Management VIII

336 PART 5 | Controlling

15 chapter

Innovating and Changing

After studying Chapter 15, you should be able to

LO1 Summarize how to assess technology needs.

LO2 Identify the criteria on which to base technology decisions.

LO3 Compare key ways of acquiring new technologies.

LO4 Evaluate the elements of an innovative organization.

LO5 Discuss what it takes to be world-class.

LO6 Describe how to manage change effectively.

LO7 List tactics for creating a successful future.

Learning Objectives

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CHAPTER 15 | Innovating and Changing 337

LO1 Summarize how to assess technology needs

can help a manager anticipate, monitor, and manage technolo- gies more effectively.

• There must be a need, or demand, for the technology. Without this need driving the process, there is no reason for technological inno- vation to occur.

• Meeting the need must be theoretically possible, and the knowl- edge to do so must be available from basic science.

• We must be able to convert the scientific knowledge into practice in engineering and economic terms. If doing something is theoreti- cally possible but economically impractical, the technology cannot be expected to emerge.

• The funding, skilled labor, time, space, and other resources needed to develop the technology must be available.

• Entrepreneurial initiative must identify and pull all the necessary elements together.

This chapter discusses how technology can affect an orga- nization’s competitiveness and how managers identify which technologies an organization should adopt. Then we assess the primary ways in which organizations develop or acquire those technologies, including the leadership and management decisions that help new technology succeed. Of course tech- nology is not the only way organizations innovate and change. The remainder of the chapter looks more broadly at innovation, including change efforts aimed at achieving world-class status, the process of managing change, and efforts you can make to shape your own career.

1 |  DECIDING TO ADOPT NEW TECHNOLOGY

Decisions about technology and innovation are strategic, and managers need to approach them systematically. In Chapter 5 we discussed two generic strategies a company can use to posi- tion itself in the market: 4

1. Low cost —The company has an advantage from maintaining a lower cost than its competitors.

2. Differentiation —The advantage comes from offering a unique good or service for which customers are willing to pay a premium price.

For either strategy, managers must assess technology needs, decide whether to adopt a new technology, and if they adopt the technology, determine the best method for developing or acquiring it.

T

There are two fundamental types of innovation:

1. Process innovations are changes that affect the way outputs are produced. Examples from Chapter 7 include flexible manufacturing practices such as just-in-time, mass customization, and simultane- ous engineering.

2. Product or service innovations are changes in the actual outputs (goods and services) produced. 2

These two categories cover a multitude of creative new ideas. They can change product offerings, the basic “platforms” or features and processes used to create products, the customer problems the organization can solve, the types of customers the organization serves, the nature of the experience provided by the organization, the way the organization earns money from what it does, the efficiency and effectiveness of its processes, the structure of the organization, the supply chain through which it delivers goods and services, the physical or virtual points at which it interacts with customers, the ways the organi- zation communicates, and the brand associated with the organi- zation and its products. 3

Critical forces converge to create new technologies. Understanding the forces driving technological development

echnological innovation is complex, moving fast—and vital for a firm’s competitive advan-

tage. Today’s organizations depend on their

managers’ ability to capitalize on new technologies and other

changes not only to carry out their basic tasks more efficiently

and effectively but also to retain an edge over their competitors.

Because technology and rapid innovation are critical for suc-

cess, managers must understand how technologies can change

the ways organizations compete and the ways people work.

Earlier in the text, we defined technology as the methods,

processes, systems, and skills used to transform resources

into products. More generally, we can think of technology as

the commercialization of science: the systematic application of

scientific knowledge to a new product, process, or service. In

this sense, technology is embedded in every product, service,

and procedure used or produced. 1 But if we find a better way

to accomplish our task, we have an innovation. Innovation is a

change in method or technology—a positive, useful departure

from previous ways of doing things.

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YOUNG MANAGERS

Speak Out! “ I am encouraged to be creative, innovative, and proac- tive in my position. Have you thought about the pros and cons? What are they? Move forward with it. ”

—Keisha Heard , Financial Aid Program Coordinator

338

In today’s increasingly com- petitive environment, failure to correctly assess the organiza- tion’s technology needs can  fun-

damentally impair the organization’s effectiveness. Consider the biggest industry sector in the U.S. economy: health care services, where spending is soaring. One reason that health care costs so much is that the industry has been slow to adopt technology that can make operations more efficient. According to a RAND Corporation study, Americans could save $162 billion a year if health care providers made better investments in information technology. For example, fewer

medication errors is an exceptional achievement considering the St. Louis-based health care network administers 12 million doses of medicine per year to 154,000 hospital patients and 1.3 million outpatients. 6

To assess technology needs, managers measure current technologies and look for trends affecting the industry.

1.1 |  Measuring Current Technologies

To assist managers in understanding their current technology base, a technology audit helps clarify the key technologies on

technology audit process of clarifying the key technologies on which an organization depends

than one-fifth of hospitals use a complete bar code sys- tem for dispensing medicine, which could save money and reduce medication errors. 5 For example, SSM Health Care reported barcode scanning rates of near 100 percent in 2012, resulting in zero wrong-patient medication errors. Having no

LISTEN & LEARN ONLINE

which an organization depends. One technique for measuring competitive value sorts technologies into several categories (see Exhibit 15.1 for examples) according to their competitive value: 7

• Emerging technologies are still under development but may sig- nificantly alter the rules of competition in the future. Managers should monitor the development of emerging technologies but may not need to invest in them until they have been more fully developed.

• Pacing technologies have yet to prove their full value but have the potential to provide a significant advantage that alters the rules of competition. Managers should develop or invest in pac- ing technologies because of the competitive advantages they can provide.

• Key technologies have proved effective but offer a strategic advan- tage because not everyone uses them. Eventually alternatives to key technologies can emerge. But until then, key technologies can give organizations a significant competitive edge and make it harder for new entrants to threaten the organization.

• Base technologies are commonplace in the industry; everyone must have them. They provide little competitive advantage, but managers have to invest to ensure their organization’s continued competence in the technology.

Technologies can evolve rapidly through these categories. For example, electronic word processing was an emerging tech- nology in the late 1970s. By the early 1980s, it could have been considered pacing because its cost and capabilities restricted its usefulness to a few applications. With continued improvements and more powerful computer chips, electronic word processing

“An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive

advantage.” — Jack Welch , former CEO of General Electric

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CHAPTER 15 | Innovating and Changing 339

1.3 |  Engaging in Disruptive Innovation

Measuring current technologies and assessing external techno- logical trends through bench- marking and scanning may not be enough to stay ahead of the innovation curve. Periodically, major technological shifts occur even in relatively stable industries that can dramatically change the competitive land- scape. Disruptive innovation refers to a process by which a

product, service, or business model takes root initially in sim- ple applications at the bottom of a market and then moves “up market”, eventually displacing established competitors. 8 Some examples of how disruptive innovations have transformed entire industries include the following: MP3 file technology and

quickly became a key technology. Its costs dropped, its usage spread, and it demonstrated the capacity to enhance productiv- ity. By the late 1980s, it was a base technology in most appli- cations, and now it is used so widely that it is routine in almost every office.

1.2 |  Assessing External Technological Trends

As with any planning, decisions about technology must balance internal capabilities (strengths and weaknesses) with external opportunities and threats. To understand how technology is changing within an industry, managers can use techniques we introduced in previous chapters:

• Benchmarking compares the organization’s practices and tech- nologies with those of other companies. Harley-Davidson recov- ered its reputation for manufacturing quality motorcycles after company executives toured Honda’s plant and witnessed first- hand the relative weaknesses of Harley’s manufacturing tech- nologies and the vast potential for improvement. Competitors understandably are reluctant to share their secrets, but compa- nies may be more willing to share their knowledge if they are not direct competitors and if the exchange of information might bene- fit both companies.

• Environmental scanning focuses on what can be done and what is being developed. It emphasizes identifying and monitoring the sources of new technologies for an industry. It also may include reading cutting-edge research journals and attending conferences and seminars. Organizations that operate closer to the cutting edge of technology rely more on scanning.

Exhibit 15.1 Four technology categories and example

Sources: Adapted from R. E. Oligney and M. I. Economides, “Technology as an Asset,” Hart’s Petroleum Engineer International 71, no. 9 (September 1998), p. 27; C. MacKechnie, “What Are the Types of Business Techology,” Chron (online), http://smallbusiness.chron.com , accessed on June 15, 2014; and J. Manyika, M. Chul, J. Bughin, R. Dobbs, P. Bisson, and A. Marrs, “Disruptive Technologies: Advances That Will Transform Life, Business, and the Global Economy,” McKinsey & Company Report, May 2013, www.mckinsey.com .

Emerging technology

Pacing technology

Key technology

Base technology

disruptive innovation a process by which a product, service, or business model takes root initially in simple applications at the bottom of a market and then moves “up market,” eventually displacing established competitors

● The Spotify music streaming application initially started with free accounts. However, as of August 2012 Time reported that four million people were paid subscribers.

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340 PART 5 | Controlling

the risks and ambiguities of adopting a new technology. All of these considerations jointly influence managers’ decisions about technology innovations. A lack in even one of them can derail an otherwise promising project. Also, as we discuss later in this chapter, decisions go beyond whether to adopt a tech- nology to include changes in the related factors—for example, improving the organization’s capabilities and strategies, hir- ing or training employees, and changing internal policies and procedures.

2.1 |  Anticipated Market Receptiveness

The first consideration in developing a strategy around tech- nological innovation is market potential. Many innovations are stimulated by external demand for new goods and ser- vices. For example, the share of Internet users who use a language other than English has been growing rapidly. This trend, along with the globalization of business, has fueled demand for the ability to search the web in different lan- guages. Companies are creating a variety of software inno- vations to meet this demand. Microsoft’s Bing Translator translates text and web pages between any of the supported languages like Russian, Arabic, and Portuguese, automati- cally detecting the language when needed. 12 Yahoo! Answers will send queries to a native speaker of the user’s language. It indexes those responses so they can be searched by future users in that language. 13

In assessing market receptiveness, executives need to make two determinations:

1. In the short run, the new technology should have an immediate, valuable application.

2. In the long run, the technology must be able to satisfy a market need or needs.

For example, when prescribing medicine, physicians view the traditional method of scribbling on a pad and handing the prescription to a patient or nurse as very simple to use. For the physicians to learn to use new technology for that purpose, it must be worthwhile to them. Hospitals that move to electronic

digital music platforms like Apple’s iTunes have dramatically changed the music industry; tablets and other handheld Internet devices are replacing many desktop computers; smartphones have replaced many stand-alone music devices and cameras; online retailer Amazon revolutionized how people shop and encouraged bricks-and-mortar retailers to follow suit; and low- cost airlines like Southwest Airlines have consistently outper- formed many traditional hub-and-spoke carriers. 9

As these transformative shifts occur in industries, many good managers miss the significance of disruptive changes because they are more focused on making incremen- tal improvements to their core profitable businesses. This tendency, known as the innovator’s dilemma, poses the following challenge: “How can executives simultaneously do what is right for the near-term health of their established businesses, while focusing on the disruptive technology that ultimately could lead to their downfall?” 10 Many organizations seem to be faced with this dilemma—for example, Microsoft (desktop vs. cloud computing), General Motors (internal com- bustion vs. electric/hybrid), and British Petroleum (conven- tional oil vs. renewable energy). Organizations and managers that wrestle with and successfully balance these two objec- tives—to sustain and grow the current core businesses while identifying and investing in high-potential disruptive innova- tions—will increase their chances of remaining competitive and successful in the long run. 11

LO2 Identify the criteria on which to base technology decisions

2 |  BASE TECHNOLOGY DECISIONS ON RELEVANT CRITERIA

After managers have thoroughly analyzed their organization’s current technological position, they can plan how to develop or exploit emerging technologies. These plans must balance

“I have not failed. I’ve just found 10,000 ways that don’t work.”

— Thomas Edison

many interrelated factors, including the organization’s com- petitive strategy, the technical abilities of its employees to deal with the new technology, the fit of the technology with the company’s operations, and the company’s ability to deal with

management of drug distribution need to roll out entire sys- tems, but those systems let doctors tap into information net- works where they can look up drug interactions, side effects, and so on. When doctors see how the system helps them deliver

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CHAPTER 15 | Innovating and Changing 341

constrained by the difficulty of designing a battery that can power the long trips Americans love to take.

2.3 | Economic Viability Apart from whether a firm can “pull off” a technological innovation, executives must consider whether there is a good financial incentive for doing so. The use of hydrogen-powered fuel cell technology for automobiles is almost feasible techni- cally, but its costs are still too high. Even if those costs were brought down to more acceptable levels, the absence of a sup- porting infrastructure—such as hydrogen refueling stations— represents another barrier to economic viability.

On a more practical level of economic feasibility, new tech- nologies often require long-term commitment of substantial resources. And integrating them effectively in an organization can require a great deal of management time. For these reasons, managers must objectively analyze technology costs versus benefits. Of course technology’s benefits can be substantial. The IQ Business Group (IQBG), an information management company, uses cloud technology to help private companies and governmental agencies reduce the costs related to organiz- ing and storing the massive amount of information and data that flows within organizations on a daily basis. Recently, IQBG signed a $53 million contract to help the United States Department of the Interior (DOI) manage its record and e-mail flows. The new system will capture and classify 100 percent of the 75 million e-mails the agency sends and receives per month. By moving the on-premise IT system to a cloud-based system, the DOI may save roughly 7 percent of its IT budget annually. 18

Patents and copyrights can help organizations recoup the costs of their investments in technological innovations. Without such protection, the investments in research and development might not be justifiable. Unfortunately the growth in piracy and fakery of patented pharmaceuticals, software, and other products adds barriers to economic viability. Globalization has created a worldwide market for goods produced by low- cost counterfeiters and pirates. Pfizer’s anti-impotence drug Viagra, Hewlett-Packard inkjet cartridges, Intel computer chips, GM car designs, Nokia mobile phones, Coach hand- bags, Nike Air Jordan shoes, and countless music and movie recordings—all these and many more have been counterfeited or illegally copied and sold. Worldwide lost sales as a result of the theft of intellectual property have been estimated at more than $500 billion a year.

Some companies have taken action on this problem. Auto parts maker Bendix set up a team charged with enforcing intellectual property rights, used packaging that is harder to counterfeit, and educates customers by setting up trade show displays with side-by-side comparisons of its product and knock-offs. Other companies, including Pfizer, are using radio-frequency tags on their packages to track products more accurately during distribution. These measures are designed to help organizations maintain the economic viability of their innovations. 19

better care and reduce errors, most are quick to embrace the new technology. 14

2.2 | Technological Feasibility Managers also must consider whether technological innova- tions are feasible. Technical obstacles may represent barri- ers to progress. For example, the makers of computer chips face continual hurdles in developing newer and faster mod- els. Since Intel brought the first microprocessor to market in 1971, chip makers have made dramatic advances in com- puting. The number of transistors on a chip, and its result- ing performance, has doubled nearly every 18 to 24 months. But the frontier of microprocessor technology is restricted by the combined forces of physics and economics. The wires that run between transistors are 400 times thinner than a human hair, and the task of continually doubling the speed of electrons passing wires of near-zero width is tricky—and may become impossible at some point. To continue boost- ing processor speed economically, developers have had to be creative, using techniques such as shrinking components and embedding multiple processors cores on one microchip to shorten the distance data must travel between proces- sors. 15 For example, Intel recently announced the release of a new X99 chip and DDR4 memory. The processor will be the company’s first 8-core desktop model. 16

Other industries face similar technological hurdles. In the sustainable energy industry—such as solar cell and wind tur- bine production—explosive growth is constrained by the lack of an economical storage system that can make renewable energy available whenever and wherever it is needed. 17 In medicine, scientists and doctors work continuously to iden- tify the causes of and cures for diseases such as cancer and AIDS. Automakers’ efforts to develop electric cars have been

● The da Vinci Surgical System is a robotic surgical system designed to facilitate complex surgery using a minimally invasive approach and is controlled by a surgeon from a console. An estimated 200,000 surgeries were conducted with the system in 2012.

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342 PART 5 | Controlling

of managers, and the expectations of stakeholders. With regard to technology adoption, we can consider three broad types of organizations:

• Prospector firms —These proactive “technology-push” innovators have cultures that are outward-looking and opportunistic. Examples include 3M, Apple, Amazon, Samsung, IBM, Microsoft, and Google. Executives in these organizations give priority to developing and exploiting technological expertise, and decision makers have bold, intuitive visions of the future. Typically they have technology cham- pions who articulate competitively aggressive, first-mover tech- nological strategies. Executives tend to be more concerned about the opportunity costs of not taking action than they are about the potential to fail.

• Defender firms —These companies adopt a more circumspect posture toward innovation. They tend to operate in stable envi- ronments, so their strategies focus on deepening their capabilities through technologies that extend rather than replace their current ones. Strategic decisions are likely to be based on careful anal- ysis and experience in the industry setting. In the United States, supermarkets have competed for decades by emphasizing low- cost distribution over large distances. That strategy has helped the companies survive low-cost pressure from Walmart but has not always translated well when U.S.-based supermarket chains have tried to expand into other parts of the world. 20

• Analyzer firms —These hybrid organizations need to stay technolog- ically competitive but tend to let others demonstrate solid demand in new arenas before responding. Such companies often adopt an early-follower strategy to grab a dominant position more from their strengths in marketing and manufacturing than from technological innovation. For example, Microsoft’s Xbox game console, Office software, and Zune music player all contain innovations, but other companies pioneered the original path-breaking product concepts.

Every company has different capabilities to deal with new technology. Early adopters of new technologies tend to be

2.4 |  Anticipated Capability Development

Our advice that organizations base strategies on their core capabilities applies to technology and innovation strategies. At Merck and Intel, core capabilities in research and development lead to new technological innovations. By contrast, firms that are not technology oriented must develop new capabilities to survive. For example, when Amazon.com changed the face of e-retailing in the 1990s, traditional brick-and-mortar book- stores had to adapt quickly. To regain competitiveness, they had to bolster their information technology capabilities, which wasn’t always easy for them to do.

● Bureau of Customs (BOC) officials inspect counterfeit designer bags at their headquarters in Manila. Illegally imported fake medicines, cellphone batteries and chargers, and counterfeit designer bags valued in the millions of dollars are confiscated annually.

“Almost everyone is more enthusiastic about change when the change is their own idea, and less enthusiastic if they

feel the change is being imposed on them.” — Maggie Bayless , managing partner, ZingTrain 21

The upshot is that while certain technologies may have tremendous market applicability, managers must have (or develop) the internal capabilities to execute their technology strategies. In organizations without the skills needed to imple- ment an innovation, even promising technological advances may prove disastrous.

2.5 | Organizational Suitability The decision to adopt technological innovations also should take into account the culture of the organization, the interests

larger, more profitable, and more specialized. As a result, they can absorb the risks associated with early adoption while prof- iting more from its advantages. In addition, the people involved in early adoption are more highly educated, have greater abil- ity to deal with abstraction, can cope with uncertainty more effectively, and have strong problem-solving capabilities. Thus early adopters can more effectively manage the difficulties and uncertainty of a less fully developed technology. 22

Managers evaluating new technology also should consider its impact on employees. Often new technology brings process

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CHAPTER 15 | Innovating and Changing 343

range of finished products such as unmanned robotic aircraft, military weapons, compact elec- tronic circuit boards, necklaces, and children’s dolls. 25

Also, this printing technol- ogy is being used for advanced biomedical research. Dr. Jennifer Lewis, a materials scientist at Harvard University, and her team recently printed biological tis- sue with blood vessels. It is believed that this research could some- day result in the creation of artificial organs for drug testing or for use as replacement parts. 26 Other universities are also exploring the myriad possibilities of 3D printing. Researchers at Princeton University combined biological tissue and electronics to print a bionic ear, while a research team at Cambridge University printed retinal cells to form eye tissue. 27

Essentially, the question of how to acquire new technology is a make-or-buy decision. In other words, should the orga- nization develop the technology itself or acquire it from an outside source? That decision is not simple. As illustrated in Exhibit 15.2 , there are many alternatives, and each has advan- tages and disadvantages. Here are some of the most common options:

• Internal development —Developing a new technology within the company can keep the technology proprietary—exclusive to the organization. However, internal development usually requires addi- tional staff and funding for long periods. Even if the development succeeds, considerable time may elapse before practical bene- fits are realized. Intel balances these risks and benefits by oper- ating research and development laboratories in several locations, including Israel, India, Poland, and China. Engineers in these labs have come up with breakthrough ideas, and labs in offshore loca- tions can get around legal restrictions on technology imports, as well as save money relative to the cost of hiring talent in the United States. 28

changes that directly affect the organization’s work environ- ment. These changes may create anxiety and resistance among employees, making integration of the technology more dif- ficult. But employees’ cooperation is often a major factor in determining how difficult and costly the introduction of new technology will be. We discuss the issue of managing change in more detail later in this chapter.

LO3 Compare key ways of acquiring new technologies

3 |  KNOW WHERE TO GET NEW TECHNOLOGIES

Developing new technology may conjure up visions of scien- tists and product developers working in research and devel- opment (R&D) laboratories. In many industries, the primary sources of new technology are the organizations that use it. More than three-fourths of scientific innovations are devel- oped by the users of the scientific instruments being improved and subsequently may be licensed or sold to manufacturers or suppliers. 23 However, new technology can come from many sources, including suppliers, manufacturers, users, other indus- tries, universities, the government, and overseas companies.

In 1984, Charles Hull invented a printing process that used mate- rials (instead of ink) to create a 3D model from a digital image or picture. The original purpose of 3D printing was to make and test a model of a part or product prior to investing large sums in manufacturing it. 24 Now, 3D printing is being used to make a wide

make-or-buy decision the question an organization asks itself about whether to acquire new technology from an outside source or develop it itself

Alternatives Advantage(s) Disadvantage(s)

Internal development Technology is proprietary and provides competitive advantage.

Expensive, time-consuming to develop.

Purchase Simple to implement and cost-effective. Does not provide competitive advantage.

Contracted development Allows a firm without internal development capabilities to acquire technology.

Higher monitoring costs and risk that technology eventually appears in marketplace.

Licensing Permits firms to access unique technology for a fee; more economical than development.

Firm does not own or control the unique technology; it depends on another firm.

Technology trading Speeds learning curve and reduces costly trial-and- error approach to using technologies.

Some information is not directly applicable, and not all industries are willing to share information.

Research partnerships and joint ventures

Two or more firms share costs associated with new technology development.

Coordination costs can be high and organizational cultures can clash, limiting the outcomes.

Acquisition of a technology owner

Firm gains control and ownership over desired technology.

Purchase of company can be expensive. ent.

Exhibit 15.2 Advantages and disadvantages of alternative make-or-buy technology decisions

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344 PART 5 | Controlling

automaker, and Dongfeng Motor Group, a Chinese commerical truck manufacturer, to produce medium- and heavy-duty trucks for the Chinese market. This alliance combines Volvo’s technolog- ical expertise and global reach with Dongfeng’s knowledge of the Chinese truck market. 34

• Acquisition of a technology owner —If a company lacks a tech- nology but wishes to acquire ownership, it might purchase the company that owns the technology. This transaction can be an outright purchase of the entire company or a minority interest suf- ficient to gain access to the technology. For example, Motorola bought shares of Global Locate, which developed the technology for fast-working global positioning systems (GPSs). Customers are increasingly interested in GPS applications in cell phones and other mobile devices. A semiconductor supplier called Broadcom acquired Global Locate outright, so it could supply semiconductors featuring GPS navigation without having to license that technology or depend on an outside supplier. 35

Choosing among these alternatives is simpler if managers ask a few basic questions:

1. Is it important (and possible) in terms of competitive advantage that the technology remain proprietary?

2. Are the time, skills, and resources for internal development available?

3. Is the technology readily available outside the company?

As Exhibit  15.3 illustrates, the answers to these questions guide the manager to the most appropriate technology acquisi- tion option.

If the preferred decision is to acquire a company, manag- ers take additional steps to ensure the acquisition will make sense for the long term. For example, they try to make sure that key employees will remain with the firm, instead of leaving

• Purchase —Most technology already is available in products or processes that can be purchased. A bank that needs sophisticated information-processing equipment need not develop the technol- ogy itself. It can buy it from suppliers. In most situations, this is the simplest, easiest, and most cost-effective way to acquire new technology. However, the technology itself will not offer a competi- tive advantage.

• Contracted development —If the technology is not available and a company lacks the resources or time to develop it internally, it may contract the development from outside sources, such as other companies, independent research laboratories, and university and government institutions. Usually outside contracting involves an agreed-upon series of objectives and timetables for the project, with payments for completion of each.

• Licensing —Certain technologies that are not easily purchased can be licensed for a fee. For example, companies that develop video games often license technology, including the software that mod- els the physics behind the activities depicted in the game. The art- work, characters, and music for a particular game may be unique, but the basic laws of real-world physics apply to the action shown in most of today’s sophisticated games, so there is no advantage to programming that aspect of each game. Licensing is more economical. 29

• Technology trading —Some companies are willing to share ideas. Mary Jo Cartwright, a director of manufacturing opera- tions for Batesville Casket Company, toured a John Deere farm equipment plant and noted a technology called visual manage- ment screens, which display how-to information for production workers. Some time later, when Batesville became involved in more customization, the company introduced visual manage- ment screens to give workers detailed and understandable assembly instructions. 30 Not all industries are amenable to this kind of sharing, but technology trading is becoming increasingly common because of the high cost of developing advanced tech- nologies independently. 31

• Research partnerships and joint ventures —Research part- nerships are arrangements for jointly pursuing specific new tech nology development. Typ- ically each member contrib- utes a different set of skills or resources, as when an established company contrib- utes money and management know-how, and a start-up con- tributes technological exper- tise. Boeing is opening a joint research center with Embraer to advance the aviation biofuel industry in Brazil. 32 Joint ven- tures are similar to research partnerships but generally are aimed at establishing entirely new companies. 33 An example is the strategic alliance formed by Volvo Group, the Swedish

Yes

Yes

Yes

No

No

NoImportant to remain

proprietary

Available skills and resources

Available for sale

Internal development

Acquisition of the technology owner

Exclusive research contract

Purchase License Trade

Joint venture Research partnership

Exhibit 15.3 Technology acquisition options

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CHAPTER 15 | Innovating and Changing 345

technology development, and assessing the technological impli- cations of major strategic initiatives such as acquisitions, new ventures, and strategic alliances. CIOs also manage their organi- zation’s information technology (IT) group. 38

Without the CIO’s integrative role, an organization’s depart- ments could easily adopt different technology tools and stan- dards, leading to much higher equipment and maintenance expense and difficulties in connecting the different parts of the organization. Their technical skills prepare them to supervise the organization’s technology experts and help managers ensure that technology is aligned with the strategic goals of the organization.

Other people play critical roles in developing new technol- ogy. The entrepreneur, in an effort to exploit untried technol- ogies, invents new products or finds new ways to produce old products. The entrepreneur opens up new possibilities that can change entire industries. For example, Steve Jobs started Apple Computer in his garage, helping to popularize the personal computer and years later the MP3 music player.

In organizations, managers and employees may play key roles in acquiring and developing new technologies: 39

• The technical innovator develops the new technology or has the skills needed to install and operate the technology. This per- son possesses technical skills but may lack the managerial skills needed to advance the idea and secure acceptance within the organization.

• The product champion —often at the risk of his or her position and reputation—promotes the idea throughout the organiza- tion, searching for support and acceptance. The champion can be a high-level manager but often is not. If the champion lacks the power and financial resources to make the required changes independently, she or he must convince people in authority to sup- port the innovation. In other words, product champions must get sponsorship.

• Sponsorship comes from the executive champion, who has the status, authority, and financial resources to support the project and protect the product champion. This person’s support and protection enable the new technology by making available the resources needed to develop the innovation and promoting the change.

4.2 |  To Innovate, Unleash Creativity Merck, 3M, Hewlett-Packard, and Rubbermaid have long his- tories of producing many successful new technologies and products. What sets these and other continuous innovators apart is an organizational culture that encourages innovation. 40

Consider the 3M legend about inventor Francis G. Okie. In the early 1920s, Okie dreamed up the idea of using sandpaper instead of razor blades for shaving. The aim was to reduce the risk of nicks and avoid sharp instruments. The idea failed, but rather than punishing Okie for the failure, 3M encouraged him to champion other ideas, which included 3M’s first blockbuster success: waterproof sandpaper. A culture that permits failure is crucial for fostering the creative thinking and risk taking required for innovation.

4 |  ORGANIZING FOR INNOVATION

Successful innovation is a lot more than a great idea. A study by the Boston Consulting Group found that lack of good ideas is hardly ever the obstacle to profitable innovation. More often, ideas fail to generate financial returns because the organization isn’t set up to innovate. The culture is risk averse, projects get bogged down, efforts aren’t coordinated, and management can’t figure out where to direct the compa- ny’s money. 36

In Chapter 7 we introduced the concept of learning organizations —companies that excel at solving problems, seeking and finding new approaches, and sharing new knowl- edge with all members of an organization. Learning organiza- tions are particularly well positioned to carry out the two basic kinds of innovation: 37

1. Exploiting existing capabilities, such as improving production speed or product quality.

2. Exploring new knowledge—that is, seeking to develop new goods or services.

Both innovation processes are necessary. Innovative learn- ing organizations use their existing strengths to improve their operations—and their bottom lines. They also unleash people’s creative energies and capabilities to develop new products and processes that will ensure their long-term competitiveness. In this section we discuss some ways that managers organize for innovation.

4.1 |  Who Is Responsible for New Technology Innovations?

In organizations, technology was traditionally the responsibility of vice presidents for research and development, who oversaw corporate and divisional R&D laboratories. But companies today usually have the position of chief information officer (CIO) or chief technology officer (CTO). The CIO is a corporate-level senior executive with broad responsibilities: coordinating the technological efforts of the business units, representing technol- ogy in the top management team, identifying ways that tech- nology can support the company’s strategy, supervising new

LO4 Evaluate the elements of an innovative organization

and perhaps taking essential technical expertise with them. Similarly, as with any large investment, managers carefully assess whether the financial benefits of the acquisition will jus- tify the purchase price.

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Thus, although 3M has been admired for its culture of innovation, it became inefficient, with unpredictable profits and an unimpres- sive stock price. Recently that’s been changing as new product launches and international sales have revitalized 3M’s profits. 45

To balance innovation with other business goals, companies often establish special temporary project structures that are iso- lated from the rest of the organization and allowed to operate under different rules. These units go by many names, including “skunkworks,” “greenhouses,” and “reserves.”

To foster a culture that values innovation, software maker Intuit set up a program called Innovation Lab. Adopting a pol- icy that Google made famous, the company allows employees

As strange as it may seem, celebrating failure can be vital to the innovation process. 41 Failure is the essence of learning, growing, and succeeding. In innovative companies, many people are trying many new ideas. A majority of the ideas fail, but the few big hits that emerge can make a company an innovative star. Grey Advertising, winner of Ad Age’s 2014 Agency of the Year award, believes in encouraging failure even if on an epic scale. Grey instituted a “Heroic Failure Award,” which is given to an employee whose advertising idea or approach ended in an epic fail. The award is a large trophy that remains in the possession of the winner until the next failure. 42 This type of attitude from a manager can foster creative thinking throughout the ranks.

Traditional Thinking Innovative ideas should come from employees of specialized departments like R&D labs.

The Best Managers Today Seek creative ideas from many sources, including employees from anywhere in the organization, customers, suppliers, and even competitors.

“ Failure is the best way to clear the fog to see a path to success. ”

— Diego Rodriguez and Ryan Jacoby of IDEO, an innovative design firm 43

To foster innovation, 3M uses a simple set of rules: 44

• Set goals for innovation.

• Commit to research and development.

• Inspire intrapreneurship.

• Facilitate, don’t obstruct.

• Focus on the customer.

• Tolerate failure.

These rules can be—and are—copied by other companies. But 3M has an advantage in that it has followed these rules since its inception and ingrained them in its culture.

4.3 |  Don’t Let Bureaucracy Squelch Innovation

Bureaucracy is an enemy of innovation. Its main purpose is main- taining orderliness and efficiency, not pushing the creative enve- lope. Developing radically different technologies requires a fluid and flexible (organic) structure that does not restrict thought and action. However, such a structure can be chaotic and disruptive.

to spend 10 percent of their time on unstructured activities aimed at generating and developing new ideas. They can choose an idea they feel passionate about or can devote the time to learning about new technologies. Intuit also sponsors “idea jams”—days set aside for employees with an idea to assemble a team to develop the idea. Idea jams are one-day events that take place every three months. Employees also have access to workgroup software called Brainstorm, which helps them share ideas and recruit team members to work on the ideas during the idea jams and their unstructured time. Review groups and mentors ensure that ideas are practical and successful. Intuit provides cash awards for winning ideas, but the excitement of Innovation Lab and idea jams is what really motivates Intuit employees to contribute to innovations such as the mobile ver- sion of QuickBooks Online. 46

4.4 |  Development Projects Can Drive Innovation

A powerful tool for managing technology and innovations is the development project. 47 A development project is a focused organizational effort to create a new product or process via

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Today’s trends in bureau- cracy bashing, lean and flat organizations, work teams, and workforce empowerment are logical extensions of the sociotechnical philosophy of work design. At the same time, the technologies of the information age—in which people at all organizational levels have access to vast amounts of information—make these leaner and less bureaucratic orga- nizations possible.

Managers face choices in how to apply a new technol- ogy. Technology can be used to limit the tasks and respon- sibilities of workers and “de-skill” the workforce, turning workers into servants of the technology. Or managers can select and train workers to master the technology, using it to achieve great accomplishments and improve the qual- ity of their lives. Technology, when managed effectively, can empower workers as it improves the organization’s competitiveness.

As managers decide how to design jobs and manage employees, they need to consider how human resource sys- tems can complement the introduction of new technology. For example, advanced manufacturing technology usually requires people with high levels of skill, a commitment to con- tinuous learning, and ability to work in teams. Organizations can help this technology succeed by using pay systems that attract and reward people with the necessary qualities. 50 Examples include group incentives and skill-based pay. If a company’s pay system is not aligned with the new technolo- gies, it may not reward behavior that makes the changes work. Even worse, existing reward systems may reinforce counter- productive behaviors.

Taken as a whole, these ideas provide guidelines for man- aging the strategic and organizational issues associated with technology and innovation. To adapt to a dynamic marketplace, organizations may need to reshape themselves. Managing change and organizational learning are central elements of what it takes to become a world-class organization.

technological advances. For example, when MTV launched MTV World, whose channels are aimed at various Asian American markets, the company used development projects embedded in a culture that values innovation. Nusrat Durrani, senior vice pres- ident and general manager of MTV World, was among a group of employees drawn from various parts of the company. The development team members brought together a wide variety of backgrounds and experiences to create a successful plan for MTV World. 48

Development projects typically feature a special cross- functional team that works together on an overall concept or idea. Like most cross-functional teams, its success depends on how well individuals work together to pursue a common vision. These teams interact with suppliers and customers, making their task more complex. Because of their urgency and strategic importance, most development projects are conducted under intense time and budget pressures.

Development projects have multiple benefits. Not only do they create new products and processes, but they also may cul- tivate skills and knowledge useful for future endeavors. Thus the capabilities derived from a development project often can be turned into a source of competitive advantage. When Ford created a development project to design an air-conditioning compressor to outperform its Japanese rival, executives also discovered they had laid the foundation for new processes that Ford could use in future projects. Their new capability in inte- grated design and manufacturing helped Ford reduce the costs and lead times for other product developments. Thus organiza- tional learning became equally important as a measure of the project’s success.

For development projects to achieve their fullest benefit, they should build on core capabilities, have a guiding vision about what must be accomplished and why, have a commit- ted team, instill a philosophy of continuous improvement, and coordinate efforts across all units.

4.5 |  Job Design and Human Resources Make Innovation Possible

Adopting a new technology may require changes in the design of jobs. Often tasks are redefined to fit people to the demands of the technology. But this may fail to maximize total produc- tivity because it ignores the human part of the equation. Social relationships and human aspects of the task may suffer, lower- ing overall productivity.

The sociotechnical systems approach to work redesign spe- cifically addresses this problem. As mentioned in Chapter 2, this approach redesigns tasks in a way that jointly optimizes the social and technical efficiency of work. Beginning with studies on the introduction of new coal-mining technologies in 1949, the sociotechnical systems approach to work design focused on small, self-regulating work groups. 49 Later it was found that such work arrangements operated effectively only in an environment where bureaucracy was limited.

development project a focused organizational effort to create a new product or process via technological advances

LO5 Discuss what it takes to be world-class

5 |  BECOMING WORLD-CLASS

Managers today want, or should want, their organizations to become world-class. 51 Being world-class requires applying the best and latest knowledge and ideas and having the abil- ity to operate at the highest standards of any place anywhere. 52 Becoming world-class is more than merely improving. It means becoming one of the very best in the world at what you do. To some people, world-class excellence seems a lofty, impossible,

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348 PART 5 | Controlling

goals—not just incremental improvements or business-as-usual goals, but stretch goals (recall Chapter 11). They change con- tinuously, driving for progress via adaptability, experimenta- tion, trial and error, entrepreneurial thinking, and fast action. And they do not focus on beating the competition; they focus primarily on beating themselves. They continually ask, “How can we improve ourselves to do better tomorrow than we did today?”

Underneath the action and the changes, the companies’ core values and vision remain steadfast. For example, American Express’s core values and mission include facilitating com- merce and enabling its customers to do and achieve more in life. Walt Disney’s values and mission include fanatical atten- tion to detail, continuous progress through creativity, com- mitment to preserving Disney’s “magic” image, delivery of happiness and “wholesome American values,” and a lack of cynicism. Note that the values are not all the same. In fact, no set of common values consistently predicts success. Instead the critical factor is that the great companies have core values, know what they are and what they mean, and live by them— year after year.

5.2 |  Replace the “Tyranny of the Or ” with the “Genius of the And ”

Many companies, and individuals, are plagued by what the authors of Built to Last call the “tyranny of the or ”—the belief that things must be either A or B and cannot be both. The authors provide many common examples: beliefs that you must choose either change or stability, be conservative or bold, have control and consistency or creative freedom, do well in the short term or invest for the future, plan methodically or be opportunistic, create shareholder wealth or do good for the world, be pragmatic or idealistic. 55 However, beliefs that only one goal can be attained often are invalid.

An alternative to the “tyranny of the or ” is the “genius of the and ”—the ability to achieve multiple objectives at the same time. 56 It develops via the actions of many indi- viduals throughout the organization. In earlier chapters we discussed the importance of delivering multiple competitive values to customers, performing all the management func- tions, reconciling hard-nosed business logic with ethics, and leading and empowering. Authors Collins and Porras have their own list: 57

• Purpose beyond profit and pragmatic pursuit of profit.

• Relatively fixed core values and vigorous change and movement.

• Conservatism with the core values and bold business moves.

• Clear vision and direction and experimentation.

• Stretch goals and incremental progress.

• Control based on values and operational freedom.

• Long-term thinking and investment and demand for short-term results.

• Visionary, futuristic thinking and daily, nuts-and-bolts execution.

unnecessary goal. But this goal is essential to success in today’s intensely competitive business world.

World-class companies create high-value products and earn superior profits over the long run. They demolish the obsolete methods, systems, and cultures of the past that impede prog- ress and apply more effective and competitive organizational strategies, structures, processes, and management of human resources. The result is an organization that can compete suc- cessfully on a global basis. 53

5.1 |  Build Organizations for Sustainable, Long-Term Greatness

Two Stanford professors, James Collins and Jerry Porras, studied 18 corporations that had achieved and maintained greatness for half a century or more. 54 The companies included Sony, American Express, Motorola, Marriott, Johnson & Johnson, Disney, 3M, Hewlett-Packard, Citicorp, and Walmart. Over the years, these companies have been widely admired as premier institutions in their industries and have made a real impact. Although every company experi- ences downturns, these companies have consistently prevailed across the decades. They turn in extraordinary performance over the long run rather than fleeting greatness. This study is reported in the book called Built to Last —which is what these great organizations are.

The researchers sought to identify the essential character- istics of enduringly great companies. These great companies have strong core values in which they believe deeply, and they express and live the values consistently. They are driven by

● Project FROG (Flexible Response to Ongoing Growth) wants to revolutionize the construction industry. The San Francisco-based company designs and sells modular components that are easily assembled into energy efficient, green buildings for a variety of uses, including retail, healthcare, and overflow classrooms for K-12.

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CHAPTER 15 | Innovating and Changing 349

Two features of organiza- tion development are import- ant. 59 First, it aims to increase organizational effectiveness— improving the organization’s ability to respond to custom- ers, stockholders, governments, employees, and other stake- holders, which results in better-quality products, higher finan- cial returns, and high quality of work life. Second, OD has an important underlying value orientation: it supports human potential, development, and participation in addition to perfor- mance and competitive advantage.

As illustrated in Exhibit 15.4 , many OD techniques fit under this philosophical umbrella. You have learned about these topics throughout your management course. You also will learn more about the process of creating change in the rest of this chapter.

5.4 |  Certain Management Practices Make Organizations Great

A study of 200 management techniques employed by 160 companies over 10 years identified the specific management practices that lead to sustained, superior performance. 60 The authors boiled their findings down to four key factors:

1. Strategy that is focused on customers, continually fine-tuned based on marketplace changes, and clearly communicated to employees.

2. Execution by good people, given decision-making authority on the front lines, who are doing quality work and cutting costs.

You have learned about all of these concepts throughout this course and should not lose sight of any—in your mind or in your actions. To achieve them requires the continuous and effective management of change.

5.3 |  Organization Development Systematically Shapes Success

How do organizations apply the “genius of the and ” and move in the other positive directions described throughout this book? Several general approaches create positive change, and many of them can be incorporated into a formal process of organiza- tion development.

Organization development (OD) is a systemwide applica- tion of behavioral science knowledge to develop, improve, and reinforce the strategies, structures, and processes that lead to organization effectiveness. 58 Throughout this course, you have acquired knowledge about behavioral science and the strate- gies, structures, and processes that help organizations become more effective. The “systemwide” component of the defini- tion means OD is not a narrow improvement in technology or operations but a broader approach to changing organizations, units, or people. The “behavioral science” component means OD is not focused directly on economic, financial, or techni- cal aspects of the organization—although they may benefit through changes in the behavior of the people in the organiza- tion. The other key part of the definition—to develop, improve, and reinforce—refers to the actual process of changing for the better and for the long term.

organization development (OD) the systemwide application of behavioral science knowledge to develop, improve, and reinforce the strategies, structures, and processes that lead to organizational effectiveness

Source: Adapted from T. Cummings and C. Worley, Organization Development and Change, 8th ed. (Mason, OH: Thomson/South- Western, 2005).

Strategic

Helping organizations

conduct mergers and acquisitions,

change their strategies, and

develop alliances

Techno- structural

Enhancing organization structure and

design, employee involvement, and

work design

Human resource

management

Attracting good people, setting

goals, and appraising and

rewarding performance

Human process

Improving conflict

resolution, team building,

communication, and leadership

Exhibit 15.4 Four basic types of OD interventions

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350 PART 5 | Controlling

state governments to nonprofit agencies, it has forced many managers to see innovation as a key to organizational sur- vival. The business as usual mind-set has given way to a “change to survive” mentality. However, the challenge for organizations is not just to produce innovative new products but to balance a culture that is innovative and builds a sus- tainable business. 64 For individuals, the ability to cope with change is related to their job performance and the rewards they receive. 65

The success of most change efforts requires shared lead- ership; people must be not just supporters of change but also implementers. 66 This shared responsibility for change is not unusual in start-ups and very small organizations, but it often is lost with growth and over time. In large, traditional corpora- tions, it is rare. Organizations must rekindle individual creativ- ity and responsibility, instituting true change in the behavior of people throughout the ranks. The essential task is to moti- vate people to keep changing in response to new business challenges.

6.1 | Motivate People to Change People must be motivated to change. But often they resist changing. Some people resist change more than others, but managers tend to underestimate the amount of resistance they will encounter. 67

People at all levels of their organizations, from entry-level workers to top executives, resist change. There are many exam- ples where this resistance led to dire consequences for com- panies. Kodak, once the dominant player in photography and film, was slow to adapt to the explosion of digital photography. Similarly, Blockbuster relied for too long on bricks-and- mortar video rental outlets and underestimated the potential popu- larity of online video streaming that goes directly to people’s homes. 68

3. Culture that motivates, empowers people to innovate, rewards peo- ple appropriately (psychologically as well as economically), entails strong values, challenges people, and provides a satisfying work environment.

4. Structure that makes the organization easy to work in and easy to work with, characterized by cooperation and the exchange of infor- mation and knowledge throughout the organization.

You have been learning about these concepts throughout this course.

People are the key to successful change. 61 For an organi- zation to be great, people have to care about its fate and know how they can contribute. But typically leadership lies with a few people at the top. Too few take on the burden of change; too few care deeply and make innovative contributions. People throughout the organization need to take a greater interest and a more active role in helping the business as a whole. They have to identify with the entire organization, not just with their unit and close colleagues.

LO6 Describe how to manage change effectively

6 |  MANAGING CHANGE

Change happens, constantly and unpredictably. Any com- petitive advantage you may have depends on particular cir- cumstances at a particular time, but circumstances change. 62

New competitors appear, new markets emerge, and the eco- nomic environment shifts. While the recent global recession has devastated countless organizations from companies to

A recent Society for Human Resource Management (SHRM) survey asked HR executives: “Over the next 10 years, what do you think will be the three biggest challenges facing HR executives at your organization?” 63

40%

25%

35%

Top challenge: Retaining and rewarding the best employees

2nd biggest challenge: Developing the next generation of leaders

3rd biggest challenge: Creating a culture that attracts the best employees

Did You Know?

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CHAPTER 15 | Innovating and Changing 351

the firm’s strategy, or they simply may not see the change’s advan- tage over current practices. 72 One company met resistance to the idea of introducing flexible working hours. A false rumor circulated among plant employees that people would have to work evenings, weekends, or whenever their supervisors wanted. The employees’ union demanded that management drop the idea. The president, caught off guard by this unexpected resistance, complied with the union’s demand.

• Different assessments. Employees receive different—and usually less—information than management receives. Such discrepan- cies cause people to develop different assessments of proposed changes. Some may be aware that the benefits outweigh the costs, while others may see only the costs. This is a common problem when management announces a change in work proce- dures and doesn’t explain to employees why the change is needed. Management expects increased efficiency, but workers may see the change as another arbitrary, ill-informed management rule that simply causes headaches for them.

• Management tactics. Sometimes a change that succeeds else- where is undertaken in a new location, and problems may arise during the transfer. 73 Management may try to force the change and fail to address concerns in order to develop employee commitment. Or it may not provide enough resources, knowledge, or leadership to help the change succeed. Managers who overpromise what they—or the change—can deliver may discover that the next time they want to introduce a change, they have lost credibility, so employees resist.

It is important to recognize that employees’ assessments can be more accurate than management’s; employees may know a change won’t work even if management doesn’t. In

At IBM many changes have been necessary to keep bureau- cracy from stifling innovation, and all of them have been challenging. At one point executives learned that lower-level managers were getting bogged down because they had to invest too much time and effort in obtaining approval from high- er-ups. Chair of the Board Sam Palmisano announced that he would give first-level managers authority to spend $5,000 with- out prior approval—a daring move considering that the author- ity applied to 30,000 managers. However, the managers felt uncomfortable with their new authority, and in the first year of the new program, they spent only $100,000 of the $150 million Palmisano had entrusted to them. 69 In other words, they were reluctant to change the way they worked, even though it could make their jobs easier.

To deal with such reactions and successfully implement positive change, managers must understand why people often resist change. Some reasons for resistance arise regardless of the actual content of the change: 70

• Inertia. Usually people don’t want to disturb the status quo. The old ways of doing things are comfortable and easy, so people don’t want to try something new. For example, it is easier for some man- agers to provide performance feedback to employees once a year than on a real-time, frequent basis.

• Timing. People often resist change because of poor timing. If man- agers or employees are unusually busy or under stress, or if rela- tions between management and workers are strained, the timing is wrong for introducing new proposals. Where possible, managers should introduce change when people are receptive.

• Surprise. If a change is sudden, unexpected, or extreme, resistance may be the initial—almost reflexive—reaction. Managers or others initiating a change often forget that others haven’t given the matter much thought; the change leaders need to allow time for others to think about the change and prepare for it.

• Peer pressure. Sometimes work teams resist new ideas. If a group is highly cohesive and has anti-management norms, peer pressure will cause individuals to resist even reasonable changes. Of course peer pressure can be a positive force, too. Change leaders who invite—and listen to—ideas from team members may find that peer pressure becomes a driving force behind the change’s success.

Other causes of resistance arise from the specific nature of a proposed change: 71

• Self-interest. Most people will resist a change if they think it will cause them to lose something of value. What could people fear to lose? At worst their jobs if management is considering closing down a plant. A merger, reorganization, or technological change could create the same fear. Other possible fears include loss of the feeling of being competent in a familiar job, expectations that the job will become more difficult or time-consuming, uncertainty about whether enough training or other resources will be provided for succeeding at the change, and doubts about the organization’s future success, given that management wasn’t satisfied with the status quo.

• Misunderstanding. Even when management proposes a change that will benefit everyone, people may resist because they don’t fully understand it. People may not see how the change fits with

● Not able to keep up with the competition of both Netflix and RedBox, Blockbuster filed for bankruptcy in September 2010. Ironically 10 years earlier they turned down a chance to purchase the still fledgling Netflix for $50 million.

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352 PART 5 | Controlling

bombard employees with facts aimed at inducing fear. When a problem seems huge, people often decide it is hopeless and with- draw from facing it. In Change or Die, journalist Alan Deutschman uses that pattern of behavior to explain why heart attack victims often fail to follow diet and exercise plans, even though doctors tell them they will literally die if they don’t take care of them- selves. 79 Deutschman sees a similar pattern playing out in com- panies where executives rely on threats of layoffs and corporate bankruptcy to motivate employees to adopt new work practices. In these difficult situations, leaders more effectively unfreeze nega- tive behavior with a message of hope and a commitment to collab- orate with others so that they can effect change together.

An important contributor to unfreezing is the recognition of a performance gap, which can precipitate major change. A performance gap is the difference between actual perfor- mance and the performance that should or could exist. 80 A gap typically implies poor performance, as when sales, profits, stock price, or other financial indicators are down. This situ- ation attracts management’s attention, and management intro- duces changes to try to correct things.

Another very important form of performance gap occurs when performance is good but someone realizes it could be bet- ter. Thus the gap is between what is and what could be. This realization is where entrepreneurs seize opportunities and com- panies gain a competitive edge. In the realm of change manage- ment, employees are best motivated by situations that combine the sense of urgency that comes from identifying a problem with the sense of excitement that comes from identifying an

opportunity. Also, employees care about more than market share and revenues; they want to know how making a change can help them have a positive impact on their work group, their customers, their company, their community, and them- selves. For example, a financial services company struggled to persuade employees that a change would enhance the company’s competitive position. Employees got on board only after the change leaders started talking about how the change would help employees reduce errors, avoid dupli- cation of effort, make jobs more interesting, and fulfill the organization’s mission to deliver affordable housing. 81

Moving The next step, moving to institute the change, begins with establishing a vision of where the company is heading. You learned about vision in the leadership chapter. The vision can be realized through strategic, structural, cul- tural, and individual change.

A technique that helps to manage the change process, force-field analysis, involves identifying the specific forces that prevent people from changing and the specific forces that will drive people toward change. 82 In other words, managers

this case, resistance to change benefits the organization. Thus, even though management typically considers resistance a chal- lenge to overcome, it may actually represent an important sig- nal that a proposed change requires further, more open-minded scrutiny. 74

6.2 |  A Three-Stage Model Suggests Ways to Manage Resistance

Motivating people to change often requires three basic stages, shown in Exhibit  15.5 : unfreezing, moving to institute the change, and refreezing. 75

Unfreezing During the unfreezing stage, management real- izes that its current practices are no longer appropriate and the company must break out of (unfreeze) its present mold by doing things differently. People must come to recognize that some of the past ways of thinking, feeling, and doing things are obsolete. 76 A direct and sometimes effective way to do this is to communicate the negative consequences of the old ways by comparing the organization’s performance with that of its competitors. Management can also share with employees data about costs, quality, and profits. 77 Sometimes employees just need to understand the rationale for changing.

When managers communicate a problem, they must take care not to arouse people’s defensiveness. Managers tend to place employees on the defensive when they pin the blame for short- comings directly and entirely on the workers 78 and when they

Breaking from the old ways of doing things.

Instituting the change.

Reinforcing and supporting the new ways.

R ef

re ez

in g

M ov

in g

U n

fr ee

zi n

g

E xa

m p

le

E xa

m p

le

E xa

m p

le A company decides to switch to the cloud for data storage.

The IT department transfers data to the cloud.

Employees are trained on using the new storage system.

Exhibit 15.5 Motivating people to change

unfreezing realizing that current practices are inappropriate and that new behavior is necessary

performance gap the difference between actual performance and desired performance

moving Instituting the change

force-field analysis an approach to implementing Lewin’s unfreezing/moving/

refreezing model by involving identifying the forces that prevent people from changing and those that will drive people toward change

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CHAPTER 15 | Innovating and Changing 353

investigate forces acting in opposite directions at a particular time. Change leaders assess organizational strengths and select forces to add or remove in order to create change. Eliminating the restraining forces helps people unfreeze, and increasing the driving forces helps and motivates them to move forward.

Use of force-field analysis demonstrates that often a range of forces are pressing on an organization and its people at a particular time. This analysis can increase people’s optimism that it is possible to strategize and plan for change. Kurt Lewin, who developed force-field analysis, theorized that although driving forces may be more easily affected, shifting them may increase opposition (tension and/or conflict) within the organi- zation and add restraining forces. So to create change, it may be more effective to remove restraining forces.

Refreezing Finally, refreezing means strengthening the new behaviors that support the change. The changes must be diffused and stabilized throughout the company. Refreezing involves implementing control systems that support the change, applying corrective action when necessary, and rein- forcing behaviors and performance that support the agenda. Management should consistently support and reward all evi- dence of movement in the right direction. 83

In today’s organizations, refreezing may not be the best third step if it creates new behaviors that are as rigid as the old ones. The ideal new culture is one of continuous change. Refreezing is appropriate when it permanently installs behaviors that main- tain essential core values, such as a focus on important business results and the values maintained by companies that are “built to last.” But refreezing should not create new rigidities that

might become dysfunctional as the business environment continues to change. 84 The refrozen behaviors should promote continued adaptability, flexibility, experimentation, assessment of results, and continuous improvement. In other words, lock in key values, capabilities, and strategic mission, but not neces- sarily specific management practices and procedures.

6.3 |  Specific Approaches Can Encourage Cooperation

You can try to command people to change, but the key to long- term success is to use other approaches. 85 Developing true support is better than “driving” a program forward. 86 How, spe- cifically, can managers motivate people to change?

Most managers underestimate the variety of ways they can influence people during a period of change. 87 Several effective approaches to managing resistance and enlisting cooperation are available, as summarized in Exhibit 15.6 .

• Education and communication —Management should educate people about upcoming changes before they occur. It should communicate the nature of the change and its logic. This pro- cess can include reports, e-mails, one-on-one discussions, and presentations to groups. Effective communication includes feedback and listening. Whenever Round Table Pizza introduces a new project or process, managers set up meetings with their employees to discuss the change and bring up any concerns they have. 88 That provides an environment in which manage- ment can explain the rationale for the change—and perhaps improve it.

Source: Reprinted by permission of the Harvard Business Review. An exhibit from “Choosing Strategies for Change” by J. P. Kotter and L. A. Schlesinger (March–April 1979). Copyright © 1979 by the Harvard Business School Publishing Corporation; all rights reserved.

Approach Situations Where Commonly Used Advantages Drawbacks

Education and communication

Where there is a lack of information or inaccurate information and analysis.

Once persuaded, people will often help with the implementation of the change.

Can be very time-consuming if lots of people are involved.

Participation and involvement

Where the initiators do not have all the information they need to design the change, and where others have considerable power to resist.

People who participate will be committed to implementing change, and any relevant information they have will be integrated into the change plan.

Can be very time-consuming if participators design an inappropriate change.

Facilitation and support Where people are resisting because of adjustment problems.

No other approach works as well with adjustment problems.

Can be time-consuming and expensive, and still fail.

Negotiation and rewards Where someone or some group will clearly lose out in a change, and where that group has considerable power to resist.

Sometimes it is a relatively easy way to avoid major resistance.

Can be too expensive in many cases if it alerts others to negotiate for compliance.

Manipulation and cooptation

Where other tactics will not work, or are too expensive.

It can be a relatively quick and inexpensive solution to resistance problems.

Can lead to future problems if people feel manipulated.

Explicit and implicit coercion

Where speed is essential, and the change initiators possess considerable power.

It is speedy and can overcome any kind of resistance.

Can be risky if it leaves people angry at the initiators.

Exhibit 15.6 Methods for managing resistance to change

refreezing strengthening the new behaviors that support the change

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354 PART 5 | Controlling

listening patiently to problems, being understanding if performance drops temporarily or the change is not perfected immediately, and generally being on the employees’ side and showing consideration during a difficult period.

• Participation and involvement —The people who are affected by a change should be involved in its design and implementation. For major, organizationwide change, participation in the process can extend from the top to the very bottom of the organization. 89 People who are involved in decisions understand them more fully and are more committed to them. Participation also allows for edu- cation and communication. Kate Peck, an administrative assistant with ZingTrain, engaged others when she saw a need for change in the haphazard way office supplies were stored. Peck decided they should be arranged according to which items were used most often. Peck sent an e-mail to the staff explaining what she planned to change and why, inviting feedback, and asking who else might need to be informed. One employee suggested that Peck create a diagram for the cabinets to help employees learn what each one contains. When Peck implemented the changes, her coworkers agreed she had improved the situation, and they found whatever they needed more quickly. 90

• Facilitation and support —Management should make the change as easy as possible for employees and support their efforts. Facilitation involves providing the training and other resources peo- ple need to carry out the change and perform their jobs under the new circumstances. This step often includes decentralizing author- ity and empowering people. For many employees, change can be stressful. 91 Managers can help employees cope with their stress by

By the middle of the 21st century, the world’s population is expected to reach 9 billion people, a 30 percent increase over today’s population. In order to stave off hunger in the future, global food produc- tion will have to increase by 70 percent over current levels, and more efficient methods for producing crops, dairy prod- ucts, and meat will need to be developed. Waste, which can occur at any point during the agricultural value chain, claims about half, or 2 billion tons, of the food pro- duced in the world. Animal health is also a concern. Brian Walsh, CEO of Vital Herd, observes: “Forty percent of dairy cows get ill each year.” The U.S. Department of Agriculture estimates total economic loss from animal sickness and death is more than $5 billion, with worldwide losses reaching 12 times this amount. With agriculture consuming 70 percent of the world’s freshwater supply, methods need to be developed to conserve this precious resource.

Big Data and technology can help address these challenges and support the

trend toward sustainable farming. Big Data refers to the analysis of massive amounts of data companies collect from customers, social media sites, blogs, and other sources in order to improve prod- ucts, reduce costs, and attract and retain customers. In an agricultural context, the use of real-time data gathering and anal- ysis about such variables as weather, moisture levels in the soil, air quality, wind speed and direction, temperature, humidity, and crop maturity can lead to the development and use of “precision agriculture” technologies. According to Ulisses Mello, who heads a team of sci- entists from IBM Research-Brazil, such technologies “can maximize food produc- tion, minimize environmental impact and reduce costs.”

Here are some examples of how com- panies and growers are using Big Data to be more efficient and productive with regard to farming:

• Climate Corporation (founded by two ex-Google executives) operates a cloud-

based farming information system that combines millions of weather measure- ments and soil observations to predict temperature, rain, and wind forecasts for 24-hour and 7-day periods. Accurate weather forecasts help farmers know when to irrigate their crops, apply fer- tilizer, and so forth.

• Agribusiness Monsanto markets a “prescription” to farmers that provides detailed suggestions regarding which seeds to plant based on the farm’s soil type, disease history, and pests. The company is also testing a technology that uses computer logarithms to ana- lyze data to identify which fields are likely to support corn seeds planted closer together. Both of these innova- tions can lead to greater yields in food production.

• DuPont Pioneer is launching Encirca, a data platform to help farmers mine their data to improve crop production and use seed, nitrogen, and water more effi- ciently. The platform can also provide

How “Big Data” Contributes to Sustainable Farming

● The Bar Lamar Tap Room in Whole Foods Market ® in Austin, TX. Whole Foods hopes that the tap rooms become community-gathering spots.

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CHAPTER 15 | Innovating and Changing 355

• Manipulation and cooptation —Sometimes managers use more sub- tle, covert tactics to implement change. One form of manipulation is cooptation, which involves giving a resisting individual a desirable role in the change process. The leader of a resisting group often is co-opted. For example, management might invite a union leader to be a member of an executive committee or ask a key member of an outside organization to join the company’s board of directors. As a person becomes involved in the change, he or she may become less resistant to the actions of the co-opting group or organization.

• Negotiation and rewards —When necessary, management can offer concrete incentives for cooperating with the change. Perhaps job enrichment is acceptable only with a higher wage rate, or a work rule change is resisted until management agrees to a concession on some other rule (say, about taking breaks). Rewards such as bonuses, wages and salaries, recognition, job assignments, and perks can be examined and perhaps restructured to reinforce the direction of the change. 92 Change is further facilitated by demonstrating that the change itself benefits people. 93 John Mackey, founder of Whole

growers with field-specific weather forecasts. Given that 90 percent of all crop losses are attributable to weather, this forecast feature can help growers make better decisions.

Other data-sensing products are available to help prevent spoilage and waste during the transportation stages of the agricultural logistics chain. Some estimates suggest that between 10 and 15 percent of chilled food spoils during transport, costing approximately $25  billion. Tech Mahindra, an IT ser- vice company based in Bangalore, India, provides a system called Farm-to-Fork, “which aims to monitor containers cen- trally, sending alerts out whenever the conditions in a container deviate from the ideal ones.” Sensors, located in each container, monitor and transmit temperature and other information via mobile data networks. Problems are fixed either automatically or when the ship arrives at port.

Big Data is changing the way food is grown in the world. Using real-time data and cloud computing technologies, agri- businesses and growers are tapping more

• Throughout history, farmers have developed and relied on their own methods of gathering information about their crops, predicting the weather, and so forth. What are some of the key driv- ers of change and innovation that are encouraging growers to begin using some of the Big Data agricultural tech- niques discussed in this case? Explain.

• Assume that you manage a corn farming operation with 50 full-time employees. You want to motivate your “old- fashioned” employees to change the way they think about planting, water- ing, fertilizing, harvesting, and transport- ing corn to the market. You are convinced that Big Data and related technologies should be used to increase your farm’s crop yield. Referring back to Exhibit 15.5 in this chapter, how will you unfreeze,

move, and refreeze your employees’ views about using data and technology for this purpose?

SOURCES: “Precision Agriculture: Using Predictive Weather Analytics to Feed Future Generations,” company website, www.research.ibm.com ; A. Connelly, “Farming’s ‘Green Revolution’ Uses New Technologies,” Kentucky.com, June 9, 2014, www. kentucky.com ; C. Doering, “Big Data Means Big Profits, Risks for Farmers,” USA Today (online), May 11, 2014, www.usatoday.com ; “American Farmers Confront ‘Big Data’ Revolution,” Fox News (online), March 29, 2014, www.foxnews.com ; P. Rubens, “Can Big Data Crunching Help Feed the World?” BBC (online), www.bbc.com , accessed on June 18, 2014; S. Freidman, “Farmers Embrace Big Data to Reduce Pollution,” GreenBiz.com , October 4, 2013, www.greenbiz.com ; and S. Rosenbush and M. Totty, “How Big Data Is Changing the Whole Equation for Business,” The Wall Street Journal (online), March 10, 2013, www.wsj.com .

Discussion Questions

precise information to inform their deci- sion making, ultimately resulting in more

efficient crop yields and reduced waste during all stages of the value chain.

“People don’t resist change. They resist being changed!” — Peter Senge

Foods, encourages continuous innovation by decentralizing decision making to managers and employees at the store level. One recent idea that germinated from this approach was the “tap room—an in-store beer and wine bar that lets customers nibble on food while sampling local wine and beers by the glass.” So far, tap rooms are showing a lot of promise and have been rolled out to approximately 100 stores. 94

• Explicit and implicit coercion —Some managers apply punishment or the threat of punishment to those who resist change. With this approach, managers use force to make people comply with their wishes. A man- ager might insist that subordinates cooperate with the change and threaten them with job loss, denial of a promotion, or an unattractive work assignment. Sometimes you just have to lay down the law.

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356 PART 5 | Controlling

A survey at a Harvard Business School conference found that the average attendee’s company had five major change efforts going on at once. 100 The most common change pro- grams were practices you have studied in this course: contin- uous improvement, quality programs, time-based competition, and creation of a learning organization, a team-based organi- zation, a network organization, core capabilities, and strategic alliances. The problem is, these efforts usually are simultane- ous but not coordinated. As a result, changes get muddled; peo- ple lose focus. 101 The people involved suffer from confusion, frustration, low morale, and low motivation.

Because companies introduce new changes constantly, people complain about their companies’ “flavor of the month” approach to change. Employees often see change efforts as just the com- pany’s jumping on the latest bandwagon or fad. The more these

fads come and go, the more cynical people become, and the harder it is to get them committed to making the change a success. 102

One solution is to iden- tify which change efforts are really worthwhile. Here are some specific questions

to ask before embarking on a change project: 103

• What is the evidence that the approach really can produce positive results?

• Is the approach relevant to your company’s strategies and priorities?

• What are the costs and potential benefits?

• Does it really help people add value through their work?

• Does it help the company focus better on customers and what they value?

• Can you go through the decision-making process described in Chapter 5, understand what you’re facing, and feel that you are tak- ing the right approach?

Management also needs to integrate the various efforts into a coherent picture that people can see, understand, and get behind. 104 You do this by understanding each change pro- gram and its goals, identifying similarities and differences of the programs, and dropping programs that don’t meet priority goals or demonstrate clear results. Most important, you do it by communicating to everyone concerned the common themes of the various programs: their common rationales, objectives, and methods. You show them how the parts fit the strategic big picture and how the changes will improve things for the company and its people. You must communicate these benefits thoroughly, honestly, and frequently. 105

6.5 | Managers Must Lead Change Successful change requires managers to actively lead it. The essential activities of leading change are summarized in Exhibit 15.7 .

Each approach to managing resistance has advantages and drawbacks and, like many of the other situational management approaches described in this book, each is useful in certain sit- uations. Exhibit  15.6 summarizes advantages, drawbacks, and appropriate circumstances for these approaches to managing resistance to change. Effective change managers are familiar with the various approaches and apply them according to the situation.

In the 1990s, when advertisers were wary of using the Internet, Yahoo! management hired someone it could trust as head of its sales force: Wenda Harris Millard. Millard was a 50-year-old veteran of the magazine industry. She taught her young and brash salespeo- ple to work respectfully with their older ad agency clients, and she showed those clients that online ads could benefit them. Agency creative types loved TV ads but thought of Internet adver- tising as mainly boring pop- ups with a box saying “Click here.” Yahoo! under Millard brought them together at edu- cational summits and estab- lished the Yahoo Big Idea Chair award for the most cre- ative online advertising. Seeing what innovative companies were doing, ad agency people became able to envision online advertis- ing as a medium that allowed plenty of room for creativity—and Yahoo! began selling ads to big companies, reaching millions of web visitors every day. 96

Throughout the process, change leaders need to build in sta- bility. Recall from the companies that were “built to last” that they share essential core characteristics and keep focused on them. In the midst of change, turmoil, and uncertainty, people need anchors onto which they can latch. 97 Making an organiza- tion’s values and mission constant and visible can often serve this stabilizing function. In addition, strategic principles can be important anchors during change. 98 Managers also should maintain the visibility of key people, continue key assignments and projects, and make announcements about which organiza- tional components will not change. Such anchors will reduce anxiety and help overcome resistance.

6.4 |  Managers Have to Harmonize Multiple Changes

There are no single-shot methods of changing organizations successfully. Single shots rarely hit a challenging target. Usually many issues need simultaneous attention, and any sin- gle small change will be absorbed by the prevailing culture and disappear. Total organization change involves introducing and sustaining multiple policies, practices, and procedures across multiple units and levels. 99 Such change affects the thinking and behavior of everyone in the organization, can enhance the orga- nization’s culture and success, and can be sustained over time.

“Change is a verb.” — Mimi Silbert, founder, Delancey Street Foundation 95

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CHAPTER 15 | Innovating and Changing 357

• Internal measurement systems that focus on the wrong perfor- mance indexes.

• Lack of sufficient performance feedback from external sources.

• Low-candor, low-confrontation culture (“kill the messenger of bad news”).

• Human nature, with its capacity for denial, especially if people are already busy or stressed.

• Too much happy talk from senior management.

To stop complacency and create urgency, a manager can talk candidly about the organization’s weaknesses relative to competitors, making a point to back up statements with data. Other tactics include setting stretch goals, putting employees in direct contact with unhappy customers and shareholders, distributing worrisome information to all employees instead of merely engaging in management “happy talk,” eliminating excessive perks, and highlighting the future opportunities that the organization so far has failed to pursue.

Ultimately, urgency is driven by compelling business rea- sons for change. Survival, competition, and winning in the marketplace are compelling; they provide a sense of direc- tion and energy around change. Change becomes a business necessity. 108

To create a guiding coalition means putting together a group with enough power to lead the change. Change efforts fail for lack of a powerful coalition. 109 Major organization change requires leadership from top management, working as a team. But over time, the support must expand outward and downward throughout the organization. Middle managers and supervisors are essential. Groups at all levels can hold change efforts together, communicate information about the changes, and provide the means for enacting new behaviors. 110

Developing a vision and strategy, as discussed in earlier chapters, directs the change effort. This process involves deter- mining the idealized, expected state of affairs after the change is implemented. Because confusion is common during major organizational change, this image of the future state must be as clear as possible and must be communicated to everyone. 111

This image, or vision, can clarify expectations, dispel rumors, and mobilize energies. Communication about it should include how the transition will occur, why the change is being imple- mented, and how people will be affected.

Communicating the change vision requires using every possible channel and opportunity to reinforce the vision and required new behaviors. It is said that aspiring change lead- ers undercommunicate the vision by a factor of 10, 100, or even 1,000, seriously undermining the chances of success. 112

In contrast, when Virginia Blood Services (VBS) launched an effort to improve its organizational culture in order to lower employee turnover and accident rates, communication was cen- tral to the change effort. The communication program at VBS includes employee meetings every three months, an employee newsletter distributed every two weeks, and messages from the president. In each site’s break room, the organization replaced

The companies that lead change most effectively establish a sense of urgency. 106 To do so, managers must examine current realities and pressures in the marketplace and the competitive arena, identify crises and opportunities, and be frank and hon- est about them. In this sense, urgency is a reality-based sense of determination, not just fear-based busyness. The immediacy of the need for change is important partly because so many large companies grow complacent. Complacency can arise from var- ious sources: 107

• Absence of a major and visible crisis.

• Too many visible resources.

• Organizational structures that focus employees on narrow func- tional goals.

Source: Reprinted by permission of Harvard Business Review. From Leading Change by J. P. Kotter, Harvard Business School Press. Copyright © 1996 by the Harvard Business School Publishing Corporation; all rights reserved.

7. Consolidating gains and producing more change

1. Establishing a sense of urgency

2. Creating the guiding coalition

3. Developing a vision and strategy

4. Communicating the change vision

5. Empowering broad-based action

6. Generating short-term wins

8. Anchoring new approaches in the culture

Exhibit 15.7 Leading change

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means anticipating and preparing for an uncertain future. It implies being a leader and creating the future you want.

7.1 | Think About the Future If you think only about the present or wallow in the uncertain- ties of the future, your future is just a roll of the dice. It is far better to exercise foresight, set an agenda for the future, and pursue it with everything you’ve got. So contemplate and envi- sion the future.

BusinessWeek predicts that dramatic change will continue: “The global economy could be on the cusp of an age of inno- vation equal to that of the past 75 years. All the right factors are in place: Science is advancing rapidly, more countries are willing to devote resources to research and development and

bulletin boards—where no one bothered to read the memos and government posters—with wall-mounted display cases featur- ing colorful posters and motivational, sometimes humorous messages about safety, quality, and teamwork. The items in the displays are changed every week to maintain interest. The communication program, which supports practical measures like safety training and new scheduling procedures, has helped to build support for the new organizational culture, motivating employees to stay safe and on the job. 113

Empowering broad-based action means removing obsta- cles to success, including systems and structures that constrain rather than facilitate. Encourage risk taking and experimenta- tion, and empower people by providing information, knowl- edge, authority, and rewards.

“If your actions inspire others to dream more, learn more, do more and become more, you are a leader.”

— John Quincy Adams

Generate short-term wins. Don’t wait for the ultimate grand realization of the vision. You need results. As small victories accumulate, you make the transition from an isolated initia- tive to an integral part of the business. 114 Plan for and create small victories that show everyone that progress is being made. Recognize and reward the people who made the wins possible, doing it as visibly as you can so that people notice and the pos- itive message permeates the organization.

Consolidate gains and produce more change. With the well- earned credibility of previous successes, keep changing things in ways that support the vision. Hire, promote, and develop peo- ple who will further the vision. Reinvigorate the organization and your change efforts with new projects and change agents.

Finally, anchor new approaches in the culture. 115 Highlight positive results, communicate the connections between the new behaviors and the improved results, and keep developing new change agents and leaders. Continually increase the number of people joining you in taking responsibility for change. 116

LO7 List tactics for creating a successful future

7 |  SHAPING THE FUTURE

Most change is reactive. A better way to change is to be proac- tive. Reactive change means responding to pressure after a prob- lem has arisen. It implies being a follower. Proactive change

education, and corporate managers, too, are convinced of the importance of embracing change.” 117

Shoshana Zuboff and Jim Maxim, authors of The Support Economy, claim that the era of industrial capitalism is over, traditional business enterprises are disappearing, vast new mar- kets exist, new kinds of companies are ready to be created, and the new business model hasn’t yet emerged. 118 But new busi- ness concepts are always interesting to contemplate.

Uber is a fast-growing car service located across 70 cities in 38 coun- tries. Its mission is to open up more possibilities for riders and more business for drivers. Urbanites and visitors (e.g., businesspeople in town for a day or two) alike use an app on their smartphones to view fares and easily connect with Uber’s drivers, who promptly arrive in one of five styles of black company vehicles (fares vary based on which model a customer chooses) to shuttle them to and from their destination—whether that be a business meeting, wedding recep- tion, or weekend getaway. All drivers undergo a three-step (county, federal, and state) background check and ongoing reviews of their motor vehicle records. Also, Uber collects and posts anonymous customer feedback and driver profiles on the company’s website.

Uber has set a lofty goal for itself. Currently valued at $3.5 bil- lion, the company wants to be for logistics, delivery, and travel what Amazon is for retail; namely, the ubiquitous first choice. To that end, the company recently changed its tagline from “Everyone’s pri- vate driver” to the much broader “Where lifestyle meets logistics.” Looking to the future, Uber wants to radically alter the way the world moves and seems to be progressing toward this lofty goal as it rapidly expands its presence in more than 70 cities and 38 countries. 119

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the building block of a new industry, nanotechnology. Why is the nanometer so import- ant? 126 Because matter of this size often behaves differently— transmitting light or electric- ity, or becoming harder than diamonds, or becoming pow- erful chemical catalysts. Early applications include coatings and light-emitting dots for more efficient semiconductors and nanoparticles that clean up polluted water by forming chemical bonds with contaminants. 127 Applications under development include 50-nanometer capsules containing vitamins and other nutrients that can be added to beverages without changing their taste or that can be activated by microwaves. 128

As you’ve read, technological change is a central part of the changing landscape, and competition often arises between newcomers and established companies. All things considered, which should you and your firm do?

• Preserve old advantages or create new advantages?

• Lock in old markets or create new markets?

• Take the path of greatest familiarity or the path of greatest opportunity?

7.2 | Create the Future As companies prepare to compete in an uncertain future, they can try different strategic postures. Adapters take the cur- rent industry structure and its future evolution as givens and choose where to compete. Most companies take this posture by conducting standard strategic analysis and choosing how to compete within given environments. In contrast, shapers try to change the structure of their industries, creating a future com- petitive landscape of their own design. 120

Researchers studying corporate performance over a 10-year period found that 17 companies in the Fortune 1000 increased total shareholder return by 35 percent or more per year. 121

How? They completely reinvented industries. Harley-Davidson turned around by selling not just motorcycles, but nostalgia. Amgen broke the rules of the biotech industry by focusing not on what customers wanted, but on great science. Starbucks took a commodity and began selling it in trendy stores. CarMax and other companies reinvented the auto industry.

You need to create advantages. Rather than maintaining your position in the current competitive arena, the challenge is to create new competitive arenas, transform your industry, and imagine a future that others don’t see. Creating advantage is better than playing catch-up. At best, working to catch up buys time; it cannot get you ahead of the pack or buy world-class excellence. 122 To create new markets or transform industries— these are perhaps the ultimate forms of proactive change. 123

Exhibit  15.8 illustrates the vast opportunity to create new markets. Articulated needs are those that customers acknowledge and try to satisfy. Unarticulated needs are those that customers have not yet experienced. Served customers are those to whom your company is now selling, and unserved customers are untapped markets.

While business as usual concentrates on the lower left quadrant, the leaders who recreate the game are constantly trying to create new opportu- nities in the other three quadrants. 124 For example, you can pursue the upper left quadrant by imagin- ing how you can satisfy a larger proportion of your customers’ total needs. Caterpillar appreciates that its customers want more than its heavy equipment; they also need excellent service so they can use that equipment to meet their own customers’ needs. As a result, if a customer anywhere in the world needs a Caterpillar part, the company will ship it there within 24 hours. And Lands’ End expanded both its product offerings and number of served custom- ers by offering customization—the ability to spec- ify exact measurements when ordering jeans and other selected items of clothing. 125

Other companies hope to meet unarticulated needs by developing and exploiting cutting-edge technology. The nanometer—one-billionth of a meter, 1/100,000 the width of a human hair, or about the size of 10 hydrogen atoms in a row—is

Source: Reprinted by permission of Harvard Business Review. From Competing for the Future, by Gary Hamel and C. K. Prahalad, Harvard School Press. Copyright © 1994 by the Harvard Business School Publishing Corporation; all rights reserved.

Articulated

Served Unserved

Unarticulated

Needs

Customer types

Unexploited opportunities

Exhibit 15.8 Vast opportunity

adapters companies that take the current industry structure and its evolution as givens, and choose where to compete

shapers companies that try to change the structure of their industries, creating a future competitive landscape of their own design

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for mediocrity; don’t assume that “good” is necessarily good enough—for yourself or for your employer. Think about how to exceed, not just meet, expectations; how to break free of appar- ent constraints that are unimportant, arbitrary, or imagined; and how to seize opportunities instead of letting them pass by. 132

You can continually add value to your employer—and also to yourself—as you upgrade your skills, ability to contribute, security with your current employer, and ability to find alterna- tive employment if necessary. The most successful individuals take charge of their own development the way an entrepreneur takes charge of a business. 133

More advice from the leading authors on career manage- ment: 134 Consciously and actively manage your own career. Develop marketable skills, and keep developing more. Make career choices based on personal growth, development, and

• Be only a benchmarker or a pathbreaker?

• Place priority on short-term financial returns or on making a real, long-term impact?

• Do only what seems doable or what is difficult and worthwhile?

• Change what is or create what isn’t?

• Look to the past or live for the future? 129

7.3 | Shape Your Own Future If you are an organizational leader and your organization oper- ates in traditional ways, your key goal should be to create a revo- lution, reengineering your company before it becomes a dinosaur of the modern era. 130 What should be the goals of the revolution? You’ve been learning about them throughout this course.

Take Charge of your Career The “New” job security: Continually add value at work

W hile working for an established com-pany a few decades ago, as long as you were reliable and did your job well, chances are good that you would have had job secu- rity. These days, it’s a different story. Due to fluctuating economic conditions, intense global competition, changing technology, and changing philosophies toward employ- ment, most companies no longer provide their employees with job security. Layoffs and outsourcing have become commonplace. Sounds bleak, doesn’t it? Well, companies

still need good employees who continually go the extra mile and look for ways to add value at work. Here are some methods that can help you add value and, in so doing, increase your job security:

• Go beyond your job description: volunteer for projects, identify problems, and initiate solutions.

• Seek out others and share ideas and advice.

• Offer your opinions and respect those of others.

• Take an inventory of your skills every few months.

• Learn something new every week.

• Discover new ways to make a contribution.

• Engage in active thought and deliberate action.

• Take risks based on what you know and believe.

• Recognize, research, and pursue opportunity.

• Differentiate yourself.

A common theme here and throughout this entire book is that you are responsible for creating your own “luck” and career suc- cesses. Now more than ever, you need to rely on your self-motivation, interpersonal skills, strong and trusted network of colleagues and mentors, and hard work to be successful. Take charge of your career!

Source: List compiled from C. Hakim, We Are All Self-Employed (San Francisco: Barrett-Koehler, 1994).

“There is nothing wrong with change, if it is in the right direction.”

— Winston Churchill

But maybe you are not going to lead a revolution. Maybe you just want a successful career and a good life. You still must deal with an economic environment that is increasingly com- petitive and fast-moving. 131 To create the future you want for yourself, you have to set high personal standards. Don’t settle

learning opportunities. Look for positions that stretch you, and for bosses who develop their protégés. Seek environments that provide training and the opportunity to experiment and inno- vate. And know yourself—assess your strengths and weak- nesses, your true interests, and ethical standards. If you are

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CHAPTER 15 | Innovating and Changing 361

You need to maintain your options. More and more, contem- porary careers include leaving a large organization and going entrepreneurial, becoming self-employed in the “postcorporate world.” 136 In such a career, independent individuals make their own choices, responding quickly to demands and opportunities. Developing start-up ventures, consulting, accepting temporary employment, doing project work for one organization and then another, working in professional partnerships, being a constant deal maker—these can be the elements of a successful career. Ideally, this self-employed model balances working with life at home and with family because people have more control over their work activities and schedules.

This go-it-alone approach can sound ideal, but it also has downsides. Independence can be frightening, the future unpre- dictable. It can isolate “road warriors” who are always on the go, working from their cars and airports, and interfere with social and family life. 137 Effective self-management is needed to keep career and family obligations in perspective and in con- trol. Coping with uncertainty and change is also easier if you develop resilience. To become more resilient, practice think- ing of the world as complex but full of opportunities; expect change, but see it as interesting and potentially rewarding, even if changing is difficult. Also, keep a sense of purpose, set pri- orities for your time, be flexible when facing uncertainty or a need to change, and take an active role in the face of change, rather than waiting for change to happen to you. 138

7.4 |  Learn and Lead the Way to Your Goals

Continuous learning is a vital route to renewable compet- itive advantage. 139 People in your organization—and you, personally—should constantly explore, discover, and take action, repeating this cycle as you progress in your career: 140

1. Explore your current reality, being as honest and open as possi- ble about what is happening. Identify your problems and areas of opportunity. Gather data. Check with customers, suppliers, and other key stakeholders. Reveal hidden issues, and look for root causes. Rethink the issue based on what you have learned.

2. Discover a deeper understanding of the current reality. The issues and choices should become clearer. Identify possible solutions or ways to take advantage of opportunities. Plan what to do, anticipat- ing problems that may arise.

3. Act by testing solutions, implementing your plan, and evaluating the results. Recognize problems; that will prepare you for repeating the cycle. And be sure to celebrate your successes, too.

With this approach, you can learn what is effective and what is not and then adjust and improve accordingly. Continuous learning helps your company achieve lower cost, higher qual- ity, better service, superior innovation, and greater speed—and helps you develop on a personal level.

Commit to lifelong learning. Be willing to seek new chal- lenges, and reflect honestly on successes and failures. 141 Lifelong learning requires occasional risk taking. Move outside

not already thinking in these terms and taking commensurate action, you should start now.

Additionally, become indispensable to your organization. Be happy and enthusiastic in your job and committed to doing great work, but don’t be blindly loyal to one company. Be pre- pared to leave, if necessary. View your job as an opportunity to prove what you can do and increase what you can do, not as a comfortable niche for the long term. 135 Go out on your own if it meets your skills and temperament.

Continuously learn while in college Differentiate yourself by becoming a continuous learner. Some college students are so focused on getting through their studies quickly in order to graduate that they miss out on some great learning opportunities. While in college, find time to explore, discover, and take action. Maybe you want to build your leadership experience. Check out student organizations and local community groups for opportuni- ties. Perhaps you’re interested in getting some international experience. Visit your school’s international program or study abroad office to see what opportunities are available. If your grades are slipping, then take action by visiting the professor for study advice, forming a student study group, or reevaluating your priorities. To land a good job or internship, you’ll want to learn about the job market and sharpen your job search skills. Meet with a career placement adviser at your college, visit several job board websites, seek advice from members of your network, and so forth. Continually practice these job search activities; soon they will become second nature. Continuous learning is a lifetime activity, so why not make it a habit while you’re still in college?

study tip 15

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362 PART 5 | Controlling

Honored as one of the best management books of the year in Europe, Leaning into the Future gets its title from a com- bination of the words leading and learning. 144 The two per- spectives, which may appear very different, are powerful and synergistic when pursued in complementary ways. A success- ful future derives from adapting to the world and shaping the future, being responsive to others’ perspectives and being clear about what you want to change, encouraging others to change while recognizing what you need to change about yourself, understanding current realities and passionately pursuing your vision, learning and leading.

This is another example of an important concept from the beginning of the chapter. For yourself, as well as for your orga- nization, live the genius of the and.

your comfort zone, honestly assess the reasons behind your successes and failures, ask for and listen to other people’s information and opinions, and stay open to new ideas.

A leader—and this could include you—should be able to create an environment in which “others are willing to learn and change so their organizations can adapt and innovate [and] inspire diverse others to embark on a collective journey of con- tinual learning and leading.” 142 Learning leaders exchange knowledge freely; commit to their own continuous learning as well as to others’; commit to examining their own behaviors and defensiveness that may inhibit their learning; devote time to their colleagues, suspending their own beliefs while they lis- ten thoughtfully; and develop a broad perspective, recognizing that organizations are an integrated system of relationships. 143

Study Che klist Did you tear out the perforated student review card at

the back of the text to revisit learning objectives and key terms and definitions?

Connect ® Management is available for M Management. Additional resources include: Interactive Applications: • Drag & Drop: Innovation at MTV • Drag & Drop: Which Products Create New Markets? • Sequencing/Timeline: Leading the Charge for Change • Video Case: Should the Space Shuttle Continue?

LearnSmart—Multiple choice questions help you determine what you already know, are not sure about, or need to practice based on your score. And with SmartBook, you can read the relevant section in the eBook as well as practice and recharge what you’ve learned.

Chapter Video: Johnson & Johnson eUniversity

Young Manager Speaks Out: Keisha Heard, Financial Aid Program Coordinator

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