jointly plan action strategies” d. “collect additional data to support a plan” 11. What does the author suggest is the best way to address resistance to change? a. Let employees know they have no choice in the matter. b. Plan competently and prepare employees in advance of the change. c. Be sure employees are totally committed to the change. d. Tell employees that their managers are equally unsure of change. 12. Carla, an information systems technician, hears a rumor that her company is going to reorganize. This change scares her, so she tells clients that the company’s service will undoubtedly decline. This type of resistance to change results in a(n) __________. a. ripple effect b. cut in perks c. expensive mistake d. increased workload Answers: 1 (c), 2 (b), 3 (d), 4 (a), 5 (c), 6 (c), 7 (b), 8 (d), 9 (d), 10 (a), 11 (b), 12 (a) Learning Objectives Recap 1. Organizational diagnosis of change is the process of understanding why, what, and how an organization needs to change, if it does. The diagnostic process also provides information for designing change interventions. Change models reduce complexity, identify activities demanding attention, highlight the interconnectedness of organi- zational dimensions, provide a common language, and offer a sequence of change events. 2. The open-systems framework shows how organizations are open to environmental influences through the processes of input, throughput, and output of products and services. This model enables leaders and change agents to learn if and why a change is needed to process products and services efficiently through the phases of resource allocation, transformation, and final delivery. The environment-industry-organization contingency model considers the environment, industry, and organization in terms of both environmental change and complexity. The organizational life-cycle model helps diagnose the types of crises and challenges organizations and leaders face as the organization matures. This particular model adds a historical dimension for under- standing an organization’s developmental needs in terms of changing capabilities required of leaders to grow organizations along their life cycle. 3. Change can be transformational, transitional, or developmental. These types of change correspond to two broad distinctions of change: first-order and second-order wei82650_02_c02_057-102.indd 97 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources change. First-order change involves small-scale adjustments to systems, processes, and structures. Second-order change involves radical transformations to the entire organization. Interventions can be focused at organizational, team/group, or individ- ual levels. They are focused, planned actions to enhance effectiveness. As Figure 2.4 illustrates, different interventions can be planned and implemented within and across the organizational dimensions (leadership, strategy, culture, structure, people, and systems). 4. Kotter’s top-down eight-step approach, presented in Chapter 1.1, is presented here as a problem-solving model in contrast to the bottom-up and across AI approach that is based on identifying opportunities and empowering employees to dream, design, and implement changes. Both approaches are popular and work in differ – ent situations. The four phases of the AI model are discovery, dream, design, and delivery. This model focuses on how people and the organization add value (instead of the problems they face) and how they can contribute more thorough planned change. 5. The action research model for diagnosing change from the perspective of a change specialist involves the following steps: identifying the problem or opportunity, consulting with the client, collecting data, formulating a preliminary diagnosis, pre- senting feedback to the client, diagnosing the problem and findings with the client, jointly planning action steps, implementing those steps, and collecting postimple – mentation data. 6. Employee assessments evaluate the reasons for resistance and how competent direction, planning, preparation, and coaching can help organizations to address and resolve resistance. Kotter and Schlesinger (1979) present a change approach, along with Lewin’s force-field analysis that addresses strategies for preventing and resolv – ing dysfunctional resistance. Discussion Questions 1. What does the adage “If you don’t know where you’re going, all roads lead there” mean with regard to organizational change? 2. Why would an organizational leader need to use change models? What are the advantages? Disadvantages? Explain. 3. Explain where a traditional university and a high-tech computer software firm would fit in Figure 2.2 environment-industry-organization contingency model. 4. Assume you are a change management specialist. Return to the opening scenario of Zappos CEO Hsieh’s announcement and implementation of his new structure. Refer to other websites that discuss this scenario. Using concepts from this chapter, evalu – ate Hsieh’s change leadership approach. 5. Evaluate how Cook, Jobs’s successor at Apple, is doing according to the development life-cycle model in Figure 2.3. 6. If you were assigned to an organization’s planned change team and were asked how Figure 2.4 could be used with Figure 2.5 and Figure 2.6, how you would respond? 7. Explain how Kotter’s change process model from Chapter 1.1 differs from the AI approach in this chapter. Explain which of these models you would prefer to use if you were diagnosing an organization to plan a change. 8. Explain the reasons why some people in organizations generally resist large-scale change. Do you generally resist change? Why or why not? wei82650_02_c02_057-102.indd 98 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Key Terms change interventions Planned actions designed to help enhance an organization’s effectiveness by solving a problem or creat- ing an opportunity. environmental change A dimension of environments based on their stability or instability. environmental complexity A dimension of environments based on their level of simplicity. first-order (adaptive) changes Incremen- tal, developmental changes involving small- scale adjustments to systems, processes, and structures. input phase The beginning phase of the systems contingency model, before the transformation of the inputs. See open sys- tems theory and model . levels of intervention Planned actions to enhance an organization’s effectiveness that focus on the organization, team/group, or individual. open-systems theory and model A framework for studying how organizations interact with their environments in ways that affect the input, throughput, and output processes, along with interdependencies and outcomes. organizational diagnosis of change The process of understanding the current state of how an organization functions and pro- viding necessary information for designing change interventions. organizational inertia The tendency of organizations to maintain the status quo. output phase The final phase of the sys- tems contingency model. See open systems theory and model. presenting issues Problems and opportunities that are believed, perceived, and/or argued to be of primary importance for requiring a planned change. resource dependency theory The the – ory that organizations are dependent on the environments in which they operate to ensure their survival, autonomy, and stability. second-order (discontinuous) changes Radical, transformational changes involving the entire organization. simple–complex dimension of environmental uncertainty The number and dissimilarity of external elements that affect an organization’s functionality. 9. Describe what you would say if you had to deliver a presentation on how to address, prevent, and resolve professionals’ resistance to change in organizations that must plan and implement changes. 10. Respond to the following quote and explain your reasoning: Change is not always good, and it certainly is not a panacea for all the issues.… More leaders may need to prioritize various change proposals and defuse poor ideas, rather than always responding to changes from the internal and external environment. Therefore, failure to change can be a positive response. I am highly suspicious of the recent trends in business to reconfigure organi – zations every five years and of the idealization and symbolic value of change as a trophy of managerial success. (Czarniawska-Joerges & Sevón, 1996, p. 8) wei82650_02_c02_057-102.indd 99 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Additional Resources YouTube clip: Brief recap of Steve Jobs’s life ht tp://w w w.youtube.com/watch?v=7or2-x5r41Y YouTube clip: John Kotter on “Changing Hearts and Minds” ht tp://w w w.youtube.com/watch?v=1NKti9MyA Aw&feature=related Overcoming resistance to change, group exercises ht tp://w w w.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=42&ved=0CCEQFjA BOCg&url=ht tp%3A%2F%2Fw w w.mhhe.com%2Fbusiness%2Fmanagement%2Fasset _ gall ery%2Fbuildyourmanagementskills%2Fresourcemanual%2Ffiles%2FTopic14%2FT14 _GE_Overcoming_Resistance_to_Change.doc&ei=ONvCTtm6Mo2osALYtfGRCw&usg=AFQjC NFAGXsN3I2ySCwzOvKg Ak0NM5rzzA&sig2=VFnRGhp0HULqdnsJsGBw yA Managing Change Sample Answers Managing Change—The Change Consultant’s Role 1. As a change consultant you might analyze the company’s lifecycle from inception to present, and its history and significant events. Given that the company has per- formed well for the corporation for 5 years, it could conceivably be at the formaliza- tion stage or elaboration stage, thus requiring better coordination for growth. You may need to scrutinize the company’s history with the corporation more closely (in addition to its history before dealing with the corporation, if any) to determine what bumps in the road had occurred before to accurately plot the stage of this company. Perhaps managers’ complacency has resulted from the latest run of stability but led to issues in productivity and effectiveness. 2. If the company has worked well overall with the corporation thus far, barring any obvious clashes in leadership it does not seem that second-order or discontinuous change is necessary. Such an approach may do more harm than good. Rather, adap – tive, first-order changes that adjust systems and processes for better outcomes seem more appropriate. But the change consultant must gather all required background information on the situation to make the best choice. 3. The corporation has discovered a problem that needs solving. You come in for the initial meeting with the operations executive and the service company manager to state purpose, roles, and responsibilities in the process, and gather history from each side. You send a survey out to the corporation’s employees to gather data on the issues raised, and for good measure send a separate survey to the office services company employees for their input. Based on the results, you can make a diagnosis of where inefficiencies may lie in the service delivery, but also of any internal issues happening within the service company itself that may be contributing to declining conditions. Present the findings to the corporation representative and company manager, explain the tactics of the survey, and confirm the findings among the parties. Together, the representative and company manager can participate with the change consultant in deducing solutions and changes to be implemented, and the change consultant will then plan with both parties how to take steps toward improvement. Once the relevant parties in the change of processes are identified, those people can be involved in implementing the change. Postimplementation, surveys are fielded again to assess the success of the change and reaction from the wei82650_02_c02_057-102.indd 100 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources corporation at large and the office services company. Communicating results is important for survey participants as it validates their input. Answers and Rejoinders to Chapter 2 Pretest 1. False. The most critical factor in diagnosing an organization’s need for change is primarily the expertise of its leaders and managers. The leaders are the ones who diagnose, plan, and implement changes—often based on diagnostic models—even when nonexecutive employees provide feedback about needed changes. 2. False. The organizational life-cycle model helps leaders understand what challenges and crises they will typically face as their organization matures. In other words, this model helps leaders understand what they can expect over the course of an organi- zation’s life, so they can help it grow and develop accordingly. 3. True. Often tools for change teams and change specialists, trigger questions help identify and diagnose who and what part of an organization needs to change and w h y. 4. True. Unlike traditional problem-solving approaches, the appreciative inquiry (AI) approach creates positive change by appreciating the best of what exists in an organization. AI engages employees across an organization to focus on learning from success. 5. False. When implementing the action research model, no one is dominant. The change specialist is considered to be a co-learner with the others on the change team. They are equal partners in the process who bring different expertise and perspectives. 6. True. Even though leaders may not be able to totally unburden employees of their resistance to change, simply asking them for their feedback can put them on the path to eventually accept the change. Rejoinders to Chapter 2 Posttest 1. The author discusses the following dimensions related to diagnosing organizational change: why change, what and who to change, and how to change. Moreover, these three dimensions and their representative models interrelate in some ways. 2. The primary reason to use an organizational change model is because it offers theo – retical and practical ways to understand a complex process. Furthermore, a model will help identify aspects of the organization that need attention, use a common lan – guage and vocabulary, and offer a sequence of actions that users may adapt or adopt. 3. Based on Katz and Kahn’s work, the open-systems model studies an organization’s processes of input, throughput, and output of products or services. This model con – siders how an organization is exposed to environmental influences that may affect its efficiency and effectiveness. 4. According to Greiner, a crisis of leadership most often occurs during the growth through creativity stage of the organizational life-cycle model. Because this stage is entrepreneurial and generally free flowing, the lack of structure and strong manage – ment may lead to an organizational revolution. 5. In this scenario, the realization that Glolites may want to open a brick-and-mortar retail store to satisfy more customers—in other words, undergo a developmental change—is a presenting issue . A presenting issue is a problem or opportunity that is of major importance and may lead to a planned change. wei82650_02_c02_057-102.indd 101 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 6. Moving from a hierarchical to a manager-free organization is an example of a sec- ond-order (discontinuous) change, which is radical and transformational in nature for an organization. It means shifting gears in a generally irreversible manner. 7. This scenario most suggests Cooperrider’s appreciative inquiry model (AI), a bot – tom-up approach that identifies opportunities and empowers workers to dream, design, and implement changes. 8. The author would likely agree that the appreciative inquiry (AI) model focuses on how employees add value to their organization and how they can make the organiza- tion even better, through mutual discovery, dreaming, design, and delivery. 9. The collection of data (interviews, observation, surveys, financial reports, and so forth) occurs after the initial meeting between the change specialist and the client organization. 10. The step in the action research model that directly follows “present feedback to the client” is “diagnose findings with the client.” This step allows the consultant to share the diagnosis, the methods used to reach the diagnosis, and the findings themselves. 11. The author suggests that the best approach is to plan competently and prepare employees in advance of the change. Further, listening to employees’ concerns and opinions and involving them in the action of the new change is vital. They do not have to be totally committed to the change to start to embrace it. 12. One type of resistance to change can result in a ripple effect where those negatively affected by change may spread negative misinformation to other departments or outsiders (such as clients, customers, or competitors). To address this problem, lead – ers must provide time and opportunity for feedback and clear communication with employees. wei82650_02_c02_057-102.indd 102 12/15/15 9:39 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.
Can I get this paper done?
3 Implementing Change hxdbzxy/iStock/Thinkstock Learning Objectives After reading this chapter, you should be able to do the following:1. Summarize the nine steps in Ackerman and Anderson’s road map for change. 2. Analyze Cummings and Worley’s five dimensions of leading and managing change. 3. Describe how to align an organization with its new vision and future state. 4. Explain how roles/relationships and interventions are used to implement change. 5. Examine ways to interact with and influence stakeholders. wei82650_03_c03_103_154.indd 103 12/15/15 9:42 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Change is the law of life and those who look only to the past or present are certain to miss the future. —John F. Kennedy Pretest Questions 1. True/False: Celebrating the implementation of change is not something a serious leader should encourage; changes should be carried out in a professional manner. 2. True/False: Motivating change involves creating readiness for and overcoming resis – tance to change. 3. True/False: In order to align an organization with its new vision, organizational culture should remain steady and predictable. 4. True/False: Organizational change is most often led by the highest line of authority, which is the leadership change team. 5. True/False: Change can be successfully implemented without collaboration if the plan is a strong one. 6. True/False: Interventions to implement change can consist of reinventing specific company structures such as its strategies, culture, and supply chain. Alan Mulally was selected to lead Ford in 2006 after he was bypassed as CEO at Boeing, where he had worked and was expected to become CEO. Insiders and top-level managers at Ford, some of whom had expected to become CEO, were initially suspicious and then outraged when Mulally was hired. They questioned what someone from the airplane industry would know about the car business (Kiley, 2009). Chair William (Bill) Clay Ford, Jr.—who selected Mulally as CEO—told Ford’s officers that the company needed a fresh perspective and a shake-up, especially since it had lost $14.8 billion in 2008—the most in its 105-year history—and had burned through $21.2 billion, or 61%, of its cash (Kiley, 2009). Because Ford knew that the company’s upper echelon culture was closed, bureaucratic, and rejected outsiders and new ways of thinking, he was not surprised by his officers’ reactions. However, Ford’s managers had no idea that the company was fighting for its life. To succeed, Mulally would need Chair Ford’s full endorsement and support, and he got it. The company’s biggest cultural challenge was to break down the silos that various executives had built. As we will discuss more in Chapter 4, silos are specific processes or departments in an organization that work independently of each other without strong communication between or among them. A lack of communication can often stifle productivity and innovation, and this was exactly what was happening at Ford. Mulally devised a turnaround strategy and developed it into the Way Forward Plan. The plan centralized and modernized plants to handle several models at once, to be sold in several markets. The plan was designed to break up the fiefdoms of isolated cultures, in which leaders independently developed and decided where to sell cars. Mulally’s plan also kept managers in positions for longer periods of time to deepen their expertise and improve consistency of operations. The manager who ran the Mazda Motor affiliate commented, “I’m going into my wei82650_03_c03_103_154.indd 104 12/15/15 9:42 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction fourth year in the same job. I’ve never had such consistency of purpose before” (as cited in Kiley, 2009, “Meetings About Meetings,” para. 2). Mulally’s leadership style involved evaluating and analyzing a situation using data and facts and then earning individuals’ support with his determination (Taylor, 2009). Mulally put a stop to man- agers’ meetings in which maneuvering for power occurred more than performance-based decision making. He led by his mantra, “One Team, One Plan, One Goal.” The era of politicking and power plays among officers was over. Mulally’s style and method was also effective with the unions; nego – tiations were tough but realistic. Mulally also created a constant stream of data where all managers saw weekly reports of Ford’s global operations that compared executives’ performance against profit targets. Located in the Taurus and Continental rooms near Mulally’s office, the walls showed color- coded bar charts, graphs, and tables that reflected information on Ford’s businesses in South America, Russia, China, and other parts of the world. Red indicated divisions that weren’t hitting profit projections; green indicated those that were on target; and yellow indicated that performance could go up or down. Updated numbers were validated by pre-earning quarterly audits. These openly visible charts and graphs created a culture of transparency where no executive could avoid the truth. Mulally said numbers helped executives anticipate issues and adjust strategy (Kiley, 2009). From the start of his tenure at Ford, Mulally declared, “I am here to save an American and global icon” (as cited in Taylor, 2009, “A New Corporate Culture,” para. 6). He was performance-driven, just as he was at Boeing. He once stated, “I live for Thursday morning at 8 a.m.” (Synder, 2010, para. 3), which was when he met with direct reports and led by using his Business Plan Review. Ford’s four profit centers—the Americas, Europe, Asia–Pacific, and Ford Credit—reported out first, followed by 12 functional areas, including product development, manufacturing, human resources, and government relations. These meetings did not include premeetings or briefing books (Taylor, 2009), and Mulally stated that the difficult questions he asked were never intended to embarrass anyone. He wanted people to share information that could produce results in the marketplace. Neither BlackBerrys nor distracting side conversations were allowed at these meetings. Mutual respect was demanded. Mulally removed vice presidents from the meetings when they wouldn’t stop talking (Taylor, 2009). Joe Hinrichs, a manufacturing supervisor, said, “Alan brings infectious energy. This is a person people want to follow” (as cited in Taylor, 2009, “A New Corporate Culture,” para. 3). Mulally’s practice and insistence on transparency through open and continuous communication with and among all professionals at Ford was based on his assertion that “everyone has to know the plan, its status, and areas that need special attention” (as cited in Taylor, 2009, “A New Corporate AP Photo/Roberto Pfeil/dapd Alan Mulally’s leadership was integral to enacting positive change at Ford. wei82650_03_c03_103_154.indd 105 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Culture,” para. 2). For example, Mulally was resolute that Ford reduce its dependence on light trucks, since gas is costly. Mulally’s openness gained him support across the company, even with his candor and straightforwardness. “Team Mulally,” as the CEO and his followers have been called, has succeeded in turning around “a very sick company” (Kiley, 2009). The firm never accepted a government bailout like the other U.S. auto companies. Ford generated $144 billion in revenue in 2014, down from $147 billion in 2013. The company sold 2.842 million vehicles in 2014 (Statista, n.d.). The company positioned Mark Fields as the new CEO in 2014 following Mulally’s 8-year, highly successful run. Although Ford’s competitive position is reportedly stronger than it has been since the late Taurus/Explorer years of the 1990s (Taylor, 2014), there are still concerns ahead for the company. First, Fields is not Mulally, who stands as one of the most popular CEOs the company has known (Taylor, 2014). Despite this and the fact that Fields may be more direct and not as charismatic as Mulally, he knows the company and industry well. Whether Fields can meet the vehicle-related challenges of the digital and globalization age while keeping the company from sliding back into a politically charged environment remains to be seen. Fields has said that he faces the challenge of transitioning Ford’s vehicles from the “ultimate industrial product” into the “ultimate technology product” (as cited in Nusca, 2015, para. 3). Mulally’s “One Team, One Plan, One Goal” helped unify the company’s international operations, but Ford’s sales show that it still is a “North American–centric automaker” (Ford Online, 2008) whose profits stem mainly from the truck business (it earned $8.781 billion in 2013 pretax profit on North American auto operations and lost $1.228 billion in the rest of the world [Taylor, 2014]). The company must also be vigilant with regard to its corporate social responsibilities and legal advertising. It was twice found guilty of falsely increasing the window-sticker fuel economy ratings by 7 miles per gallon on several of its models (Taylor, 2014.). Fields must also ensure that the company’s strategies, culture, and mind-set stay competitive and do not revert to pre- Mulally practices. Fields has stated, “We want people to challenge custom and question tradition. We want them to not take anything for granted” (as cited in Nusca, 2015, para. 6). Critical-Thinking Questions 1. What went wrong at Ford that led to the competitive and organizational problems that existed before Mulally came aboard? 2. What specific change (leadership) practices did Mulally employ to help turn Ford around? 3. From your own reading, experience, and online research, what do you think Mulally’s successor should do to make Ford vehicles more competitive? wei82650_03_c03_103_154.indd 106 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.1 Road Map for Change Introduction: Getting From Here to There Implementing major organizational changes is neither automatic nor mechanical. Transition- ing to a new vision and future state is a process, not an event. During any change phase, organizational leaders and change teams guide and shape people’s mind-sets and behaviors to adopt new ways of thinking, apply different strategies, reinvigorate the culture, and align internal systems. Leadership skills, intelligence, courage, and a high capacity for collabora- tion are required. The bottom line is that the success of any organizational change depends in large degree on implementation. Assessment allows change leaders to better assess the reality of the situation and a possible future, whereas action planning allows changes to have a higher rate of success (Warrick, 2011). Although both factors are important in the change process, many OD practitioners consider implementation to be most important. Without successful implementation, the change process doesn’t matter. The implementation process begins once the urgency for change is communicated, the orga – nization is assessed for the type of change needed, and a plan is communicated throughout the organization. In the following section, we present a road map that highlights the imple – mentation phases of large-scale changes. 3.1 Road Map for Change Corporations and organizations that embark on large complicated changes, as Ford did and continues to do, depend on a road map from which other plans are generated. Chapters 1 and 2 discussed two such road maps: Kotter’s eight-step method and Cooperrider’s four dimensions in appreciative inquiry. Here we discuss Ackerman and Anderson’s (2010) road map, which overlaps with the other two. Figure 3.1 shows distinct implementation phases that combine learning from all the steps to help leaders move to their desired destinations. The change process model offers a road map without dictating the roads to take (Ackerman & Anderson, 2010). It is up to leaders to decide the paths they will take based on their individual circumstances. In this regard, the road map can be used as a “thinking discipline” rather than a prescribed way of forcing an organization’s behavior into a plan and timeline. Used this way, leaders can have flexibility as they navigate the organizational, technical, human, and cultural dimensions of their end-to-end change process. Even with this process model, transformational changes tend to have a life of their own (Ackerman & Anderson, 2010). Since both the change process and outcome emerge and evolve—that is, both process and outcome evolve unexpectedly and sometimes become a new or even better development than predicted (Ackerman & Anderson, 2010)—leaders generally launch a planned change without knowing exactly where they are going, even though they have described a clear end or future state. This is the case because markets, the economy, people, and many other factors are constantly changing. Still, leaders of transformational changes use road maps and plans to guide their implementation. Leaders must let go of old ways in order to move forward. Any implementation plan is only as sound as the change strategy, and if all other plan variables are consciously and conscientiously wei82650_03_c03_103_154.indd 107 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. I. PREPARE TO LEAD THE CHANGE IX. LEARN AND COURSE CORRECT VIII. CELEBR ATE AND INTEG RATE THE NEW S TATE VII. IMPLEMENT THE CHANGE VI. PLAN AND OR GANIZE FOR IMPLEMENT ATION V. ANALYZE THE IMP ACTIV. DESIGN THE DESIRED S TATE III. ASSESS THE SITUATION TO DETERMINE DESIGN REQUIREMENTS II. CREATE OR GANIZATIONAL VISION, COMMITMENT , AND CA PABILITY HEAR THE WAKE-UP CA LL Section 3.1 Road Map for Change enacted. Enhanced commitment and excitement, combined with the collective intelligence of key decision makers, are essential requirements for a transformational change’s success (Ackerman & Anderson, 2009). Mulally’s example as a change leader reflects many of the stages presented in Figure 3.1. While stages 1 through 4 were discussed in Chapters 1 and 2, it is helpful to briefly sum – marize some of them, paying particular attention to the implementation process. It is also Figure 3.1: Road map for change The change process shown in this model is continuous and can allow leaders to implement change and organizational reach goals. Source: Ackerman, L. A., & Anderson, D. (2001). Awake at the wheel: Moving beyond change management to conscious change leadership. OD Practitioner, 33 (3), 46. Copyright © BeingFirst, Inc. Reprinted with permission from the authors. I. PREPARE TO LEAD THE CHANGE IX. LEARN AND COURSE CORRECT VIII. CELEBR ATE AND INTEG RATE THE NEW S TATE VII. IMPLEMENT THE CHANGE VI. PLAN AND OR GANIZE FOR IMPLEMENT ATION V. ANALYZE THE IMP ACTIV. DESIGN THE DESIRED S TATE III. ASSESS THE SITUATION TO DETERMINE DESIGN REQUIREMENTS II. CREATE OR GANIZATIONAL VISION, COMMITMENT , AND CA PABILITY HEAR THE WAKE-UP CA LL wei82650_03_c03_103_154.indd 108 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.1 Road Map for Change important to note that all stages in any change road map are in some way related to, and in preparation for, the change’s implementation. In fact, the implementation’s success depends on how effectively the previous stages were developed and carried out. Planning and implementing a large organizational change is, in practice, not a linear or mechanical process. As we said at the start: Change is not an event but a process. Some stages loop back to previous ones as surprises and emergent changes occur. Preparing to Lead the Change Leaders generally embark on a change effort because of a wake-up call (Ackerman & Anderson, 2010). In the case of Ford’s turnaround, it was Bill Ford who watched the company’s stock, cash, and competitiveness tumble. He called Mulally to lead the charge to change because the officers in the company were not moved to take urgent action. Mulally’s mission, then, was to turn Ford around. To prepare to lead the change, he learned the reality of the situation by studying the facts, numbers, and details. He next began to cre- ate a case for the change while identifying the desired outcomes. During this time he was also building his capability to lead the change, ensuring that he had the relevant skill sets, exper – tise, and experience (Ackerman & Anderson, 2010). Because he had learned how to deal with enterprise-wide change at Boeing, Mulally seemed ready for the task. He also was charged with clarifying an overall change strategy and creating an infrastructure that had the condi – tions to support the change effort. In this regard, he devised a turnaround strategy—the Way Forward Plan—that centralized and modernized plants to handle several models at once and that sold vehicles in several markets. Creating Vision, Commitment, and Capability Mulally’s overall vision was to return Ford to its preeminent status in the global auto industry. His commitment and persistence were evident in his statement that he “expects the very best of himself and others, [and] seeks to understand rather than to be understood” (as cited in Taylor, 2009, “A New Corporate Culture,” para. 3). As Bill Ford once said about him, “Alan is not a very complicated person. He is very driven” (as cited in Taylor, 2009, “A New Corporate Culture,” para. 3). Mulally built the necessary capability by reorienting the top-level global officers and 12 func – tional area managers to the company’s long-term goals and short-term operating objectives. He ensured this alignment by regularly communicating to all managers via weekly opera – tional reports that compared executives’ performance against profit targets. Assessing the Situation Mulally never stopped assessing Ford’s situation—its financial position, sales, marketing status, and capabilities in relation to global competitors and in regard to his vision to get Ford back to the top of the industry. In the turnaround described in the opening scenarios, wei82650_03_c03_103_154.indd 109 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.1 Road Map for Change Mulally’s “One Team, One Plan, One Goal” was the road toward his desired state of seeing Ford as the top global competitor in as many vehicle classes as possible. Although he depended on his managers’ input to help determine vehicles’ design requirements based on customer demand, as leader he ensured that the company’s culture did not return to the splintered state of bickering and isolated control based on different officers’ preferences. In turnarounds like Ford’s, Mulally’s method reflected a continuous examination of the ongo- ing impact of his changes. His use of continually changing data, information, and analysis, interpreted at the Thursday morning meetings, was the basis for analyzing his vision’s impact, the company’s goal, and its global operational systems. Plan, Organize, and Implement the Change Mulally’s plan centered on the implementation of his “One Team, One Plan, One Goal” mantra. Put simply, that plan was: Focus on the Ford brand (“nobody buys a house of brands”); compete in every market segment with carefully defined products (small, medium, and large; cars, utilities, and trucks); market fewer nameplates (40 worldwide by 2013, down from 97 worldwide in 2006); and become best in class in quality, fuel efficiency, safety, and value. (as cited in Taylor, 2009, “A New Corporate Cul – ture,” para. 4) This plan was easier to outline than achieve. When Mulally first arrived at Ford, he said it was the toughest environment he had seen, but he believed that the company would succeed if it adhered to its plan (Taylor, 2009). Implementing the plan required preparing for all the stages discussed previously. In the road map shown in Figure 3.1, implementation occurred after the preparation stages were com- pleted, based on the development of the master implementation plan (Taylor, 2009). Because Mulally had Chair Ford’s and the board of directors’ support, and because he painstakingly prepared himself with the financial, organizational, cultural, and operational detail, he knew he was ready to implement. It is very important to state that Mulally met with and debriefed the officers, managers, and many employees at Ford before and while planning the change. Mulally had also met with Chair Ford several times and discussed the company’s situation before accepting the job. It all seemed to pay off. Mulally’s insistence on transparency through open communication with and among all professionals at Ford ensured that everyone knew the plan and where the company was in the process. So, although the change was not easy, neither was it impossible or unrealistic. Mulally had used a road map and a plan, as well as his intuition, discipline, and confidence. The change has proved successful to date, as shown in Ford’s financials and Mulally’s 2011 stock bonus. Mulally and Ford have “Celebrated and Integrated the New Change,” as stage 8 in Figure 3.1 shows. At his retirement in 2014, Mulally received almost $300 million with stock shares and options. While at Ford, he received a total base salary of $13.5 million with cash bonuses of $30.8 million. He took in a total of $44.2 million in cash by the end of 2014 (Isidore, wei82650_03_c03_103_154.indd 110 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.1 Road Map for Change 2014). The road ahead has already proved challenging for Mulally’s successor Fields, as noted earlier, as Ford continues the journey through stage 9, learn and course correct. The remain- der of this chapter discusses how other planned changes are implemented. Check Your Understanding 1. Explain how Mulally’s change program at Ford exemplifies and differs from the stages in Figure 3.1. 2. What are some important differences between change assessment and implementation? Which of these two processes would you feel more interested and confident using to define, lead, and manage change in an organization? Explain your reasoning. Managing Change Mapping the Road for Change Suppose you are a member of the C-suite (that is, the top-level officers of a company, including the chief executive officer, chief financial officer, and others) at a multinational corporation. After a period of stable, albeit slow, growth, you begin to notice changes in output. The 40-year reputation of the company is at stake, as are the jobs of your employees. In order to prevent a downward spiral that will result in layoffs and possibly plant closings, a change must be made. Developments of concern include customer complaints, faulty supplies that prompted a recall, and plummeting revenue. In the interim, a short-term survival plan is in place to sustain the company until the problems are reversed, but you and other members of the C-suite are meeting to discuss an overall change in the way you do business. It is crucial to evolve with the markets and be attuned to changes in the business environment, but this change requires more than that. When warning signals like these are received, it is necessary to steer the company in the right direction to avoid costly pitfalls that may threaten its long-term prosperity. The change process model in Figure 3.1 is called on to formulate the plan. The input of C-suite members and unit managers is an integral part of the initial planning. Leadership recognizes that careful mapping must be completed for the change to take hold and truly transform the company. Discussion Questions 1. When embarking on transformational change, what considerations do you need to keep in mind as a leader to move the company to the desired state? 2. What is the impetus for change, and what tools are necessary to move forward? 3. What are the principles of implementing a change? 4. How important are the members of your workforce in a change implementation, and how do you utilize their efforts? (See the end of the chapter for possible answers.) wei82650_03_c03_103_154.indd 111 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.2 Implementing Change Through Leading and Mobilizing 3.2 Implementing Change Through Leading and Mobilizing Implementing change is an art and a science. Not all leaders and CEOs succeed the way Mulally did. In fact, there is a mixed track record when CEOs leave one industry to change a company in another. As discussed in Chapter 2, John Sculley from PepsiCo, who was chosen by Apple’s board of directors to take over as CEO from Steve Jobs, failed in that capacity, as did his two successors. Robert Nardelli, a vice president at GE, became CEO of Home Depot and was eventually pushed out by the board because his directive approach brought about mixed results. CEO William Perez, formerly of SC Johnson (which makes household brands such as Glade, Pledge, Windex, and so on) became CEO of Nike but resigned after 13 months due to disagreements with Nike founder Philip Knight and the fact that he was running an unfamiliar business. However, there are some success stories, such as that of Eric Schmidt, who was CEO of Novell and became CEO of Google from 2001 to 2011 (Kiley, 2009). We begin this section with the example of a change master, ex-CEO Larry Bossidy, who came from GE to successfully turn around AlliedSignal, which later became Honeywell. AlliedSignal/Honeywell and Larry Bossidy Bossidy became the chair and CEO of AlliedSignal, Inc., in 1991. The so-called Bossidy era spanned from 1992 to the early 2000s. The company began as Allied Chemical & Dye Cor – poration in 1920 before becoming AlliedSignal, Inc., following the acquisition of Signal Companies, Inc., in 1985 (International Directory of Company Histories, 1998). As a large industrial corporation, it was a player in many industries, including aerospace, chemicals, fibers, automotive parts, plastics, and other advanced materials (International Directory of Company Histories, 1998). In 1999 a merger caused Allied- Signal, Inc., to become Honey – well International, Inc. It ranked number 74 on the Fortune 500 listing in 2015, with revenues of more than $40 billion (Fortune , 2015b). Looking back, the vision of AlliedSignal, Inc., was to “be one of the world’s premier com – panies, distinctive and successful in everything we do” (Interna- tional Directory of Company His- tories, 1998, para. 1). Its success in achieving this was largely due to Bossidy’s strategy and vision. The Bossidy era was distinctive for its quick and ruthless but effec- tive change (International Direc- tory of Company Histories, 1998). Bossidy came from the electronics AP Photo/Marty Lederhandler Larry Bossidy (right) shakes hands with Michael R. Bonsignore, chair and CEO of Honeywell, after the 1999 merger between the two companies. Bossidy would become known for his ability to affect rapid, if ruthless, change. wei82650_03_c03_103_154.indd 112 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.2 Implementing Change Through Leading and Mobilizing and electrical equipment industry, spending the majority of his 34 distinguished years at GE. His leadership positions included chief operating officer (COO) of the GE Capital Corporation (also known as GE Capital), executive vice president and president of the company’s Services and Materials Sector, and vice chair and executive officer of GE. After entering a new industry and successfully mobilizing change, he is credited with transforming AlliedSignal, Inc., into one of the world’s most admired companies. He achieved earnings per share growth of 13% or more for 31 consecutive quarters and an eightfold increase in the company’s share price (LeighBureau, n.d.). Despite his tough methods and company drive, Bossidy was well respected. He was named CEO of the Year by Financial World magazine in 1994 and Chief Executive of the Year by CEO Magazine in 1998 (LeighBureau, n.d.). He knew where he wanted AlliedSignal to go and how he wanted to get there. He knew that significant changes were necessary and wasn’t afraid to make them. Housecleaning Bossidy’s first move at AlliedSignal was to “clean house,” which he did by reducing the num – ber of employees from 98,300 in 1991 to 76,700 by 1996 (International Directory of Company Histories, 1998). He saw that the company was internally focused and too crippled by inef – fective organization—they had “centralized all the paper and decentralized all the people” (Tichy & Charan, 1995, para. 29). Bossidy set out to fix this. News headlines about this time announced, “Larry Bossidy won’t stop pushing,” and articles described him as a “tough guy” (Lobel, 2000, p. 1). Bossidy was known for valuing hard work and rewarding those who demonstrated it. He reportedly said that he expected involvement, ideas, collaboration, leadership, development, drive, anticipation, growth, and adaptability from every one of his direct reports (Bossidy, 2007). He used these expectations as guidelines when imple- menting change. He didn’t stop after he reduced the labor force. He cleaned up unprofitable operations, sold off many small and some significant business units, and cut capital spending. Corporate culture was the hardest to change, but Bossidy’s approach created a team-oriented, less bureaucratic culture that was heavily focused on performance (Lobel, 2000). A “Churn and Burn” Culture Bossidy had high expectations, and he demanded from employees what he demanded of him – self: results-oriented high yields, quality, and no-nonsense execution. This message was clearly communicated and incorporated into the company culture. Bossidy’s strategic goals for 1999 were growth, employee development/learning, and quality improvement using Six Sigma—“a management philosophy developed by Motorola that emphasizes setting extremely high objec – tives, collecting data, and analyzing results to a fine degree as a way to reduce defects in products and services” (SearchCIO, n.d.). He worked toward these goals by stretching each employee to his or her potential, which often translated into long days and stressing demands (Lobel, 2000). Bossidy was once quoted as saying, “Meetings start at 7AM and run until 6PM. It’s hard to get stuff done around other times. After weeks of meetings, you have a pile of stuff on your desk and people think you’ve been on vacation” (as cited in Lobel, 2000, p. 4). The culture was challenging but attracted employees who thrived in that type of performance-driven environ- ment. As Sandra Beach Lin, then vice president and general manager of the Specialty Wax and wei82650_03_c03_103_154.indd 113 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.2 Implementing Change Through Leading and Mobilizing Additive group, noted, employees knew that they would be in trouble if the company did not make its numbers, and therefore did not need to be pushed by management. Instead, they pushed themselves (Lobel, 2000). A Dramatic New Structure Bossidy’s new vision required a dramatic new structure, and he was willing to make bold moves on the battlefield (Tichy & Charan, 1995). As he put it, “I don’t want to have to come back a year from now and restructure all over again. If we’re going to take a charge, I want to take a big one” (as cited in Tichy & Charan, 1995, para. 53). In October 1997 AlliedSignal announced that it was restructuring from three sectors to 11 business units (International Directory of Company Histories, 1998). The Aerospace sec- tor became Turbocharging Systems, Engines, Aerospace Equipment Systems, Electronics and Avionics Systems, Aerospace Marketing Sales & Service, and Federal Manufacturing & Technologies. The Automotive sector became Automotive Products Group and Truck Brake Systems. Finally, the Engineered Materials sector became Specialty Chemicals, Polymers, and Electronic Materials. This was no small change. It eliminated an entire layer of management. Bossidy issued a press release saying that each new unit is a significant factor in its market and has global reach, world-class talent, and the critical mass to operate autonomously. Removing the sector layer will enable these businesses to make faster decisions and serve customers with greater speed, flexibility, and cost effectiveness. (Reference for Business, 2015, “Bossidy Era,” para. 4) The Key: Goal Deployment As CEO, Bossidy began each year by rolling out strategic goals that became the foundation for the goal deployment process (Lobel, 2001). All employee goals were linked to those of the enterprise. Before Bossidy could implement any of these transformations, the company had to be united in vision and values. He started at the top with an off-site meeting for the top 12 company managers. They agreed on seven values: customers, integrity, people, teamwork, speed, innovation, and performance (Tichy & Charan, 1995). Employees at all levels then set goals with these seven values guiding their planning. The goals were deployed through what was referred to as Total Quality (TQ). AlliedSignal fully commit- ted to use TQ as the driver for change; if anyone did not believe in this initiative, they were asked to change or leave the company. Some employees changed, while others left (Tichy & Charan, 1995). Coach Bossidy Bossidy’s results-driven culture was also people-oriented. As he said, “I think you don’t change a culture. I think you coach people to win” (Tichy & Charan, 1995, para. 22). Bossidy’s coaching allowed employees at all levels to set goals and understand they would be stretched wei82650_03_c03_103_154.indd 114 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.2 Implementing Change Through Leading and Mobilizing to achieve maximum performance. This culture was a significant success factor in implement- ing the dramatic changes made during the Bossidy era. Bossidy talked to employees and practiced what management writer Tom Peters called MBWA, management by walking around. Coaches are not very effective without good two-way commu – nication, so in his first 2 months as CEO, Bossidy talked to about 5,000 employees at all levels across the country. Talking to people was Bossidy’s main form of coaching. He coached them at what is known as skip-level, informal lunches of about 20 employees (Tichy & Charan, 1995). He was intentional about creating interactive settings and using surveys. Getting employees on board was key: Obtaining support from lower level employees can be powerful and convinces middle management to support the change as well (Tichy & Charan, 1995). Communication is not the end-all, be-all to coaching people to win. Successful change leaders like Bossidy also provide support. As Bossidy astutely recognizes, leaders cannot get their employees to perform well by yelling at them and abusing them. Instead, they must show employees the big picture and demonstrate how change will benefit the company. They do this by establishing credibility and giving employees incentives and help. With this support, employees can and will do anything (Tichy & Charan, 1995). By coaching his employees to win, Bossidy’s increased influence bolstered his authority in both strategy and operations. Tichy and Charan (1995) posit that “managers add value by brokering with people, not by presiding over empires” (para. 77). That is what Bossidy did at AlliedSignal, Inc.—he brokered with those still at the company to transform it. There are many factors necessary for effectively leading and managing large organizational changes; having a plan and a model are certainly two. The following are other factors advo – cated by experts and studies in the field and illustrated by Bossidy at AlliedSignal. Five Dimensions of Leading and Managing Change Bossidy embodied elements of many implementation models of organizational change, including Cummings and Worley’s (2001) five dimensions of leading and managing change depicted in Figure 3.2. Those dimensions include motivating change, creating a vision, devel – oping political support, managing the transition, and sustaining momentum. Because we dis – cuss the dimensions of developing political support in Section 3.5 of this chapter and present strategies for sustaining change in Chapter 5, we will focus here on motivating change, creat – ing a vision, and managing the transition. Warrick’s (2010) six-step change implementation process will also be discussed within the con – text of Cummings and Worley’s model. Warrick’s steps include the following: 1. Keep the big picture in mind. 2. Choose the right interventions. 3. Use a sound change model to plan and manage the change process. 4. Keep people engaged and make the incentive for change greater than the incentive to stay the same. 5. Identify and manage resistance to change. 6. Follow through and learn from the process. (Warrick, 2011, pp. 259–260) wei82650_03_c03_103_154.indd 115 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Motivating Change Effective ChangeManagement Creating readiness for change Overcoming resistance to change Creating a Vision Mission Valued outcomes Valued conditions Midpoint goals Developing Political Support Assessing change agent pow er Identifying key stakeholders Influencing stakeholders Managing the Tra nsition Activity planning Commitment planning Management structure s Sustaining Momentum P roviding resources for change Building a support s ystem for change agents Reinforcing new behaviors Section 3.2 Implementing Change Through Leading and Mobilizing Planned organizational change does not happen by accident. Although not all events in a change can be controlled, there are logics to leading and manag- ing change initiatives in orga – nizations. The following five dimensions illustrate practical steps for leading such planned changes. Motivating Change Bossidy was a master at moti – vating change. He created readiness and overcame resis – tance. Most resistance occurs because people know and/ or believe that many planned changes do not succeed; the reasons for change are not clear; or the organization’s leaders are not fully invested in making sure the change is successful (Warrick, 2011). Leaders need to identify the specific reasons why change is resisted and respond accord – ingly. Bossidy’s approach to motivating change involved intense and widespread com – munication with all employ – ees to avoid as much resistance as possible. He succeeded in preventing some resistance by keeping the big picture and his vision in mind while dealing with the reality of the situation. Two-way actions and communications must also take place to set an organizational tone regarding change and must be continually updated as progress is made. Stakeholders need to know what the change is, why it is happening, what has been accomplished so far, how their efforts contribute, and when the change will be completed. For example, Bossidy spoke with 5,000 leaders before implementing the change and then hosted small lunches with employ – ees to evaluate the change process as it was taking place. He gained employees’ respect through good communication. Leaders must gain the respect of the organization when lead – ing change, and when resistance is persistent and/or unwarranted, they must take corrective action before change efforts are negatively affected (Warrick, 2011). Creating a Vision As we saw with Mulally at Ford, leading change also requires vision—a big-picture view framed by the organization’s goals and an assessment of past, current, and future conditions. The change process is dynamic and must be informed by the organization’s larger vision and values. Figure 3.2: Five dimensions of change leadership and management Navigating the five dimensions of change includes motivating change and sustaining a change, and several steps in between. Source: Adapted from Thomas G. Cummings and Christopher G. Worley. Organization development & change. Fig. 7.1, p. 109. Copyright © 2001 by South-Western College Publishing, a division of Thomson Learning. Motiv ating Change Effective ChangeManagement Creating readiness for change Overcoming resistance to change Creating a Vision Mission Valued outcomes Valued conditions Midpoint goals Developing Political Support Assessing change agent pow er Identifying key stakeholders Influencing stakeholders Managing the Tra nsition Activity planning Commitment planning Management structure s Sustaining Momentum P roviding resources for change Building a support s ystem for change agents Reinforcing new behaviors wei82650_03_c03_103_154.indd 116 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.2 Implementing Change Through Leading and Mobilizing Bossidy’s vision was to make AlliedSignal a distinctive, successful, premier global company. This vision informed every decision and communication he made. He saw where AlliedSignal could go and took the time to understand how it would get there. He had not only a big- picture view, but a systems-level understanding. The organization as a whole is a system comprising many parts that interact with one another. Effective change leaders must understand that changing one part of an organization can also affect the other parts, and that a structural change may alter the organization’s culture (Warrick, 2011). Developing Political Support Although we discuss the importance of developing political support in Section 3.5, we note here that Bossidy took into account his company’s political environment in relation to change and responded accordingly. He understood the importance of internal politics in implement- ing change. To Bossidy, AlliedSignal executives were important stakeholders, and he took action to influence them through goals and performance measures. For example, when two marketing and sales executives could not get along and were not act – ing in alignment with the vision, Bossidy fired both of them and had a guard escort them out. He recognized that negative political dynamics were hindering change and company perfor- mance. The two were hired back at 3:00 p.m., after convincing Bossidy that they would be able to work well together despite their differences. Bossidy gave them a second chance, and the lesson was learned (Bossidy, 2007). Managing the Transition Interventions must be designed and implemented to motivate and manage the transition. Bossidy began his change process at AlliedSignal with several big bang interventions. He laid off 21,600 employees, sold off business units, reduced capital spending, and did major restructuring. He was not afraid of large-scale change and knew it was needed to move Allied – Signal toward the vision. These interventions were not implemented prematurely or without adequate planning. Planning is a key responsibility of leaders when motivating change and managing the transition. In some instances activities can be combined with planning, and leaders must be careful to avoid misdirected or unnecessary efforts at any level. Additionally, using a sound model to plan and manage the change process increases the effec – tiveness of implementation. Whether Bossidy explicitly followed Warrick’s proposed steps or not, it is clear that he employed all of them while leading change at AlliedSignal/Honeywell. Bossidy believed in relying heavily on a practical road map that identifies possible obstacles to overcome (Bossidy & Charan, 2002). Bossidy also employed elements from the change road maps presented earlier in this text. For example, he created a sense of urgency for change (NHS North West, 1996) through his decisiveness and timeliness, stating that people should expect him to make well thought- out, quick decisions once he obtained the information that he needed (Bossidy, 2007). The moment he took over AlliedSignal in 1991, he did just that. Bossidy gathered all the informa – tion he needed and made quick decisions to eliminate jobs and restructure from three sectors to 11 units. Urgency was created as employees experienced swift action and follow-through. wei82650_03_c03_103_154.indd 117 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.2 Implementing Change Through Leading and Mobilizing Bossidy was decisive; there was no honeymoon period while the company considered change. As soon as he had the plan and information to support it, change began to occur. He used a guiding dominant coalition to implement his change strategy (NHS North West, 1996). Bossidy knew he needed a strong management team to implement the change he wanted. In his first 2 years, 30% to 40% of his day was spent hiring and developing leaders (Bossidy, 2001). In engaging in hands-on hiring, Bossidy was handpicking a coalition to share his vision and help him implement change. Bossidy generated short-term wins (NHS North West, 1996) to bolster support for the imple- mentation process by focusing only on what needed to be changed and leaving the rest of the company alone (Bossidy & Charan, 2002). In just 5 years, Bossidy’s changes increased the company’s return on sales to 7.3% and reduced long-term debt to only 22% of total capital (International Directory of Company Histories, 1998). Communication and strongly enforced goals allowed the AlliedSignal team to work quickly to implement change. Feedback was another critical suc- cess factor in leading and managing the transition at AlliedSignal. Some organizations may neglect to collect feedback, putting change initiators at risk of not knowing when their changes are not working as planned (International Directory of Company Histories, 1998). Change is handled best by organizations that are ori- ented toward learning, and feedback is the most direct and continuous way to learn about change within the organization. Feedback on the change process provides leaders with useful information about what is and isn’t working and ideas for improvements or efficiencies. Feedback can be gathered using many unique methods. These include surveys, interviews, observation by employees responsible solely for monitoring change, and using teams. Bossidy used his continuous communication process not only to gather new information and obtain a sense of how the change affected people, but also to give positive and negative feedback to his team and employees, both about the change and their performance. Feedback ensures that mobilization is a dynamic, living process and, when done well, orients the organization toward learning. Sustaining Momentum While managing and mobilizing change, employees must also be engaged and involved, espe- cially those who lack access to higher level leaders and managers. This is because leadership may become engaged in other tasks, key players may be unable to fulfill all their responsibili – ties, and leadership changes may jeopardize the organizational changes (Warrick, 2010). It BananaStock/Thinkstock Interviews are one way to gather continuous feedback from both employees and management, something that is crucial to smoothly managing change. wei82650_03_c03_103_154.indd 118 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.3 Strengthening Alignment With the New Vision and Future State takes a concerted effort to provide the resources necessary to sustain change and reinforce new behaviors. Communication is an important tool when building support systems and providing a unified and complete understanding of the vision. Bossidy created a demanding environment, but he also provided many outlets for communication and feedback (in terms of concerns, ideas, plans, goals, and performance). His expectations with regard to employee performance and responsibilities were made very clear. Bossidy later became known in management litera- ture as a leader who excelled at execution, which involved engaging and involving employees (Bossidy & Charan, 2002). However, with regard to creating incentives for change, it is also important to note that these changes typically only benefit the organization and signify more work and little benefit for those employees who are actually implementing the change. To this point, Bossidy was not pro – ficient at providing incentives for change as much as he emphasized the achievement of goals. His “incentive” was that employees would likely be fired if they didn’t meet the performance goal. This type of culture worked at AlliedSignal because employees attracted to the company were those who were looking for this type of environment; however, this performance-driven method does not often result in the best change. It also requires more oversight and time when creating goals (Holstein, 2002). Despite the harsh performance-driven culture, Bossidy succeeded in following through on the process of the change initiative. He sustained momentum through the change, which is not easy. It takes a great deal of discipline and determination to provide successful, lasting changes and to convince leadership to continue with the process until all goals are achieved. However, successful implementation is worth the hard work—it accomplishes necessary changes, increases confidence in the change process, and empowers and excites employees at all levels. Check Your Understanding 1. If you were instructed to help a team plan a large change for an organization that recently hired you, outline some steps you would take to share at your first meeting. 2. What are some concepts and actions that Bossidy used in the change effort at AlliedSignal? How successful was he in his efforts? 3.3 Strengthening Alignment With the New Vision and Future State Organizational change expert Daryl Conner (2006) stated in his book Managing at the Speed of Change that once effective change leaders determine what must be done, achieving these goals involves three components of organizational change: intent, people, and delivery. Intent involves creating and sharing the vision for the end result of the change and protecting its integrity as the company moves through the change process. This step is especially impor – tant at the beginning of a change effort, since it helps garner commitment and motivation. wei82650_03_c03_103_154.indd 119 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.3 Strengthening Alignment With the New Vision and Future State People refers to the human aspects of change. It involves developing employees’ commitment to the change, reducing resistance, aligning the change with the company culture, and creating synergy. Delivery includes setting up governance, overseeing interdependencies, providing progress reports, and prioritizing and assigning resources. When all three components are combined, there is a higher probability of adding full value to the process and its outcomes. The issue in integrating these three components in organizational change is that each one deals with a specialized area (Conner, 2006). Therefore, when a pressing project or goal is being pursued, rarely are the three areas dealt with simultaneously. From this reasoning, Conner (2006) discovered the importance of strategy execution—that is, combining the components of intent, people, and delivery to increase the probability of the change initiative’s success. Another way to view how planned organizational change combines intent, people, and delivery—including implementation—is through the need to align the major dimensions of vision, strategy, culture/people, and processes that were discussed in Chapters 1 and 2. At the implementation stage of organizational change, aligning these dimensions involves redirect- ing the activities of leaders, managers, and professionals to the new vision and future state of a transformational change. Leadership: Aligning People and Culture to the New Vision and Strategy Aligning the organization to a new vision and strategy begins at the lead – ership level. Leaders like Bossidy of AlliedSignal and Mulally of Ford trans – formed their companies through dra – matic vision and cultural alignment to it. Collins (2000) noted the distinction among values, vision, and operations: Core values are timeless and should not be changed, but the operating practices and culture of an organiza- tion should never stop changing. Before a leader can align the people and culture with the vision, she or he must distinguish what should change and what should not. An organization’s vision is comprised of three elements: (a) its mission or purpose—the reason why it exists; (b) its enduring core values; and (c) its ambi – tious, achievable goals for the future. The most important of these elements is the company’s core values (Collins, 2000). Strong core values give leaders the platform for vision and change. Strategy, Culture, and Processes An essential part of effective change is selecting leaders who can align the right vision and strategy to an organization’s industry environment, and then ensure that the culture and GuidoVrola/iStock/Thinkstock A leader must be able to guide a company toward a new vision while keeping the people and the organi- zational culture in alignment with core values. wei82650_03_c03_103_154.indd 120 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.3 Strengthening Alignment With the New Vision and Future State other organizational dimensions are working together toward common goals. Because CEOs and leaders are chosen to identify a new vision and select an effective strategy for a failing or faltering organization, the stakes are high for the leader. This is especially important when implementing a sizable change because alignment helps to uphold the organization’s core val- ues, reinforce its purpose, and move it toward its goals. When a company’s alignment is strong, anyone can walk in and know what its vision is without explicitly being told (Collins, 2000). While we have discussed leaders’ strategies, styles, and methods of organizational change, as well as the effects of change on employees and teams, it is also important to raise awareness of the importance of organizations’ and companies’ boards of directors. These are the bodies whom leaders generally report to and must gain approval for their strategies and actions. It is the role of boards of directors to keep the organization, and the leader, on course of the purpose and mission of the enterprise. A case of a leader whose strategies were not accepted by the board of directors is Hewlett-Packard’s former CEO Leo Apotheker. In August 2011 Apotheker announced to the tech world that HP was spinning off its personal computer (PC) division and business—in which HP is one of the world’s leading manufacturers (Taylor, 2011). Debate in the industry and at HP ensued. Meg Whitman, former CEO of eBay, was hired to replace Apotheker and his strategy. Shortly after she came aboard, Whitman announced that the PC division is still right for the company and for its customers, partners, shareholders, and employees (Couts, 2011). An excerpt from HP’s formal statement on the strategy change stated: The strategic review involved subject matter experts from across the businesses and functions. The data-driven evaluation revealed the depth of the integration that has occurred across key operations such as supply chain, IT and procure – ment.… Finally, it also showed that the cost to recreate these in a standalone company outweighed any benefits of separation. (Couts, 2011, para. 8) Aligning to Strategy After the CEO or leader and top-level executives select a new strategy, implementing a transformational strategy generally requires a shift in the organization’s culture, values, structure, roles, skills, and processes. In the HP example, it appeared that the proposed strategy change would not add to the company’s competitiveness and would be detrimental to HP’s culture and stakeholders. Note that Mulally at Ford achieved alignment through his “One Team, One Plan, One Goal” man – tra, which was embodied in the strategy of the Way Forward Plan. He insisted on transparency and communication, so that the vision was clear and supported by the entire organization. A similar example comes from the 3M Company. Leaders at 3M were also able to create alignment because of clear and enduring core values, a strong vision, and the fact that they created opportunities to execute these (Collins, 2000). 3M’s corporate values state that the company will: act with uncompromising honesty and integrity in everything we do; satisfy our customers with innovative technology and superior quality, value and ser- vice; provide our investors an attractive return through sustainable, global growth; respect our social and physical environment around the world; value wei82650_03_c03_103_154.indd 121 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.3 Strengthening Alignment With the New Vision and Future State and develop our employees’ diverse talents, initiative and leadership; and earn the admiration of all those associated with 3M worldwide. (3M, 2015, “Our Values,” paras. 1–6) All aspects of the company and its operations align with these values. It has worked hard to create a culture based on excellence and innovation that is firmly aligned with its core values. At 3M, scientists have been permitted to spend 15% of their time on projects of personal inter – est (a similar practice exists at Google). As 3M leaders see it, creativity allows for innovation and progress and is an important way to align employees and their efforts to the vision. 3M also requires that 30% of division revenue come from new products. The company supports new ideas (through an internal venture capital fund), provides a dual career track, and gives entre – preneurial and innovation awards (Collins, 2000). Through its actions, 3M leaders make the company’s vision and strategies clear. Action is the primary means of alignment. When aligning employees with the vision, lead – ers should consider nonfinancial incentives in addition to financial ones. Nonfinancial incen – tives can sometimes be as or more effective than monetary rewards in developing long-term employee engagement (Dewhurst, Guthridge, & Mohr, 2009). Part of aligning people to the vision is motivating and keeping them engaged. Employee morale can be improved with acco- lades from managers and one-on-one attention from leaders, as well as the opportunity to par- ticipate in task forces or lead projects (Dewhurst et al., 2009). Businesses are in need of leaders and employees who are involved and eager to exceed expecta- tions, particularly in an environment of continu – ous change (Dewhurst et al., 2009). Engagement and alignment stem from good communication and motivation. In the case of Ford, Mulally had a well-communicated plan that he consistently fol – lowed. This created a sense of stability, making the change seem more manageable. Transitioning Cultures A challenge pertaining to alignment arises when achieving the new vision requires a fundamental shift in culture. Employee distraction and demoralization can impede cultural changes and result in negative, counterproductive energy within an organization (Ghislanzoni, Heidari-Robinson, & Jermiin, 2010). Canada’s Bombar – dier faced such a cultural transition in the early 2000s. Pierre Beaudoin, CEO and president Blend Images/Superstock Nonfinancial incentives, such as employee-of-the-month programs, can be just as effective as money when it comes to keeping employees engaged. wei82650_03_c03_103_154.indd 122 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.3 Strengthening Alignment With the New Vision and Future State since 2008, had a formidable task. To change the culture, Beaudoin had to shift the company from hard goals to soft goals and find a way to champion change. Once driven solely by its manufacturing and engineering goals, Bombardier was on its way to becoming a company dedicated to its customers, its workforce, and continuous improvement (Simpson, 2011). Bombardier was affected by the aviation and aerospace industry recession that followed the September 11, 2001, terrorist attacks, but the company also acquired the railway transporta- tion company Adtranz from DaimlerChrysler in the same year. The company’s function-based structure had allowed it to make such acquisitions and grow. This growth was positive but kept the focus away from the customer. The Bombardier culture was in silos (per function) and needed to be integrated and aligned toward a new, customer-focused vision. Employees didn’t understand the company’s vision or values, making it nearly impossible for them to support it. The culture was one in which value was placed on any individual who was able to get the job done in a crisis but with very little focus on teamwork (Simpson, 2011). The company then made a shift from hard to soft goals. Hard goals, or goals that have clear, quantifiable criteria like performance figures, are often easier to measure. They are necessary but cannot be the main focus if a cultural transition is to take place. Instead, soft goals, or goals without clear, measureable criteria—such as employee initiative and communication— had to be the focus. Bombardier leaders translated soft goals into hard measurements wher – ever possible to help the company evaluate progress. The goal was to encourage frontline employees to become more proactive and take initiative. This process took time, as culture cannot be changed quickly (Simpson, 2011). The leaders at Bombardier understood a critical success factor in alignment—goals must be connected to the daily work of each employee. If employees cannot see or understand the alignment, it will not be sustainable. Effective alignment is achieved when there are champions of change. Champions are visible, daily examples of alignment. As Bombardier recognized, it is critical to have employees who will reach out to others and spread new ideas throughout the company (Simpson, 2011). By engaging employees across all levels to become champions of change, the vision and strategy spread more quickly, consistently, and thoroughly throughout the organization. Changing Systems and Processes Aligning culture to new strategies lays the groundwork to successfully implement new sys- tems and processes. Looking back at stage 6 in Figure 3.1, planning and organizing must occur before the change can be successfully implemented. A process is a series of actions or steps designed to achieve a particular goal, objective, or milestone. The strategy dictates the necessary processes. The leader must evaluate whether those processes exist yet in the organization and, if so, whether (and how) they are contribut – ing to implementation. Many companies must move from a narrow, project-based perspec- tive to a broad, program-based, end-to-end perspective (Browning, 1993). This can happen on either a micro or macro level; but either way, changing systems and processes requires a big-picture view. The leader must see and understand how all the pieces should and do work together to accomplish the strategy. wei82650_03_c03_103_154.indd 123 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.3 Strengthening Alignment With the New Vision and Future State Accountability is important when working with new or improved systems and processes. With this in mind, Browning (1993) suggests that the organization create the role of process owner. The process owner is the employee who is given both responsibility and accountabil- ity regarding how the new or improved process functions (Browning, 1993). This relates back to alignment; for new systems and processes to work, there must be spaces for them, cre – ated when the organization was aligned to the new vision. Changes in processes and systems must be made carefully and correctly to prevent employee and cultural morale from dropping (Ghislanzoni et al., 2010). Ghislanzoni and colleagues (2010) note the top five strategies used by successful organiza – tions when changing their systems and processes. The first is that successful organizations use reorganization to change employees’ mind-sets and behaviors. Processes and systems are often completely integrated, meaning that employees at all levels of the organization are involved. If done well, a change in processes and systems can help align the culture to the new vision, and reinforce that alignment. The second strategy focuses on what the new organizational model is and how it would work within the company (Ghislanzoni et al., 2010). Leaders must look at both the conceptual and the reality when implementing change—one without the other is incomplete and ineffective. The third strategy involves implementing the model quickly to begin immediately provid- ing value. Implementation often happens more slowly than leaders would like, but changes that have been competently and thoroughly planned and organized are more likely to be less wasteful and more successful. The fourth strategy is to attend to any risks or roadblocks as early as possible in the process, which enforces the need for the leader to monitor the process and plan before it is imple- mented. Finally, successful companies launch new business initiatives just prior to or at the same time implementation is completed (Ghislanzoni et al., 2010). Small and early victories are key, and sustaining the momentum is important for implementing change. This is also true at the system and process level. Fine, Hansen, and Roggenhofer (2008) note six habits lean leaders—that is, leaders who streamline and bring effective practices—adopt when changing systems and processes: 1. A focus on operating processes 2. Root-cause problem solving 3. Clear performance expectations 4. Aligned leadership 5. A sense of purpose 6. Support for people Processes should be a focus, and successful leaders must ensure that processes are standard – ized (Fine et al., 2008). The goal is to solve the root problem, rather than generate temporary solutions to surface problems. This involves providing learning opportunities as processes and systems are changed. With change comes the need for performance measurements that must be communicated and evaluated at all levels. Functional boundaries shouldn’t stop changes in process. Looking at the big picture often requires that processes change across silos or departments, which requires that leadership in all functions be aligned with the vision. wei82650_03_c03_103_154.indd 124 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.3 Strengthening Alignment With the New Vision and Future State Finally, changes must be related to employees’ day-to-day work. Leaders must show others how all the pieces fit together and set both short- and long-term goals. Companies should change with purpose and support. Mulally, for example, provided purpose and support through good communication. He first aligned himself to the vision and then led by example. Processes and systems were changed—not arbitrarily, but strategically—and the change pro- cess was approached as a learning process. These six habits encompass the importance of aligning culture and people to the vision both before and during the implementation of new processes and systems. Leaders must see the real problems and develop a well-communicated and well-followed plan that adhere to the vision, and set clear expectations at all levels. Managing Change The Specifics of Alignment Suppose you are implementing change at a major pharmaceutical company. You want to veer the company away from having the stereotypical reputation of a medicine factory concerned mainly with profit margins and cost-cutting measures. Instead, you want to steer the corporation onto a path that concentrates on the customers. Your vision: improving customers’ health is paramount—set out to do good for society and make it good business. Getting leadership on board is one of the first steps. You set out to integrate the three main components of proposed change: intent, people, and delivery. You recruit leadership by communicating a clear vision and announcing your commitment to protecting the organization’s integrity and in an effort to foster buy-in from managers and employees, thereby aligning the culture to your vision. You work on redesigning the infrastructure to manage delivery, including resource allocation, governance revisions, and metrics. Along with your team, you begin to refocus activities of unit managers to support the new vision. It is important to integrate the three main components of the proposed change (intent, people, and delivery). However, as they are different dimensions of organizational change, you must try to spin several plates at once and keep your attention focused on all corners of the organization. You are determined to lead by example. You see how the pieces of your organization fit together to achieve your vision, you have a big-picture view that you are communicating to others, and you are approaching this change as a learning process. Discussion Questions 1. What role do values play and how do they affect the vision and culture in a transformational change? 2. What are the stages, in order, to take as you implement change? 3. What are some specific ways to align the culture of the organization with the change initiative? 4. What are some of the pitfalls to be avoided? (See the end of the chapter for possible answers.) wei82650_03_c03_103_154.indd 125 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions Check Your Understanding 1. What techniques did Bossidy use at AlliedSignal to align the new vision, strategy, culture/ people, and processes? Explain. 2. If a manager asked you for tips on how to implement an organizational change, what lessons and knowledge from this section would you share? 3.4 Plan-to-Action: Roles, Relationships, and Interventions Whereas Mulally, Bossidy, and other top-level leaders generally serve as the champions of change in their organizations, assigned managers and teams work with consultants to drive the daily planning and implementation processes. Although there is no one best way to orga – nize change, most models refer to some form of top-down structure to launch the process, which cascades across all other organizational units. This section discusses how the roles, relationships, and planned activities are designed and implemented. Assigned Roles and Relationships Having a comprehensive change road map and plan in hand—like the one discussed in the first section of this chapter—enables the CEO or top leader to proceed with the help of human resources professionals to recruit and assign others to transition the organization. The fol – lowing framework represents different roles and responsibilities of different change leaders and professionals in an organization described in Table 3.1. Leading and managing the change transformation involves the normal operating business side of an organization to coordinate with the planned change side. Human resources profes – sionals are involved throughout the change process. Depending on the size of the organiza – tion and the scale of the change, assigned roles and relationships can involve a number of people and teams, as Table 3.1 shows. Some of the roles in Table 3.1 involve integrating individuals’ and teams’ responsibilities into the organization’s daily business functions and specific change activities. For example, the sponsor (who works for the organization) must interact with representatives from all the groups. Similarly, the change consultant and his or her team (who are dedicated to the change program and do not work as part of the business functions) must interact with the leadership change team and the executive team (members from teams who do work for the organization). Power, Authority, and Responsibilities of Change Leaders and Teams Notice in Table 3.1 that power and authority are based on a number of sources, including position, technical expertise and knowledge, strategic and operational experience and know- how, ability to motivate and serve as a positive role model, interpersonal and organizational communication skills, and the capability to execute the change requirements. Table 3.1: Assigned leadership roles and relationships Roles Responsibilities Deliverables Sponsor (highest line authority) “I give the ‘go-ahead’ to implement, provide resources, clarify outcomes, make course corrections, and spon- sor the change.” “I set the direction and expectations, coordinate communication, sign off on major decisions, inspire confidence, and resolve significant disputes.” Executive team (organizational senior managers) “We manage the outcomes and results, coordinate the business with the change strategy and outcomes, and balance priori- ties between the change activities and organizational business with middle managers and frontline supervisors.” “We authorize and fund the change requirements. We manage expectations, maintain operations, model new behav- iors and attitudes of the change and new culture, and sign off on daily decisions from the change team.” Leadership change team “We are cross-functional, repre- senting the entire organization; we have been delegated the authority to help create and implement the change strategy with the execu- tive team. We create conditions to realize breakthrough outcomes. We own the change methodology and support its implementation in the organization.” “We develop the change strategy and supporting process plan producing results. We oversee the realignment and resources of the change strategy to ensure effective integration of all change objectives. We also model behavior and roles required to implement quality results.” Change consultant and project team “We lead and manage both the process and technical sides of the change. We coordinate with the Leadership Change Team to integrate the design and implemen- tation of project change activities throughout the organization.” “We ensure the process and completion of all the major stages/phases of the change for each goal. We strategize, problem solve, and coach the business side on all steps and issues of change initiatives from plan to implementation. We also model change behaviors and mind-sets required for success of the change.” Source: Adapted from Ackerman, L. A., & Anderson, D. (2010). The change leader’s roadmap. San Francisco: Pfeifer, an Imprint of Wiley, Chapter 1; and The Adkar model of change. Loveland, CO: Prosci. Retrieved from http://www.change-management.com /tutorial-job-roles-mod2.htm wei82650_03_c03_103_154.indd 126 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions Check Your Understanding 1. What techniques did Bossidy use at AlliedSignal to align the new vision, strategy, culture/ people, and processes? Explain. 2. If a manager asked you for tips on how to implement an organizational change, what lessons and knowledge from this section would you share? 3.4 Plan-to-Action: Roles, Relationships, and Interventions Whereas Mulally, Bossidy, and other top-level leaders generally serve as the champions of change in their organizations, assigned managers and teams work with consultants to drive the daily planning and implementation processes. Although there is no one best way to orga – nize change, most models refer to some form of top-down structure to launch the process, which cascades across all other organizational units. This section discusses how the roles, relationships, and planned activities are designed and implemented. Assigned Roles and Relationships Having a comprehensive change road map and plan in hand—like the one discussed in the first section of this chapter—enables the CEO or top leader to proceed with the help of human resources professionals to recruit and assign others to transition the organization. The fol – lowing framework represents different roles and responsibilities of different change leaders and professionals in an organization described in Table 3.1. Leading and managing the change transformation involves the normal operating business side of an organization to coordinate with the planned change side. Human resources profes – sionals are involved throughout the change process. Depending on the size of the organiza – tion and the scale of the change, assigned roles and relationships can involve a number of people and teams, as Table 3.1 shows. Some of the roles in Table 3.1 involve integrating individuals’ and teams’ responsibilities into the organization’s daily business functions and specific change activities. For example, the sponsor (who works for the organization) must interact with representatives from all the groups. Similarly, the change consultant and his or her team (who are dedicated to the change program and do not work as part of the business functions) must interact with the leadership change team and the executive team (members from teams who do work for the organization). Power, Authority, and Responsibilities of Change Leaders and Teams Notice in Table 3.1 that power and authority are based on a number of sources, including position, technical expertise and knowledge, strategic and operational experience and know- how, ability to motivate and serve as a positive role model, interpersonal and organizational communication skills, and the capability to execute the change requirements. Table 3.1: Assigned leadership roles and relationships Roles Responsibilities Deliverables Sponsor (highest line authority) “I give the ‘go-ahead’ to implement, provide resources, clarify outcomes, make course corrections, and spon- sor the change.” “I set the direction and expectations, coordinate communication, sign off on major decisions, inspire confidence, and resolve significant disputes.” Executive team (organizational senior managers) “We manage the outcomes and results, coordinate the business with the change strategy and outcomes, and balance priori- ties between the change activities and organizational business with middle managers and frontline supervisors.” “We authorize and fund the change requirements. We manage expectations, maintain operations, model new behav- iors and attitudes of the change and new culture, and sign off on daily decisions from the change team.” Leadership change team “We are cross-functional, repre- senting the entire organization; we have been delegated the authority to help create and implement the change strategy with the execu- tive team. We create conditions to realize breakthrough outcomes. We own the change methodology and support its implementation in the organization.” “We develop the change strategy and supporting process plan producing results. We oversee the realignment and resources of the change strategy to ensure effective integration of all change objectives. We also model behavior and roles required to implement quality results.” Change consultant and project team “We lead and manage both the process and technical sides of the change. We coordinate with the Leadership Change Team to integrate the design and implemen- tation of project change activities throughout the organization.” “We ensure the process and completion of all the major stages/phases of the change for each goal. We strategize, problem solve, and coach the business side on all steps and issues of change initiatives from plan to implementation. We also model change behaviors and mind-sets required for success of the change.” Source: Adapted from Ackerman, L. A., & Anderson, D. (2010). The change leader’s roadmap. San Francisco: Pfeifer, an Imprint of Wiley, Chapter 1; and The Adkar model of change. Loveland, CO: Prosci. Retrieved from http://www.change-management.com /tutorial-job-roles-mod2.htm The sponsor is an executive from the organization’s line operation. This executive has position authority and power in the chain of command to direct employees to perform tasks related to their positions and to the organization’s goals. At the same time, the sponsor must be able to oversee the entire change process while inspiring others to succeed. The organization’s executive team members must be able to balance priorities, workloads, and the expectations of middle managers and frontline supervisors who are meeting the needs of the daily operations of the organization while implementing new requirements of the change. They must ensure that the change effort’s strategic goals and objectives are being implemented, and also model the behaviors and mind-set of the new organizational state that is still in transition. The leadership change team consists of members from different functional areas (for example, marketing, finance, production, and research and development) who must lead the change wei82650_03_c03_103_154.indd 127 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions strategy’s implementation. They create the conditions and own the change methodology to realize breakthrough outcomes. They are content experts in their areas of specialization who are charged with ensuring that the details of the plan are integrated “on the ground.” Like the other members responsible for the change, they too must be the change that they are effecting. The change consultant and project team lead and manage the technical sides of the change. The change consultant coordinates with the leadership change team to integrate the design and implementation of specific change activities throughout the organization. The power and authority of change consultants and their team—all of whom are usually hired externally—is based on their knowledge and expertise, not on their organizational status. Therefore, they need the leaders and members who are organizational hires to cooperate by performing their work. As OD specialists, part of their expertise resides in their human relations, communica- tion, and execution skills. Criteria of Change Leaders and Teams Organizational members should be selected to help plan and implement the change accord- ing to certain criteria. These include being (a) highly competent in the organization and (b) best positioned to effectively lead the effort (Ackerman & Anderson, 2010). In addition, we would add the following criteria: (c) being well-respected and well-liked by professionals in the organization, (d) being trusted by others in positions of authority and responsibility, and (e) having a track record of accomplishments that are central to the organization’s mission. These are also characteristics, competencies, and experience that CEOs like Mulally brought to Ford and Bossidy to AlliedSignal/Honeywell. Although they were not always liked by every – one, they earned respect based on their competence, their knowledge and experience, and their ability to demonstrate productive results. This is important for promoting collaboration, which is a cornerstone of effectively implementing change initiatives. Implementing Interventions A major task of change leaders and teams is to design and implement change interven – tions. With regard to organizational change, interventions are specific planned activities and events aimed at helping an organization increase its effectiveness (Cummings & Worley, 2009). Based on diagnoses of problems organizations face and/or opportunities that can be taken advantage of, OD interventions are designed to put an organization or one of its units into a more effective state. From this perspective, an intervention is effective if it meets three criteria: (a) it fits the organization’s needs, (b) it has been thoroughly examined and will pro- duce the intended outcomes, and (c) it transfers management competence to the organiza – tion’s members (Cummings & Worley, 2009). The type of intervention used depends on the type of organizational change needed (trans – formational, transitional, or developmental), as shown in Figure 2.4. The type of planned intervention also depends on what particular dimension of the organization (for example, leadership, strategy, culture, structure, processes) is targeted to change. Because we are pri – marily discussing transformational or large-scale change, the types of interventions required affect all of the major organizational dimensions in some way. Some changes within a wei82650_03_c03_103_154.indd 128 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions particular dimension may affect the other dimensions. For example, a newly selected CEO has ripple effects that extend to everyone. A major employee evaluation system can affect differ- ent employees across an organization, whereas an IT reporting and control system that most employees must use will affect different divisions, departments, and units. Before elaborating on the different types of change interventions shown in Figure 2.4, we summarize one of the most important transformational changes experienced by the Avon Products company. Examples from Avon’s story will demonstrate the nature and types of interventions that organizations use. Avon and CEO Andrea Jung Avon is one of the world’s leading direct sellers of beauty products, including skin care, makeup, and fragrances, as well as jewelry, lingerie, and fashion accessories. The company sells to customers in 145 countries (Cohen & Roussel, 2004). Avon’s 2015 annual ranking as a Fortune 500 firm was 322, with $8.85 billion in revenues (Fortune , 2015a). During the 1980s Avon Europe had branches in just six countries, and each country had an inde – pendently operated factory and warehouse with separate information and distribution systems that handled the local market. During the 1990s Avon’s robust growth nearly overwhelmed its supply chain organization (Cohen & Roussel, 2004). The firm had focused almost exclusively on marketing and sales to the exclusion of its supply chain and operational logistics. When the company planned on doubling sales revenue in Europe from $500 million in 1996 to $1 billion in 2001, executives realized that it would not work to replicate its country-based supply chain model in new and different markets. A decentralized supply chain across international geogra – phies and cultures would be cost prohibitive (Cohen & Roussel, 2004). Something had to change. Andrea Jung had been CEO of Avon for 11 years when this change loomed on the horizon. She recalls how it felt to be faced with this situation: As I was deciding back in 2005 to undertake the boldest-ever restructuring of the company, I had a frank conversation with a friend to whom I turn for advice from time to time. He reminded me that most people who successfully orches – trate significant corporate turnarounds come from outside, because they have no vested interest in the company or its people. It was 8 P.M. on a Friday night, and he challenged me. Could I, he asked, go home over the weekend and fire myself as the CEO who had presided over five years of explosive growth, and then rehire myself Monday morning as the turnaround specialist who would lead the company into the next era? It meant totally reinventing myself from the leader I had been to an entirely new type of leader who would be right for the next chapter in the company’s history. It was a very humbling experience, but ultimately very liberating. (as cited in Business Today, 2011, p. 34) In 2005 Avon’s stock price—which increased more than 181% during Jung’s first 5½ years as CEO—dropped 45% between April and October (Kowitt, 2012). That same year marked the abrupt end of 6 consecutive years of more than 10% growth, with earnings having tripled under Jung’s leadership. In Avon’s European markets, a new sales campaign began every 3 weeks, but it took 12 weeks, on average, to cycle a product through the supply chain. Manufacturing was wei82650_03_c03_103_154.indd 129 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions dependent entirely on forecasts, but about 50% of products resulted in rush orders because the company sold more than forecasted. Manufacturing incurred large changeover costs to stop pro- duction and meet rush orders. Preprinted containers were ordered in the language of respective country markets before sales were known. The company had slow-selling inventory accumulat – ing and significant, unpredictable costs dependent on sales (Cohen & Roussel, 2004). Significant resources were needed to transform the supply chain. Avon moved 45 of its best employees from Europe to work on the transforma- tion full time for 18 months. The company was challenged to create a centralized planning function to handle reactions to demand and inventory levels (Cohen & Roussel, 2004). Accumulating Information and Creating Systems Avon’s first step was to create a com – mon database for the organization to record information about inventory, manufacturing, and sales. Things like product codes and descriptions were developed for global visibility and analysis. Management around the world had to evaluate sales and inventory trends— both supply and demand. Without accompanying systems, the information in the database could not be used effectively, so Avon also created a supply chain and scheduling system. A regional planning group was put in place to evaluate the entire supply chain and make deci – sions using this information (Cohen & Roussel, 2004). The Redesign When Jung and her senior team stepped back and reviewed their supply chain as an end-to- end process, rather than as isolated local systems, the real value and benefit of this transfor – mation became evident. If the supply chain was transformed, the company could replace five or six language-specific bottles for shampoo or lotion with one plain bottle. This way, produc- tion could run continuously without having to switch the bottle stock, and customer service could respond more quickly to changes in demand. Therefore, when inventory was exhausted in any market, the warehouse moved into action by labeling products in the relevant language and shipping them out on trucks. The savings and economic gain was significant. Avon embarked on the redesign of its physical supply chain. Manufacturing operations were consolidated around the company’s emerging market, allowing for time and labor cost effi – ciencies. A centralized inventory hub was created near two manufacturing plants in Poland, allowing products to be directed as demand was determined. Containers were standardized to reduce changeover costs. By purchasing inputs like containers from suppliers close to the AP Photo/Stephen Chernin One of the first steps Andrea Jung took toward dou- bling Avon’s sales revenue in Europe was to compose a solid team and transform the supply chain. wei82650_03_c03_103_154.indd 130 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions manufacturing plants, transportation time and cost were reduced. There were also fewer sup- pliers that were more flexible and responsive. The redesign was possible because Avon widened its view of the company’s overall opera – tions. The decentralized model—in which each country operated independently—kept Avon from working as a single, streamlined operation. By looking at the supply chain as an end-to- end process, Avon could make better strategic choices and adapt to changing market demands more quickly (Cohen & Roussel, 2004). Communication and Realignment Avon next changed its structure to match the redesign of its supply chain processes. “Plan, source, make, and deliver” became the new key process (Cohen & Roussel, 2004, p. 3). The simpler, centralized model was easier to manage. It also changed the roles and responsibili – ties of many employees. For example, general managers became responsible primarily for sales, rather than for inventory. Jung made facts rather than intuition the main driver behind managers’ decisions. This shift removed much of the autonomy of country managers but enabled them to perform their work with more precision, increasing each operation’s overall performance. These changes were reflected in new performance metrics—a data-centric approach (Bloomberg Businessweek, 2008). The company also infused collaboration in its changes. A collaborative design work – shop was held that involved suppliers, a design firm, and Avon marketing and supply chain personnel. Collaborating on ideas yielded designs that reduced costs and improved efficiency. The new processes and structure were communicated through training; this helped upgrade employee skills. Avon partnered with Cranfield University, a supply chain business school in Britain, to develop a new training program in both full and accelerated durations (full for sup – ply chain associates and accelerated for senior executives) (Cohen & Roussel, 2004). Avon successfully implemented a new and vastly more efficient supply chain to respond to its rapid growth of two or three new markets per year. This change allowed the company to increase efficiency, reduce costs, and save about $50 million per year (Cohen & Roussel, 2004). The company went on to create a fully integrated IT system to incorporate the changes and track the new information collected (Cohen & Roussel, 2004). The Transformation of Jung and Avon Jung’s expertise and experience were grounded in building brands, not in turning around global logistics supply chains, structures, and systems. During the company’s steep decline in the early 2000s, she said, “My first reaction was: ‘I get it. I see the numbers, but I just don’t know if I, or we, have the stomach for it’” (as cited in Byrnes, 2007, “Painful Cuts,” para. 1). She had to shift both her thinking and the thinking of her managers regarding problem solv – ing from intuition to a data-driven approach. She also had to take much of the autonomy from country managers, who were used to running plants their way. They had to create a way to install and mobilize a globalized manufacturing and marketing system. Jung also had to champion downsizing—a most painful task. Seven layers of management were let go, from 15 down to 8 management levels. During the restructuring, she flew from wei82650_03_c03_103_154.indd 131 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions country to country talking with her top 1,000 global managers. Her basic message was that a quarter of them would be let go by the end of the year. This was a difficult time for Jung, as she had hired many of them (Bloomberg Businessweek, 2008). She also led the charge on launching the numbers-heavy, return-on-investment analysis that most of the larger, successful consumer products companies—Gillette, Procter & Gamble, PepsiCo, and Kraft—had been using for many years. The analysis was run by an executive team, most of whom were recruited from outside the company and were centralized from the New York headquarters. At the end of her tenure as CEO, Jung had more pressures with which to contend (Lublin & Karp, 2011). In 2011 the U.S. Securities and Exchange Commission (SEC) inquiries and an SEC subpoena investigated whether Avon was involved in bribes to Chinese government officials and improperly disclosed market-sensitive information to financial analysts over the previ- ous 2 years. In December 2014 Avon agreed to pay $135 million to settle the SEC charges (Wohl, 2011). As CEO of Avon, Jung made some bad decisions. In April 2012 Avon replaced Jung as CEO with Johnson & Johnson vice chair Sherilyn McCoy. Types of Interventions We usually do not read about or see how the different implementation roles explained ear – lier in this section are carried out in notable organizational transformations. What we do read about is how visible CEOs and leaders either master or fail at organizational changes. Mulally at Ford and Bossidy of AlliedSignal, for example, succeeded in their efforts. Jung suc- ceeded but struggled in her attempt to learn and adopt the necessary implementation roles and expertise needed to turn Avon around. Reinventing the Leader as Change Champion Jung led the restructuring and centralization of Avon’s supply chain, which required trans- forming new logistics systems and business processes that, in turn, changed employee roles and the manufacturing and marketing processes. She succeeded at leading these strategies and systems (shown in Figure 2.4) by reinventing her role as an implementation leader who had to make and enact the tough decisions. This reorientation was not easy and did not happen right away. Avon experienced a 45% stock price drop and the cessation of earnings growth in 2005 before any changes were made. It was challenging for Jung to stomach these downturns when the company had been doing so well under her former leadership style. Jung had to change not only her leadership, but also the organization’s culture, people, strat – egy, structure, and systems. The team she put together developed the strategy at corporate and functional levels. Jung started by looking at the big-picture problems to determine the big-picture solutions, and then brought people together to work out the details. Reinventing a Supply Chain and Culture With the plan ready to be put into action, Jung used her role as integrator to attack the system and structural issues. She started with a new common database system for recording inven – tory, manufacturing, and sales data, as well as a new supply chain and scheduling system. Both wei82650_03_c03_103_154.indd 132 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions systems integrated information and facilitated decision making. Jung had to use relationships with employees, vendors, and customers to successfully implement the new system and sought constructive feedback throughout the process. This major change at Avon was a collaboration of efforts and insights. Jung relied on this collaboration, which was a balancing act for all parties. Structural Interventions With the new system in place and functioning, Jung turned to its structure. She looked at the supply chain from all levels—enterprise, functional, business process, and global. Avon con- solidated its facilities and created a centralized inventory hub. Major physical changes like this require significant amounts of resources (particularly finan – cial), making it critical that the leader maintain good relationships with employees, vendors, and customers. Relationships allow for the beneficial exchange of information and feedback, and they often contribute to a more efficient, accurate, and mutually beneficial change pro- cess. The leader must make sure all stakeholders see the value in the change and understand their unique contributions to it. Jung topped off the structural changes by standardizing con – tainers and localizing suppliers. These procedural and structural changes made Avon’s supply chain (and its people) more agile. Roles, Relationships, and People Interventions The roles and relationships required dramatic changes for many managers, not only for Jung. A simpler, centralized model was easier to manage and resulted in a shift in responsibility, from inventory to sales. It freed managers to evaluate larger issues, rather than micromanag- ing and responding to inventory concerns. By understanding their roles and relationships, the managers were free to develop more of their skills and talents. These changes affected Avon’s culture and its people. The culture became more centralized as communication was integrated and supply chain problems no longer caused tension. Employ – ees changed as their roles were relocated, more local suppliers were used, and outside spe – cialists were brought in to train employees and evaluate the supply chain. During the implementation process, Jung succeeded at learning new leadership roles and navigating new relationships. She learned to be an integrator, a liaison, and a cheerleader throughout the process—not with creative marketing and merchandising employees, but with first-line managers and supply chain systems professionals. The implementation succeeded because she assumed roles that involved the nuts and bolts operational systems and strategy, which were an integral part of the company’s culture, people, structure, systems, and enter – prise strategy. These changes were not instantaneous. It took years of strain on the supply chain, declining performance, and the advice of a good friend to direct Avon and Jung toward change. In the end, changes were the result of careful observation, feedback, and collaboration. Implementing New Strategies and Structures Champions of change in any organization must ask, “What structure is best for the com – pany?” From a contingency management theory perspective, the answer is, “It depends.” It depends on the strategy, the changing marketplace, the competition, and the evolving needs wei82650_03_c03_103_154.indd 133 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Industrial Era: 1890s 1950sFunctional Hierar chy Matrix Continuum of Organizational Structure Te chnological Era: 1960s 1980s Networks and Teams Mechanistic Organic Stable, simple Efficiency, precision Hierarchical control Security, equity Orderly working relations Bureaucracy Environmental Goals Accountability MotivationCulture Main problem Turbulent, complex Innovation, change Economic performance Challenge, rew ard Entrepreneurial freedom Disorder, risk CEO VP VP VP CEO VP VP VP Team A Team B Team B Team A CEO Design Team A Sales Team Manufacturing Team Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions and requirements of products and services. Generally, as Figure 3.3 illustrates, organizational structures have evolved from functional, vertical hierarchies to matrix and product-structural arrangements to organic (flexible and decentralized) networks, outsourced alliances, and teams (virtual and land-based). Some degree of centralization and control are required to standardize products and/or ser – vices and to save and share costs, ensure quality and evenness, maintain control over errors, and increase profit margin—as was the case at Avon. Still, flexibility, integration, speed, and operational connectivity output are also required to streamline structures and meet changing customer demand. For these reasons, many firms that wish to establish accountability with flexibility move certain operations into strategic business units. These arrangements give units control over their own profits and losses, while coordinating strategy, revenue, and profit targets with the parent company. In Jung’s situation, the company had become too localized in its decision making and opera – tions. The supply chain had splintered, and costs were spiraling out of control. Her task was to Figure 3.3: Organizational structures The evolution of changing organizational structures generally moves from simple to complex, stable to turbulent, and mechanistic to organic. There is no single organizational structure that is always right; the “fit” between an organizational structure and its environment depends on many factors, including the demands of the environment and an organization’s leadership, strategy, resources, and culture. Source: Based on Halal, W. (1994). From hierarchy to enterprise: Interval markets are the new foundation of management . Academy of Management Executive, 8(4), 70. Industrial Era: 1890s 1950s Functional Hierar chy Matrix Continuum of Organizational Structure Te chnological Era: 1960s 1980s Networks and Teams Mechanistic Organic Stable, simple Efficiency, precision Hierarchical control Security, equity Orderly working relations Bureaucracy Environmental Goals Accountability MotivationCulture Main problem Turbulent, complex Innovation, change Economic performance Challenge, rew ard Entrepreneurial freedom Disorder, risk CEO VP VP VP CEO VP VP VP Team A Team B Team B Team A CEO Design Team A Sales Team Manufacturing Team wei82650_03_c03_103_154.indd 134 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions centralize the logistics while empowering managers to follow the new strategy based on cost savings, and to accommodate marketing to local country contexts. In practice, larger multinational and global firms use a combination of structures— functional, product, divisional, matrix, and team—to take advantage of national and multidomestic competitive market and operations conditions. For example, large international firms like Coca-Cola and Procter & Gamble have used global matrix structures that standardize cer- tain products across countries (a global matrix) but adapt some products for local country customer preferences (a global geographic structure). Strategies must meet environmental and customer demands while fitting with the organizational structures, cultures, and people internally to achieve required performance and remain competitive. Whatever organizational structure is selected and aligned to the strategy, increasing use of information technologies is serving as the most rapid and relied on means of decision making. Bill Gates’s (1999) concept of the organization as a digital nervous system is still relevant to the ongoing integration of information technologies that link and transform companies’ stra – tegic thinking and their customer interactions, basic operations, and business reflexes. Cisco Systems, a technology com- pany that designs and sells network – ing and systems communications products and services, provides an excellent example of Gates’s concept. The company originally specialized in the enterprise (business) market but has since incorporated the home networking market. It practices what it develops, markets, and sells— interconnectedness. Cisco promotes innovation by combining and inte – grating knowledge workers with the company’s core competency—the technology and people it develops and acquires (Kochan, 1999). It is important to remember that structure follows strategy. In the case of Avon, the strategy was to centralize the product manufacturing logistics, based on state-of-the-art IT and busi – ness process management leadership. Other situations may call for different strategies (for example, decentralizing authority and decision making) and structures. One can determine whether a new strategy is aligned with other organizational dimensions by asking people throughout the organization the following questions: 1. Can you state the organization’s overall guiding strategy? 2. Is the organization’s dominant strategy clearly communicated to you? 3. Does the organization’s strategy guide any of your work processes and results? 4. Are your skills related to the organization’s strategy? 5. Has your work, knowledge, or output changed as a result of the organization’s strategy? 6. Is there a consensus within the organization on the organization’s strategy? AP Photo/Kristoffer Tripplaar/Sipa USA Cisco is an example of a company that practices what it develops, markets, and sells—interconnectedness. wei82650_03_c03_103_154.indd 135 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.4 Plan-to-Action: Roles, Relationships, and Interventions Group and Individual Interventions It is not easy to change behavior, attitudes, and mind-sets, as we saw when discussing resis- tance to change in Chapters 1 and 2. With regard to organizational change programs, Ford, Ford, and D’Amelio (2008) propose a different way to understand and deal with resistance. Rather than approaching change as irrational or as a dysfunctional reaction with the need to overcome resistance to it, these authors propose that change agents use resistance as a resource for change. In this regard, the change agent’s job should involve taking responsibility for managing rela- tionships with those who resist, and for the tactics of the change implementation. He or she should speak with resistors to understand why they are opposed to the change. This cre – ates dialogue between the parties and can improve the agent–client relationship (Ford et al., 2008). Overcoming resistance, from this view, is not the aim; rather, it is important to engage the resister’s action, the change agent’s interpretations of the situation, and the organiza – tional background—including the relationship between the resister and change agent. This dialogue seeks to get to the heart of what the resistance is about from all points of view. Not all professionals will or should accept planned changes. Some individuals may find that the requirements and costs exceed their ability, willingness, and desire to change. However, organizations are often legally and ethically obligated to offer leaders, managers, and employ – ees opportunities to learn, develop, and adapt to planned changes. Interventions aimed at developing, retraining, and orienting individuals and groups to future organizational states include coaching and programs related to education, training, team build – ing, communication skills, leadership and management, career development, problem solving, IT skills, and mentoring. Many change management skills and strategies are found in this text. Chapters 4 and 5 address the skills and mind-sets needed in agile and learning organizations. Managing Change Interventions That Change Business Processes Suppose you are a leader at a consumer products company. The company survived the financial crisis but is struggling to maintain growth in the sluggish recovery. Customers are seeking improvements in service delivery, which will require more financial resources, but superior customer service is an integral part of the company’s vision. The company facilitates online orders and ships from a centralized hub to destinations nationwide. Packing and shipping is a large part of the customers’ cost—sometimes rivaling the cost of the product itself. Change is needed to maintain the vision and answer customer demand. Leadership agrees that layoffs should be avoided as a means to boost financials; doing so can also protect employee morale. After a gap analysis is performed, it is determined that improvements can be made in speed- to-market. Fellow leadership is on board, but you know that you must embody the change and continually seek their feedback and collective input to strengthen any change implementation. (continued) wei82650_03_c03_103_154.indd 136 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration Check Your Understanding 1. Consider a leader, manager, or CEO that you have worked with or have read about (not in this text) who helped implement an organizational change. What qualities did he or she possess? How did these qualities help or hinder his or her ability to promote change? 2. Explain each type of intervention that must be implemented with regard to an organization- wide change. 3.5 Managing Stakeholders: Politics, Power, and Collaboration Transformational change inevitably involves competition and changes in the power balance between executives, groups, and employees. Change initiators and agents must have sufficient power to plan, implement, and sustain the organizational change. CEOs generally direct the transformation with the help of their core leadership team, as was discussed in Section 3.4. However, in larger organizations, as the change implementation plan cascades down and across the organization, different level managers and teams take charge and need different sources of power to be effective. Developing Political Support and Using Power in Organizational Change Greiner and Schein (1988) identified three major sources of personal power in organizations that are relevant to change agents: knowledge, personality, and the support of others. Besides having position power (power invested in the change agent’s place in the hierarchy—job title, status), those directing the change should also have knowledge, experience, and expertise in dealing with organizational change. Change agents use their expertise and knowledge to gather and analyze diagnostic data and information, write reports, and conduct formal and informal interviews and surveys. These are all legitimate methods in a “playing-it-straight” strategy for preparing and implementing change. Managing Change (continued) Discussion Questions 1. What type of intervention would you perform in this scenario? 2. How would you creatively execute this type of intervention? 3. Aside from the main task at hand, what kinds of considerations should you keep in mind? 4. How will you manage resistance? (See the end of the chapter for possible answers.) wei82650_03_c03_103_154.indd 137 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration Enlisting the support of others in the organization is a second source of power for change agents. This power source involves individuals, groups, and other influential people. It also involves using social networks and coalitions to leverage change and resources for their own competi- tive advantage and to remove obstacles that prevent goal achievement (Greiner & Schein, 1988). It is critical to gain access to those who can help promote change. Personality is a third source of power. Charisma, reputation, and credibility can help a change agent manage the political nature of change. A major strategy that can be used involves going around the formal system. Man – agers and employees who are liked have informal influence; those with good reputations can enact changes by using their personal legitimacy to circumvent bureaucracy, rules, and red tape. While this is an easy method, it may have negative and ethical con – sequences. Caution should be taken when using personal power to avoid the formal system. Identifying and Influencing Major Stakeholders Another step in preparing to manage the political dimension of change is to have the guid – ing planning coalition identify and then influence the change’s key stakeholders. Stakeholder analysis is one tool for this process (Freeman, 1984). This type of analysis does not involve creating an “us against them” stance; rather, it is a way to identify the key stakeholders in order to understand the issues related to the change that affect different individuals, groups, and work units. Involving different individuals across the organization in this process can keep it more objective. The following questions should be asked: 1. Who are the stakeholders (that is, people who have an interest) in supporting or resisting the change? 2. What are their stakes in either supporting or resisting the change? 3. What do the supporters stand to gain and lose from the change? 4. What do the resisters stand to gain and lose from the change? 5. What type(s) of power do the supporters have with regard to the change? 6. What type(s) of power do the resisters have with regard to the change? 7. What strategies can we use to keep the support of the supporters? 8. What strategies can we use to neutralize or win over the resisters? Once the key stakeholders are identified, they can be mapped into supportive, nonsupportive, mixed-blessing, and marginal positions with regard to the planned change. Using the strategies of Savage, Nix, Whitehead, and Blair (1991) to assess and manage stakeholders (see Figure 3.4), a change agent and core team can gather information to inform influence strategies. Fuse/Thinkstock Personality is a source of power. Charisma, reputation, and credibility can assist a change agent’s personal power in managing the political nature of change. wei82650_03_c03_103_154.indd 138 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration For example, stakeholders who are supportive (type 1 in Figure 3.4) need to be involved so as to maintain and leverage their support when prepar- ing for and implementing the change. Nonsupportive stakeholders require strategies from the change agents that defend the change. However, because the goal is to move as many stake- holders as possible into a supportive stance, it is feasible to use other strat- egies with nonsupportive people. For those stakeholders who are mar- ginal (type 2, those who show a low potential for cooperating with the change and are seen as a threat to it), a monitor strategy is suggested. Other strategies can also be considered to transform these fence sitters into supporters. Because mixed- blessing stakeholders (type 4) have a high potential of threat to the change and also a high potential for cooperation, a collaborative strategy could be used to move them to a supportive stance. When developing influence strat – egies with stakeholders, it is important to stress the new change’s vision, mission, and values. It is always important to keep a strategy’s ethical means and ends in mind. When managing the politics and power of any change process, the goal is to not hurt anyone and to respect everyone. The HP example discussed in Section 3.3 illustrates how a stakeholder analysis might have prevented the controversy and confusion over whether the company should exit the PC busi – ness. Controversy was certainly swirling inside HP over whether to sell the PC business and adopt a “You bet the company” strategy on a software venture. Leo Apotheker championed this type of strategy when he made the case for HP’s acquisi – tion of the British software firm Autonomy for $10.3 billion. Apotheker directed HP to rely on its software business using its new consumer tablet, the TouchPad, and HP’s operating system WebOS, which was developed to compete with systems like Android (Steward, 2011). Apotheker attempted to move stakeholders to a type 1 supportive strategy. It seemed that members of HP’s board were moving between type 2 (marginal) and type 4 (mixed-blessing) positions with regard to Apotheker’s proposal. There were also numerous stakeholders and influential observers who were firmly in the nonsupportive group. For example, when a former HP director and venture capitalist Tom Perkins heard that HP was buying the British software firm, he called it corporate sui – cide (Steward, 2011). A software executive reportedly said, “It was as if Alan Mulally left Boeing to join Ford as C.E.O., and announced six months later that Ford would be making airplanes” (Steward, 2011, para. 20). Other industry analysts, CEOs, and business media also weighed in heavily against Apotheker’s and HP’s strategy of moving completely out of its PC Figure 3.4: Stakeholder matrix Each quadrant represents a stakeholder response to real and perceived threats and opportunities. Source: Savage, G., Nix, T., Whitehead, C., & Blair, J. (1991). Strategies for assessing and managing stakeholders. Academy of Management Executive, 5 (2), 61–65. High High Low Low Potential for Stakeholder Cooperation with Change Po tential for Stakeholder as Threat to Change Type 1: SUPPORTIVE Strategy: INVOLVE Type 4: MIXED-BLESSING Strategy: COLLABORATE Type 2: MARGINAL Strategy: MONI TOR Type 3: NON- SUPPORTIVE Strategy: DEFEND High High Low Low Potential for Stakeholder Cooperation with Change Po tential for Stakeholder as Threat to Change Type 1: SUPPORTIVE Strategy: INVOLVE Type 4: MIXED-BLESSING Strategy: COLLABORATE Type 2: MARGINAL Strategy: MONI TOR Type 3: NON- SUPPORTIVE Strategy: DEFEND wei82650_03_c03_103_154.indd 139 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration manufacturing business to a software one that would go head-to-head with Apple, Google, and other dominant players in that competitive space. Without executing a thorough stakeholder analysis on this issue, the board—which had the most voting power—moved into the nonsupportive stakeholder position, ousted Apotheker, and brought in Meg Whitman, who kept HP manufacturing group. Managing Conflict Implementing change strategies involves conflict among and between people. Conflict within an organization can be productive and/or problematic. It often occurs between and among people who are competing over real or perceived resources, have differences of opinion or interpretations of facts, and/or experience relationship issues. Conflict also refers to competition that “occurs between parties whose tasks are interdepen- dent, who are angry with each other, who perceive the other party as being at fault, and whose actions cause a business problem” (Ohlendorf, 2001, “Understanding Conflict,” para. 1). Con- flict can also be classified by its end result as either constructive or destructive and functional or dysfunctional. Constructive or functional conflict is progressive—the result is growth and change, with increased involvement and unity. Destructive or dysfunctional conflict, on the other hand, is regressive—the result is retreat and polarization, with a loss of morale unity (Ohlendorf, 2001). A 2013 Stanford University/Miles Group study revealed that knowing how to handle con – flict ranks as the most significant area of concern for CEOs (Larcker, Miles, Tayan, & Gutman, 2013). Almost 43% of CEOs surveyed gave “conflict management skills” the highest rating. CEOs are often tasked with difficult decisions that typically come with some level of conflict. Therefore, they must learn how to skillfully navigate conflicting agendas. Conflict is inevi – table when managing stakeholders. Organizations must direct all parties toward construc – tive conflict to meet larger goals. This task requires foresight, situational analysis, and good communication. Styles of Conflict Management Thomas and Kilman’s (1977) classic five styles of managing conflict provides one of the most widely used and useful assessments for discovering organizational members’ dominant con – flict management styles. Understanding your style and the style of those with whom you trying to resolve a conflict increases self-awareness and provides opportunities to explore resolution options. Read about the different styles in Figure 3.5 and then take the assessment to discover your dominant styles(s) at ht tp://lnu.se/polopoly_fs/1.88249!thomas-kilman -conf lict%20english%20original.pdf . The accommodating style is a cooperative style of resolving conflicts in which one risks being taking advantage of or used at their own expense, since it may go against one’s goals and desired outcomes, depending on the other party’s motives and tactics. This approach works well when the other party is the expert or has a better solution. It can also be effective for maintaining future relations with the other party. wei82650_03_c03_103_154.indd 140 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Assertiveness Cooperativeness Competing Collaborating Compromising Avoiding Accommodating Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration The avoiding style does not address an issue or problem. Nei- ther party is likely to reach their goals. This style may be effective under the following conditions: (a) when an issue is trivial or when one cannot achieve her or his goals, (b) when resolving an issue is too costly, and (c) when the climate surrounding the issue is too emo – tionally volatile and one needs to pull back or withdraw. If an issue solves itself, a person or group may achieve their goal. However, using this strategy is not advised for the long term. The collaborating style involves cooperating with others to pursue a win–win solution. This style avoids win–lose methods and outcomes and is more effective with com – plex issues that may also require innovative solutions. Collaborating requires (a) high levels of trust from all parties and (b) more time and effort spent getting all parties to reach consensus. A downside is expecting too much from the process and expected outcome, while not achieving one’s desired goal. Still, this style is most recommended. The competing style is a win–lose approach. It requires confronting and assertive goal achieve – ment instead of cooperating with the other party. Winning may be at the other party’s expense. This style can be effective when (a) there is a crisis or emergency and time is a priority; (b) a quick, decisive solution is required; or (c) all parties agree that such an approach is needed. The compromising style is a lose–lose approach in which neither party gets what they really want. Assertiveness and cooperation are required. This style may be effective when (a) a tem- porary outcome is needed and (b) when both parties have equally important goals. This style should be avoided as a preferred, automatic approach, and collaborating might work better to achieve goals. Again, you have a better chance of finding a suitable solution if you are aware of your own style and the styles of those with whom you must negotiate, and if you apply the appropriate style to the situation. The Drama Triangle Destructive conflict is often evidenced through a “drama triangle,” as depicted in Figure 3.6. This triangle illustrates a pattern involving a “persecutor,” “victim,” and “rescuer” (Lloyd, 2001; Ohlendorf, 2001). While at first glance these three roles appear somewhat dramatic, leaders, managers, and employees can take on such attitudes and behavior patterns, particu- larly during stressful times. Figure 3.5: Five styles of conflict management The five styles of conflict management are accommodating, avoiding, collaborating, competing, and compromising. Knowing one’s personal style and the styles of others increases the odds of arriving at a suitable solution. Source: Thomas, K., and R. Kilmann. (1977). Developing a forced-choice measure of conflict-handling behavior: The ‘MODE’ instrument. Educational and Psychological Measurement, 37, 309. Reprinted with permission from Sage Publications, Inc.. Assertiveness Cooperativeness Competing Collaborating Compromising Avoiding Accommodating wei82650_03_c03_103_154.indd 141 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Issue Ag gresiv e behavior Initiates an at tack Prosecutor Either nonassertive or aggressive behavior Wo n’t say “no” Rescuer Nonassertive behavior Encourages either rescuing or persecution Victim Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration A person takes on a persecutor role when they use aggressive behavior to initiate an attack against others who, in turn, can behave as victims. The vic – tim’s nonassertive behavior encourages either persecution or rescuing. Victims are often characterized by feelings of helplessness, inadequacy, or guilt, which stem from stress or lack of confidence. These feel – ings occur when there is resis – tance or avoidance to change. Rescuers exert either aggres – sive or nonassertive behav – ior and become the rescuer because of their unwillingness to say no. This unwillingness allows them to champion the victim’s problem. Rescuers are typically compulsive and can – not resist trying to fix others’ problems, even if they are not asked to (Health Psychology Consultancy, 2012). When managers identify these roles and understand how to manage each role player, they can resolve conflicts and even prevent conflicts from happening (Ohlendorf, 2001). When managing change in an organization, leaders should be on the lookout for already existing evidence of these roles, or who may be likely to fit into each. Constructive Conflict Because conflict cannot be avoided, it is important that organizations have a strategy for resolving it. Duncum (2010) suggests six steps to transform a conflict into something constructive: 1. Stop ignoring conflict; it won’t make it go away. 2. Act decisively to improve the outcome. 3. Make the path to resolution open and honest. 4. Use descriptive language rather than evaluative. 5. Make the process a team-building opportunity. 6. Keep the upside in mind. (paras. 6, 7, 9, 11, 13, 14) Face-to-face discussion (often known as a confrontational approach to conflict resolution) is a mutually beneficial method. It is also infinitely more efficient and effective than simply ignor – ing a conflict. As Ohlendorf (2001) recognizes, this confrontational approach is best when parties mutually trust each other, when both need to win, when there is adequate time, and when learning is the both parties’ ultimate goal. Figure 3.6: The drama triangle The drama triangle depicts the three roles within a conflict, and it begins with a victim or a persecutor. Source: Based on Ohlendorf, A. (2001). Conflict resolution in project management. University of Missouri–St. Louis. Retrieved from http://www.umsl.edu/~sauterv/ analysis/488_f01_papers/Ohlendorf.htm Issue Ag gresiv e behavior Initiates an at tack Prosecutor Either nonassertive or aggressive behavior Wo n’t say “no” Rescuer Nonassertive behavior Encourages either rescuing or persecution Victim wei82650_03_c03_103_154.indd 142 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration The second step—decisive action—helps prevent, respond to, or reconcile conflict quickly. This requires open and honest communication. All parties involved in the conflict should have input and the decision should be clearly communicated in a timely manner. Employees become eager participants in conflict management when they believe that working through conflicts can improve their productivity and advance their career (Duncum, 2010). Ohlendorf (2001) agrees, noting that all managers and leaders should pay attention to how employees perceive organizational justice so that they can promote more cooperative styles in conflict management. Cooperative styles include confronting, compromising, and smoothing. The confrontational approach was mentioned previously—this is a win–win, face-to-face method for resolving conflict. The compromising approach involves a give-and-take negotiation in which each party must sacrifice in order to reach a mutual compromise. This approach is appropriate when time is limited and an initial agreement cannot be reached. The smoothing approach is more accommodating—areas of agreement, rather than disagreement, are the focus. While this approach is more cooperative, it does not always succeed in resolving conflict. It should be used if there is an overarching goal; if any solution will be adequate; or if the organization needs more time (Ohlendorf, 2001). The final steps involve creating success momentum within the organization (Duncum, 2010). Success momentum is the result of effective conflict resolution, which can only be reached through positive words, good attitude, and effective team building. Descriptive, rather than accusatory, words facilitate cooperation and growth. Encouraging teamwork during conflict resolution can improve an organization’s interpersonal relationships and create a culture of resolution. Facilitating Collaboration Implementing a planned change involves more than leading and managing power, politics, and conflict; it also requires collaboration among individuals, groups, and external stakehold- ers. Collaboration is generally defined as communicating and working with others in pur- suit of common goals. Leaders and managers are responsible for creating and enacting an environment, culture, and behaviors that demonstrate collaboration. Rosabeth Moss Kanter (2000) at Harvard University identified the following three intangible assets and leadership roles (concepts, competence, and connections) needed to master change: • The imagination to innovate: Effective leaders must help develop new concepts, ideas, models, and technology that distinguish organizations. • The professionalism to perform: Leaders can provide personal and organizational competence to deliver value to demanding customers while executing flawlessly with the support of the workforce. • The openness to collaborate: Leaders bring connections with partners who deepen the organization’s reach, add to its offerings, and energize its practices. (pp. 32–36) Studies on collaboration by McKinsey & Company have suggested that accurately understand – ing who is actually collaborating in a company, and investigating how that interactive work is done, is the beginning of changing habits that hinder interaction and productivity (Manyika, wei82650_03_c03_103_154.indd 143 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration Sprague, & Yee, 2009). Tools such as social networks, wikis, and video have helped increase companies’ interactions internally and with customers (Somaiya, 2015). For example, Cisco Systems collaborates using different technologies to interact and improve productivity. The company mandated the use of its own video technologies and other col- laboration tools to reach additional customers and business partners. The company replaced many in-person meetings with virtual interactions and embedded these practices in their policies and governance procedures. As a result, during an 18-month period, the shift in col- laborative practices saved Cisco more than $100 million in travel and business expenses and decreased the company’s carbon emissions by 24 million metric tons. The company also showed that 78% of the targeted employees felt that their lifestyles improved and their pro – ductivity increased, while customer satisfaction was maintained (Manyika et al., 2009). Mastering deep change (being first with the best service, anticipating and meeting new cus- tomer requirements, and applying new technology) requires companies to be more than mere adapters to change (Kanter, 2002). Organizations have to be quick thinking, intuitive, and innovative. To help organizations meet these challenges, leaders cannot only be moni- tors of their organizations; they must also monitor their external realities and environments (Kanter, 2002). Leaders must employ the following skills to implement, sustain, and collaboratively master change for their organizations: 1. Tune in to their environments: create networks of listening posts—joint ventures, satellite offices, and community service. 2. Challenge the prevailing organizational wisdom: develop kaleidoscope thinking— i.e., question assumptions and construct patterns of how their organizations fit with the marketplace and community. 3. Communicate a compelling aspiration: communicate a change that has not hap – pened and that requires more than selling the vision. Leaders must have real con – viction and communicate an aspiration that they genuinely believe. 4. Build coalitions: involve influential people who have political clout and resources. Leaders must identify and win over key supporters, opinion shapers, value leaders, and other experts. 5. Transfer ownership of a working team: get a coalition in place to drive the change. Leaders must then continue to be involved to encourage, support, coach, and pro- vide resources to the team, while allowing people to explore new possibilities that are not costly. 6. Learn to persevere: leaders must not stop too soon in the change transformation. To embed the change, leaders must continue to monitor the environment, check assumptions, question whether the change is the right one, and stay involved. 7. Make everyone a hero: recognize, reward, and celebrate progress and accomplish – ments. Change is ongoing. If change is effectively implemented, it can be sustained if leaders encourage and recognize the talents, skills, and energies of the people who made and continue to make the change happen. (Kanter, 2000, pp. 32–36) In addition to creating an environment of collaboration, responsibly leading and managing stakeholders internal and external to organizations have become both a part of a competitive advantage and the right thing to do, as the following section shows. wei82650_03_c03_103_154.indd 144 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 3.5 Managing Stakeholders: Politics, Power, and Collaboration Managing Stakeholder Responsibilities The 2007–2009 global financial meltdown was precipitated by unregulated activities from financial institutions and individual traders. It showed that corporate change was needed not only for competitive reasons but to also curb, recuperate from, and prevent such illegal and unethical losses. Greed and power can lead to misuse and abuse of employee pensions and livelihood, investors’ trust, and the public’s confidence. The entire global economy is at stake. Looking back to the early 2000s, the scan – dals of some of the most prestigious U.S. firms (such as Andersen Consulting, Tyco, WorldCom, and Enron) clearly illustrated the need not only for internal controls over financial operations and strategic direction, but also external controls from the SEC as well as other government agencies (Weiss, 2014). Turnarounds, reorganizations, and restructuring—as well as bankruptcies and prison terms of several executives—are among the types of transformational changes that have occurred in the aftermath of these scandals. The following questions can be used to discover the extent to which leaders and employees legally, ethically, and compet – itively manage their organizations and stakeholders. The criteria can also be used to review an organization’s gover – nance procedures based on ethical and legal principles: 1. Do the top leaders believe that key stakeholder and stockholder relationship build – ing is important to the company’s financial and bottom-line success? 2. What percentage of the CEO’s activities is spent building new and sustaining existing relationships with key stakeholders? 3. Can employees identify the organization’s key stakeholders? 4. What percentage of employee activity is spent building productive stakeholder relationships? 5. Do the organization’s vision, mission, and value statements identify stakeholder collaboration and service? If so, do leaders and employees talk the talk of these statements? 6. Does the corporate culture value and support participation and open and shared decision making and collaboration across structures and functions? 7. Does the corporate culture treat its employees fairly, openly, and with trust and respect? Are policies employee-friendly? Are training programs on diversity, ethics, and professional development available and used by employees? AP Photo/Michael Stravato Former CEO of Enron Ken Lay was found guilty of committing one of the biggest financial frauds in U.S. history. He died of an apparent heart attack while awaiting sentencing. wei82650_03_c03_103_154.indd 145 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 8. Are there collaboration and open communication across the organization? 9. Are open, collaborative, and innovative ideas rewarded? 10. Is there a defined process for employees to report complaints and illegal or unethi- cal company practices without risking their jobs or facing retribution? 11. Does the strategy of the company encourage or discourage stakeholder respect and fair treatment? Is the strategy oriented toward the long or short term? 12. Does the structure of the company facilitate or hinder information sharing and shared problem solving? 13. Are the systems (such as human resources, information, rewards, finance, and legal) aligned around a common purpose or are they separate and isolated? 14. Do senior managers and employees know what customers want, and does the orga- nization meet customer needs and expectations (Weiss, 2014)? Annual surveys of the world’s most ethical companies (Ethisphere, 2015) list more than 132 companies in over 50 industries spanning 21 countries and 5 continents. In 2015, the survey’s 9th year, 15 companies had made the list every year, and there were 11 first-time honorees (Ethisphere, 2015). Some of the most ethical companies at present include Gap; Levi Strauss; PepsiCo; L’Oréal; 3M Company; Cisco Systems; and Starbucks. Check Your Understanding 1. Identify your style of conflict management. How can this knowledge help you resolve conflicts with others? 2. Why is collaboration important to an organization’s need and ability to successfully implement change initiatives? Summary and Resources Chapter Summary Implementing planned organizational change is partly a science, partly an art. It has also become a desired skill set—and mind-set—needed by most companies, regardless of indus – try, size, and geographic location. Although experience is important in this endeavor, it is necessary to know and use classic and contemporary wisdom from models, road maps, and frameworks. CEOs and practicing managers hire coaches and consultants who specialize in change management to help diagnose, plan, and implement individual, group, and organiza- tional changes. This chapter introduces the art and knowledge of implementing change. Building on the first two chapters, we view a big-picture change road map showing how three CEOs (Mulally at Ford, Bossidy at AlliedSignal/Honeywell, and Jung at Avon) used coaches, theory, expertise, knowledge, and courage to successfully transform companies that were financially, operationally, and strategically in trouble. We show how change cham – pions can use these same skills and capacities, which include visioning, developing a mis- sion, articulating new values, motivating change, developing political support, mapping and managing stakeholders, and leading the actual transition. To effectively lead and manage the implementation process, it is important to (a) keep the big picture in mind, (b) choose the right interventions, (c) use a sound change model to plan and manage the change process, (d) keep people engaged and make the incentive for wei82650_03_c03_103_154.indd 146 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources change greater than the incentive to stay the same, and (e) identify and manage resistance to change. This involves understanding how to align an organization’s new vision, mission, and values to fit its strategy, culture, people, structure, and operating systems—as exempli- fied in the stories of Mulally, Bossidy, and Jung. These CEOs also had to change their own mind-sets—they became the change they expected of those whom they led. The chapter also discusses what is involved in assigning individuals and structuring and teams to help drive the change. This involves selecting a sponsor from the organization who can be trusted and who is able to oversee the entire change process. Then, an executive team must be recruited to educate, communicate, motivate, and manage detail activities to realize the new vision. Finally, we discuss how to effectively lead and manage internal and external stakeholders during the implementation process. This requires recognizing and dealing with politics, power, and conflict to ensure ethical and collaborative cultures and practices in all change efforts. Posttest Questions 1. The nine steps in Ackerman and Anderson’s road map for change reinforce the con- cept that change is a __________. a. continuous process b. precise event c. linear process d. reaction to the market 2. During which step in the map for change did Ford CEO Alan Mulally reorient the company’s top-level officers to the company’s long-term goals and short-term oper- ating objectives? a. Prepare to lead the change. b. Integrate the new state. c. Assess the situation to determine design requirements. d. Create vision, commitment, and capability. 3. Luther is a new CEO of a company that needs a major overhaul. One of his jobs is to convince others in power to get behind his vision for change. This phase reflects Cummings and Worley’s step to __________. a. plan the implementation b. sustain momentum c. develop political support d. celebrate the new state 4. Sustaining momentum —one of Cummings and Worley’s five dimensions of leading and managing change—includes all of the following elements EXCEPT __________. a. reinforcing new behaviors b. defining midpoint goals c. developing new competencies d. providing resources for change 5. Aligning an organization with its new vision and future state requires the integra- tion of three components: __________. a. people, governance, and reporting b. intent, people, and delivery c. intent, governance, and reporting wei82650_03_c03_103_154.indd 147 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources d. goals, conditions, and delivery 6. Both Google and 3M align their companies with organizational core values of excel- lence and innovation by allowing employees to spend 15 percent of their work time on __________. a. personal communications b. scientific research and publication c. work with competing scientists d. projects of personal interest 7. In the change process, the role of the sponsor is typically filled by __________. a. an executive from the organization’s line operation b. an outside consultant c. a company HR executive d. the manager whose department is most affected by the plan 8. Regarding their deliverables, the change consultant and project team would most likely say, “__________.” a. We authorize and fund the change requirements b. We set the direction and expectations for change within the company and commu-nicate the change plan c. We ensure the completion of all major stages of the change process and its implementation d. We oversee the realignment and resources of the change 9. Which of the following is NOT one of the suggested ways to influence stakeholders? a. Make everyone a hero. b. Build coalitions. c. Require people to adopt the plan. d. Transfer ownership of the plan. 10. When managing conflict among stakeholders, a leader with a __________ style has a lose-lose approach in which neither party gets what they really want. a. accommodating b. collaborating c. avoiding d. compromising 11. Which of the following is NOT among the criteria for an effective intervention? a. It must fit either developmental or transformational change. b. It should transfer management competence to employees. c. It must fit the organization’s needs. d. It must result in intended outcomes. 12. “We are cross-functional, represent the entire organization, and have been delegated to help create and implement the change strategy.” From which of the teams would this statement most likely come? a. the executive team b. the leadership change team c. the project team d. the sponsor team Answers: 1 (a), 2 (d), 3 (c), 4 (b), 5 (b), 6 (d), 7 (a), 8 (c) , 9 (c), 10 (d), 11 (a), 12 (b) wei82650_03_c03_103_154.indd 148 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Learning Objectives Recap 1. Upon identifying the initial need for change, the nine steps in the road map for change are as follows: (a) prepare to lead the change; (b) create organizational vision, commitment, and capability; (c) assess the situation to determine design requirements; (d) design the desired state; (e) analyze the impact; (f ) plan and orga- nize for implementation; (g) implement the change; (h) celebrate and integrate the new state; and (i) learn and course correct. 2. Cummings and Worley’s (2001) five dimensions of leading and managing change include motivating change, creating a vision, developing political support, managing the transition, and sustaining momentum. Motivating change involves creating readi- ness and overcoming resistance to change. Creating a vision incorporates mission, outcomes, conditions, and goals. Developing political support means convincing those in power to get on board with the change. Managing the transition involves activity planning, commitment planning, and management structures. Finally, sustaining momentum is about providing resources for change, building a support system for change agents, developing new competencies and skills, and reinforcing new behaviors. 3. Implementation is the integration of intent, people, and delivery. Intent is the defined, shared vision. People are the human resources needed for the change. Delivery involves governance, reporting, and resource allocation. The integration of these components aligns the major dimensions of the organization to the new vision. Once good leadership and vision have been established, the organization should be aligned to the change strategy. In order to achieve the new vision, a shift in organi- zational culture is often necessary. Finally, the organization’s systems and processes must also be aligned to the vision and strategy. These components are interrelated, and the leader must align all aspects of the organization to achieve the most effective change. 4. Leadership roles include sponsor, executive team, leadership change team, and change consultant and project team. The sponsor is the highest line of authority and the primary source of communication, direction, and coordination. The execu- tive team is made up of organizational senior managers who authorize and fund the change requirements and maintain operations. The leadership change team is a cross-functional team that works with the executive team to develop the change strategy and model the roles. Finally, the change consultant and project team deals with the process and technical aspects of the change, integrating design and imple – mentation of change activities. A successful change leader is highly competent, well positioned to lead change, well-respected and well-liked, trusted by others in the organization, and has a history of accomplishments related to the organization’s mission. The types of interventions used in change interventions include reinvent – ing the leader as change champion; reinventing a supply chain and culture; altering the company’s structure; changing roles, relationships, and people; implementing new strategies and structures; and changing groups and individuals. 5. Stakeholders can often make or break a change implementation effort. Good change leaders recognize the importance of influencing stakeholders toward the change efforts. Conflict often exists through resistance to change and must be carefully and appropriately managed to unite all efforts toward the change. Collaboration is the cooperative efforts taken toward common goals. Change cannot be successfully implemented without collaboration. It is a planned effort that requires commonality wei82650_03_c03_103_154.indd 149 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Key Terms accommodating style A cooperative style of resolving conflicts that is effective when the other party is the expert or has a better solution. It can also be effective for preserv – ing future relations with the other party. avoiding style A style of conflict resolution that does not address an issue or problem. Neither party reaches their goals. This style may be effective under these conditions when an issue is trivial or when a party cannot achieve his or her goal, when resolv – ing an issue is too costly, and/or when the climate surrounding the issue is too emo – tionally volatile to get involved. collaborating style A conflict resolution style that requires trust and promotes a win–win approach and results. This style works with complex situations and issues that may require innovative solutions. collaboration The process of working with others to produce more value-added results. competing style A conflict resolution style that requires a win–lose approach, in which a party is constructively confronting and assertive in achieving her/his goal without the cooperation of the other party. and unity of purpose. Good collaboration involves tuning in to the environment, challenging the prevailing organizational wisdom, communicating a compelling aspiration, building coalitions, transferring ownership of a working team, learning to persevere, and making everyone a hero. Discussion Questions 1. If you were asked to share some key points about what a team charged with imple – menting a transformational organizational change in a large company could expect from the implementation stage, what would you say? (Identify some key points about implementation that you would offer, based on this chapter.) 2. Discuss what needs to be aligned in an organization, and why, for a significant organization-wide change to successfully occur. 3. Describe some key roles, relationships, and responsibilities that an organization needs to assign to a significant change in order for it to be planned and implemented. If you had to assume one of those roles, which would it be and why? 4. What should an organization’s leader(s) know about power, conflict, and collabora- tion before planning and implementing a large-scale change? State what you would say to inform the leaders on this matter. 5. If the CEO of a small company asked you to help lay out a rough plan to implement a change, what would you suggest, based on your knowledge after reading this chapter? 6. A medium-sized nonprofit is highly politicized—numerous groups compete and argue among each other for resources and control. The organization’s director approaches you to help him figure out a way to plan and implement a change that could avoid much of the backstabbing and politics. What suggestions would you offer, based on what you learned from this chapter? 7. Discuss ways to help an organization’s change committee plan an implementation that would follow ethical and legal procedures. 8. Describe how your dominant conflict resolution style(s) would both enable and hinder you from effectively working on a large change management project. Then, describe how you could strengthen your capacity for conflict resolution. wei82650_03_c03_103_154.indd 150 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Additional Resource For more on change and Avon ht tp://fortune.com/2012/04/11/avon-the-rise-and-fall-of-a-beaut y-icon Managing Change Sample Answers Managing Change—Mapping the Road for Change 1. In recognizing that economic conditions, customers’ disposable income, and labor markets are always changing, the plan needs to be flexible so the company can keep up with customer demands. Any change strategy needs the unwavering commitment of leadership, and their persistence to push forward to get the job done. Pooling together the collective intelligence of the company’s managers and top performers will make the change effort that much stronger. 2. There is typically a “wake-up call” event that convinces leadership a change is in order. This event varies for each company. The first step in designing a transfor – mational organizational change is to arm yourself with information. Consider the circumstances of the situation from all angles, and dive into the research—details, numbers, and so on—to create a business case for the change that can be reported to the board if applicable. Ensure the company has the capability to enact change and create infrastructure that supports it. 3. As mentioned earlier, commitment and perseverance are paramount, not only to the completion of the effort but to set the “tone at the top” for employees to emulate. This requires aligning C-suite members and managers to ensure everyone is on the same page and has the same goal for the company. Just as market conditions change, so must the change effort be an ongoing one. Remember: change is not an event, compromising style A lose–lose conflict res- olution approach in which no one gets what they really want. Assertiveness and coopera- tion are required. This style may be effective when a temporary outcome is needed and/or when both parties have equally impor- tant goals. conflict Competition among interdepen – dent parties, involving anger and the per- ception of fault, which creates a business problem. decisive action The second step of conflict resolution, involving quick action taken to prevent, respond to, or reconcile conflict. hard goals Measurable goals, often with visible results, like performance measurements. interventions Specific planned activities and events that are aimed at helping an organization increase its effectiveness. process A set of tasks, events, and com- munication that organizes and combines everything necessary to deliver an impor – tant component of value. process owner The employee given the responsibility and accountability for per – forming a complete and integrated process. soft goals Goals like employee initiative and communication that are often difficult to measure and not highly visible or tangible. vision The combination of an organization’s mission or purpose, its core values, and its aspirations for the future. wei82650_03_c03_103_154.indd 151 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources but a process. You must continue to evaluate capabilities and the status of the steps along the way—the change effort is only as good as the solid completion of the steps before it. 4. While employee engagement is always a concern, it is paramount when leading an organization through a transformational change. Soliciting input and feedback from managers—who in turn solicited it from their reports—adds to the informa- tion gathering process and helps illuminate the realistic conditions the company is experiencing. Debrief managers and employees along the way; involving them will make them feel a part of the change and help them recognize how their daily tasks contribute to the company’s survival. The change process will be strengthened if everyone contributes in their own way. Of course, open and transparent in commu- nication is key. Managing Change—The Specifics of Alignment 1. Stalwart values are what inform your vision. The vision is composed of three ele- ments: mission, values, and aspirations for the business. The values should never change, but the operations and processes to achieve them should be ever changing. 2. Change starts with leadership. Make sure you have leaders in place that can support the change. Make the vision palpable throughout the organization—having the right leaders is an important part of doing this. Use the vision to inform the strategy, and align the culture and processes to make sure all of the organization’s components are working together to realize the vision and maintain the company’s core values. Evaluate the processes first to see how well they will work for the new vision, and improve from there. 3. Aligning an organization’s culture involves clarifying the way forward and creating opportunities to put the plan into action. Supporting creativity and innovation will energize employees to forge new paths and innovate new ways of doing things. Moti- vating employees doesn’t always have to involve money—recognizing achievements and rewarding employees with new leadership opportunities can foster engage- ment. Develop champions of change to engender an almost grassroots involvement in company goals and achievements. Pay careful attention to the process of changing current business practices—mismanaging the change process can reduce morale. 4. Never neglect good communication—keep lines open. A vague vision and a per- ceived reluctance on the part of leadership to communicate strategy to mobilize all employees from the top down can foster negativity and demoralization. Soft goals that are related to talent management should be kept as a part of the change pro- cess. Integrate silos to foster synergy. Managing Change—Interventions That Change Business Processes 1. Speed-to-market involves structural intervention including enhancements or changes in the supply chain, inventory, and systems used to complete service requests. 2. Some ideas include redesigning shipping to cut down on wasted interior box space and the packing used to fill that space. That type of change might provide a cost reduction that could be passed on to consumers (in the form of reduced shipping costs). In addition, rather than shipping from one centralized location nationwide, wei82650_03_c03_103_154.indd 152 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources the company could contract with third-party logistics suppliers to store inventory at secondary facilities. This might reduce shipping costs for customers and shorten the amount of time it takes for the product to leave the facility and reach its destination. 3. Major changes of this type can only be implemented with a healthy amount of resources, which means the leader must maintain his or her relationships with vendors, employees, the board (if applicable), and investors. Communicating the importance of the change and the benefits it will produce to all stakeholders will help facilitate the change process. 4. Owning the change process and any hits or misses that come with it can strengthen your credibility with detractors. Allowing for open dialogue to get to the root of the resistance is more productive than seeking to fix any smaller problems that have resulted from dissension. It makes sense to try to understand all angles of the resistance and acknowledge that it is somewhat natural; it is also wise to view resistance as an opportunity. Companies should ideally always be ready to respond to resistance and be able to aid stakeholders, employees, and managers in adapting to change. Answers and Rejoinders to Chapter 3 Pretest 1. False. Celebrating the implementation of change is one of the important steps in Ackerman and Anderson’s road map for change. Celebrating helps position and inte- grate change and invests employees in its success. 2. True. Cummings and Worley’s five dimensions of leading and managing change begin with the dimension known as motivating change. This phase has two basic components: creating readiness for and overcoming resistance to change. 3. False. In order to align an organization with its new vision, a shift in organizational culture is often necessary. Strategies, policies, and processes will change in a future state, which will influence and change the organization’s culture. 4. False. Organizational change is most often led by the highest line of authority, the sponsor, who is the primary source of direction, coordination, and communication. 5. False. Change cannot be successfully implemented without collaboration among multiple stakeholders, even if the plan is strong. Change implementation is a planned effort that requires unity of purpose and a range of expertise. 6. True. Change interventions can reinvent an organization’s supply chain, culture, roles and relationships, strategies, and structures, as required by the change plan and the leadership teams. Rejoinders to Chapter 3 Posttest 1. Ackerman and Anderson’s road map for change reinforce the concept that change is a continuous process, neither linear nor mechanical. It is not a single, precise event because some stages loop back to previous ones as challenges continuously emerge. 2. During the step known as “Create vision, commitment, and capability,” Mulally reori – ented the company’s top-level officers to the company’s long-term goals and short- term operating objectives. This process facilitated Ford’s leaders’ commitment to the changes being made. 3. The phase described reflects Cummings and Worley’s step to develop political sup – port by convincing other company leaders that a certain vision for change is worthy. 4. One of Cummings and Worley’s five dimensions of leading and managing change is sustaining momentum , which includes the elements of providing resources for wei82650_03_c03_103_154.indd 153 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources change, building a support system for change agents, developing new skills and com- petencies, and reinforcing new behaviors. 5. Aligning an organization with its new vision and future state requires the integra- tion of three components: intent (a defined and shared vision), people (the agents of change), and delivery (resource allocation, governance, and reporting). 6. Both Google and 3M align their companies with organizational core values of excel- lence and innovation by allowing employees to spend 15 percent of their work time on projects of personal interest. This practice encourages creativity and progress. 7. The role of the sponsor (the most powerful of the change leaders) is typically filled by an executive from the organization’s line operation. She or he oversees the entire change process while inspiring others to succeed. 8. Regarding their deliverables, the change consultant and project team would most likely say, “We ensure the completion of all major stages of the change process and its implementation.” Furthermore, this team strategizes, coaches resistors, and mod – els good change behaviors. 9. Positively influencing stakeholders involves tuning in to the environment, challeng – ing the prevailing organizational wisdom, communicating a compelling vision, build – ing coalitions, transferring ownership of the plan, and making everyone a hero. 10. There are five styles to manage conflict among stakeholders: accommodating, avoid – ing, collaborating, competing, and compromising. A leader with a compromising style has a lose-lose approach in which neither party gets what they really want. 11. The three criteria for an intervention to be effective are 1) it must fit the organiza- tion’s needs; 2) it must result in intended outcomes; and 3) it should transfer man- agement competence to the organization’s members. 12. The leadership change team is cross-functional, represents the entire organization, and has been delegated to help create and implement the change strategy. Members strive to create conditions for excellent outcomes and to support change implemen – tation throughout the organization. wei82650_03_c03_103_154.indd 154 12/15/15 9:43 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.
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4 Shaping and Sustaining Change Ryan McVay/Photodisc/Thinkstock Learning Objectives After reading this chapter, you should be able to do the following:1. Describe the major reasons why organizational change programs fail and succeed. 2. Evaluate how to recruit and empower employees. 3. Analyze the five pillars of successful, sustainable change. 4. Explain the characteristics of built-to-change organizations that position themselves to successfully sustain change. 5. Examine useful principles and practices in sustaining change. wei82650_04_c04_155-206.indd 155 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Nothing is easier than saying words. Nothing is harder than living them day after day. —Arthur Gordon Pretest Questions 1. True/False: Because speed and efficiency are hallmarks of the American business system, a short–term fix approach to organizational change is often successful. 2. True/False: Recruiting experienced individuals to a company that is planning trans- formational change is risky because such people tend to resist change. 3. True/False: Knowledge management is a system in which organizations sustain change by making intellectual capital available to employees so they can continu – ously learn. 4. True/False: Built-to-change organizations prioritize temporary competitive advan- tage over long-term stability by continuously implementing important changes. 5. True/False: A self-designed organization is one in which stakeholders choose the direction of the company. 6. True/False: A common mistake in implementing change strategy is to reject a “blockbuster” innovation in favor of small, unexciting changes. In Chapter 3 we discussed three companies that underwent significant planned organizational changes. They are summarized here to illustrate two successful overall outcomes (Ford and AlliedSignal/Honeywell) and one unsuccessful change (Avon). Ford After working at Ford for 25 years, Alan Mulally retired as CEO on July 1, 2014—8 years after leading Ford’s transformation. Chair Bill Ford said, “Alan deservedly will be long remembered for engineering one of the most successful business turnarounds in history. Under Alan’s leadership, Ford not only survived the global economic crisis, it emerged as one of the world’s strongest auto companies” (as cited in Media.Ford.com, 2014, para. 4). Mulally’s change strategy, “One Ford,” worked. In 2006 Ford lost $12.7 billion, its worst performance ever. In 2010, however, the company had net income of $6.6 billion, its highest profit in a decade. The stock price was $1.25 a share in 2006 when Mulally came on board; it closed at $17.21 on the day he retired. In 2011 he was awarded stock bonuses worth $56.5 million (Henry, 2011). After careful research, Mulally targeted major problems at Ford as “inefficiencies in production, bad relationships with suppliers, unrealistic delivery dates—and management that deflected blame” (as cited in Henry, 2011, “One World, One Plan,” para. 2). With the One Ford strategy, he reorganized the company’s operations and global managers to focus on the same agenda. Mulally’s overall success factors were that he had a compelling vision for Ford as a mobility company. He focused on technological innovation (for example, MyFord Touch entertainment) wei82650_04_c04_155-206.indd 156 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction across vehicles and led product development with partnerships in the consumer electronics industry. This allowed Ford cars and trucks to transform into mobile centers of entertainment and communication that grew in concert with smartphones and social media. Now all major automakers focus on personal technologies to make cars mobile entertainment and information centers (Caldicott, 2014). Mulally promoted accountability and collaboration across leadership structures. He also carved a path for outstanding execution. Ford moved forward with new product vehicle development, redesigning the Taurus, Focus, and Fiesta models. Mulally then streamlined Ford’s products, removing 97 weak auto products and concentrating on 20. This resulted in a simpler, leaner product line that allowed Mulally to focus on and showcase manufacturing, product development, and customer service excellence (Caldicott, 2014). AlliedSignal/Honeywell During Larry Bossidy’s term as CEO, Honeywell emerged from a disastrous merger with AlliedSignal in 1999, when the latter purchased Honeywell for $14.4 billion. Honeywell operated in the controls and aerospace business; AlliedSignal was at the time an aerospace, automotive, and engineering firm. There was a clash of cultures. AlliedSignal was overwhelmed with cost control, which caused it to neglect its long-term investments and strategic planning. By contrast, the original Honeywell was known for being customer-centric and creative, but not for execution. Bossidy was asked to find a successor who could handle the challenge of merging the two warring cultures. In 2002 he took a chance on David Cote, who had worked under Jack Welch at GE. Cote’s first step toward a turnaround was to terminate a long-standing aggressive accounting policy used by AlliedSignal and Honeywell and adopt a conservative approach that put both firms on a more level playing field. Secondly, Cote introduced a new collaborative strategy for dealing with Honeywell’s difficult legacy and litigious approach to solving asbestos lawsuits and environmental liabilities. Honeywell established a trust for the claims, making expenses predictable. Cote also introduced principles of best practices in all businesses to stop the conflicts between the companies. He focused attention on manufacturing practices in particular, sending 70 managers to a Toyota plant to master output production methods. The rewards were described as spectacular. Since 2002 the company’s sales have grown by 72%, while its head count only increased by 21% (Tully, 2012). By keeping fixed costs like labor relatively flat, Cote generated “operating leverage” that magnified brisk revenue growth into outsize earnings. Since 2003 Honeywell has increased sales by 7% each year, and operating profits have grown by 12% (Tully, 2012). Cote also excelled at company acquisitions. Honeywell acquired 70 companies. These moves tripled Honeywell’s profits. In effect, Cote’s collaborative, detailed, and big-picture approach, along with his relentless focus on integration, has made him a change champion at Honeywell and within its industry. Avon Avon Products’ ex-CEO Andrea Jung stepped down in 2011 and was succeeded by Sherilyn McCoy. Several large change efforts had faltered and failed under Jung since 2005 (Martin, 2012), and Avon’s profits had declined every year since 2008. McCoy said in 2012: wei82650_04_c04_155-206.indd 157 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Avon’s products and pricing were “off target.” Technology and service “did not keep pace.” Senior managers were moved so often they couldn’t gain traction. Avon doesn’t need yet another new strategy. We need to focus on the core of Avon’s business: representatives, consumers and our people. The challenge we’re facing didn’t materialize overnight. They developed over years, and our solutions will take time as well. (as cited in Martin, 2012, paras. 23–25) What went wrong with Jung’s transformation efforts? What led to her eventual downfall? Himsel (2014) answered this question by identifying five “traps.” Trap 1: Jung failed to develop the agility to factor global scale and local requirements into decisions. Avon attempted to manage economies of scale and local customization requirements with erratic business moves. First it decentralized the system; then the following year it did the opposite and went back to centralized control. This led to the company being unable to meet customer demands and being perceived as overly reactive. Trap 2: Jung did not align organization culture with strategy. She may have underestimated the power of culture, which can and did undermine even the strongest strategy. She failed to evolve the culture with the strategy. Trap 3: Jung occasionally refused to hold leaders, including herself, accountable for controversial changes and performance-related decisions. When leaders do not send clear, certain, and consistent messages and follow-up actions, employees lose confidence in them. Trap 4: Jung failed to understand the demands of officers and leaders when globally integrating the company. During this transition, Avon needed a CFO who could improve and consolidate its financial systems, create consistent financial controls and processes, and increase margins while decreasing inventory. Instead, the company hired a CFO generalist and “deal maker.” These skills did not match the demands of a company expanding and integrating into emerging markets. Trap 5: Jung failed at due diligence and vigilance in having employees work in “at-risk” global, emerging markets. The result: Avon paid a $135 million settlement with the U.S. Securities Exchange Commission and the U.S. Department of Justice for allegedly bribing Chinese government officials. CEOs and their staff must screen and train new hires to follow corporate values and codes of law and ethics both at home and abroad (Kowitt, 2012). When McCoy took over from Jung in 2011, Avon’s revenue was $10.7 billion. The loss from continuing operations was $38 million. In 2014 revenue was $8.9 billion, and the net loss from continuing operations was $385 million. Avon’s numbers have continued to decrease with McCoy as CEO. Critical-Thinking Questions 1. What went wrong at Avon, according to this brief case scenario? 2. As a student of organizational change, identify a few key concepts you have studied that would have helped diagnose Avon when its sales began to decline. 3. Identify a few actions that Mulally took at Ford that helped turn Ford around at that time. 4. Identify and briefly state your opinion on a strategic action that Cote implemented that helped changed the direction of AlliedSignal and Honeywell at that time. wei82650_04_c04_155-206.indd 158 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.1 Failing and Succeeding at Change Introduction: Back to the Future Sustaining major organizational changes—that is, ensuring that planned changes endure—does not involve “one-shot” or quick-fix solutions. Embedding change in organiza – tions requires continuous top-down, bottom-up leadership and process improvements— including supportive and innovative actions throughout the enterprise. The CEO and top- level team generally define and lead the change, but everyone must be involved in managing, re-creating, and rejuvenating the ongoing renewal processes. The transformational change programs at Ford, AlliedSignal, and Avon required years to plan and complete. Looking back at their successes and problems informs us about the people and processes used to implement change goals and the initiatives undertaken in response to dif- ferent environments. 4.1 Failing and Succeeding at Change Although some transformational changes may start with a “big bang,” embedding and sus- taining them takes time, talent, and effort. Rosabeth Moss Kanter (2002), Harvard profes- sor and change expert, noted that effective change is sustained by “long marches” not “bold strokes.” In order to revitalize and sustain large-scale changes, it is important to know some of the major reasons why changes fail and also what makes them succeed. Why Change Programs Fail There are more than enough reasons why organizational change programs fail. We previously discussed some in this text and have selected some of the more notable ones to discuss here. Understanding and learning from each of these can prevent failure and help facilitate strate- gies and efforts to sustain change. Fletcher and Taplin (2002) list these reasons why organi- zational change programs fail: • Opposition to change • Failure to recognize the need for change • Superficial recognition of the need for change • Failure to systematically implement change • Short-term fix approach • Structural impediments to change • Cultural impediments to change • Failure to sustain change Large-scale, planned organizational changes are generally complex processes that require expertise and systematic methods that take the entire enterprise into consideration. Just as important, the people involved in and affected by the change must not be excluded. Fail – ing to communicate with and involve professionals and employees who are affected by such changes often creates opposition and resistance. wei82650_04_c04_155-206.indd 159 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.1 Failing and Succeeding at Change Opposition to Change Change programs are often destined to fail because of the top-down imposed nature of the pro- cess (Nohria & Beer, 2000). The following scenario is all too common: a CEO or top-level team member gets some new ideas from either talking to friends, witnessing a change in a competi – tor, attending a seminar, reading current business trends, or following a current management fad. He or she then decides to try something new with a division or the entire company. When change is arbitrarily imposed, poorly explained, and hastily announced from the top, man – agers and employees can become disillusioned, lose motivation, and become increasingly resent- ful and resistant to the change. Their work often changes and increases, while resources and attention to quality decreases. Managers in particular are thrown into confusion when they are asked to implement and guide changes that are not adequately explained and for which they have few or no blueprints or models. Also, when managers are given little strategic direction or rationale for implementing change, they typically revert to emphasizing what they know best: operational detail that is activity (not goal) driven (Fletcher & Taplin, 2002). For example, Friendly’s restaurant chain filed for bankruptcy in October 2011 (Reuters, 2011). Although many reasons explain this chain’s failure—including the slumping economy and the chain’s debt and financial situation—the lack of a clear strategic direction was also an issue. One author described Friendly’s in the following way: The restaurant smells like a bus station. Food takes a long time to arrive at the table, no matter how painfully empty the dining room is. The salad looks like it was assembled a few weeks before I ordered it. Only the nostalgia keeps me coming back. (Baab-Muguira, 2011, “Times Have Changed,” para. 3) Restaurants like Friendly’s, which was founded in 1935, must continually differentiate themselves from similar establishments in order to remain competitive in the marketplace. They must be sure that the public knows what makes them unique. In 2009 Friendly’s former CEO, Ned Lidvall, stated that the restaurant’s differentiator was ice cream and that the lines and definitions of brands in the industry were starting to blur (O’Brien, 2009). Friendly’s attempts at competitive – ness by emphasizing ice cream and other piecemeal marketing ideas proved unsuccessful. Failure can also occur when the pur – pose of the change is not shared by the people and is, in turn, separated from the organizational processes required for implementation. When an affiliate of the private equity firm Sun Capital Partners took over Friendly’s restau- rant chain and filed for Chapter 11 bankruptcy protection in 2011, 1,260 workers, or more than 12% of that chain’s 10,300 member workforce, were told one evening they would lose their jobs the following day. A spokes- person for Friendly’s at that time AP Images/Charles Krupa Unfavorable economic circumstances, competition, and unsuccessful change to differentiate Friendly’s from other restaurants contributed to restaurant closures and bankruptcy. wei82650_04_c04_155-206.indd 160 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.1 Failing and Succeeding at Change stated, “We’re not trying to put people out of jobs. We’re trying to ensure the future of the com- pany” (as cited in Hines, 2011). That spokesperson noted that closed locations were unprofit – able and that closing those locations would help the company and its parent, Sun Capital, gain control over $296 million in outstanding debt (Hines, 2011). The company survived the painful downsizing and emerged from bankruptcy, then in 2012 hired John Maguire, who helped rein – vent the chain (Pohle, 2015). Failure to Recognize the Need for Change In the 1970s and 1980s, CEOs of some of the largest, most innovative world-class U.S.-based inter – national firms were entering a period they did not anticipate, one featuring fierce global compe – tition and new ways of streamlining operations. IBM, Digital Equipment Corporation, Polaroid, and General Motors were still resting on their past successes, because they believed they could continue to dominate their industries with bulky hierarchies, unrealistic overhead costs, and out – dated operations. As a result, Digital Equipment Corporation and Polaroid did not survive. Japanese auto and electronics companies entered the scene with the first wave of new and competitively priced products that were made with higher efficiency operational methods. The result was 2 decades of radically induced change for all U.S. industries: total quality man – agement, just in time, reengineering, and the introduction of information technology into the assembly line process. Failing to recognize the need for change is not relegated to the past. In 2014 the Huffington Post published a list titled “9 iconic brands that could soon be dead” (Jacques, 2014) because of failure to adjust to contemporary markets, customers, and business models. These included Quiznos, JCPenney, Zynga, Red Lobster, BlackBerry, the Women’s National Basketball Associa- tion, Volvo, Martha Stewart Living magazine, and Abercrombie & Fitch (Jacques, 2014). The inability to recognize the need for change continues to be a major cause of failed change programs. Other causes for failure include changes that are initiated too late to regain com – petitiveness; are initiated poorly, without proper attention to how change processes should be planned; or are not initiated at all. Superficial Recognition of the Need for Change Some CEOs and organizations move forward with a change without the necessary commit – ment to allot the resources and harness the energy of the entire enterprise. They believe that targeting a certain division, business unit, department, program, or management practice for change will be enough to solve the problem and generate new opportunities throughout the entire organization. In such instances concern for cost, in terms of time and money, is the prohibitive factor. In other instances such shortsightedness may be due to a top-level individual, team, or dominant coali – tion’s lack of political or business acumen or some other limiting capacity. Whatever the spe – cific reasons for not understanding or taking action on the need for total change, this general type of thinking has been characterized as myopic or nearsighted (Colea & Coltea, 2013)—that is, top-level leaders are trapped into thinking in terms of the status quo: “If it isn’t broken, don’t fix it.” Moreover, leaders do not direct enough attention to frontline managers, and they do not focus these managers on specific actions needed to achieve stated business outcomes. wei82650_04_c04_155-206.indd 161 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.1 Failing and Succeeding at Change When incremental, piecemeal, or selected organizational targets for limited change are adopted in place of needed enterprise-wide and transformational changes, the result is often loss of resources, time, effort, and competitiveness. For example, a department in a large uni- versity organization needs laptops replaced every 4 years on a revolving basis for eligible members who sign up for the program well in advance. This is a change that is not large in scope and that does not need a complicated plan. At the entire university level for all depart- ments, a change plan may be needed. An example of a successful organizational change that followed a plan is the United Arab Emirates’ du Telecom. The firm was started in 2006 and offers mobile and fixed telephony, broadband connectivity, and Internet Protocol television to consumers and businesses. The company acquired almost 40% of the region’s market share by 2010 and has sustained a 32% growth rate since. The company’s strategic capability, planning, and leadership are factors that contribute to its success. For example, the firm expanded by joining China’s Huawei Technologies Co. Ltd. in 2013. Huawei is a multinational networking and telecommunications equipment and services provider. This partnership and du Telecom’s strategic and tactical expertise and vigilance have enabled the firm to (a) reduce project failures; (b) reduce the number of employees needed per project; (c) lower costs and tighten up time frames and projects, which cost less than predicted; and (d) create a single point of contact to manage projects (Wang, 2015). Failure to Systematically Implement Change Failing to systematically lay out a complete change program and implement that plan can lead to catastrophe. Productivity and financial gains are more likely to be obtained when imple – mented with a systematic approach (Kaydos, 2015). Companies that attempt to change one system without coordinating and aligning complementary related systems to facilitate the change generally fail to achieve their original goals. Examples abound and include airlines that attempt to improve customer relations by training flight attendants but not check-in agents; firms that attempt to decrease time between point- of-sale and collection of payment by improving sales professionals’ strategies but do not change the internal processing of payments; companies that move marketing content online to extend their product’s reach to potential customers but do not create systems to process online purchases; and so on. When organizations do not study all the core processes in their business from the perspective of their new vision and change goals and do not decide on an implementation plan that aligns all the major systems, failure is on the horizon. Short-Term Fixes The American capitalist business and financial system is based on short-term time horizons. U.S. corporations operate on a quarterly basis and are valued on both short- and long-term information. Financial analysts evaluate, predict, and recommend buys, holds, and sells on stocks from quarterly reports using past and future trends. Although speed, efficiency, and innovation are hallmarks of the American capitalist business system, the short-term perspec- tive also can and does contribute to myopic decision making and short-term fixes (Tanden & Effron, 2015). wei82650_04_c04_155-206.indd 162 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.1 Failing and Succeeding at Change CEOs and executive teams that rush environmental scanning, planning, and problem/opportu- nity diagnosis may run the risk of targeting the wrong problems and opportunities. Then, the rush to hasty implementation compounds problems that can create further failure, including being left with poorly coordinated and ill-prepared implementation teams that sacrifice the quality of implementation; suboptimizing goals (selecting less than desirable goals so as to meet time and task completion pressures); and preparing the change effort for increased costs, wasted effort, and lack of goal attainment. Diagnoses and implementation plans that impose a short-term fix mentality and framework on a large-scale change program usually suffer the symptoms described here, as well as other unintentional consequences that eventually lead to unnecessary costs and delays, if not failed goals and wasted time and effort. Structural Impediments to Change Large corporations’ bureaucratic struc – tures and hierarchies have posed major obstacles to implementing large-scale change. In fact, the methods of business process engineering and reengineering were revolutionary in that they elimi – nated unnecessary barriers in all busi – ness processes and were designed to decrease time, effort, and costs while increasing speed and effectiveness in moving a task from start to finish. Orga – nizations that begin with structure over strategy and purpose risk not being able to transform a company’s vision to a new state. Corporations are generally moving toward less structure to achieve more economies of scale and effectiveness. As we will discuss in the following section, alternative solutions to tradi – tional vertical structures are being used as a result of change initiatives. Among these alterna- tive solutions are outsourcing, streamlining business processes, and experimenting with new forms of networked structures and communities of shared competencies. Cultural Impediments to Change Resistance to change usually stems from an old culture in which employees refuse to give up leaders’ dominant values, assumptions, and norms. The previous state of the organization may have worked well in a past environment or era but is no longer as efficient as it needs to be. With a new vision and fresh values—and perhaps leaders—new cultural meanings, lan – guages, symbols, and experiences must be embedded. When the change champions and lead – ers do not pave the way for a shift in the alignment of the organization’s dimensions and systems, previous cultural values tend to prevail with some groups and managers; the status quo is often the default position, even if it is to the detriment of the organization. Jirsak/iStock/Thinkstock The traditional business hierarchy holds many orga- nizations back. Companies are beginning to move away from this structure for greater efficiency. wei82650_04_c04_155-206.indd 163 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.1 Failing and Succeeding at Change Failure to Sustain Change It has been estimated that 70% of large-scale change initiatives in companies fail (Colea & Coltea, 2013). This is due to any one or a combination of the factors discussed here. Generally, people settle back into the status quo if they do not have to change. Change cannot be sustained if people in an organization maintain a bureaucratic and functional mind-set and refuse to adopt new attitudes, beliefs, and behaviors. Sustaining change requires strong, committed, and informed leaders who involve others in the alignment of all an organization’s systems around the new vision. Organizing to Succeed at Change Maintaining an organization’s alignment to a new vision and future state requires leaders and followers to keep the organization’s big picture in mind. The model shown in Figure 4.1 and discussed in Chapters 1 and 2 provides a useful reminder that leaders are an integral force at the outset in guiding the alignment of organizational dimensions to the new vision and future state. Customer PartnershipTr ansformation Curr ent to Future State Customer Satisfaction Outputs Customer Requirements Inputs Vision and Strategy Culture Nature of Wo rk Structure Technology People Leadership Environment History Resources Organizational Lev el Competitiveness Market share Product and service quality Responsibility (environment and community) Group Lev el Synergy Performance Effectiveness Satisfaction Individual Lev el Performance Satisfaction Development and g rowth Measurement Systems Customer Partnership Tr ansformation Curr ent to Future State Customer Satisfaction Outputs Customer Requirements Inputs Vision and Strategy Culture Nature of Wo rk Structure Technology People Leadership Environment History Resources Organizational Lev el Competitiveness Market share Product and service quality Responsibility (environment and community) Group Lev el Synergy Performance Effectiveness Satisfaction Individual Lev el Performance Satisfaction Development and g rowth Measurement Systems Figure 4.1: Strategic alignment model This model offers a way to understand organizational actions through a process of taking resources into a system, processing them, and producing outcomes. Source: Based on Weisbord, M. (1987). Productive workplaces. San Francisco: Jossey-Bass; and Burke in Howard, A. (Ed.). (1994). Diagnosis for organizational change. New York: Guilford Press. wei82650_04_c04_155-206.indd 164 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.2 Attracting Talent and Empowering Employees We provide examples of how leaders in different organizations and industries use interven- tions to sustain change to compete in their external environments while internally empower- ing their organization’s people and culture. Check Your Understanding 1. Of all the reasons why change programs fail, which do you think is the most common? Explain your reasoning. 2. Choose one of the reasons why change programs fail and discuss how this knowledge can be used to help sustain change. 4.2 Attracting Talent and Empowering Employees A critical task of sustaining change involves continually attracting, involving, and empowering the right talent. Because people are an organization’s most important asset, and leaders can only get things done through people, revitalizing organizations requires developing strategies for leading and managing human capital. Human capital refers to the skills, knowledge, and experience of a workforce with regard to people’s value and cost as invested in and incurred by an organization (Fitz-enz, 2000). Managing human capital is a process in which senior executives spend as much time and energy on acquiring, allocating, developing, and keeping their employees (human capital) as they do on other types of capital (Lawler & Worley, 2006). Recruiting Talent Contemporary organizations face a “new world of work” that challenges and necessitates dra- matic strategy changes for HR and company leaders (Deloitte University Press, 2015). HR departments are particularly challenged by how to recruit, evaluate, and manage talent. They must also determine how best to engage, develop, and retain new professionals and teams, which is not easy. HR groups are continually rethinking methods for measuring and moni – toring the larger organizational culture to attract and interest professionals. Organizational change in this regard has become an ongoing process. Recruiting Through Branding Hiring the right talent to fit the organization’s new vision, strategy, and business process can be challenging. Organizations generally use branding—their image, reputation, and identity, or what they are generally known for—to attract new hires. Highly visible, successful organi – zations like Google, Microsoft, and Facebook do not worry about their branding as a recruit – ing method because they are so well known. However, smaller, less visible companies need to make more deliberate attempts to promote their brand to potential employees, yet few companies seem to succeed at this strategy. Con – sequently, it has been recommended that organizations view their employees or potential employees as customers. Companies should spend time conducting marketing analyses to identify which corporate attributes are most important to the employees they wish to recruit and how best to reach those recruits (Hieronimus, Schaefer, & Schröder, 2005). wei82650_04_c04_155-206.indd 165 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.2 Attracting Talent and Empowering Employees Two McKinsey surveys showed that traditional recruiting methods focused on job security, opportunities for creativity and individual growth, and compensation but that a hiring com- pany’s intangible and emotional associations appeared to be strong motivators for potential recruits (Hieronimus et al., 2005). Whatever techniques are used to attract and recruit prom- ising new talent, the McKinsey study concluded that they should be strongly aligned to the company’s brand strategy (Hieronimus et al., 2005). Recruiting Using Social Media Another recent recruiting method is to use social media. LinkedIn, Face – book, Twitter, and YouTube are popu – lar recruiting sources. For example, the large online retailer Zappos uses social media for branding and recruit- ing. Talent acquisition experts observe that large employers are using online job boards and social media combined with traditional recruiting methods to post new listings (Drew, 2014). Recruiting Using a Talent Mind-Set Organizations look for talent that can help them ramp up operations quickly, start new busi – ness models, and create new roles by acquiring and/or merging with other companies. Although companies like General Electric, PepsiCo, and Colgate–Palmolive are renowned for their ability to develop top-notch employees and emerging leaders in their industries, they are also dedicated to external recruiting (Beeson, 2011). Part of these firms’ success at external recruiting is their ability to integrate newcomers into their established high-performing cultures. Firms that combine external talent recruit – ing with internal integration practices are called “talent mind-set companies” (Beeson, 2011). These companies seamlessly combine talent acquisition with talent development. Firms that recruit individuals to fill job positions generally focus on their job-specific expe – rience. Talent mind-set companies also pay attention to candidates’ leadership ability and prospective career growth. These companies are particularly interested in the following characteristics: • abstract, conceptual thinking ability and ease in handling ambiguity, which are needed in strategic thinking; • risk taking and feeling comfortable taking independent positions and not going along with what everyone else in the company thinks; these are building blocks of innovation and leading change, even if these characteristics mean moving an organi- zation out of its comfort zone in order to implement effective change; • empathy and organization knowledge/savvy, which embody the ability to read people and situations and to influence peers and coworkers so that projects and initiatives can be implemented across organizational boundaries; and AP Images/Chris Radburn/Press Association Social media sites such as LinkedIn are changing the ways companies recruit new talent. wei82650_04_c04_155-206.indd 166 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.2 Attracting Talent and Empowering Employees • the ability to set high standards, let go of certain detailed work, and avoid getting mired in too much detail or micromanaging, all of which are important elements of managing implementation (Beeson, 2011). Organizational change is generally not an episodic event; it is a process that involves manag – ing change on an as-needed basis. Since talent and human expertise is perhaps an organiza – tion’s most valued asset, recruiting, engaging, and retaining the right people is an intricate part of change. Empowering Employees for Change Recruiting the right talent also involves integrating new employees into the company by providing opportunities for them to meaningfully participate in achieving the organiza – tion’s objectives. Cameron Kauffman (2010), a certified public accountant, suggests five areas of employee involvement that she used in her San Francisco–based firm. We have adapted these for general business: personal, organizational, customer, professional, and community. Managing Change Recruiting Talent in the 21st Century Suppose you are the HR director at a growing e-commerce company. The company must stay dynamic to keep up with changing technology and evolving social attitudes, as well as to be agile so as to respond to customer demand. Your company has a good reputation, but the sales and marketing teams are working to spread the word about your service. Leaders can’t change and grow companies on their own—human capital is among a company’s most important assets. Organizations need talent to rebound from a recession and revamp productivity, start new lines of business, and acquire or merge with other companies. Your task is to make sure you have the right people in place for the job. Your department starts to look for those with e-commerce, programming, and general Internet experience. You need employees who can keep up with the pace of technological change and know what role the Internet plays in popular culture. Naturally, your HR team turns to social media to find web-savvy candidates. However, you must pay attention to your company’s mission and values and understand how they relate to recruiting. Discussion Questions 1. How do you stay on top of the hiring game in your industry? 2. How do you use social media to recruit talent? 3. What does it mean to have a talent mind-set? 4. What is a company with a talent mind-set looking for in its new hires? (See the end of the chapter for possible answers.) wei82650_04_c04_155-206.indd 167 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.2 Attracting Talent and Empowering Employees Personal employee involvement is achieved through training, mentoring, and career-development programs. Organizational involvement includes efforts that enable employees to participate in organization-wide visioning, planning, and addressing generational differences. Employee customer involvement will differ, depending on the type of business, but may include meetings or events with customers and direct interaction, such as having employees sit in on planning and focus groups. Professional development refers to providing employees with opportunities for personal and professional growth. This may mean becoming involved with professional organizations or associations. Finally, community involvement is achieved by providing volunteering oppor- tunities and is often linked to the organization’s corporate social responsibility initiative (Kauffman, 2010), which is discussed later in this chapter. Fortune magazine’s 100 Best Companies to Work For list provides abundant examples of personal and professional development available to employees. The list is published annu – ally and organizes companies by industry. Companies rigorously compete for placement on the list because being selected improves their reputation and makes their name more rec – ognizable. There are also extensive marketing benefits for being recognized for recruiting top talent. Based on the Trust Index, organizations that submit their proposals are metic – ulously evaluated on criteria such as evidence of credibility, respect, fairness, pride, and camaraderie. Methods used to evaluate companies include extensive surveys from employ – ees and managers and analyses of employee engagement using criteria from the Trust Index (Zappe, 2011). The North Carolina software giant SAS has been on the list for 14 years and was ranked num – ber one in 2010 and 2011. The company provides many employee benefits, including on-site child care, health care, and an employee gym (Zappe, 2011). SAS ranked number two on the 2014 Top 25 World’s Best Multinational Workplaces list from the Great Place to Work Insti – tute. It was also number two on Fortune’s 2014 Best Companies list and number four on its 2015 list (SAS, 2015). Finding and involving the right employees is only one aspect of developing a workforce built to change. Once the right employees are hired, management must retain them by creating an engaging and empowering environment in which to work (Lawler & Worley, 2006). Right Management Inc. publishes a global survey each year to evaluate workplace engagement. A 2015 survey from Deloitte showed that organizational culture and engagement is a top chal – lenge for 87% of organizations surveyed, and 50% feel that this issue is “very important” (Deloitte University Press, 2015). Surveys by Right Management, Deloitte, and others suggest that empowerment (providing employees with the necessary motivation and autonomy to achieve great things toward the organization’s objectives) is achieved through clear reporting structures, meaningful oppor – tunities for employees to share their opinions, clear and understood career opportunities, and autonomy (Deloitte University Press, 2015). The purpose of empowerment is to reduce sources of powerlessness (Styhre, 2004). Power – lessness is often a trademark of continuous change if an organization is not prepared. Good structures for attracting, involving, and retaining the right talent hedge against this power – lessness and give an organization tools to sustain and even shape change. wei82650_04_c04_155-206.indd 168 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems Check Your Understanding 1. Explain why talent recruiting and management is an important part of organizational change. 2. What do you look for in a company as a potential employee? What qualities must it have to make you stay long term? Explain your reasoning. 3. What are the similarities and differences in the way you answered question 1 versus question 2? 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems For a company to shape and sustain growth, it must continually revitalize the principal ele- ments that made it strong. Organizations that can survive, innovate, and compete in changing environments have leadership teams that must decide whether and how to continuously adapt, shape, deconstruct, and/or recreate strategies to match structure, cultures, technolo – gies, and the right people. The case study of Alibaba in Chapter 1 presents a road map for many larger companies going forward. This section focuses on five principal components that are integral to any successful company: leadership, strategy, culture, structure, and systems. What appears to be changing with regard to these basic organizational dimen- sions is not the dimensions themselves but the flexibility, speed, and continu- ous improvements required by leaders and teams to adjust to complex, unsta – ble external environments. We discuss these dynamics in this section. Lessons From the Great Companies Although the next generation of “great” companies may be Google, Facebook, Amazon, Alibaba, and some of the sharing economy companies like Uber and Airbnb, it is still important to understand lessons from the classic firms that Jim Collins, author of the best-selling books Built to Last (Collins & Porras, 1994) and Good to Great (Collins, 2001), spent 5 years researching. Collins studied companies that sustained market competitiveness over 15-year periods. His findings are relevant to our discussion of how organizations can sustain change programs to reach higher levels of competitiveness. Not all organizations that pursue large-scale change can or will become great. However, it is worth noting the principles and practices that underlie the number of companies that reached and maintained market dominance for long periods. The dominant messages regarding how good companies become great are relevant to sus – taining effective leadership, strategy, culture, structure, and systems: Alexander Hassenstein/DigitalVision/Thinkstock The five pillars to sustain change—leadership, strat- egy, culture, structure, and systems—should be at the core of every successful company. wei82650_04_c04_155-206.indd 169 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems • Level 5 Leadership: The leaders led and worked not with highly observable charismatic, loud, or dramatic styles but calmly, quietly, humbly—even shyly—in strong-willed ways. • First Who, Then What: The leaders found and placed the right people in the right places and let the wrong people go before setting a new vision and strategy. • Confronting Brutal Facts: The great companies and their leaders confronted harsh, unflattering truths about the organization, while never losing faith that they would prevail in the face of adversity. • Hedgehog Concept: When a hedgehog faces a predator, it rolls into a ball. Unlike the clever fox, the hedgehog’s strategy is surprisingly easy, repetitive, and effec- tive. Great companies and their leaders learned and followed their strengths by understanding and implementing their (1) passion, (2) what they could do best, and (3) what drove their economic engine. • Culture of Discipline : They developed a culture of discipline that made hierar- chies excessive and unnecessary. • Technology Accelerators : They carefully applied selected technologies to ignite and accelerate their transformation—not to define their change. • The Flywheel : They used the “flywheel” approach to change, that is, not seeking a grand, single defining moment or killer application but relentlessly pushing a large, heavy flywheel in one direction, turn after turn, until momentum built to a point of breakthrough after breakthrough. (Collins, 2001, pp. 13–14) Although not all of the great companies Collins wrote about represent exciting or glamorous industries, their evolutionary journeys and transitions to greatness are based on combina – tions of these principles and practices. Table 4.1 shows the good-to-great companies (which must be placed in historical context) along with their respective 15-year cumulative stock market results. Data include the mul – tiple times the companies beat the Dow Jones average for that time period. Table 4.1: Good-to-great companies in the stock market Company Times the marketYears Abbott 3.981974–1989 Circuit City 18.501982–1997 Fannie Mae 7.56 1984–1999 Gillette 7.391980–1995 Kimberly–Clark 3.41 1972–1987 Kroger 4.171973–1988 Nucor 5.161975–1990 Philip Morris 7.061964–1979 Pitney Bowes 7.16 1973–1988 Walgreens 7.341975–1990 Wells Fargo 3.991983–1998 Source: Collins, J. Good to Great. New York: HarperBusiness, p. 7. Copyright © 2001. Reprinted by permission of Curtis Brown, Ltd. wei82650_04_c04_155-206.indd 170 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems In Table 4.2 the comparison companies of each of the good-to-great firms are shown in ital- ics. They are interesting to note because these companies did not make the leap to greatness. You may not recognize the comparison firms or even some of the historically great companies unless you do a quick Internet search. Table 4.2: Comparison companies Good to great Comparison Abbot Upjohn Circuit City Silo Fannie Mae Great Western Gillette Warner–Lambert Kimberly–Clark Scott Paper Kroger A&P Nucor Bethlehem Steel Philip Morris R. J. Reynolds Pitney Bowes Addressograph Walgreens Eckerd Wells Fargo Bank of America Source: Collins, J. Good to Great. New York: HarperBusiness, p. 8. Copyright © 2001. Reprinted by permission of Curtis Brown, Ltd. Interestingly, Wells Fargo survived the financial meltdown in 2008 and its aftermath and is prospering. Although great firms cannot maintain superior stock market returns indefinitely, there is an important and interesting set of leadership and management principles relevant to sustaining best practices and change mandates across industries (Gandel, 2015). There are other important elements that great companies employ during times of nearly unprecedented global economic and political turmoil (Collins, 2001). Their response is rel – evant to leadership and management seeking to identify and sustain organizational change in real time. In uncertain times it is crucial that companies have core values, which need to be timeless and consistently preserved to retain their meaning. The more challenges a company faces, the more important it is to rely on core values—the reasons the company exists. Companies like Proctor & Gamble (P&G), GE, Johnson & Johnson, and IBM have strong core values. In addition, these organizations understand that the caliber of their employees can get them through any challenge, including the Great Recession. They know that when problems arise, people are more important than the plan (Rheingold, 1993). Revitalizing Leadership We have seen that leaders must first guide the design and diagnosis and then implement change within their organizations. Then they must sustain it. As integrators, orchestrators, wei82650_04_c04_155-206.indd 171 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems and strategists, leaders have a primary role in keeping the strategy, culture, structure, and systems of the organization in alignment. As Porter (1996) writes, a leader is primarily a strategist who must choose which customer demands and industry shifts the company responds to, while simultaneously maintaining the company’s unique traits and avoiding any organizational distractions. The leader is responsible for teaching those in the organization about strategy and for setting limits (Porter, 1996). Leaders as Change Integrators and Orchestrators Leaders are not only strategists but integrators. They integrate the organization’s new vision, mission, and values with its changed strategy, culture, structure, and systems. A 2010 IBM lead- ership report acknowledged that leaders should remove the silos within their organization and replace them with integrated, cross-functional capabilities (IBM Global Business Services, 2010). Take Shelley Nandkeolyar, for example. Nandkeolyar was an e-commerce group manager at the kitchen retailer Williams–Sonoma who brought technological savvy and organizational integrative understanding to his role. He created a new position within the company specifi- cally to improve connections and communication among operations groups. This change and others that he led were intended to enhance the speed and content between groups, which was achieved. With continuous change a reality in the current marketplace, leaders must carefully and cre – atively orchestrate the facets of the organization, which includes different cultures, intergen – erational dynamics, and communication styles (IBM Global Business Services, 2010). The kind of creative leadership needed today is not a one-person show. It requires collective input and output across the organization. The leader must integrate the organization to create collec – tivity through frequent, clear, consistent communication and then orchestrate its functionality around the organization’s vision, mission, and values. Leadership requires the ability to set lim – its (Porter, 1996), which should be informed by the organization’s vision, mission, and values. Take Seagate Technology as an exam – ple. Seagate is a large manufacturer of hard drives and other storage solutions for personal computers. In the 1990s the lack of integration from Seagate’s leadership created a fragmented orga – nization, and communication was poor. This led to seven separate research and development (R&D) groups and a lot of internal competition. Seagate employ – ees did not communicate or exercise any common vision or mission. Then, in 1998 new management was brought in. CEO Steve Luczo and COO Bill Watkins worked as part – ners and integrators. They brought Seagate together under one vision. They defined expected performance AP Images/Paul Sakuma COO Bill Watkins is pictured with a Seagate product. Together with CEO Steve Luczo, he worked to trans- form Seagate Technology from a fragmented organi- zation to one that was united under one vision. wei82650_04_c04_155-206.indd 172 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems behaviors and integrated organizational goals. They formed cross-functional teams and led training that was the same for all employees across the organization. This integrated approach allowed Seagate to become a market leader equipped for change (Clark, 2009). Leaders of especially large global companies must also decide how to create a strategy for their firms (Reeves, Love, & Tillmanns, 2012). A Boston Consulting Group survey of 120 inter- national companies across 10 major industry sectors found that executives knew they needed to match their strategic processes to the demands of their competitive environments, but many still relied on strategic methods that fit more predictable, stable environments, even though their environments were highly unstable (Reeves et al., 2012). There are calculated decisions executives can make to create strategies that match their external environments: These strategies include classical, adaptive, shaping, and visioning (Reeves et al., 2012). The shaping type of strategy is more adapted to volatile environments than the other three, since shaping strategies embrace shorter planning cycles. Being flexible is of the utmost importance, since the strategy is often implemented as a series of experiments, with few predic- tors used. Leaders must explore different strategies that match their competitive environments. Leaders as Interpersonal Communicators and Motivators As we consider the difficulty many leaders have with change, Gilley, McMillan, and Gilley (2009) suggest a model based on interpersonal skills. They suggest that a leader’s success with change may be improved through his or her ability to build teams, motivate, and com – municate within the organization. The Gilley et al. (2009) study noted that leaders’ ability to communicate, motivate, coach, build teams, reward, and involve others has been associated with the successful implemen – tation of change. The skills of motivation, effective communication, and team building are ranked by the study as most important to the rate of success (Burke & Litwin, 1992; Conner, 1992; Sims, 2002). More recently, studies show that design-oriented approaches may be more motivating than top- down prescribed changes. Companies such IDEO, Innova, and Intercorp in Peru exemplify this contemporary thinking in change management. For example, Brown and Martin (2015) discuss the logic and process of design thinking and organizational change. They state that constant interaction and discussion with the decision maker is more effective than top-down decisions. In this type of interaction, the individuals interested in making a change would approach the responsible executive early on, stating that they believe there is a problem that must be solved. They would ask whether their viewpoint matches that of the executive (Brown & Martin, 2015). Following this conversation, strategy designers would return to present the possibilities that could be explored, given the definition of the problem that was previously discussed with the executive. They would ask to what extent the possibilities match what the executive imagined and if any are missing or are nonstarters. Finally, designers would approach the executive again with a plan for analyses to be con – ducted on the possibilities on which they all agreed. They would ask if the executive would like to see the analyses run and if any are missing. IDEO uses this process for product innova – tion and other organizational changes. wei82650_04_c04_155-206.indd 173 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems Leaders as Resource and Change Support Champions Leaders must provide resources, build a support system for change agents, reinforce the development of new skills and behaviors, and stay on course to sustain implemented changes (Cummings & Worley, 2015). Financial support for large-scale change must be administered and approved from the top, otherwise potential feuds over who gets which resources can occur at lower levels. For example, a company that changes its vision by adding an e-business dimension to its marketing and product operations must ensure that clear communication and structural and skill changes are sustained and supported with adequate budgets. When such a dramatic change occurs without the required investment, conflict and confusion are likely to ensue. Similarly, sustaining organizational changes also requires leaders to help key managers build a support system. Such a system would help followers learn and develop new skills and behaviors to keep the changes on course. As with the example of an organization starting a new e-business, leaders and managers must ensure that some employees are trained and skilled in e-commerce tools and business practices to succeed both in the e-market and to integrate the new business with the existing one. Managing Change The Qualities of a Change Leader Suppose you are leading a pet food company that has made major transformational changes. You have paid attention to building capability and made sure the right leaders are in place to support the change. The infrastructure and processes have been altered to execute the change. Company values include a commitment to quality, which means better scrutiny of the suppliers and supply chain management. The strategy includes a modernized rebranding and a focus on organic ingredients to support company values. Financial backing has been secured to see the organization through the new changes. Feedback and input from staff and stakeholders has been sought and incorporated into the plan. The organization’s culture and the functions of its various units have been aligned to the common goal. There are open lines of communication, and as a leader at the top-tier management level, you have strong relationships with your management team and new vendors. It may seem like everything has been covered, but organizations must continue to evolve and adapt to the business environment. Profits are up, but change is an ongoing process. It is important to recognize business achievements and reward those who contributed to them. The leader’s task at this point is to sustain the positive change. Discussion Questions 1. Identify a few key roles a leader must take, specifically, in sustaining change. 2. What must the leader integrate to successfully implement change? 3. What kinds of capabilities should a leader possess to increase the likelihood of success? 4. What additional responsibilities, in general, does the leader have? (See the end of the chapter for possible answers.) wei82650_04_c04_155-206.indd 174 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems Revitalizing Strategy Enterprise or corporate strategies define a purpose and mission for an organization to sat – isfy stockholder and stakeholder expectations. They also set a course to meet the demands of rapidly changing external environments while accommodating the needs of internal systems (Johnson & Scholes, 1993; Reeves et al., 2012). Business-level strategies define the reasons why organizations take certain actions to gain a competitive advantage using their competen- cies in a specific business. Operational and functional-level strategies define ways each part of the business or func- tional area (marketing, production, sales, R&D) is organized to deliver corporate and business unit–level strategic direction (Johnson & Scholes, 1993). Strategies for continuous change may also differ from those employed in traditional and other types of environments. Different functions within a company may operate in environments that require various approaches to their planning (Reeves et al., 2012). For example, in some functions, optimiz – ing production might work for that unit, but not for a marketing and sales department where digital analytics may be needed to shape strategy to meet those environmental requirements. Enterprise strategists, then, would need to manage different strategic styles and strategies within the organization. Kanter (2006) observed several mistakes made in relation to implementing strategy, espe – cially at the corporate and/or business levels: • Rejecting what appear to be small innovations to go after a “blockbuster” • Focusing only on new product development, rather than on new services or improved processes • Confusing customers and increasing “internal complexity” with too many minor product changes. (pp. 76, 79) With effective leaders as head strategists, organizations should broaden their scope and widen their search when it comes to strategy (Kanter, 2006). An innovation pyramid approach would be best; that is, a few large strategies at the top with clear direction and investment, many midrange ideas with promise in test stages, and a large foundation of ideas in develop – mental stages (Kanter, 2006). Another important consideration with regard to strategy and sustaining change is strategic positioning , or the way in which the organization’s vision and values align with the strategy. A company using strategic positioning should gain a competitive advantage by focusing on its unique qualities. It should engage in different activities than its rivals, or if similar activities must be used, the way of going about them should be different (Porter, 1996). Porter (1996), a strategy expert, describes three different sources of strategic position: • Variety-based positioning : This type of positioning provides a small number and specific type of product or service to a large number of customers. The strategy is chosen based on the product or service, rather than by a customer group. For example, Jiffy Lube International offers oil changes and other automotive services. Before it began providing repair services, the company was a perfect example of variety-based positioning as it specialized in one thing: oil changes. The comp any based its strategy on this single service. wei82650_04_c04_155-206.indd 175 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems • Needs-based positioning: This type of positioning fulfills a large number of needs for a small number of customers. The strategy is chosen based on the demographics of customers rather than the type of product or service offered. For instance, IKEA based its strategy on its target customers and offers them a large number of home décor products around a certain price point that meet all of their needs, including furniture, kitchenware, decorations, and more. • Access-based positioning : Finally, this type of positioning fulfills many needs of many customers in a narrow market. The strategy is based on customer accessi – bility. For example, Carmike Cinemas, based in Georgia, only focuses on small- to mid-size markets when finding locations for their theaters. The company bases its strategy on small-town populations. Kanter (2006) warns against adopting a strategic focus based solely on new product devel – opment. Good ideas may come from any level of the organization, which is why it is critical for the leader, as integrator and strategist, to create a fruitful environment for these ideas to flourish (Kanter, 2006). One motivation underlying market positioning is to gain customers’ attention and make emotional contact with them. A classic example was Avis Rent a Car’s proud claim: “We’re No. 2, We Try Harder.” It caught the attention of customers and hurt Hertz’s position as first in the industry at that time. Avis was near bankruptcy when the company came up with this strategy. It succeeded not as a gimmick or slick marketing slogan, but rather allowed Avis to shift time, interactions, per- ceptions, and structures to generate new possibilities with customers, transform the nature of the competitive game with Hertz, and even change consumers’ behavior toward Avis (Monger, 2012). The strategy led the way for the company to change its way of doing busi – ness; Avis did in fact try harder, and it paid off. Revitalizing Culture Deloitte research has found that more than half of all business leaders view culture, engage – ment, and employee retention as their most urgent challenges (Bersin, 2015). Culture counts if an organization is to retain high-quality talent. For example, Zappos has one of the most desired value- and innovation-focused cultures in the online retail industry. The company has 10 core values, including “embrace and drive change” and “create fun and a little weirdness” (Zappos, n.d.). Netflix has a manifesto, “freedom with responsibility” (as cited in Zandlicious, 2015). Quicken Loans employs colorful ideals to guide values (such as calling back every client the same day). Google uses its 10 things that outline what it believes (including focusing on users and the idea that great isn’t good enough). Salesforce promotes community. These are not just clichés. Talented employees who have options in a rising economy do not stay with companies where the culture does not match their needs and aspirations. Organizational cultures may be the most critical yet challenging factor in successfully navigat – ing change. Cultures need to accommodate and match the strategies of the organization and at the departmental levels. Strong cultures exist when there is unified understanding and perspective on what the organization is, what it stands for, and how it functions. Changing it is often easier said than done. There are numerous aspects of culture that can affect an orga – nization’s ability to handle change, as Senior and Fleming (2006b) show in Figure 4.2. Figure 4.2: Capacities for change and culture The interrelation of organizational leadership, strategy, culture, structure, and systems must be managed when revitalizing transformational changes. Source: Senior, B., & J. Fleming, J. (2006b). Organizational change (3rd ed.). Essex, UK: Prentice Hall, Figure 4.9, p. 173. Reprinted by permission of Pearson Education, Inc., New York, New York. ORGANIZATION’S CAPACITY TO CHANGE Degr ee of management’s openness to new ideas— especially from below Degr ee of willingness to discuss sensitive issues openly Attitudes to conflict Degree of willingness to give people authority and support them in their actions Deg ree to which the organization’ s structure facilitates change Attitudes to experimentation in processes and products Attitudes to sharing information Attitudes to criticism wei82650_04_c04_155-206.indd 176 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. ORGANIZATION’SCAPACITY TO CHANGE Degr ee of management’s openness to new ideas— especially from below Degr ee of willingness to discuss sensitive issues openly Attitudes to conflict Degree of willingness to give people authority and support them in their actions Deg ree to which the organization’ s structure facilitates change Attitudes to experimentation in processes and products Attitudes to sharing information Attitudes to criticism Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems • Needs-based positioning : This type of positioning fulfills a large number of needs for a small number of customers. The strategy is chosen based on the demographics of customers rather than the type of product or service offered. For instance, IKEA based its strategy on its target customers and offers them a large number of home décor products around a certain price point that meet all of their needs, including furniture, kitchenware, decorations, and more. • Access-based positioning : Finally, this type of positioning fulfills many needs of many customers in a narrow market. The strategy is based on customer accessi- bility. For example, Carmike Cinemas, based in Georgia, only focuses on small- to mid-size markets when finding locations for their theaters. The company bases its strategy on small-town populations. Kanter (2006) warns against adopting a strategic focus based solely on new product devel – opment. Good ideas may come from any level of the organization, which is why it is critical for the leader, as integrator and strategist, to create a fruitful environment for these ideas to flourish (Kanter, 2006). One motivation underlying market positioning is to gain customers’ attention and make emotional contact with them. A classic example was Avis Rent a Car’s proud claim: “We’re No. 2, We Try Harder.” It caught the attention of customers and hurt Hertz’s position as first in the industry at that time. Avis was near bankruptcy when the company came up with this strategy. It succeeded not as a gimmick or slick marketing slogan, but rather allowed Avis to shift time, interactions, per- ceptions, and structures to generate new possibilities with customers, transform the nature of the competitive game with Hertz, and even change consumers’ behavior toward Avis (Monger, 2012). The strategy led the way for the company to change its way of doing busi – ness; Avis did in fact try harder, and it paid off. Revitalizing Culture Deloitte research has found that more than half of all business leaders view culture, engage – ment, and employee retention as their most urgent challenges (Bersin, 2015). Culture counts if an organization is to retain high-quality talent. For example, Zappos has one of the most desired value- and innovation-focused cultures in the online retail industry. The company has 10 core values, including “embrace and drive change” and “create fun and a little weirdness” (Zappos, n.d.). Netflix has a manifesto, “freedom with responsibility” (as cited in Zandlicious, 2015). Quicken Loans employs colorful ideals to guide values (such as calling back every client the same day). Google uses its 10 things that outline what it believes (including focusing on users and the idea that great isn’t good enough). Salesforce promotes community. These are not just clichés. Talented employees who have options in a rising economy do not stay with companies where the culture does not match their needs and aspirations. Organizational cultures may be the most critical yet challenging factor in successfully navigat – ing change. Cultures need to accommodate and match the strategies of the organization and at the departmental levels. Strong cultures exist when there is unified understanding and perspective on what the organization is, what it stands for, and how it functions. Changing it is often easier said than done. There are numerous aspects of culture that can affect an orga – nization’s ability to handle change, as Senior and Fleming (2006b) show in Figure 4.2. Figure 4.2: Capacities for change and culture The interrelation of organizational leadership, strategy, culture, structure, and systems must be managed when revitalizing transformational changes. Source: Senior, B., & J. Fleming, J. (2006b). Organizational change (3rd ed.). Essex, UK: Prentice Hall, Figure 4.9, p. 173. Reprinted by permission of Pearson Education, Inc., New York, New York. ORGANIZATION’S CAPACITY TO CHANGE Degr ee of management’s openness to new ideas— especially from below Degr ee of willingness to discuss sensitive issues openly Attitudes to conflict Degree of willingness to give people authority and support them in their actions Deg ree to which the organization’ s structure facilitates change Attitudes to experimentation in processes and products Attitudes to sharing information Attitudes to criticism Attitude, willingness, and communication are key factors in successfully navigating change. Figure 4.2 shows that attitudes toward experimentation and the willingness to provide auton – omy and support are most related to the organization’s ability to change. When information sharing is encouraged and experimentation is rewarded (even if it leads to failure), the organiza – tion will be more flexible and innovative in dealing with change. Good communication among all levels of the organization is also a critical success factor. Employees at all levels should be willing to discuss sensitive issues without fearing negative repercussions. Management must be open to new ideas, and all employees must adopt a positive attitude toward conflict and criticism. In the case of a change organization, conflict and criticism are fruitful tools that help con – tinuously mold the organization. The attitudes, willingness, and communication within the organization work together to facilitate—or resist—change. An organization seeking to suc – cessfully navigate change should be careful to evaluate these factors internally. Take Google, for example, whose bottom-up culture is one of open communication and collaboration. “Googlers” (Google employees) take part in Thank Goodness It’s Friday forums nearly every wei82650_04_c04_155-206.indd 177 12/15/15 9:44 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems week to ask company founders questions and keep an open dialogue. Google also holds Fixit forums to discuss company challenges and potential solutions. This perpetuates a culture of communication, collaboration, and openness to change. Attitudes at all levels of the organiza- tion are receptive, rather than resistant (Corporate Executive Board, 2009). A collaborative effort from top to bottom is needed to create a culture conducive to change. Organizations that support change, creativity, and innovation are more natural and integra – tive and are perpetually forward looking and competitive (Senior & Fleming, 2006a). Kanter (2006) suggests that innovations succeed in collaborative cultures because of connectors, or individuals who know how to find partners and work effectively with others. As in any business function, risk assessment is a valuable tool to increase efficiency and improve operations. Cultural risk is the idea that strategy and culture will be incompatible, creating a resistance to change. Management should assess cultural risk to determine the specific areas of incompatibility and articulate the best course of action. In some cases culture may be changed to fit the new strategy, whereas in other cases the strategy should be changed to fit the culture (Senior & Fleming, 2006a). Organizations like IBM and P&G handle change well because they have created change cul – tures. Both companies have high levels of employee autonomy but strong, open channels of communication. Good ideas are rewarded, whether successfully implemented or not. IBM, for example, creates intercontinental teams as needed to address problems or new opportuni- ties. These teams are often temporary and make use of virtual communication technologies. Change is considered normal and is encouraged in the attitudes and communication from both the top down and the bottom up. Collaborative efforts and openness to new ideas, cou – pled with a flatter, more responsive structure, allow these organizations to maintain a com – petitive advantage and respond quickly and smoothly to change. Revitalizing Structure IBM’s top leaders have stated that sharing organizational knowledge and experience is vital to a workforce that is open and responsive to change. All employees should be self-reliant and equipped to solve problems across the company, and leaders must know how to apply employees’ talent and ideas. However, many companies do not have the structures or resources to create an environment conducive to knowl – edge sharing and collaboration. As such, they remain in cultural and orga- nizational silos (IBM Global Business Services, 2010), a term that describes specific processes or departments that work independently of each other with – out strong communication between or among them. Integrated structure and communi- cation are key. Organizations must Rawpixel Ltd/iStock/Thinkstock It is important to create an environment conducive to openness and collaboration to stimulate growth. wei82650_04_c04_155-206.indd 178 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems avoid the temptation to work in silos. Instead, companies should encourage mutual learning through frequent communication and strong interpersonal connections (Kanter, 2006). When a company’s departments are too isolated from each other, they risk losing valuable opportunities. In the 1990s, for example, while personal care giant Gillette had success with the Oral B toothbrush, its appliance unit Braun, and its Duracell battery unit, it was slow to introduce a battery-powered toothbrush (Kanter, 2006). In environments of continuous change, organizations cannot afford to have segregated operations. Integrated communica- tion and shared knowledge within the structure increases operational efficiencies and helps the organization manage change. Processes and systems also need to be flexible and integrated. Budgets, planning, reviews, and other processes should be adaptable. Tight processes discourage and often punish flex – ibility. BBC, a television network in the United Kingdom, implemented greater flexibility in its processes and systems by creating a special reserve fund for new business ideas. A new recruit used funds that were designated for a new training film to create a pilot episode for a new series, The Office. The show was a phenomenal hit and was the inspiration for NBC’s The Office , which premiered in the United States in 2005. The flexibility of BBC’s processes allowed new ideas from any level of the organization to be implemented (Kanter, 2006). Revitalizing Systems and Processes The availability of accurate, timely data often makes or breaks an organization’s capacity for change. Organizations use IT to assist strategic and operational decision making to support and sustain organizational changes. Increasingly large amounts of complex data are analyzed for reporting and decision making. Data warehousing and business intelligence software pro- vide solutions to the evolving need not only to locate and store data but also to strategically apply it to marketing, sales, and competitive analysis opportunities and issues in the market – place, especially in support of new organizational changes. Data warehousing refers to the use of databases that store all company data, which users access to create reports and generate answers to what-if questions (Daft, 2013). Business intelligence, or data mining, is the process of analyzing data to make sound strategic deci – sions (Daft, 2013). Systems that allow for data warehousing and data mining help organizations manage large amounts of data and facilitate both horizontal and vertical communication. For example, organizational restructuring uses IT systems to integrate departments within and across other functional and expertise areas (like production, R&D, marketing, and sales). Because each expertise area can easily share data, the quality and efficiency of decision making increases. This is particularly important when an organization is facing continually changing environments. Systems should be designed to facilitate effective control and decision making. Several types of systems have been developed for this purpose. For example, a management informa- tion system is a computer-based system that provides information and support for man – agerial decision making. An executive information system is a higher level application that facilitates decision making at upper levels of management using software. It provides wei82650_04_c04_155-206.indd 179 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.4 Sustaining Change: Built-to-Change Organizations tailored, automatically updated signals and performance information to management through executive dashboards , which are easy-to-read digital information system user interfaces. The system displays like an automobile’s dashboard and continuously updates information about key organizational processes (Sorenson, 2002). With many industries continually changing, these software and systems capabilities provide management the information that is needed to make informed, timely decisions. Many companies also practice knowledge management , and some even dedicate whole departments to this task. Knowledge management refers to efforts to obtain, categorize, and make intellectual capital available within a company. It also describes attempts to cre- ate a culture that promotes continuous learning and knowledge sharing. This information then becomes a foundation that organizational activities can build on (Holzer & Seok-Hwan, 2004). (For further reference, also see Data, 1999, pp. 46–52; Mayo, 1998, pp. 34–38; and Miller, 1999, pp. 42–45.) Check Your Understanding 1. Which dimensions do you think are more difficult to revitalize in organizations that need large- scale change: leadership, strategy, culture, structure, or systems? Explain your reasoning. 2. Identify an organization recently in the media or business news that is failing to revitalize the dimensions listed in question 1. What issues prevent the organization from doing so? 4.4 Sustaining Change: Built-to-Change Organizations As we’ve discussed, change is a continuous reality that successful organizations learn to sus – tain. In 1942 economist Joseph Schumpeter coined the term creative destruction, which describes the industrial transformation that accompanies radical innovations introduced by entrepreneurs. These forces sustain long-term economic growth, even if they destroy estab- lished companies that had monopoly power (Hughes, 1986). Richard Foster and Sarah Kaplan (2001) extended this argument in their book on organiza – tions, Creative Destruction, Why Companies That Are Built to Last Underperform the Market— and How to Successfully Transform Them. They studied more than 1,000 corporations in 15 industries over 36 years. The companies included old-economy industries, such as paper and chemicals, and new-economy industries, like semiconductors and software. They found that old-school corporations used management philosophies rooted in the assumption of continuity—which meant that they could not change or create value at the speed and scale of markets. The technology and processes that enabled their long-term survival endangered them in the new economy’s constant need for change. Foster and Kaplan argued that restruc – turing corporations to change at the speed and scale of capital markets, rather than focusing on changing controls, required more than simple adjustments. The authors claimed that companies like Johnson & Johnson, Corning, and GE prevailed over cultural lock-in (becoming insular and closed) by transforming their companies, not just slowly improving them. They argue for radical change strategies such as creating new businesses; wei82650_04_c04_155-206.indd 180 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.4 Sustaining Change: Built-to-Change Organizations selling, spinning off, or closing businesses and divisions with slow growth; shutting down out- dated, ingrown structures and procedures; and creating new processes, controls, and ways of thinking. Foster and Kaplan (2001) state that organizations must be as dynamic and respon – sive as the markets in order to sustain superior performance and long-term success. Less sweeping in their analysis and views on organizational change, authors Edward E. Lawler III and Christopher G. Worley (2006) also evaluated contemporary organizational effective – ness and developed key practices for creating organizations that are self-sustaining change. In their book, Built to Change: How to Achieve Sustained Organizational Effectiveness , they define b2change organizations as those that are built with practices in place to encourage change, rather than obstruct it. Here we explore several of those practices in order to iden – tify ways to sustain and invigorate organizations undergoing change. Those practices include seeking competitive advantages by embracing continuous, sustainable change—based in part on Fowler’s (2000) concept of a virtuous spiral—as well as creating structures without jobs, implementing downward decision making, and leading as a team. Seeking Temporary Competitive Advantages Historically, best practices mandated that in order to be successful, organizations had to exhibit stability through strong values, structures, and strategies (Lawler & Worley, 2006). Organizations were encouraged to endure and were designed for alignment and equilibrium rather than alteration and uncertainty. This led to clearly defined but inflexible organizations. They were not equipped to navigate change, let alone grow in the process. Stability has a place, and it is useful in developing long-term competitive advantages (unique products, ideas, and/or practices that distinguish the organization within the market). Lawler and Worley (2006), however, suggest that organizations should continuously review the short term and implement temporary competitive advantages one after another. The basic assump – tion here is that if change is to be expected, stability will always be disrupted, so organizations should focus on short-term strategies. This requires a unique support system. Human capital, knowledge, and organization are critical to the success of temporary competitive advantages (Lawler & Worley, 2006). Human and social capital have become critical sources of competitive advantage as intangible assets (nonphysical assets that are often not found in the organization’s accounting records, such as goodwill, patents, and a skilled workforce) and now make up more of a firm’s market value. In 1982 tangible assets, like the facility and equipment, represented 62% of the value of a typical New York Stock Exchange company, but in 2000 tangible assets represented only 15% of a com – pany’s value (Lawler & Worley, 2006). Knowledge and technology are growing rapidly, increasing the need for human capital and knowledge within organizations. Moreover, the very nature of work is being redefined. Individual work is now primarily knowledge-oriented and is no longer task-oriented, as the founder of modern management, Peter Drucker (1999), stated in the late 1950s. Consider the significant outsourcing that takes place today. Many outsourced jobs require advanced technical knowledge and exper- tise. Many manual jobs are now performed by machines, which require human capital to wei82650_04_c04_155-206.indd 181 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.4 Sustaining Change: Built-to-Change Organizations develop and maintain. As our knowledge grows, it must be used differently by organizations to develop new competitive advantages (Lawler & Worley, 2006). Organizational structure itself can now be a competitive advantage. Traditional departments—sales, accounting, and others—are no lon- ger sufficient. New departments like total quality management, knowledge management, and talent management play a significant role in differentiat – ing an organization and sustaining change (Lawler, Mohrman, & Benson, 2001; Lawler & Worley, 2006). Many of these new departments seem to focus on the importance of human capital within the organization— managing talent and knowledge, engaging employees, and improving the workplace environment. Organizations with these structures understand that the ability to sustain change starts with its human capital. Knowledgeable employees must be engaged, well-managed, and rewarded properly if the organization is to retain them. Organizations compete through involving peo – ple as well as products. Think about the computer technology industry. Most people would say that Apple has a competitive advantage over Microsoft—but why is this the case? Apple’s human capital has for many years been a significant factor in its success. Former CEO Steve Jobs was instrumental in developing new products, strategies, and vision, often creating the change in the market (Lawler & Worley, 2006). Sustaining organizational change was traditionally determined by a company’s ability to unfreeze, freeze, and refreeze (Lawler & Worley, 2006; Lewin, 1997). Unfreezing dissolves the normalcy of the organization, allowing it to then refreeze new structures and practices. It dis – rupts one period of stability so the organization can create a different one. It is a singular event, which is not the practice of built-to-change organizations (Lawler & Worley, 2006). These orga – nizations are successful at sustaining change because they are designed for continuous change— by seeking temporary competitive advantages through structures, strategies, and leadership. Continuous Change and the Virtuous Spiral An organization’s ability to strategize well and sustain change depends on its identity. As the continuous change model in Figure 4.3 illustrates, a company’s identity functions as the core, providing a platform for designing, strategizing, and creating value. Identity—or who the organization is and what it stands for—is traditionally viewed as being very stable. Here stability is not a hindrance to change, but rather a prerequisite. An orga – nization cannot sustain change without first establishing a strong identity. Identity is most clearly seen in the organization’s culture and how it is viewed by the outside world (Hatch & Schultz, 2002; Lawler & Worley, 2006). Just as your peers, coworkers, friends, and family Kuzihar/iStock/Thinkstock As manual labor becomes more automated, the workplace’s human element is becoming more knowledge-based. Fo rmulating Strategies Organizational Identity Adding Value Creating Design Figure 4.3: Continuous change model An organization’s identity is interrelated to its ability to add value by creating designs and formulating effective strategies that lead to desired change. Source: Adapted from Worley, C. G., & Lawler, E. E., III. (2010). Agility and organization design: A diagnostic framework. Organizational Dynamics, 39 (2), 194–204. Formulating Strategies Organizational Identity Adding Value Creating Design wei82650_04_c04_155-206.indd 182 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.4 Sustaining Change: Built-to-Change Organizations develop and maintain. As our knowledge grows, it must be used differently by organizations to develop new competitive advantages (Lawler & Worley, 2006). Organizational structure itself can now be a competitive advantage. Traditional departments—sales, accounting, and others—are no lon- ger sufficient. New departments like total quality management, knowledge management, and talent management play a significant role in differentiat – ing an organization and sustaining change (Lawler, Mohrman, & Benson, 2001; Lawler & Worley, 2006). Many of these new departments seem to focus on the importance of human capital within the organization— managing talent and knowledge, engaging employees, and improving the workplace environment. Organizations with these structures understand that the ability to sustain change starts with its human capital. Knowledgeable employees must be engaged, well-managed, and rewarded properly if the organization is to retain them. Organizations compete through involving peo – ple as well as products. Think about the computer technology industry. Most people would say that Apple has a competitive advantage over Microsoft—but why is this the case? Apple’s human capital has for many years been a significant factor in its success. Former CEO Steve Jobs was instrumental in developing new products, strategies, and vision, often creating the change in the market (Lawler & Worley, 2006). Sustaining organizational change was traditionally determined by a company’s ability to unfreeze, freeze, and refreeze (Lawler & Worley, 2006; Lewin, 1997). Unfreezing dissolves the normalcy of the organization, allowing it to then refreeze new structures and practices. It dis – rupts one period of stability so the organization can create a different one. It is a singular event, which is not the practice of built-to-change organizations (Lawler & Worley, 2006). These orga – nizations are successful at sustaining change because they are designed for continuous change— by seeking temporary competitive advantages through structures, strategies, and leadership. Continuous Change and the Virtuous Spiral An organization’s ability to strategize well and sustain change depends on its identity. As the continuous change model in Figure 4.3 illustrates, a company’s identity functions as the core, providing a platform for designing, strategizing, and creating value. Identity—or who the organization is and what it stands for—is traditionally viewed as being very stable. Here stability is not a hindrance to change, but rather a prerequisite. An orga – nization cannot sustain change without first establishing a strong identity. Identity is most clearly seen in the organization’s culture and how it is viewed by the outside world (Hatch & Schultz, 2002; Lawler & Worley, 2006). Just as your peers, coworkers, friends, and family Kuzihar/iStock/Thinkstock As manual labor becomes more automated, the workplace’s human element is becoming more knowledge-based. Fo rmulating Strategies Organizational Identity Adding Value Creating Design Figure 4.3: Continuous change model An organization’s identity is interrelated to its ability to add value by creating designs and formulating effective strategies that lead to desired change. Source: Adapted from Worley, C. G., & Lawler, E. E., III. (2010). Agility and organization design: A diagnostic framework. Organizational Dynamics, 39 (2), 194–204. Formulating Strategies Organizational Identity Adding Value Creating Design can distinguish your identity based on your priorities and choices, an organization’s identity can be gleaned by how it manages conflict and pri – oritizes its stakeholders and environment. Organizations that make their external envi- ronment and ability to make strategic adjustments part of their identity will be able to sustain change (Lawler & Wor- ley, 2006). Once identity is established and communicated, strategic intent is the next step in man – aging continuous change. Stra- tegic intent refers to the ways in which the organization develops its temporary com – petitive advantages. Good stra- tegic intent is characterized by five elements: breadth, aggres- siveness, differentiation, logic, and orchestration. Breadth refers to the broadness of a strategy. For example, P&G has a broad, global strategy involving multiple markets and consumer products. The WD-40 company, on the other hand, has a very narrow strategy and makes only a single type of lubricant. Aggressiveness is how an organization grows, interacts with competitors, and creates new products. Consider the Coca-Cola versus Pepsi feud for market share, or Apple versus Microsoft. The Mac versus PC commercials struck such a chord in highlighting these products’ consumer rivalries that many are posted online and are watched by hundreds of thousands of viewers from around the world. Differentiation is the degree to which an organization’s products and services vary from the competition. We see this daily in the automotive industry. Each manufacturer offers unique vehicle features in an attempt to capture more of the market and distinguish itself from com – petitors. Logic refers to the core business model behind the organization’s revenue, costs, and profits. Some companies, like Walmart, choose a high-volume, low-cost model. Others, like Ferrari, choose a low-volume, high-cost model. Logic affects the way a company markets its products and how it interacts with the consumer. Finally, orchestration is the process of planning and sequencing different strategies. It is the way in which the organization predicts and responds to environmental changes through the breadth, aggressiveness, and differentiation of its strategies (Lawler & Worley, 2006). For example, Southwest Airlines has long relied on a keep-it-simple strategy: it keeps costs low, bags fly free, and it has a well-known corporate culture—promulgated by legendary CEO wei82650_04_c04_155-206.indd 183 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.4 Sustaining Change: Built-to-Change Organizations Gary Kelly. This has given the airline a unique strategic position and allowed it to manage continuous change. In 2010 it announced its acquisition of AirTran to create “the most expan- sive network of any low-cost carrier in the U.S.” (Reed & Jones, 2010, para. 1). The strategic shift maintained the company’s identity as a low-cost airline and gave it a new competitive advantage. It expanded its network to new cities and began to offer international flights—a first for Southwest. Kelly acknowledged that this strategic shift allowed Southwest to grow its presence in markets that it was not yet serving and placed the company in a good position to expand further (Reed & Jones, 2010). Southwest is approaching strategy with flexibility and vision, allowing it to sustain change. Organizations built to change think about strategy continuously. They also constantly evaluate their identity and strategic intent in relation to the chang – ing environment. Those that are suc – cessful in this endeavor are able to cre- ate virtuous spirals , upward patterns of increasing performance that are cre – ated when an organization can match its strategy, value creation, and design to the changes in its environment. Companies like IBM, Intel, GE, Micro – soft, and P&G have successfully created and recreated virtuous spirals over decades as built-to-change organiza – tions. In the 1980s Intel was an estab- lished manufacturer of dynamic random-access memory chips but was suffering in competi – tion with its low-cost Asian competitors. The company adapted to its new environment and began to manufacture microprocessors. Its identity and adaptable strategic intent allowed it to create a new virtuous spiral, and it is still doing well today. Organizations that are built to change, like Intel, think about the current environment but also imagine potential future envi – ronments and react accordingly (Lawler & Worley, 2006). Creating Job Structures Without Job Titles Traditional job descriptions and titles are now stagnant and high-cost hindrances to organi- zational change. If not kept up-to-date, they become irrelevant to the organization. Built-to- change organizations instead create job structures without job titles. They focus on creating a dynamic employee experience through changing work relationships and assignments. Simi – lar to many professional services like accounting or consulting firms, employees are assigned responsibility for a set of tasks on a temporary basis. As change occurs, tasks are adjusted to fit the new needs of the organization and the customer. Although this approach expects much from employees and management in terms of frequent job redesign, it has significant advantages for sustaining change. Such a structure allows employees to be defined not by a title, but by their unique skill set and current tasks. Their work is always relevant to the organization, and learning opportunities increase as different teams are created (Lawler & Worley, 2006). AP Images/Ric Francis Southwest Airlines is approaching strategy with flexibility and vision, allowing it to sustain change. wei82650_04_c04_155-206.indd 184 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.4 Sustaining Change: Built-to-Change Organizations For example, GE, a successful and long-standing built-to-change organization, encourages a dynamic work environment. Its entry-level rotational programs allow new employees to spend several months in different divisions over several years. This provides exposure to the various operations in the organization and instills the GE culture of adaptation and team- work. Whereas other companies view training as expensive and time-consuming, GE makes it a priority, spending approximately $1 billion each year on employee training and devoting weeks or months to evaluating talent (Brady, 2010). The focus is not on the job title, but on what employees can do. GE’s method of frequently changing teams establishes change as the norm and encourages horizontal and vertical communication and knowledge sharing. Another aspect of this structure is business process outsourcing (BPO) . BPO involves out- sourcing certain functions like accounting or human resources to firms dedicated to those services. These firms have the most current knowledge in their respective fields and can more easily handle change. BPO reduces the stresses on the organization and the resources needed to change. It can also represent a significant cost savings. New jobless structures and outsourcing put built-to-change organizations in a position for different communication and decision making (Lawler & Worley, 2006). Implementing Downward Decision Making Sustaining change requires good communication and involvement from top to bottom. IBM is a company that understands the importance of vertical communication (top–bottom or formal communication) and horizontal communication (interdepartmental communication). IBM holds “jam sessions” through its intranet (internal company Internet site) to gather ideas and communicate about current and future company issues. One such session involved 10,000 com – ments and more than 50,000 employees. CEO Sam Palmisano understands that a good idea can come from anywhere and that good feedback does not come just from superiors (Brady, 2010). For communication and downward decision making to occur, an organization must have a good information system. The seven most important characteristics of a good information system are: 1. Provide comprehensive data on key processes 2. Integrate data across departmental boundaries 3. Monitor capabilities as well as performance 4. Link to goal setting and rewards 5. Include information on competitors 6. Provide trend data on the business environment 7. Make measurements visible throughout the organization. (Lawler & Worley, 2006, p. 126) This kind of system allows the organization to frequently set goals, have a customer focus, and be transparent regarding its goals. Decision making related to those goals should then take place at the corresponding level. Built-to-change organizations understand that employee input can improve the quality of decisions and make change easier. Leading as a Team Leadership is the common thread in built-to-change organizations. Leaders in this context have a unique combination of leadership and managerial skills. Individuals who are both wei82650_04_c04_155-206.indd 185 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.4 Sustaining Change: Built-to-Change Organizations leaders and managers react to the external environment and practice shared leadership. Shared leadership involves developing an entire organization of leaders, at all levels, to dis – tribute decision making and uncertainty among knowledgeable leaders. To do this requires that organizations either hire managers with flexible styles or replace those whose styles are inconsistent with the organization’s strategy and identity (Lawler & Worley, 2006). The CEO of HP describes leadership as a “team sport” (Lawler & Worley, 2006, p. 217; Tam, 2005, p. B1). The best teams are designed for organic growth—individuals are thoughtfully placed with the intention of maximizing innovative output and flexibility. Leadership development should occur at all levels. The organization’s attitude inspires all employees to gain the knowledge and skills to lead and makes those resources readily available (Lawler & Worley, 2006). For example, P&G, led by CEO A. G. Lafley, places special emphasis on leadership develop – ment within the organization. The company strengthens leadership and management from the executive team down to the line employees and recognizes that leadership development and training is the most important requirement to maintaining a healthy company for the long term. During Lafley’s first term as CEO, he doubled the company’s revenue and market value and outperformed the market with his acquisitions. He retired in 2015 (Byron, Ng, & Lublin, 2015). Lafley (2011) understood that leadership was not the responsibility of a single person; rather, the more leaders he could help create within the organization, the better P&G could sustain change: It was my responsibility to develop as many potential CEOs as we could— leaders who would be ready and able at any time to lead P&G under any cir – cumstances.… My objective was to groom more horses for the race. I wanted horses that could run in all kinds of conditions and on all kinds of tracks. (p. 70) P&G works as a team, allowing it to successfully sustain change through improved communi- cation and knowledge sharing. Not only should organizations develop leaders at all levels, they should reward employees for being leaders. Many reward systems are designed around stability, but consistent, stable performance is not the goal for built-to-change organizations (Lafley, 2011). Employees often need an incentive to change. Incentives should be given for both successes and failures. In a continuously changing organization, failure cannot be avoided and is not necessarily some- thing to avoid. Good failure, as Lawler and Worley (2006) describe, should be rewarded and included in the organization’s learning process. A Duke University and University of Southern California survey of 549 successful company founders found that they primarily attributed their success to their ability to learn from mistakes (Kauffman Foundation, 2009; Newlands, 2014). Basketball star Michael Jordan admitted to failing over and over again before succeeding. The writer James Joyce described mistakes as “portals of discovery” (as cited in Gillett, 2014, para. 3). Entrepreneurs generally admit that learning from mistakes is necessary before succeeding. So how do organizational leaders encourage “good failures” (Manimala, Jose, & Thomas, (2006, p. 56) in the workplace? One way is to let employees reward each other for different, wei82650_04_c04_155-206.indd 186 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices maybe even unusual performance that may initially fail but later prove successful. Employ- ees might also feel less fearful of making mistakes or even failing in order to strive harder to achieve results another time. Providing support for employee risk-taking with the aim of helping organizations succeed is practiced through peer-to-peer compensation, as is the case at Zappos. Also biotechnology company Genentech enables employees to receive checks from $1,000 to $2,500 for going beyond job responsibilities (Gillett, 2014). Removing some of the formality from striving for performance can encourage risk-taking and reduce the fear that often surrounds innovating. Intuit, for example, has a company-wide “Fail – ure Award” ceremony to reward a team whose unsuccessful ideas lead to valuable learning. The plastics company W. L. Gore & Associates throws a celebration with beer or champagne when a failing project is killed. There is no need to fear failure or success. When rewarding efforts or actions that fail, it is important to be sure that employees are following metrics and a plan that is meeting the organization’s goals (Gillett, 2014). Incentivizing good failure is related to the learning organization principles and practices presented earlier. Check Your Understanding 1. Are you incentivized by good failure? Why or why not? Would you be moved to innovate more either at work or in school if you knew you would not be penalized or would be rewarded or recognized for trying? Explain your reasoning. 2. How would you apply what you learned from Figure 4.3 if assigned to a team to design and implement an organizational change? What parts of the model would you use and/or change? Explain. 4.5 Future Change Challenges and Best Practices Shaping and sustaining change requires that an organization continually evaluate and respond to its environment, as we discussed in Chapter 2. The environment creates change, but inno – vative leaders can also change and shape competition in the environment, as we saw with Steve Jobs and Apple earlier in this text. In this section, we discuss effective change practices that apply to sustaining organizational change. Self-Designing Organizations One of the most important change practices is building organizations for change. For exist – ing organizations, the challenge is to create learning organizations (which is the topic of Chapter 5) and self-designing organizations ; that is, organizations that are able to renew and change themselves fundamentally and continuously (Cummings & Worley, 2009). This type of organization is created through a collaborative process in which stakeholders choose the direction of the company, create structures and processes to reach the business goals, and then implement them (Cummings & Worley, 2009). As we move into the future, organizations will also need the following practices to survive and thrive: a focus on strategic corporate social responsibility; attention to core competencies; an emphasis on sustainability (with regard to operations and toward the environment); a focus wei82650_04_c04_155-206.indd 187 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices on incorporating analytics as a capability; managing globalization; meeting the challenges of disruptive change; and developing leaders’ and followers’ emotional intelligence. Corporate Social Responsibility Corporate social responsibility (CSR) is an organization’s self-imposed efforts toward making a positive social, environmental, and ethical impact, considering its core identity and industry. Many organizations are now global players and recognize that the impact of their operations extends far beyond headquarters. Ethisphere’s World’s Most Ethical companies have shown that good ethical practices that are also innovative can differentiate a company’s brand and even improve its financial performance (Mitchell, 2011). Studies support the claim that ethical companies generally outperform their competitors (Semuels, 2014). Companies like Aflac, GE, Marriott, and others continue to shape change. They rejuvenate and create successful standards for business practices, and consumers, stockholders, and stakeholders are responding. For example, IKEA, the multinational furniture retailer, is one of several socially responsible corporations in Sweden (Sweden.se, 2015). Its identity and commitment to CSR was exempli- fied in its actions regarding child labor in the 1990s. Rugs are a key IKEA product; the com – pany purchases rugs from suppliers in the Middle East and India, among other countries. In the mid-1990s the media discovered that child labor was used in the production of some of the rugs and confronted the company. IKEA examined its entire supply chain (all the participants involved in bringing a product to its end user) and established its own set of supplier standards. Standards included restrictions against child labor as well as environmental standards. The company created positions dedi- cated to evaluating supplier compliance and suspended or terminated contracts with suppliers that were not in compliance. IKEA also partnered with the United Nations Children’s Fund to cre – ate programs for children and women in developing areas in which the company does business and to address the issue of child labor at its root causes. IKEA takes its role as a global player very seriously. It considers the negative externalities of its operations and addresses its respon – sibility to society and the environment. IKEA has been socially responsible since long before it became popular to do so. The company now sets stan – dards in CSR, which can be an expen – sive investment (IKEA Group, 2014; Llopis, 2011). IKEA’s approach to CSR is comprehensive, and all companies can learn from it as we move into the future. Ethics and social responsibility are not just words or individual choices; they AP Images/Jing wei/Imagechina IKEA is an iconic global furniture retailer that is also one of the most socially responsible corporations in the world. It has its own set of labor and environ- mental standards for its suppliers. wei82650_04_c04_155-206.indd 188 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. What are our core competencies? Wh at business ar e we in? Wh o is our customer? Wh at is our product or service? Vision (Who ar e we? Who will we become?) Mission (What is our strategic purpose for operating?) Va lues (W hat do we stand for and belie ve? Wh at standa rds can be used to eva luate and judge us?) Section 4.5 Future Change Challenges and Best Practices have a significant impact on an organization’s reputation and financial performance. Compa – nies that understand and embrace this behavior can shape change in the global business world. CSR and ethical practices are increasingly important dimensions of all organizations, espe- cially those trying to sustain changes and adopt new practices involving stakeholders, includ – ing the environment. It is the responsibility of top leaders to develop an ethical culture and emphasize its importance to each employee (Daft, 2015). In some instances ethical behavior is intuitive; however, there are many instances that are not black and white, but gray. Ethics are often subjective, and they may mean something different to each individual and organization. That is why it is critical, in the gray areas, that company lead – ership at all levels model ethics and create a culture of ethical practices. Most companies today have a code of ethics , a formal statement that details the ethical and social responsibility values that guide employee conduct (Daft, 2010). The code of ethics informs the organization’s vision, mission, and values, which in turn dictate the organization’s core competencies (see Figure 4.4). To sustain competitiveness, organizational leaders and followers must be clear in identifying those dimensions that are key to survival and success. Core competencies, discussed next, are one such dimension. Figure 4.4: Strategic contingency framework These key questions align internal and external organizational dimensions to make a company more effective. Wh at are our core competencies? Wh at business ar e we in? Wh o is our customer? Wh at is our product or service? Vision (Who ar e we? Who will we become?) Mission (What is our strategic purpose for operating?) Va lues (W hat do we stand for and belie ve? Wh at standa rds can be used to eva luate and judge us?) wei82650_04_c04_155-206.indd 189 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices Core Competencies Core competencies are an organization’s strongest capabilities, based on the combination of production skills and technologies. They are also critical factors in creating sustainable orga- nizations (Prahalad & Hamel, 1990). However, businesses can’t solely rely on a core compe – tency forever; rather, every business needs to adapt its core competencies to market changes and demands. The Digital Equipment Corporation (DEC) was once IBM’s major competitor before it floun – dered and failed to read the competitive environment correctly. A major core competency of DEC was mainframe computers. However, the industry shift from mainframes to desk – top and laptop computers was not taken seriously by that company. Consequently, DEC did not shift its core capabilities to match the changing customer and industry demands. The company was a market leader as a manufacturer of mini computers in the 1960s through the 1980s but fell apart as the PC market exploded. DEC’s business processes and costs were designed around building and integrating components internally, whereas the PC market relied heavily on outsourcing and speed of design. Its organizational structure was not sustainable for the change in the market, and DEC did not recover (Christensen & Overdorf, 2000). “The corporation, like a tree, grows from its roots” (Prahalad & Hamel, 1990, p. 81). Core com – petencies are an organization’s roots. If the organization doesn’t know where its roots are and doesn’t water them, it cannot grow and thrive. Likewise, it must provide enough room for its roots to grow. Core competencies are dynamic, changing as the organization grows and as its surrounding competitive environment evolves. A keen understanding of core competencies will help the organization sustain that change. DEC did not give its core competencies room to grow and change, which ultimately spelled the end of the company. It can be difficult to determine an organization’s core competencies, however. Management must first evaluate the vision, mission, and values and see how this identity aligns with what the organization does best. Prahalad and Hamel (1990) developed three tests: 1. It is a core competence if it provides “potential access to a wide variety of markets.” 2. It is a core competence if it makes “a significant contribution to the perceived cus – tomer benefits of the end product.” 3. It is a core competence if it is “difficult for competitors to imitate” (pp. 83–84). Consider 3M and its core competency in chemical processes and materials (Lawler & Worley, 2006). This competency allows 3M to produce products ranging from tape to its legendary Post-it ® notes to adhesives for the aerospace industry. The company’s unique ability to manu – facture bonding materials that are difficult to imitate gives it access to many markets and adds value in the customer’s mind. Sustainability Sustainability is an organization’s responsibility to maintain its operations and relevance to all stakeholders, including the physical environment, into the future. Sustainability is influ – enced by the organization’s identity, structure, and capabilities. The factors that determine wei82650_04_c04_155-206.indd 190 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices these progress over time, from resources to processes and values to the organization’s culture (Christensen & Overdorf, 2000). Organizations that practice sustainable policies integrate such practices into their leadership mind-sets, strategies, cultures, products, and services. We have discussed examples from companies like GE, P&G, and IBM. Another important aspect of sustainability is minimizing the negative environmental and societal impact of business practices. Companies are measured not only by financial perfor- mance, but also by the quality of their actions. Shaping change in the future requires an analy – sis of negative externalities (unintended negative social and environmental consequences of doing business, such as pollution) in decision making. The shift toward “green” business practices is not just a fad. Businesses are more concerned than ever about using renewable resources, and the government has begun to support sus – tainability, selecting Eleni Reed as the first chief greening officer in 2010. This position is responsible for pursuing new sustainable practices (Hoffman, 2010). Businesses cannot sus – tain change in the future if they do not address sustainability. We see this already reflected in expanded CSR programs. Managing Change Embedding CSR and Sustainability Into Business Practices Suppose you are responsible for instituting CSR and sustainability at a manufacturing company. This company still focuses on classic business principles but must now consider its social and environmental impact. It has been proved that becoming a leader in CSR and sustainability has a positive impact on revenues and customer loyalty. Competitive advantage also increases: Customers favor companies that engage in these efforts and even come to expect them from the brands they habitually purchase. The manufacturing company must change its old practices and modernize, and then communicate its new vision to stakeholders and customers to gain maximum return on investment. Some of the ways it can embody CSR and sustainability are by engaging in fair trade, standing against the exploitation of children for labor, using renewable resources, opposing cruelty to animals, ensuring it is environmentally conscious, and addressing social needs. The company begins to communicate its plans to employees well in advance of the change, because making them feel a part of the change initiative and appealing to their ethical and environmental concerns has positive effects. When employees believe in the mission and feel like their daily responsibilities contribute to it, their sense of fulfillment and engagement increases. Discussion Questions 1. What is the difference between CSR and sustainability? 2. What are some specific ways in which this company can change its way of doing business to adhere to CSR and sustainability standards and practices? 3. What can the company do to allow the new philosophy to take hold among employees? (See the end of the chapter for possible answers.) wei82650_04_c04_155-206.indd 191 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices Analytics Capability When considering core competencies, organizations cannot afford to ignore technology and analytics. Analytics is the collection and organization of relevant data in order to determine trends and evaluate performance. It is another evolving core competency that has become a necessary benchmark. With technology advancing daily, we now have more tools than ever to collect and analyze data. Those organizations with the knowledge to best leverage available information will have an advantage when attempting change. The United Parcel Service (UPS), for example, uses analytics comprehensively to anticipate customer actions and needs. It tracks the movement of each package and evaluates the likeli – hood of problems. The company has created the UPS Customer Intelligence Group to analyze customer usage patterns and complaints. Companies like UPS want to be as informed as pos – sible, and they have the means to do so. This improves decision making and quickens reaction time (Davenport, 2006). Meeting the Challenges of Globalization The past few decades have seen a trend toward globalization—the expansion of business oper – ations around the globe. Large, sustainable companies like IKEA have been successful at global – ization. These multinational corporations have the wisdom to see that creative leaders will remove boundaries by using innovative strategies, developing a universal vision, and motivating individuals around the world (IBM Global Business Services, 2010). The 2010 McKinsey Global Survey identified five themes of globalization: “growth in emerging markets; labor productivity and talent management; the global flow of goods, information, and capital; natural-resource management; and the increasing role of governments” (McKinsey & Company, 2010a, para. 3). Emerging markets are those in places like China, India, and Russia that are experiencing sig – nificant and rapid growth through industrialization. Companies in these markets will move aggressively beyond their own markets and compete for global business (Beebe, 2007). To respond to these emerging markets, companies must create a local presence, develop partnerships and joint ventures with local firms, hire talent from new markets, and build new business models (McKinsey & Company, 2010a). Organizational structures must become more flexible, frequently evolving as emerging markets present change. This organizational evolution has been termed “boundarylessness” (Falk, 2001, p. 7). To successfully sustain change in emerging markets, organizations must become boundaryless—when boundar – ies are removed, the company has more flexibility and can more easily expand. Heinz CEO Bill Johnson implemented a strategy of “Four As” to guide the com – pany’s approach to emerging global markets: applicability, availability, AP Images/Keith Srakoci Heinz CEO Bill Johnson (left) implemented a strat- egy of “Four As” (applicability, availability, afford- ability, and affinity) to help the company expand its reach in the global marketplace. wei82650_04_c04_155-206.indd 192 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices affordability, and affinity (Feigenbaum, White, & Matticks, 2011). Applicability involves a fit between a product’s acceptance by end users and customers in a local culture. In China, for example, the main condiment Heinz sells is soy sauce, rather than its iconic ketchup. Applica- bility also relates to how a product may be used differently in different markets. In Korea, for example, ketchup is eaten primarily on pizza, and in the Philippines, it is made with bananas. Availability involves selling the product in the relevant local channels. Most emerging markets don’t have large grocery stores, so Heinz had to rethink its distribution channels to reach more of the local population. Affordability seems to be self-explanatory. Emerging markets, while growing, are still fractionally as wealthy as markets in Western, developed countries. To address affordability, for example, Heinz offers its products in different sizes—soy sauce is sold in small, 3-cent packets in Indonesia. Finally, affinity involves how local employees and customers regard the company’s brand. Affinity can be built through CSR and sustainability. Heinz created its core capabilities in emerging markets primarily through acquisitions and has been very successful in sustaining that change, with more than 20% of the company’s 2011 revenues originating in emerging markets (Feigenbaum et al., 2011). Heinz was purchased by Berkshire Hathaway and the pri- vate equity firm 3G Capital for $23 billion in 2013 and has successfully merged with the Kraft Foods Group (Kenwell, 2015). The McKinsey survey’s second theme of globalization is labor productivity and talent manage – ment. Globalization has created a need for more productive and skilled labor in management, R&D, and strategy. As we move into the future, talent will be found mostly in emerging and developing markets (McKinsey & Company, 2010b). Companies must learn to leverage the pro – ductivity of aging workers and efficiently acquire and place the right talent in the right places. The global flow of goods, information, and capital is both a cost and a benefit of globaliza – tion (McKinsey & Company, 2010b). New technologies allow information to be available and accessible around the world. This helps companies make quicker, more informed deci – sions, but it also presents a risk of intellectual capital being stolen. There are also high costs associated with obtaining and maintaining these technologies. Free-flowing information has created significant pricing transparency and engaged consumer networks (McKinsey & Company, 2010b). More available information means more informed consumers, now on a global scale. Managing natural resources is the fourth theme of globalization. As operations expand around the world, the issue of sustainability and the supply and use of resources is more critical than ever. Constraints on natural resources have a significant effect on global companies’ strategies. Finally, the increasing role of government shapes globalization, now and in the future. Devel – oped and emerging markets carry concerns about volatility and high debt. Government actions affect which markets may be invested in and how business may be conducted in those markets. Natural resources and governmental oversight are significant external factors to be considered in globalization (McKinsey & Company, 2010b). As globalization becomes the norm for business, companies must consider these five themes and respond accordingly to sustain the changes that come with globalization. Companies like IKEA and Heinz have been successful, and even ahead of the curve, in sustaining this change. wei82650_04_c04_155-206.indd 193 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices Meeting the Challenges of Disruptive Change Change will become more significant and increasingly disruptive, particularly as the playing field expands globally. Leaders must shift their thinking from individual employees’ capabili- ties to the capabilities of the organizational as a whole (Christensen & Overdorf, 2000). When considering an organization’s big picture, there are three factors that affect its ability to focus its values, use resources, and integrate its processes (Christensen & Overdorf, 2000). What an organization has (its assets) affects what it can do. Both tangible (equipment, cash, inventory) and intangible (patents, employees, knowledge) resources help companies navi – gate disruptive change. Processes are the ways organizations interact—through coordination, communication, and decision making—to enhance values by transforming resources into products and services. Processes are inherently designed to be stable and unchanging. The difficultly arises in creating organizational flexibility in order to respond to change. Finally, values are the bases employees use to set priorities. The ideal combination of resources, pro – cesses, and values will be different for each organization, and finding this balance is the key to sustaining change. Disruptive change is most difficult when the organization’s capabilities lie primarily in its processes and values, rather than in its people, and are embedded in its culture. In this case companies may deal with disruptive change by creating new capabilities in three ways: inter- nally, through spinout organizations, and through acquisitions (Christensen & Overdorf, 2000). Organizational boundaries must be changed and new teams created if new capabili – ties are to be created internally. Chrysler, for example, recognized the need to change capabilities to focus on automobile types rather than on components. The company sold its stake in Maserati, Lamborghini, and Diamond–Star Motors to focus on developing “great cars, great trucks.” This move sent a sig – nal to employees and other stakeholders that helped jump-start the company’s renaissance (Fiat Chrysler Automobiles, 2015). To achieve these new capabilities, Chrysler changed its organizational boundaries. Its component- based product development teams (power train, electrical systems) were changed to heavy – weight teams (minivan, small car, Jeep, truck) to make its development faster. This internal restructuring allowed Chrysler to create new capabilities (Ott, Katz, & Thomas, 2011). Spinout organizations are new, independent organizations related to the parent organiza – tion—that is, new divisions. They can be an effective way to create new capabilities in the face of disruptive change. For example, when HP first entered the ink-jet printer business, it had difficulty integrating with its existing laser-jet operations because the capabilities needed for each were different. HP decided to create a new ink-jet division in Vancouver, British Columbia. This spinout division allowed the company to create new capabilities for the ink-jet business and maintain its capabilities in laser-jet printers. More recently, HP chose to sell its PC operation and bought the United Kingdom’s largest software firm, Auton – omy, to enter the software business (BBC, 2011). Capabilities can also be created through acquisition , or an organization’s purchase of all or a portion of another existing company. Rather than expending valuable resources to create capabilities from scratch, an organization may purchase an existing company that already has wei82650_04_c04_155-206.indd 194 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 4.5 Future Change Challenges and Best Practices the desired capabilities. Any of these three methods allow an organization to navigate disrup- tive change and create new organizational capabilities. Developing Emotional Intelligence Finally, shaping and sustaining change in a global playing field with socially responsible and ethical players requires a new kind of intelligence. According to psychologist Daniel Gole- man (1995), the most effective leaders have a major similarity: a high degree of emotional intelligence (EI). EI encompasses self-awareness, self-regulation, motivation, empathy, and social skill (Goleman, 1998). These five components are shown in Table 4.3. This kind of intel – ligence requires much more than IQ, technical skills, or know-how. It is very relational and self-reflective, and it is not just for leaders. Leaders and followers need EI to shape and sustain change. Having and expressing EI moti – vates a diverse global workforce that is becoming more local each day, and leaders need to read or predict markets based on this diversity. Its first and most fundamental component is self- awareness. Goleman (1995) defines self-awareness as an individual’s strong understanding of his or her emotions, strengths, weaknesses, needs, and drives. This is often easier said than done; however, if understanding the organization is fundamental to sustaining change, how much more important is first understanding oneself ? Self-awareness provides a context for the role of the individual within the organization. One cannot enact an organization’s vision, mission, and values without first understanding one’s own vision, mission, and values. Table 4.3: Emotional intelligence Component Definition Hallmarks Self-awareness • The ability to recognize and understand your moods, emo- tions, and drives, as well as their effect on others • Self-confidence • Realistic self-assessment • Self-deprecating sense of humor Self-regulation • The ability to control or redirect disruptive impulses and moods • The propensity to suspend judgment—to think before acting • Trustworthiness and integrity • Comfort with ambiguity • Openness to change Motivation • A passion to work for reasons that go beyond money or status • A propensity to pursue goals with energy and persistence • Strong drive to achieve • Optimism, even in the face of failure • Organizational commitment Empathy • The ability to understand the emo- tional makeup of other people • Skill in treating people according to their emotional reactions • Expertise in building and retaining talent • Cross-cultural sensitivity • Service to clients and customers Social skill • Proficiency in managing relation- ships and building networks • An ability to find common ground and build rapport • Effectiveness in leading change • Persuasiveness • Expertise in building and leading teams Source: Reprinted by permission of Harvard Business Review. From “What Makes a Leader?” by Daniel Goleman. Harvard Business Review, November–December 1998. Copyright © 1998 by the Harvard Business School Publishing Corporation, all rights reserved, p. 95. wei82650_04_c04_155-206.indd 195 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Self-regulation involves thinking before acting and being able to control impulses. Indi – viduals who self-regulate develop environments of trust and fairness (Goleman, 1998). An organization cannot sustain change without an environment of trust. Such an environment takes time to establish. Motivation is an individual’s incentive to succeed beyond every – one’s expectations (Goleman, 1998). Change is rarely easy—successfully and efficiently implementing it requires drive, trust, and communication. Trust can be developed if lead – ership is empathetic. Empathy involves thoughtfully considering others’ feelings when making decisions (Goleman, 1998). Finally, social skill includes being friendly to persuade individuals to move in a certain direction (Goleman, 1998). EI is more than a personality trait. It’s a new kind of intelligence, and it can be learned (Goleman, 1998). EI involves the ability to identify and control one’s emotions and those of others. In this way positive manipulation is a critical success factor in shaping and sustaining change. Leaders with EI, at all levels of a company, create and motivate cohesive work environments and support and inspire change. Check Your Understanding 1. What happens when a leader does not show EI when planning and/or implementing a large- scale change initiative? Review Table 4.3 and offer an example from your own experience or from your research. 2. How would you use Figure 4.4 to explain how the “as is” state of an organization will change to a “to be” state? (Consider using an example from the business press or media.) What would change and why? What are the forces pressuring or presenting an opportunity to change? Apply the dimensions in Figure 4.4 to address these questions. Summary and Resources Chapter Summary Shaping and sustaining planned and continuous organizational changes are tasks for the entire organization, from leaders to employees. Sustaining change requires keeping the plan for change updated and on course. It also demands that leaders continue to benchmark organizational operations and expertise to the latest technologies and practices in their fields and those used by their most successful competitors. This chapter began with a reminder of why major organizational changes fail. We then launched into best practices of leadership, strategy, culture, structure, and systems that help shape and sustain change. We identified built-to-change practices and methods that help organizations succeed both with implemented changes and with those that have yet to be planned. Selecting leaders who can plan and implement strategies, cultures, structures, and processes that are built to change increases the likelihood of shaping lasting change. Challenges to organizations and current best practices that address these challenges are dis – cussed. Global threats and opportunities and disruptive changes brought about by a number of sources, including new technology, are among the major challenges organizations face. The last section also explained how strategic CSR, an organization’s core competencies, sustain – ability, the practice of analytics, and organization-wide EI can create a competitive advantage. wei82650_04_c04_155-206.indd 196 12/16/15 11:56 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Posttest Questions 1. With little notice, GreenTree Company’s employees were given a new graphics soft- ware program that was hastily explained to them. Shortly thereafter, some struggling employees reverted to their old graphics program. The most apparent reason for this failure is __________. a. strong opposition to change b. cultural impediments to change c. inadequate preparation and direction d. a short-term solution for a complex problem 2. The failure of Friendly’s restaurant chain in 2011 demonstrates that in order to stay competitive, businesses must continually __________. a. change, even for the sake of novelty b. differentiate themselves from similar businesses c. add new locations and expand headquarters staff d. switch out upper-level management 3. One viable strategy to attract and retain new hires who may already be aligned with an organization’s image, vision, and goals is to use organizational __________. a. branding b. analytics c. differentiation d. orchestration 4. __________ refers to the skills, knowledge, and experience of employees as per their value and cost to an organization. a. Recruitment capital b. Talent-based positioning c. Recruitment price d. Human capital 5. Recent studies suggest that __________ is the most successful structure a leader can use to motivate sustained change. a. top-down prescribed change b. design-oriented change c. creative destruction d. competitive advantage 6. Innovations succeed most often in collaborative cultures because of __________, indi – viduals who know how to work effectively with others. a. accelerators b. knowledge managers c. connectors d. data mavens 7. Which of the following is NOT a typical characteristic of b2change organizations? a. being aggressive b. being visionary c. being flexible d. being conventional 8. According to the author, stability is primarily necessary to a company that __________. a. owns a unique product that distinguishes it within the market b. owns a product that is commonplace within the market c. focuses on short-term strategies and incremental changes d. focuses on the pace and scale of current markets wei82650_04_c04_155-206.indd 197 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 9. The author cites IKEA, the multinational furniture retailer, as shaping change in the global business world through its __________. a. corporate social responsibility standards b. sensitive use of child and female labor c. adaptation to each nation’s customs d. practice of using external, independent auditors 10. __________, which determines trends and evaluates performance, is a core competency that organizations cannot ignore if they wish to sustain change. a. Sustainability b. Self-regulation c. Access-based positioning d. Analytics 11. As described by Jim Collins, “Level 5 leadership” refers to a leader who is __________. a. flamboyant and enigmatic b. humble but strong-willed c. charismatic but distant d. forceful and dramatic 12. When a company defines a new mission to better satisfy stockholder and stake- holder expectations, this is known as setting __________ strategy. a. business-level b. operational c. enterprise d. functional-level Answers: 1 (c), 2 (b), 3 (a), 4 (d), 5 (b), 6 (c), 7 (d), 8 (a) , 9 (a), 10 (d), 11 (b), 12 (c) Learning Objectives Recap 1. Change programs fail for many reasons, including opposition to change, failure to recognize the need for change, superficial recognition of the need for change, failure to systematically implement change, adopting a short-term fix approach, structural and cultural impediments to change, and failure to sustain change. Change is often arbitrarily imposed and poorly explained, and employees are given little or inad- equate direction. Leaders guide the alignment of organizational dimensions to the new vision and future state through the change process. Figure 4.1 illustrates this role. Leaders use interventions and empowerment to sustain change. Leaders are integrators, orches- trators, motivators, communicators, and strategists. 2. Employees bring skill, talent, knowledge, ideas, and experience to the change pro- cess—without employees, change could not be implemented. Organizations need to attract desirable talent and retain it in order to sustain change. Recruitment and retention can include social media efforts and professional development. 3. The five pillars of successful, sustainable change are leadership, strategy, culture, structure, and systems. These five pillars are interrelated and interdependent. Leaders guide the new strategy and shape the culture, which in turn suggests the wei82650_04_c04_155-206.indd 198 12/22/15 10:18 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources appropriate structure and systems. All five dimensions must be aligned for change to be successful and sustainable.Jim Collins offers the following principles regarding how good companies become great: level 5 leadership, good personnel placement, confrontation of reality, the hedgehog concept, a culture of discipline, use of technology, and the flywheel approach. Level 5 leadership is servant leadership characterized by a calm, quiet, and humble style. The hedgehog concept refers to a company under – standing its passion, what it does best, and what drives its economic engine. The flywheel approach involves building momentum, as if pushing a large flywheel in one direction. Enterprise or corporate strategies are broader, high-level strategies that define the organization’s purpose and mission so as to satisfy stakeholders. Business- level strategies focus on the actions the organization needs to take to gain a com – petitive advantage. Finally, operational or function-level strategies focus on the organization of each functional area in order to achieve corporate and business- level strategies. 4. Built-to-change organizations seek temporary competitive advantages rather than long-term stability. They implement continuous change centered on the organiza- tion’s identity, and they focus on job structures rather than job titles. They also implement downward decision making through strong top-to-bottom communica- tion and emphasize shared leadership. 5. Self-designing organizations have the ability to change themselves fundamentally and continuously. Existing organizations often have greater difficulty becoming a learning organization. To make this transition, organizations need to focus on stra- tegic CSR, emphasize sustainability, pay attention to core competencies, adopt a way to manage globalization, try to meet the challenges of disruptive change, incorporate analytics, and develop EI among employees. Discussion Questions 1. Suppose you have been invited to talk to a local business group about why organiza- tional change programs fail and how they can succeed. Outline your presentation to such an audience. 2. If you had to advise a group of newly appointed CEOs on specific roles that leaders can play in sustaining organizational change, what would you say? 3. How can an organization’s strategy, culture, and systems be revitalized to sustain change? Offer some specific recommendations for each of these dimensions. 4. State an argument for and against each of the following statements using what you learned from Section 4.2. (a) Human capital cannot be easily developed after an organizational change is implemented. (b) Recruiting new talent through an orga- nization’s branding is more myth than reality. (c) Organizations, HR personnel, and leaders can’t really empower employees to sustain a change; people have to motivate themselves. wei82650_04_c04_155-206.indd 199 12/22/15 10:18 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Key Terms access-based positioning The process of focusing business on activities tailored to reach particular customer segments that offer desired returns on investment. acquisition An organization’s purchase of all or a portion of another existing company. aggressiveness The way the organization grows, interacts with its competitors, and creates new products. analytics The collecting and organizing of relevant data in order to determine trends and evaluate performance. assets What an organization owns, both tangible and intangible. b2change organizations Organizations that are built with practices in place to encourage change rather than obstruct it. branding The image, reputation, and iden – tity of a company; that for which the com – pany is known. breadth The scope, scale, depth, and reach of a strategy. business intelligence An analysis of com – pany data to make better strategic decisions. Also known as data mining. business-level strategies Strategies that define the logic and actions organizations take to achieve competitive advantages using their specific business competencies. business process outsourcing (BPO) The act of outsourcing certain business func- tions, like accounting or human resources, to firms dedicated to those services. 5. Evaluate (argue the validity) of these statements based on what you learned from Section 4.4. (a) Built-to-change organizations should seek long-term competitive advantage, not short-term competitive strategies. (b) An organization’s identity follows its strategic intent: strategy first, then who an organization is and what it stands for. (c) An organization’s virtuous spiral refers to the process of showing performance first, then changing strategy and structure to increase its perfor- mance. (d) Decision making and leading from the top should be centralized to avoid confusion. 6. Argue the following statement and present evidence to support your opinion (using what you learned from Section 4.5): When organizations change to satisfy customer and competitive demands, CSR is a great theory, but in the real world every company and organization has to do what is required to survive and succeed—and that some- times involves questionable legal and ethical activities. 7. Discuss why and how the following are important for sustaining organizational change: (a) self-designing organizations, (b) defining and updating core competen- cies, (c) sustainability, (d) analytics, and (e) global competitiveness. 8. Respond to the following statements and support your reasoning with evidence and an example: (a) Disruptive change may be desirable in theory, but in reality it should be prevented, controlled, and if possible, extinguished. (b) EI is a great trait to have if you’re born with it, but many people who are shy, introverted, and not outwardly oriented should not be pressured to learn or demonstrate EI, especially by organiza- tional leaders and trainers. wei82650_04_c04_155-206.indd 200 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources code of ethics A formal statement of the company’s values concerning ethics and social responsibility; it clarifies to employees what the company stands for and its expec- tations for employee conduct. competitive advantages Unique products, ideas, and/or practices that distinguish the organization within the market. confronting brutal facts The practice of great companies and their leaders to con- front brutal facts or harsh, unflattering truths about the organization, while never losing faith that that they could and would prevail in the face of adversity. connectors People who know how to find partners in the mainstream business or the outside world. core competencies An organization’s strongest capabilities, based on the combi – nation of production skills and technologies. corporate social responsibility (CSR) An organization’s self-imposed efforts toward a positive social, environmental, and ethi – cal impact, considering its core identity and industry. creative destruction The industrial trans- formation that accompanies radical innova- tions introduced by entrepreneurs. cultural risk The risk that strategy and cul – ture will be incompatible, creating a resis – tance to change. culture of discipline Jim Collins’s idea of sustained great organizational results that depend on developing cultures of self- disciplined people who used disciplined action to help organizations be their best through the help of deeply passionate people driving economic performance. data warehousing The use of large databases to combine all company data and allow users to access data and create reports. differentiation The degree to which an organization’s products and services vary from the competition. emerging markets Markets like Brazil, China, India, Russia, and others that are experiencing significant and rapid growth through industrialization. emotional intelligence (EI) A dimension of intelligence encompassing self-awareness, self-regulation, motivation, empathy, and social skill. empathy Thoughtful consideration of oth- ers’ feelings in the process of making intel- ligent decisions. empowerment A shift in expectations by which employees are given more autonomy in decision making and increased responsibility. enterprise or corporate strategies Strate- gies that define a purpose and mission for an organization to satisfy stakeholder expecta – tions and set a course to meet environmen- tal demands while accommodating internal system needs. executive dashboards Digital information system user interfaces that are easy to read and provide information tailored to user requests that is automatically updated. executive information system A high-level application that facilitates decision making at upper levels of management. first who, then what The practice of find – ing and placing the right people in the right places and letting the wrong people go first, before setting a new vision and strategy. wei82650_04_c04_155-206.indd 201 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources flywheel Jim Collins’s term to describe great companies that did not seek a grand, single defining moment, or killer application, but relentlessly pushed a large, heavy fly – wheel in one direction, turn after turn, until momentum built to a point of breakthrough after breakthrough. globalization The expansion of business operations around the globe, including the integration of national economies with the global economy. hedgehog concept Jim Collins’s metaphor used to describe great companies; when a hedgehog faces a predator, it simply rolls up into a ball. Unlike the clever fox, the hedge- hog’s strategy is surprisingly easy, repetitive, and effective. horizontal communication Interde – partmental communication within the organization. human capital The skills, knowl – edge, and experience of individuals or a workforce with regard to their value and cost as invested and incurred by an organization. identity Who the organization is and what it stands for. intangible assets Nonphysical assets that are often not found in the organization’s accounting records; for example, goodwill, patents, and a skilled workforce. intranet A company’s internal Internet site. knowledge management The process of systematically finding, organizing, and mak – ing a company’s intellectual capital available to foster a culture of continuous learning and knowledge sharing. level 5 leadership Successful leaders, as described by Jim Collins, who worked not flamboyantly or with highly observable char – ismatic, loud, or dramatic styles; but calmly, quietly, humbly—even shyly—in strong- willed ways. logic The core business model behind an organization’s revenue, costs, and profits. management information system A com – puter-based system that provides informa- tion and support for managerial decision making. motivation The drive to achieve beyond expectations. needs-based positioning The act of serving many needs of few customers; choosing a strategy based on a group of customers, rather than on a specific set of products. negative externalities Unintended nega- tive social and environmental consequences of doing business. operational and functional-level strategies Strategies that define the ways in which each functional area of a business is organized to deliver the cor – porate and business-unit level strategic direction. orchestration The process of planning and sequencing different strategies. self-awareness An understanding of one’s own emotions, strengths, weaknesses, needs, and drives. self-designing organizations Organiza- tions that have capabilities to renew and change fundamentally and continuously. wei82650_04_c04_155-206.indd 202 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources self-regulation The ability of an individual to control impulses. The term also refers to groups and organizations being able to control their operations and activities legally and ethically without the intervention of governmental or outside forces. shared leadership Distributed decision making and activities among managers, employees, and leaders throughout an organization. silos Specific processes or departments working independently—and sometimes in isolation—of each other without strong communication or relationships between or among them. social skill Friendliness with a purpose; ability to relate to people through social means. spinout organizations New, independent organizations related but operating sepa – rately from a parent organization. strategic intent Ways in which organiza- tions develop competitive advantages. strategic positioning Ways in which organizations’ visions and values are aligned with their strategies. supply chain All the participants involved in bringing a product to its end user. sustainability An organization’s respon – sibility to maintain its operations and relevance to all stakeholders, including the physical environment, into the future. sustaining major organizational changes Continuous top-down, bottom- up leadership and process improvements implemented to embed change within the organization. technology accelerators Planned and applied selected technologies that ignite and accelerate an organization’s transformation. values The standards by which employees set priorities, develop strategies, and make decisions. variety-based positioning An entrepreneur- ial, flexible approach of choosing a competi – tive strategy based on a variety of products, rather than relying on a specific or previously defined group of customer segments. vertical communication Top-to-bottom and bottom-to-top communication within the organization’s formal chain of command; also referred to as formal communication. virtuous spiral An upward spiral of increasing performance that is created when an organization can match its strategy, value creation, and design with the changes of its environment. Additional Resources For more on information why organizational change can fail ht tp://w w w.forbes.com/sites/victorlipman/2013/09/04/ new-study-explores-why-change-management-fails-and-how-to-perhaps-succeed/ Strategies to empower employees ht tps://hbr.org/2010/04/empowering-your-employees-to-e wei82650_04_c04_155-206.indd 203 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Managing Change Sample Answers Managing Change—Recruiting Talent in the 21st Century 1. Your brand is just as important to recruiting as it is to marketing. You must recognize your position in the industry, identify key rivals that may be seeking the same kind of talent, determine what attributes you are seeking in candidates, and understand the best way to reach potential candidates. Large employers have transitioned to the 21st century by combining social media tactics with traditional recruiting tech- niques. This is a cost-effective strategy that smaller companies can emulate. 2. Popular social media sites can contribute in their own unique way to a social media recruiting strategy. LinkedIn is one way to reach candidates who have desired quali- fications while simultaneously showcasing your company’s attributes and listing job openings. Facebook can help strengthen the company’s identity and brand and make it visible to the market. YouTube can present the company to potential recruits and give candidates a realistic look into the company’s culture, values, and day-to-day processes. Twitter can communicate job openings while at the same time define the company’s voice. 3. Companies with a talent mind-set seamlessly combine talent acquisition with talent development. They have strong onboarding processes—they may pair new hires with more established employees as a way to train and acculturate them, which has the simultaneous advantage of adding mentoring to the established employee’s professional development. Talent mind-set companies integrate new employees into their existing culture and are concerned not only with candidates’ qualifications but with their leadership potential and long-term career development. 4. Companies with a talent mind-set look beyond a candidate’s capabilities to fulfill job requirements. They are looking for leadership qualities, such as the ability to “think outside the box,” be comfortable in ambiguous situations, and be able to formulate strategies. These candidates are able to understand abstract concepts, be indepen – dent, and be willing to take risks to innovate. Other desired capabilities include empathy, self-awareness, the ability to read other people and analyze situations, and the ability to step away from details when necessary. Managing Change—The Qualities of a Change Leader 1. Leaders are integrators charged with keeping the organization in alignment through the change process. They must provide discipline and boundaries that will dictate the company’s actions as it works to fulfill its goals. The organization must be flexible and creativity must be embraced if it is to adapt and sustain change down the line. Fre – quent, clear, and consistent communication helps facilitate integration as the leader orchestrates the cross-functional synergy that is necessary for sustaining change. 2. Leaders must integrate the mission—including the vision and values—with the strategy, culture, silos, structure, and systems within the organization. 3. The ability to build teams, motivate, and communicate are associated with a higher rate of success regarding organizational change. This includes coaching, mentoring, and rewarding employees, as well as involving others in tasks that support the change. 4. Leaders are responsible for making sure the required resources are available for the organization’s change plan and for ensuring that managers have the support they wei82650_04_c04_155-206.indd 204 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources need to carry out the plan. They also must foster new skill development and behav- iors in employees so that they can change with the company. Leaders must give their staff members the tools to succeed to keep them engaged. Managing Change—Embedding CSR and Sustainability Into Business Practices 1. Sustainability is a commitment not just to the environment, but to the company itself. Sustainability is influenced by the organization’s identity, structure, and capa – bilities. The organization must maintain its operations and relevance by integrating sustainability practices into its leadership, strategies, cultures, products, and ser – vices. Sustainability is also about minimizing negative impact on the environment, which can be accomplished by using renewable resources. It is important to keep current with—and even stay ahead of—government regulation requirements for sustainability. On the other hand, corporate social responsibility is a company’s deci – sion and the result of its ethical and sustainable efforts to positively impact society and the environment. 2. A manufacturing company can make dozens of changes to adopt sustainable prac- tices. It can institute a recycling policy, switch to wind or solar power, recycle its water, responsibly dispose of hazardous waste, ban animal testing in its production, scrutinize its suppliers to ensure they adhere to the same standards, and switch to fuels that emit less exhaust or employ “clean technology.” From a CSR standpoint, the company can get involved in the community through philanthropic activities. 3. To instill the change in employees, companies can institute a code of ethics consistent with the organization’s CSR values. This helps include employees in achieving the company’s mission and familiarizes them with the change initiatives about to take place. It is important that leadership exemplify these ethics for employees to follow. Answers and Rejoinders to Chapter 4 Pretest 1. False. Although speed and efficiency are hallmarks of the American business system, a short–term fix approach to organizational change most often fails. A short–term fix typically adopts a myopic view of change solutions, which is not very useful. 2. False. Recruiting experienced people to a company that is planning transformational change can be extremely valuable. Seasoned employees often bring the ability to work in teams, set high standards, reprioritize, let go of detail work, and offer tested experience. 3. True. Knowledge management is a system in which organizations help sustain change by making intellectual capital available to employees for their continu – ous learning. Some companies even dedicate whole departments to obtaining and categorizing intellectual capital to foster a culture of continuous learning and knowl- edge sharing. 4. True. Built-to-change organizations—modeled by companies such as Apple, Toyota, and Johnson & Johnson—prioritize temporary competitive advantage over long- term stability (although such companies have achieved long-term success). Such organizations are not afraid to transform themselves within a rapidly moving environment. 5. True. A self-designed organization is one in which stakeholders collaboratively choose the direction of the company. These companies are designed specifically to renew and change themselves fundamentally and continuously. wei82650_04_c04_155-206.indd 205 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 6. False. In her study of change management, Rosabeth Moss Kanter observed several mistaken strategies, one of which is to reject what initially appear to be small, unex- citing changes in favor of a “blockbuster” innovation. Rejoinders to Chapter 4 Posttest 1. In this scenario, the most apparent reason for this organizational change failure is that employees were given little or inadequate preparation and direction. 2. The failure of Friendly’s restaurant chain—founded in 1935 and bankrupted in 2011—demonstrates that in order to stay competitive, businesses must continually differentiate themselves from similar businesses. Moreover, they must continually check that the public knows what makes them unique. 3. A successful strategy to attract and retain new hires who may already be aligned with an organization’s image, vision, and goals is to use organizational branding. For example, companies like Google and Facebook are well known for their company cultures and goals, and thus attract and retain hires who are already on board with that culture and those goals. 4. Human capital refers to the skills, knowledge, and experience of employees as per their value and cost to an organization. A critical task in sustaining change includes continually recruiting, involving, and empowering the right human capital, or talent. 5. Recent studies suggest that design-oriented change is a popular and successful structure for a leader to follow—one who also motivates sustained change. Individu- als interested in making a change approach the appropriate executive and define the problem/challenge. Continual interaction and discussion about how to plan and execute the change follow. 6. Innovations succeed in collaborative cultures because of connectors, individuals who know how to find like-minded partners and work effectively with others. 7. Being conventional does not typically apply to b2change organizations, which do not generally follow time-honored conventions. Rather, they thrive on sequencing new strategies and implementing meaningful changes. 8. According to the author, stability is primarily necessary only to a company that owns a unique product, process, or practice that distinguishes it within the market. In this case, stability is useful to develop long-term competitive advantage. 9. The author cites the multinational furniture retailer IKEA as shaping change in the global business world through its uncompromising corporate social responsibil- ity (CSR) standards. IKEA’s restrictions against child labor and pro-environment principles affect its entire worldwide supply chain, and other global businesses are following suit. 10. Analytics is the collection and organization of relevant data that determines trends and evaluates performance. Organizations cannot ignore this core competency if they wish to make smart changes and sustain good change. 11. “Level 5 leadership,” according to Good to Great researcher Jim Collins, refers to a leader who is humble and calm, yet strong-willed—rather than loud, flamboyant, and dramatic. His research suggests that the Level 5 leader is most successful in sustaining change and market competitiveness. 12. When a company defines a new mission to better satisfy stockholder and stake- holder expectations, this is known as setting enterprise (or corporate) strategy. This includes setting a course to meet the pressures of quickly changing external environ- ments while accommodating internal systems. wei82650_04_c04_155-206.indd 206 12/15/15 9:45 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.
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5 Adapt and Rejuvenate: Agile and Learning Organizations iStock/Rawpixel Ltd/Thinkstock Learning Objectives After reading this chapter, you should be able to do the following: 1. Analyze key traits of successful change leaders. 2. Describe how agile organizations approach change compared to traditional ones. 3. Examine the characteristics, levels, and principles of learning organizations. 4. Explain the relationship between learning and change in organizations, the process a company goes through to become a learning organization, and the importance of leadership. 5. Summarize the mind-set that both agile and learning organizations must have in the 21st century. wei82650_05_c05_207-248.indd 207 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Change is the status quo. Companies the world over realize that success depends on their ability to respond to new opportunities and threats as they emerge, and to keep rethinking their strategies, structures, and tactics to gain ephemeral competitive advantages. —Perry Keenan, Stephanie Mingardon, Harold Sirkin, and Jennifer Tankersley Pretest Questions 1. True/False: The traditional leadership traits of decisiveness and composure con- tinue to rank high in current change leadership models. 2. True/False: Agile organizations tend to have a high tolerance for failure. 3. True/False: A learning organization is holistic, which means it considers how the entire industry and business market contribute to its specific goals. 4. True/False: Learning organizations respond well to market swings because they can bring in outside marketing experts to advise them on how to react. 5. True/False: In the 21st century, both agile and learning organizations must accept that change demands doing things differently. 6. True/False: Tension can actually be a source of energy and renewal for a learning organization. Hyundai’s current successes may be surprising to those who know its past. The Korean automotive company has shed its former image of producing low-quality, “me-too” vehicles— and the experience of suffering a near collapse in sales in 1998—and replaced it with that of a $66 billion company that controls 5% of the market today (Holstein, 2013). The company’s cars have vastly improved and are moving to the top of the list in quality: J. D. Power and Associates ranked Kia (owned by Hyundai) as number two, behind Porsche, and Hyundai as number four, behind Jaguar (Levin, 2015). This change happened by design, not by chance. Hyundai’s skills in design, product launch, and consumer awareness are credited to its recently implemented product management model. The company’s overall success is attributed to the fact that it has focused leadership; a dynamic culture; competitive strategies; high-quality products; innovative design; operational excellence; shrewd marketing; and an empowered, disciplined workforce. wei82650_05_c05_207-248.indd 208 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Chung Mong-Koo, chair of Hyundai Motor Company, assumed leadership in 2000. He succeeded his father, Chung Ju-Yung, who founded the Hyundai Group. Chung has rejuvenated the workplace, changing Hyundai’s culture and its overall approach to auto manufacturing. The company’s redefined culture emphasizes learning and innovation. This focus became clear in 2009, when Chung began recruiting top-level design talent from Germany, Italy, and the United States (Holstein, 2013) to execute his new design approach: fluidic sculpture, inspired by natural shapes. The company’s new designers are young and keep an edgier, innovative culture that has a degree of fearlessness (Levin, 2015). Chung didn’t make these changes alone. John Krafcik, CEO of U.S. operations, helped Chung implement new strategies to move the company forward through 2013, which employees meticulously executed. Hyundai’s workplace culture operates with a mix of Korean superiors and coordinators who are mostly U.S.-educated and more Westernized than their counterparts in Seoul. Coordinators help bridge communications between Western and Eastern employees and in some ways are equals of the U.S. executives for whom they work (Holstein, 2013). As the company expands its global reach, its major concerns include balancing quality with production and innovation with sustainable reliability, while maintaining an entrepreneurial pace in a hypercompetitive environment. Critical-Thinking Questions 1. What are some competitive advantages Hyundai has shown that have contributed to its marketplace success? 2. What changes has Hyundai made to evolve from a low-quality, me-too company to a significant global competitor? (In your answer, refer to concepts in the text as well as specifics in the opening scenario.) wei82650_05_c05_207-248.indd 209 12/22/15 10:21 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Introduction Introduction: The Road Ahead We began this text by defining different types of change and showing how organizational change can be diagnosed, planned, and implemented. In the chapters that followed, strategies and methods for sustaining change were presented. Here we examine how organizations can adapt to continuous change by emphasizing innovation, creativity, agility, and learning, as is the case with Hyundai. Leading people is a crucial part of whether an organization successfully adapts to continuous change. Although leaders must facilitate and manage change by articulating clear strategies and creating flexible structures, they must also create a culture that sustains not only the “hard” dimensions of change (like strategies, structures, and systems) but also its “soft” dimensions, which involve motivating and developing people to higher performance levels. While transformational change happens rapidly and sometimes dramatically, organizations must also continue to make equally dramatic adjustments to survive and succeed (Paton & McCalman, 2000). At the same time, developing cultures that attract high-quality talent involves learning, innovation, and creativity. Motorola’s 2011 restructuring exem – plifies this type of continuous inno – vation and creativity. The company successfully split from a unified cor- porate parent into Motorola Solu – tions, which houses its businesses that manufacture wireless devices that are sold mainly to enterprises and governments; and Motorola Mobility, which sells cell phones and set-top boxes to consumers. CEO Greg Brown has helped engineer the transformation from cell phone, cable set-top box, wireless network, automotive, and barcode scanner divisions to a pure-play public-safety LTE, a network technology that offers high speeds and low lag times over long distances. (Among other uses, it provides first responders with valu – able photos, video, and other infor – mation via police radios equipped with specially designed smartphones and other devices). The turnaround involved trimming $500 million in annual operating expenses in 3 years, changing out 21 of 70 vice presidents, and adding 20% more sales staff (Pletz, 2015). Organizations that plan, implement, and strive to sustain change must continually adapt to unforeseen global competition, uneven economic shifts, new technologies, and the rapid increase of available data. Other challenges may be indirect and less dramatic, such as learn – ing how best to incorporate recent graduates into the workforce when they may lack certain skills because educational systems can’t keep pace with changes in the workplace (Marquardt, AP Photo/Richard Drew CEO of Motorola Solutions Greg Brown helped Motor – ola Inc. split into two successful companies, Motorola Solutions and Motorola Mobility. wei82650_05_c05_207-248.indd 210 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.1 The Leadership Challenge 2002). Looking ahead, it is nearly impossible to predict the types of adaptations individuals, leaders, and entire organizations will need to make in order to stay competitive. 5.1 The Leadership Challenge Different leadership styles and strategies relevant to guiding change have been discussed throughout the text. These discussions have highlighted that one of the principal challenges company boards face is finding and developing leaders who can guide their organization through uncertainty. Effective change leaders must fill new roles, many of which have yet to be defined. Successful Change Leaders Over the past decade, business leaders and psychologists have attempted to identify the qual- ities of successful change leaders. In a study conducted by the Center for Creative Leadership, 76% of its constituents believed the definition of leadership had already changed, and 91% believed leaders face increasingly complex challenges. Respondents ranked key traits lead – ers must have to be successful under these new conditions. Forty-nine percent believed in the importance of collaboration. They also highlighted change leadership, the ability to build effective teams, and the ability to influence employees without exerting authority as impor – tant leadership qualities. More traditional traits such as decisiveness, composure, and finding ways to get results were ranked low (Martin, 2007). IBM’s Global Business Services group interviewed more than 1,500 CEOs to analyze the traits they valued in leaders tasked with managing complex environments. Overall, they cited creativity as the most important of a CEO’s skills. Digging deeper, they identified seven approaches exemplified by creative CEOs. 1. A willingness to change business models to meet goals 2. Encouragement of risk taking 3. Openness to out-of-the-box solutions 4. Comfort with ambiguity and experimentation 5. Valuing innovation 6. Decisiveness 7. Inventiveness with new business models (ChiefExecutive.net, 2011) Creative CEOs share a willingness to change. In other words, these leaders adapt to change and steer their organizations toward it, rather than clinging to tried-and-true methods of management. wei82650_05_c05_207-248.indd 211 12/16/15 11:58 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.1 The Leadership Challenge Vineet Nayar, HCL Technologies Ltd. Vineet Nayar, vice chair and former CEO of HCL Technologies Ltd. (HCLT), a $3.5 billion global IT services company based in India, is an example of a creative change leader. Nayar joined HCLT in 1985 and became president in 2005. He led the company in a complete turnaround over the following 5 years, expanding from 30,000 to 75,000 employees, tripling revenues, and doubling market share (HCL Technologies, 2001). Along with Apple, Google, Lenovo, and Cognizant, HCLT was one of five global technology firms to reach revenues above $2 billion, with a compound annual growth rate over 30%. (Flinders, 2010). In his book, Employees First, Customers Second: Turning Conventional Man- agement Upside Down, Nayar (2010) explains that his leadership approach involves convert- ing an organizational structure into a transparent, accountable, and value-driven culture. Under Nayar’s leadership, HCLT has been recognized as one of the best employers with the most innovative and most democratic workplaces worldwide. But why redefine leadership away from author – ity and “doing whatever it takes to get results”? Given the variety of changes an organization may encounter and the complexity involved, individual leaders can no longer serve as ultimate authori – ties or experts. As noted in Chapter 4, emotion – ally intelligent leaders and followers have a com – petitive edge with regard to change, as compared to more rigid, closed thinking, and closed feeling professionals. Because effective leaders rely on employees for information and insight to resolve complex situations, collaboration and communi – cation take priority over authority. Today’s lead – ers create environments in which employees can share information and propose alternate solu- tions to problems. Scott Cook, Intuit Scott Cook is the cofounder of the software com- pany Intuit, which creates personal and small- business finance products such as TurboTax and QuickBooks. When Cook wanted to revitalize his organization, he imagined a design-driven model like Apple. However, he quickly realized that he was no Steve Jobs, a visionary CEO with the power to inspire and compel his employees. Instead, he turned his company upside down, let- ting the vision come from designers close to the front lines. He worked with one of Intuit’s design directors to create the Design for Delight (D4D) forums, which encourage employees to engage problems in new ways. Intuit eventually AP Photo/Al Behrman Scott Cook, cofounder of Intuit, revital- ized his organization by turning his com- pany upside down. He let the vision come from designers close to the front lines rather than from top management. wei82650_05_c05_207-248.indd 212 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.1 The Leadership Challenge developed a D4D customer- and design-centered process. It begins with a “painstorm” to understand real consumer issues and thus better identify ways Intuit can help. These front- line conversations take place directly with customers. The team then has a “sol-jam” to generate as many solutions as possible and then develops prototypes to test what they come up with. Finally, the team has the “code-jam” to quickly get a product to user testing. From painstorm to testing, the entire process takes 4 weeks and has yielded some of Intuit’s most popular products, including its highly rated smartphone apps (Martin, 2011). Now, with Brad Smith as CEO, the firm is included on Fortune’s 2015 100 Best Companies to Work For list (Fortune, 2015c). While leaders place increasingly greater emphasis on relationship building and creating open work environments, the idea of leadership has shifted; it is no longer regarded as a quality desired only in management. Leadership responsibilities have been pushed down in orga – nizational hierarchies (Martin, 2007) to enable potential challenges to be identified more quickly and to compress response times. Another way to describe this shift in expectations is empowerment. As we discussed in Chapter 4.2, employees are empowered when they are given more autonomy to make decisions, which is paired with increased responsibility. At Intuit, the initial D4D facilitators were recruited with the following responsibilities: Actively participate in a one-day brainstorm/workshop. Commit to the execution of initiatives generated through the … workshop. Become a more visible Design for Delight leader across Intuit. Be a D4D coach/facilitator that the larger company can draw upon. (Martin, 2011, “Recruiting the Innovation Catalysts,” para. 4–7) These designers were at least one step removed from directorships, meaning they were closer to the bottom of the organizational hierarchy than to the top. However, they were tasked with changing the company’s culture and finding ways to more immediately respond to their cli- ents’ needs. Jason Kayzar, PhishLine Jason Kayzar, COO at PhishLine, a social engineering management platform built for informa- tion security professionals, has a similar mind-set to Cook at Intuit. PhishLine assists Fortune 1000 clients in addressing social engineering threats using risk- and action-based precision techniques and decision-making processes (Schawbel, 2015). When asked in an interview, “How do you approach process improvement within your organization?” Kayzar’s quick answer was “Empowerment” (Schawbel, 2015). He continued: I have worked in a number of traditional office environments where demo – cratic rule by committee took the place of leadership. In some ways this can be a good process, especially if the goal is one of making everyone feel good but more often than not it slows the process and/or can lead to decision wei82650_05_c05_207-248.indd 213 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.1 The Leadership Challenge paralysis. Our business moves at light speed, and is growing in size and scope accordingly. Our people are smart, and therefore they are empowered to make many of the process improvement decisions on a daily basis that help move us closer to achieving our overall goals. We have an internal suggestion process within our software, so all ideas are captured, catalogued and can be reviewed by any employee at any time. There are no bad ideas. Many may be rejected, or added to a future projects list while many others are often implemented immediately. (Schawbel, 2015) The following section presents roles, resources, and different ways that organizational devel- opment consultants provide help to employees. OD Consultants as Sources of Empowerment As organizations move from old to new business models, leaders often employ OD consul – tants. Today many OD consultants view their roles as “educators” or “facilitators” (Rothwell, Stavros, Sullivan, & Sullivan, 2010) rather than as external experts who present solutions. This change mirrors evolving leadership roles and organizational cultures. To recap from Chapter 1, an OD consultant has several goals, including: • to deeply understand how the various parts of an organization fit together to com- pose a whole system; • to communicate that systemic understanding to their clients so that the potential, organization-wide ripple effects of individual and departmental changes become clear prior to implementation; • to facilitate the empowerment of employees so that they constantly aim for improve- ment and look for creative solutions to problems; • to consider multiple ideas without judgment and to encourage others to do the same; and • to step aside as needed (Rothwell et al., 2010). An OD consultant may also serve as an executive coach . Organizations hire executive coaches to advise on complex decisions and individual and/or team skill building aimed at developing personal and professional performance (Executive Coach Academy, n.d.). These professionals model the leadership behaviors that flexible and responsive organizations require. They help establish cultural norms and practices that reflect innovation and change, and then let the players fulfill their redefined roles, trusting their abilities and the updated processes. In this way organizations can “learn by doing.” Organizations are given an opportunity to step back, reflect, and then implement initial changes under the guidance of a facilitator who eventually exits the process (Rothwell et al., 2010). As the organization moves forward, its leaders facilitate the same type of reflective process in whatever new change scenarios arise. An increasing number of Fortune 500 companies are using executive coaches with OD expertise not only to help leaders and employees develop new skills, but also to strengthen every part of the orga – nization, including its productivity, work flow, and well-being, and to increase the bottom line (McNamara, n.d.). wei82650_05_c05_207-248.indd 214 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.1 The Leadership Challenge For example, an organization that plans to move from a hierarchical to a team-based model may hire an OD consultant to facilitate this shift. Prior to recommending changes, the con- sultant needs to understand the organization, its leadership, the vision-mission-values and rationale for desiring the change, the corporate structure, and how various roles fit together. The consultant would also need to understand individuals’ perceptions of their positions and how they contribute to the whole. Once the consultant understands the existing system and the desired outcomes, the shift must be communicated to employees so they understand the reasons behind the changes and buy in to them. This process allows OD consultants to gain enough knowledge about an organization to coach its leaders and managers on how to model new methods of leadership. For example, OD con- sultants involve employees in the process rather than decreeing change from the C-suite or the executive team (CEO, COO, CFO, and CIO, or chief information officer). As changes are implemented, the consultant asks employees for feedback and suggestions and makes modifications accordingly. Those involved in the change are most likely to understand what works and what doesn’t, so this reinforces the shift toward employee empowerment. The OD consultant creates situations in which employees can contribute thoughts that posi – tively affect outcome. Employees, in turn, take ownership of a process that otherwise would have been imposed on them. In this way the shift becomes a practical learning experience for everyone in the company, from the employees up to the CEO; all the OD consultant needs to do is step aside and let the revised company run itself. How Leaders Can Develop Employees for Change There are five emerging trends that impact organizations: globalization, diversity, flexibility, flattened structures, and networks (Tan, 2015). Globalization and diversity go hand in hand; organizations now span continents, leading to new challenges of managing in terms of creating a consistent culture across the organization, communicating effectively, and understanding local cultures. Organizations attempt to increase flexibility for their workforces by experi- menting with flexible schedules, alternative compensation packages, and revised reporting structures. Instead of highly structured, top-down management hierarchies, decision-making power is passed to the employee level, flattening layers of management. Rather than communicating vertically across an organizational chart, employees are encouraged to network laterally and to work in teams across divisions. Moreover, surveys, discussions, and feedback sessions are held with teams and employees to obtain information on their need to achieve higher perfor – mance levels and to yield suggestions that would enhance organizational planned changes. Cisco Systems designs, manufactures, and sells networking and communication devices worldwide. The company employs 71,833 people (Yahoo! Finance, 2015). Its vision has focused on transforming its workplace to “drive employee attraction, retention, productivity and a perpetual collision of creativity” (as cited in Crandell, 2014), according to Alan McGinty, senior director of the Global Workplace Solutions Group. The company identified three objec- tives for its new culture: “Provide different solutions to meet the needs of all types of work, teams and environments; utilize the company’s own collaborative technology; and have poli- cies that support workers to work where and when they want to fit their lifestyles” (Crandell, wei82650_05_c05_207-248.indd 215 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.2 Agile Organizations 2014). To that end, Cisco holds local employee teams accountable for “the health and happi- ness of their neighborhoods and ensure each employee has an environment that is right for them” (Crandell, 2014). This is a collective approach to managing people and “is all about choice and making sure that everyone has ‘more skin in the game’” (Crandell, 2014). As part of its revitalization, Cisco tran- sitioned from a centralized model to a decentralized one because it real – ized that creative solutions can come from anyone, and a conventional pyramid can hinder creative infor – mation sharing (Useem, 2009). Tech- nology allowed Cisco to implement a company-wide communication solu – tion. It created a “Ciscopedia,” similar to Wikipedia, for internal use, and the 500 senior managers collaborate lat – erally to make decisions about prod – ucts. This leads to faster facilitation and more localized decision making and deployment (Useem, 2009). To some, this may sound utopian. How can a large organization stay produc – tive and competitive in these conditions? And how can a hierarchical organization, designed for stability, reinvent itself ? The key is to develop human capacity within the organization. Rather than simply executing assigned tasks, employees are asked to contribute ideas and are recognized for their successes. They take on increasingly creative roles and solve prob – lems, so they become invested in the organization’s overall success, staying focused on the big picture and finding ways to meaningfully contribute to the organization’s growth. Moving forward, leaders and employees are not the only ones that must change; organizations, too, must transform. Check Your Understanding 1. Identify some methods that Cisco Systems has adopted to stay competitive in its industry. 2. What are some specific changes organizational leaders can implement to increase employee effectiveness? 5.2 Agile Organizations An agile organization is one that can quickly react to changes in the market. This means that companies can and do successfully respond to new competitors, technologies, and shifts in the market (BusinessDictionary.com, 2015). Stated another way, agile organizations stay competitive by identifying and implementing opportunities faster than their competition (Sull, 2009). Having the ability to respond to changing environments can mean life or death for an organization. More uncertain, turbulent environments and market changes require more agility. AP Images/Chang xu/Imagechina Cisco changed from a centralized to a decentralized structure to allow for creative solutions from all lev- els of the organization, instead of just management. wei82650_05_c05_207-248.indd 216 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.2 Agile Organizations Two traditional methods of managing a large-scale enterprise—delegation and specialization—work well in stable environments. All employees know and understand their roles, and work flows in a predictable manner. However, when this type of organization faces a threat, whether from an internal or external source, it often struggles to respond effectively and rapidly (Reeves, Morieux, & Deimler, 2010). Rather than make an adjustment or try an alternate process, employees turn to managers for decisions, who in turn look to senior man- agement. Rapid responses can become lost in a maze of hierarchy. In a traditional organization, once a threat has been identified, a proposed solution moves up the chain of command, laterally across divisions, and then down again once a decision is finally made and is ready to be executed. This process is time-consuming, and, as in a game of tele- phone, the initial proposal may evolve, perhaps in less productive or efficient ways, in each subsequent telling as each person reinterprets the suggestion according to areas of expertise, sometimes adding personal stakes. The individual or team that identified the problem and pro – posed a solution doesn’t have the decision-making power to execute it and instead must find a supporter in management. This causes a second problem, in addition to slow response time. Many organizations that emphasize hierarchy have low tolerance for failure and adopt cul – tures that favor consensus and obedience (Reeves et al., 2010). In this environment employees have little incentive to suggest bold solutions or innovate. They stick to tried-and-true methods that are sure to be approved by management rather than attempting to convince multiple lev – els of hierarchy to take a risk. These organiza – tions lack flexibility in both process and culture and therefore struggle to respond to change in quick and meaningful ways. When Bob Iger became the CEO of Disney in 2005, he inherited a company that had stag- nated. It was centralized and hierarchical, due in part to an ingrained culture in which division leaders were afraid to make decisions without the leader’s approval. The company simply could not respond to new technologies or opportuni- ties because it lacked the flexibility and freedom to take small, independent risks that could lead to new products. Iger restructured the company and empowered divisions to make decisions quickly and locally. The meetings he led changed from directives to conversations, setting the tone for the rest of the corporation to engage, ask questions, and listen. Under Iger, Disney experienced some spectacu- lar failures, such as the ESPN phone that was meant for sports fans but never took off. It also became much more aggressive about acquisi- tions and launching entire new product lines. AP Photo/Reed Saxon When Bob Iger took over at Disney, the company was stagnant. Iger restructured the company and empowered divisions to make decisions quickly and locally, result- ing in some failures but ultimately herald- ing a new era of growth and innovation. wei82650_05_c05_207-248.indd 217 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.2 Agile Organizations Iger’s success prompted the company to make him chair in March 2012, a title he will hold until he retires in June 2016 (Smith, 2011). Agile organizations are similar to the built-to-change firms discussed in Chapter 4.4. They can quickly adapt and respond to new situations, whether these are opportunities or threats, because change is already central to their culture and practice. These organizations value experimentation, communication, decentralized decision making, and modularity. Modular organizational structures particularly allow divisions to come together and disband as needed. A temporary and new organizational structure may form to create and launch a new product. This may include product development, testing, marketing, sales, and customer service. Once the product is released, the structure can dissolve and each component can join other projects, so the engineering team that worked on one product may join another while the sales team continues to add new products to its overall portfolio. In addition to offer- ing flexibility, modular structures facilitate the transfer of skills and knowledge across the organization. Each team learns unique lessons, and when disbanded, individual members can apply their experiences to new situations. This type of flexibility relies on a relatively flat hierarchy so that groups don’t compete with each other or report to each other; rather, they meet on equal footing and exchange ideas. Responding Rather Than Predicting Agile organizations are different in that they don’t use in-depth research and analysis to attempt to predict what will happen. Instead, they watch the market and try to quicken their response time in situations that require action. For example, the clothing industry has a 6-month production cycle, and organizations typically attempt to predict consumer habits two seasons into the future. Mistakes are costly, as is the research that goes into making pre – dictions (Spark, 2011). One clothing manufacturer, Zara, addressed these challenges by shortening its production timeline. Instead of trying to research, analyze, design, and manufacture its clothing over the typical 6-month cycle, it skips the research and analysis stages and focuses on manufacturing popular, in-season products as quickly as possible and in 15-day cycles. The company simply observes what people are wearing and produces similar styles. This was a radical shift in its business model, but one that minimized risk and focused on responding to demand. Agile organizations face two main challenges: (a) to communicate effectively and (b) to empower employees to make decisions. Tony Haile, the general manager of Chartbeat, a real- time web monitoring company, notes that monitoring can only do so much. Companies must be able to respond in real time, or the information does not help (Spark, 2011). With a 15-day product-development cycle, Zara employees do not have time to navigate mul – tiple layers of hierarchy to reach and then implement decisions. Instead, they must take in new information, make necessary decisions, and dive into implementation. They will quickly receive feedback on their products and can make adjustments in time for the next 15-day product cycle. wei82650_05_c05_207-248.indd 218 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.2 Agile Organizations As a part of a flattened structure, agile organizations rely on leaders to shape the context for decision making rather than giving top-down directives, so the emphasis is on guiding principles rather than strict procedures (Reeves et al., 2010). When employees understand a company’s values and vision, they can make decisions that align with these overarching goals. For example, Apple’s mission aims to provide the best and most innovative products in the world (Investopedia, n.d.). When proposing new products, Apple employees will avoid large- scale business solutions. Microsoft’s mission, on the other hand, aims to help every person and organization reach their potential (Microsoft, n.d.), so their products and services target a different market with specific needs. The Microsoft Solution Framework (MSF) is another example of how a large business incor- porates agility into its project management process. The MSF is flexible, allowing develop – ers to use the software-development approach that works best in a particular situation. This allows them to quickly produce high-quality technology solutions while using fewer people and creating less risk, thereby addressing the most common issues related to project failure (Microsoft Developer Network, 2013). Influenced by learning organization principles—which are discussed later in this chapter— the MSF includes mind-sets (attitudes, dispositions, ways of viewing how things work), mod – els, processes, and disciplines that guide planning and implementation of technology proj – ects. Teams can produce quality products together once the MSF principles are understood. The nine foundational principles of the MSF include the following: 1. Foster open communications. Communication is needed for teams to be effective and efficient. Team members must understand what needs to be done and how to communicate internally across the company and externally to clients and vendors. The challenge is determining the appropriate level of information to share with each group. 2. Work toward a shared vision. Sharing a vision creates empowerment throughout the team. Team members have the appropriate context needed to make decisions quickly, since they have clear goals and know how to achieve them. Team members are also able to fill requirements gaps as they arise. 3. Empower team members. As we saw earlier in the chapter, employee empowerment facilitates creativity and innovation within a company, allowing it to survive and be successful. A lack of empowerment creates a low morale and diminishes team mem- bers’ creativity and the ability to create a high-performance team. 4. Establish clear accountability and shared responsibility. When team members are empowered, they feel accountable and responsible for a project and are more likely to work at a higher caliber and provide better quality products and services. Team leaders should encourage positive growth and responsibility for project tasks. In this way team members share responsibility for the solution and its deliverables as a whole, fostering collaboration and motivation. 5. Deliver incremental value. This means that teams should provide deliverables that are of optimal value to stakeholders and correctly determine at which stages to pro- vide deliverables, also known as frequency of delivery. 6. Stay agile; expect and adapt to change. Change is inevitable and often occurs at the most inconvenient times. Because of this, teams must remain flexible and open to new possibilities. Teams and organizations that are agile can smoothly adapt and adjust to the disruptions caused by change. wei82650_05_c05_207-248.indd 219 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.2 Agile Organizations 7. Invest in quality. Many organizations fail to quantify what quality stands for. Success- ful organizations are able to do so and incorporate this level of excellence into the solution delivery life cycle. 8. Learn from all experiences. Learning from the past—processes and deliverables that did and did not work—is imperative to improvement. Team members must embrace learning at all levels: the project level, such as refining a project-wide process; the individual level, in interacting with fellow team members; and the organizational level, by adjusting quality metrics that are collected for a project. 9. Partner with internal and external customers. Collaboration with customers increases the likelihood of project success. When customers work with the team throughout the process, valuable feedback can be provided and the solution created will better meet their needs. This collaboration is mutually beneficial, since it reduces uncertainty and the time needed to resolve requirement questions and increases the team’s under- standing of the solution value propositions (Microsoft Developer Network, 2013). There are more elements to the MSF, including a section on governance and team planning and implementation roles. The section also reflects the type of mind-sets related to learn – ing organization principles that Microsoft expects of its leaders, managers, engineers, and business professionals. Stories of companies that have worked with Microsoft teams pro- vide examples of how the nine principles work in organizational settings ( ht tps://customers .microsof t.com/Pages/advancedsearch.aspx?mrmcverticals=Hospitalit y%20&%20Travel ). Learning Agility Agile organizations’ success depends on the people involved and how comfortable they are with change. Leaders must be able to adapt to new situations, and one of the predictors of success in managers and executives is learning agility, or the ability and commitment to learn from previous experiences to perform successfully in other situations (Lombardo & Eichinger, 2000). Another phrase for this is leadership versatility (Kaplan & Kaiser, 2006). In addition to a willingness to change, successful leaders expand their repertoire of strategies so they have multiple ways to approach each situation. It can be challenging to identify learning agility as a trait in potential leaders; past perfor- mance does not necessarily predict future potential. This means that it is impossible to assess a manager or executive until he or she faces a new situation. It usually takes several trials to understand how well a leader learns from experience and adapts to new situations. Learning agility involves practical skills rather than simple intelligence. A leader who can adapt often will show common sense, strong interpersonal skills, and “street smarts” (Sternberg, Wag – ner, Williams, & Horvath, 1995). Effective leaders also need to balance humility with confidence so they can learn from mistakes and continue to grow (McCall, Lombardo, & Morrison, 1988). Learning requires emotional investment, so the challenges that transform leaders tend to have high stakes and involve risk. Leaders need to be resilient so they can keep pushing forward. An example of leadership agility and humility as applied to an organization is Netflix’s CEO Reed Hastings, who was once touted for being a visionary leader who brought record growth to his start-up company. Hastings faced harsh criticism in 2011 when licensing costs for streaming content spiked, leading to a near 60% increase in Netflix’s monthly rates. Rather than explain the rationale behind the rate hike (of $10 to $15.98 per month), wei82650_05_c05_207-248.indd 220 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.2 Agile Organizations Hastings essentially dismissed it by saying that for most of the company’s consumers, the price difference amounted to the cost of a latte. Customers criticized Netflix’s arrogance and lack of concern for its customers and began to switch to other services. This was not the end of this story.Hastings apologized several months later in a message that was sent to all customers and posted on the Netflix blog. He said: I messed up. I owe everyone an explanation. It is clear from the feedback over the past two months that many members felt we lacked respect and humil- ity in the way we announced the separation of DVD and streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology. I’ll try to explain how this happened. (Hastings, 2011, paras. 1–2) Hastings then outlined the reasons for the change and his decision to split Netflix into two companies: one that focuses on streaming video, the other on DVD rental by mail. This was met with a second round of outrage from consumers who craved a simple, seam – less experience. Netflix stock, consumer base, and stockholder confidence plummeted by taking this risk (Sandoval, 2012), but it may have been the only way to save a company faced with rising licensing costs and a still-evolving market. Hastings learned the impor – tance of communicating directly with customers, acknowledging mistakes, and continuing to build toward a positive future with all of the organization’s constituents. Making hard business decisions does not mean that leaders have to treat customers and employees disrespectfully. Experimentation Agile organizations encourage experimentation. Companies that attempt to vary their prod- ucts and processes can respond to change more quickly, in part because they’ve established a culture of innovation. Instead of fearing failure and sticking to the status quo, they test alternatives and then scale them (Reeves et al., 2010). These experiments add to an agile organization’s cumulative knowledge, so when new situations arise, it can pull from deep and varied experience. Two large-scale agile organizations have consistently outperformed their competitors. The first is Reckitt Benckiser, the company that owns 17 “powerbrands,” including Lysol, Woolite, Kyodo via AP Images Netflix CEO Reed Hastings learned the hard way about the importance of communicating openly with cus- tomers when, in 2011, he came under fire for dismiss- ing concerns about a near 60% rate hike. wei82650_05_c05_207-248.indd 221 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.2 Agile Organizations and Air Wick (Mac Iver, 2010), in addition to other smaller brands. CEO Bart Becht described his four keys to creating a highly successful adaptive (or agile) organization: 1. Ruthless focus 2. Leveling the playing field 3. Encouraging organizational learning 4. Embracing conflict (Mac Iver, 2010) Ricardo Semler, CEO of Semco Group, has taken more extreme measures in reinventing the company his father founded. Semco is a democratic organization that engages employees in all aspects of the business. Employees choose their jobs and salaries, determine the work that should be done, decide to open or close plants, and actively participate in board meetings. All employees have access to all company information, and the company trusts them to handle it appropriately (Mac Iver, 2010). When Semler first began to chronicle this approach, no one believed he could succeed or cre – ate a sustainable corporation in the long term. Employees had flexible schedules, so they could work anytime. What would stop them from arriving late and leaving early? How could work be completed in this type of environment? Wieners (2004) describes what happened at Semco: The more freedom [Semler] gave his staff to set their own schedules, the more versatile, productive and loyal they became, and the better Semco performed. Nor did he stop with flextime. He did away with dedicated receptionists, org charts, even the central office—it now resembles an airlines’ VIP lounge, with people working in different areas each day. He encouraged employees to sug- gest what they should be paid, to evaluate their bosses, to learn each other’s jobs, and to tolerate dissent—even when divisive. He set up a profit-sharing system and insisted that the company’s financials be published internally, so that everyone could see how the company was doing. (p. 1) Semler opted for complete transparency and gave his employees both personal and professional freedom. In return he received more loyalty and higher productivity on a company-wide level. Whereas Becht focuses on building flexible structures within his organization, giving each brand independence and institutionalizing experimentation and discussion, Semler empha – sizes personal connections and investment. In both cases the company’s culture reinforces the values of an agile organization: experimentation, communication, empowerment, and learning. Managing Change The Agile Organization We all know the story of how the Borders Group was unable to respond in time to keep up with the Kindle and the Nook. One of the fundamental aspects of business —and one that relies heavily on the expertise of change managers—is being agile and able to quickly adapt to consumer demands. Getting any company to turn on a dime is difficult, but it is a necessity in (continued) wei82650_05_c05_207-248.indd 222 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations Check Your Understanding 1. What are characteristics and principles of agile organizations? 2. Can employees learn agility? Explain your response. 5.3 Learning Organizations Whereas agile organizations move quickly and deliberately, learning organizations take a “big picture,” reflective approach. Agile organizations can and must adopt learning organization characteristics and practices to become great. Massachusetts Institute of Technology profes- sor Peter Senge published a seminal work on organizational development in 1990 called The Fifth Discipline . In it he introduced the concept of a learning organization, reframing orga- nizational growth and development in the language of education. This concept remains one of the most influential and relevant cornerstones of organizational change to date. A learn – ing organization adapts and evolves at individual and holistic levels, in which individuals increase their ability to create results, new ways of thinking are cultivated, collective goals are conceived, and people learn to see the whole organization together (Senge, 1990). Although this definition has sometimes been criticized for being too abstract and idealistic, it offers a principled framework by which to exact ongoing, sustainable, and effective change. Senge (1990) states that real learning is at the heart of being human and is what allows indi – viduals and organizations to re-create themselves. However, while “survival learning” or Managing Change (continued) the modern world. As with other aspects of society, technology has sped up the pace of business Whether you’re a brand-name snack and soft drink manufacturer responding to the focus on obesity and healthy eating, a restaurateur responding to customer demand for quicker service by doing away with paper tickets, or a doctor responding to technological advances by using a tablet during appointments to research and electronically submit prescriptions— agility is a business imperative for competitive advantage. Just as it takes the right ingredients to make any business work, it takes the right combination of leadership, strategy, culture, and employee initiative to achieve agility. All companies must grow, but agility is the ability to do it quickly while not compromising the core of the business. Discussion Questions 1. How can organizations best address customers’ needs and preferences? 2. How can organizations be managed for continuous improvement? 3. What are some agile practices that individual customers want from organizations? 4. What needs might organizations meet that users haven’t yet thought of ? (See the end of the chapter for possible answers.) wei82650_05_c05_207-248.indd 223 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations “adaptive learning” is necessary, it must be used in conjunction with “generative learning,” which enhances the ability to create. Senge (1990) stated that the process of learning in an organization involves transforming every experience into valuable knowledge that is accessible to all employees and is relevant to the organization’s mission. This aligns closely with the adaptive organizations previously described. Both Becht and Semler emphasize the importance of transferring knowledge across their organizations, whether by moving people, configuring teams as needed, or encouraging employees to try other positions. The following is a helpful checklist that all leaders and followers can use to overcome old habits and resistance to change and to facilitate real learning: 1. Are you willing to examine and challenge your “sacred cows” [things you value so highly that you believe they cannot or should not be criticized]? 2. What kinds of structures have you designed [that you would be open to have exam- ined for effectiveness and efficiency]? 3. When people raise potentially negative information, do you “shoot the messenger”? 4. Does your organization show capabilities it didn’t have before? 5. Do you feel as if what you know is qualitatively different, “value-added” from the data you took in? 6. Is the knowledge accessible to all of the organization’s members? (Senge, Kleiner, Roberts, Ross, & Smith, 1994, p. 49) Learning organizations assume “learning is valuable, continuous, and most effective when shared and that every experience is an opportunity to learn” (Kerka, 1995, p. 3). Some con- ceptions of learning organizations are that they: • provide continuous learning opportunities; • use learning to reach their goals; • link individual performance with organizational performance; • foster inquiry and dialogue, making it safe for people to share openly and take risks; • embrace creative tension as a source of energy and renewal; and • assure that the learning organizations are continuously aware of and interact with their environment (Kerka, 1995). Harvard University professor David Garvin (1993) stated that a learning organization is skilled in generating, obtaining, and sharing knowledge and changing its behaviors to reflect what it learns. This definition implies that change occurs in the way work gets done. Garvin’s definition fits with current change in organizations that focuses on innovation, knowledge management, and IT. Garvin (2000) points to L. L. Bean as a learning organization because of its skill in acquiring knowledge, which in turn leads to behavioral changes within it. Rather than following the traditional model of conducting market research through surveys to discover potential prod- uct needs and areas of improvement, L. L. Bean turned to customers who rigorously used its products and recruited them as testers. Field tests lasted for 3 months, and testers received a wei82650_05_c05_207-248.indd 224 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations product from L. L. Bean and one from a competitor so they could compare the two over an extended period of time. Although L. L. Bean only required feedback at three points (beginning, middle, and end), it encouraged additional touch points over the course of the testing cycle. In the case of the Cresta Hiker, a failing product line, L. L. Bean sent designers, marketers, and suppliers along with the testers for an intensive and immersive learning experience. Designers could apply feedback from a live field test to new prototypes, which could then be retested. Marketers and suppliers also had firsthand experience with the product. After a redesign and subsequent relaunch, the Cresta Hiker ended up with an 85% increase in sales. L. L. Bean fit Garvin’s initial definition of a learning orga – nization because it created learning opportuni- ties, devoted time and resources to both acquiring and transferring knowledge, and then modified its behavior based on what was learned. This process resulted in a product reboot and complete turn – around in sales, a proactive response to a struggling line (Garvin, 2000). The assumption here is that organizations that can effectively create and sustain transformations in the face of rapid change are those that not only adapt to markets but also generate innovations through peo – ple. Senge (1990) notes that to sustain generative change, organizations must understand how to draw on individuals’ commitment and ability to learn at all levels. Levels and Types of Learning We have described the dual nature of a learning organization—the learning that happens at individual and collective, company-wide levels—and how these should complement and motivate each other. Marquardt (2002) describes three interrelated levels that exist in a learning organization: 1. Individual learning—the skills and knowledge an employee gains through study and/or observation 2. Group or team learning—the collective skills and knowledge a group obtains 3. Organizational learning—the overall productive capacity an organization gains through the intentional and continual pursuit of improvement AP Photo/Pat Wellenbach Instead of following the traditional market research model, L. L. Bean turned to customers and recruited them as testers. wei82650_05_c05_207-248.indd 225 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations Each level informs and affects the others, so individual learning contributes to both group and organizational learning. An organization’s collective knowledge can in turn serve as a resource for an individual. In order to leverage all levels of learning within an organization, the structure needs to be flexible enough to facilitate collaboration and communication, whether it is through a flat structure or modularity. Organizations can also take multiple approaches to learning: 1. Adaptive learning, or using past experience to influence future actions 2. Anticipatory learning, or envisioning possible futures to identify and pursue new opportunities 3. Action learning, or reflecting on the present in order to guide development across learning levels (Marquardt, 2002). By examining the past and present and looking toward the future, leaders essentially employ a 360-degree view to examine all aspects of an organization and plan for multiple possible outcomes. Because they balance immediate action with long-term goals, the organization continually progresses. Oil companies like Shell face a great deal of uncertainty, given limited fuel resources. They have profitability goals, both at the quarterly and annual levels; however, they know they must start building for a future that does not rely on oil. Long-term goals include transform – ing Shell from an oil company to an energy company. The challenge is that no one can yet predict which energy source or sources will replace oil, so a wide range of possibilities must be investigated. Shell has been exploring renewable energy, biofuels, wind and hydrogen power, and carbon capture and storage. Its immediate, short-term actions are straightforward: to keep up with changes in the energy sector. The company must continue to build its research, development, and demonstration capabilities for new technologies. It must also remain cost effective and be ready to work with both government and society when changes occur in the sector (Rausser, Stevens, & Torani, 2011). Although the company doesn’t know what the future will hold, it is keeping its options open through research, organizational flexibility, and conversations with policy makers. Learning Cultures and Visions Learning culture is described as “collaborative creativity in all contexts, relationships and experiences” (Jacacci, as cited in Marquardt, 2002, p. 23). A learning culture is interdepen- dent, so employees alternate between the roles of student and teacher. They learn indepen- dently, but they also teach their colleagues in collaborative situations and, in turn, continue to learn themselves. This type of exchange requires a great deal of trust and honesty. To improve, everyone must be willing to acknowledge faults and failures and try to move beyond them— the goal is to learn from experiences rather than dwell on them. The organization should support feedback, reflection, and action. Leaders set the tone by modeling desired interactions, so they must also seek feedback and demonstrate learning and growth. They facilitate collaboration, experimentation, and reflection to maintain an active wei82650_05_c05_207-248.indd 226 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations learning cycle, and they ensure that the organization stays focused by communicating and modeling a shared vision. A strong vision can motivate employees, engaging their emotions and intellect, which, as Senge (1990) describes, is instrumental in learning. Vision statements provide a call to action while still providing parameters for employees to follow. Explicitly stating organizational values can serve as an additional guide for employees (Marquardt, 2002). Google’s corporate value statement, that the company has since omitted after becoming part of its new umbrella firm, Alphabet, may be the most famous: “don’t be evil” (as cited in D’Orazio, 2015). This simple principle guides both managers and develop- ers in their work. The grocery store chain Whole Foods Market unites employees and customers in a common experience through its strong values, which have become a large part of its brand. Whole Foods Mar- ket lists seven values on its website: 1. Selling the highest quality natural and organic products available 2. Satisfying and delighting our customers 3. Supporting team member happiness and excellence 4. Creating wealth through profits and growth 5. Caring about our communities and our environment 6. Creating ongoing win–win partnerships with our suppliers 7. Promoting the health of our stakeholders through healthy eating education (Whole Foods Market, 2015). Whole Foods Market emphasizes teamwork, quality, caring, and the environment. These principles also provide clear parameters for employees. New product lines will never include junk food. The store will not stock high-preservative foods with artificial flavors and color – ing. Employees are expected to work in teams and to support each other in a positive culture, which is both a goal and a method for stores’ operation. Learning organizations aspire to constantly evolve and improve. As a result, they have lofty expectations and high standards. To meet or exceed these, a learning organization must reflect on its own learning process and find ways to improve, whether by identifying new ways to collaborate across the company or creating new learning opportunities for individuals (Mar- quardt, 2002). Learning cultures are simultaneously rigorous and positive. New challenges are viewed as creative opportunities that at best can lead to growth and at worst can offer lessons to apply to the next challenge. AP Photo/Tony Dejak Whole Foods manages to unite employees and customers in a common experience through its strong values, which have become a large part of its brand. wei82650_05_c05_207-248.indd 227 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations Primary Principles and Disciplines Senge’s (1990) five principles—known as the learning organization’s basic disciplines or “component technologies”—are the foundation of the transformational change approach. These principles include: • systems thinking, • personal mastery, • mental models, • shared vision, and • team learning (Senge, 1990). Organizations that build learning communities and principles into their cultures and sys – tems differentiate themselves from bureaucracies in that they experience innovations and Managing Change The “Postmortem” Suppose you are the manager of a project that, in the end, went as wrong as it possibly could. Despite your best efforts, the output had to be redone, deadlines were missed, and budgets were overshot. In some organizations this would be a fatal failure, and you’d be lucky to scrape by with your job, a scolding, and some wounded pride. But in a learning organization, failure is an opportunity. You, your team, your internal client, and your supervisor decide to meet for a postmortem on the project, or an “after-action review.” Rather than point fingers and damage working relationships, after-action reviews take a step-by-step look at the project and where it went wrong. By examining its flawed path, mistakes become lessons that can be applied to future projects. Doing this requires openness, honesty, self-awareness, and an ability to acknowledge responsibility in such a situation. If all parties come to the table from the same place, all can leave armed with the knowledge of how to do it better. This is a prime example of a learning opportunity. Learning organizations take a reflective, big-picture look at themselves. Learning allows an organization to adapt and evolve—critical skills for a successful business. Most organizations and hierarchies impede the natural abilities needed for a learning environment: communication, creativity, innovation, and collaboration, among others. Learning can occur in both directions in an organization—at the individual level from experiences at the organization and at the organizational level, whereby the individual contributes knowledge learned to the organization. Discussion Questions 1. What is the difference between learning and training? 2. What are three types of approaches to learning? 3. How are learning organizations and agile organizations related? 4. What are some examples of learning opportunities in an organization? (See the end of the chapter for possible answers.) wei82650_05_c05_207-248.indd 228 12/15/15 9:46 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations continuous improvement. This transformation is accomplished by mastering the five disci- plines. As agents, individuals use these disciplines to change their organization’s systems and structures. Effective change occurs when individuals adopt a holistic, proactive stance. They realize they can shape their own reality when they shift from seeing parts to seeing the whole picture. Rather than reacting to present conditions, individuals proactively work toward the future (Senge, 1990). Each discipline is discussed in turn below. Systems Thinking Systems theory and thinking is the ability to comprehend the whole and examine the inter – relationship among the parts to accurately identify and solve problems. Systems theory is the incentive and the means to integrate the disciplines (Senge, 1990). Systems thinking is the cor- nerstone of the five disciplines. Without it, there can be no learning organization or moti – vation for using the other dis – ciplines. For example, vision— outside the context of systems thinking—is a utopian idea with no understanding of the inter- related forces that must be dealt with to realize a vision. Systems thinking requires the disciplines of building shared vision, mental models, team learning, and per- sonal mastery to mobilize the vision. Systems thinking moves the “me” to a “we” mentality and makes the learning organization a reality. Senge (1990) argued that the basic tools of systems theory are straightforward and can be used to build more sophisticated models. A major criticism of management theory is the sim – plistic frameworks used to understand and work with complex systems. People tend to focus on the parts rather than understanding the whole; they often fail to see the organization as a dynamic set of interrelated processes. Seeing the whole before trying to solve one of the parts is the first step toward identifying the problem. Morieux (2011) provides an example in which the hotel portion of an international travel and tourism group faced falling occupancy rates, spiraling prices, and unhappy customers. Hotel and sales managers immediately blamed the young receptionists, who came to them with little experience and often left after a few weeks. Clearly, the receptionists lacked customer service skills and motivation and had little interest in developing either. Simple problems had conveniently simple solutions. Managers decided to give these recep- tionists additional customer service training and add incentives to their compensation struc – ture based on occupancy rates. However, this solution failed. Receptionists continued to leave, customers continued to complain, and occupancy rates continued to fail expectations. william87/iStock/Thinkstock Businesses are composed of many different parts. The abil – ity to step back and understand how all of the pieces inter- act and affect each other is the basis of systems thinking. wei82650_05_c05_207-248.indd 229 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations Managers finally took a step back to try to understand the entire system and identify the actual failure points. After a month of observation, sales managers realized the receptionists’ failure resulted from a lack of teamwork from support staff, including housekeeping, room service, and maintenance. Housekeeping would clean a room and neglect to tell maintenance about broken appliances. Customers would turn to receptionists with their complaints. Receptionists had very few solutions to offer beyond upgrades and refunds, which affected occupancy levels and drove down rates. The most invested receptionists would try to solve the problems themselves, leaving their desks and letting queues of other customers form, who would then become frus- trated with the lack of customer service. The problem, upon further investigation, was a lack of teamwork and systemic thinking, not of incentive or interest. In fact, the most committed receptionists had the highest turnover rate because they burned out from trying to indepen- dently solve all problems. It took this extra step to understand the actual cause, rather than the readily apparent one. Personal Mastery Personal mastery, the second discipline, involves having good self-awareness. It means continually defining and deepening our personal vision, focusing our energies in appropri – ate places, learning patience, and being objective (Senge, 1990). No learning occurs without personal mastery, because organizations cannot learn when their individuals do not learn. Individual learning is a necessity to organizational learning, though it does not guarantee organizational learning (Senge, 1990). Developing all the disciples involves developing personal vision. Personal mastery depends on cultivating a personal vision, having creative tension or the ability to see what is needed to make visions a reality, recognizing organizational tensions and constraints and our role in them, being honest and trustworthy, and using the subconscious (Senge, 1990). Mental Models Mental models are the deep-rooted beliefs, assumptions, and generalizations that shape our understanding of the world and that motivate us (Senge, 1990). Influenced by Chris Argyris and Donald Schön (1978), Senge (1990) reasoned that we are not aware of the effects that our mental models and assumptions have on our behavior, communication, and actions, both at work and in our personal lives. Our goal is to develop the capability to understand the impact of our own and others’ assumptions and ways of seeing the world. Senge (1990) noted that the discipline of mental models begins when we turn our focus inward to identify our beliefs and assumptions and rigorously scrutinize them. This also involves learning through open conversations in which all participants share their thoughts and allow others to influence their view. Being closed-minded and having rigid mental mod – els prevent changes that could stem from systems thinking (Senge, 1990). Changing the organization, especially with a large-scale change, involves working through and transcending internal politics, games, and bureaucratic mind-sets that impede open thinking and sharing. This practice allows business responsibility to be spread throughout the orga – nization, while still maintaining control. This creates a localized organization (Senge, 1990). wei82650_05_c05_207-248.indd 230 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.3 Learning Organizations Shared Vision In previous chapters, we discussed the importance of building shared vision in preparing for, implementing, and sustaining a major change initiative. Here, Senge (1990) incorpo- rates shared vision as a discipline, one that involves learning to sustain positive and effective change. Shared vision starts with leadership, as we have discussed throughout this text. For centuries leaders have inspired organizations to hold and share visions of the future. Visions are pow – erful. They can uplift, motivate, encourage experimentation, and yield new inventions. Just as importantly, visions from a learning organization perspective can hold people and organiza – tions to a long-term commitment of a future state. When an organization has a genuine vision, employees have a strong desire to excel, accept, and implement it. This does not always occur, as leaders’ personal visions may not be verbal – ized or translated into a shared vision. A set of principles and best practices are needed to facilitate this process (Senge, 1990). Team Learning Team learning is the process of aligning and expanding a team’s capabilities so it is able to produce results (Senge, 1990). Team learning builds on the other disciplines and takes the learning organization to an action level—people must be able to create synergy, solve prob – lems jointly, and create new products and services together in real time. Teams that learn together benefit the organization and the individuals of which they are composed. The team-learning discipline begins with the art of dialogue (that is, the capacity of team members to suspend assumptions and judgment and enter into an authentic process of “think – ing together”). The Greek word dia-logos refers to an uninhibited flow of meaning through a group via a process by which the group can discover insights not achievable by individu – als alone. Dialogue involves identifying the patterns of interaction between team members (Senge, 1990). When combined with systems thinking and the other disciplines, teams are able to create a language that can account for complexity. Team problem solving and creativity can then focus on deeper structural issues and underlying forces rather than become preoccupied with trivial diversions related to personality differences, politics, status, and leadership style. The emphasis on dialogue is a major conceptual and practical tool in learning organizations as they incorporate and sustain new changes. Check Your Understanding 1. What are learning organizations, and how are they different from organizations that do not value or use learning methods and concepts? 2. What are some habits and practices employees (and leaders) would benefit from relinquishing in order to adopt learning methods and ways of operating? wei82650_05_c05_207-248.indd 231 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.4 Change and Learning Organizations 5.4 Change and Learning Organizations At the heart of the learning organization is the idea that change and learning go hand in hand. Learning organizations develop internal structures that can respond to change (Watkins & Marsick, 1993) and behave proactively. At the same time, learning leads to organizational change. The purpose of a learning organization is to empower organiza- tions, from employees to executives, to accept change as a positive part of their existence (Senge et al., 1994). Learning organizations can be defined according to four traits: constant readiness, continu- ous planning, improvised implementation, and action learning (Rowden, 2009). Constant readiness refers to a learning organization’s ability to respond to change situations. Unlike the highly structured traditional organizations that are optimized for stability, learning organiza – tions are optimized for change. They are willing to question themselves and their assump – tions and make adjustments. This readiness normalizes the possibility of change rather than the expectation of routine. With continuous planning, leaders focus on strategies and flexible approaches rather than mapping every step of a process. However, many high-powered learning organizations have successfully combined flexible strategic approaches with electronic databases; the speed and accuracy this allows for helps organizations adopt more fluid and organic decision-making processes, as we will illustrate in this section. By focusing on high-level strategies, organizations can rapidly reevaluate and change course as needed. Whereas traditional organizations emphasize a strong guiding vision and mission, learning organizations value revision (Rowden, 2009). They review their assumptions, ana- lyze implementation, and adjust accordingly. Their clearly articulated guiding principles and strategies are based on improvised implementation and action learning. In articulating these, they can provide enough structure to plan; by staying focused on the big picture, organiza – tions move proactively toward a positive, shared goal. Improvised implementation has several meanings. First, as a part of a culture that wel – comes change, learning organizations that adopt improvised implementation encourage experimentation and reward small successes before scaling these wins company-wide. Improvised implementation also means that everyone in the company plays a creative role and contributes to the big picture. Individuals and teams have a high level of autonomy and responsibility when it comes to decision making. Eventually, successful experiments become part of the organization’s system, as learning occurs at individual and organiza – tional levels. Action learning also refers to continuous planning—that is, instead of annual review- style reflections and planning, organizations that engage in action learning constantly reflect and adjust. Because experimentation and innovation are integral to organizations that need to frequently respond and change in today’s complex environment, reflection, learning, and continuing are inherent in the culture. Constant experimentation means fre – quently assessing what worked, what didn’t, and what could be managed differently. These micro-action learning scenarios eventually add up to large-scale organizational learning and change. wei82650_05_c05_207-248.indd 232 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Stage 1: Forming The organization learns through trial and error. Stage 2: Developing The organization implements learning through training with outsider s. Stage 3: Maturing The organization provides internal training to employees. Stage 4: Adapting The organization makes learning part of the organization’s strategic plan. Stage 5: Learning The organization makes learning a part of their daily activities. Section 5.4 Change and Learning Organizations Becoming a Learning Organization: Woolner’s Five-Stage Model A central characteristic of the learning organization is the capacity to create (Woolner, Lowy, & Redding, 1995). This proactive vision keeps the organization competitive by emphasizing innovation (Johnson, 1998). Learning organizations go beyond simply responding and adapt- ing to factors that demand change. They generate new knowledge, products, systems, and models, embracing organizational change as an opportunity for improvement and growth. However, it takes time and conscious effort to create the learning opportunities and incorpo – rate processes that allow experimentation and reflection. This model may not be appropri- ate for every organization. A company may value learning and change management without completely transforming into a learning organization. Woolner, Lowy, and Redding (1995) mark five stages that an organization passes through when becoming a learning organization: (a) the forming organization, (b) the developing organization, (c) the maturing organization, (d) the adapting organization, and (e) the learning organization (see Figure 5.1). As the name suggests, the first stage per- tains to start-ups. These organizations learn through trial and error rather than through formal processes. At the beginning of a company’s life, every decision provides a learning opportunity as founders develop products and a viable business model. They constantly test variations, whether in branding, outreach, product design, or pric- ing, to determine which combination will be successful. Organizations in the developmental stage have begun to solidify their business mod – els and products. They are starting to set up formal, proactive learning situations through training with outsiders. This kind of development is not part of the organiza – tion’s regular processes, although organiza- tions recognize the need for this change. Third-stage organizations understand the need for employee learning and begin to provide internal trainings. These events are still not part of the organization’s regu – lar operations; however, they are valued as integral to the company’s growth. Stage 4 is similar to stage 3, except learning becomes part of the organization’s strategic plan. Learning is integral to the company’s long-term growth at individual, group, and organizational levels. Figure 5.1: Stages toward becoming a learning organization A learning organization needs to work toward integrating learning as part of its daily activities. Based on Woolner, P., Lowy, A., & Redding, J. (1995). Learning organization 5 stage diagnostic survey and workshop version. Toronto: Woolner Associates. Stage 1: Forming The organization learns through trial and error. Stage 2: Developing The organization implements learning through training with outsider s. Stage 3: Maturing The organization provides internal training to employees. Stage 4: Adapting The organization makes learning part of the organization’s strategic plan. Stage 5: Learning The organization makes learning a part of their daily activities. wei82650_05_c05_207-248.indd 233 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.4 Change and Learning Organizations Finally, in stage 5, learning becomes part of an organization’s day-to-day activities. It is fully integrated into operations and is viewed as part of the organization’s health and success. Part of what defines a learning orga – nization is that all employees contrib- ute to the organization’s knowledge (Watkins & Marsick, 1993). In this stage the organization encourages formal and informal learning with a strong emphasis on teamwork so that new knowledge can be commu – nicated quickly and effectively across the organization. Learning comprises past experience, current experience, and best practices from other organi – zations (Garvin, 1993). Senge (1990) emphasizes that learning organizations can create the results they desire. In part this comes from their proactive behavior. Instead of responding to change as it arises, learning organizations experiment and innovate in pursuit of specific goals that add up to larger organizational strategies and vision. They also pay attention to past experience and adjust to future situations accordingly (Johnson, 1998). Examples of Learning Organizations Learning organizational practices can be found in a myriad of settings. This section takes a brief look at some real-world examples of how learning organization principles are imple – mented to effectively respond to and enact change. The U.S. Army The U.S. Army has a division devoted entirely to learning. Founded in 1985, the Center for Army Lessons Learned (CALL) gathers data from battle simulations run at its National Train- ing Centers (Garvin, 2000). CALL observation centers serve as a knowledge repository for the army, and they collect and distribute information. As the army’s duties changed, so did the information gathered by CALL. Because of their role as institutional memory, CALL teams are usually among the first deployed in new operations. They gather information, identify poten – tial problems, and recommend solutions based on past experiences. Learning occurs through cycles of trial and reflection. Organizational learning follows the same path—companies incorporate opportunities for trial and reflection into their systems and processes. In turn, a learning organization constantly changes at micro and macro levels, providing the practice and experience needed when unexpected change situ – ations arise. monkeybusinessimages/iStock/Thinkstock Organizations in the third stage of Woolner’s model begin to understand the importance of learning and provide internal training opportunities. wei82650_05_c05_207-248.indd 234 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.4 Change and Learning Organizations AT&T’s Bell Laboratories During the 1990s, AT&T’s Bell Laboratories focused on organizational learning by finding ways to scale the individuals’ knowledge to entire divisions. The company focused on its most productive software engineers and tried to understand why some were more effective than others. After identifying top performers, it conducted in-depth interviews with them to under- stand how they approached their work and what techniques they used to stay productive. The company translated this research into a hands-on training program, which top perform- ers used to work with fellow programmers. Productivity improved by 10% immediately and by 25% by the end of the year (Garvin, 2000). Although this foray into organizational learning focused on productivity, it also improved problem solving, teamwork, collaboration across the organization, and customer care (Garvin, 2000). AT&T More recently, AT&T has become one of the most highly regarded learning and development organizations in the United States (Nikravan, 2011). Cynthia Brinkley was named senior vice president of talent development and chief diversity officer of AT&T in 2008. In 2009 the com- pany invested $244 million toward employee learning and development programs. It also allotted $27 million in tuition reimbursement for 9,800 employees—49% of whom were women and 54% persons of color. In 2010 AT&T created its Leading With Distinction pro- gram, which encompasses all of the company’s leadership and strategic alignments, includ- ing strategy and culture. The company delivered the program globally to more than 105,000 managers (AT&T, 2009). AT&T believes learning and development hold employees’ attention and keep them invested in all company changes (Nikravan, 2011). Employees know about all upcoming products and work with the business and device manufacturers to develop mandatory training for all those involved with the product. This training is provided through webinars, job aids, and coaching tools. The Bell Labs and AT&T examples are remarkable not just for their dramatic results, but the fact that top software engineers became trainers. They accepted new leadership roles that required a separate skill set and additional responsibilities. Implementing these changes took team effort, with each member of the leadership and learning groups stretching their knowl- edge and abilities. Rather than serving as training authorities, managers stepped back and simply created a learning opportunity while the developers filled the traditionally authorita – tive role. This point brings us to the final topic in this section: the importance of leadership in enacting learning organizational principles. Leadership The biggest challenge for learning organizations does not come from external threats; it comes from the time and commitment it takes for leaders and followers to implement changes. Moreover, because organizational learning depends on changing structures and processes, it requires long-term commitment (Watkins & Marsick, 1993). This, in turn, depends on strong and visionary leadership. wei82650_05_c05_207-248.indd 235 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.4 Change and Learning Organizations Invest in Learning Programs Accenture, a preeminent global management consulting, technology services, and outsourcing company, invests hundreds of millions of dollars on its learning and lead – ership programs each year. In 2009 the company spent nearly $800 million on these programs. Accenture’s leaders understand that first and foremost, developing people influences busi- ness (Margolis, 2011). As the company develops its employees, they apply their new skills to their industries, and as a result, those industries grow. Learning and development spur advanced thinking and improve employees’ skills, allowing them to produce more innova – tions for Accenture’s clients. Accenture’s executive team measures the impact and value of its learning strategy holistically and operationally. Operationally, the executive team needs to know whether learning assets deliver required results and if the right people receive the development they need (Margolis, 2011). The company uses a scorecard, which is updated monthly, to track goals and objectives against annual targets. An annual Business Sponsor Satisfaction Survey uses feedback from executive sponsors to determine value delivered against business leaders’ expectations. The firm’s single evaluation tool also compares results on learning programs and expenditures across workforces, geographies, and vendors so that decisions are made using current data (Margolis, 2011). Use Improvised Implementation Leadership also uses the idea of impro- vised implementation that was discussed earlier. Like action learning, improvi – sation teaches employees how to take risks and respond confidently and in real time to challenges that emerge. Employees who improvise foster an outlook that focuses on curiosity, listen – ing, flexibility, strong relationships, and resiliency (Giardella, 2013). At the same time, improvisation requires people to think holistically and connect thinking to action. For example, Marissa Mayer, a Google vice president, serves as an “idea con – nector.” She holds three weekly sessions where she is available to all Google employees who want to pitch a new idea. Mayer brainstorms with these so-called scout-equivalents and encourages them to share details on a proposed prod – uct’s functionality. She then decides whether to promote the ideas to the company’s cofounders, Larry Page and Sergey Brin (Brokaw, 2011). Associated Press/Joe Schildhorn/BFA To encourage experimentation and improvisa – tion, Marissa Mayer, a vice president at Google, holds weekly sessions for Google employees who want to pitch new ideas. wei82650_05_c05_207-248.indd 236 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.4 Change and Learning Organizations Use Action Learning Action learning offers increased perception and understanding by interweaving action and reflection. However, it may take time to execute, since it requires careful thought (Dilworth, 1998). Although speed and efficiency are important to organizations, getting decisions right is just as important, if not more so. GE has used principles of action learn- ing in its WorkOut training program throughout its global operations. The program con – sisted of teams working on real problems in real time, while executives offered feedback and tips to employees. Encourage Change Leadership must guide an organization through change and find ways to help it adapt (Ahn, Adamson, & Dornbusch, 2004). Strong management is critical to maintaining an organiza- tion’s competitiveness, especially in organizations that face constant change (Nohria, Joyce, & Roberson, 2003; Waldman, Ramirez, House, & Puranam, 2001). In order to stay competitive, organizations must encourage constant, meaningful change. However, this can be a challenge. Despite the theories and approaches available, many leaders lack an understanding of change management; that is, what leads to change, effective pro- cesses for managing it, and how to win follower buy-in for change initiatives (Armenakis & Harris, 2002). Leaders must be able to motivate their followers, communicate effectively, and facilitate team building in order to implement smooth organizational change (Gilley, Gilley, & McMillan, 2009). Create Learning Opportunities Many managers view their role as the ultimate authority—as the person who is always right or who can swoop in to save the day. Instead of fixing employees’ problems for them, how – ever, effective managers act as a guide that helps employees find their own solutions—and in the process, improve their skills and performance. Effective managers also aim to constantly improve management processes and systems by creating learning opportunities that involve experimentation and reflection (Horan, 2006). For example, under the leadership of Jack Welch, GE made adjustments toward becoming a learning organization by emphasizing action learning (Garvin, 2000). Rather than trying to predict the adjustments the company would have to make, it focused on improving change management and optimizing processes for effective and rapid response. In GE’s Change Acceleration Process (CAP), teams of 8 to 12 participants came together to solve a real problem. Process experts coached each team through the new model of problem solving, so employees learned the process through participation and experience. Each of the learning scenarios included an abstract discussion of the CAP framework and methodology and involved applying the model to the problem at hand. The combination of action and reflection helped employees apply this process to future scenarios. The CAP program helped transform GE Plastics in Japan. After 4 consecutive years of posting losses, managers turned to the CAP program in 1994. The division broke even by the end of the year and was profitable in 1995. wei82650_05_c05_207-248.indd 237 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.5 Agile and Learning Organizations in the 21st Century Check Your Understanding 1. How do action learning and improvisation help leaders and followers respond to real-time issues more effectively? Offer an example from your own experience. 2. What steps could organizational leaders take to introduce and support organizational learning principles and practices in an organization before a crisis occurred? 5.5 Agile and Learning Organizations in the 21st Century As we discussed at the beginning of this chapter, agile organizations can respond effectively to changes in their competition, technologies, and markets by being flexible and innova – tive. Being agile means more than change at face value. It represents disruptive change that demands employees do things differently (Adamopoulos, 2012). To get to this state of agility, a number of things must be considered. The top two are cultural change management and training agile teams. Organizational learning principles and techniques deal directly with cultural change and teaching leaders and teams how to implement and sustain constructive, deep change. Com- bining agility practices with learning principles is a winning combination that takes into con- sideration both the short- and long-term value of all stakeholder interests. The idea of organizational learning is compelling and has proved effective in the face of con – stant change. Rowden (2009) warns, however, that the concept of a learning organization can easily become a fad; the big ideas could get watered down into simple, packaged solutions. Organizational learning should also not be viewed as a one-size-fits-all solution. Learning involves failure, and learning organizations fail regularly. They attempt to keep experiments small but are only effective if they internalize the lessons learned from failures. In fact, failure does not negate a learning organization’s effec – tiveness. It is part of the process. Organizations that fail to grasp this idea may think that organizational learning simply doesn’t work or is a utopian ideal with lim – ited practical application. However, learn – ing organizations are less a solution than a process. Unexpected change always disrupts work flow, but learning organizations have the systems, human capacity, and depth of knowledge to make changes as needed, whether that change is triggered by an exter – nal event or an internal innovation. kasto08/iStock/Thinkstock Although organizational learning is crucial, it is important to avoid watering down big ideas and simplifying principles for a one-size-fits-all approach. wei82650_05_c05_207-248.indd 238 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 5.5 Agile and Learning Organizations in the 21st Century Given the unpredictability of the future, organizations need as many tools as possible to respond to change. Agile businesses and learning organizations provide two models for how to embrace change, leveraging it to spur innovation and growth. Although we don’t know what the future holds, it promises to be both exciting and challenging for the organizations, employees, and leaders who can mindfully and competitively steer the way. Check Your Understanding 1. How could organizational learning and agile principles be misunderstood or misinterpreted by employees who are not accustomed to these practices? 2. Would you prefer to work at an agile organization or a learning organization? Explain your reasoning. Managing Change Companies Are Only as Good as Their People Suppose your company has experienced an epic fail: A product line that required huge investments of time, capital, and human effort has gone belly up. Planning and execution, manufacturing and distribution, and supportive processes took nearly a year to solidify and prepare, and it ended in a loss. Nearly one third of the company’s human capital was allocated to this project. Fortunately, the company stands on solid enough ground that it can absorb the loss. But its reputation has been compromised, and you and your leadership team find yourselves pulling the company up by the bootstraps. It’s decision time: What should you do with the one third of your staff that worked on this product? The answer—take a learning approach. Firing one third of company staff would be misguided and only done, if ever, in extreme circumstances. Although the assessment may be relative, the fact remains that firing staff would create a greater loss than the failed product. Intellectual capital would be squandered, and the cost of hiring and onboarding would be enormous. So what’s the next step? Some say you are only as good as your brand; others say you are only as good as your last product. But it could be strongly argued that an organization is only as good as its people, and fostering development and enhancing learning can only positively impact the organization. Learning organizations fail as a rule, and they have the systems, human capacity, and depth of knowledge to make the necessary changes. Discussion Questions 1. How does learning facilitate organizational change? 2. What are some caveats to the concept of a learning organization? 3. What are some examples of large-scale organizational failures? 4. Suggest some ways you would recommend from this chapter to have prevented the failures in question 3. (See the end of the chapter for possible answers.) wei82650_05_c05_207-248.indd 239 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Summary and Resources Chapter Summary Leading and managing change are not easy processes. In fact, planned transformational change in organizations can be messy because politics, power, emotions, and conflict are interlaced with technical, cultural, and social expertise. That is why change manage- ment and OD skills, competencies, and experience are essential for diagnosing, designing, implementing, and sustaining not only specific planned changes but continuous change. Going forward, it is not only change that is required for most organizations but change that is characterized and supported by agile and learning leaders, followers, and processes. This text has described how to identify, assess, plan, enact, and reinvigorate agile learning and organizational change. Classic and contemporary examples of different types of change were discussed: developmental, transitional, and transformational, to name a few. We pre- sented terminology, studies, methods, and frameworks from the fields of change manage- ment and OD that provide a common language used by scholars and practitioners. With this information and understanding, students of organizational change have a conceptual and working knowledge for advancing into other areas to study and/or apply this knowledge. Posttest Questions 1. An IBM global study found that fewer than half of the more than 1,500 surveyed CEOs feel comfortable with __________. a. increased complexity of change management b. diversity in staffing c. out-of-the-box solutions d. creativity in business models 2. As a successful change leader who develops human potential within her organiza- tions, Latisha would be LEAST likely to do which of the following? a. Ask her employees to actively contribute ideas. b. Urge her employees to be problem solvers. c. Recognize her employees for their contributions. d. Encourage her employees to pay attention to even the smallest detail. 3. How do agile organizations approach change compared to traditional ones? a. They create monopolies across industries more often. b. They identify opportunities faster than their competition. c. They hire international CEOs, who typically have more experience with change. d. They invest more in training than traditional organizations. 4. With which of the following statements would the author most likely DISAGREE? a. Agile organizations regard change as a central part of their culture. b. Agile organizations can train employees to be agile. c. Agile organizations appreciate centralized decision making. d. Agile organizations value modularity. 5. Learning organizations facilitate learning by being willing to __________. a. commit to their “sacred cows” b. challenge their “sacred cows” c. disregard their “sacred cows” d. let their “sacred cows” fail in the marketplace wei82650_05_c05_207-248.indd 240 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 6. A company president sends an email across the organization illustrating how the marketing team’s ideas resulted in increased sales. Which of the following learning organization principles is most reflected in this process? a. Assure that the organization is aware of its external environment. b. Provide outside review of a marketing plan. c. Link individual and group performance with organizational performance. d. Invite one team to apply its principles to another team’s goals. 7. Whereas traditional organizations highly value __________, learning organizations highly value __________. a. mission; revision b. revision; mission c. action; caution d. experimentation; action 8. In the five stages a company passes through to become a learning organization, learning becomes an integral part of the company’s strategic plan and long-term growth in the __________ stage. a. forming b. developing c. evaluating d. adapting 9. Change expert Robert Rowden states that agile organizational learning should be viewed as __________. a. a one-size-fits-all solution b. a failure-proof process c. growth based on knowledge and failures d. big ideas condensed to simple solutions 10. A lesson to be drawn from the philosophies of both agile and learning organizations is most likely “An organization is only as good as its __________.” a. brand b. last product c. systems d. people 11. As a learning organization, how does L.L. Bean increase its market research knowledge? a. It hires outside marketers to survey past customers. b. It uses IT-savvy people to search the web for competitors’ products. c. It requires employees to use and rigorously test products. d. It recruits devoted customers to be product testers. 12. The author discusses how __________ is using a learning model in terms of the way it explores changes and innovations in the energy sector. a. Charter b. Shell c. SunRun d. Hyundai Answers: 1 (a), 2 (d), 3 (b), 4 (c), 5 (b), 6 (c), 7 (a), 8 (d), 9 (c), 10 (d), 11 (d), 12 (b) wei82650_05_c05_207-248.indd 241 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Learning Objectives Recap 1. Successful change leaders exhibit collaboration, the ability to build effective teams, and the ability to influence employees. More traditional traits like decisiveness and composure are less influential in guiding change. Creativity, adaptability, and experi- mentation are critical traits of change leaders. Successful change leaders cultivate empowerment in their employees. This involves giving employees greater autonomy and responsibility. A greater emphasis on building relationships and creating open work environments has made leadership a necessity at all levels of an organization. It is required to better identify potential challenges and shorten response time. Empowered employees can more easily become change agents. 2. Agile organizations have the ability to quickly adapt and respond to new situations because change is a central part of their culture. They value experimentation, com- munication, decentralized decision making, and modularity. This flexibility is in direct opposition to the stability and rigidity of traditional organizations, which lack the adaptability required to react quickly and appropriately to change. Agile organi- zations are more responsive than predictive. They also emphasize effective commu- nication and empowered employees, and they have flatter organizational structures. 3. Learning organizations provide continuous learning opportunities and use learn- ing to reach their goals. They also link individual performance with organizational performance, foster inquiry and dialogue to make it safe for people to share openly and take risks, and embrace creative tension as a source of energy and renewal. The three levels of learning organizations are individual learning, group or team learn- ing, and organizational learning. The five principles of learning organizations are systems thinking, personal mastery, mental models, shared vision, and team learn- ing. Learning organizations take a big picture view and consider how all pieces of the organization interact and communicate. 4. Learning and change go hand-in-hand. Learning leads to change within an organiza- tion and creates an environment of empowerment and affinity, rather than resis- tance to change. Learning organizations are characterized by constant readiness, continuous planning, improvised implementation, and action learning. Woolner suggests five stages in the process of becoming a learning organization: the forming organization, the developing organization, the maturing organization, the adapting organization, and the learning organization. Learning often begins through a trial- and-error process and develops into a fully integrated facet of the organization’s operations. Learning organizations require significant amounts of time and com – mitment, which in turn requires strong, visionary leadership. Leaders must develop flexible strategies and clear communication to foster a culture that welcomes change. Leaders guide the learning organization through change and find ways to help it adapt. 5. Being an agile organization in the 21st century means having the flexibility and innovative mind-set to promote large-scale, disruptive changes to provide better products and services. Learning organizations are of the mind-set that learning is a consistent cycle; with this knowledge comes the systems, human capacity, and expe- rience to make changes as needed. wei82650_05_c05_207-248.indd 242 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources action learning Continuous planning that leads to reflection and learning in the cul – ture of the organization. agile organization An organization that can quickly react to changes in the market. This means that companies can and do successfully respond to new competitors, technologies, and shifts in the market. executive coach A professional hired by organizations to advise on complex deci- sions and individual and/or team skill building aimed at developing personal and professional performance. improvised implementation A manifesta- tion of each employee’s creative role through experimentation at individual and team levels before companywide implementation. leadership versatility The willingness and ability to learn from experience and apply that learning in order to perform success – fully under new conditions. learning agility The ability to learn and adapt to new information and situations. See leadership versatility. learning organization Agile organizations that take a “big picture” reflective approach in order to adapt and evolve at individual and organizational levels. A learning organi- zation continually nurtures new patterns of thinking and encourages collective aspira- tion to make learning a fundamental aspect of the organization. mental models Assumptions, generaliza- tions, and images that influence our under – standing of the world and the ways in which we take actions. personal mastery The state of continually clarifying and deepening personal vision, focusing energies, developing patience, and seeing reality objectively. Key Terms Discussion Questions 1. What is the difference between “hard” and “soft” dimensions of change? Offer an example of each dimension from this chapter or from the media. 2. If you were asked to be part of a group to hire a CEO to lead a transformational change for a large company, what characteristics and skills would you look for, and why? Base your answer on what you learned in Section 5.1. 3. Why should competent executive coaches be hired to help CEOs and managers sus- tain changes? 4. Consider this statement: “Agile businesses don’t predict, they respond.” Do you agree with this statement? Why or why not? Explain your reasoning. 5. What principles and practices from Section 5.2 does the Semco Group demonstrate to be considered an agile company? 6. What characteristics from Section 5.3 does L. L. Bean demonstrate that classifies it as a learning organization? 7. Suppose you have been invited to give a talk discussing Hyundai’s turnaround expe- rience and planned organizational change. What would you say? 8. How does an organization become a “learning organization,” as discussed in Section 5.4? Do you think any organization can become a learning or agile organization? Why or why not? Explain your reasoning. wei82650_05_c05_207-248.indd 243 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Additional Resources For more on the Executive Coach Academy ht tp://hrweb.mit.edu/organizational-effectiveness/organization-development-consulting Institute of Organizational Development ht tp://instituteod.com/organization-development-certified-consultant.php For a video of the “Netflix apology” ht tp://w w w.youtube.com/watch?v=c8Tn8n5CIPk To determine if students would like to become an OD consultant, they can read the Guide to Selecting an OD Consultant ht tp://impactrising.org/wp-content/uploads/2013/05/guide_to_selecting _an_od_ provider.pdf Managing Change Sample Answers Managing Change—The Agile Organization 1. A modular organizational structure allows the business to essentially be the sum of its moving parts. As business develops and initiatives come and go, teams form to work on a task and then disband when the objective is achieved or the project ends. This creates flexibility and allows a company to be agile, making it easier to quickly facilitate a project and then move forward to the next one. Moreover, employees learn a lot from joining teams and then returning to their regular job responsibilities. 2. Principles of agility include free-flowing, effective communication and employee autonomy. Trusting employees to make their own decisions on the fly benefits not only their engagement but also their development. Furthermore, being able to be creative and have a direct impact on business processes adds to the business’s ability to be dynamic because employees at all levels are taking initiative. Achieving this requires a flatter hierarchy that runs mainly on guiding principles rather than strict, top-down directives. An agile company also encourages experimentation and fosters a culture of innovation. 3. Leaders of truly agile organizations must be able to adapt to new situations and be comfortable with constant change. They should embody the strategy by being open, flexible, and resilient, and able to acknowledge and learn from mistakes. An agile company embraces a learning environment. Learning from experience and applying new knowledge enables agility. Organizations need to provide customers with “bet – ter, faster, cheaper, more mobile, more convenient or more personalized” (Denning, 2015) services for users. 4. Organizations “must imagine a future that users will truly want, even though users themselves don’t yet know what that is” (Denning, 2015). Managing Change—The “Postmortem” 1. Training usually takes the form of a program, session, or class and is goal ori – ented and finite in nature. Learning is more abstract and ongoing and is a concept wei82650_05_c05_207-248.indd 244 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources embedded into company culture. You can complete training, but ideally you never stop learning. 2. Adaptive learning draws from past experiences. Action learning reflects on the pres- ent to guide next steps. Anticipatory learning utilizes scenarios that could result from the present situation and studies the different outcomes to identify pitfalls and opportunities. 3. Agile organizations must be comfortable with a learning environment—learning makes agility possible. The lesson spawns ideas for the company to take direction and remain competitive. Learning organizations must constantly evolve and improve so as to recognize opportunities and take advantage of them. Both require commit- ment, communication, collaboration, and intellectual curiosity. 4. In addition to after-action reviews or postmortems, other learning opportunities include experiential learning programs, focus groups, working groups, and team meetings. Of course, ideally, day-to-day work experiences also provide learning opportunities. Managing Change—Companies Are Only as Good as Their People 1. A learning organization embraces experimentation. Over time, successful experi- ments become part of its fabric. Eventually, a succession of these changes results in large-scale organizational change. Establishing a learning organization is essentially a way to effectively manage change. 2. How effective a learning mind-set is depends on leaders’ commitment to an ongoing process and, more importantly, their ability to accept failure. Organizations that fail to understand this will be unlikely to take advantage of its benefits or instill a culture that can foster learning and change. Some might view learning organizations as a fad or as a pie-in-the-sky idea. A fatal flaw would be to assume it is a one-size-fits-all solution to business. Learning organizations are administered from a macro stand- point and offer the flexibility to grow and change with time. As they thrive on the back of failure, it is important to understand that each organization fails differently. Each has its own journey. Therefore, the abstract principles of learning organizations are applied to guide an organization through change; in turn, change fuels learning. 3. “New Coke,” Beta video tapes, Euro Disney, the LaserDisc predecessor to the CD/ DVD, Crystal Pepsi, Friendster—the list goes on. Have fun with it! It may not have been fun at the time, but most of the companies that pioneered these failures have followed up with successful products since. 4. Relying on the principles of a learning culture, the first steps would be to commu- nicate openly about what happened. Show support for those involved and express commitment to improvement. Show appreciation for good jobs done that may not have affected the outcome. Collaboration will play a huge part going forward. Per – haps hold an after-action at the organization’s higher level and communicate the results. Perhaps hold focus groups to elicit ideas, feedback, and other input from staff. Pinpoint learning opportunities and apply them to the company’s next moves. Once a rebound plan is formulated, communicate that to employees, ideally showing them how their feedback played a part in the new direction. wei82650_05_c05_207-248.indd 245 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Answers and Rejoinders to Chapter 5 Pretest 1. False. The more traditional leadership traits of decisiveness, composure, and find- ing ways to get results are ranked low in current leadership models. Rather, current research indicates that the ability to build teams, being open to risk taking, and hav- ing the skills to influence employees without exerting authority are ranked high in change leadership. 2. True. Many traditional organizations that emphasize hierarchy in their business model have low tolerance for failure. However, agile organizations accept that failure leads to learning and perhaps to better products and services. For example, a newly agile Disney organization suffered failures (such as the ESPN phone) that led to other more successful experiments. 3. False. A learning organization is holistic, which means it takes into account how all the components within the organization interact and communicate. A learning orga- nization evolves holistically at individual, team, and organizational levels, in which collective goals are conceived and new ways of thinking are cultivated. 4. False. Learning organizations can characteristically better respond to market swings because they have already developed in-place, internal structures that respond to threats and opportunities proactively. Learning organizations are distinguished by constant readiness, continuous planning, and action learning. 5. True. In the 21st century, both agile and learning organizations must have a mind- set for constructive, deep change that demands employees do things differently. Combining agility characteristics with learning principles leads to success for all stakeholders. 6. True. Learning organizations understand that creative tension is a source of energy and renewal, and they strive to create an environment where inquiry, sharing openly, and taking risks is safe. Rejoinders to Chapter 5 Posttest 1. Of the more than 1,500 CEOs surveyed, fewer than half feel they can handle in- creased complexity in change management. In the same survey, CEOs cited being open to out-of-the-box solutions and being willing to change business models to meet goals as being hallmarks of creative CEOs. 2. Effective change leaders develop human potential within their organizations by encouraging employees to focus on the big picture and to become invested in the organization’s overall growth and success. 3. Agile organizations react quickly to changes in the market, in technology, and to new competition. They identify opportunities faster than their competition and imple- ment changes more readily than traditional organizations. 4. The author would disagree that agile organizations appreciate centralized decision making. Rather, such organizations value decentralized decision making and prob- lem solving, and empower employees to do both. 5. Sacred cows are those values/ideas that people rate so highly that they think they should not (or cannot) be criticized or changed (such as “never question the boss”). Learning organizations facilitate learning by being willing to examine and challenge their “sacred cows.” 6. In this scenario, the learning organization principle that is most reflected is “Link individual performance with organizational performance.” wei82650_05_c05_207-248.indd 246 12/22/15 10:21 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources 7. Whereas traditional organizations value mission, learning organizations value revi- sion and thus change more. 8. In the five stages a company passes through to become a learning organization, learning becomes an integral part of the company’s strategic plan and long-term growth in the adapting stage. 9. Rowden states that agile organizational learning should be viewed as growth based on knowledge and (learning from) failures. Failure does not negate a learning orga- nization’s effectiveness—it is part of it. 10. One lesson to be drawn from the philosophies of both agile and learning organi- zations is “An organization is only as good as its people.” An organization whose culture fosters learning and openness to risk and failure will typically have a positive impact on its employees and its goals. 11. L.L. Bean is a learning organization because of its skills in acquiring knowledge and effectively converting it to behavioral and business changes. For example, L.L. Bean increases its market research knowledge when it recruits devoted customers as product testers, and they give feedback on real products used in actual situations. 12. The author relates how Shell is using a learning model in terms of the way it researches and explores changes and the innovations it makes in the energy sector. Although the company does not know what its future holds, it keeps its options open through organizational flexibility, renewable energy research, and conversations with policy makers. wei82650_05_c05_207-248.indd 247 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_05_c05_207-248.indd 248 12/15/15 9:47 AM 251 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

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