Personal Experiences and Failures of Change

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4 Shaping and Sustaining Change

Ryan McVay/Photodisc/Thinkstock

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Learning Objectives

After reading this chapter, you should be able to do the following:

1. Describe the major reasons why organizational change programs fail and succeed.

2. Evaluate how to recruit and empower employees.

3. Analyze the �ive pillars of successful, sustainable change.

4. Explain the characteristics of built-to-change organizations that position themselves to successfully sustain change.

5. Examine useful principles and practices in sustaining change.

Nothing is easier than saying words. Nothing is harder than living them day after day.

—Arthur Gordon

In Chapter 3 we discussed three companies that underwent signi�icant planned organizational changes. They are summarized here to illustrate two successful overall outcomes (Ford and AlliedSignal/Honeywell) and one unsuccessful change (Avon).

Ford

After working at Ford for 25 years, Alan Mulally retired as CEO on July 1, 2014—8 years after leading Ford’s transformation. Chair Bill Ford said, “Alan deservedly will be long remembered for engineering one of the most successful business turnarounds in history. Under Alan’s leadership, Ford not only survived the global economic crisis, it emerged as one of the world’s strongest auto companies” (as cited in Media.Ford.com, 2014, para. 4).

Mulally’s change strategy, “One Ford,” worked. In 2006 Ford lost $12.7 billion, its worst performance ever. In 2010, however, the company had net income of $6.6 billion, its highest pro�it in a decade. The stock price was $1.25 a share in 2006 when Mulally came on board; it closed at $17.21 on the day he retired. In 2011 he was awarded stock bonuses worth $56.5 million (Henry, 2011).

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After careful research, Mulally targeted major problems at Ford as “inef�iciencies in production, bad relationships with suppliers, unrealistic delivery dates—and management that de�lected blame” (as cited in Henry, 2011, “One World, One Plan,” para. 2). With the One Ford strategy, he reorganized the company’s operations and global managers to focus on the same agenda.

Mulally’s overall success factors were that he had a compelling vision for Ford as a mobility company. He focused on technological innovation (for example, MyFord Touch entertainment) across vehicles and led product development with partnerships in the consumer electronics industry. This allowed Ford cars and trucks to transform into mobile centers of entertainment and communication that grew in concert with smartphones and social media. Now all major automakers focus on personal technologies to make cars mobile entertainment and information centers (Caldicott, 2014).

Mulally promoted accountability and collaboration across leadership structures. He also carved a path for outstanding execution. Ford moved forward with new product vehicle development, redesigning the Taurus, Focus, and Fiesta models. Mulally then streamlined Ford’s products, removing 97 weak auto products and concentrating on 20. This resulted in a simpler, leaner product line that allowed Mulally to focus on and showcase manufacturing, product development, and customer service excellence (Caldicott, 2014).

AlliedSignal/Honeywell

During Larry Bossidy’s term as CEO, Honeywell emerged from a disastrous merger with AlliedSignal in 1999, when the latter purchased Honeywell for $14.4 billion. Honeywell operated in the controls and aerospace business; AlliedSignal was at the time an aerospace, automotive, and engineering �irm. There was a clash of cultures. AlliedSignal was overwhelmed with cost control, which caused it to neglect its long-term investments and strategic planning. By contrast, the original Honeywell was known for being customer-centric and creative, but not for execution.

Bossidy was asked to �ind a successor who could handle the challenge of merging the two warring cultures. In 2002 he took a chance on David Cote, who had worked under Jack Welch at GE. Cote’s �irst step toward a turnaround was to terminate a long-standing aggressive accounting policy used by AlliedSignal and Honeywell and adopt a conservative approach that put both �irms on a more level playing �ield. Secondly, Cote introduced a new collaborative strategy for dealing with Honeywell’s dif�icult legacy and litigious approach to solving asbestos lawsuits and environmental liabilities. Honeywell established a trust for the claims, making expenses predictable.

Cote also introduced principles of best practices in all businesses to stop the con�licts between the companies. He focused attention on manufacturing practices in particular, sending 70 managers to a Toyota plant to master output production methods. The rewards were described as spectacular. Since 2002 the company’s sales have grown by 72%, while its head count only increased by 21% (Tully, 2012). By keeping �ixed costs like labor relatively �lat, Cote generated “operating leverage” that magni�ied brisk revenue growth into outsize earnings. Since 2003 Honeywell has increased sales by 7% each year, and operating pro�its have grown by 12% (Tully, 2012).

Cote also excelled at company acquisitions. Honeywell acquired 70 companies. These moves tripled Honeywell’s pro�its. In effect, Cote’s collaborative, detailed, and big-picture approach, along with his relentless focus on integration, has made him a change champion at Honeywell and within its industry.

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Avon

Avon Products’ ex-CEO Andrea Jung stepped down in 2011 and was succeeded by Sherilyn McCoy. Several large change efforts had faltered and failed under Jung since 2005 (Martin, 2012), and Avon’s pro�its had declined every year since 2008. McCoy said in 2012:

Avon’s products and pricing were “off target.” Technology and service “did not keep pace.” Senior managers were moved so often they couldn’t gain traction. Avon doesn’t need yet another new strategy. We need to focus on the core of Avon’s business: representatives, consumers and our people. The challenge we’re facing didn’t materialize overnight. They developed over years, and our solutions will take time as well. (as cited in Martin, 2012, paras. 23–25)

What went wrong with Jung’s transformation efforts? What led to her eventual downfall? Himsel (2014) answered this question by identifying �ive “traps.” Trap 1: Jung failed to develop the agility to factor global scale and local requirements into decisions. Avon attempted to manage economies of scale and local customization requirements with erratic business moves. First it decentralized the system; then the following year it did the opposite and went back to centralized control. This led to the company being unable to meet customer demands and being perceived as overly reactive.

Trap 2: Jung did not align organization culture with strategy. She may have underestimated the power of culture, which can and did undermine even the strongest strategy. She failed to evolve the culture with the strategy.

Trap 3: Jung occasionally refused to hold leaders, including herself, accountable for controversial changes and performance-related decisions. When leaders do not send clear, certain, and consistent messages and follow-up actions, employees lose con�idence in them.

Trap 4: Jung failed to understand the demands of of�icers and leaders when globally integrating the company. During this transition, Avon needed a CFO who could improve and consolidate its �inancial systems, create consistent �inancial controls and processes, and increase margins while decreasing inventory. Instead, the company hired a CFO generalist and “deal maker.” These skills did not match the demands of a company expanding and integrating into emerging markets.

Trap 5: Jung failed at due diligence and vigilance in having employees work in “at-risk” global, emerging markets. The result: Avon paid a $135 million settlement with the U.S. Securities Exchange Commission and the U.S. Department of Justice for allegedly bribing Chinese government of�icials. CEOs and their staff must screen and train new hires to follow corporate values and codes of law and ethics both at home and abroad (Kowitt, 2012).

When McCoy took over from Jung in 2011, Avon’s revenue was $10.7 billion. The loss from continuing operations was $38 million. In 2014 revenue was $8.9 billion, and the net loss from continuing operations was $385 million. Avon’s numbers have continued to decrease with McCoy as CEO.

Critical-Thinking Questions

1. What went wrong at Avon, according to this brief case scenario?

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2. As a student of organizational change, identify a few key concepts you have studied that would have helped diagnose Avon when its sales began to decline.

3. Identify a few actions that Mulally took at Ford that helped turn Ford around at that time. 4. Identify and brie�ly state your opinion on a strategic action that Cote implemented that helped changed the direction of AlliedSignal

and Honeywell at that time.

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Introduction: Back to the Future Sustaining major organizational changes—that is, ensuring that planned changes endure—does not involve “one-shot” or quick-�ix solutions. Embedding change in organizations requires continuous top-down, bottom-up leadership and process improvements—including supportive and innovative actions throughout the enterprise. The CEO and top-level team generally de�ine and lead the change, but everyone must be involved in managing, re-creating, and rejuvenating the ongoing renewal processes.

The transformational change programs at Ford, AlliedSignal, and Avon required years to plan and complete. Looking back at their successes and problems informs us about the people and processes used to implement change goals and the initiatives undertaken in response to different environments.

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4.1 Failing and Succeeding at Change Although some transformational changes may start with a “big bang,” embedding and sustaining them takes time, talent, and effort. Rosabeth Moss Kanter (2002), Harvard professor and change expert, noted that effective change is sustained by “long marches” not “bold strokes.” In order to revitalize and sustain large-scale changes, it is important to know some of the major reasons why changes fail and also what makes them succeed.

Why Change Programs Fail

There are more than enough reasons why organizational change programs fail. We previously discussed some in this text and have selected some of the more notable ones to discuss here. Understanding and learning from each of these can prevent failure and help facilitate strategies and efforts to sustain change. Fletcher and Taplin (2002) list these reasons why organizational change programs fail:

Opposition to change Failure to recognize the need for change Super�icial recognition of the need for change Failure to systematically implement change Short-term �ix approach Structural impediments to change Cultural impediments to change Failure to sustain change

Large-scale, planned organizational changes are generally complex processes that require expertise and systematic methods that take the entire enterprise into consideration. Just as important, the people involved in and affected by the change must not be excluded. Failing to communicate with and involve professionals and employees who are affected by such changes often creates opposition and resistance.

Opposition to Change Change programs are often destined to fail because of the top-down imposed nature of the process (Nohria & Beer, 2000). The following scenario is all too common: a CEO or top-level team member gets some new ideas from either talking to friends, witnessing a change in a competitor, attending a seminar, reading current business trends, or following a current management fad. He or she then decides to try something new with a division or the entire company.

When change is arbitrarily imposed, poorly explained, and hastily announced from the top, managers and employees can become disillusioned, lose motivation, and become increasingly resentful and resistant to the change. Their work often changes and increases, while resources and attention to quality decreases. Managers in particular are thrown into confusion when they are asked to implement and guide changes that are not adequately explained and for which they have few or no blueprints or models. Also, when managers are given little

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AP Images/Charles Krupa

Unfavorable economic circumstances, competition, and unsuccessful change to differentiate Friendly’s from other restaurants contributed to restaurant closures and bankruptcy.

strategic direction or rationale for implementing change, they typically revert to emphasizing what they know best: operational detail that is activity (not goal) driven (Fletcher & Taplin, 2002).

For example, Friendly’s restaurant chain �iled for bankruptcy in October 2011 (Reuters, 2011). Although many reasons explain this chain’s failure—including the slumping economy and the chain’s debt and �inancial situation—the lack of a clear strategic direction was also an issue. One author described Friendly’s in the following way:

The restaurant smells like a bus station. Food takes a long time to arrive at the table, no matter how painfully empty the dining room is. The salad looks like it was assembled a few weeks before I ordered it. Only the nostalgia keeps me coming back. (Baab-Muguira, 2011, “Times Have Changed,” para. 3)

Restaurants like Friendly’s, which was founded in 1935, must continually differentiate themselves from similar establishments in order to remain competitive in the marketplace. They must be sure that the public knows what makes them unique. In 2009 Friendly’s former CEO, Ned Lidvall, stated that the restaurant’s differentiator was ice cream and that the lines and de�initions of brands in the industry were starting to blur (O’Brien, 2009). Friendly’s attempts at competitiveness by emphasizing ice cream and other piecemeal marketing ideas proved unsuccessful.

Failure can also occur when the purpose of the change is not shared by the people and is, in turn, separated from the organizational processes required for implementation. When an af�iliate of the private equity �irm Sun Capital Partners took over Friendly’s restaurant chain and �iled for Chapter 11 bankruptcy protection in 2011, 1,260 workers, or more than 12% of that chain’s 10,300 member workforce, were told one evening they would lose their jobs the following day. A spokesperson for Friendly’s at that time stated, “We’re not trying to put people out of jobs. We’re trying to ensure the future of the company” (as cited in Hines, 2011). That spokesperson noted that closed locations were unpro�itable and that closing those locations would help the company and its parent, Sun Capital, gain control over $296 million in outstanding debt (Hines, 2011). The company survived the painful downsizing and emerged from bankruptcy, then in 2012 hired John Maguire, who helped reinvent the chain (Pohle, 2015).

Failure to Recognize the Need for Change In the 1970s and 1980s, CEOs of some of the largest, most innovative world-class U.S.-based international �irms were entering a period they did not anticipate, one featuring �ierce global competition and new ways of streamlining operations. IBM, Digital Equipment Corporation, Polaroid, and General Motors were still resting on their past successes, because they believed they could continue to dominate their

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industries with bulky hierarchies, unrealistic overhead costs, and outdated operations. As a result, Digital Equipment Corporation and Polaroid did not survive.

Japanese auto and electronics companies entered the scene with the �irst wave of new and competitively priced products that were made with higher ef�iciency operational methods. The result was 2 decades of radically induced change for all U.S. industries: total quality management, just in time, reengineering, and the introduction of information technology into the assembly line process.

Failing to recognize the need for change is not relegated to the past. In 2014 the Huf�ington Post published a list titled “9 iconic brands that could soon be dead” (Jacques, 2014) because of failure to adjust to contemporary markets, customers, and business models. These included Quiznos, JCPenney, Zynga, Red Lobster, BlackBerry, the Women’s National Basketball Association, Volvo, Martha Stewart Living magazine, and Abercrombie & Fitch (Jacques, 2014).

The inability to recognize the need for change continues to be a major cause of failed change programs. Other causes for failure include changes that are initiated too late to regain competitiveness; are initiated poorly, without proper attention to how change processes should be planned; or are not initiated at all.

Super�icial Recognition of the Need for Change Some CEOs and organizations move forward with a change without the necessary commitment to allot the resources and harness the energy of the entire enterprise. They believe that targeting a certain division, business unit, department, program, or management practice for change will be enough to solve the problem and generate new opportunities throughout the entire organization.

In such instances concern for cost, in terms of time and money, is the prohibitive factor. In other instances such shortsightedness may be due to a top-level individual, team, or dominant coalition’s lack of political or business acumen or some other limiting capacity. Whatever the speci�ic reasons for not understanding or taking action on the need for total change, this general type of thinking has been characterized as myopic or nearsighted (Colea & Coltea, 2013)—that is, top-level leaders are trapped into thinking in terms of the status quo: “If it isn’t broken, don’t �ix it.” Moreover, leaders do not direct enough attention to frontline managers, and they do not focus these managers on speci�ic actions needed to achieve stated business outcomes.

When incremental, piecemeal, or selected organizational targets for limited change are adopted in place of needed enterprise-wide and transformational changes, the result is often loss of resources, time, effort, and competitiveness. For example, a department in a large university organization needs laptops replaced every 4 years on a revolving basis for eligible members who sign up for the program well in advance. This is a change that is not large in scope and that does not need a complicated plan. At the entire university level for all departments, a change plan may be needed.

An example of a successful organizational change that followed a plan is the United Arab Emirates’ du Telecom. The �irm was started in 2006 and offers mobile and �ixed telephony, broadband connectivity, and Internet Protocol television to consumers and businesses. The company acquired almost 40% of the region’s market share by 2010 and has sustained a 32% growth rate since.

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The company’s strategic capability, planning, and leadership are factors that contribute to its success. For example, the �irm expanded by joining China’s Huawei Technologies Co. Ltd. in 2013. Huawei is a multinational networking and telecommunications equipment and services provider. This partnership and du Telecom’s strategic and tactical expertise and vigilance have enabled the �irm to (a) reduce project failures; (b) reduce the number of employees needed per project; (c) lower costs and tighten up time frames and projects, which cost less than predicted; and (d) create a single point of contact to manage projects (Wang, 2015).

Failure to Systematically Implement Change Failing to systematically lay out a complete change program and implement that plan can lead to catastrophe. Productivity and �inancial gains are more likely to be obtained when implemented with a systematic approach (Kaydos, 2015). Companies that attempt to change one system without coordinating and aligning complementary related systems to facilitate the change generally fail to achieve their original goals.

Examples abound and include airlines that attempt to improve customer relations by training �light attendants but not check-in agents; �irms that attempt to decrease time between point-of-sale and collection of payment by improving sales professionals’ strategies but do not change the internal processing of payments; companies that move marketing content online to extend their product’s reach to potential customers but do not create systems to process online purchases; and so on. When organizations do not study all the core processes in their business from the perspective of their new vision and change goals and do not decide on an implementation plan that aligns all the major systems, failure is on the horizon.

Short-Term Fixes The American capitalist business and �inancial system is based on short-term time horizons. U.S. corporations operate on a quarterly basis and are valued on both short- and long-term information. Financial analysts evaluate, predict, and recommend buys, holds, and sells on stocks from quarterly reports using past and future trends. Although speed, ef�iciency, and innovation are hallmarks of the American capitalist business system, the short-term perspective also can and does contribute to myopic decision making and short-term �ixes (Tanden & Effron, 2015).

CEOs and executive teams that rush environmental scanning, planning, and problem/opportunity diagnosis may run the risk of targeting the wrong problems and opportunities. Then, the rush to hasty implementation compounds problems that can create further failure, including being left with poorly coordinated and ill-prepared implementation teams that sacri�ice the quality of implementation; suboptimizing goals (selecting less than desirable goals so as to meet time and task completion pressures); and preparing the change effort for increased costs, wasted effort, and lack of goal attainment.

Diagnoses and implementation plans that impose a short-term �ix mentality and framework on a large-scale change program usually suffer the symptoms described here, as well as other unintentional consequences that eventually lead to unnecessary costs and delays, if not failed goals and wasted time and effort.

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Jirsak/iStock/Thinkstock

The traditional business hierarchy holds many organizations back. Companies are beginning to move away from this structure for greater ef�iciency.

Structural Impediments to Change Large corporations’ bureaucratic structures and hierarchies have posed major obstacles to implementing large-scale change. In fact, the methods of business process engineering and reengineering were revolutionary in that they eliminated unnecessary barriers in all business processes and were designed to decrease time, effort, and costs while increasing speed and effectiveness in moving a task from start to �inish. Organizations that begin with structure over strategy and purpose risk not being able to transform a company’s vision to a new state.

Corporations are generally moving toward less structure to achieve more economies of scale and effectiveness. As we will discuss in the following section, alternative solutions to traditional vertical structures are being used as a result of change initiatives. Among these alternative solutions are outsourcing, streamlining business processes, and experimenting with new forms of networked structures and communities of shared competencies.

Cultural Impediments to Change Resistance to change usually stems from an old culture in which employees refuse to give up leaders’ dominant values, assumptions, and norms. The previous state of the organization may have worked well in a past environment or era but is no longer as ef�icient as it needs to be.

With a new vision and fresh values—and perhaps leaders—new cultural meanings, languages, symbols, and experiences must be embedded. When the change champions and leaders do not pave the way for a shift in the alignment of the organization’s dimensions and systems, previous cultural values tend to prevail with some groups and managers; the status quo is often the default position, even if it is to the detriment of the organization.

Failure to Sustain Change It has been estimated that 70% of large-scale change initiatives in companies fail (Colea & Coltea, 2013). This is due to any one or a combination of the factors discussed here.

Generally, people settle back into the status quo if they do not have to change. Change cannot be sustained if people in an organization maintain a bureaucratic and functional mind-set and refuse to adopt new attitudes, beliefs, and behaviors. Sustaining change requires strong, committed, and informed leaders who involve others in the alignment of all an organization’s systems around the new vision.

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Organizing to Succeed at Change

Maintaining an organization’s alignment to a new vision and future state requires leaders and followers to keep the organization’s big picture in mind. The model shown in Figure 4.1 and discussed in Chapters 1 and 2 provides a useful reminder that leaders are an integral force at the outset in guiding the alignment of organizational dimensions to the new vision and future state.

Figure 4.1: Strategic alignment model

This model offers a way to understand organizational actions through a process of taking resources into a system, processing them, and producing outcomes.

Source: Based on Weisbord, M. (1987). Productive workplaces. San Francisco: Jossey-Bass; and Burke in Howard, A. (Ed.). (1994). Diagnosis for organizational change. New York: Guilford Press.

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We provide examples of how leaders in different organizations and industries use interventions to sustain change to compete in their external environments while internally empowering their organization’s people and culture.

Check Your Understanding

1. Of all the reasons why change programs fail, which do you think is the most common? Explain your reasoning. 2. Choose one of the reasons why change programs fail and discuss how this knowledge can be used to help sustain change.

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4.2 Attracting Talent and Empowering Employees A critical task of sustaining change involves continually attracting, involving, and empowering the right talent. Because people are an organization’s most important asset, and leaders can only get things done through people, revitalizing organizations requires developing strategies for leading and managing human capital. Human capital refers to the skills, knowledge, and experience of a workforce with regard to people’s value and cost as invested in and incurred by an organization (Fitz-enz, 2000). Managing human capital is a process in which senior executives spend as much time and energy on acquiring, allocating, developing, and keeping their employees (human capital) as they do on other types of capital (Lawler & Worley, 2006).

Recruiting Talent

Contemporary organizations face a “new world of work” that challenges and necessitates dramatic strategy changes for HR and company leaders (Deloitte University Press, 2015). HR departments are particularly challenged by how to recruit, evaluate, and manage talent. They must also determine how best to engage, develop, and retain new professionals and teams, which is not easy. HR groups are continually rethinking methods for measuring and monitoring the larger organizational culture to attract and interest professionals. Organizational change in this regard has become an ongoing process.

Recruiting Through Branding Hiring the right talent to �it the organization’s new vision, strategy, and business process can be challenging. Organizations generally use branding—their image, reputation, and identity, or what they are generally known for—to attract new hires. Highly visible, successful organizations like Google, Microsoft, and Facebook do not worry about their branding as a recruiting method because they are so well known.

However, smaller, less visible companies need to make more deliberate attempts to promote their brand to potential employees, yet few companies seem to succeed at this strategy. Consequently, it has been recommended that organizations view their employees or potential employees as customers. Companies should spend time conducting marketing analyses to identify which corporate attributes are most important to the employees they wish to recruit and how best to reach those recruits (Hieronimus, Schaefer, & Schröder, 2005).

Two McKinsey surveys showed that traditional recruiting methods focused on job security, opportunities for creativity and individual growth, and compensation but that a hiring company’s intangible and emotional associations appeared to be strong motivators for potential recruits (Hieronimus et al., 2005). Whatever techniques are used to attract and recruit promising new talent, the McKinsey study concluded that they should be strongly aligned to the company’s brand strategy (Hieronimus et al., 2005).

Recruiting Using Social Media Another recent recruiting method is to use social media. LinkedIn, Facebook, Twitter, and YouTube are popular recruiting sources. For example, the large online

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Social media sites such as LinkedIn are changing the ways companies recruit new talent.

retailer Zappos uses social media for branding and recruiting. Talent acquisition experts observe that large employers are using online job boards and social media combined with traditional recruiting methods to post new listings (Drew, 2014).

Recruiting Using a Talent Mind-Set Organizations look for talent that can help them ramp up operations quickly, start new business models, and create new roles by acquiring and/or merging with other companies. Although companies like General Electric, PepsiCo, and Colgate– Palmolive are renowned for their ability to develop top-notch employees and emerging leaders in their industries, they are also dedicated to external recruiting (Beeson, 2011).

Part of these �irms’ success at external recruiting is their ability to integrate newcomers into their established high-performing cultures. Firms that combine external talent recruiting with internal integration practices are called “talent mind-set companies” (Beeson, 2011). These companies seamlessly combine talent acquisition with talent development. Firms that recruit individuals to �ill job positions generally focus on their job-speci�ic experience. Talent mind-set companies also pay attention to candidates’ leadership ability and prospective career growth. These companies are particularly interested in the following characteristics:

abstract, conceptual thinking ability and ease in handling ambiguity, which are needed in strategic thinking; risk taking and feeling comfortable taking independent positions and not going along with what everyone else in the company thinks; these are building blocks of innovation and leading change, even if these characteristics mean moving an organization out of its comfort zone in order to implement effective change; empathy and organization knowledge/savvy, which embody the ability to read people and situations and to in�luence peers and coworkers so that projects and initiatives can be implemented across organizational boundaries; and the ability to set high standards, let go of certain detailed work, and avoid getting mired in too much detail or micromanaging, all of which are important elements of managing implementation (Beeson, 2011).

Organizational change is generally not an episodic event; it is a process that involves managing change on an as-needed basis. Since talent and human expertise is perhaps an organization’s most valued asset, recruiting, engaging, and retaining the right people is an intricate part of change.

Managing Change

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Recruiting Talent in the 21st Century

Suppose you are the HR director at a growing e-commerce company. The company must stay dynamic to keep up with changing technology and evolving social attitudes, as well as to be agile so as to respond to customer demand. Your company has a good reputation, but the sales and marketing teams are working to spread the word about your service.

Leaders can’t change and grow companies on their own—human capital is among a company’s most important assets. Organizations need talent to rebound from a recession and revamp productivity, start new lines of business, and acquire or merge with other companies. Your task is to make sure you have the right people in place for the job. Your department starts to look for those with e- commerce, programming, and general Internet experience. You need employees who can keep up with the pace of technological change and know what role the Internet plays in popular culture.

Naturally, your HR team turns to social media to �ind web-savvy candidates. However, you must pay attention to your company’s mission and values and understand how they relate to recruiting.

Discussion Questions

1. How do you stay on top of the hiring game in your industry? 2. How do you use social media to recruit talent? 3. What does it mean to have a talent mind-set? 4. What is a company with a talent mind-set looking for in its new hires?

(See the end of the chapter for possible answers.)

Empowering Employees for Change

Recruiting the right talent also involves integrating new employees into the company by providing opportunities for them to meaningfully participate in achieving the organization’s objectives. Cameron Kauffman (2010), a certi�ied public accountant, suggests �ive areas of employee involvement that she used in her San Francisco–based �irm. We have adapted these for general business: personal, organizational, customer, professional, and community.

Personal employee involvement is achieved through training, mentoring, and career-development programs. Organizational involvement includes efforts that enable employees to participate in organization-wide visioning, planning, and addressing generational differences. Employee customer involvement will differ, depending on the type of business, but may include meetings or events with customers and direct interaction, such as having employees sit in on planning and focus groups.

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Professional development refers to providing employees with opportunities for personal and professional growth. This may mean becoming involved with professional organizations or associations. Finally, community involvement is achieved by providing volunteering opportunities and is often linked to the organization’s corporate social responsibility initiative (Kauffman, 2010), which is discussed later in this chapter.

Fortune magazine’s 100 Best Companies to Work For list provides abundant examples of personal and professional development available to employees. The list is published annually and organizes companies by industry. Companies rigorously compete for placement on the list because being selected improves their reputation and makes their name more recognizable. There are also extensive marketing bene�its for being recognized for recruiting top talent. Based on the Trust Index, organizations that submit their proposals are meticulously evaluated on criteria such as evidence of credibility, respect, fairness, pride, and camaraderie. Methods used to evaluate companies include extensive surveys from employees and managers and analyses of employee engagement using criteria from the Trust Index (Zappe, 2011).

The North Carolina software giant SAS has been on the list for 14 years and was ranked number one in 2010 and 2011. The company provides many employee bene�its, including on-site child care, health care, and an employee gym (Zappe, 2011). SAS ranked number two on the 2014 Top 25 World’s Best Multinational Workplaces list from the Great Place to Work Institute. It was also number two on Fortune’s 2014 Best Companies list and number four on its 2015 list (SAS, 2015).

Finding and involving the right employees is only one aspect of developing a workforce built to change. Once the right employees are hired, management must retain them by creating an engaging and empowering environment in which to work (Lawler & Worley, 2006). Right Management Inc. publishes a global survey each year to evaluate workplace engagement. A 2015 survey from Deloitte showed that organizational culture and engagement is a top challenge for 87% of organizations surveyed, and 50% feel that this issue is “very important” (Deloitte University Press, 2015).

Surveys by Right Management, Deloitte, and others suggest that empowerment (providing employees with the necessary motivation and autonomy to achieve great things toward the organization’s objectives) is achieved through clear reporting structures, meaningful opportunities for employees to share their opinions, clear and understood career opportunities, and autonomy (Deloitte University Press, 2015).

The purpose of empowerment is to reduce sources of powerlessness (Styhre, 2004). Powerlessness is often a trademark of continuous change if an organization is not prepared. Good structures for attracting, involving, and retaining the right talent hedge against this powerlessness and give an organization tools to sustain and even shape change.

Check Your Understanding

1. Explain why talent recruiting and management is an important part of organizational change. 2. What do you look for in a company as a potential employee? What qualities must it have to make you stay long term? Explain your

reasoning.

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3. What are the similarities and differences in the way you answered question 1 versus question 2?

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Alexander Hassenstein/DigitalVision/Thinkstock

The �ive pillars to sustain change—leadership, strategy, culture, structure, and systems—should be at the core of every successful company.

4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems For a company to shape and sustain growth, it must continually revitalize the principal elements that made it strong. Organizations that can survive, innovate, and compete in changing environments have leadership teams that must decide whether and how to continuously adapt, shape, deconstruct, and/or recreate strategies to match structure, cultures, technologies, and the right people. The case study of Alibaba in Chapter 1 presents a road map for many larger companies going forward.

This section focuses on �ive principal components that are integral to any successful company: leadership, strategy, culture, structure, and systems. What appears to be changing with regard to these basic organizational dimensions is not the dimensions themselves but the �lexibility, speed, and continuous improvements required by leaders and teams to adjust to complex, unstable external environments. We discuss these dynamics in this section.

Lessons From the Great Companies

Although the next generation of “great” companies may be Google, Facebook, Amazon, Alibaba, and some of the sharing economy companies like Uber and Airbnb, it is still important to understand lessons from the classic �irms that Jim Collins, author of the best-selling books Built to Last (Collins & Porras, 1994) and Good to Great (Collins, 2001), spent 5 years researching.

Collins studied companies that sustained market competitiveness over 15-year periods. His �indings are relevant to our discussion of how organizations can sustain change programs to reach higher levels of competitiveness. Not all organizations that pursue large-scale change can or will become great. However, it is worth noting the principles and practices that underlie the number of companies that reached and maintained market dominance for long periods.

The dominant messages regarding how good companies become great are relevant to sustaining effective leadership, strategy, culture, structure, and systems:

Level 5 Leadership: The leaders led and worked not with highly observable charismatic, loud, or dramatic styles but calmly, quietly, humbly—even shyly—in strong-willed ways. First Who, Then What: The leaders found and placed the right people in the right places and let the wrong people go before setting a new vision and strategy. Confronting Brutal Facts: The great companies and their leaders confronted harsh, un�lattering truths about the organization, while never losing faith that they would prevail in the face of adversity.

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Hedgehog Concept: When a hedgehog faces a predator, it rolls into a ball. Unlike the clever fox, the hedgehog’s strategy is surprisingly easy, repetitive, and effective. Great companies and their leaders learned and followed their strengths by understanding and implementing their (1) passion, (2) what they could do best, and (3) what drove their economic engine. Culture of Discipline: They developed a culture of discipline that made hierarchies excessive and unnecessary. Technology Accelerators: They carefully applied selected technologies to ignite and accelerate their transformation—not to de�ine their change. The Flywheel: They used the “�lywheel” approach to change, that is, not seeking a grand, single de�ining moment or killer application but relentlessly pushing a large, heavy �lywheel in one direction, turn after turn, until momentum built to a point of breakthrough after breakthrough. (Collins, 2001, pp. 13–14)

Although not all of the great companies Collins wrote about represent exciting or glamorous industries, their evolutionary journeys and transitions to greatness are based on combinations of these principles and practices.

Table 4.1 shows the good-to-great companies (which must be placed in historical context) along with their respective 15-year cumulative stock market results. Data include the multiple times the companies beat the Dow Jones average for that time period.

Table 4.1: Good-to-great companies in the stock market

Company Times the market Years

Abbott 3.98 1974–1989

Circuit City 18.50 1982–1997

Fannie Mae 7.56 1984–1999

Gillette 7.39 1980–1995

Kimberly–Clark 3.41 1972–1987

Kroger 4.17 1973–1988

Nucor 5.16 1975–1990

Philip Morris 7.06 1964–1979

Pitney Bowes 7.16 1973–1988

Walgreens 7.34 1975–1990

Wells Fargo 3.99 1983–1998

Source: Collins, J. Good to Great. New York: HarperBusiness, p. 7. Copyright © 2001. Reprinted by permission of Curtis Brown, Ltd.

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In Table 4.2 the comparison companies of each of the good-to-great �irms are shown in italics. They are interesting to note because these companies did not make the leap to greatness. You may not recognize the comparison �irms or even some of the historically great companies unless you do a quick Internet search.

Table 4.2: Comparison companies

Good to great Comparison

Abbot Upjohn

Circuit City Silo

Fannie Mae Great Western

Gillette Warner–Lambert

Kimberly–Clark Scott Paper

Kroger A&P

Nucor Bethlehem Steel

Philip Morris R. J. Reynolds

Pitney Bowes Addressograph

Walgreens Eckerd

Wells Fargo Bank of America

Source: Collins, J. Good to Great. New York: HarperBusiness, p. 8. Copyright © 2001. Reprinted by permission of Curtis Brown, Ltd.

Interestingly, Wells Fargo survived the �inancial meltdown in 2008 and its aftermath and is prospering. Although great �irms cannot maintain superior stock market returns inde�initely, there is an important and interesting set of leadership and management principles relevant to sustaining best practices and change mandates across industries (Gandel, 2015).

There are other important elements that great companies employ during times of nearly unprecedented global economic and political turmoil (Collins, 2001). Their response is relevant to leadership and management seeking to identify and sustain organizational change in real time. In uncertain times it is crucial that companies have core values, which need to be timeless and consistently preserved to retain their meaning. The more challenges a company faces, the more important it is to rely on core values—the reasons the company exists.

Companies like Proctor & Gamble (P&G), GE, Johnson & Johnson, and IBM have strong core values. In addition, these organizations understand that the caliber of their employees can get them through any challenge, including the Great Recession. They know that when problems arise, people are more important than the plan (Rheingold, 1993).

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Revitalizing Leadership

We have seen that leaders must �irst guide the design and diagnosis and then implement change within their organizations. Then they must sustain it. As integrators, orchestrators, and strategists, leaders have a primary role in keeping the strategy, culture, structure, and systems of the organization in alignment. As Porter (1996) writes, a leader is primarily a strategist who must choose which customer demands and industry shifts the company responds to, while simultaneously maintaining the company’s unique traits and avoiding any organizational distractions. The leader is responsible for teaching those in the organization about strategy and for setting limits (Porter, 1996).

Leaders as Change Integrators and Orchestrators Leaders are not only strategists but integrators. They integrate the organization’s new vision, mission, and values with its changed strategy, culture, structure, and systems. A 2010 IBM leadership report acknowledged that leaders should remove the silos within their organization and replace them with integrated, cross-functional capabilities (IBM Global Business Services, 2010).

Take Shelley Nandkeolyar, for example. Nandkeolyar was an e-commerce group manager at the kitchen retailer Williams–Sonoma who brought technological savvy and organizational integrative understanding to his role. He created a new position within the company speci�ically to improve connections and communication among operations groups. This change and others that he led were intended to enhance the speed and content between groups, which was achieved.

With continuous change a reality in the current marketplace, leaders must carefully and creatively orchestrate the facets of the organization, which includes different cultures, intergenerational dynamics, and communication styles (IBM Global Business Services, 2010). The kind of creative leadership needed today is not a one-person show. It requires collective input and output across the organization. The leader must integrate the organization to create collectivity through frequent, clear, consistent communication and then orchestrate its functionality around the organization’s vision, mission, and values. Leadership requires the ability to set limits (Porter, 1996), which should be informed by the organization’s vision, mission, and values.

Take Seagate Technology as an example. Seagate is a large manufacturer of hard drives and other storage solutions for personal computers. In the 1990s the lack of integration from Seagate’s leadership created a fragmented organization, and communication was poor. This led to seven separate research and development (R&D) groups and a lot of internal competition. Seagate employees did not communicate or exercise any common vision or mission.

Then, in 1998 new management was brought in. CEO Steve Luczo and COO Bill Watkins worked as partners and integrators. They brought Seagate together under one vision. They de�ined expected performance behaviors and integrated organizational goals. They formed cross-functional teams and led training that

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AP Images/Paul Sakuma

COO Bill Watkins is pictured with a Seagate product. Together with CEO Steve Luczo, he worked to transform Seagate Technology from a fragmented organization to one that was united under one vision.

was the same for all employees across the organization. This integrated approach allowed Seagate to become a market leader equipped for change (Clark, 2009).

Leaders of especially large global companies must also decide how to create a strategy for their �irms (Reeves, Love, & Tillmanns, 2012). A Boston Consulting Group survey of 120 international companies across 10 major industry sectors found that executives knew they needed to match their strategic processes to the demands of their competitive environments, but many still relied on strategic methods that �it more predictable, stable environments, even though their environments were highly unstable (Reeves et al., 2012).

There are calculated decisions executives can make to create strategies that match their external environments: These strategies include classical, adaptive, shaping, and visioning (Reeves et al., 2012). The shaping type of strategy is more adapted to volatile environments than the other three, since shaping strategies embrace shorter planning cycles. Being �lexible is of the utmost importance, since the strategy is often implemented as a series of experiments, with few predictors used. Leaders must explore different strategies that match their competitive environments.

Leaders as Interpersonal Communicators and Motivators As we consider the dif�iculty many leaders have with change, Gilley, McMillan, and Gilley (2009) suggest a model based on interpersonal skills. They suggest that a leader’s success with change may be improved through his or her ability to build teams, motivate, and communicate within the organization.

The Gilley et al. (2009) study noted that leaders’ ability to communicate, motivate, coach, build teams, reward, and involve others has been associated with the successful implementation of change. The skills of motivation, effective communication, and team building are ranked by the study as most important to the rate of success (Burke & Litwin, 1992; Conner, 1992; Sims, 2002).

More recently, studies show that design-oriented approaches may be more motivating than top-down prescribed changes. Companies such IDEO, Innova, and Intercorp in Peru exemplify this contemporary thinking in change management. For example, Brown and Martin (2015) discuss the logic and process of design thinking and organizational change. They state that constant interaction and discussion with the decision maker is more effective than top-down decisions.

In this type of interaction, the individuals interested in making a change would approach the responsible executive early on, stating that they believe there is a problem that must be solved. They would ask whether their viewpoint matches that of the executive (Brown & Martin, 2015). Following this conversation, strategy designers would return to present the possibilities that could be explored, given the de�inition of

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the problem that was previously discussed with the executive. They would ask to what extent the possibilities match what the executive imagined and if any are missing or are nonstarters.

Finally, designers would approach the executive again with a plan for analyses to be conducted on the possibilities on which they all agreed. They would ask if the executive would like to see the analyses run and if any are missing. IDEO uses this process for product innovation and other organizational changes.

Leaders as Resource and Change Support Champions Leaders must provide resources, build a support system for change agents, reinforce the development of new skills and behaviors, and stay on course to sustain implemented changes (Cummings & Worley, 2015). Financial support for large-scale change must be administered and approved from the top, otherwise potential feuds over who gets which resources can occur at lower levels. For example, a company that changes its vision by adding an e-business dimension to its marketing and product operations must ensure that clear communication and - structural and skill changes are sustained and supported with adequate budgets. When such a dramatic change occurs without the required investment, con�lict and confusion are likely to ensue.

Similarly, sustaining organizational changes also requires leaders to help key managers build a support system. Such a system would help followers learn and develop new skills and behaviors to keep the changes on course. As with the example of an organization starting a new e- business, leaders and managers must ensure that some employees are trained and skilled in e-commerce tools and business practices to succeed both in the e-market and to integrate the new business with the existing one.

Managing Change

The Qualities of a Change Leader

Suppose you are leading a pet food company that has made major transformational changes. You have paid attention to building capability and made sure the right leaders are in place to support the change. The infrastructure and processes have been altered to execute the change. Company values include a commitment to quality, which means better scrutiny of the suppliers and supply chain management. The strategy includes a modernized rebranding and a focus on organic ingredients to support company values.

Financial backing has been secured to see the organization through the new changes. Feedback and input from staff and stakeholders has been sought and incorporated into the plan. The organization’s culture and the functions of its various units have been aligned to the common goal. There are open lines of communication, and as a leader at the top-tier management level, you have strong relationships with your management team and new vendors.

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Coldwell Banker and Strategy The CMO of Coldwell Banker, Sean Blankenship, speaks with Jennifer Rooney of Forbes about how his company is revitalizing their strategy. What changes is Coldwell Banker implementing to align the company with the consumers’ expectations?

It may seem like everything has been covered, but organizations must continue to evolve and adapt to the business environment. Pro�its are up, but change is an ongoing process. It is important to recognize business achievements and reward those who contributed to them. The leader’s task at this point is to sustain the positive change.

Discussion Questions

1. Identify a few key roles a leader must take, speci�ically, in sustaining change. 2. What must the leader integrate to successfully implement change? 3. What kinds of capabilities should a leader possess to increase the likelihood of success? 4. What additional responsibilities, in general, does the leader have?

(See the end of the chapter for possible answers.)

Revitalizing Strategy

Enterprise orcorporate strategies de�ine a purpose and mission for an organization to satisfy stockholder and stakeholder expectations. They also set a course to meet the demands of rapidly changing external environments while accommodating the needs of internal systems (Johnson & Scholes, 1993; Reeves et al., 2012). Business-level strategies de�ine the reasons why organizations take certain actions to gain a competitive advantage using their competencies in a speci�ic business.

Operational and functional-level strategies de�ine ways each part of the business or functional area (marketing, production, sales, R&D) is organized to deliver corporate and business unit–level strategic direction (Johnson & Scholes, 1993). Strategies for continuous change may also differ from those employed in traditional and other types of environments.

Different functions within a company may operate in environments that require various approaches to their planning (Reeves et al., 2012). For example, in some functions, optimizing production might work for that unit, but not for a marketing and sales department where digital analytics may be needed to

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Coldwell Banker’s Sean Blankenship On Capturing A New Genera… shape strategy to meet those environmental requirements. Enterprise strategists, then, would need to manage different strategic styles and strategies within the organization.

Kanter (2006) observed several mistakes made in relation to implementing strategy, especially at the corporate and/or business levels:

Rejecting what appear to be small innovations to go after a “blockbuster” Focusing only on new product development, rather than on new services or improved processes Confusing customers and increasing “internal complexity” with too many minor product changes. (pp. 76, 79)

With effective leaders as head strategists, organizations should broaden their scope and widen their search when it comes to strategy (Kanter, 2006). An innovation pyramid approach would be best; that is, a few large strategies at the top with clear direction and investment, many midrange ideas with promise in test stages, and a large foundation of ideas in developmental stages (Kanter, 2006).

Another important consideration with regard to strategy and sustaining change is strategic positioning, or the way in which the organization’s vision and values align with the strategy. A company using strategic positioning should gain a competitive advantage by focusing on its unique qualities. It should engage in different activities than its rivals, or if similar activities must be used, the way of going about them should be different (Porter, 1996). Porter (1996), a strategy expert, describes three different sources of strategic position:

Variety-based positioning: This type of positioning provides a small number and speci�ic type of product or service to a large number of customers. The strategy is chosen based on the product or service, rather than by a customer group. For example, Jiffy Lube International offers oil changes and other automotive services. Before it began providing repair services, the company was a perfect example of variety-based positioning as it specialized in one thing: oil changes. The company based its strategy on this single service. Needs-based positioning: This type of positioning ful�ills a large number of needs for a small number of customers. The strategy is chosen based on the demographics of customers rather than the type of product or service offered. For instance, IKEA based its strategy on its target customers and offers them a large number of home décor products around a certain price point that meet all of their needs, including furniture, kitchenware, decorations, and more. Access-based positioning: Finally, this type of positioning ful�ills many needs of many customers in a narrow market. The strategy is based on customer accessibility. For example, Carmike Cinemas, based in Georgia, only focuses on small- to mid-size markets when

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�inding locations for their theaters. The company bases its strategy on small-town populations.

Kanter (2006) warns against adopting a strategic focus based solely on new product development. Good ideas may come from any level of the organization, which is why it is critical for the leader, as integrator and strategist, to create a fruitful environment for these ideas to �lourish (Kanter, 2006). One motivation underlying market positioning is to gain customers’ attention and make emotional contact with them.

A classic example was Avis Rent a Car’s proud claim: “We’re No. 2, We Try Harder.” It caught the attention of customers and hurt Hertz’s position as �irst in the industry at that time. Avis was near bankruptcy when the company came up with this strategy. It succeeded not as a gimmick or slick marketing slogan, but rather allowed Avis to shift time, interactions, perceptions, and structures to generate new possibilities with customers, transform the nature of the competitive game with Hertz, and even change consumers’ behavior toward Avis (Monger, 2012). The strategy led the way for the company to change its way of doing business; Avis did in fact try harder, and it paid off.

Revitalizing Culture

Deloitte research has found that more than half of all business leaders view culture, engagement, and employee retention as their most urgent challenges (Bersin, 2015). Culture counts if an organization is to retain high-quality talent. For example, Zappos has one of the most desired value- and innovation-focused cultures in the online retail industry. The company has 10 core values, including “embrace and drive change” and “create fun and a little weirdness” (Zappos, n.d.). Net�lix has a manifesto, “freedom with responsibility” (as cited in Zandlicious, 2015). Quicken Loans employs colorful ideals to guide values (such as calling back every client the same day). Google uses its 10 things that outline what it believes (including focusing on users and the idea that great isn’t good enough). Salesforce promotes community.

These are not just clichés. Talented employees who have options in a rising economy do not stay with companies where the culture does not match their needs and aspirations.

Organizational cultures may be the most critical yet challenging factor in successfully navigating change. Cultures need to accommodate and match the strategies of the organization and at the departmental levels. Strong cultures exist when there is uni�ied understanding and perspective on what the organization is, what it stands for, and how it functions. Changing it is often easier said than done. There are numerous aspects of culture that can affect an organization’s ability to handle change, as Senior and Fleming (2006b) show in Figure 4.2.

Figure 4.2: Capacities for change and culture

The interrelation of organizational leadership, strategy, culture, structure, and systems must be managed when revitalizing transformational changes.

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Source: Senior, B., & J. Fleming, J. (2006b). Organizational change (3rd ed.). Essex, UK: Prentice Hall, Figure 4.9, p. 173. Reprinted by permission of Pearson Education, Inc., New York, New York.

Attitude, willingness, and communication are key factors in successfully navigating change. Figure 4.2 shows that attitudes toward experimentation and the willingness to provide autonomy and support are most related to the organization’s ability to change. When information sharing is encouraged and experimentation is rewarded (even if it leads to failure), the organization will be more �lexible and innovative in dealing with change. Good communication among all levels of the organization is also a critical success factor. Employees at all

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levels should be willing to discuss sensitive issues without fearing negative repercussions. Management must be open to new ideas, and all employees must adopt a positive attitude toward con�lict and criticism.

In the case of a change organization, con�lict and criticism are fruitful tools that help continuously mold the organization. The attitudes, willingness, and communication within the organization work together to facilitate—or resist—change. An organization seeking to successfully navigate change should be careful to evaluate these factors internally. Take Google, for example, whose bottom-up culture is one of open communication and collaboration. “Googlers” (Google employees) take part in Thank Goodness It’s Friday forums nearly every week to ask company founders questions and keep an open dialogue. Google also holds Fixit forums to discuss company challenges and potential solutions. This perpetuates a culture of communication, collaboration, and openness to change. Attitudes at all levels of the organization are receptive, rather than resistant (Corporate Executive Board, 2009).

A collaborative effort from top to bottom is needed to create a culture conducive to change. Organizations that support change, creativity, and innovation are more natural and integrative and are perpetually forward looking and competitive (Senior & Fleming, 2006a). Kanter (2006) suggests that innovations succeed in collaborative cultures because of connectors, or individuals who know how to �ind partners and work effectively with others.

As in any business function, risk assessment is a valuable tool to increase ef�iciency and improve operations. Cultural risk is the idea that strategy and culture will be incompatible, creating a resistance to change. Management should assess cultural risk to determine the speci�ic areas of incompatibility and articulate the best course of action. In some cases culture may be changed to �it the new strategy, whereas in other cases the strategy should be changed to �it the culture (Senior & Fleming, 2006a).

Organizations like IBM and P&G handle change well because they have created change cultures. Both companies have high levels of employee autonomy but strong, open channels of communication. Good ideas are rewarded, whether successfully implemented or not. IBM, for example, creates intercontinental teams as needed to address problems or new opportunities. These teams are often temporary and make use of virtual communication technologies.

Change is considered normal and is encouraged in the attitudes and communication from both the top down and the bottom up. Collaborative efforts and openness to new ideas, coupled with a �latter, more responsive structure, allow these organizations to maintain a competitive advantage and respond quickly and smoothly to change.

Revitalizing Structure

IBM’s top leaders have stated that sharing organizational knowledge and experience is vital to a workforce that is open and responsive to change. All employees should be self-reliant and equipped to solve problems across the company, and leaders must know how to apply employees’ talent and ideas. However, many companies do not have the structures or resources to create an

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Rawpixel Ltd/iStock/Thinkstock

It is important to create an environment conducive to openness and collaboration to stimulate growth.

environment conducive to knowledge sharing and collaboration. As such, they remain in cultural and organizational silos (IBM Global Business Services, 2010), a term that describes speci�ic processes or departments that work independently of each other without strong communication between or among them.

Integrated structure and communication are key. Organizations must avoid the temptation to work in silos. Instead, companies should encourage mutual learning through frequent communication and strong interpersonal connections (Kanter, 2006).

When a company’s departments are too isolated from each other, they risk losing valuable opportunities. In the 1990s, for example, while personal care giant Gillette had success with the Oral B toothbrush, its appliance unit Braun, and its Duracell battery unit, it was slow to introduce a battery-powered toothbrush (Kanter, 2006). In environments of continuous change, organizations cannot afford to have segregated operations. Integrated communication and shared knowledge within the structure increases operational ef�iciencies and helps the organization manage change.

Processes and systems also need to be �lexible and integrated. Budgets, planning, reviews, and other processes should be adaptable. Tight processes discourage and often punish �lexibility. BBC, a television network in the United Kingdom, implemented greater �lexibility in its processes and systems by creating a special reserve fund for new business ideas. A new recruit used funds that were designated for a new training �ilm to create a pilot episode for a new series, The Of�ice. The show was a phenomenal hit and was the inspiration for NBC’s The Of�ice, which premiered in the United States in 2005. The �lexibility of BBC’s processes allowed new ideas from any level of the organization to be implemented (Kanter, 2006).

Revitalizing Systems and Processes

The availability of accurate, timely data often makes or breaks an organization’s capacity for change. Organizations use IT to assist strategic and operational decision making to support and sustain organizational changes. Increasingly large amounts of complex data are analyzed for reporting and decision making. Data warehousing and business intelligence software provide solutions to the evolving need not only to locate and store data but also to strategically apply it to marketing, sales, and competitive analysis opportunities and issues in the marketplace, especially in support of new organizational changes.

Data warehousing refers to the use of databases that store all company data, which users access to create reports and generate answers to what-if questions (Daft, 2013). Business intelligence, or data mining, is the process of analyzing data to make sound strategic decisions (Daft, 2013).

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Systems that allow for data warehousing and data mining help organizations manage large amounts of data and facilitate both horizontal and vertical communication. For example, organizational restructuring uses IT systems to integrate departments within and across other functional and expertise areas (like production, R&D, marketing, and sales). Because each expertise area can easily share data, the quality and ef�iciency of decision making increases. This is particularly important when an organization is facing continually changing environments.

Systems should be designed to facilitate effective control and decision making. Several types of systems have been developed for this purpose. For example, a management information system is a computer-based system that provides information and support for managerial decision making. An executive information system is a higher level application that facilitates decision making at upper levels of management using software. It provides tailored, automatically updated signals and performance information to management through executive dashboards, which are easy-to-read digital information system user interfaces. The system displays like an automobile’s dashboard and continuously updates information about key organizational processes (Sorenson, 2002). With many industries continually changing, these software and systems capabilities provide management the information that is needed to make informed, timely decisions.

Many companies also practice knowledge management, and some even dedicate whole departments to this task. Knowledge management refers to efforts to obtain, categorize, and make intellectual capital available within a company. It also describes attempts to create a culture that promotes continuous learning and knowledge sharing. This information then becomes a foundation that organizational activities can build on (Holzer & Seok-Hwan, 2004). (For further reference, also see Data, 1999, pp. 46–52; Mayo, 1998, pp. 34–38; and Miller, 1999, pp. 42– 45.)

Check Your Understanding

1. Which dimensions do you think are more dif�icult to revitalize in organizations that need large-scale change: leadership, strategy, culture, structure, or systems? Explain your reasoning.

2. Identify an organization recently in the media or business news that is failing to revitalize the dimensions listed in question 1. What issues prevent the organization from doing so?

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4.4 Sustaining Change: Built-to-Change Organizations As we’ve discussed, change is a continuous reality that successful organizations learn to sustain. In 1942 economist Joseph Schumpeter coined the term creative destruction, which describes the industrial transformation that accompanies radical innovations introduced by entrepreneurs. These forces sustain long-term economic growth, even if they destroy established companies that had monopoly power (Hughes, 1986).

Richard Foster and Sarah Kaplan (2001) extended this argument in their book on organizations, Creative Destruction, Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them. They studied more than 1,000 corporations in 15 industries over 36 years. The companies included old-economy industries, such as paper and chemicals, and new-economy industries, like semiconductors and software. They found that old-school corporations used management philosophies rooted in the assumption of continuity—which meant that they could not change or create value at the speed and scale of markets. The technology and processes that enabled their long-term survival endangered them in the new economy’s constant need for change. Foster and Kaplan argued that restructuring corporations to change at the speed and scale of capital markets, rather than focusing on changing controls, required more than simple adjustments.

The authors claimed that companies like Johnson & Johnson, Corning, and GE prevailed over cultural lock-in (becoming insular and closed) by transforming their companies, not just slowly improving them. They argue for radical change strategies such as creating new businesses; selling, spinning off, or closing businesses and divisions with slow growth; shutting down outdated, ingrown structures and procedures; and creating new processes, controls, and ways of thinking. Foster and Kaplan (2001) state that organizations must be as dynamic and responsive as the markets in order to sustain superior performance and long-term success.

Less sweeping in their analysis and views on organizational change, authors Edward E. Lawler III and Christopher G. Worley (2006) also evaluated contemporary organizational effectiveness and developed key practices for creating organizations that are self-sustaining change. In their book, Built to Change: How to Achieve Sustained Organizational Effectiveness, they de�ine b2change organizations as those that are built with practices in place to encourage change, rather than obstruct it. Here we explore several of those practices in order to identify ways to sustain and invigorate organizations undergoing change. Those practices include seeking competitive advantages by embracing continuous, sustainable change—based in part on Fowler’s (2000) concept of a virtuous spiral—as well as creating structures without jobs, implementing downward decision making, and leading as a team.

Seeking Temporary Competitive Advantages

Historically, best practices mandated that in order to be successful, organizations had to exhibit stability through strong values, structures, and strategies (Lawler & Worley, 2006). Organizations were encouraged to endure and were designed for alignment and equilibrium rather than alteration and uncertainty. This led to clearly de�ined but in�lexible organizations. They were not equipped to navigate change, let alone grow in the process.

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Kuzihar/iStock/Thinkstock

As manual labor becomes more automated, the workplace’s human element is becoming more knowledge-based.

Stability has a place, and it is useful in developing long-term competitive advantages (unique products, ideas, and/or practices that distinguish the organization within the market). Lawler and Worley (2006), however, suggest that organizations should continuously review the short term and implement temporary competitive advantages one after another. The basic assumption here is that if change is to be expected, stability will always be disrupted, so organizations should focus on short-term strategies. This requires a unique support system. Human capital, knowledge, and organization are critical to the success of temporary competitive advantages (Lawler & Worley, 2006).

Human and social capital have become critical sources of competitive advantage as intangible assets (nonphysical assets that are often not found in the organization’s accounting records, such as goodwill, patents, and a skilled workforce) and now make up more of a �irm’s market value. In 1982 tangible assets, like the facility and equipment, represented 62% of the value of a typical New York Stock Exchange company, but in 2000 tangible assets represented only 15% of a company’s value (Lawler & Worley, 2006). Knowledge and technology are growing rapidly, increasing the need for human capital and knowledge within organizations.

Moreover, the very nature of work is being rede�ined. Individual work is now primarily knowledge-oriented and is no longer task-oriented, as the founder of modern management, Peter Drucker (1999), stated in the late 1950s. Consider the signi�icant outsourcing that takes place today. Many outsourced jobs require advanced technical knowledge and expertise. Many manual jobs are now performed by machines, which require human capital to develop and maintain. As our knowledge grows, it must be used differently by organizations to develop new competitive advantages (Lawler & Worley, 2006).

Organizational structure itself can now be a competitive advantage. Traditional departments—sales, accounting, and others—are no longer suf�icient. New departments like total quality management, knowledge management, and talent management play a signi�icant role in differentiating an organization and sustaining change (Lawler, Mohrman, & Benson, 2001; Lawler & Worley, 2006). Many of these new departments seem to focus on the importance of human capital within the organization—managing talent and knowledge, engaging employees, and improving the workplace environment.

Organizations with these structures understand that the ability to sustain change starts with its human capital. Knowledgeable employees must be engaged, well-managed, and rewarded properly if the organization is to retain them. Organizations compete through involving people as well as products. Think about the computer technology industry. Most people would say that Apple has a competitive advantage over Microsoft—but why is this the case? Apple’s human capital has for many years been a signi�icant factor in its success. Former CEO Steve Jobs was instrumental in developing new products, strategies, and vision, often creating the change in the market (Lawler & Worley, 2006).

Sustaining organizational change was traditionally determined by a company’s ability to unfreeze, freeze, and refreeze (Lawler & Worley, 2006; Lewin, 1997). Unfreezing dissolves the normalcy of the organization, allowing it to then refreeze new structures and practices. It

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Figure 4.3: Continuous change model

An organization’s identity is interrelated to its ability to add value by creating designs and formulating effective strategies that lead to desired change.

Source: Adapted from Worley, C. G., & Lawler, E. E., III. (2010). Agility and organization design: A diagnostic framework. Organizational Dynamics, 39(2), 194–204.

disrupts one period of stability so the organization can create a different one. It is a singular event, which is not the practice of built-to-change organizations (Lawler & Worley, 2006). These organizations are successful at sustaining change because they are designed for continuous change—by seeking temporary competitive advantages through structures, strategies, and leadership.

Continuous Change and the Virtuous Spiral

An organization’s ability to strategize well and sustain change depends on its identity. As the continuous change model in Figure 4.3 illustrates, a company’s identity functions as the core, providing a platform for designing, strategizing, and creating value.

Identity—or who the organization is and what it stands for—is traditionally viewed as being very stable. Here stability is not a hindrance to change, but rather a prerequisite. An organization cannot sustain change without �irst establishing a strong identity. Identity is most clearly seen in the organization’s culture and how it is viewed by the outside world (Hatch & Schultz, 2002; Lawler & Worley, 2006). Just as your peers, coworkers, friends, and family can distinguish your identity based on your priorities and choices, an organization’s identity can be gleaned by how it manages con�lict and prioritizes its stakeholders and environment. Organizations that make their external environment and ability to make strategic adjustments part of their identity will be able to sustain change (Lawler & Worley, 2006).

Once identity is established and communicated, strategic intent is the next step in managing continuous change. Strategic intent refers to the ways in which the organization develops its temporary competitive advantages. Good strategic intent is characterized by �ive elements: breadth, aggressiveness, differentiation, logic, and orchestration.

Breadth refers to the broadness of a strategy. For example, P&G has a broad, global strategy involving multiple markets and consumer products. The WD-40 company, on the other hand, has a very narrow strategy and makes only a single type of lubricant. Aggressiveness is how an organization grows, interacts with competitors, and creates new products. Consider the Coca-Cola versus Pepsi feud for market share, or Apple versus Microsoft. The Mac versus PC commercials struck such a chord in highlighting these products’ consumer rivalries that many are posted

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AP Images/Ric Francis

Southwest Airlines is approaching strategy with �lexibility and vision, allowing it to sustain change.

online and are watched by hundreds of thousands of viewers from around the world.

Differentiation is the degree to which an organization’s products and services vary from the competition. We see this daily in the automotive industry. Each manufacturer offers unique vehicle features in an attempt to capture more of the market and distinguish itself from competitors. Logic refers to the core business model behind the organization’s revenue, costs, and pro�its. Some companies, like Walmart, choose a high-volume, low-cost model. Others, like Ferrari, choose a low-volume, high-cost model. Logic affects the way a company markets its products and how it interacts with the consumer.

Finally, orchestration is the process of planning and sequencing different strategies. It is the way in which the organization predicts and responds to environmental changes through the breadth, aggressiveness, and differentiation of its strategies (Lawler & Worley, 2006).

For example, Southwest Airlines has long relied on a keep-it-simple strategy: it keeps costs low, bags �ly free, and it has a well-known corporate culture—promulgated by legendary CEO Gary Kelly. This has given the airline a unique strategic position and allowed it to manage continuous change. In 2010 it announced its acquisition of AirTran to create “the most expansive network of any low-cost carrier in the U.S.” (Reed & Jones, 2010, para. 1). The strategic shift maintained the company’s identity as a low-cost airline and gave it a new competitive advantage. It expanded its network to new cities and began to offer international �lights—a �irst for Southwest. Kelly acknowledged that this strategic shift allowed Southwest to grow its presence in markets that it was not yet serving and placed the company in a good position to expand further (Reed & Jones, 2010). Southwest is approaching strategy with �lexibility and vision, allowing it to sustain change.

Organizations built to change think about strategy continuously. They also constantly evaluate their identity and strategic intent in relation to the changing environment. Those that are successful in this endeavor are able to create virtuous spirals, upward patterns of increasing performance that are created when an organization can match its strategy, value creation, and design to the changes in its environment.

Companies like IBM, Intel, GE, Microsoft, and P&G have successfully created and recreated virtuous spirals over decades as built-to-change organizations. In the 1980s Intel was an established manufacturer of dynamic random-access memory chips but was suffering in competition with its low-cost Asian competitors. The company adapted to its new environment and began to manufacture microprocessors. Its identity and adaptable strategic intent allowed it to create a new virtuous spiral, and it is still doing well today. Organizations that are built to change, like Intel, think about the current environment but also imagine potential future environments and react accordingly (Lawler & Worley, 2006).

Creating Job Structures Without Job Titles

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Traditional job descriptions and titles are now stagnant and high-cost hindrances to organizational change. If not kept up-to-date, they become irrelevant to the organization. Built-to-change organizations instead create job structures without job titles. They focus on creating a dynamic employee experience through changing work relationships and assignments. Similar to many professional services like accounting or consulting �irms, employees are assigned responsibility for a set of tasks on a temporary basis. As change occurs, tasks are adjusted to �it the new needs of the organization and the customer.

Although this approach expects much from employees and management in terms of frequent job redesign, it has signi�icant advantages for sustaining change. Such a structure allows employees to be de�ined not by a title, but by their unique skill set and current tasks. Their work is always relevant to the organization, and learning opportunities increase as different teams are created (Lawler & Worley, 2006).

For example, GE, a successful and long-standing built-to-change organization, encourages a dynamic work environment. Its entry-level rotational programs allow new employees to spend several months in different divisions over several years. This provides exposure to the various operations in the organization and instills the GE culture of adaptation and teamwork. Whereas other companies view training as expensive and time-consuming, GE makes it a priority, spending approximately $1 billion each year on employee training and devoting weeks or months to evaluating talent (Brady, 2010). The focus is not on the job title, but on what employees can do. GE’s method of frequently changing teams establishes change as the norm and encourages horizontal and vertical communication and knowledge sharing.

Another aspect of this structure is business process outsourcing (BPO). BPO involves outsourcing certain functions like accounting or human resources to �irms dedicated to those services. These �irms have the most current knowledge in their respective �ields and can more easily handle change. BPO reduces the stresses on the organization and the resources needed to change. It can also represent a signi�icant cost savings. New jobless structures and outsourcing put built-to-change organizations in a position for different communication and decision making (Lawler & Worley, 2006).

Implementing Downward Decision Making

Sustaining change requires good communication and involvement from top to bottom. IBM is a company that understands the importance of vertical communication (top–bottom or formal communication) and horizontalcommunication (interdepartmental communication). IBM holds “jam sessions” through its intranet (internal company Internet site) to gather ideas and communicate about current and future company issues. One such session involved 10,000 comments and more than 50,000 employees. CEO Sam Palmisano understands that a good idea can come from anywhere and that good feedback does not come just from superiors (Brady, 2010).

For communication and downward decision making to occur, an organization must have a good information system. The seven most important characteristics of a good information system are:

1. Provide comprehensive data on key processes 2. Integrate data across departmental boundaries 3. Monitor capabilities as well as performance

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4. Link to goal setting and rewards 5. Include information on competitors 6. Provide trend data on the business environment 7. Make measurements visible throughout the organization. (Lawler & Worley, 2006, p. 126)

This kind of system allows the organization to frequently set goals, have a customer focus, and be transparent regarding its goals. Decision making related to those goals should then take place at the corresponding level. Built-to-change organizations understand that employee input can improve the quality of decisions and make change easier.

Leading as a Team

Leadership is the common thread in built-to-change organizations. Leaders in this context have a unique combination of leadership and managerial skills. Individuals who are both leaders and managers react to the external environment and practice shared leadership. Shared leadership involves developing an entire organization of leaders, at all levels, to distribute decision making and uncertainty among knowledgeable leaders. To do this requires that organizations either hire managers with �lexible styles or replace those whose styles are inconsistent with the organization’s strategy and identity (Lawler & Worley, 2006).

The CEO of HP describes leadership as a “team sport” (Lawler & Worley, 2006, p. 217; Tam, 2005, p. B1). The best teams are designed for organic growth—individuals are thoughtfully placed with the intention of maximizing innovative output and �lexibility. Leadership development should occur at all levels. The organization’s attitude inspires all employees to gain the knowledge and skills to lead and makes those resources readily available (Lawler & Worley, 2006).

For example, P&G, led by CEO A. G. La�ley, places special emphasis on leadership development within the organization. The company strengthens leadership and management from the executive team down to the line employees and recognizes that leadership development and training is the most important requirement to maintaining a healthy company for the long term. During La�ley’s �irst term as CEO, he doubled the company’s revenue and market value and outperformed the market with his acquisitions. He retired in 2015 (Byron, Ng, & Lublin, 2015).

La�ley (2011) understood that leadership was not the responsibility of a single person; rather, the more leaders he could help create within the organization, the better P&G could sustain change:

It was my responsibility to develop as many potential CEOs as we could— leaders who would be ready and able at any time to lead P&G under any circumstances.… My objective was to groom more horses for the race. I wanted horses that could run in all kinds of conditions and on all kinds of tracks. (p. 70)

P&G works as a team, allowing it to successfully sustain change through improved communication and knowledge sharing.

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Not only should organizations develop leaders at all levels, they should reward employees for being leaders. Many reward systems are designed around stability, but consistent, stable performance is not the goal for built-to-change organizations (La�ley, 2011). Employees often need an incentive to change. Incentives should be given for both successes and failures. In a continuously changing organization, failure cannot be avoided and is not necessarily something to avoid. Good failure, as Lawler and Worley (2006) describe, should be rewarded and included in the organization’s learning process.

A Duke University and University of Southern California survey of 549 successful company founders found that they primarily attributed their success to their ability to learn from mistakes (Kauffman Foundation, 2009; Newlands, 2014). Basketball star Michael Jordan admitted to failing over and over again before succeeding. The writer James Joyce described mistakes as “portals of discovery” (as cited in Gillett, 2014, para. 3). Entrepreneurs generally admit that learning from mistakes is necessary before succeeding.

So how do organizational leaders encourage “good failures” (Manimala, Jose, & Thomas, (2006, p. 56) in the workplace? One way is to let employees reward each other for different, maybe even unusual performance that may initially fail but later prove successful. Employees might also feel less fearful of making mistakes or even failing in order to strive harder to achieve results another time. Providing support for employee risk-taking with the aim of helping organizations succeed is practiced through peer-to-peer compensation, as is the case at Zappos. Also biotechnology company Genentech enables employees to receive checks from $1,000 to $2,500 for going beyond job responsibilities (Gillett, 2014).

Removing some of the formality from striving for performance can encourage risk-taking and reduce the fear that often surrounds innovating. Intuit, for example, has a company-wide “Failure Award” ceremony to reward a team whose unsuccessful ideas lead to valuable learning. The plastics company W. L. Gore & Associates throws a celebration with beer or champagne when a failing project is killed. There is no need to fear failure or success. When rewarding efforts or actions that fail, it is important to be sure that employees are following metrics and a plan that is meeting the organization’s goals (Gillett, 2014). Incentivizing good failure is related to the learning organization principles and practices presented earlier.

Check Your Understanding

1. Are you incentivized by good failure? Why or why not? Would you be moved to innovate more either at work or in school if you knew you would not be penalized or would be rewarded or recognized for trying? Explain your reasoning.

2. How would you apply what you learned from Figure 4.3 (http://content.thuzelearning.com/books/AUMGT435.16.1/sections/navpoint- 37#�ig4.3) if assigned to a team to design and implement an organizational change? What parts of the model would you use and/or change? Explain.

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4.5 Future Change Challenges and Best Practices Shaping and sustaining change requires that an organization continually evaluate and respond to its environment, as we discussed in Chapter 2. The environment creates change, but innovative leaders can also change and shape competition in the environment, as we saw with Steve Jobs and Apple earlier in this text. In this section, we discuss effective change practices that apply to sustaining organizational change.

Self-Designing Organizations

One of the most important change practices is building organizations for change. For existing organizations, the challenge is to create learning organizations (which is the topic of Chapter 5) and self-designing organizations; that is, organizations that are able to renew and change themselves fundamentally and continuously (Cummings & Worley, 2009). This type of organization is created through a collaborative process in which stakeholders choose the direction of the company, create structures and processes to reach the business goals, and then implement them (Cummings & Worley, 2009).

As we move into the future, organizations will also need the following practices to survive and thrive: a focus on strategic corporate social responsibility; attention to core competencies; an emphasis on sustainability (with regard to operations and toward the environment); a focus on incorporating analytics as a capability; managing globalization; meeting the challenges of disruptive change; and developing leaders’ and followers’ emotional intelligence.

Corporate Social Responsibility

Corporate social responsibility (CSR) is an organization’s self-imposed efforts toward making a positive social, environmental, and ethical impact, considering its core identity and industry. Many organizations are now global players and recognize that the impact of their operations extends far beyond headquarters. Ethisphere’s World’s Most Ethical companies have shown that good ethical practices that are also innovative can differentiate a company’s brand and even improve its �inancial performance (Mitchell, 2011).

Studies support the claim that ethical companies generally outperform their competitors (Semuels, 2014). Companies like A�lac, GE, Marriott, and others continue to shape change. They rejuvenate and create successful standards for business practices, and consumers, stockholders, and stakeholders are responding.

For example, IKEA, the multinational furniture retailer, is one of several socially responsible corporations in Sweden (Sweden.se, 2015). Its identity and commitment to CSR was exempli�ied in its actions regarding child labor in the 1990s. Rugs are a key IKEA product; the company purchases rugs from suppliers in the Middle East and India, among other countries. In the mid-1990s the media discovered that child labor was used in the production of some of the rugs and confronted the company.

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AP Images/Jing wei/Imagechina

IKEA is an iconic global furniture retailer that is also one of the most socially responsible corporations in the world. It has its own set of labor and environmental standards for its suppliers.

IKEA examined its entire supply chain (all the participants involved in bringing a product to its end user) and established its own set of supplier standards. Standards included restrictions against child labor as well as environmental standards. The company created positions dedicated to evaluating supplier compliance and suspended or terminated contracts with suppliers that were not in compliance. IKEA also partnered with the United Nations Children’s Fund to create programs for children and women in developing areas in which the company does business and to address the issue of child labor at its root causes. IKEA takes its role as a global player very seriously. It considers the negative externalities of its operations and addresses its responsibility to society and the environment.

IKEA has been socially responsible since long before it became popular to do so. The company now sets standards in CSR, which can be an expensive investment (IKEA Group, 2014; Llopis, 2011). IKEA’s approach to CSR is comprehensive, and all companies can learn from it as we move into the future. Ethics and social responsibility are not just words or individual choices; they have a signi�icant impact on an organization’s reputation and �inancial performance. Companies that understand and embrace this behavior can shape change in the global business world.

CSR and ethical practices are increasingly important dimensions of all organizations, especially those trying to sustain changes and adopt new practices involving stakeholders, including the environment. It is the responsibility of top leaders to develop an ethical culture and emphasize its importance to each employee (Daft, 2015).

In some instances ethical behavior is intuitive; however, there are many instances that are not black and white, but gray. Ethics are often subjective, and they may mean something different to each individual and organization. That is why it is critical, in the gray areas, that company leadership at all levels model ethics and create a culture of ethical practices. Most companies today have a code of ethics, a formal statement that details the ethical and social responsibility values that guide employee conduct (Daft, 2010). The code of ethics informs the organization’s vision, mission, and values, which in turn dictate the organization’s core competencies (see Figure 4.4).

To sustain competitiveness, organizational leaders and followers must be clear in identifying those dimensions that are key to survival and success. Core competencies, discussed next, are one such dimension.

Figure 4.4: Strategic contingency framework

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These key questions align internal and external organizational dimensions to make a company more effective.

Core Competencies

Core competencies are an organization’s strongest capabilities, based on the combination of production skills and technologies. They are also critical factors in creating sustainable organizations (Prahalad & Hamel, 1990). However, businesses can’t solely rely on a core competency forever; rather, every business needs to adapt its core competencies to market changes and demands.

The Digital Equipment Corporation (DEC) was once IBM’s major competitor before it �loundered and failed to read the competitive environment correctly. A major core competency of DEC was mainframe computers. However, the industry shift from mainframes to desktop

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and laptop computers was not taken seriously by that company. Consequently, DEC did not shift its core capabilities to match the changing customer and industry demands. The company was a market leader as a manufacturer of mini computers in the 1960s through the 1980s but fell apart as the PC market exploded. DEC’s business processes and costs were designed around building and integrating components internally, whereas the PC market relied heavily on outsourcing and speed of design. Its organizational structure was not sustainable for the change in the market, and DEC did not recover (Christensen & Overdorf, 2000).

“The corporation, like a tree, grows from its roots” (Prahalad & Hamel, 1990, p. 81). Core competencies are an organization’s roots. If the organization doesn’t know where its roots are and doesn’t water them, it cannot grow and thrive. Likewise, it must provide enough room for its roots to grow. Core competencies are dynamic, changing as the organization grows and as its surrounding competitive environment evolves. A keen understanding of core competencies will help the organization sustain that change. DEC did not give its core competencies room to grow and change, which ultimately spelled the end of the company.

It can be dif�icult to determine an organization’s core competencies, however. Management must �irst evaluate the vision, mission, and values and see how this identity aligns with what the organization does best. Prahalad and Hamel (1990) developed three tests:

1. It is a core competence if it provides “potential access to a wide variety of markets.” 2. It is a core competence if it makes “a signi�icant contribution to the perceived customer bene�its of the end product.” 3. It is a core competence if it is “dif�icult for competitors to imitate” (pp. 83–84).

Consider 3M and its core competency in chemical processes and materials (Lawler & Worley, 2006). This competency allows 3M to produce products ranging from tape to its legendary Post-it® notes to adhesives for the aerospace industry. The company’s unique ability to manufacture bonding materials that are dif�icult to imitate gives it access to many markets and adds value in the customer’s mind.

Sustainability

Sustainability is an organization’s responsibility to maintain its operations and relevance to all stakeholders, including the physical environment, into the future. Sustainability is in�luenced by the organization’s identity, structure, and capabilities. The factors that determine these progress over time, from resources to processes and values to the organization’s culture (Christensen & Overdorf, 2000). Organizations that practice sustainable policies integrate such practices into their leadership mind-sets, strategies, cultures, products, and services. We have discussed examples from companies like GE, P&G, and IBM.

Another important aspect of sustainability is minimizing the negative environmental and societal impact of business practices. Companies are measured not only by �inancial performance, but also by the quality of their actions. Shaping change in the future requires an analysis of negative externalities (unintended negative social and environmental consequences of doing business, such as pollution) in decision making.

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The shift toward “green” business practices is not just a fad. Businesses are more concerned than ever about using renewable resources, and the government has begun to support sustainability, selecting Eleni Reed as the �irst chief greening of�icer in 2010. This position is responsible for pursuing new sustainable practices (Hoffman, 2010). Businesses cannot sustain change in the future if they do not address sustainability. We see this already re�lected in expanded CSR programs.

Managing Change

Embedding CSR and Sustainability Into Business Practices

Suppose you are responsible for instituting CSR and sustainability at a manufacturing company. This company still focuses on classic business principles but must now consider its social and environmental impact. It has been proved that becoming a leader in CSR and sustainability has a positive impact on revenues and customer loyalty. Competitive advantage also increases: Customers favor companies that engage in these efforts and even come to expect them from the brands they habitually purchase.

The manufacturing company must change its old practices and modernize, and then communicate its new vision to stakeholders and customers to gain maximum return on investment. Some of the ways it can embody CSR and sustainability are by engaging in fair trade, standing against the exploitation of children for labor, using renewable resources, opposing cruelty to animals, ensuring it is environmentally conscious, and addressing social needs.

The company begins to communicate its plans to employees well in advance of the change, because making them feel a part of the change initiative and appealing to their ethical and environmental concerns has positive effects. When employees believe in the mission and feel like their daily responsibilities contribute to it, their sense of ful�illment and engagement increases.

Discussion Questions

1. What is the difference between CSR and sustainability? 2. What are some speci�ic ways in which this company can change its way of doing business to adhere to CSR and sustainability

standards and practices? 3. What can the company do to allow the new philosophy to take hold among employees?

(See the end of the chapter for possible answers.)

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AP Images/Keith Srakoci

Heinz CEO Bill Johnson (left) implemented a strategy of “Four As” (applicability, availability,

Analytics Capability

When considering core competencies, organizations cannot afford to ignore technology and analytics. Analytics is the collection and organization of relevant data in order to determine trends and evaluate performance. It is another evolving core competency that has become a necessary benchmark. With technology advancing daily, we now have more tools than ever to collect and analyze data. Those organizations with the knowledge to best leverage available information will have an advantage when attempting change.

The United Parcel Service (UPS), for example, uses analytics comprehensively to anticipate customer actions and needs. It tracks the movement of each package and evaluates the likelihood of problems. The company has created the UPS Customer Intelligence Group to analyze customer usage patterns and complaints. Companies like UPS want to be as informed as possible, and they have the means to do so. This improves decision making and quickens reaction time (Davenport, 2006).

Meeting the Challenges of Globalization

The past few decades have seen a trend toward globalization—the expansion of business operations around the globe. Large, sustainable companies like IKEA have been successful at globalization. These multinational corporations have the wisdom to see that creative leaders will remove boundaries by using innovative strategies, developing a universal vision, and motivating individuals around the world (IBM Global Business Services, 2010). The 2010 McKinsey Global Survey identi�ied �ive themes of globalization: “growth in emerging markets; labor productivity and talent management; the global �low of goods, information, and capital; natural-resource management; and the increasing role of governments” (McKinsey & Company, 2010a, para. 3).

Emerging markets are those in places like China, India, and Russia that are experiencing signi�icant and rapid growth through industrialization. Companies in these markets will move aggressively beyond their own markets and compete for global business (Beebe, 2007). To respond to these emerging markets, companies must create a local presence, develop partnerships and joint ventures with local �irms, hire talent from new markets, and build new business models (McKinsey & Company, 2010a).

Organizational structures must become more �lexible, frequently evolving as emerging markets present change. This organizational evolution has been termed “boundarylessness” (Falk, 2001, p. 7). To successfully sustain change in emerging markets, organizations must become boundaryless—when boundaries are removed, the company has more �lexibility and can more easily expand.

Heinz CEO Bill Johnson implemented a strategy of “Four As” to guide the company’s approach to emerging global markets: applicability, availability,

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affordability, and af�inity) to help the company expand its reach in the global marketplace.

affordability, and af�inity (Feigenbaum, White, & Matticks, 2011). Applicability involves a �it between a product’s acceptance by end users and customers in a local culture. In China, for example, the main condiment Heinz sells is soy sauce, rather than its iconic ketchup. Applicability also relates to how a product may be used differently in different markets. In Korea, for example, ketchup is eaten primarily on pizza, and in the Philippines, it is made with bananas.

Availability involves selling the product in the relevant local channels. Most emerging markets don’t have large grocery stores, so Heinz had to rethink its distribution channels to reach more of the local population. Affordability seems to be self-explanatory. Emerging markets, while growing, are still fractionally as wealthy as markets in Western, developed countries. To address affordability, for example, Heinz offers its products in different sizes—soy sauce is sold in small, 3-cent packets in Indonesia.

Finally, af�inity involves how local employees and customers regard the company’s brand. Af�inity can be built through CSR and sustainability. Heinz created its core capabilities in emerging markets primarily through acquisitions and has been very successful in sustaining that change, with more than 20% of the company’s 2011 revenues originating in emerging markets (Feigenbaum et al., 2011). Heinz was purchased by Berkshire Hathaway and the private equity �irm 3G Capital for $23 billion in 2013 and has successfully merged with the Kraft Foods Group (Kenwell, 2015).

The McKinsey survey’s second theme of globalization is labor productivity and talent management. Globalization has created a need for more productive and skilled labor in management, R&D, and strategy. As we move into the future, talent will be found mostly in emerging and developing markets (McKinsey & Company, 2010b). Companies must learn to leverage the productivity of aging workers and ef�iciently acquire and place the right talent in the right places.

The global �low of goods, information, and capital is both a cost and a bene�it of globalization (McKinsey & Company, 2010b). New technologies allow information to be available and accessible around the world. This helps companies make quicker, more informed decisions, but it also presents a risk of intellectual capital being stolen. There are also high costs associated with obtaining and maintaining these technologies. Free-�lowing information has created signi�icant pricing transparency and engaged consumer networks (McKinsey & Company, 2010b). More available information means more informed consumers, now on a global scale.

Managing natural resources is the fourth theme of globalization. As operations expand around the world, the issue of sustainability and the supply and use of resources is more critical than ever. Constraints on natural resources have a signi�icant effect on global companies’ strategies.

Finally, the increasing role of government shapes globalization, now and in the future. Developed and emerging markets carry concerns about volatility and high debt. Government actions affect which markets may be invested in and how business may be conducted in those markets. Natural resources and governmental oversight are signi�icant external factors to be considered in globalization (McKinsey & Company, 2010b).

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As globalization becomes the norm for business, companies must consider these �ive themes and respond accordingly to sustain the changes that come with globalization. Companies like IKEA and Heinz have been successful, and even ahead of the curve, in sustaining this change.

Meeting the Challenges of Disruptive Change

Change will become more signi�icant and increasingly disruptive, particularly as the playing �ield expands globally. Leaders must shift their thinking from individual employees’ capabilities to the capabilities of the organizational as a whole (Christensen & Overdorf, 2000). When considering an organization’s big picture, there are three factors that affect its ability to focus its values, use resources, and integrate its processes (Christensen & Overdorf, 2000).

What an organization has (its assets) affects what it can do. Both tangible (equipment, cash, inventory) and intangible (patents, employees, knowledge) resources help companies navigate disruptive change. Processes are the ways organizations interact—through coordination, communication, and decision making—to enhance values by transforming resources into products and services. Processes are inherently designed to be stable and unchanging. The dif�icultly arises in creating organizational �lexibility in order to respond to change. Finally, values are the bases employees use to set priorities. The ideal combination of resources, processes, and values will be different for each organization, and �inding this balance is the key to sustaining change.

Disruptive change is most dif�icult when the organization’s capabilities lie primarily in its processes and values, rather than in its people, and are embedded in its culture. In this case companies may deal with disruptive change by creating new capabilities in three ways: internally, through spinout organizations, and through acquisitions (Christensen & Overdorf, 2000). Organizational boundaries must be changed and new teams created if new capabilities are to be created internally.

Chrysler, for example, recognized the need to change capabilities to focus on automobile types rather than on components. The company sold its stake in Maserati, Lamborghini, and Diamond–Star Motors to focus on developing “great cars, great trucks.” This move sent a signal to employees and other stakeholders that helped jump-start the company’s renaissance (Fiat Chrysler Automobiles, 2015).

To achieve these new capabilities, Chrysler changed its organizational boundaries. Its component-based product development teams (power train, electrical systems) were changed to heavyweight teams (minivan, small car, Jeep, truck) to make its development faster. This internal restructuring allowed Chrysler to create new capabilities (Ott, Katz, & Thomas, 2011).

Spinout organizations are new, independent organizations related to the parent organization—that is, new divisions. They can be an effective way to create new capabilities in the face of disruptive change. For example, when HP �irst entered the ink-jet printer business, it had dif�iculty integrating with its existing laser-jet operations because the capabilities needed for each were different. HP decided to create a new ink-jet division in Vancouver, British Columbia. This spinout division allowed the company to create new capabilities for the ink-jet business and maintain its capabilities in laser-jet printers. More recently, HP chose to sell its PC operation and bought the United Kingdom’s largest software �irm, Autonomy, to enter the software business (BBC, 2011).

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Capabilities can also be created through acquisition, or an organization’s purchase of all or a portion of another existing company. Rather than expending valuable resources to create capabilities from scratch, an organization may purchase an existing company that already has the desired capabilities. Any of these three methods allow an organization to navigate disruptive change and create new organizational capabilities.

Developing Emotional Intelligence

Finally, shaping and sustaining change in a global playing �ield with socially responsible and ethical players requires a new kind of intelligence. According to psychologist Daniel Goleman (1995), the most effective leaders have a major similarity: a high degree of emotional intelligence (EI). EI encompasses self-awareness, self-regulation, motivation, empathy, and social skill (Goleman, 1998). These �ive components are shown in Table 4.3. This kind of intelligence requires much more than IQ, technical skills, or know-how. It is very relational and self-re�lective, and it is not just for leaders.

Leaders and followers need EI to shape and sustain change. Having and expressing EI motivates a diverse global workforce that is becoming more local each day, and leaders need to read or predict markets based on this diversity. Its �irst and most fundamental component is self- awareness. Goleman (1995) de�ines self-awareness as an individual’s strong understanding of his or her emotions, strengths, weaknesses, needs, and drives. This is often easier said than done; however, if understanding the organization is fundamental to sustaining change, how much more important is �irst understanding oneself? Self-awareness provides a context for the role of the individual within the organization. One cannot enact an organization’s vision, mission, and values without �irst understanding one’s own vision, mission, and values.

Table 4.3: Emotional intelligence

Component De�inition Hallmarks

Self- awareness

The ability to recognize and understand your moods, emotions, and drives, as well as their effect on others

Self-con�idence Realistic self-assessment Self-deprecating sense of humor

Self- regulation

The ability to control or redirect disruptive impulses and moods The propensity to suspend judgment—to think before acting

Trustworthiness and integrity Comfort with ambiguity Openness to change

Motivation A passion to work for reasons that go beyond money or status A propensity to pursue goals with energy and persistence

Strong drive to achieve Optimism, even in the face of failure Organizational commitment

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Component De�inition Hallmarks

Empathy The ability to understand the emotional makeup of other people Skill in treating people according to their emotional reactions

Expertise in building and retaining talent Cross-cultural sensitivity Service to clients and customers

Social skill Pro�iciency in managing relationships and building networks An ability to �ind common ground and build rapport

Effectiveness in leading change Persuasiveness Expertise in building and leading teams

Source: Reprinted by permission of Harvard Business Review. From “What Makes a Leader?” by Daniel Goleman. Harvard Business Review, November–December 1998. Copyright © 1998 by the Harvard Business School Publishing Corporation, all rights reserved, p. 95.

Self-regulation involves thinking before acting and being able to control impulses. Individuals who self-regulate develop environments of trust and fairness (Goleman, 1998). An organization cannot sustain change without an environment of trust. Such an environment takes time to establish. Motivation is an individual’s incentive to succeed beyond everyone’s expectations (Goleman, 1998). Change is rarely easy— successfully and ef�iciently implementing it requires drive, trust, and communication. Trust can be developed if leadership is empathetic. Empathy involves thoughtfully considering others’ feelings when making decisions (Goleman, 1998). Finally, social skill includes being friendly to persuade individuals to move in a certain direction (Goleman, 1998).

EI is more than a personality trait. It’s a new kind of intelligence, and it can be learned (Goleman, 1998). EI involves the ability to identify and control one’s emotions and those of others. In this way positive manipulation is a critical success factor in shaping and sustaining change. Leaders with EI, at all levels of a company, create and motivate cohesive work environments and support and inspire change.

Check Your Understanding

1. What happens when a leader does not show EI when planning and/or implementing a large-scale change initiative? Review Table 4.3 (http://content.thuzelearning.com/books/AUMGT435.16.1/sections/navpoint-38#table4.3) and offer an example from your own experience or from your research.

2. How would you use Figure 4.4 (http://content.thuzelearning.com/books/AUMGT435.16.1/sections/navpoint-38#�ig4.4) to explain how the “as is” state of an organization will change to a “to be” state? (Consider using an example from the business press or media.) What would change and why? What are the forces pressuring or presenting an opportunity to change? Apply the dimensions in Figure 4.4 to address these questions.

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Summary and Resources

Chapter Summary Shaping and sustaining planned and continuous organizational changes are tasks for the entire organization, from leaders to employees. Sustaining change requires keeping the plan for change updated and on course. It also demands that leaders continue to benchmark organizational operations and expertise to the latest technologies and practices in their �ields and those used by their most successful competitors.

This chapter began with a reminder of why major organizational changes fail. We then launched into best practices of leadership, strategy, culture, structure, and systems that help shape and sustain change. We identi�ied built-to-change practices and methods that help organizations succeed both with implemented changes and with those that have yet to be planned. Selecting leaders who can plan and implement strategies, cultures, structures, and processes that are built to change increases the likelihood of shaping lasting change.

Challenges to organizations and current best practices that address these challenges are discussed. Global threats and opportunities and disruptive changes brought about by a number of sources, including new technology, are among the major challenges organizations face. The last section also explained how strategic CSR, an organization’s core competencies, sustainability, the practice of analytics, and organization- wide EI can create a competitive advantage.

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Learning Objectives Recap 1. Change programs fail for many reasons, including opposition to change, failure to recognize the need for change, super�icial

recognition of the need for change, failure to systematically implement change, adopting a short-term �ix approach, structural and cultural impediments to change, and failure to sustain change. Change is often arbitrarily imposed and poorly explained, and employees are given little or inadequate direction. Leaders guide the alignment of organizational dimensions to the new vision and future state through the change process. Figure 4.1 (http://content.thuzelearning.com/books/AUMGT435.16.1/sections/navpoint-34#�ig4.1) illustrates this role. Leaders use interventions and empowerment to sustain change. Leaders are integrators, orchestrators, motivators, communicators, and strategists.

2. Employees bring skill, talent, knowledge, ideas, and experience to the change process—without employees, change could not be implemented. Organizations need to attract desirable talent and retain it in order to sustain change. Recruitment and retention can include social media efforts and professional development.

3. The �ive pillars of successful, sustainable change are leadership, strategy, culture, structure, and systems. These �ive pillars are interrelated and interdependent. Leaders guide the new strategy and shape the culture, which in turn suggests the appropriate structure and systems. All �ive dimensions must be aligned for change to be successful and sustainable. Jim Collins offers the following principles regarding how good companies become great: level 5 leadership, good personnel placement, confrontation of reality, the hedgehog concept, a culture of discipline, use of technology, and the �lywheel approach. Level 5 leadership is servant leadership characterized by a calm, quiet, and humble style. The hedgehog concept refers to a company understanding its passion, what it does best, and what drives its economic engine. The �lywheel approach involves building momentum, as if pushing a large �lywheel in one direction. Enterprise or corporate strategies are broader, high-level strategies that de�ine the organization’s purpose and mission so as to satisfy stakeholders. Business-level strategies focus on the actions the organization needs to take to gain a competitive advantage. Finally, operational or function-level strategies focus on the organization of each functional area in order to achieve corporate and business-level strategies.

4. Built-to-change organizations seek temporary competitive advantages rather than long-term stability. They implement continuous change centered on the organization’s identity, and they focus on job structures rather than job titles. They also implement downward decision making through strong top-to-bottom communication and emphasize shared leadership.

5. Self-designing organizations have the ability to change themselves fundamentally and continuously. Existing organizations often have greater dif�iculty becoming a learning organization. To make this transition, organizations need to focus on strategic CSR, emphasize sustainability, pay attention to core competencies, adopt a way to manage globalization, try to meet the challenges of disruptive change, incorporate analytics, and develop EI among employees.

Discussion Questions 1. Suppose you have been invited to talk to a local business group about why organizational change programs fail and how they can

succeed. Outline your presentation to such an audience.

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2. If you had to advise a group of newly appointed CEOs on speci�ic roles that leaders can play in sustaining organizational change, what would you say?

3. How can an organization’s strategy, culture, and systems be revitalized to sustain change? Offer some speci�ic recommendations for each of these dimensions.

4. State an argument for and against each of the following statements using what you learned from Section 4.2. (a) Human capital cannot be easily developed after an organizational change is implemented. (b) Recruiting new talent through an organization’s branding is more myth than reality. (c) Organizations, HR personnel, and leaders can’t really empower employees to sustain a change; people have to motivate themselves.

5. Evaluate (argue the validity) of these statements based on what you learned from Section 4.4. (a) Built-to-change organizations should seek long-term competitive advantage, not short-term competitive strategies. (b) An organization’s identity follows its strategic intent: strategy �irst, then who an organization is and what it stands for. (c) An organization’s virtuous spiral refers to the process of showing performance �irst, then changing strategy and structure to increase its performance. (d) Decision making and leading from the top should be centralized to avoid confusion.

6. Argue the following statement and present evidence to support your opinion (using what you learned from Section 4.5): When organizations change to satisfy customer and competitive demands, CSR is a great theory, but in the real world every company and organization has to do what is required to survive and succeed—and that sometimes involves questionable legal and ethical activities.

7. Discuss why and how the following are important for sustaining organizational change: (a) self-designing organizations, (b) de�ining and updating core competencies, (c) sustainability, (d) analytics, and (e) global competitiveness.

8. Respond to the following statements and support your reasoning with evidence and an example: (a) Disruptive change may be desirable in theory, but in reality it should be prevented, controlled, and if possible, extinguished. (b) EI is a great trait to have if you’re born with it, but many people who are shy, introverted, and not outwardly oriented should not be pressured to learn or demonstrate EI, especially by organizational leaders and trainers.

Key Terms

access-based positioning The process of focusing business on activities tailored to reach particular customer segments that offer desired returns on investment.

acquisition An organization’s purchase of all or a portion of another existing company.

aggressiveness The way the organization grows, interacts with its competitors, and creates new products.

analytics The collecting and organizing of relevant data in order to determine trends and evaluate performance.

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assets What an organization owns, both tangible and intangible.

b2change organizations Organizations that are built with practices in place to encourage change rather than obstruct it.

branding The image, reputation, and identity of a company; that for which the company is known.

breadth The scope, scale, depth, and reach of a strategy.

business intelligence An analysis of company data to make better strategic decisions. Also known as data mining.

business-level strategies Strategies that de�ine the logic and actions organizations take to achieve competitive advantages using their speci�ic business competencies.

business process outsourcing (BPO) The act of outsourcing certain business functions, like accounting or human resources, to �irms dedicated to those services.

code of ethics A formal statement of the company’s values concerning ethics and social responsibility; it clari�ies to employees what the company stands for and its expectations for employee conduct.

competitive advantages Unique products, ideas, and/or practices that distinguish the organization within the market.

confronting brutal facts The practice of great companies and their leaders to confront brutal facts or harsh, un�lattering truths about the organization, while never losing faith that that they could and would prevail in the face of adversity.

connectors People who know how to �ind partners in the mainstream business or the outside world.

core competencies An organization’s strongest capabilities, based on the combination of production skills and technologies.

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corporate social responsibility (CSR) An organization’s self-imposed efforts toward a positive social, environmental, and ethical impact, considering its core identity and industry.

creative destruction The industrial transformation that accompanies radical innovations introduced by entrepreneurs.

cultural risk The risk that strategy and culture will be incompatible, creating a resistance to change.

culture of discipline Jim Collins’s idea of sustained great organizational results that depend on developing cultures of self-disciplined people who used disciplined action to help organizations be their best through the help of deeply passionate people driving economic performance.

data warehousing The use of large databases to combine all company data and allow users to access data and create reports.

differentiation The degree to which an organization’s products and services vary from the competition.

emerging markets Markets like Brazil, China, India, Russia, and others that are experiencing signi�icant and rapid growth through industrialization.

emotional intelligence (EI) A dimension of intelligence encompassing self-awareness, self-regulation, motivation, empathy, and social skill.

empathy Thoughtful consideration of others’ feelings in the process of making intelligent decisions.

empowerment A shift in expectations by which employees are given more autonomy in decision making and increased responsibility.

enterprise or corporate strategies Strategies that de�ine a purpose and mission for an organization to satisfy stakeholder expectations and set a course to meet environmental demands while accommodating internal system needs.

executive dashboards Digital information system user interfaces that are easy to read and provide information tailored to user requests that is automatically updated.

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executive information system A high-level application that facilitates decision making at upper levels of management.

�irst who, then what The practice of �inding and placing the right people in the right places and letting the wrong people go �irst, before setting a new vision and strategy.

�lywheel Jim Collins’s term to describe great companies that did not seek a grand, single de�ining moment, or killer application, but relentlessly pushed a large, heavy �lywheel in one direction, turn after turn, until momentum built to a point of breakthrough after breakthrough.

globalization The expansion of business operations around the globe, including the integration of national economies with the global economy.

hedgehog concept Jim Collins’s metaphor used to describe great companies; when a hedgehog faces a predator, it simply rolls up into a ball. Unlike the clever fox, the hedgehog’s strategy is surprisingly easy, repetitive, and effective.

horizontal communication Interdepartmental communication within the organization.

human capital The skills, knowledge, and experience of individuals or a workforce with regard to their value and cost as invested and incurred by an organization.

identity Who the organization is and what it stands for.

intangible assets Nonphysical assets that are often not found in the organization’s accounting records; for example, goodwill, patents, and a skilled workforce.

intranet A company’s internal Internet site.

knowledge management The process of systematically �inding, organizing, and making a company’s intellectual capital available to foster a culture of continuous learning and knowledge sharing.

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level 5 leadership Successful leaders, as described by Jim Collins, who worked not �lamboyantly or with highly observable charismatic, loud, or dramatic styles; but calmly, quietly, humbly—even shyly—in strong-willed ways.

logic The core business model behind an organization’s revenue, costs, and pro�its.

management information system A computer-based system that provides information and support for managerial decision making.

motivation The drive to achieve beyond expectations.

needs-based positioning The act of serving many needs of few customers; choosing a strategy based on a group of customers, rather than on a speci�ic set of products.

negative externalities Unintended negative social and environmental consequences of doing business.

operational and functional-level strategies Strategies that de�ine the ways in which each functional area of a business is organized to deliver the corporate and business-unit level strategic direction.

orchestration The process of planning and sequencing different strategies.

self-awareness An understanding of one’s own emotions, strengths, weaknesses, needs, and drives.

self-designing organizations Organizations that have capabilities to renew and change fundamentally and continuously.

self-regulation The ability of an individual to control impulses. The term also refers to groups and organizations being able to control their operations and activities legally and ethically without the intervention of governmental or outside forces.

shared leadership Distributed decision making and activities among managers, employees, and leaders throughout an organization.

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silos Speci�ic processes or departments working independently—and sometimes in isolation—of each other without strong communication or relationships between or among them.

social skill Friendliness with a purpose; ability to relate to people through social means.

spinout organizations New, independent organizations related but operating separately from a parent organization.

strategic intent Ways in which organizations develop competitive advantages.

strategic positioning Ways in which organizations’ visions and values are aligned with their strategies.

supply chain All the participants involved in bringing a product to its end user.

sustainability An organization’s responsibility to maintain its operations and relevance to all stakeholders, including the physical environment, into the future.

sustaining major organizational changes Continuous top-down, bottom-up leadership and process improvements implemented to embed change within the organization.

technology accelerators Planned and applied selected technologies that ignite and accelerate an organization’s transformation.

values The standards by which employees set priorities, develop strategies, and make decisions.

variety-based positioning An entrepreneurial, �lexible approach of choosing a competitive strategy based on a variety of products, rather than relying on a speci�ic or previously de�ined group of customer segments.

vertical communication Top-to-bottom and bottom-to-top communication within the organization’s formal chain of command; also referred to as formal communication.

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virtuous spiral An upward spiral of increasing performance that is created when an organization can match its strategy, value creation, and design with the changes of its environment.

Additional Resources For more on information why organizational change can fail

http://www.forbes.com/sites/victorlipman/2013/09/04/new-study-explores-why-change-management-fails-and-how-to-perhaps- succeed/ (http://www.forbes.com/sites/victorlipman/2013/09/04/new-study-explores-why-change-management-fails-and-how-to-perhaps-succeed/)

Strategies to empower employees

https://hbr.org/2010/04/empowering-your-employees-to-e (https://hbr.org/2010/04/empowering-your-employees-to-e)

Managing Change Sample Answers

Managing Change—Recruiting Talent in the 21st Century 1. Your brand is just as important to recruiting as it is to marketing. You must recognize your position in the industry, identify key rivals

that may be seeking the same kind of talent, determine what attributes you are seeking in candidates, and understand the best way to reach potential candidates. Large employers have transitioned to the 21st century by combining social media tactics with traditional recruiting techniques. This is a cost-effective strategy that smaller companies can emulate.

2. Popular social media sites can contribute in their own unique way to a social media recruiting strategy. LinkedIn is one way to reach candidates who have desired quali�ications while simultaneously showcasing your company’s attributes and listing job openings. Facebook can help strengthen the company’s identity and brand and make it visible to the market. YouTube can present the company to potential recruits and give candidates a realistic look into the company’s culture, values, and day-to-day processes. Twitter can communicate job openings while at the same time de�ine the company’s voice.

3. Companies with a talent mind-set seamlessly combine talent acquisition with talent development. They have strong onboarding processes—they may pair new hires with more established employees as a way to train and acculturate them, which has the simultaneous advantage of adding mentoring to the established employee’s professional development. Talent mind-set companies integrate new employees into their existing culture and are concerned not only with candidates’ quali�ications but with their leadership potential and long-term career development.

4. Companies with a talent mind-set look beyond a candidate’s capabilities to ful�ill job requirements. They are looking for leadership qualities, such as the ability to “think outside the box,” be comfortable in ambiguous situations, and be able to formulate strategies. These candidates are able to understand abstract concepts, be independent, and be willing to take risks to innovate. Other desired

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capabilities include empathy, self-awareness, the ability to read other people and analyze situations, and the ability to step away from details when necessary.

Managing Change—The Qualities of a Change Leader 1. Leaders are integrators charged with keeping the organization in alignment through the change process. They must provide

discipline and boundaries that will dictate the company’s actions as it works to ful�ill its goals. The organization must be �lexible and creativity must be embraced if it is to adapt and sustain change down the line. Frequent, clear, and consistent communication helps facilitate integration as the leader orchestrates the cross-functional synergy that is necessary for sustaining change.

2. Leaders must integrate the mission—including the vision and values—with the strategy, culture, silos, structure, and systems within the organization.

3. The ability to build teams, motivate, and communicate are associated with a higher rate of success regarding organizational change. This includes coaching, mentoring, and rewarding employees, as well as involving others in tasks that support the change.

4. Leaders are responsible for making sure the required resources are available for the organization’s change plan and for ensuring that managers have the support they need to carry out the plan. They also must foster new skill development and behaviors in employees so that they can change with the company. Leaders must give their staff members the tools to succeed to keep them engaged.

Managing Change—Embedding CSR and Sustainability Into Business Practices 1. Sustainability is a commitment not just to the environment, but to the company itself. Sustainability is in�luenced by the

organization’s identity, structure, and capabilities. The organization must maintain its operations and relevance by integrating sustainability practices into its leadership, strategies, cultures, products, and services. Sustainability is also about minimizing negative impact on the environment, which can be accomplished by using renewable resources. It is important to keep current with —and even stay ahead of—government regulation requirements for sustainability. On the other hand, corporate social responsibility is a company’s decision and the result of its ethical and sustainable efforts to positively impact society and the environment.

2. A manufacturing company can make dozens of changes to adopt sustainable practices. It can institute a recycling policy, switch to wind or solar power, recycle its water, responsibly dispose of hazardous waste, ban animal testing in its production, scrutinize its suppliers to ensure they adhere to the same standards, and switch to fuels that emit less exhaust or employ “clean technology.” From a CSR standpoint, the company can get involved in the community through philanthropic activities.

3. To instill the change in employees, companies can institute a code of ethics consistent with the organization’s CSR values. This helps include employees in achieving the company’s mission and familiarizes them with the change initiatives about to take place. It is important that leadership exemplify these ethics for employees to follow.