MGMT review 2

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Fundamentals of Management

Eleventh Edition

Chapter 06

Managing Change and

Innovation

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Learning Objective 6.1

Define organizational change and compare and contrast views on the change process.

What Is Organizational Change?

Exhibit 6-1 Categories of Organizational Change

If it weren’t for change, a manager’s job would be easy. Organizational design would be stable because the environment would be free from uncertainty so there would be no need to adapt. Decision making would be simplified because the outcome of each alternative could be accurately predicted.

The three kinds of organizational change are shown in Exhibit 6–1.

Changes in structure includes any alteration in authority relationships, coordination mechanisms, degree of centralization, job design, or similar variables. For example, restructuring can result in decentralization, wider spans of control, reduced work specialization, and work teams.

Changing technology includes modifications to the way work is done or to the methods and equipment used. Examples include computerizing work processes, adding robotics to work areas, and equipping employees with mobile communication tools.

Changes in people refer to changes in employee attitudes, expectations, perceptions, or behaviors. Examples include using team building efforts to make a team more innovative.

External Forces Create a Need to Change

Marketplace

Government laws and regulations

Technology

Labor markets

Economic changes

External forces that create the need for organizational change include:

Marketplace reflects intense competition in recent years.

Government laws and regulations are another impetus for change. The Patient Protection and Affordable Care Act caused many companies to review their health insurance programs.

Technology creates the need for organizational change. The Internet has changed how we get information, how products are sold, and how we get our work done. Technological advancements have created economies of scale for many organizations.

Fluctuations in labor markets can force managers to initiate changes. For example, the shortage of registered nurses in the United States has led hospital administrators to redesign nursing jobs, alter their rewards and benefits packages for nurses, and join forces with local universities to address the shortage of nurses.

Economic changes affect almost all organizations. Prior to the mortgage market meltdown, significant growth in the housing market meant more jobs, more new hires, and increased sales in other businesses that supported the building industry. But as the economy soured, the housing industry and other related industries shrunk as credit markets dried up and businesses couldn’t get the capital needed to operate.

Internal Forces Create a Need to Change

Strategy

Composition of workforce

Employee attitudes

Internal forces can also create the need for organizational change.

Redefining or modifying an organization’s strategy causes change. For example, bringing in new equipment is an internal force for change that can result in employees facing job redesign, undergoing training to operate the new equipment, or establishing new interaction patterns within their work groups.

Another internal force for change is a shift in the composition of an organization’s workforce in terms of age, education, gender, nationality, and so forth. A stable organization in which managers have been in their positions for years might need to restructure jobs to retain more ambitious employees and to rework the compensation and benefits systems to reflect the needs of a diverse workforce and to respond to market forces in which certain skills are in short supply.

Employee attitudes, such as increased job dissatisfaction, may lead to increased absenteeism, resignations, and even strikes. Such events will likely lead to changes in organizational policies and practices.

Initiating Change

Organizational changes need a catalyst.

Change agent:

people who act as catalysts and assume responsibility for managing the change process.

Organizational changes need a catalyst. People who act as catalysts and assume the responsibility for managing the change process are called change agents.

A change agent can be a manager, internal staff specialist, or outside consultant. Consultants offer an objective perspective, but may not understand the organization’s history, culture, operating procedures, and personnel. They’re also prone to initiating more drastic changes than insiders—which can be either a benefit or a disadvantage—because they don’t have to live with the repercussions after the change is implemented.

In contrast, internal managers who act as change agents may be more thoughtful—and possibly more cautious—because they must live with the consequences of their actions.

Implementing Change

Organization development (OD):

efforts that assist organizational members with a planned change by focusing on their attitudes and values.

Most organizational changes don’t happen by chance.

Often managers make a concerted effort to alter some aspect of the organization—such as its structure or technology—which ultimately affects organizational members.

In facilitating long-term, organization-wide changes, OD focuses on constructively changing the attitudes and values of organization members so that they can more readily adapt to, and be more effective in, achieving the new directions of the organization.

Essentially, organizational leaders attempt to change the organization’s culture. However, OD relies on employee participation to foster an environment of open communication and trust because change can create stress for employees.

Organization Development Efforts

Survey feedback

Process consultation

Team-building

Intergroup development

OD tries to involve organizational members in changes that will affect their jobs and seeks their input about how the change is affecting them. The more popular OD efforts in organizations rely heavily on group interactions and cooperation, and include the following:

Survey feedback efforts are designed to assess employee attitudes about, and perceptions of, the change they are encountering. Employees generally respond to a set of specific questions regarding how they view such organizational aspects as decision making, leadership, communication effectiveness, and satisfaction with their jobs, coworkers, and management. This data is used to clarify problems that employees may be facing and to initiate action to remedy the problems.

In process consultation, outside consultants help managers to perceive, understand, and act on organizational processes they face, such as workflow, informal relationships among unit members, and formal communication channels. Consultants give managers insight into what is going on and help managers diagnose the interpersonal processes that need improvement.

A primary function of OD is to help organizational members become a team. Team-building is generally an activity that helps work groups set goals, develop positive interpersonal relationships, and clarify the roles and responsibilities of each team member. The primary focus of team-building is to increase members’ trust of, and openness toward, one another.

Intergroup development focuses on helping different work groups to become more cohesive. It attempts to change attitudes, stereotypes, and perceptions that one group may have toward another in order to improve coordination of efforts among the various groups.

Learning Objective 6.2

Explain how to manage resistance to change.

Resistance to Change

Uncertainty

Habit

Concern over personal loss

Belief change is not in organization’s best interests

People resist change even if it might be beneficial! How

about YOU? How do you respond to change?

It’s often said that most people hate any change that doesn’t jingle in their pockets. Here are the main reasons people resist organizational change:

Change replaces the known with uncertainty and we don’t like uncertainty. For example, when quality control methods are introduced into manufacturing plants, many inspectors have to learn the new methods. Some may fear that they won’t be able to do so and may develop a negative attitude toward the change or behave poorly if required to use the new methods.

Another cause of resistance is that we do things out of habit—we don’t want to have to consider the full range of options for the hundreds of decisions we make every day.

A third cause of resistance is the fear of losing something already possessed. The more that people have invested in the current system, the more they resist change because they fear losing status, money, authority, friendships, personal convenience, or other benefits that they value.

A final cause of resistance is a belief that the change is incompatible with the goals and interests of the organization. For instance, an employee who believes that a proposed new job procedure will reduce product quality can be expected to resist the change. This type of resistance can actually be beneficial to the organization if expressed in a positive way.

Reducing Resistance to Change

Exhibit 6-4 Techniques for Reducing Resistance to Change

TECHNIQUE	WHEN USED	ADVANTAGE	DISADVANTAGE
Education and communication	When resistance is due to misinformation	Clear up misunderstandings	May not work when mutual trust and credibility are lacking
Participation	When resisters have the expertise to make a contribution	Increase involvement and acceptance	Time-consuming; has potential for a poor solution
Facilitation and support	When resisters are fearful and anxiety-ridden	Can facilitate needed adjustments	Expensive; no guarantee of success
Negotiation	When resistance comes from a powerful group	Can “buy” commitment	Potentially high cost; opens doors for others to apply pressure too
Manipulation and co-optation	When a powerful group’s endorsement is needed	Inexpensive, easy way to gain support	Can backfire, causing change agent to lose credibility
Coercion	When a powerful group’s endorsement is needed	Inexpensive, easy way to gain support	May be illegal; may undermine change agent’s credibility

Strategies for dealing with resistance to change are described in Exhibit 6-4. Managers should use the most appropriate technique depending on the type and source of the resistance.

Education and communication can reduce resistance to change by helping employees see the logic of the change effort. But this assumes that much of the resistance lies in misinformation or poor communication.

Participation involves bringing those individuals directly affected by the proposed change into the decision-making process. It allows these individuals to express their feelings, increase the quality of the process, and increase employee commitment to the final decision.

Facilitation and support involve helping employees deal with the fear and anxiety associated with the change effort. Such help may include employee counseling, therapy, new skills training, or a short paid leave of absence.

Negotiation involves exchanging something of value for an agreement in order to lessen the resistance to the change effort. This resistance technique may be particularly useful when the resistance comes from a powerful source.

Manipulation and co-optation refer to covert attempts to influence others about the change. These tactics may involve twisting or distorting facts to make the change appear more attractive.

Finally, coercion, which involves the use of direct threats or force against the resisters, can also be used to deal with resistance to change.

Learning Objective 6.3

Describe what managers need to know about employee stress.

Employee Reactions to Change

Change often creates stress for employees!

For many employees, change creates stress. A dynamic and uncertain environment characterized by restructurings, downsizings, empowerment, and personal-life matters has caused large numbers of employees to feel overworked and “stressed out.”

Sometimes the stress gets to be so intense that individuals respond in a drastic (and tragic) way. In the following slides, we’ll review the meaning of the term “stress,” the symptoms of stress, the causes of stress, and what managers can do to reduce anxiety.

Change Often Creates Stress for Employees

Employee Stress Levels in Six Major Economies24

United Kingdom	35% of employees
Brazil	34% of employees
Germany	33% of employees
United States	32% of employees
GLOBAL AVERAGE	29% of employees
China	17% of employees
India	17% of employees

As the table shows, the global average for employee stress levels is 29% of employees.

Stress is the adverse reaction people have to excessive pressure placed on them from extraordinary demands, constraints, or opportunities. Stress isn’t always bad. Stress can be positive—especially functional stress, which allows an athlete, stage performer, or employee to perform at his or her highest level at crucial times.

However, stress is more often associated with constraints and demands and opportunities. A constraint prevents you from doing what you desire; demands refer to the loss of something desired; opportunities refer to the possibility of something new, something never done.

Another thing to understand about stress is that just because the conditions are right for stress to surface doesn’t always mean it will. Two conditions are necessary for potential stress to become actual stress. First, there must be uncertainty over the outcome, and second, the outcome must be important.

Symptoms of Stress

Exhibit 6-3 Symptoms of Stress

As Exhibit 6–3 shows, stress symptoms can be grouped under three general categories: physical, psychological, and behavioral. All of these can significantly affect an employee’s work.

Causes of Stress: Job Related

Task demands

Role demands

Role conflicts

Role overload

Role ambiguity

Interpersonal demands

Organization structure

Organizational leadership

Job-related stressors include pressures to avoid errors or complete tasks in a limited time period; changes in the way reports are filed; a demanding supervisor; unpleasant coworkers.

1. Task demands are factors related to an employee’s job. They include the design of a job (which includes autonomy, task variety, and degree of automation); working conditions (temperature, noise, etc.); and the physical work layout (overcrowded or in visible location with constant interruptions; work quotas, especially when excessive, high level of task interdependence with others). Autonomy lessens stress.

2. Role demands are stresses due to one’s particular role in the organization. Role conflicts create expectations that may be hard to reconcile or satisfy. An employee experiences role overload when he or she is expected to do more than time permits. An employee experiences role ambiguity when role expectations are not clearly understood and the employee is not sure what he or she is supposed to do.

3. Interpersonal demands are pressures created by other employees. Lack of social support from colleagues and poor interpersonal relationships can cause considerable stress.

4. Organization structure issues like excessive rules and an employee’s lack of opportunity to participate in decisions that affect him or her can cause stress.

5. Organizational leadership refers to the supervisory style of the organization’s managers. Some managers create a culture characterized by tension, fear, and anxiety. They establish unrealistic pressures to perform in the short-run, impose excessively tight controls, and routinely fire employees who don’t measure up.

Causes of Stress: Personal

Family and personal issues

Personality type

Personal stressors include family issues, personal economic problems, etc. Because employees bring their personal problems to work, a manager must understand and address these personal factors.

Employees’ personalities also affect how susceptible they are to stress.

The Type A personality is characterized by a chronic sense of time urgency, an excessive competitive drive, and difficulty accepting and enjoying leisure time. They are more likely to show symptoms of stress.

In contrast, Type B personalities have little to no sense of time urgency or impatience. Stress comes from the hostility and anger associated with Type A behavior. Surprisingly, Type Bs are just as susceptible.

Reducing Stress

Remember, not all stress is dysfunctional. Even though stress can never be totally eliminated, managers want to reduce the stress that leads to dysfunctional work behavior by controlling certain organizational factors that can reduce job-related stress and offering help for personal stress.

To reduce job-related stress, managers begin with employee selection—making sure that an employee’s abilities match the job requirements. A realistic job preview during the selection process can help minimize stress by clarifying job expectations. Ongoing organizational communications keep ambiguity-induced stress to a minimum. Similarly, a performance planning program (such as MBO) states job responsibilities clearly provides clear performance goals, and reduces ambiguity through feedback. Job redesign can also reduce stress by increasing challenge, including employees in decision making, or reducing the workload. Allowing employees to participate in decisions to gain social support also lessen stress.

Stress from an employee’s personal life is not easy for a manager to control directly and there is the question of whether a manager has the right to intrude, even subtly, in an employee’s personal life. If the manager believes it’s ethical and the employee is receptive, consider employee assistance or wellness programs. The rationale for employee assistance programs is to get a productive employee back on the job as quickly as possible. Wellness programs are designed to keep employees healthy.

Learning Objective 6.4

Discuss techniques for stimulating innovation.

Creativity and Innovation

Creativity:

the ability to produce novel and useful ideas.

Innovation:

the process of taking a creative idea and turning it into a useful product, service, or method of operation.

“Innovation is the key to continued success.”

“We innovate today to secure the future.”

Success in business today demands innovation. In the dynamic, chaotic world of global competition, organizations must create new products and services and adopt state-of-the-art technology if they’re going to compete successfully.

Creativity refers to the ability to combine ideas in a unique way or to make unusual associations between ideas. A creative organization develops unique ways of working or novel solutions to problems. For instance, at Mattel, company officials introduced “Project Platypus,” a special group that includes people from a variety of disciplines such as engineering, marketing, design, and sales, and tries to get them to “think outside the box” to understand the sociology and psychology behind children’s play patterns. To fuel this kind of thinking, team members embarked on imagination exercises, group crying, and juggling with a stuffed-bunny to learn to “let go.”

The outcomes of the creative process need to be turned into useful products or work methods, which is defined as innovation. The innovative organization is characterized by its ability to channel creativity into useful outcomes. When managers talk about changing an organization to make it more creative, they usually mean they want to stimulate and nurture innovation.

Innovation Process

“Innovation is the key to continued success.”

“We innovate today to secure the future.”

Perception

Incubation

Inspiration

Innovation

Some people believe that creativity is inborn; others believe that with training, anyone can be creative. The latter group views creativity as a fourfold process consisting of perception, incubation, inspiration, and innovation.

Perception involves the way you see things; being creative means seeing things from a unique perspective.

While employees sit on their ideas to incubate, they should collect massive amounts of data that can be stored, retrieved, studied, reshaped, and finally molded into something new.

Inspiration, that is the moment when all your efforts successfully come together in the creative process, is similar.

Innovation takes inspiration and turns it into a useful product, service, or way of doing things.

The systems model helps us understand how organizations become more innovative. If an organization wants innovative products and work methods (outputs), it has to take its inputs (creative people and groups) and transform them into those outputs.

The transformation process requires the right environment to turn those inputs into innovative products or work methods. This “right” environment—that is, an environment that stimulates innovation—includes three variables: the organization’s structure, culture, and human resource practices, as seen in Exhibit 6–5 on the next slide.

Encouraging Innovation

Exhibit 6-5 Innovation Variables

Structural Variables and Innovation

Organic structures

Abundant resources

High interunit communication

Minimal time pressure

Work and non work support

Research into the effect of structural variables on innovation shows five things:

An organic-type structure positively influences innovation. Because this structure is low in formalization, centralization, and work specialization, it facilitates the flexibility and sharing of ideas that are critical to innovation.

The availability of plentiful resources is a key building block for innovation. With an abundance of resources, managers can afford to purchase innovations, can afford the cost of instituting innovations, and can absorb failures.

Frequent communication between organizational units helps break down barriers to innovation. Cross-functional teams, task forces, and other such organizational designs facilitate interaction across departmental lines and are widely used in innovative organizations.

Innovative organizations try to minimize extreme time pressures on creative activities despite the demands of white-water rapids-type environments. Although time pressures may spur people to work harder and may make them feel more creative, studies show that it actually causes them to be less creative.

Studies have shown that when an organization’s structure explicitly supports creativity, employees’ creative performance can be enhanced. Beneficial kinds of support include encouragement, open communication, readiness to listen, and useful feedback.

Culture and Innovation

Acceptance of ambiguity

Tolerance of the impractical

Low external controls

Tolerance of risks

Tolerance of conflict

Focus on ends

Open-system focus

Positive feedback

Innovative organizations tend to have similar cultures that encourage experimentation; reward both successes and failures; and celebrate mistakes. An innovative organization is likely to have the following characteristics:

Too much emphasis on objectivity and specificity constrains creativity.

Individuals who offer impractical, even foolish, answers to “what-if” questions are not stifled. What at first seems impractical might lead to innovative solutions.

Rules, regulations, policies, and similar organizational controls are kept to a minimum.

Employees are encouraged to experiment without fear of consequences should they fail. Mistakes are treated as learning opportunities.

Diversity of opinions is encouraged. Harmony and agreement among individuals or units are not assumed to be evidence of high performance.

Goals are made clear, and individuals are encouraged to consider alternative routes to reach these goals. Focusing on ends suggests that there might be several right answers to any given problem.

Managers closely monitor the environment and respond to changes as they occur.

Managers provide positive feedback, encouragement, and support so employees feel that their creative ideas receive attention.

HR and Innovation

Idea champion:

individuals who actively and enthusiastically support new ideas, build support for, overcome resistance to, and ensure that innovations are implemented.

Innovative organizations (1) actively promote the training and development of their members so the members’ knowledge remains current, (2) they offer their employees high job security to reduce the fear of getting fired for making mistakes, and (3) they encourage individuals to become idea champions by actively and enthusiastically supporting new ideas, building support, overcoming resistance, and ensuring that innovations are implemented.

Research finds that idea champions have certain personality characteristics in common: extremely high self-confidence, persistence, energy, and a tendency toward risk taking. They also display characteristics associated with dynamic leadership: They inspire and energize others with their vision of the potential of an innovation and through their strong personal conviction in their mission. They’re also good at gaining the commitment of others to support their mission.

Idea champions also have jobs that provide considerable decision-making discretion. This autonomy helps them introduce and implement innovations in organizations.

Learning Objective 6.5

Explain what disruptive innovation is and why managing it is important.

Managing Disruptive Innovation

Disruptive innovation:

innovation in products, services, or processes that radically change an industry’s rules of the game.

Sustaining innovation:

innovations that represent small and incremental changes in established products rather than dramatic breakthroughs.

For many of us, it’s become routine to turn to Amazon when we need to purchase health care products, books, and so many other products and now even banking services. Amazon is an example of disruptive innovation—it has radically changed the rules of the game for many industries.

We need to distinguish disruptive innovation from sustaining innovation. We often think of innovations in terms of things like the HDTV, backup cameras on cars, fingerprint technology on smartphones, or even Double-Stuf Oreos. These are examples of sustaining innovation because they sustain the status quo.

Examples of Past Disruptive Innovations (1 of 2)

Exhibit 6-6 Examples of Past Disruptive Innovators

Established Business	Disruptor
Compact disc	Apple iTunes
Carbon paper	Xerox copy machine
Canvas tennis shoes	Nike athletic shoes
Portable radio	Sony Walkman
Sony Walkman	Apple iPod
Typewriters	IBM PC
Weekly news magazines	CNN
TV networks	Cable and Netflix
Local travel agencies	Expedia
Stockbrokers	eTrade
Traveler’s checks	ATMs and Visa

In practice, disruptive innovation has been around for centuries. Vanderbilt’s railroads disrupted the sailing-ship business. Alexander Bell’s telephone rang the death-knell for Western Union’s telegraphy.

Ford and other automobile builders destroyed horse-drawn buggy manufacturers. As Exhibit 6–6 shows, there is no shortage of businesses that have suffered at the expense of disruptive innovation.

Examples of Past Disruptive Innovations (2 of 2)

Exhibit 6-6 Examples of Past Disruptive Innovators

Established Business	Disruptor
Encyclopedias	Wikipedia
Newspaper classified ads	Craig’s List
AM/FM radio stations	Sirius XM
Tax preparation services	Intuit’s Turbo Tax
Yellow Pages	Google
Paper maps	Garmin’s GPS
Paperback books	Kindle
Lawyers	Legal Zoom
Taxis	Uber

Ford and other automobile builders destroyed horse-drawn buggy manufacturers. As Exhibit 6–6 shows, there is no shortage of businesses that have suffered at the expense of disruptive innovation.

Why Is Disruptive Innovation Important?

Skunk works:

a small group within a large organization, given a high degree of autonomy and unhampered by corporate bureaucracy, whose mission is to develop a project primarily for the purpose of radical innovation.

47 percent of business leaders say that finding and

keeping employees to counteract disruptive change

is a significant obstacle.57

Disruptive innovations are a threat to many businesses and it’s important to avoid creating an organizational culture that acts as a constraint on change.

Entrepreneurs need to think opportunity! Look for established businesses that can be disrupted! Corporate managers need to create an appropriate response.

Disruptive response needs to be carried out by a group that is separated from the rest of the organization, physically and structurally. These skunk works need to be able to operate without being constrained by corporate culture or parent company cost structures.

Advice In A Disruptive World

Never get comfortable with a single employer.

Keep your skills current.

Remember that YOU are responsible for your future.

Take risks while you’re young.

Some career advice for success in a disruptive world:

Never get comfortable with a single employer.

Keep your skills current.

Remember that YOU are responsible for your future.

Finally, take risks while you’re young.