Mechanistic and Organic Organizational Forms

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Chapter Five Navigating Change Through Formal Structures and Systems

Chapter Overview

This chapter discusses the basics of how organizations structure themselves. It outlines how change leaders can diagnose the strengths and weaknesses of existing systems and structures. It examines how the formal structure and systems can foster, impair, and facilitate the acceptance of change initiatives. It lays out ways to manage systems and structures to gain approval for change initiatives. Formal, coalition-building, and renegade approaches are discussed. Finally, it reviews the ways to develop more adaptive systems and structures to increase the likelihood of continuous improvement.

Any discussion of organizational change needs to pay careful attention to the role of formal systems and structures. They influence what gets done, how it gets done, the outcomes that are achieved, and the experiences of the people who come into contact with the organization. While leaders define their organizational systems and structures, the systems and structures —paradoxically—also shape the behavior of organizational leaders and members. Formal systems and structures play important coordination, communication, and control roles, and they influence how decisions are made about change and who is authorized to make changes. Sometimes, systems and structures need to change.

An organization’s formal structure is defined by how tasks are formally divided, grouped, and coordinated.1 Formal structures are designed to support the strategic direction of the firm by enhancing order, efficiency, effectiveness, and accountability. They serve as guides and controls on decision-making authority,

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coordinate and integrate operations, provide direction to internal governance, and attempt to promote desired behaviors and organizational outcomes.2 The organizational chart is the common document of organizational design.

Formal systems include planned routines and processes such as strategic planning, accounting and control systems, performance management, pay and reward systems, and the information system. Collectively, these set out how things are supposed to be done, the rules and procedures to be followed, how information is collected and disseminated, how individuals are to be compensated, and all the other formalized systems and processes that are used for coordination, integration, and control purposes. They provide the formal infrastructure that operationalizes the organizational structure.

Organizations vary in their need for complexity in their structures and systems, but all require some degree of formalization to be sustainable. These are modified over time as conditions change and they need to bring themselves into alignment with external conditions and the organization’s strategy. The corner grocer needs simple systems for accounting, staffing, and managing suppliers, pricing, and inventory. Walmart, on the other hand, requires highly sophisticated systems and structures to efficiently and profitably handle $500 billion in net sales, processed by 2.3 million associates in 11,700 stores that operate in 28 countries.3 Walmart’s sales channels include e-commerce websites in 11 countries, contributing $11.5 billion in online sales in 2017, an increase of 44% over 2016.4

One reason that Walmart dominates the consumer retail market is its logistics systems that coordinate all aspects of inventory management, from ordering through to shipping, warehousing, shelving, and final disposition. Its knowledge-management system, Retail Link, provides Walmart and its suppliers with data that allow them to identify emerging opportunities for their products. Their systems are continuously improved in order to better drive business results, and they are demonstrating their ability to effectively extend their technical reach to the world of online retailing. It is systems like this that allow Walmart to satisfy

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multiple stakeholders and maintain its competitive position in the industry.5

This chapter describes the purposes that formal systems and structures play in advancing change. It also provides guidance in identifying the gap between the existing structures and systems, and what is needed to bring about alignment after the change. Figure 5.1 outlines where this chapter fits in the change- management process. This chapter is the first of four that details how change leaders can advance a sophisticated gap analysis and deploy it in pursuit of change. This chapter deals with formal systems and structures, and the chapters that follow will cover the informal aspects of organizations, change stakeholders and recipients, and change leaders themselves.

Change leaders need to develop a deep understanding of how existing structures and systems are currently influencing outcomes and how they are likely to facilitate or impede the proposed changes. Once that understanding is developed, change leaders need to put that system and structural awareness to use to promote and enact change. To advance this agenda, the chapter is divided into four sections:

1. Making sense of organizational structures and systems 2. Diagnosing the strengths and weaknesses of existing

systems and structures 3. Understanding how structures and systems influence the

approval process of a change initiative and how they then facilitate or hinder the acceptance of change

4. Designing adaptive structures and systems to enhance future change initiatives

Figure 5.1 The Change-Management Process

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Making Sense of Formal Structures and Systems The structural frame,6 to use the language of Bolman and Deal, outlines an internal blueprint for how managers assign tasks, roles, and authority to produce products or services for the external marketplace. Wrapped around this structure are all the formal systems and processes that are designed to bring the structure to life and make it possible for the organization to deliver on its strategy and value proposition.

To make sense of structures, it is useful for change leaders to understand and be able to work with core concepts in this area. These are some of the more common elements:7

1. Differentiation: The degree to which tasks are subdivided into separate jobs or tasks. This concept deals with who does what and asks about the degree to which jobs are specialized and distinctive from one another on both the horizontal and vertical organizational axes. The differentiation of tasks is an early step in the life of an entrepreneurial adventure as it grows from one to two and then three people, with further differentiation of tasks as the number of employees increases. As organizations grow and add more people, tasks are divided and subdivided. Large organizations, as a consequence, are often characterized by highly specialized jobs, leading to silos of similar and separate tasks and job categories.

2. Integration: The coordination of the various tasks or jobs into a department or group. This is the extent to which activities are combined into processes and systems, pulling together all the disparate pieces of tasks and jobs into a coherent whole. Small organizations are typically structured in a simple and straightforward manner, organized by functions such as production, accounting/finance, sales and marketing, and human resources. As they grow and become more complex, executives look for more efficient and effective ways to group tasks and

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activities. Departments or divisions may be organized geographically or by product category, customer segment, or some other hybrid approach such as networks that seem to offer the best way to organize activities at that point in time. Sometimes they may even be spun off as separate, stand-alone entities. In large organizations, such as Boeing, there are integrative roles with people and teams who specialize in coordinating and communicating in order to bring together the disparate parts of the enterprise.

3. Chain of command: The reporting architecture in a hierarchical organization. This concept defines how individuals and/or units within an organization report to one another up and down the organizational ladder. It reflects the formal power structure and where decision responsibilities lie within the hierarchy.

4. Span of control: The number of individuals who report to a manager. This notion questions the optimal ratio of workers to managers in an organization. Since there is no one correct way to answer this question, part of the art of organizational design is to figure this out, given the culture, strategy, and what needs to be done. An organization that gives managers too little span of control runs the risk of creating a costly and top-heavy administrative structure and encourages its managers to micromanage too few employees. On the other hand, managers who have too many employees reporting to them run the risk of inadequate supervision, feedback, and employee development.

5. Centralization vs. decentralization: How and where decision making is distributed in an organizational structure. The more centralized the approach, the more the decision making gravitates to the top of the organization. Conversely, the more decentralized it is, the more the decision making is delegated to lower levels of employees. In general, organizations flatten their hierarchies when they adopt a more decentralized approach and vice versa.

6. Formal vs. informal: The degree to which organizational charts exist, are codified, and are followed. This is the extent to which structures and processes of the organization are set down in writing and expected to be followed.8

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To practice understanding change on existing structures and systems see Toolkit Exercise 5.2.

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Impact of Uncertainty and Complexity on Formal Structures and Systems Another way of thinking about structural alignment is to begin by reflecting on the environment they operate in. Beginning with the work of Thompson in the 1960s,9 researchers have explored the impact of uncertainty and complexity on why organizations structure their systems and processes as they do and the impact these configurations have on their capacity to successfully adapt to the environment over time.10 When examining the structural dimensions, organizations have often been classified into two types: (1) those that are more formal, more differentiated, more centralized, and more standardized; and (2) those that are less formal, less differentiated, more decentralized, and less standardized. The terms that are applied to this organizational typology are mechanistic and organic. Table 5.1 outlines the characteristics of mechanistic and organic organizational forms as opposite ends of a continuum.11

Table 5.1 Mechanistic and Organic Organizational Forms Table 5.1 Mechanistic and Organic Organizational Forms

More Mechanistic → More Organic

Tasks are broken down into separate parts and rigidly defined and assigned

Flexible tasks that are adjusted and redefined through teamwork and participation

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More Mechanistic → More Organic

High degree of formalization, strict hierarchy of authority and control, many rules

Relatively little formalization, less reliance on a hierarchy of authority and control, few rules, greater participation and decentralization

Narrow span of control with reliance on hierarchies of people in specialized roles

Wide span of control

Knowledge and control of tasks are centralized at the top of the organization, limited decision making at lower levels

Knowledge and control of tasks are decentralized and located throughout the organization; highly decentralized decision making

Communication is vertical Communication is horizontal and free flowing, with many integrating roles

Simple, straightforward planning processes

Sophisticated environmental scanning, planning, and forecasting, including the use of scenarios and contingency thinking

Source: Adapted from Daft, R. I. (2007). Organization theory and design (9th ed., p. 152). Mason, OH: South-Western.

Mechanistic organizations rely on formal hierarchies with centralized decision making and a clear division of labor. Rules and procedures are clearly defined and employees are expected to follow them. Work is specialized and routine. Mechanistic organizations tend to be concentrated in industries where the risk of getting it wrong is high. For example, nuclear power suppliers

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or pharmacy industries will be extremely mechanistic in order to manage the high risk and detailed logistics of their business.

Organic organizations are more flexible. They have fewer rules and procedures, and there is less reliance on the hierarchy of authority for centralized decision making. The structure is flexible and not as well defined. Jobs are less specialized. Communication is more informal, and lateral communications are more accepted. Many start-up companies and companies in creative fields will be more organic, allowing increased communication and flexibility in day-to-day tasks. While it may appear that one structural form is more appealing than the other, both can be effective depending upon their fit with the environment. When efficiency is critical to success and ambiguity and uncertainty are low to moderate, a more mechanistic structure will fit best. However, when an organization’s ability to respond to its environment with flexibility and adaptiveness is critical to its success, a more organic structure will make more sense.12

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Formal Structures and Systems From an Information Perspective A third way of thinking about the impact of systems and structures on how and why firms operate as they do is to look at how they formally manage information. One of the primary purposes of formal structures and systems is to place the right information in the hands of appropriate individuals in a timely fashion so that they can do what is needed. Information technology has been instrumental in allowing organizations to develop structures and systems that are more robust, dynamic, and flexible. Conversely, Atul Gawada reports that doctors hate their computers, reflecting the paradox some feel between the need for consistency and reliability and the need for individual autonomy and professional judgement in matters of analyses and how best to move forward13 (New Yorker article).

Supply chains, distributed manufacturing, flattened hierarchies with empowered workgroups, and networked organizations all owe their growth to improvements in this area. It has let organizations such as Dell to move from mass production models to mass customization, with little productivity loss.14 However, those who have successfully made the transition have done so by giving very careful attention to the end state and the optimal route for getting there.15 By extension, technology has also allowed us to think differently about structures and systems when planning and managing organizational change. For example, telecommunication advances mean virtual teams distributed around the globe can be created, meet “face to face,” access and share information in real time, and move projects forward in ways that were not possible 10 years ago.

Jay Galbraith defines this as the information-processing view of organizations.16 If the organization is to perform effectively, there needs to be a fit between the organization’s information- processing requirements and its capacity to process information through its structural design choices. The better the fit between

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these, the more effective the organization will be. As uncertainty increases, the amount of information that must be processed between decision makers during the transformation process increases. The organization must either increase its capacity to handle that information or restructure itself to reduce the need for information handling. Figure 5.2 outlines Galbraith’s work.

As uncertainty increases, the traditional vertical information strategies for uncertainty reduction will prove increasingly less effective, and the organization will require methods that either reduce the need for information processing or increase the capacity of the organization to process information.17 Organizations can reduce their information-processing challenges by adding slack resources to act as buffers (e.g., extra people and inventory) and/or by creating self-contained tasks (e.g., divisions organized around product categories, geography, or customers). For example, extra inventory means that increased variation in demand for a product will be handled by drawing down or increasing inventory levels. Similarly, separating an organization into divisions operating as profit centers means that the divisions may not need to coordinate their activities as much. This reduces the information-processing requirements.

Figure 5.2 An Information-Processing View of Organizational Structure

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Source: Adapted from Galbraith, J. R. (1977). Organization design. Reading, MA: Addison-Wesley; and Daft, R. L. (2003). Organization theory and design (8th ed.). Cincinnati, OH: South-Western.

Initially, organizations may attempt to increase their information- processing capacity by using the hierarchy (i.e., vertical communication). That is, if you are uncertain what to do, ask your boss. If the situation becomes repetitive, create a decision rule to guide the decision. If the subordinate knows more about the situation than the boss, they can agree on a set of criteria that allows the subordinate to act independently and handle the uncertainty. These represent what Galbraith calls vertical information strategies. A further vertical information strategy is when organizations increase their capacity to process information by investing in vertical information systems (e.g., computer- generated performance reports, decision support systems).

Organizations also can improve their information-processing ability by increasing their horizontal communication capacity (e.g.,

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e-mail systems, intranets, electronic bulletin boards, texting, and various forms of social media). They can increase the capacity to process information horizontally by creating lateral relationships that vary in complexity from something as simple as direct, informal contact, to more formal networks and complex, formal structures such as a matrix that are intended to facilitate the hierarchical and horizontal flow of information.

The role of the information systems is to distribute needed information and get it to the individuals who most need it in a timely manner for decision making. Interdepartmental and interdivisional boundaries and jurisdictional disputes can impede the flow of information. The investigation of the 9/11 tragedy pointed to examples of this.18 Information was present in various departments and agencies at the federal and state levels that would have assisted in alerting officials to the danger, but communication impediments kept it from being shared and integrated in a timely fashion. Removing impediments is easier said than done in large, complex organizations. Issues such as privacy, data and system security, decision rights (who is supposed to do what with the information), and protection of intellectual property must be sorted out. Questions related to where information resides, in what forms, and who should have access to it need to be tackled before it can be pulled together.

Galbraith identified seven types of lateral relations that will help overcome boundaries that impair information flow. These are listed below:

1. direct contact between affected individuals (e.g., a product designer and a manufacturing engineer)

2. use of individuals in liaison roles to bridge groups 3. multidepartment task forces 4. formal teams 5. integrating roles such as a product manager with cross-

departmental authority 6. managerial linking roles (similar to the integrating roles but

with more formal decision authority) 7. structures with dual-authority relationships, such as are found

in a matrix organization

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If the organization is to perform effectively, this model points to the importance of congruence between the firm’s strategy, its information-processing requirements (e.g., market and competitive information, operational information), and the information-processing capacity that the firm’s design choices promote.

Change leaders need to be aware of the impact of vertical and horizontal information strategies on information flows and organizational performance when assessing what needs to change. Further, sensitivity to these issues needs to extend to the actual management of the change process. This is because even well-managed change will increase uncertainty in the short term, and major changes will significantly increase it for longer periods of time. This will give rise to information-processing needs that change leaders will need to develop and manage.

Research reported by McKinsey and Company point to the value of making greater use of social media technologies and paying more attention to networks to advance change initiatives.19 When change leaders don’t pay sufficient attention to the information- processing needs related to change, the lack of fit may impair the effectiveness of the change initiative. Multiple actions in this area are often needed to support a change initiative — extra resources to increase the capacity to process information, a focus on understanding the goals and purposes, and a significant increase in lateral relations.

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Aligning Systems and Structures With the Environment The structural variables and models outlined above provide change leaders with an introduction to the multiple perspectives they can use when assessing structures and the formal systems that are developed to bring them to life. This can prove helpful when evaluating the internal consistency of structures and systems and their alignment with an organization’s strategy, vision, culture, and environment. When cost strategies in a traditional manufacturing context are critical, a more mechanistic approach is often appropriate. When innovation is key, organic approaches provide a better fit with an organization’s strategy.20

In their quest to improve their performance, there is a tendency for managers to increasingly seek out efficiency improvements. At the same time there is a tendency to avoid potentially valuable innovations that may be more disruptive in the short term.21 Keeping these in appropriate balance is challenging for change agents as the organization matures.

For change leaders, the importance of this material lies in the fact that organizations need to align their formal structures and systems with their strategy and their environments. In 2008, ITT, an engineering firm serving the energy, transportation, and industrial markets, took a hard look at the alignment of its formal structures. This led ITT to drop its organization-wide performance rating system when management realized it was having an adverse impact on employees in different parts of the company’s global operations and was not accomplishing its purpose. For example, a “3” or average on its 5-point rating scale of performance was viewed negatively by its Chinese employees, who saw it as a loss of face. This resulted in increased dissatisfaction and turnover. ITT realigned its formal performance rating system globally to reflect cultural differences and removed this global rating scale. In China, turnover was halved following the change.22 ITT is not alone in abandoning its existing approach to performance assessment. Microsoft, Dell, IBM, and many other

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firms have done the same, having concluded that their existing approaches were harmful to advancing the outcomes they hoped to achieve.23

In Nadler and Tushman’s terminology, there needs to be congruence between the outside world, the strategy, and how the inside world is formally organized. By understanding the nature of the external environment and the organization’s strategy, history, and resources, a change leader gains insight into the types of structures and systems that have the most to offer. By understanding the formal organizational arrangements, the leader gains insights on where and how decisions are made and how these can be leveraged to advance change.

Change leaders also need to be aware that even in a fairly mechanistic organization, different departments and divisions may face very different information-processing needs and will therefore need to be structured and managed differently. For example, a firm’s R&D department’s environment may be more dynamic and uncertain than that faced by the production department. As a result, R&D may need a more organic structure, whereas the production department will benefit from a more mechanistic one that leverages well-developed, standardized processes. Likewise, those involved with the launch of a new product or expansion into a new market will have to deal with higher levels of uncertainty and complexity than those responsible for mature markets, where concerns for structures and systems that enhance efficiency are likely the norm.

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Structural Changes to Handle Increased Uncertainty From a structural perspective, the quest for enhanced organizational efficiency and effectiveness starts by looking at what needs to change in the organization and deciding how best to analyze and allocate the work. These differentiation approaches include aspects such as division of labor and departmentalization. If this has already been done, the challenge usually shifts to a discussion of how to integrate the components so that they can accomplish the intended results. The vertical and horizontal information linkage strategies identified by Galbraith in Figure 5.2 are examples of such integrating approaches. Sorting out the decision rights (who is authorized to make what sorts of decisions) and insuring the flow of appropriate information to those responsible for such decisions is critical to successful alignment.24

Boeing’s redesigned approach to the development and manufacturing of its aircraft provides an excellent example of the application of structural changes in a very complex business. The aircraft manufacturer realized that it had to change its approach to compete with Airbus, and it did so in its approach to the development of the 787.

Boeing Restructures Itself

Before the 787, Boeing did all the engineering design work itself. The main reason to change, says Mike Bair, head of the 787 development team, was that the company realized it had to trawl the world and find the best suppliers in order to compete with its main rival in the market for commercial aircraft, the increasingly successful Airbus.

Airbus, a joint European venture involving French, German, British, and Spanish partners, started from scratch. Almost by accident it stumbled on an organizational architecture that, along with generous subsidies, helped it overtake the giant of the business in less than two decades.

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Boeing’s reorganized commercial plane development operations now look more like the approach used by Airbus. It scoured the globe for new partners and found some in Europe, some in Japan, and some not far from its home base in the United States. Whereas with the 777 aircraft the company worked with 500–700 suppliers, for the 787 it selected just under 100 “partners.”

The difference is not just in the numbers, but in the relationship. Their supplier partners now share greater responsibility for the success of the project. For over six months in 2005, teams of people from the various 787 partners met at Boeing’s base in Everett, north of Seattle, to work together on the configuration of the plane— something that until then Boeing had always done by itself. Partners then went back to their own bases, responsible for all aspects of their piece of the puzzle. The partners built their own production facilities for their bits of the aircraft. As Bair said, “It puts a high premium on the choice of partners in the first place.”

It also put a high premium on the management of that network of partners. Boeing held a partners’ “council meeting” every six weeks and set up a network to facilitate global collaboration that made it possible for designers from all over the world to work on the same up-to-the-minute database.

To further advance communication, collaboration and integration, the company put great faith in videoconferencing and set up high- bandwidth facilities that were in constant use. People came into their offices in the middle of the night to have virtual meetings with colleagues in different time zones. Technically, the 787 is an American plane; but in reality it is a global one.25

The 787 was designed to be a breakthrough product, with features that would dramatically improve its performance on all fronts—from fuel consumption to customer comfort. However, breakthroughs with sophisticated new technologies and materials do not come easy. The project was 3½ years late in making it into the hands of its initial customers and development cost ballooned 120% over the original estimate. When the first few planes entered service, performance in areas such as weight and fuel efficiency was found to be wanting. Battery-related fires required the grounding of the plane until they were successfully sorted, creating additional challenges and reputational risk.

However, Boeing was finally on its way to success with the 787 by the end of 2013. In that year, it had carried over 10 million passengers, flown 100 million miles in service, and Boeing had back

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orders for more than 800 planes.26 By 2018, total plane orders had reached 1,398, of which 742 had been delivered. The growing pains associated with its supply partners is a distant memory and analysts report that the 787 performance is consistently exceeding performance guarantees which delights its owners.27

Then came the crashes of two 737 MAX’s (Oct., 2018 and March, 2019).

This example provides a graphic illustration of how Boeing used structural approaches to respond to increasing complexity and ambiguity in its environment. In the aircraft maker’s case, this included a revolutionary design. It also included innovations in where and how aircraft design and manufacturing would be undertaken, the role of suppliers, the treatment of intellectual property, and how the process would be managed. Boeing recognized that its past approach was making it uncompetitive. It worked to break down silos and bring its suppliers into the design process as part of a dynamic network. This necessitated a cultural shift toward treating its selected suppliers as trusted partners in the design and manufacturing processes, and it has required the use of information-processing strategies to link it all together.

Boeing’s structural and systemic transformations around the 787 were extremely challenging. It logged record advanced orders, but its innovations on the product design and manufacturing fronts resulted in huge cost overruns and more than a 3½-year delay in the delivery of the first planes (outcomes that have been common to Airbus, Bombardier, and other plane manufacturers when they undertook major product innovations). There were serious difficulties getting its global supply chain outsourcing model to work as expected, and a 2-month strike at Boeing exacerbated matters.28 It entered commercial service in August 2011, but fires related to battery electrical issues grounded the plane for a period in 2013. However, the order backlog has remained strong, pointing to carrier confidence in the 787 and related products that emerge from this platform.

Boeing has demonstrated a willingness to tackle fundamental questions of how to deal with the structural challenges of differentiation and integration to enhance its performance. Wetzel

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and Buch29 argue that organizations tend to be more comfortable with increasing both differentiation and integrating mechanisms than with other approaches and tend to overuse these strategies. For example, a need for a specialized response (e.g., the formation of a technical customer support team) leads to a more structurally differentiated organization. This, in turn, leads to a need to integrate more, so that the newly formed technical customer support team is not orphaned in the organization. An alternate strategy would be to decrease the need to differentiate, easing information-processing needs in Galbraith’s terms. This could be done by outsourcing the technical customer support function, by undertaking design changes that reduce the need for such customers support, or other such strategies.

Wetzel and Buch believe that it is useful to consider the benefits of a reduction in the amount of structural differentiation in the organization, through such mechanisms as flattened structures, multi-skilled workers, automated processes, and self-managed teams. By reducing their reliance on differentiating structures, organizations can reduce their need for integrating mechanisms. From an information-processing perspective, this falls into the category of strategies to ease information-processing linkage (see Figure 5.2).

One of the ways Boeing attempted to reduce the need for internal differentiation and integrating mechanisms at the enterprise level was through significantly increasing the level of outsourcing of the design and manufacturing of major components (e.g., wings, engines, and fuselage) to trusted supply-chain partners located around the globe, while at the same time reducing the total number of individual suppliers it managed. This was undertaken to increase its flexibility and adaptiveness, reduce cost, and improve quality; however, it was not well managed in the beginning and created major headaches and delays for Boeing.30 It took them time to learn how to adapt to this new structure at the enterprise level and to handle the increased levels of uncertainty created by a project like the 787 Dreamliner.

Just as Boeing adapted to overcome significant challenges to turn the Dreamliner into a high-performance aircraft, Boeing

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management must show that it can pull the company through another even more serious crisis that threatens its very survival.

On March 10, 2019, Ethiopian Airlines Flight 302, a Boeing 737 MAX airplane, crashed into the sea, killing all of its passengers and crew. This crash immediately set off alarm bells: on October 29, 2018, Lion Air Flight 610, another Boeing 737 MAX airplane, had crashed off the coastline of Indonesia, killing all on board. Data suggested significant similarities between the two crashes as the 737 MAXes flew erratically in the first minutes of the flight; the pilots asked to return to their respective airports; and the planes crashed soon thereafter. While the investigations are ongoing, there were enough parallels for the U.S. Federal Aviation Authority (FAA) to ground the plane quickly. Soon all Boeing 737 MAX jets were grounded worldwide.

By early April Boeing had swiftly taken a series of steps to manage the situation and to protect itself, as its stock took a 12% shellacking on Wall Street. Boeing CEO Dennis Muilenburg addressed the world through an online video on the company’s website, noting that the preliminary report from Ethiopia suggested that there was a software glitch: an “erroneous activation of the Maneuvering Characteristics Augmentation System (MCAS), activated in response to erroneous angle of attack information.” Muilenburg declared that its top engineers were working with its customers and the FAA to update the software so that the 737 MAX could safely return to the skies. The software update, said Muilenburg, would be accompanied by updated training and educational materials for pilots around the world (there had been stories that pilots in low-cost airlines, such as Lion Air, had not received adequate training on the 737 MAX and that the instructions for how to deal with the MCAS problems had been written only in English).

How Boeing’s leaders deal with this crisis will influence whether or not the company survives these devastating two crashes. While leaders must now fix the software problem as quickly as possible, the larger issue is to figure out how their structures, systems, and processes allowed this problem to go undetected in the developmental and testing stages. What role did their structural

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arrangements have in allowing the design flaw to go undetected? What were the people issues that might have contributed to the software glitch? These are but two of the hundreds of questions that Boeing’s leaders must ask and answer. With some reasonable idea of how the software problems were allowed to enter the 737 MAXes, then the hard work of making organizational changes will need to take place at Boeing.

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Making Formal Structural Choices An organization’s design impacts the behavior of its members. In universities, faculty in the schools of management, government, and education may all teach courses on leadership, but these faculties may never speak with one another or teach one another’s students. And yet these differentiated faculties may teach the same concepts and use the same textbooks. Similarly, in many large universities, each school or faculty often has its own specialized library and librarians, a costly arrangement. In fact, these diverse libraries might house the same journals and books in different physical locations across a campus or subscribe to the same electronic data sets that provide access to online journals. Faced with significant budget cuts, the Harvard College Library took steps in 2009 to streamline services and foster collaboration with the sharing of research librarians across library facilities. Rather than only looking at cuts to fixed costs and personnel, the library administration chose to “encourage structural efficiency as a means of wringing savings from their ledgers.”31

Every formal structure and system design has strengths and weaknesses associated with it. Bolman and Deal32 argue that all organizational designs present structural dilemmas, or insolvable predicaments, that managers must deal with and reconcile. These fundamental design issues confront managers with enduring structural dilemmas: “tough trade-offs with no easy answers.”33 Bolman and Deal define, for example, the differentiation versus integration conundrum as follows:

The tension between allocating work and coordinating sundry efforts creates a classic dilemma…. The more complex a role structure (lots of people doing many different things), the harder it is to sustain a focused, tightly coupled enterprise…. As complexity grows, organizations need more sophisticated—and more costly —coordination strategies. Rules, policies, and commands have to be augmented.34

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Bolman and Deal identify other structural dilemmas. Another, for example, is the gaps versus overlaps dilemma. If tasks are not clearly assigned, then they can easily fall through the organizational cracks. If, on the other hand, managers overlap assignments, then they may create “conflict, wasted effort, and unintended redundancies.”35 The point is for change agents to understand these structural dilemmas, know the costs of mismanagement of these structural issues, and analyze if and how a gap has become an organizational liability that needs to change. Once a preferred structural option has been selected, weaknesses related to it can be alleviated and internal alignment improved through the design or modification of the formal policies, processes, structures, and systems.

Change leaders need to understand their organizations’ strategy, how the formal structures, systems and processes are aligned with it, and the impact of those arrangements on outcomes. Wischnevsky and Damanpour found that sustained poor performance is likely to produce strategic change, and this, in turn, is likely to drive structural change.36 This is true at the organizational level, and it is equally true down to the team level.

Change leaders may be faced with this question: “How can the formal structures and systems be modified to enhance the capacity of the organization to deliver on its strategy?” If a change in strategy is needed, how do the formal structures and systems need to be realigned to contribute to the strategic change agenda? Since formal relationships often include external parties and organizations (e.g., suppliers, alliance partners), it is important to include them in one’s analyses. The Boeing case highlighted this.

At the team or departmental level, change leaders have the option of creating several types of reporting structures, depending upon the need under different conditions. For example, when new perspectives and ideas are sought, brainstorming sessions can be used to promote a free flow of ideas among all members of the group, with no hierarchical impediments. All ideas are equally welcomed. While brainstorming structures are good at generating ideas and engaging broadscale participation, moving to the

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implementation stage typically requires the concentration of authority and decision making into fewer hands. This could take the form of a team or task force charged with making such decisions, or it could be delegated to a specific individual—more often than not, the manager responsible for the activity.

Mechanistic organizations may need to create structures or processes that allow them to either temporarily or permanently suspend hierarchical practices to advance innovation. The goal is to create spaces in which frank and open dialogue is encouraged, and learning and organizational improvements can be advanced. Continuous improvement teams within call centers, event- debriefing processes used by Special Forces units in the military, and innovation task forces within governments are examples of attempts to encourage reflection and innovation in mechanistic structures. Decisions that lie beyond the authority and responsibilities of those who generate the analyses can then be reviewed by the appropriate senior individuals. Approved initiatives can then be further developed and/or implemented on a broader scale where warranted. This is essentially what occurs at LifeSpring Hospitals.

An Efficient Hierarchy with Well-Developed, Standardized Systems and Processes

Maternity-related deaths total 2 million babies a year in India, but LifeSpring is bringing hope. It is doing so through high quality, no frills pre- and postnatal counselling and delivery at 30–50% of the market price. This is a 50–50 joint venture between the Acumen Fund, a U.S.-based not-for-profit venture philanthropy fund, and HLL Lifecare, a government of India–owned corporation that is the largest manufacturer of condoms in the world. Acumen’s investment in this joint venture is $2 million.

LifeSpring is designed for scalability. By 2018 eleven small maternity hospitals (20–25 beds) and eight extension centers were operating, and LifeSpring has plans to raise funds for many more. The Acumen Fund reports that the hospitals are ISO certified. LifeSpring reports they delivered 20,000 babies in the 2015–2017 period and have treated several hundred thousand women with maternity-related issues since inception37.

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The experience of the poor with public hospitals in India has not inspired confidence. Care can be of questionable quality, difficult to access, and sometimes requires bribes. In contrast, LifeSpring hospitals are bright and inviting, and mothers-to-be (plus those who accompany them) have their own private space. Doctors and nurses are in ready attendance, and services include staffed operating rooms in the event that a cesarean section is required. Over 90 standardized procedures have been developed to ensure consistent high-quality care for all and replicability as new hospitals are added. Careful staff selection and training reinforces these quality practices and high standards of care. There is an extensive ongoing commitment to the professional development of medical staff internally and with external bodies. Staff is involved in continuous improvement initiatives to ensure that standards of care and related standardized processes continue to improve. There are also strong commitments to transparency and the building of strong customer relationships through community outreach.38 In other words, their structure, systems, and processes are all focused on delivering high quality, low cost maternal health through dedicated smaller maternity hospitals that all operate in a similar manner.

How does LifeSpring deliver such consistent, high-quality service to the poor, at 30–50% of the normal cost? The keys lie in clearly focused values, vision, value proposition and strategy, and structures, systems, and processes that are well aligned with the service delivery model. Its scalable, no frills model is supported by high-quality equipment and facilities, the smaller size of its focused hospitals, and a committed, well-trained staff that pursues continuous improvement on an ongoing and systematic basis. Scalability comes from replicating its hospital model (as resources become available) though the application of its structures, systems, and processes.

Change leaders must understand these important points about formal structures:

There is no one best way to organize. Structural decisions should follow strategic decisions because the structure will then be there to support the strategy. All structures present leaders with dilemmas that they must manage. Today’s trade-off may seem too costly in the future

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and will suggest a reorganization to fit tomorrow’s external environment. Once structural choices are made, formal systems, and processes need to be aligned so that weaknesses are addressed and the internal alignment with the strategy is supported. Organizational structures shape and impact people’s behavior. A task force, for example, that formally brings people together to analyze and report on a particular issue forces its members to cross organizational boundaries and to learn about and collaborate with people beyond their silo.

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Using Structures and Systems to Influence the Approval and Implementation of Change

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Using Formal Structures and Systems to Advance Change Formal structures and systems must be leveraged, and at times challenged, to advance change. For example, industry-wide standard practices have long inhibited change in the airline industry. At United, American, Air Canada, British Airways, and other traditionally organized air carriers, air routes were organized in what is called a “hub-and-spoke” design. That is, passengers were collected at many points and delivered to a central hub, where they changed planes and were sent out on a different spoke to their final destination. Different types of planes were purchased to service different routes, cabins were divided between business and economy class, and services were very similar across airlines. For many years, this strategy delivered cost savings to the airlines and served them well. Union agreements escalated labor costs over this period as employees sought to share in the success.

However, discount airlines, such as Southwest Air, WestJet, and Ryanair, came along and opted for a different strategic approach. They adopted a single type of plane to ease maintenance challenges, offered a single no-frills service level in the cabin, and structured other aspects of their operations to lower labor and capital costs per passenger mile. Most important, they restructured their air routes to provide point-to-point service, used less expensive airports (where appropriate), and had more efficient schedules that advanced load factors and processes that reduced the time required before the plane was back in the air. The changes they made to the way they structured their activities, as compared with more traditional airlines, were anchored in cultural and strategic differences, and new structures, systems, and processes designed to support the new value proposition. Because of these changes, they were able to fly passengers directly to their destinations at a lower price and, in the case of Southwest, WestJet, and Ryanair, become very profitable in the process. The traditional airlines’ structures and systems that were designed to facilitate efficient and effective service delivery

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became a problem and contributed to the financial challenges that they are continuing to try to overcome by doing things such as launching their own discount services.

Poor financial airline performance in the past has led to growing demands for major improvements from banks, shareholders, pension funds, and other stakeholders. Structural and system realignment to lower labor costs and other cost drivers became key targets of change. Those who sought to resist the changes, such as the airline labor unions, attempted to leverage existing structures and systems to advance their interests. The following example provides a fascinating but different look at the role that existing structures can play in organizational change.

Competitive Efficiency at United Airlines

One of the ways that the board at United Airlines (UAL) responded to the competitive realities and the disastrous financial results was to use formal processes to replace a number of key executives39 and charge senior management with responsibility for turning things around in 2002. Staffing arrangements, work rules, and labor costs were among the many areas that attracted the attention of senior management tasked with effecting change. Management analyzed and then used existing systems and structures (including formal judicial components) to advance and legitimize changes to their collective agreements and, by extension, changes to staffing levels, the organization of work, and related terms and conditions of work.

In response, employee groups enlisted formal (as well as informal) systems and structures to protect their interests—actions that airline executives saw as resisting needed changes. UAL’s use of existing structures and systems to effect change was viewed by employee groups as adversarial, generating serious resentment in what was obviously a very difficult context. Despite the dissatisfaction of employees and their representatives with the imposed changes, they were enacted because the formal structures and rules that governed the situation allowed management to do so.

Similar hard-nosed change tactics were employed at Air Canada in 2003 when it entered bankruptcy protection40 and British Airways in 2010 as it responded to huge financial losses.41 These examples show the use of existing structures and systems to

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advance change through the exercise of formal power and authority from the top of the organization and/or through the imposition of action by outside agents such as banks, courts, or regulators.

Approaches that leverage formal structures and systems to advance change do not have to result in a war with one’s employees. Rather, their application can be undertaken in a manner that facilitates understanding, builds support (or lessens resistance), and legitimizes change among those who have serious reservations. In 2002, Agilent, an electronic test and measurement business, had to downsize, laying off 8,000 employees.42 However, management was seen by its employees as having acted responsibly and humanely. Openness and honesty characterized how the financial and strategic issues were approached and how the appropriate systems and structures were applied by the executives. Employees believed all reasonable options were explored and that layoffs were undertaken as a last resort. Those exiting Agilent reported that they were treated with respect and dignity, while those remaining were left with hope for the future of the firm and confidence in the leadership. To go through this level of downsizing and still be ranked #31 on Fortune’s 100 Best Companies to Work For in the following period is no small accomplishment!

Agilent continues to be an innovative leader in scientific measurement and a desirable employer. Various awards from around the globe point to its innovativeness, positive employment practices, and corporate citizenship, including being named 2017 company of the year by Instrument Business Outlook.43 In 2015, it spun off its electronic measurement business, under the name Keysight Technologies. By 2017, Keysight had revenues of $3.32 billion, a net profit of $102 million, employed over 10,000 people, and, according to analysts, a positive financial future. In 2017 Agilent employed 13,500 people, generated sales of $4.5 billion, and had a net profit of $841 million.44

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Using Systems and Structures to Obtain Formal Approval of a Change Project Change is made easier when the change leader understands when and how to access and use existing systems to advance an initiative. In larger organizations, formal approval processes for major initiatives are often well defined. For example, in universities, significant academic decisions usually require the approvals of department councils, faculty councils, and university senates in the form of formal motions and votes. The change agent’s task is to engage in tactics and initiatives that will increase the likelihood of a positive vote for the proposed change through these various formal bodies.

Any significant change initiative will cost money. To maximize the chances of receiving resources for a change initiative, change leaders will need to understand the budget process and how to garner support for the proposed change through departments and individuals who approve the budget. Timing is important. The likelihood of approval, in the short term, is less if the organization is in the middle of the budget cycle and available funds have already been allocated. Efforts to build interest and support should begin well in advance of when significant funds are needed, building to coincide with key decision dates.

Earlier in this book, two dimensions of change were considered: the size of the change and the proactive–reactive initiation dimension. Change projects that are incremental will normally require fewer resources and lower levels of organizational approval. As the change increases in magnitude and strategic importance, change leaders will need to pay attention to formal approval processes, eliciting the support of senior individuals prior to enacting the change. However, exceptions to this general pattern are often found in areas with safety and regulatory compliance implications. In these situations, significant change decisions (e.g., mandated changes to work practices) may be delegated to appropriate frontline staff due to the risk of not responding quickly. Once the urgency abates, decisions may be reviewed by senior managers and other paths adopted. Reactive

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strategic changes tend to attract everyone’s attention because of the risk, visibility, and criticality of such changes to the future of the organization.45

When senior decision makers believe the change initiative has significant strategic and/or financial implications and risks, the change will typically require the formal approval of the organization’s senior executive team or its board of directors. A savvy change leader knows the approval levels and hurdles associated with different types of changes—that is, at what level does an issue become a board matter, a senior executive decision, or an issue that can be dealt with at a local level? What will they be looking for in the way of analysis and support?

No two organizations will be the same. Organizations in which there are significant negative consequences of failure (e.g., a nuclear power plant or a pharmaceutical manufacturer) will usually require more senior levels of approval for what may appear to be a relatively modest undertaking in a mission-critical area. Likewise, the hurdle levels are likely to be rigorous in organizations with senior managers and/or cultures that have a low tolerance for ambiguity and risk.

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Using Systems to Enhance the Prospects for Approval Change leaders have a variety of factors they need to consider concerning how to leverage the use of existing systems to increase the likelihood of approval.

First, change leaders need to ask themselves if formal approval is required or if the change decision already rests within their span of control. If no approval is required, they may choose to make people aware of their intent and engage them in discussions to increase downstream acceptance. However, why initiate activities that trigger unnecessary formal approval systems and processes when they are not required? Figure 5.3 outlines the various considerations regarding positioning the approval of a change proposal.

In all cases:

a. When there is a decision maker, identify his or her attitude to the change and attempt to work with that person.

b. Demonstrate how the change project relates to the strategy and vision of the organization and the other person’s agenda.

c. Use good process to legitimize the change proposal, such as demonstrating that you’ve engaged in appropriate analyses, exercised due diligence, and consulted with appropriate individuals.

If formal approval is required, change leaders need to demonstrate that the initiative is aligned with the vision and strategy of the organization, advances the organization’s agenda, and has benefits that exceed the costs. It will also help if you can show how the change will advance executives’ personal agenda if it differs from the above. If the needed changes modify the vision, strategy, or key elements that make up the organization, the change leader will need to demonstrate how such changes will enhance organizational health and have downstream benefits that exceed the costs and risks associated with these significant

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organizational changes. Included in such a calculation should be the costs and risks of doing nothing.

Another tactic that can assist in obtaining approval through formal systems is to introduce the ideas and rationale behind the change initiatives early, invite dialogue, and seek input. Even though the proposal is not fully developed at this stage, it may be beneficial to familiarize decision makers with key aspects being explored and the underlying logic. This can be particularly important if there are competing ideas under consideration that, if acted upon, would reduce the attractiveness of your change initiative. Awareness precedes understanding which, in turn, precedes trial and acceptance, and the above approach can often help move decision makers along this path. Once others agree with a proposal it becomes harder to change their minds and convince them to change direction.

If changes are more extreme and if there is sufficient time, leaders can frame and introduce the change in ways that increase management’s familiarity and comfort with the proposal. They can do this incrementally, using vehicles such as staged agreements on the purpose and scope of the change (e.g., defining the scope of Stage 1, followed by defining the scope of Stage 2 once Stage 1 has been completed, etc.), preliminary studies, task force reviews, consultants’ reports, and pilot projects prior to the request for formal approval of the larger initiative. This, in turn, reduces perceived risks, enhances a sense of the benefits, and essentially conditions the organization to embrace (or at least not resist) more fundamental changes to the aligned systems.

Figure 5.3 Positioning the Change for Formal Approval

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If time is of the essence due to a crisis or emerging threats, the change leader can act with urgency and use the danger to focus attention, facilitate approval of the initiative, and generate motivation to proceed. Formal approval processes typically have expedited processes available for dealing with imminent threats and emergencies. One sees this, for example, when there are dangers to health and safety.

When formal approval is required, a change leader will need to know whose agreement is needed. However, if broader acceptance is important before gaining formal approval, then those involved in approval discussions will need to be expanded accordingly. Approval and acceptance are generally enhanced when people are involved in the discussion and feel that they have been heard. They are also enhanced when there is the perception that the analysis and discussion around the alignment systems (e.g., vision, strategy, goals, balance scorecards, and strategy maps) have been discussed thoroughly.46 Acceptance is sometimes increased among the uncommitted and more resistant when they believe that there has been a rigorous review process in place for the assessment of a change. That is, the procedures are thorough and complete. Further, when there is active

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involvement of those individuals or their representatives in the planning and approval processes, their understanding and acceptance of the change tend to rise. Some may see this as a co-option strategy.

Formal approval systems, therefore, can increase the perception that a change has been assessed appropriately and is worthy of support. However, those who are opposed to a proposal may usurp the process and intentionally erect procedural and approval barriers to an initiative. The oppositions’ motives in doing this may be unsullied (the desire for due diligence, due process, and careful review), and they may be firmly convinced that the change is not in the organization’s best interests. Or, their motives may be to obstruct out of self-interest. Change leaders will need to carefully assess the motives of the opposition before deciding on how best to respond.

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Ways to Approach the Approval Process

Mastering the Formal Approval Process

Howell and Higgins47 identified three different ways of approaching the formal approval process. The first involves the straightforward rational approach. Proposals are typically developed and brought forward for consideration, and they are reviewed for inclusion on the agenda. Once the proposal is presented and discussed, it is approved, rejected, or sent back for further study or rework. The likelihood of gaining approval is increased when change leaders experience the following:

Have a well-placed sponsor Know their audience members and their preferences Understand the power and influence dynamics and the implications of the project for the organization and for those involved in the approval process and in positions of power Do their homework with respect to their detailed knowledge of the change project, its scope and objectives, its costs and benefits, and risk areas Informally obtain needed approval and support in advance Have the change project presented persuasively by an appropriate individual Have a good sense of timing concerning when best to bring it forward48 The systems associated with obtaining formal approval for planned changes vary greatly. In organic or entrepreneurial organizations, the process may be loose and idiosyncratic. As organizations mature, even very entrepreneurial firms tend to systematize and formalize the approval processes in order to increase control.

The decision making associated with formal approval processes takes many forms from formal voting by an executive committee to “go/no-go” decisions controlled by an executive. While the exact approval process will be unique to the firm, the level of rigorousness and formality used to assess proposed changes

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usually varies with the magnitude and cost of the change, the levels of perceived risk, the preferences of those involved with the decision, and the culture and power dynamics at work in the organization.

When the proposed change lies in an area in which much is known, decision makers tend to focus on concrete information (e.g., benchmark data, industry patterns, and performance data). They then use this data to help make a decision.49 When the changes reside in areas that are inherently ambiguous, attention turns to an assessment of the quality of the analysis and the reputation of the advocate for the proposal. In essence, the decision makers need to decide whether or not they trust the judgment of the change leader and the skills and abilities of the change team.50

As organizations mature, they often adopt a staged approval process for changes that are viewed as strategically significant, expensive, wide-reaching in their impact, and potentially disruptive. A staged approach establishes decision approval steps that do not prematurely dismiss ideas worthy of further exploration while controlling the ever increasing commitment of time and resources if the change were to progress to the next stage.51 The goal is to provide focus through vision and strategic alignment, allow proposed initiatives to be explored and assessed in a rational manner, avoid unpleasant surprises, manage risk, and keep an eye on the portfolio of change initiatives to ensure the organization does not become overwhelmed with initiatives.

As one proceeds through the approval stages, the assessment process becomes increasingly rigorous and the hurdles that must be met before proceeding to the next stage rise. When the process is working well, it should stimulate innovative thinking and initiatives, enhance the quality of assessment, reduce the cycle time from ideation to implementation, and reduce the likelihood of dysfunctional political behavior.

The formal approval process does more than ensure that the decision making concerning change is thorough and reasoned. If the process used to make the decision is viewed as legitimate by

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others in the organization, this will lend legitimacy to what changes are pursued and enhance acceptance. Sometimes an incremental or staged approval process is used with a major initiative. Staged approaches begin with concept or initial plan assessment, followed by a field experiment or pilot test, possibly a larger field test, and a final review prior to a large-scale adoption. With a staged approach, there are go/no-go decision points and opportunities to fine tune the change, at each stage along the way. When this approach is adopted, the outcomes achieved along the way, the credibility of the findings and the reaction of opinion leaders will play an important part in building support for approval and downstream acceptance by others.

In addition to addressing the traditional hierarchical approach, Howell and Higgins identified two other ways to use system awareness to advance change: strategies based on creeping commitment and coalition building; and strategies involving simply forging ahead without formal approval.

Encouraging “Creeping Commitment” and Coalition Building As an alternative to directly pursuing formal approval for a change initiative, change leaders can employ a strategy of creeping commitment (the foot-in-the-door approach52) and coalition building. Initiatives such as customer and employee surveys, benchmark data, pilot programs, and other incremental system- based approaches can be used to acclimate organizational members to the change ideas. Such initiatives can be used systematically to clarify the need for change, refine the initiative, address concerns, reduce resistance, show linkages to their agendas, and increase comfort levels. As well, they can create opportunities for direct involvement that will build interest and support for the change within key groups. This, in turn, should reduce pushback and increase the prospects for support if and when formal approval is sought. This strategy also captures commitment by reducing energy that may be spent on other options or directions.

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Coalitions can be extremely valuable for building support prior to the formal approval process. Change leaders need to understand key players and behave authentically with them to develop influential coalitions that will support the changes.53 Often, in technological changes, if key user groups want to adopt new software, management will be more willing to accept the innovation. In other situations, developing the coalition provides the political clout to move the decision in a favorable direction.

The intent of this approach is to create the momentum needed to reach a tipping point54 that significantly enhances the likelihood of approval. When formal approval is required, the support from key coalition members and stakeholders should make the process more manageable. If the change has been accepted by a coalition of key stakeholders, it may make the approval process all but automatic.

Developing coalitions for change often makes a great deal of sense when seeking formal approval. However, coalition building is not without its risks. This approach takes time and adds complexity (more fingers are in the pie) that may impede the approval process. It can also become quite political and divisive, with coalitions developing in opposition to the change that will need to be managed. Change leaders should avoid getting trapped in tactics that seriously harm relationships, diminish their integrity, and/or compromise long-term objectives.

Bypassing the Formal Approval Process: Just Do It! The need to seek formal approval can sometimes be bypassed entirely. Peter Grant, a banker who changed the demographic composition of employees at his bank over a 30-year period, never sought formal permission. He understood the systems in his organization and used this awareness to quietly advance a change agenda over 30 years. Through this approach, he dramatically altered the nature of his organization. He would appear to have followed the classic change dictum, “Don’t ask, just do it.”

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Peter Grant’s “Just Do It” Approach

Peter Grant was a black manager, one of the few in the firm when he joined. Over his career, he pursued his personal goal of bringing more women and minorities into the firm. Each time he had the opportunity, he hired a qualified minority. And he encouraged others to do the same. Over his career, he was instrumental in having 3,500 talented minority and female members join the organization.55 When the scope of the change is manageable, defensible, and arguably within their scope of authority, change leaders should seriously consider proceeding on their own without seeking formal approval. Key people, such as supervisors, should be kept sufficiently in the loop so that they are not unpleasantly surprised or left with the belief that someone acted in an underhanded fashion.

When the “just do it” strategy is effectively applied, the dynamics can be powerful. Those who might otherwise be predisposed to oppose the change may not notice it or be lulled into acquiescence as the change proceeds in a lower-key fashion during the initial phases (e.g., data gathering, preliminary experimentation). This approach allows for change refinement, the generation of supportive data, and the building of momentum for change that is difficult to stop.

Howell and Higgins refer to this as the renegade process.56 It grows out of the premise that it is often easier to gain forgiveness than permission to do something in organizations. This tactic can prove helpful in the early stages of product innovation, but Frost and Egri57 argue that securing permission is an important contributor to success when social innovations are involved. When using a renegade approach, one must be careful not to create enemies unnecessarily or engage in tactics that create long-term damage to your reputation and credibility or the reputation of the firm.

The renegade method does not mean the chaotic introduction of disturbances merely to shake things up. Most organizations are already experiencing enough turbulence. Nor does it mean acting in organizationally naïve ways. Rather, this approach begins with a careful assessment of organizational and environmental factors, including the needs and preferences of key individuals who have

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the potential to harm or assist the change and the change leader. Finally, it asks change leaders to recognize the power and influence that they have to get things done through launching the initiative on their own and, when the situation is appropriate, to “just do it!” This attitude and propensity toward making these decisions also sets the precedence for similar decisions in the future.

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Aligning Strategically, Starting Small, and “Morphing” Tactics Gaining approval for change becomes less daunting when you are able to show how the change aligns with the organization’s mission, vision, and strategy. When a change plan is being developed, questions of its relationship to these dimensions and its alignment with other existing systems need to be addressed.

If the case can be made that the change initiative adds value over other alternatives and fits within the context of the mission, vision, strategy, and significant downstream systems (e.g., information and reward systems, organizational structure), the likelihood of acceptance and adoption of the change is enhanced. If the resources required for the change seem relatively minor relative to the benefits, approval is also more likely. For example, consider a proposed change in the level of customer service offered by call center personnel that has high potential to increase customer satisfaction and significantly reduce the need for callbacks.

The likelihood of approval and acceptance is higher if the only required actions are an additional half day of training, the development of needed support materials, the modification of a couple of decision support screens, the presence of supervisory support, and the modification of performance metrics to reinforce the desired change. In effect, the change leader will have demonstrated that there is little to fear because the change is incremental, is not particularly disruptive in nature, is consistent with the vision and the strategy, and contains benefits that outweigh the costs.

Change leaders often find it is useful to frame changes in ways that reduce the sense of incongruence with existing structures and systems. In general, this approach makes it easier to gain approval because it reduces the sense of disruption and risk that the change will entail. For example, if the end state of a change were to move from mass marketing to relationship-focused, one- to-one marketing, this would be a huge change. The perceived

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risk can be reduced by breaking the change down into a number of smaller, manageable stages that begin with exploratory research and evaluation, followed by a pilot project, assessment of learning and system alignment challenges, extension to a customer group that was particularly well suited to the approach, and so forth. By starting small and minimizing the incongruence with existing systems, the change leader can move in a systematic fashion in the desired direction, learning, and modifying systems and structures in ways that look incremental in the short term but have significant long-term effects.

As momentum and the critical mass of support build for a revolutionary change that is positioned as incremental, the change may take on a life of its own. When those smaller change elements are added together over time, the cumulative changes will look far more significant in retrospect than they did at any point along the way. The term “morphing” captures the sense of this approach to change because it depicts a slow and steady transformation of the organization over time.58 Abrahamson refers to this as the “change without pain” approach, though not all recipients would share this sentiment.59 The earlier example of Peter Grant, who was instrumental in the hiring of 3,500 women and visible minorities at his bank, falls into this category. The lesson is that approval can often be advanced by avoiding the depiction of the change as a marked departure of heroic proportions. An evolving series of ten 5% changes in organizational performance over the course of five years produces a total change of 50% in organizational performance, and that does not include the compounding effects!

See Toolkit Exercise 5.3 to reflect on an approval process you’re familiar with.

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The Interaction of Structures and Systems With Change During Implementation Structures and systems not only have an impact on a change leader’s ability to gain acceptance for a change project, they can also have a significant impact on the success of the implementation process. When major changes are undertaken, there will be existing systems and structures that change agents have to work with in order to gain approval and proceed. In addition, subsequent alterations to those structures and systems will often be required in order to bring them into alignment with the proposed path forward.

Microsoft’s Turnaround

When Nadella became the CEO of Microsoft in 2014 and commenced his change initiatives, he and others working on its transformation had to navigate the existing formal structures and systems, in order to create and then deploy the desired structures and systems. Coalitions needed to be built and permission to undertake planned changes needed to be sought within the then existing structures and systems. Nadella’s task was made somewhat easier by the fact that Microsoft’s board, market analysts, and a large number of existing employees recognized the need for major revitalization.

Nadella’s knowledge of the organization combined with his stellar reputation allowed him to engage the organization and move quickly. Actions involved major changes in strategy. These included the following: exiting the smartphone market, ending the war with Apple, Android and Sales Force; entering the Internet of Things and cloud services market; major investments and acquisitions (e.g., LinkedIn), to speed market success into targeted segments; and possibly most importantly, cultural changes to make it a more inquisitive, inclusive, innovative, empowered, and adaptive learning environment. Changes undertaken also involved product revitalization, the realignment of Microsoft’s structures and systems around the new strategy, and the largest layoff in Microsoft’s history (18,000). Microsoft’s employees’ 82% approval rating of Nadella on Glassdoor

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following these layoffs point to fairly high levels of internal support he enjoyed.60

How have things worked out? The changes are proving to be a resounding success. Some things have not met expectations, but many others have clearly made their mark. Microsoft was ranked #2 on Forbes’ list of best global companies to work for in 2018, share price in 2018 was triple what it had been in 2014, and sales were up 13.3% over the previous year.61

Nadella recognized the necessity of aligning systems and structures with the vision and strategy. He used changes in these areas, in concert with other initiatives, to advance Microsoft’s new mission (empower every person and every organization on the planet to achieve more), and the vision for change needed at Microsoft to support that mission. Further, he and others avoided getting bogged down in finger pointing and other defensive tactics when things didn’t pan out initially. Such actions can derail progress in even what appears to be a relatively straightforward problem.

Diagnosis of the nature and impact of structures and systems on performance during implementation puts change leaders in a strong position to identify when and where these may present challenges that will need to be managed and where they can be used to facilitate change. The Microsoft and Peter Grant change examples involved approaches that refined and exploited systems (in the best sense of the word) in support of the desired changes.

In summary, change agents need to understand the approval processes for their particular projects. They need to know the key players and how formal the process is. Does it require a vote? Will the go-ahead be authorized at a management or executive meeting? Alternatively, can the change agent act to develop a coalition first, or just act using available resources and power? Further, will there be needs for changes to existing structures and systems to support the underlying change initiative? If so, what are those changes and how should they be executed? In the next section, we will explore the role of systems in change approval, acceptance, and implementation.

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Using Structures and Systems to Facilitate the Acceptance of Change Change agents may be tempted to breathe a sigh of relief and relax once a change project is approved. However, gaining formal approval is not the same as gaining generalized acceptance of the change. Too often, the anticipated chorus of excitement fails to materialize and, in its stead, change agents experience begrudging cooperation, or covert or overt resistance. The assumption that approval will automatically lead to acceptance is a dangerous one.

Customer Relationship Management

Complex implementations, failure to yield desired results, and escalating maintenance costs have all marred the reputation of customer relationship management (CRM) programs; 50% of CRM implementations generally fail and almost 42% of CRM software licenses bought end up unused. In 2013, a survey of 352 U.S.-based executives found that failure rates of CRM had risen to 63%. While some fault lies with the vendors, sometimes it is, unfortunately, the business that gets itself in a rut. An analysis of failure implementations found a lack of clear ownership for the initiative 53% of the time followed by a lack of management bandwidth (43%), a lack of executive support (38%), and the lack of a sense that it was an IT priority (38%).62

Despite their best intentions, change leaders have less-than- stellar success in bringing approved change to fruition. When major changes are undertaken, approximately 60–70% fall significantly short of their objectives. Since half of the “failures” report achieving some of their objectives, the total failure category lies in the 30–35% range.63 A poorly thought through change initiative and bad luck can explain some of the lack of success. However, lack of awareness for and acceptance of the change within the organization, lingering doubts and half-hearted commitments at senior levels, confusion as to who is supposed to

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do what, issues of skill and ability, and lack of time or resources often play significant roles in the lack of success.

Structural and systemic factors in an organization can be used to ease the legitimization and acceptance of a change initiative and provide access to needed resources. They facilitate the assignment of authority and responsibility, provide needed training and bandwidth, publicly affirm commitment and needed resourcing at the senior and middle levels, and ensure that the output of the changes is put to use and not ignored, because they have not been part of past practices. However, they can also derail progress when not properly deployed. The inappropriate delegation of sponsorship, structures that fail to provide sufficient access to needed resources, and the misapplication of systems are three of the most commonly cited mistakes made by top management in change initiatives.64

Paul Tsaparis, formerly of Hewlett-Packard, did not make the mistake of underestimating the role that systems and structures can play when undertaking a huge change challenge.

Systems and Structures at HP (Canada)

In May 2002, Paul Tsaparis, 42, president and CEO of Hewlett- Packard (Canada) Ltd., began managing the massive integration of Hewlett-Packard and Compaq in Canada. The new 6,800-person organization had annual revenues in excess of $3 billion (Canadian). As is often the case with organizational integration, staff reductions were involved.

Tsaparis approached the integration challenge by getting out and putting a human face on the challenges and changes. He actively communicated the vision and corporate strategy and let people know what was happening to their employment situation as soon as possible. He reassured other key stakeholders (customers, suppliers) that they would not be lost in the shuffle. Tsaparis followed up by deploying organizational structures, systems, and processes that would support HP’s strategy, reinforcing the integration change initiative, and increasing the likelihood of longer-term organizational success. Change teams were created to facilitate the implementation of the needed organizational changes and these teams, in turn, required structures, systems, and processes that would support them in the pursuit of their objectives.

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Tsaparis remained the president of HP Canada until 2010, when he was promoted to VP of Technology Support for the Americas. He took early retirement in June 2012 and has subsequently served on the board of directors in several organizations, including the Board of York University, where he was appointed chair in 2018. 65

Tsaparis faced significant cultural, structural, and systemic change challenges. Each organization, HP and Compaq, had its own way of doing things. And many of those systems and structures would have explicit as well as implicit implications—ways of doing things that might not even be written down but were firmly embedded in the habits of organizational members. As a result, the conscious development of structures and systems that would support HP’s strategy represented an important step in the building of an infrastructure that would support change and promote acceptance. Conflicting and misaligned structures and systems needed to be identified and addressed so that the resulting web of structures and systems were aligned. Staying true to HP’s core values and principles provided critical guidance for the massive change initiative. Tsaparis acted on the belief that the more these are aligned with your own core values, the more likely you, as leader, are to succeed.

Change agents need to understand the effects of structures and systems from the perspective of the person who is on the receiving end of the change—the actual person who will be asked to behave differently. If people do not accept the change, they are unlikely to modify their behavior in the desired direction, no matter how excellent the change project is.

Interestingly, gaining compliance does not necessarily mean attitudes have changed, assuming that attitude change is needed. Attitude change does not always come first. It may well evolve after the change in behavior has been achieved. Changes to systems and structures can be used to promote the desired behavior in individuals through having them live with the new arrangements. For example, when new software goes live and the old software is disabled, individuals have no choice but to work with the new system. When thoughtfully undertaken (i.e., careful analysis and a thoughtful implementation plan), this approach can result in changes in behavior, followed by changes in attitudes in

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the desired direction over time as people experience their new context.66

The role of physical space in change deserves highlighting because it sometimes goes underappreciated. Thoughtfully altering the physical space in which people work can change communication and working patterns in ways that promote understanding and facilitate attitudinal changes.67 Architects and interior designers have long promoted the value of giving this careful consideration.68 However, one does not always have to wait until there is a major redesign of the physical space. Think of something as simple as sitting patterns in a classroom. Once people find a chair at the beginning of the semester, they tend to return to that space. If the faculty member changes those seating patterns by randomly assigning people to teams that need to sit together, communication patterns will be altered and new relationships formed. The potential value of more modest changes to work space deserves careful attention.

Clarity of purpose and direction, combined with formal processes that facilitate employee involvement and reward desired behavior, can all be used to advance the engagement and involvement of employees in change-related initiatives. However, be careful of approaches that are viewed as heavy handed. A top-down directive that orders change without any consultation may lead to less information sharing, reduced risk-taking, less acceptance of change, and greater employee turnover.69 The thoughtful use of formal systems and processes can facilitate others’ understanding of what is being undertaken (and why) and the sense of legitimacy. Unless the employees buy into the legitimate authority of executives and the legitimacy of the change, they may not accept it and instead may engage in actions that slow, disrupt, or sabotage progress.

Much of the change leaders’ difficulty in thinking through the impact of structure on employees’ acceptance flows from their assumptions: they see the need for change and the rationale underlying it and believe the change is immensely logical. From that position, it is much too easy to assume that others will see and accept the logic of the change agent! But the logic falls flat for

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organizational members facing a formal reward system that works against the change or an organizational structure that emphasizes characteristics contrary to the desired change (e.g., a focus on cost controls rather than customer retention).

The passage of time, in conjunction with the use of formal systems, can also influence the acceptance of change. When a change initiative has been the subject of formal discussion and review for an appropriate interval, this gestation period may allow the idea to become more familiar and acceptable. Initiatives that are shocking at first may appear less threatening after a period of reflection. Alternatively, if approval has been granted and there seems to be little activity or visible progress, acceptability and support may diminish.

In summary, systems and structures, properly leveraged and deployed, can play an important role in the speed and rate of acceptance of change. People don’t resist all change. Lots of things have the potential to be seen as worth doing, and people tend to respond positively to change initiatives that they understand and believe are worth the effort and risk. The way that systems and processes are deployed will influence the perception of the change.70

Developing Adaptive Systems and Structures

The ability of organizations to adapt to change is aided by their ability to learn. Nevis suggests that organizations can be viewed as learning systems that acquire knowledge, disseminate it through the organization, and use that knowledge to accomplish their missions.71 Learning is facilitated when organizational members do the following:

1. Systematically and deliberately scan their external environment and learn from it

2. Demonstrate the desire to question existing approaches and always improve

3. Have a concern for measurement of performance and shared perceptions of the gap between the current and desired levels of performance

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4. Develop an experimental mindset where they try new things 5. Create an organizational climate of openness, accessibility,

honesty, and active discussion and debate 6. Engage in continuous education at all organizational levels 7. Use a variety of methods, appreciate diversity, and take a

pluralistic view of competencies 8. Have multiple individuals who act as advocates for new ideas

and methods and who are also willing to exercise their critical judgment in the review of ideas

9. Have an involved, engaged leadership 10. Recognize the interdependence of units and have a systems

perspective

Many of these learning actions are influenced by organizational structures and systems. The presence of formal early-warning systems and opportunity-finding systems advance the scanning capacity of the organization. The presence of a formal strategy and environmental review process, complete with performance metrics, will increase the likelihood that firms will systematically review where they are and where they want to go. Systems that reward innovation and information sharing will increase the prospects for openness and exploration. Systems that fund and reinforce development will open people to continuous education. Likewise, appropriately designed systems and processes can be used to advance diversity and the exploration of new ideas. Finally, systems can be used to increase the prospect that interdependencies are recognized and that a systems perspective is brought to problem solving.

Organizations that are flexible and adaptive have an easier time adjusting to incremental and upending changes than do bureaucratic ones.72 As the complexity and turbulence of organizational environments increase, more flexible and adaptive systems and structures will be required.73 Essentially, organizations need to become more “change ready.”74

In a study of strategic planning in an international nongovernmental development organization, the need for adaptive capacity manifested itself in an interesting way. Rather than opt for an unambiguous course of action, this organization

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tended to develop multiple strategies that were both ambiguous and ambitious. What looked like strategic drift to outsiders provided managers with flexibility in how they responded to changing conditions. Appropriate ambiguous strategies were used as metaphors to promote consensus and legitimacy with key stakeholder groups and allow for learning and the adjustment of change plans as they proceeded forward.75

To cope with turbulence and complexity, organizations are being designed in unconventional ways. These include the increasing use of formal and informal networks to link individuals in the organizations with external individuals and organizations to promote shared initiatives. For example, supply chain networks are increasingly being used to leverage supplier talents in dealing with design and engineering challenges, finding ways to enhance quality, and identifying opportunities for cost reduction. Designer, supplier, producer, and distributor capabilities of different organizations are being brought together in networks to increase flexibility, adaptability, and innovative results. Thus, a product might be designed in Italy, built in Korea from Brazilian materials, and distributed in the United States by a Scandinavian firm. Think IKEA for this type of network.76 The network partners are held together by market mechanisms such as contracts, just-in-time logistics, shared market intelligence and production systems, shared purposes, and customers’ demands rather than by organizational charts and traditional controls.77

The need for greater flexibility and adaptiveness is moving organizations away from command and control structures, and giving rise to the increased use of collaborative structures and processes to promote trust, communications, information sharing, and shared ownership of the undertaking. At a micro level, this may come in the form of self-managed work teams, cross- functional teams and task forces, and other approaches that facilitate intra-organizational communication and cooperation. At the organizational level, it may take the form of flattened structures, systems processes, and technologies that promote collaboration (both within and outside the organization), and leadership styles and cultural norms that foster greater collaboration, transparency, and shared sense of purpose.78

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When people are geographically dispersed and collaboration is needed, virtual teams are increasingly being deployed, along with enabling technologies to allow them to build needed trust and effectively work together. In some organizations, the physical design of office space is being reimagined, in order to bring people from different functions together and promote collaboration, rather than isolate them from one another.79 One example of a company employing a flatter more democratic structure is Zappos.com. While a democratic system or “holacracy” made up of self-organizing teams has certainly garnered attention, there are doubts as to whether it will become a tried-and-true management structure.80

Collaborative relationships and their associated networks are taking new and interesting forms that extend far beyond traditional organizational boundaries. Open-sourced design and development, shared content creation initiatives such as that associated with Wikipedia, customer co-creation, online advisory groups, and other forms of cooperative input and information sharing are creating fascinating opportunities for individuals and organizations of all sizes that did not exist in the past.81

In matters of organizational change, the formal use of social technologies and the degree to which they are used to advance the change have been found to contribute to successful implementation.82 This is not surprising when one thinks of the power of social technologies for communicating information and aligning the interests and efforts of dispersed individuals. Research has found that greater organizational learning and knowledge creation are associated with more organic organizational structures rather than more mechanistic ones.83 Collaborative networks have been found to be powerful contributors to how people respond to change, but more will be said of this later.84

One of the roles of the change agent is to help organizations learn from the past and evolve systems and structures that are likely to help them succeed in the future. Focusing on how organizations acquire knowledge and spread it throughout the organization can be a valuable diagnostic tool in this regard. By facilitating the

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development of adaptive systems and processes (keeping in mind the competitive realities and the need for congruence with the environment), change agents will succeed in enhancing the capacity of the organization to adjust to change in the future.

Summary

Formal systems and structures influence how change initiatives evolve and succeed. Change leaders need to understand them, how they operate, and how they influence the change process. In addition, change leaders need to know how to manage the approval process for initiatives so that they can work with, through, and/or around them in order to increase the prospects of the change being adopted. Formal systems and structures can be used to advance acceptance and implementation of the change in the organization. And finally, formal systems and structures increasingly need to be flexible and adaptive, to promote learning, and set the stage for needed changes. See Toolkit Exercise 5.1 for critical thinking questions for this chapter.

Key Terms

Formal organizational structure and systems—how the organization formally organizes itself to accomplish its mission. Formal structures refer to how the organization’s tasks are formally divided, grouped, and coordinated. The structure would include the organizational hierarchy, the structure of any manufacturing operation, and any formal procedures such as the performance appraisal system, as well as other structures. The formal systems are the documented processes of coordination and integration within the organization. Examples include the information, compensation, financial accounting, and human resource systems.

Formal approval process—the formal procedure that change agents must follow for organizational approval of a change project.

Mechanistic organizations—exhibit machinelike qualities. They rely on formal hierarchies with centralized decision making and a clear division of labor. Rules and procedures are clearly defined, and employees are expected to follow them. Work is specialized and routine.

Organic organizations—exhibit organism-like qualities as they are more flexible. They have fewer rules and procedures, and there is

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less reliance on the hierarchy of authority for centralized decision making. The structure is flexible and not as well defined. Jobs are less specialized. Communication is more informal and lateral communications more accepted.

The information-processing view of organizations—considers organizations as information-processing mechanisms. This view argues that the better the fit between the information-processing capabilities of the organization and its environment, the more effective the organization.

Environmental uncertainty—measures the degree of variability of the environment. Duncan suggests two dimensions of uncertainty: degree of complexity of the environment and degree of dynamism.

The formal approval process—the traditional approach in which a person or persons develop a proposal and bring it forward for assessment and formal approval by the appropriate organizational members.

Acceptance of change—the degree to which change participants accept or “buy into” the change that has been implemented.

Creeping commitment—the gradual increase in commitment by change participants toward the change project. Such an increase is often obtained by involving participants in decision making.

Coalition building—the forming of partnerships to increase pressures for or against change.

The renegade approach—when change is initiated without having first obtained formal approval. This is often done in conjunction with creeping commitment and coalition-building tactics. The intent of the approach is that the change is advanced to the point that it cannot easily be reversed by those with formal authority.

Adaptive systems and structures—those that are relatively ready for change compared to others.

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Checklist: Change Initiative Approval 1. What does a review of documents related to relevant formal

structures and systems reveal about the formal approval process and who has formal authority for approving the change initiative?

2. What are the key points in the process that a change leader needs to pay attention to: timing of meetings, getting on the agenda, cycle time, types of decisions made, and where decisions are made?

a. How are the relevant systems and structures interconnected? How do they influence one another?

3. Develop a process map that tracks the change idea from start to finish.

a. What role (and person) has formal authority and decision- making responsibility for this initiative?

b. What are the decision parameters that are normally applied, and are there zones of discretion available to decision makers?

c. What are the power and influence patterns around particular systems and structures? Who has direct and indirect influence on how the systems and structures are applied?

d. How should the change leader manage these formal systems and structures to reduce resistance? And how can they be managed to advance the change initiative?

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End-of-Chapter Exercises

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Toolkit Exercise 5.1

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Critical Thinking Questions The URLs for the videos listed below can be found in two places. The first spot is next to the exercise and the second spot is on the website at study.sagepub.com/cawsey4e.

Consider the questions that follow.

1. How Do Food Banks Help? —1:30 minutes https://www.youtube.com/watch?v=IdJnLj-ksVk Consider this video from Food Banks Canada.

Comment on how a video such as this inspires could be used to inspire a vision for change. If you were a volunteer, what sort of specific vision for change would you want to work toward implementing? How did the video use data to engage listeners?

2. Dr. John Kotter: Accelerate! The Evolution of the 21st Century Organization—6:07 minutes. https://www.youtube.com/watch? v=Pc7EVXnF2aI

In this video, Kotter provides a prescription for how organizations need to structure themselves to be able to evolve successfully today.

What do you think of his prescription? Think of an organization you are familiar with (it could be public, private, a not-for-profit, or a branch of government). What are the change implications for it if it were to adopt this approach? What do you think this organization should do to enhance its flexibility and readiness for change?

Please see study.sagepub.com/cawsey4e for a downloadable template of this exercise.

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Toolkit Exercise 5.2

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Impact of Existing Structures and Systems on Change Think of a change you are familiar with.

1. How did the organization use structures and systems to deal with the uncertainty and complexity in the environment?

Was this an appropriate response? How could the existing structures and systems have been approached and used differently to advance the desired change? How did existing structures and systems affect the ability of the change leader to bring about the desired change?

a. What systems/structures were involved? b. How did these systems/structures influence what

happened? Was this related to how they were formally designed or was this related to how they actually came to be used in practice?

c. Who influenced how the systems/structures were used, and how did this affect the outcomes that ensued?

2. What role could incremental strategies that were nested with existing systems and structures have played? Would they have really moved the process forward or simply avoided the real changes that needed to be addressed?

3. What role could more revolutionary strategies have played? Would they produce issues related to their alignment with existing systems and structures?

How would you manage the challenges created by this?

Please see study.sagepub.com/cawsey4e for a downloadable template of this exercise.

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Toolkit Exercise 5.3

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Gaining Approval for the Change Project Consider a change project in an organization with which you are familiar.

1. What is the approval process for minor change initiatives? For major change initiatives? Can you describe the processes involved?

a. If a project requires capital approval, are there existing capital budgeting processes?

b. If the project needs dedicated staff allocated to it or if it will lead to additions to staff, what are the processes for adding people permanently, and selecting and developing staff?

c. Does the project alter the way work is organized and performed?

d. What are the systems and processes used for defining jobs and assessing performance?

e. Can the project be approved by an individual? Who is that person? What approval power do they have?

2. Are there ways that the perceived risks of the change could have been reduced by the way the change leader staged the project and managed the approval process?

Please see study.sagepub.com/cawsey4e for a downloadable template of this exercise.

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Beck Consulting Corporation By Cynthia Ingols, Professor of Practice, and Lisa Brem, Researcher

School of Business, Simmons University, Boston, MA

As she drove, Beck reflected on all that had transpired in her career since she earned her MBA in 2002. She had started her business, Beck Consulting Corporation (BCC) a year after graduation. Over the next 11 years, her consulting business, which ranged from moving offices to entire companies to new locations, had grown from a one-person consultancy to a successful private company employing 40 people. Beck had reason to feel that she had “made it.” But she also felt that she could not simply sit back and savor her success. Her business continued to have opportunities for growth. As Beck explained,

The real joy for me comes from founding and growing a business. We are a growing company, and we need sparks of excitement that come from change, from going to the next level. Opening new offices, going national or international, expanding the services we offer, going public—all these things would give us as a company more reasons to be proud. People here are invested in the future. We can’t get to the future by standing still.

While the business was prospering, its growth posed urgent problems. For the first time, Beck felt she needed to add another layer of management to her organization. In addition, Beck wasn’t sure that the compensation and incentive plans currently in place were appropriate for this new layer and she wondered if they needed to develop more formalized work systems and processes. However, she also worried that more hierarchy and formalization would ruin the carefully constructed culture of independent thinkers at her company.

Beck had built her business by maintaining close contact with both employees and clients. Her vivacious personality, intelligence, and “can- do” attitude set the tone for her company. Beck’s personal touch was one of the major motivators for her staff and one of the selling points for the company’s services. The central question in Beck’s mind was how to grow the business without losing the hands-on style that had made the company successful.

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An Easy Way to Start a Consulting Company For Marilyn Beck running a relocation company was a perfect fit. She had moved several times in the United States and internationally with her late husband. In 1998, she settled in the Boston area. She earned her MBA part time while holding down a job and raising two children. Throughout the 1990s she held administrative management positions at a variety of Boston law firms. As it happened, a common denominator of all her jobs was moving the office. As Beck recalled,

All the firms I worked for made major moves, and I ended up managing them. I became something of an expert at it. I preferred the project management aspect of moving rather than the day-to-day maintenance tasks.

In August 2002, at the end of her third year of her part-time MBA program, Beck was ready for a change.

She had become increasingly impatient with the rigid hierarchies she saw in the legal firms where she worked. She felt it took too long to make decisions and that steep hierarchies promoted a lack of accountability. Beck explained:

One reason I really don’t like hierarchies is their lack of immediate decision making. One example that had serious repercussions was when I worked at a law firm and we had a bad snow storm. I wanted to send people home early, but my boss had to go to his boss and on up the chain. By the time I got out of there, I ended up with a seven-hour drive home.

The other part of it for me, is that I don’t automatically respect someone with a title; I’m more interested in a meritocracy. The law firms couldn’t give underlings decision making authority because they weren’t lawyers. Conversely, I remember a time I was lugging huge water bottles to the cooler and the big, strapping, male lawyers walked right by me—not one stopped to help. Being a partner took precedence over being a person. Those kinds of separations don’t make for a cohesive team. I wanted to create a place where I didn’t have to live by those rules.

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She felt she could be successful if she put all her experience with corporate relocation to work in a consulting business. Beck, however, was not sure how to get started.

In 2003, she had the answer. An office manager from a large Boston law firm called Beck to see if she’d be interested in organizing their upcoming move. The call came as a result of a networking group that Beck had started while she was working for a law firm in Washington D.C. Beck explained the connections that led to her first consulting job:

I was working for the D.C. satellite office of a large Boston law firm. There was one other Boston firm that also had a satellite office, so I started a lunch group that brought together managers from both companies. I felt as though we dealt with similar issues and could benefit from sharing experiences. I got to know the office manager of the other firm pretty well. A couple of years later, after I’d moved back to Boston, the office manager from the Boston firm happened to be talking to the DC office manager. The Boston office manager was looking for someone to manage the firm’s move, and my DC friend immediately recommended me.

I interviewed for the job along with about eight other people. The hiring manager told me later that even though he’d interviewed people with a lot more experience, he said my interpersonal skills were so strong that they decided to offer the job to me.

The company offered Beck either a full-time one-year contract to move its 950-member workforce, or to serve as an independent contractor. As Beck recalled,

There I was—wondering how to start consulting and this job dropped in my lap. I decided to go in as an independent contractor. I remember thinking—what easier way to start a consulting company? Of course, I didn’t think then of what being a consultant meant. Later, I realized that, in addition to delivering services, I would have to send out invoices, set up a bookkeeping system, and find more clients.

Beck set up shop in her home and worked independently on small projects until 2007 when she accepted a large job at a large, international university that eventually developed into a two-year commitment. She hired several temporary employees to help coordinate the move, but quickly realized that she would need permanent help. Beck hired Susan

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Smith, a facility management specialist from a large telecommunications company. Smith had a degree in interior design and experience with business furnishings that complemented Beck’s business degree and relocation skills. Although Beck was happy to gain an employee with Smith’s background, hiring a full-time employee was unsettling. As Beck explained,

Hiring Susan, my first permanent employee, was the first big milestone for the business. It was the hardest thing I have ever had to do. I was suddenly responsible for someone else—for her family—for her livelihood. It was a combination of worrying about not having enough work for her and having to pay her even if the work wasn’t coming in. We sort of got around that. We negotiated an hourly wage, figuring that if I didn’t need 40 hours per week consistently, I wouldn’t have to pay for it. But in reality, Susan ended up working 50 hours a week from the start and that has never really changed. She is still here—and is vice president of the company.

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A Loose Collection of Consultants In the fall of 2007, when a large regional bank hired Beck to move its Massachusetts headquarters, Beck hired two more employees. From September 2007 through May 2008, Beck Consulting moved 1,500 people for the bank. From that time on, Beck continued to augment the bank’s project management staff, managing various aspects of employee relocation on a permanent basis.

By 2009, the company had seven hourly employees. The base of operations was still Beck’s home, although most of the work was done on- site at client facilities. Beck’s second employee described this start-up phase:

I started working for Marilyn in 2007. At the time, Beck Consulting wasn’t so much a company as a loose collection of consultants. She had one employee—Susan Smith. Mostly, though, Marilyn hired consultants to get the jobs done. Eventually, she hired me as the second employee.

It was interesting working out of someone’s house. I feel fortunate to have started that way because I was able to work directly with Marilyn. I got to really understand what she expected and how she worked with clients. At the time she was a project manager running projects instead of the more administrative role she plays now as president of the company. I enjoyed those early days. I felt we were all learning at the same time.

The energy of starting something new and operating on a shoestring was exciting, but Beck felt the need to become established in a Boston location closer to her client base. “People were trying to do business on the streets with their cell phones,” she recalled. “It was time we moved downtown.”

By December 2010, Beck Consulting had doubled in size, with enough work to keep ten full time employees busy. The company moved to 2,200 square feet of space. Six months later, it increased its office size by another 2,200 square feet. Beck explained the financial risk the company took that year:

Instead of paying $6,000 a year on rent, we were now paying more than 10 times that amount. It was daunting. But the up side

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was that our business was expanding as well. By the end of 2011, we had over 20 employees. We had doubled in size in two years.

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Relocation Consultants—A Niche within the Facility Management Industry Before 1980, the term “move consultants” was not in Corporate America’s vocabulary. Most—if not all—moves were performed by employees. Office managers in small to medium-sized firms and facility management teams in large firms typically had the dubious honor of managing and executing a move. In the 1980s, however, as the tidal wave of downsizing swept away corporations, executives found that there was no one left with the expertise and the time to plan a large move. The facility management outsourcing industry gave birth to a small subset of firms that chose to specialize in the high-stress world of corporate relocations.

Another trend in facilities management, called “workforce churn,” also fueled the growth of relocation consultants. Churn was the term used to describe the continual movement of employees as a result of expansion, downsizing, redeployment, or a project-oriented workforce. The reasons for the high level of churn rates were increases in industry consolidations, corporate mergers, and the rapid expansion of high-tech firms that used fluid teams to perform projects.

In addition to offering an experienced, cost-efficient team to manage moves, relocation consultants also took the heat of a stressful move off an employee or department. Since two-thirds of employees in charge of a move are either fired or quit soon after the move, hiring a move consultant saved companies the cost of hiring and training new personnel. Beck pointed out that consultants were, for the most part, protected from office politics and made space assignments objectively.

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The Beck Way Throughout the 2005-2010 period, Beck experienced growth in number and scope of assignments. She continued to hire project managers in response to the increasing demands of clients. In 2010, Beck promoted Susan, her first employee and right arm, to the position of vice president. This marked a departure from Beck’s “loose collection of consultants” and the installation of a rudimentary hierarchy. The bulk of the staff, the project managers, remained on the same level.

The company prided itself on its lack of formal titles and status symbols. As Beck explained,

I didn’t personally do well in hierarchical organizations. I didn’t like it, and I chose not to subject other people to it. That’s not to say we don’t have any hierarchy or that we have a totally flat organization. Of course, we do have some hierarchy—we have hierarchy of experience. We have some people who have been in this business for 25 years and some who have been in it for one. The one with 25 years of experience is much more likely to be managing a project than the person with little experience. But we don’t use titles, except for Susan and myself. It’s not something that’s needed internally.

Despite the lack of titles, it was always clear to the client who to contact if there was a problem. In the beginning they always talked to me; then after I made Susan vice president, she talked to her clients and I kept mine. There was perhaps more internal than external confusion.

Although most of the staff at Beck Consulting were female, Beck asserted that she didn’t set out to build an all-female company. The fact was the overwhelming majority of applicants happened to be female. Beck believed the reason for this was that the work lent itself to a traditionally “female” approach to tasks and problem solving. As she explained,

The way we work is very hands-on. Of course, not all relocation companies work this way. One of our competitors is almost entirely male, and they don’t offer the same level of hands-on attention to detail that we do. It’s really a different business model.

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We are widely known for our incredible ability to coordinate and manage all the details of a move. One of our employees said to me the other day that a lot of what we do is handholding and giving pats on the back. And that really is important. People are traumatized by moves. Even if they are moving to a different floor in the same building, there is something very unsettling about it. We help communicate with people and listen to their concerns. At the same time, we handle a zillion details, from selecting voice/data networks to making sure there are coat hangers in every closet.

Employees at Beck Consulting expressed a strong sense of shared values and prided themselves on their customer-service orientation. As Project Manager Makayla Jones explained,

At Beck, we have a style of working that is tightly focused on customer service. We want the customer to be happy and we want to do a good job. Everyone here is willing to get down and dirty and do whatever it takes to get the job done—whether it’s designing office space or crawling around on the floor looking for outlets.

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Workflow at Beck Consulting Client projects at Beck Consulting generally fell into two categories: one- time moves and ongoing facility management. Beck employees were primarily coordinators for one-time moves. They did not actually pick up and move boxes; rather, they set schedules and coordinated the moving company’s activities with the activities of other sub-contractors such as security, electricians, and environmental systems. One-time moves involved anything from a small group relocating to another floor, to 2,500 employees moving to a new building over the course of a single weekend. Beck teams were formed for each job and were disbanded when a job was done.

The ongoing facility work usually entailed at least two people working full time, or nearly full time, on-site at a client’s facility. Ongoing work included space planning; inventorying, refurbishment, or procurement of furniture; coordinating new construction and building maintenance; and moving and installing technology. Employees at Beck either worked for several clients and projects at once or were stationed full time on-site as part of the client’s facility management team.

Beck and Smith conducted most of the company’s marketing, which took the form of networking, nurturing client relationships, following leads, and the occasional write-up in the local press media. Approximately 30% of new jobs came from repeat customers, and most new clients came to Beck Consulting through word-of-mouth. Once a new client was identified, Beck or Smith wrote proposals and conducted negotiations.

Smith maintained a two-month workflow projection based on current jobs and what she and Beck judged to be “in the pipeline.” Jobs were assigned to project managers based on their availability and expertise. Employee preferences were taken into account whenever possible. Generally, jobs were given to teams of two or three people. Although one person usually functioned as the primary client contact and maintained a budget and schedule for the project, that person did not have authority over others in the team and did not act as team leader. When the job was completed, members of the team moved on to form new teams around a new project. In large or complex moves, the teams were bigger and Beck or Smith appointed a team leader to manage the overall move. Beck explained the fluid nature of the project manager roles:

People are given projects based mainly on availability. They could be managing a large project this month and put on another project that someone else is running next month. So, a person is

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not always in charge, nor is he or she always in the position of underling. This structure really makes a difference to how people see their roles.

As Project Manager Makayla Jones explained,

We don’t have politics at Beck. People don’t have to vie for position. There’s no real hierarchy. People aren’t trying to get to the next level, because there is no next level. So, there isn’t a sense of competition—just a feeling that we want to do a good job on our projects. We enjoy each other’s successes and help out from job to job. There is a lot of camaraderie.

Since most clients wanted to minimize the downtime associated with relocation, the actual moving was done over a short and convenient period of time—usually at night or over a weekend. The team in charge of the move often needed more people to get the job completed on schedule. In particularly large or complex moves, the entire Beck company could be mobilized. As Project Manager Jones explained,

We think of ourselves as a team—one that needs to work together. Everyone is very good about that. Because even if you’re on a two-person team, you may have a large move and you’ll need extra help. I’ve never seen an instance when someone’s needed help and no one has come forward. Sure, there are lots of times when you don’t know what people are working on, but there are also the times when everyone—even Marilyn—will pitch in and help with a move.

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Human Resources New employees came to Beck Consulting almost exclusively through word-of-mouth. Even in times of low unemployment job markets, the company had never needed to post a help-wanted ad. The company received several unsolicited resumes almost every week. Beck and Smith conducted interviews on an ongoing basis. Most of the resumes came from people with art, architecture, interior design, space planning, or facility management backgrounds. Many had experience as project managers for large companies. Beck felt that despite the word-of-mouth method of hiring, she was diverse in her hiring practices.

Project Manager Steven Brown recalled why he was attracted to Beck Consulting:

I wanted to work for a small company. I like to keep a balance between my work and personal life and be able, for the most part, to maintain a 40-hour work week. I talked to some people who work for big companies and they had war stories about how many hours they put in. One of the benefits of working at Beck Consulting is that Marilyn and Susan recognize that people have a life outside the office and empower us to manage our own workload and hours.

In the early years of the company, all employees interviewed and approved each new hire. Since the company was so small, Beck wanted to ensure that personalities meshed and that every employee understood and fit into the culture. Project Manager Brown, who was stationed full time at a client site, described a typical Beck Consulting employee:

We are generally people who can fit in with other people. I like fitting in—I like understanding my client’s needs, understanding their organization, and becoming part of it. I keep a reasonable distance while actively taking part in the job and acting in my client’s interest. We’re chameleons. We can pick up the color of our surrounding environment. It helps to get the job done when you are able to think the way your client thinks.

As the company grew, it was no longer feasible for all employees to be involved in hiring decisions. Instead, new hires met with an ad hoc committee of veteran employees. Project manager Makayla Jones described the hiring process and what she looked for in an applicant:

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Nervous people don’t do well here. This is a high stress job. We are usually the last people brought in—after the architect, the builders, and so on. We are also the last people standing there after the move is completed, and we end up taking responsibility for decisions we didn’t make. It’s also our job to stay on a bit after the move to make sure everyone is settled. Sometime this takes a lot of diplomacy. Lots of people hate their job or hate their company, and the way they express that is to say, “I hate my chair.” People will try to gain control over whatever they can. So, we change the chair, the employees are happy, and the project is a success.

Employees here also need to be comfortable with the lack of formal organizational structure. People come from all kinds of backgrounds. Some, who’ve come from large organizations with a lot of structure, have a hard time adjusting to the flexibility we have at Beck. We have to work odd hours. We don’t have defined roles. And we don’t get a lot of formal feedback.

Other than annual reviews conducted by either Beck or Smith, employees were given feedback and direction on a situational basis. Project managers had considerable autonomy over their projects. Jones explained the review process:

There is a form Marilyn uses for employee reviews, but she just uses it as a guide. I haven’t seen her actually fill it out. We are not managed very closely at all. Basically, Marilyn and Susan look at whether we bring our projects in on budget and on time. At the beginning of a job, they give us a not-to-exceed price based on a scope of work, and then it is up to us to manage the job. We occasionally get feedback from clients through letters or telephone calls. Most times we will ask the client if we can use them as a reference. We get a lot of our jobs through word-of- mouth, so it’s important to have a good ongoing relationship with our clients.

Steven Brown described his feelings about the way employees were managed:

One thing I like more than anything else about this job is that, as far as the client is concerned, I am Beck Consulting. We manage ourselves and we represent our own company. I think it’s great that I’m a reflection of our company. I’ve never fully had that feeling before in any other job. It’s very satisfying. I have a

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feeling of ownership without the liability that true ownership would bring.

However, Brown also saw drawbacks to the lack of formal structure:

I have three people on my team. We are stationed full time at one of our large corporate clients. I am considered the senior person of that team: there is also another project manager and what I’d call a junior person on the team. To the client I am considered the team leader, but at Beck we’re all considered to be on the same level. That’s where I think there is something lacking in the organization, particularly for junior people who should be receiving regular feedback on their performance from a supervisor. There is some lack of clarity on our parts: our internal roles don’t always correspond with our external roles. Most people here seem comfortable with this ambiguity, so I have not made an issue of it.

As one would expect in a service business, payroll and related expenses comprised the largest percentage of expenses. All the project managers at Beck Consulting had the choice of being paid on an hourly or salaried basis. Hourly wages and salaries were negotiated individually, with the applicant naming a preferred rate, which Beck compared to other employees in the company with similar experience. Occasionally, Beck researched architectural and design firm employees’ pay rates. However, Beck was more concerned with maintaining internal wage parity than comparing with other firms. Most employees chose to be paid hourly. As Beck explained,

In the early days of the company, people were paid hourly because I wasn’t sure we could guarantee full time employment. It was fine with employees—they didn’t need the guarantee of a 40-hour salary. Now, paying hourly wages serves as a motivator for people. It’s similar to being on a sales force. The employees have some control over how much they make because, in most situations, they can set their schedules. We certainly don’t want people working significantly more than 40 hours per week on a regular basis. People know, however, that if they do need to put in that kind of time, they will be paid for it. In certain cases, individuals who are paid hourly make out better on an annual basis than those same individuals would have on salary, so I encourage some people to opt for hourly pay. A few of the

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people who started out as salaried have eventually asked to go hourly, I have never seen anyone go the other way.

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Growing Pains In 2012–2013 many of Beck Consulting’s clients experienced growth and mergers, leading the company to double in size from 20 to 40 employees. Up until this point, the company had enjoyed steady, manageable expansion. Project Manager Makayla Jones explained the impact of this growth spurt:

There was a rough period when we were growing rapidly. We had some growing pains. We went to 40 employees before we had the infrastructure to support them. People were getting hired so quickly. They felt they were thrown into the lion’s den without any training. We didn’t have time to train, and we weren’t able to communicate with each other. On one project a newly hired person did not understand that she needed to report to a project manager for a specific project: the newly hired person did not understand that yesterday’s boss could be tomorrow’s colleague and yesterday’s colleague could be tomorrow’s boss. It’s hard working in an organization with 38 people when you don’t know who some of the new people are.

Quickly, Beck realized that the company needed to change the way it trained new employees:

It became clear that we could no longer train people just by osmosis. We had to institute a more formal training program, which is basically a mentoring system. New people, regardless of how much work experience they have, are partnered with someone more senior on projects until such time as they can go out on their own.

Jones agreed that the worst of the transition times seemed past:

As things slowed down a little, we started making time for meetings, and Marilyn and Susan have made an effort to get people to know each other. They tried to shift around the teams to allow people to work with others they hadn’t gotten to know yet. Marilyn started picking names out of a hat and having those people go to lunch with each other. Through all of this rapid growth, Marilyn and Susan have tried to keep up the family atmosphere. For example, they are very tolerant of people’s

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personal lives. Marilyn and Susan try to understand what is going on with everyone and how their personal lives may or may not interfere with their work.

Another way Beck communicated with her growing workforce was a two- hour bi-weekly staff luncheon. All employees attended the meetings— even those stationed off-site. At the meetings, people had a chance to apprise others of particular issues they may have on a project. The company also invited vendors or other experts to give presentations as a way to keep staff up to date on industry issues and new products. The company always paid for lunch, and each meeting concluded with a cake and celebration of staff birthdays.

Growth at Beck Consulting was not only measured in the increased number of client projects and employees. The company was also expanding its capabilities. New employees brought with them a range of skills that Beck Consulting added to its capacities. For example, the company acquired a small interior design firm that had expertise in computer-aided design. Beck Consulting also developed expertise in art collection management. In addition, the company was handling bigger and more complex moving projects that required larger teams of people and a more formal hierarchy to execute. Makayla Jones described the team put in place to conduct the Federal Courthouse move:

The project was different in that it was more massive than anything I had experienced before. It was the first time we designated an actual team leader, feeling that one person would be most efficient. I was the project leader, and had all the direct client contact. I directed three project managers who worked with the individual courts. I had to keep the project managers focused, maintain the schedules and budgets, and keep a view of the big picture. It was difficult at first. We had never worked in that kind of a structured team. It caused some tension because previously we’d been equals. But we talked it out and came to an understanding that our roles had to be different for this project. In the end we learned that sometimes we need that kind of structure to get the job done.

For Beck, growth also meant she was forced to step away from project management and the day-to-day oversight of her company. She refocused her role on marketing and public relations. As the company grew, Smith shouldered more and more of the daily responsibility of running the company and supervising employees.

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Marilyn and I play different roles. Marilyn has become a personality—winning awards and being written about in the newspaper. She is now externally focused and involved in the marketing of the company. I am more hands-on, keeping tabs on staffing and the status of projects. Since Marilyn is so much in the public eye and out-of-the office so frequently, I’m not always sure if I should handle Marilyn’s clients, if there is an urgent situation.

As Smith and Beck’s roles evolved, some employees expressed a sense of ambiguity concerning reporting relationships and authority. As Steven Brown described,

It’s a little hard to say exactly what the reporting structure is here. Clearly Marilyn is the president of the company. I think about her as the overall strategic “picture” person. Susan, I think of more as the general manager/operations director. But I don’t feel I have to go to only one of them about a specific problem. They are more like twin managers.

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The Future As Beck sat at her desk, she felt satisfied that she had built a reputable company, had a great team of people who were happy to work for her, and had a client base that would continue to expand. She knew that some key questions had to be answered in order to meet the future proactively. In what direction should she take the company? What will be the impact of growing from 50 to 100 people? This was very likely to occur in the next year, given the anticipated rate of growth, based in part on the projects they were currently being considered for. How much longer could she pay people on an hourly basis? She was sure that soon she would have to move to a conventional salary model. How would that impact her incentive structure? Beck also felt that she needed to create another layer of management. But should she? What impact would such changes have on teams and leadership of teams?

As Beck became more focused externally, how should she change her role and what should that new role be? Are isolated tensions and ambiguities indicative of systemic problems that could be exacerbated as the company grows? How should Beck Consulting maintain—or change— its structure, culture, and ability to respond quickly and effectively to clients’ needs through this period of rapid growth?

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Study Questions 1. Draw the current organizational structure of Beck Consulting

Corporation (BCC). Have designations for 38 people. How is this organizational chart similar to or different from other organizational charts that you have seen? Next, draw a new organizational chart for BCC with a new layer of management. How many people would you elevate to this new layer of management? Explain your reasoning for the number that you would elevate to the new management roles and note to whom these new managers will report. How do you imagine that this new layer of managers will impact the organizational dynamics within Beck Consulting?

2. What are the advantages and disadvantages of paying professional people on an hourly basis? How should Beck maintain or change her salary model and why? What impact do you imagine a conventional salary model will have on Beck employees? If Beck changes the compensation system from hourly to salary, should she change other aspects of her compensation system?

3. How would you describe the organizational culture at Beck Consulting? How might the purposed new layer of managers impact the organizational culture at BCC? What, if anything, should Beck do if and when she adds a new layer of management?

4. Assume that Beck Consulting chooses to take advantage of current business opportunities and will need to grow to 100 members in the next 9 months in order to respond to the challenges. What changes would you recommend Beck undertake to ensure the continued success of her firm?

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