Change Analysis

2

CHANGE ANALYSIS

Chapter 5

What Changes—and What Doesn’t?

Learning objectives

On completion of this chapter you should be able to:

LO 5.1Explain several different ways of categorizing different types of change

LO 5.2Identify practical implications of different types of change for the change manager

LO 5.3Understand the difference between sustaining and disruptive innovation, and explain the practical implications of this distinction for change management

LO 5.4Assess the significance of organizational culture with regard to organizational performance and reputation, and the role of leaders as culture architects

LO 5.5Assess the potential impact of new digital technologies in general, and the potential organizational benefits of applications of social media in particular

Copyright 2005 by Randy Glasbergen. www.glasbergen.com

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LO 5.1What Changes?

What changes? Well, anything and everything, from an individual’s job description, to a whole organizational system, which could involve other organizations as well. Here are some examples:

aspirations, attitudes to risk and innovation, budgeting procedures, business model, collaboration and conflict, culture of the organization, downsizing, external relationships such as partnerships and joint ventures, information systems, leadership and management style, location and layout of facilities, manufacturing processes, materials used in products and service delivery, merger or acquisition, pay and reward systems, performance appraisal and management systems, performance targets, power bases, product design, role of customers/clients, role of middle management, service delivery models, skill mix, staff engagement, structure of the organization, success criteria, support services in-house or outsourced, teamwork, technology, workforce composition, working practices

The short version of this list might say that what changes can include strategy, structure, technology, systems and procedures, human resource management practices, internal and external relationships, leadership style, and culture. These issues are not independent. In practice, they are closely coupled and should be mutually reinforcing. They can, however, be contradictory, which is also potentially damaging. Common contradictions include:

· expecting high-performance teamwork while basing rewards on individual performance;

· encouraging middle management autonomy while withholding vital performance information;

· demanding cross-functional information exchange in a strong “organizational silo” structure;

· combining a staff engagement policy with an autocratic top-down leadership style.

It is also apparent that changes in one domain may have “knock-on” or “ripple” effects, creating or requiring changes in other areas. New technology, for example, is likely to change skill mix requirements, working practices, rewards, and performance appraisal and management systems, and may also require supportive changes in leadership and management behavior. These examples of knock-on effects are obvious, but they emphasize that “what doesn’t change?” is also a relevant issue. In practice, the ripples from even simple changes in an organization can be difficult to predict, and thus difficult to manage. One example concerns the redesign of working practices in one area, which leads to performance improvements, which lead to pay increases for those involved, which trigger jealousy and anger in the areas which were not involved in the initiative. Extending the changes to those other areas should reduce the tension, but the anger and perceived sense of betrayal (why were we not chosen?) can be stored in the corporate memory for some time.

In sum, “what changes?” is a deceptively simple question, with a potentially complex series of answers. There are several ways in which the content or the substance of change can be categorized. For example, some changes are planned, while others are emergent. Planned changes, as the term suggests, are those that are implemented in anticipation of, or in response to, known trends and developments. Changes in motor vehicle engine design and manufacturing methods (technology, materials, and working practices) are likely to be prompted by changes in legislation regulating carbon emissions. Emergent changes are140those that just happen, or have to happen, in response to unforeseen events, such as the sudden opening of new market opportunities, or accidents and failures, or major geopolitical developments. It is difficult to plan ahead for those events in other than very general terms. As we discussed in chapter 2, it is possible to argue that emergent change is now more common, given the complex, fluid, and unpredictable nature of the environment in which most if not all of our organizations are operating (Weick, 2000). In contrast, much of the practical advice on change implementation assumes a carefully considered and planned approach.

What Changed at Barclays Bank??

The subprime mortgage crisis in 2008 had a major impact on the financial services sector. In addition to big losses, the sector faced tighter regulation of their investment activities, which were seen as aggressive and risky. Under its previous chief executive, Bob Diamond, Barclays Capital aspired to be the largest investment bank in the world, and additional staff were hired to grow that part of the business. But in 2012, it was revealed that staff were manipulating the London Inter-Bank Offered Rate (LIBOR), and Barclays was fined £290 million. The chairman, chief executive, and chief operating officer left the bank in July. An internal review criticized the investment business for its “win at all costs” culture that was arrogant and selfish and put financial gain before customers (Salz, 2013).

The reputational damage from the LIBOR scandal, and new regulatory requirements, meant a different approach. Antony Jenkins was appointed chief executive in 2012. In 2014, he announced the following changes, triggering an immediate 8 percent rise in the bank’s share price:

Aspirations	“Capital” was dropped from the company name, which became just Barclays The “world leader” aim was abandoned, allowing Barclays to focus on the U.S. and UK markets, on Africa, and on a small number of Asian clients
Business model	Barclays would no longer trade in physical commodities, or in esoteric “derivative” products such as swaps and options, leveraged loans, and mortgage-backed securities The company would invest its own funds rather than those of its customers Investment banking would only account for 30 percent of the bank’s profits Focus on a narrower range of customers, rather than on high-risk lending
Culture	“Customer first,” clarity, and openness became priority, with a focus on customer relationships replacing an aggressive short-term approach to growth, which rewarded commercial drive and winning, and created a culture of fear of not meeting targets; pay for investment bankers was cut
Downsizing	Over three years, starting in 2014, branches were closed, and 19,000 jobs were cut, including many at the New York and London headquarters, staff in high street businesses (cashiers, branch managers), and 7,000 investment banking staff (some of whom were very high earners) Costs were cut by £1.7 billion in 2014
Technology	More automation of transactions to reduce costs, with more customers banking online or on mobile devices; 30 completely automated branches were opened by 2014, with the loss of 6,500 cashiers—retrained as “digital eagles” with iPads, to help customers use the new computer systems

These changes were designed to create a leaner, stronger, better balanced, and more focused business, generating increased return on equity and better rewards for shareholders. This was also designed to restore customer confidence and trust, and the bank’s reputation. Addressing the previous cultural failings, an internal document, The Barclay’s Way: How We Do Business, was published in 2013. This emphasized ethics, fairness, and customer/client relationships, and set out a values-driven code of conduct based on respect, integrity, service, excellence, and stewardship. (This account is based on Aldrick, 2013; Arnold and Sharman, 2014; Costello and Leroux, 2014; Goff, 2014; Treanor, 2014.)

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We also need to distinguish between incremental change, which is gradual and small scale, and transformational change, which is radical and groundbreaking, and can often be rapid. There is a widespread perception today that organizational change up to the mid-twentieth century was typically incremental and infrequent, and that from the late twentieth century to the present, change has become more common and traumatic. However, as noted in chapter 1, some commentators argue that radical, transformational change is not new, but was also a feature of the first half of the twentieth century—if not before. But, there is a more important question here: is too much attention now lavished on large-scale transformational change, while the role of small-scale changes is overlooked?

Some commentators use the terms first-order change and second-order change to describe the difference between incremental and transformational change (e.g., Coghlan and Rashford, 2006).

First-order change involves a specific initiative that solves a problem, and/or makes improvements, in ways that do not present a challenge to current methods and thinking. First-order change is adaptive and implies a degree of continuity and order. This is captured in the expression, “change to stay the same” (Bate, 1994). The incorporation of a growing range of safety features in motor vehicles—from seat belts to electronic proximity sensors—is a series of first-order changes that improve the product without making any major changes to it.

Second-order change leads to organizational transformation, by introducing new products, services, and ways of doing business, based on creative lateral thinking that alters current core assumptions. Second-order change is disruptive and discontinuous, and is captured in the expression, “move to get to a new position” (Bate, 1994). The development of electric-powered self-driving motorcars, made by companies that are not considered to be in the automotive sector, is an example of second-order change.

David Coghlan and Nicholas Rashford (2006) also identify third-order change, based on the habitual questioning of assumptions and points of view, contributing to what can be a chaotic process of continual adaptation, self-renewal, and self-organization. What will come after electric and driverless cars, and “phone app taxi services”? Walmart and other retail supermarkets sell motorcars thus threatening established dealer networks. Given current global trends in house prices, will property developers and real estate agents offer discounted or free motorcars with house and apartment purchases as an inducement to customers? Will dealers in congested cities (Beijing, London, Mumbai, New York) provide free motorcycles with the cars that they sell, so that customers can make their own “park and ride” arrangements to get to work? Will we continue to own cars anyway, or hire them when we need them, ordering them by iPhone? These developments, and others more difficult to predict, are examples of third-order change that, in some sectors, could become the norm.

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The categories of change that we have discussed so far have involved simple dichotomies (“either this or that type”), with third-order change offering another option. These are helpful categories, but they may be too simplified to deal with the complex patterns of contemporary organizational change. Depth is another metaphor that can be used to categorize different types of change, as shown in figure 5.1. At the bottom of this figure sits the “small stuff” that may not even be regarded as “change.” Mid-scale includes “sustaining innovation,” which involves improving on current practices. At the top of the scale is “disruptive innovation,” which involves radically new business models and working methods (Christensen, 2000). It is not difficult to locate incremental and first-order change (shallow, sustaining), second-order or transformational change (deep, strategic), or third-order change (off the scale, disruptive) on this scale. The depth metaphor simply provides a richer picture of the patterns of change that we are likely to see in most organizations.

FIGURE 5.1

Assessing Depth of Change

 

LO 5.2What are the practical change management implications of these categories of change? The first, and most obvious, implication concerns matching solutions with problems.143Despite the current fashion for deep transformational change, simple problems that are well understood can usually be resolved with simple, shallow, incremental changes. Addressing fundamental strategic opportunities and threats with fine-tuning, however, will typically lead to disappointment.

A second implication concerns the nature of the change management task. The management of shallow change typically requires less management capability and fewer resources than implementing frame-breaking initiatives. The former are likely to involve few departures from the familiar, may be relatively low in both cost and perceived risk, and pose little threat to the status quo with which people are comfortable. In contrast, deep, disruptive, or “off the scale” change is often abrupt, painful, risky, and expensive and can stimulate stronger and more widespread resistance, potentially creating a major management challenge.

A third practical issue concerns management reputation. Change management experience and capability have become “core selection factors” for candidates seeking promoted positions in many organizations (Beeson, 2009). Candidates who can answer those interview questions with accounts of the deep changes in which they have played a role are more likely to be preferred to those whose previous roles have involved them in only shallow, incremental initiatives. We have only anecdotal evidence to suggest that deeper changes can often be driven as much by personal career motives as by corporate need. Figure 5.1 can therefore be read not just as a change typology, but also as a personal positioning tool for ambitious change managers. Assess the profile of changes in which you are currently engaged. If this involves shallow initiatives, explore how you can become involved with, or personally generate, deep changes that you can then discuss at the next job or promotion interview.

As discussed earlier, a lot of attention has been paid to deep, disruptive, transformational change. However, in most organizations, at any given time, changes are likely to be taking place across the range covered in figure 5.1. Small changes can contribute to and support deeper initiatives. Some changes may start small but develop with experience into larger-scale initiatives. Deep changes demand time and resources, diverting attention from those necessary smaller-scale projects.

How to Choose Your Thrust and Limit Your Agenda

Most organizations come under pressure to change from many directions: creative new ideas, internal issues and inefficiencies, external trends and developments. These pressures can generate a long and complex change agenda. Paying attention to all of those issues, however, means spreading resources thinly and a potential loss of focus. Tom Peters (2014, pp. 8–9) argues that top management must limit the agenda by choosing one or two “plausible important thrusts.” He identifies six criteria on which the choice of these thrusts should be based:

1. Internal achievability: Can a “cost-oriented” company begin to turn itself into a “product innovation” leader in three to five years?

2. Political feasibility: Can the top team be persuaded to support the thrust?

3. Soundness in competitive or regulatory terms: Is a marketing thrust a good choice for a high-cost producer in a shrinking market?

4. Freshness: Will it be perceived as a new direction?

5. Early wins: Will it be possible to show some results in the first few months, even though full-scale implementation may take years?

6. Excitement: Can most people from middle management on up eventually become enthusiastic about it?

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This pattern of shallow to deep change raises a fourth challenge, to coordinate those initiatives to avoid duplication, overlap, and unnecessary cost. Research once suggested that most organizations experienced periods of stability that were interrupted on occasion by more profound changes. This was known as the theory of “punctuated equilibrium” (Romanelli and Tushman, 1994). That theory was based, however, on evidence from computer companies in the 1960s. That may not be the case today, as the pattern of change has become more programmatic. In response, many organizations have set up corporate program management offices (PMOs) to support and coordinate their initiatives (Ward and Daniel, 2013). A study by the Philadelphia-based Project Management Institute (2012) found that 84 percent of organizations had set up PMOs, which have the following benefits:

· reduce the number of projects that fail;

· deliver projects under budget and ahead of schedule;

· improve productivity;

· increase cost savings.

There is no standard PMO model, and this varies between organizations in terms of structure, location, and roles. The Project Management Institute study identified four factors contributing to the effectiveness of PMOs: First, they need a senior executive champion. Second, their role must be clearly understood. Third, the change professionals who staff the PMO must have the respect of functional departments. Finally, PMOs need to collaborate with functional departments in the development of initiatives, and not act as “change police.”

For example, at State Auto Insurance Company in Ohio, change projects would appear at random, and the company had no mechanism to ensure that projects stayed within budget and met their objectives. A PMO was made responsible for methodology, governance, change management, delivery, and portfolio management. Units that want to launch change projects have to construct a business case showing their alignment with corporate strategy. At the National Cancer Institute in Bethesda, Maryland, the PMO head found that teams working on early-phase drug development projects started every project plan from scratch. But there was a lot of overlap, with 80 percent of the work activities being either identical or similar from one project to another. The PMO designed a system to avoid this duplication. Previously, the teams held 16 four-hour meetings to develop their project plan. This was cut to only four meetings (Project Management Institute, 2012).

We have identified different types of change, reaching beyond a simple categorization (first-order, second-order). We have described other ways to conceptualize change (using a depth metaphor) and to assess the profile of change in an organization at any one time. These categories and concepts have implications for change management practice: matching solutions to problems, assessing the complexity of the change management task, linking involvement in change to personal reputations and careers, and coordinating a wide portfolio of change through a program management office.

Through the rest of this chapter, we will develop these themes, first exploring different kinds of innovation and the distinction between sustaining and disruptive innovation. We then turn attention to two changes that are likely to confront many organizations: culture change and technology-driven change. These are often seen as second-order changes, but145this depends on the perspective from which they are interpreted. The kinds of changes that can take place with regard to organizational culture and to how new technologies are used can be profound and transformational. Throughout, the challenges for change managers posed by innovation, culture change, and technology developments will be considered. The most obvious challenges, perhaps, involve maintaining the pace of change while ensuring effective implementation and sustained gains.

Innovation

LO 5.3One of the key drivers of change is innovation. This term is not confined to new products. Other important innovations concern ways to organize, better working practices, and new ways to provide services. The word thus tends to be used in a broad sense, to mean the adoption of any product, system, process, program, service, or business model new to this organization. An idea may have developed elsewhere, but it can be seen as an innovation here.

It is helpful to identify different kinds of innovation. For example, we can distinguish between product innovations (new gadgets) and operational innovations. Michael Hammer (2004) describes operational innovation as finding new ways to lead, organize, work, motivate, and manage. He describes a vehicle insurance company that introduced “immediate response claims handling,” operating 24 hours a day. This involved scheduling visits to claimants by claims adjusters who worked from mobile vans, and who turned up within nine hours. Previously, with office-based adjusters, it took a week to inspect a damaged vehicle. Handling 10,000 claims a day, adjusters were empowered to estimate damage and write a check on the spot. These operational innovations led to major cost savings, with fewer staff involved in claims handling, lower vehicle storage costs, better fraud detection, and reduction in payout costs. Customer satisfaction and loyalty also improved.

Toyota’s Lean production system is another example of an operational innovation that improves product quality and reduces costs by redesigning the manufacturing process without directly affecting product design. Walmart has an innovative approach to purchasing and distribution, using “cross-docking,” where goods are switched from one truck to the next at distribution centers without going into storage. Dell Computers’ “build to order” business model was also a disruptive innovation.

Clayton Christensen and Michael Overdorf (2000) make a distinction between sustaining innovations and disruptive innovations, identified in figure 5.1. Sustaining innovations improve existing products and processes: a more fuel-efficient motorcar, streamlining an administrative process. Disruptive innovations introduce wholly new processes and services, such as an all-electric motorcar or social networking. Disruptive innovations imply deep transformational change.

Innovations that are disruptive do not necessarily involve chaos and upheaval. What is disrupted is often traditional ways of thinking and acting. Digital photography, for example, has not just replaced traditional “wet film” formats and the cameras that required them. This development has changed the ways in which we capture, manipulate, display, share, and think about images. The extra cost of taking more photographs is close to zero, and we are more likely to share our shots on a website, or display them on a digital photo frame or on television, than to print them for the family album. How many manufacturers146of cameras predicted that one day versions of their product would be given away free by mobile telephone companies? Digital photography has been a truly disruptive innovation.

Disruptive Innovation in the Nineteenth Century The Stethoscope

That it [the stethoscope] will ever come into general use, not withstanding its value, I am extremely doubtful; because its beneficial application requires much time, and it gives a good deal of trouble both to the patient and practitioner, and because its whole hue and character is foreign, and opposed to all our habits and associations. It must be confessed that there is something ludicrous in the picture of a grave physician formally listening through a long tube applied to a patient’s thorax, as if the disease within were a living being that could communicate its condition to the sense without. (John Forbes, in the preface to his translation of De L’Auscultation Mediate ou Traite du Diagnostic des Maladies des Poumons et du Coeur [A Treatise on Diseases of the Chest and on Mediate Auscultation], by R. T. H. Laennec, T&G Underwood, London, 1821.)

The business model developed by the online retailer Amazon has disrupted the traditional retailing sector while changing our shopping habits. Although Amazon began by selling books, the company has diversified into selling everything, also allowing third parties to sell their goods through its website, and even selling its own consumer electronics products such as Fire Phone and Kindle. Amazon is also a major provider of cloud computer services. U.S. customers can find around 230 million different products on Amazon’s website.

Challenges for the Change Manager (1)

Operational innovations can be more difficult to implement than product innovations. Potential users can see and touch a new product—a smartphone, for example—and they can try it out for themselves. An operational innovation, however, has to be implemented before anyone can really see how it is going to work—a streamlined process that will reduce time to market. This means that the benefits can take time to appear, particularly when the initial specification has to be adjusted with experience. Convincing others of the value of an operational innovation, therefore, is not always straightforward. Hammer (2004) argues that business culture undervalues operations, which are seen as boring and low status. Operations are not as glamorous, or as easily understood, as deal-making or new technology and are therefore not regarded as a source of competitive advantage. A further problem is that the “ownership” of an operational innovation may be vague, because it crosses functional boundaries.

Hammer (2004) argues that operational innovations are often driven by “catalysts” who are committed to finding and exploiting such opportunities, and who are relentless in their attempts to convince senior management. Everett Rogers (1995) observed that adoption of innovations follows a pattern. First, small numbers adopt, followed by “takeoff,” achieving a critical mass of adopters. Finally, the pace slackens as saturation is reached, typically short of 100 percent (you never convince everyone). Rogers argues that this pattern is influenced by the five groups in table 5.1.

TABLE 5.1

From Innovators to Laggards

Innovators	Usually the first in their social grouping to adopt new approaches and behaviors, a small category of individuals who enjoy the excitement and risks of experimentation
Early adopters	Opinion leaders who evaluate ideas carefully, and are more skeptical and take more convincing, but take risks, help to adapt new ideas to local settings, and have effective networking skills
Early majority	Those who take longer to reach a decision to change, but who are still ahead of the average
Late majority	Even more skeptical and risk averse, wait for most of their colleagues to adopt new ideas first
Laggards	Viewed negatively by others, the last to adopt new ideas, even for reasons that they believe to be rational

Hammer’s catalysts are Rogers’ innovators. Change is thus often dependent on innovators and early adopters in particular. Hammer offers four suggestions for accelerating the147incidence of operational innovation. First, look for role models in other sectors. Second, challenge constraining assumptions (“this will never work because”). Third, turn the “special case” into the norm. And finally, rethink the core dimensions of the work—who does it, where, when, how thoroughly, with what results; how can these dimensions be redesigned to make the process more effective?

Challenges for the Change Manager (2)

Disruptive innovations can be more difficult to implement than sustaining innovations, as they are often viewed as risky. Christensen and Overdorf (2000) note that drastic change involving disruptive innovation can jeopardize an organization’s business model and core capabilities (see “Not a Good Kodak Moment”). A further challenge is that disruptive products and services are often not as good as those in current use. The service provided by the low-cost business model of Southwest Airlines may not be as good as that of conventional carriers, but is simpler, more accessible, and cheaper. The quality of images produced by the first digital cameras was much poorer than that from film cameras. In addition, most organizations have no routine processes for dealing with disruptive innovations. Disruptive innovations are thus often introduced by smaller new entrants or start-ups in a sector, rather than by the older, larger, and dominant incumbents (Hwang and Christensen, 2008).

In contrast with disruptive innovations, it is easier to convince others of the value of sustaining innovations, which make existing processes, products, and services work better. Rogers (1995) argued that the probability of an innovation being accepted is increased when it has these properties:

1. Advantageous when compared with existing practice

2. Compatible with existing practices

3. Easy to understand

4. Observable in demonstration sites

5. Testable

6. Adaptable to fit local needs

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Not a Good Kodak Moment

Kodak invented the first digital camera in 1975 and the first megapixel camera in 1986. So why did the development of digital photography drive Kodak to bankruptcy in 2012? In 1975, the costs of this new technology were high and the image quality was poor. Kodak believed that it could take at least another ten years before digital technology began to threaten their established camera, film, chemical, and photo printing paper businesses. That forecast proved to be accurate, but rather than prepare, Kodak decided to improve the quality of film, with sustaining innovations. With hindsight, it is easy to spot that mistake. But the market information available to management from the 1970s through the 1990s, combined with the company’s financial performance, made the switch to digital appear risky. In 1976, Kodak accounted for 90 percent of film and 85 percent of camera sales in America. Kodak’s annual revenues peaked in 1996, at $16 billion; profits in 1999 were $2.5 billion. However, success encouraged complacency and reinforced confidence in the brand. Analysts noted that it might be unwise to switch from making 70 cents on the dollar with film, to 5 cents with digital. But by 2011, Kodak’s revenues had fallen to $6.2 billion, and the company was reporting losses.

Kodak’s competitor, Fuji, recognized the same threat and decided to switch to digital while generating as much return as possible from film and developing new lines of business, including cosmetics based on chemicals used for film processing. Both companies had the same information, but they came to different assessments, and Kodak was too slow to respond. By the time Kodak began to develop digital cameras, mobile phones with built-in digital cameras had become popular.

Kodak invented the technology but did not recognize just how disruptive an innovation digital would prove to be, making their traditional business obsolete (Barabba, 2011; The Economist, 2012).

It is difficult to demonstrate these properties with disruptive innovations—which can be difficult to understand, cannot be observed and tested, and cannot be compared with current practice until after they have been implemented. For the organization seeking to develop the capabilities for handling disruptive innovation, Christensen and Overdorf (2000, p. 73) make the following suggestions: consider acquiring an organization that already has these capabilities; create an independent organization to deal with the problem; or create new structures, such as dedicated, cross-functional teams.

Change Manager as Disruptive Innovator

What advice is there for the change manager seeking to develop and implement disruptive innovations to their organization? Jeff Dyer, Hal Gregersen, and Clayton Christensen (2011) argue that anyone can be innovative by using the right approach. Innovators use the five habits shown in table 5.2.

TABLE 5.2

The Five Habits of Disruptive Innovators

Associating	Innovators are good at seeing connections between things that do not appear to be related, drawing ideas together from unrelated fields
Questioning	Innovators are always challenging what others take for granted, asking, “Why is this done this way—why don’t we do it differently?”
Observing	Innovators watch the behavior of customers, suppliers, competitors—looking for new ways of doing things
Experimenting	Innovators tinker with products and business models, sometimes accidentally, to see what happens, what insights emerge
Networking	Innovators attend conferences and other social events to pick up ideas from people with different ideas, who may face similar problems, in other fields

These habits are not confined to a small number of special people; they can be developed. The change manager can thus become more innovative by following this advice, and by collaborating with “delivery-driven” colleagues. Dyer and colleagues argue that organizations also need to encourage these habits, stimulating employees to connect ideas, to challenge accepted practices, to watch what others are doing, to take risks and try things out, and to get out of the company to meet others.

In Defense of Sustaining Innovation

As argued in chapter 1, it would be a mistake to think that transformational, disruptive innovation is the solution to most current organizational problems, for at least149two reasons. First, considerable business benefit can be achieved through small-scale initiatives and sustaining innovations. Many healthcare organizations have imported “lean” techniques from manufacturing and made significant performance improvements that benefit patients, staff, and the organization as a whole (Graban, 2009). Second, many organizations have highly profitable businesses based on traditional products, such as Harris Tweed, Swiss watches, Samuel Adams Boston lager. Some traditional technologies, having once been overtaken by innovative replacements, have reemerged. In the United States, by 2014, 30 cities had reintroduced green “environment-friendly” trams or were planning to do so; sales of vinyl LPs increased from zero in 1993 to 6 million in 2013. New technology does not simply displace old technology. The appeal of some old technologies is enduring (sailing boats, paper books), and some items are bought for their aesthetic value, regardless of price (The Economist, 2014).

These considerations further complicate our answer to this chapter’s question: what changes? There are different kinds and degrees of innovation. The challenge for the change manager is to determine which (or which combination) is appropriate to a particular organization at a given time. As Kodak’s experience suggests, reaching that assessment involves judgement and intuition as well as data.

LO 5.4Organizational Culture

Are people enthusiastic about working for this organization? Do they feel valued? Are there development and career opportunities? Are customers and clients valued and given good quality service? Are leaders and managers respected and trusted? Is information shared openly? Is teamwork and collaboration between divisions the norm? Do staff agree with the purpose of the organization? These are just some of the indicators of an organization’s culture. When the answers to those questions turn to “no,” then organizational effectiveness suffers.

One definition of organizational culture, therefore, is “the way we do things around here.” A more technical definition regards organizational culture as the shared values, beliefs, and norms that influence the way employees think, feel, and act toward others,150both inside and outside the organization. It is also argued that organizations each have their own distinct “personality,” or style, or ideology, or climate, which gives them their unique identity. For example, walk into a McDonald’s restaurant and note the atmosphere, décor, lighting, attitude of staff to customers, style and variety of food and drinks, speed of service, cost, and any other details that catch your attention. Next, walk into one of McCormick & Schmick’s restaurants and pay attention to those same factors; you will see a different culture. Ann Cunliffe (2008) argues that organizational culture is important because it:

Yang Yuanqing, Chief Executive of Lenovo

Lenovo [Chinese multinational computer manufacturer] is often cited for sustaining a healthy corporate culture. What’s the secret to that?

“We focus on three elements. The first is an ownership culture: we try to empower people to think for themselves, to make decisions for themselves. Everyone is an engine. The second is a commitment culture: if you commit to something, you must deliver. The third is a pioneer culture: we encourage our people to be more innovative.”

How do you actually promote innovative behavior?

“There are a lot of ways to do it. For example, I hold monthly brainstorming sessions with our R&D team. At each session we focus on one topic—it might be a product, a service, or a technology. Another approach is through the budget. For our R&D people, we allow 20% of the budget to be flexible, so they can decide which areas they want to focus on and what they want to develop”

Source: Yuanqing (2014), pp. 107–8: interviewed by Harvard Business Review.

· shapes the public image of an organization;

· influences organizational effectiveness;

· provides direction for the company;

· helps to attract, retain, and motivate staff.

This issue can be the cause of many problems. Falling sales, customer complaints, staff absenteeism and turnover, or poor public reputation, for example, can often be attributed to organizational culture. It is therefore not surprising that culture change programs have become popular. Some theorists argue that organizations cannot have distinct cultures in the way that human societies do. But we can accept that criticism and still find practical value in the concept if organizational culture is simply taken to cover the values, beliefs, and norms that shape employee—and management—behavior. If those behaviors are inappropriate or dysfunctional in some way, then “culture” offers a useful lens through which we can understand why, and what action we can take to change those behaviors.

We can also make a distinction between strong and weak organizational cultures (Gordon and DiTomaso, 1992). A strong culture is one in which the organization’s values are widely shared and intensely held, and which thus guide behavior. A weak culture, in contrast, displays little agreement about core values or about expected behaviors. Strong cultures thus suggest emotional attachment and commitment to an organization, unity in approach, and “walking the talk.” Much of the commentary on this topic thus assumes that companies with strong cultures perform better. The quotes that opened this section, from Lenovo’s chief executive, support this view.

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We also know that organizational culture can cause serious problems. NASA and the oil exploration company BP provide iconic examples of what can happen when culture goes wrong.

Organizational Culture at NASA, and the Columbia Space Shuttle Disaster

In February 2003, while the space shuttle Columbia was reentering the earth’s atmosphere, a piece of insulating foam broke off and damaged the left wing. This caused the shuttle to disintegrate, killing the seven crew members. Why did this happen, particularly after the loss of the shuttle Challenger and its crew in 1986, when an O-ring failed at liftoff? In answering that question, the Columbia Accident Investigation Board (CAIB, 2003) considered a combination of physical and organizational causes, arguing that both had contributed to the disaster. Here is what the Board’s report had to say about the organizational culture at NASA (emphasis added):

The organizational causes of this accident are rooted in the Space Shuttle Program’s history and culture, including the original compromises that were required to gain approval for the Shuttle, subsequent years of resource constraints, fluctuating priorities, schedule pressures, mischaracterization of the Shuttle as operational rather than developmental, and lack of an agreed national vision for human space flight…. Cultural traits and organizational practices detrimental to safety were allowed to develop, including: reliance on past success as a substitute for sound engineering practices; organizational barriers that prevented effective communication of critical safety information and stifled professional differences of opinion; lack of integrated management across program elements; and the evolution of an informal chain of command and decision-making processes that operated outside the organization’s rules. (CAIB, 2003, pp. 9 and 177)

In the Board’s view, NASA’s organizational culture and structure had as much to do with this accident as the External Tank foam. Organizational culture refers to the values, norms, beliefs, and practices that govern how an institution functions. At the most basic level, organizational culture defines the assumptions that employees make as they carry out their work. It is a powerful force that can persist through reorganizations and the reassignment of key personnel. (p. 177)

Perhaps the most perplexing question the Board faced during its seven-month investigation into the Columbia accident was “How could NASA have missed the signals the foam was sending?” Answering this question was a challenge. The investigation revealed that in most cases, the Human Space Flight Program is extremely aggressive in reducing threats to safety. But we also know—in hindsight—that detection of the dangers posed by foam was impeded by blind spots in NASA’s safety culture. (p. 184)

NASA’s culture of bureaucratic accountability emphasized chain of command, procedure, following the rules, and going by the book. While rules and procedures were essential for coordination, they had an unintended but negative effect. Allegiance to hierarchy and procedure had replaced deference to NASA engineers’ technical expertise. (p. 200)

It was therefore not surprising that the CAIB report’s first recommendation following this investigation was:

It is the Board’s opinion that good leadership can direct a culture to adapt to new realities. NASA’s culture must change, and the Board intends the following recommendations to be steps toward effecting this change. (p. 225)

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A comparison of the Challenger and Columbia disasters concluded that the causal factors were similar: structures for processing information, contractor relations, political and budgetary pressures—and organizational culture. This analysis argued that organizational learning and change were difficult for NASA—and for other public agencies—due to a combination of external political and economic pressures, and an organizational culture that was defensive, and characterized by a climate of fear of raising alarms (Mahler and Casamayou, 2009). (We revisit the Challenger and Columbia disasters in the case study exercise at the end of chapter 11.)

Organizational Culture at BP, and the Deepwater Horizon Disaster

On April 20, 2010, when the blowout preventer failed, a mile under water, the explosion and fire on the 33,000-ton Deepwater Horizon drilling rig in the Gulf of Mexico killed 11 of the 126 crew members and seriously injured 17 others. Oil poured from the Macondo wellhead on the seabed, drifting toward the Louisiana coast 50 miles away, threatening wildlife and the local fishing and tourism industries. Around 5 million barrels of crude oil spilled into the Gulf before the flow stopped on July 15. This was the biggest environmental disaster in the United States since the Exxon Valdez spilled 750,000 barrels of crude oil in Prince William Sound in 1989. The investigation blamed leadership and management for creating the conditions in which this accident was allowed to happen. Here is what the accident investigation said about BP’s culture (National Commission, 2011; emphasis added):

The immediate causes of the Macondo well blowout can be traced to a series of identifiable mistakes made by BP, Halliburton, and Transocean that reveal such systematic failures in risk management that they place in doubt the safety culture of the entire industry. (p. vii)

Investments in safety, containment, and response equipment and practices failed to keep pace with the rapid move into deepwater drilling. Absent major crises, and given the remarkable financial returns available from deepwater reserves, the business culture succumbed to a false sense of security. The Deepwater Horizon disaster exhibits the costs of a culture of complacency. (p. ix)

In the wake of the BP Deepwater Horizon disaster—a crisis that was unanticipated, on a scale for which companies had not prepared to respond—changes in safety and environmental practices, safety training, drilling technology, containment and clean-up technology, preparedness, corporate culture, and management behavior will be required if deepwater energy operations are to be pursued in the Gulf—or elsewhere. (p. 215)

If an organizational culture is dysfunctional, the potential outcomes, from these examples, include:

· loss of life and serious injury;

· widespread economic and environmental damage;

· damage to the reputations and careers of senior management;

· loss of public trust and confidence in the organization, if not the whole sector;

· massive fines for misconduct.

In other words, failure to manage organizational culture costs lives, reputations, careers—and money, affecting the wider community and the economy as well as causing153internal organizational damage. The other likely outcome, as in these cases (and Barclays, discussed earlier), is that the organization is faced with a transformational change agenda. The investigation into the Columbia disaster concluded that the organizational culture at NASA had to change. The Deepwater investigation advised that BP’s culture of complacency had to change to prevent further incidents and to regain public trust. (The crisis management aspects of the BP incident are explored in chapter 7.)

The Salz (2013) review criticized strong subcultures at Barclays, rather than praise them. An organization may have a strong culture and shared values, but it is important to know what those values are. Organizational cultures at Barclays, NASA, and BP appear to have been strong, but they were also wrong. Strong cultures can lead to inappropriate behaviors, encourage conformity, complacency, and inertia, and take time to develop and change. A survey in 2013 of over 1,000 financial services sector staff in the United Kingdom found that culture change was indeed slow. Only half the respondents agreed that there had been a culture change initiative led by senior management, and less than a fifth of those agreed that there had been any real change. A fifth of all respondents said that culture change initiatives had been superficial and ineffective. This survey concluded that:

[W]hile some senior leaders in parts of the banking sector are having at least partial success in changing culture to become more customer focused, some parts of the industry are largely operating as before. This is reinforced by the survey findings that a third of respondents still identify shareholders as their organization’s most important stakeholder, with only about 50% identifying customers as their most important stakeholder. (CIPD, 2013, p. 26)

Changing an organizational culture is in many respects similar to managing any other form of change. However, culture is usually defined in terms of shared values, beliefs, and norms. Those are attributes of individuals and groups that are difficult to change directly. Most approaches to culture change thus advocate action to change behavior, through new working practices, systems, and human resource policies. This approach assumes that, once the benefits of those new behaviors become clear, the values, beliefs, and norms that reinforce those behaviors will adjust naturally.

For example, Emily Lawson and Colin Price (2010) argue that the success of change relies on persuading individuals to change their “mindsets”—to think differently about their jobs and how they work. This first involves changing behavior. They identify three levels of change. First, some outcomes (increasing revenue) can be achieved without154changing working practices (selling noncore assets). Second, staff can be asked to change working practices in line with current thinking (finding ways to reduce waste). The third level involves fundamental changes in organizational culture, in collective thinking and behavior—from reactive to proactive, hierarchical to collegial, inward-looking to externally focused. They identify three conditions for changing mindsets at level three:

Risky Culture

Inside Job (2010, director Charles Ferguson, narrated by Matt Damon) examines the global financial crisis of 2008. Over the previous decade, deregulation allowed the finance sector to take risks that older rules would have discouraged. As you watch this film, identify the various stakeholders (including academics), their competing interests, their relationships, and their efforts to conceal sensitive information. How did those competing interests, relationships, and “information games” contribute to the crisis? The film concludes that, despite this crisis, the underlying culture has remained much the same. How has the sector been able to avoid fundamental changes to financial regulation? What does this account reveal about the nature of organizational culture?

The surrounding structures (reward and recognition systems) must be in tune with the new behaviour. Employees must have the skills to do what it requires. Finally, they must see people they respect modelling it actively. Each of these conditions is realized independently; together they add up to a way of changing the behaviour of people in organizations by changing attitudes about what can and should happen at work. (Lawson and Price, 2010, p. 32)

In other words, “mindsets” may not be altered directly, but they can be changed by a careful rethinking of structures, skills, and role models. The effectiveness of Barclays’ “truthfulness training” may thus depend not just on the training content but on the extent to which wider organizational conditions encourage the desired “mindset” or not.

Many organizations today, therefore, are concerned that their culture is appropriate, in the context of corporate strategy, performance, external scrutiny and regulation, and reputation. Culture change programs often target staff engagement, teamwork and collaboration, and information sharing and creativity, as well as costs, revenues, and customer service. For the change manager, it is important to remember that the role of the board, and of senior leadership in general, is key in this context.

Culture Change Starts with You

Yum Brands, the parent company of KFC, Pizza Hut, and Taco Bell, has returned 16.5 percent annually since 1997 (the year it was spun off from PepsiCo), compared with the 3.9 percent average achieved by the Standard & Poor’s 500 large companies during this time. According to business journalist Geoff Colvin (2013, p. 62), “No one who follows Yum doubts that [CEO David] Novak’s team building framework is at the heart of the company’s success.”

Novak inherited an organization where performance and morale were low, where headquarters blamed the franchisees and the franchisees blamed headquarters. He decided that the organizational culture had to change. Novak introduced a leadership development program, “Taking People With You,” which focused on managers developing self-awareness with regard to their own truthfulness, reliability, openness, and self-centeredness, as well as how they treated other team members and responded to others’ mistakes. “In Novak’s program you’re not fit to build a team until you’ve worked hard on yourself [and] only then does the program get into forming strategy, communicating it, and gaining alignment, plus the nuts and bolts of organization and process” (Colvin, 2013, p. 63).

LO 5.5Technology

Developments in technology in general, and in information and computing technology in particular, have long-running and ongoing implications for organizational change management. Some developments have created disruptive innovation (online business models), while others have improved the productivity of individuals (word processing).155

Early social science studies of technology in the 1950s focused on textile manufacturing (in India) and coal mining (in the United Kingdom). The Tavistock Institute of Human Relations, whose researchers conducted those studies, developed the sociotechnical systems perspective. This argues that the social organization of work is not wholly determined by technology, but can be—and therefore should be—designed taking into consideration the individual and social needs of employees. The aim of sociotechnical system design is thus to find the best fit between the social and technical dimensions. A system designed to meet social needs ignoring the technical system will run into difficulties. On the other hand, a system designed only to meet the demands of technology will raise social and organizational problems. Sociotechnical design thus aims for “joint optimization” of social and technical needs. The resultant sociotechnical system design is thus a matter of creative management choice (Emery and Trist, 1960).

These arguments are perhaps even more important today. Technological change appears to be rapid and relentless. In the rush to implement new technology and to gain benefits ahead of competitors, there may be little time to consider the social system design before the next development appears. This presents a challenge for the change manager. On the one hand, it may be necessary to maintain the pace of technology change. On the other hand, it will be helpful to ensure that the organization of the work of those who will operate new systems strengthens the staff capabilities, motives, and commitment that contribute to effective operation. Good sociotechnical design is still at a premium.

We will explore in this section the implication of two technology trends. The first concerns the impact of digitization. The second relates to corporate applications of social media. Most organizations, in most sectors, are likely to be affected by these developments, whether they wish to be or not. We do not have space to explore the extraordinary range of specialized new technologies that will affect specific sectors, such as 3-D printing (depositional manufacturing), or nanotechnology applications in medicine, for example. However, regardless of sector, new technologies tend to generate broadly similar organizational and change management issues, so the implications of our discussion will be widely applicable.

The Impact of Digitization

In a report from McKinsey, the consulting company, Martin Hirt and Paul Willmott (2014, p. 1) argue that digital technologies are “profoundly changing the strategic context: altering the structure of competition, the conduct of business, and, ultimately, performance across industries.” Emphasizing that digitization is a “moving target,” they identify three strategic opportunities:

· enhancing interaction, between customers, suppliers, employees, and other stakeholders, as consumers come to prefer tailored, mixed-media, digital online communication channels;

· improving management decisions, by processing “big data” and information from “the Internet of Things,” and thus being able to refine (personalize) marketing allocations and reduce operational risks by sensing equipment breakdowns;

· creating new business models, such as crowdsourcing product development and peer-to-peer customer service.

These developments can drive down prices, as customers can instantly compare prices and rapidly switch to other sellers and brands. As we noted earlier, digitization lowers the156entry barriers to start-ups in many areas, and established organizations will face competition from unexpected areas (such as food retailers offering financial services that compete with banks). Those employees who are displaced by digitization, as more processes (administrative and manufacturing) become automated, may not have the capabilities that will enable them to find employment in the more highly skilled jobs that remain. Hirt and Willmott (2014, p. 8) also point to the “relentlessly evolving business models—at higher velocity,” which digitization is encouraging. Banks, taxi drivers, travel companies, camera makers, and universities—among others—are seeing traditional business models undermined by faster-moving and cheaper competitors whose offerings are more appealing to Internet-savvy consumers. The crowdsourcing website WhoCanFixMyCar.com may disrupt the motorcar repair business by connecting drivers needing repairs with mechanics looking for work (Foy, 2014).

Even Lego, the highly profitable (and privately owned) Danish toy manufacturer, famous worldwide for its colored bricks, is not immune from digital developments. The company’s traditional business model is simple, transforming plastic that costs $1 a kilo into Lego box sets that sell for $75 a kilo. However, children increasingly play games on iPads and smartphones, and Lego’s sales growth slowed after 2010. How can Lego compete in the evolving digital world?

Lego’s first experiment with an online game, Lego Universe, was not successful. They then developed a partnership with a Swedish company, Mojang, which designed Minecraft, a popular computer game based on virtual landscapes resembling Lego building blocks (https://minecraft.net). Lego now sells sets based on the game. Another partnership involved TT Games, to develop video games based on Lego ranges such as Star Wars and Legends of Chima. The Lego Movie, made in collaboration with Warner Bros, generated $500 million when it was released in 2014. In partnership with Google, The Lego Movie was accompanied by a video game, new construction sets (the giant Sea Cow pirate ship and the hero Emmett), and a website (http://www.buildwithchrome.com). The movie sequel is scheduled for 2017. Another innovation was Lego Fusion. Items built with Lego bricks are captured using a smartphone or tablet, which imports them into a 3-D digital online world where users can play using their own designs. Lego was one of the most-watched brands on YouTube. Emphasizing the continuing importance of the physical brick, and physical play, Lego’s chief executive, Jørgen Vig Knudstorp, explained, “I see digital as an extra experience layer” (Milne, 2014). With record sales and earnings, Lego became the world’s most popular and most profitable toymaker in 2015; the company estimates that, on average, every person on earth owns 102 Lego bricks (Milne, 2015).

A global survey by McKinsey of 850 senior executives found that most companies were planning to increase spending on digital initiatives, either to strengthen competitive advantage in an existing business, or to create new business models and revenue streams (Gottlieb and Willmott, 2014). Growth was expected to come mainly from digital customer engagement and digital innovation, including new products, operating models, and business models. In terms of digital priorities, automation ranked lowest. However, organizational hurdles were preventing faster development:

· problems finding staff with digital skills;

· organization structures unsuitable for developing digital businesses;157

· inflexible business processes, designed to handle conventional initiatives;

· lack of good quality information to inform decisions;

· “inability to adopt an experimentation mindset” (Gottlieb and Willmott, 2014, p. 6).

The most pressing needs for skilled staff were in areas such as analytics, online development, project management, cloud computing, joint business enterprise, and cybersecurity. To remain competitive, therefore, many organizations may be compelled to adopt a version of Lego’s pattern of rapid experimentation and innovation. The change management challenge will be to develop that approach, implementing appropriate changes to structures, processes, and information systems, and developing “experimentation” organizational cultures. Investment in training and development may be required to fill the skills gap. Further change management challenges will involve identifying opportunities, moving quickly to explore benefits, and dropping unsuccessful experiments. It may be difficult to maintain this pace without generating the stress and burnout of “initiative fatigue.”

Applications of Social Media

With the development of “Web 2.0,” or “the social web,” the Internet moved into a new phase in the twenty-first century. Web 2.0 technologies include Internet-based information systems such as social networking (or social media), blogs, collaborative databases, and YouTube and other file-sharing sites. These applications allow a much higher degree of participation and interaction, between systems and users, and between users, than conventional Web 1.0 “flat” websites. More people now use tablets and smartphones, which are mobile devices, as well as personal computers and smart televisions, to access social networking sites. Social media are thus radically changing the ways in which we interact with each other, develop our relationships, share experiences, and form opinions. These networking tools have also changed the ways in which organizations interact with and gather information about their customers. The amount of time that we devote to the Internet is increasing. In the United States, time spent on personal computers and smartphones rose by over 20 percent between 2011 and 2012, and the use of apps doubled over that period as smartphone ownership grew and more apps became available (Bannon, 2012). Social media have three valuable properties:

1. They provide “multidirectional” flows of information between friends, colleagues, organizations, and management, compared with the static “one-way” communication from conventional web pages.

2. They allow users to develop new connections, encouraging collaboration across boundaries such as organizational silos.

3. These are “low friction” tools; they are attractive, pervasive, easy to use, and no specialized equipment is required (Gifford, 2014, p. 11).

The number of social media websites is growing. Facebook and Twitter are joined by LinkedIn and Pinterest, Blogger and Wordpress—among others. Marketing and customer services have already been affected. Social media allow consumers to share opinions of brands to a wider audience than word of mouth can reach. Facebook claims over 1 billion users; LinkedIn has 300 million; over 250 million people use Twitter; Pinterest has over15870 million users. This list of social media outlets and their user numbers will be out of date before this book is printed. Consumers are therefore “hyper-informed” when making purchasing decisions. Customer service is also being transformed, with half of U.S. customers using social media to raise complaints or ask questions; a third of social media users say that they prefer this channel to the phone when dealing with customer service issues (Bannon, 2012). Organizations must be sensitive to these trends and respond accordingly.

Oscar de la Renta and Instagram

As a leading fashion brand, it was normal practice for Oscar de la Renta to debut its new designs on the pages of Vogue or Elle. However, in summer 2013, it released its fall advertising campaign on Instagram. Erika Bearman, Oscar de la Renta’s senior vice president of communications, had 345,000 Instagram followers, and in the caption of each image placed on Instagram, Bearman invited her followers to preorder the collection on Oscardelarenta.com.

Source: Hempel (2014).

Employees may be more enthusiastic about using social media than employers. Most corporate applications have an external focus and appear to have had limited impact on employee relations. A survey of the Fortune Global 100 organizations in 2012 by the public relations company Burson-Marsteller found that 70 percent had YouTube channels and 75 percent had Facebook accounts. Some had several accounts on each platform, so that they could target specific audiences and locations with regard to particular issues. The survey also found that each of those Global 100 organizations had an average of almost 56,000 mentions a month on Twitter (Stanford, 2013, p. 214).

A UK survey of 2,000 employees and 600 human resource managers in 2013 also found that while the personal use of social media was widespread, few used these tools for work. The main reasons for using social media included keeping up to date with news, building one’s professional network, keeping in touch with others, sharing knowledge, learning more about areas of interest, and building reputation. Over half of senior leaders, and 40 percent of 18- to 24-year-olds, said that they used social media for work. Only one quarter of organizations surveyed had an internal social media platform, and those were used mainly for staff, human resource, and operational updates. And only one quarter allowed staff to connect personal smartphones and tablets to the organization’s IT network. Internal organizational uses are not inhibited by lack of access but more by perceived lack of relevance and loss of control over information (Gifford, 2013). Many organizations do not support bring-your-own-device (BYOD) practices. A survey of 1,765 UK employers found that 80 percent had disciplined staff for using social networking sites at work, and many had banned their use (Martin et al., 2008).

There appear to be many organizational uses for social media, which promise to transform internal communications and staff engagement, recruitment, and learning. Social media could be central in encouraging more open, communicative, egalitarian, collaborative, and responsive organizational cultures. However, ease of communications can also generate information overload.

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We will explore in chapter 7 how organizations are using these Web 2.0 applications, particularly to improve internal and external communications and to strengthen employee engagement.

Birkinshaw and Pass (2008, p. 15) argue that Web 2.0 could radically alter the nature of work, tapping knowledge from across the organization, encouraging informal coordination, and making the workplace more engaging. A study of corporate applications in the United Kingdom in 2013–2014 found that many organizations were advanced in using social media externally but that few had developed effective internal uses (Gifford, 2014). One exception was Adnams, an independent brewer and distiller, which encourages staff to use social media to engage with customers and develop their own online “personas” at the company through social media platforms and blogs. Another was Santa Fe Group, a global relocation service, which has developed an enterprise social learning network called “The Academy Online” to help build a common corporate culture across the group. One explanation for the slow progress with internal corporate uses of social media concerns the lack of clear return on the investment. Another factor is job and organization design not suited to the good use of social networking tools. That study concluded that social media would not alone transform organizational culture, but should be seen as a tool or a platform for change.

There appear to be three major change management challenges in these technology developments.

· The first challenge concerns finding ways to exploit digitization and social media applications effectively to achieve organizational goals. Those goals may include external relationships and reputation, and internal culture change to improve engagement, information sharing, collaboration, and the organization’s ability to respond rapidly to trends and new ideas. Some applications may be sustaining, and some may be disruptive. As we have seen, these technologies can be a useful platform for organizational culture change.

· The second challenge concerns finding the best “fit” between new digital technologies and online tools, and the social system of the organization, including the needs, interests, and preferences of employees. Sociotechnical system design has become more important in this context, and given the pace of technology development, perhaps more difficult.

· A third challenge will thus be to design and redesign effective sociotechnical systems when, as noted earlier, the technologies involved are moving targets. The number and nature of digital tools and social networking sites are constantly changing and evolving. Individuals and organizations are still developing an understanding of how they can be used effectively for personal and corporate benefit.

Addressing these challenges in a context of rapid development involves experimentation, and some experiments will be unsuccessful. From a change management perspective, therefore, organizations need to be more fault tolerant. This involves welcoming the lessons from unsuccessful experiments, rather than blaming and punishing the guilty when things go wrong (Edmondson, 2011).

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EXERCISE 5.1

The Nampak Story

LO 5.4

This is a story of successful organizational culture change. How can we explain this success? As you read this story, consider the following questions:

1. Which dimensions of the 7-S framework, described in chapter 4, did Eric Collins and his senior management colleagues focus on in order to change Nampak’s culture? Reminder: The “hard” dimensions are strategy, structure, and systems. The “soft” dimensions include staff, skills, style, and shared values, or superordinate goals.

2. Which dimensions of the 7-S framework were not affected?

3. Where does this culture change initiative belong on the “depth” scale in figure 5.1, between shallow and deep change? In your judgement, would a different emphasis across the seven factors of that framework have produced deeper change, with better results, and how?

Context

Nampak was a South African–owned bottle and plastics manufacturer with 600 factory workers and 80 managers in the United Kingdom. A typical manufacturing company, it focused on costs, investing in machinery and processes rather than people. Labor costs were low, and the company had been very successful. In 2007, the newly appointed managing director Eric Collins realized that the company had driven efficiencies as far as it could using traditional approaches. He decided to add value through people.

Problem

Although the company was successful, the organizational culture was poor. People were treated badly and morale was low. The blame culture spread to customers. Complaints at one site reached 25 a month, which was damaging for a company that relied on three key customers. Apart from hiring, firing, and discipline, Nampak had no established human resource management policies and practices. In a staff satisfaction survey in 2007, 80 percent said that they would not recommend Nampak to friends and family as a place to work. Looking at the survey results, the new HR director, Cathie Wright-Smith, concluded, “There was everything wrong with this business that you can think of.” There were also problems with the executive board, who were status-conscious and accustomed to having a high degree of control, with only a dozen people making all the key decisions.

Solution

Collins met customers to get their critical feedback on the company. But when he met his own employees in “Challenge Collins” sessions, to hear their grievances in person, he was shocked. The level of dissatisfaction was high, and the anger was directed at him. However, Collins wanted to give staff the opportunity to vent their frustrations, and to show that they had a leader who was listening.

Wright-Smith ran focus groups, asking staff what would make Nampak a better place to work. Three themes emerged. The first was communication; people did not know what was going on, and they were not involved. Second, staff did not feel that they had training and development opportunities, or a career with the company. Third, line managers rarely provided feedback on their performance. This led to the design of a new161performance management system, based on what employees said that they wanted: personal development, and not objectives with tick boxes. Some line managers had never had conversations like this with their staff before, and they now did this monthly. Line managers were seen as “dogsbodies,” although they were key to shaping the company’s culture. To emphasize their importance, they were offered the first training and development opportunities, a “leadership excellence” course, exploring influence, motivation, and team development methods. This was so successful that it generated demand from other managers for similar training.

New initiatives developed rapidly. Half the workforce were trained in a range of subjects, assessment centers replaced the traditional selection process, and induction and buddy schemes were introduced. The company launched a senior leaders program, a fast-track route for high-potential staff, undergraduate and graduate placement schemes, and a suggestions scheme offering financial rewards. A corporate social responsibility program linked with local schools, inviting pupils into the factory and sending staff to schools to talk about recycling. Shop floor staff worked with the schools attended by their children, and some staff came back on their days off to show people around the factory, with pride. Wright-Smith ran sessions for directors on leadership and emotional intelligence.

Outcomes

Collins said, “We’ve had a paradigm shift in culture.” In the 2010 staff survey, 80 percent said that they would recommend Nampak to friends and family as a place to work, reversing the 2007 position. In addition, 90 percent said that they were satisfied with their jobs, and 98 percent said that their managers listened to them. Overhead costs per million bottles made improved by 7 percent. No closures or layoffs were needed to make savings. Customer complaints fell to zero. Collins said, “We’re just a more collaborative, committed organization with pride in our work.” The main costs, according to Collins, concerned the commitment of time and focus (Smedley, 2011).

EXERCISE 5.2

Organizational Culture Assessment

LO 5.4

1. What words would you use to describe the positive and negative dimensions of your organization’s culture, or an organization with which you are familiar?

2. How can you explain the negative aspects of that organizational culture? Why have those dimensions developed in that way? What factors are causing, supporting, or reinforcing those dimensions?

3. What are the consequences of the negative dimensions of this organizational culture? In what ways are they harmful to the organization, its employees, suppliers, and customers?

4. What actions can you take to change the dysfunctional aspects of the culture? The 7-S framework (chapter 4) is a good place to start. What changes need to be made to the “hard” factors: strategy, structure, systems? What changes need to be made to the “soft” factors: style, staff, skills, shared values? How does senior leadership behavior have to change?

5. What would those actions cost?

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EXERCISE 5.3

How Will the Digital Revolution Affect Your Organization?

LO 5.5

Briefing (1)

· You have decided to leave your organization tomorrow, to set up your own business in competition with your large, out-of-date, slow-moving, bureaucratic former employer.

· You have identified your organization’s main weaknesses and vulnerabilities. Critically, you have worked out how a combination of digitization technologies and social networking tools could be used to undermine your organization’s traditional business model. Or, customers may have “after-market” needs that your organization is not fulfilling.

· Describe your new business model. What digital tools and social media technologies will you use to attract customers or clients from your previous employer to your business—and perhaps from other organizations in the sector? How quickly can you set up this business? What will it cost you to set up this business?

Briefing (2)

· OK, you are not leaving the organization after all. That briefing was designed to make you think about potential threats to your organization from agile and innovative “out of sector” competitors. Let us assume that the new business model that you have just described is real, and that somebody else has already thought about it—and may already be setting it up. How can your organization respond to that threat? Better still, how can your organization counter that threat before it emerges?

· Draw up an internal action plan for transforming the organization’s current business model, or for creating a separate unit or division to develop your new business model alongside the existing one.

Additional Reading

Brynjolfsson, E., and McAfee, A. 2014. The second machine age: Work, progress, and prosperity in a time of brilliant technologies. New York and London: W. W. Norton & Company. An optimistic analysis of the pervasiveness of digital technologies and their dramatic impact on individuals, organizations, society, and the economy.

Gratton, L. 2011. The shift: The future of work is already here. London: Collins. Explores how trends in globalization, society, demography, technology, and use of natural resources are reshaping work, and offers advice on how to “future-proof” your career.

Perlow, L. A. 2012. Sleeping with your smartphone: How to break the 24/7 habit and change the way you work. Boston: Harvard Business Review Press. Explores individual and organizational benefits and problems of “hyperconnectivity” and how to retain work-life balance and improve performance by collectively “disconnecting.”

Schein, E. H. 2010. Organizational culture and leadership. 4th ed. San Francisco: Jossey-Bass. Classic and recently revised text exploring the nature and significance of organizational culture and the crucial role of leaders as “architects” of culture.

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Roundup

In answer to the question “what changes?” this chapter has introduced terms for describing different types of change, based on the metaphor of depth; some changes are shallow, others are deep. We then focused on three areas of organizational change: innovation, culture, and technology. These are not the only dimensions of organizational change, of course, but they are issues that most if not all organizations will continue to face for some time. Why have these particular themes acquired such a high priority? A failure to innovate can lead to organizational decline. Dysfunctional organizational cultures can have disastrous consequences. Digitization and social media have the potential to create new and potentially disruptive business models, making many established business models obsolete. The “controlling” images of change management—director, navigator, caretaker—may be less useful in this context. Dealing with a rapidly developing, uncertain, and unpredictable climate, the “shaping” images of change management may be more appropriate—coach, interpreter, navigator.

Here is a short summary of the key points that we would like you to take from this chapter, in relation to each of the learning outcomes:

LO 5.1 Explain several different ways of categorizing different types of change.

Organizational changes are typically varied and multifaceted. Change one aspect of an organization and the interdependencies lead to “knock-on” or “ripple” effects that lead to further change elsewhere. We introduced a number of different ways of describing and classifying change, and these are summarized in table 5.3. The concepts of transformational change and disruptive innovation have become fashionable. Given the rapid pace of technology development, and of change driven by other socioeconomic, cultural, and legislative pressures, transformation and disruption appear to be attractive options. However, we have to recognize that less profound, shallow, simple changes can often be valuable in context. Small changes can also underpin and trigger major initiatives. The potential organizational value of shallow change should therefore not be underestimated.

TABLE 5.3

Different Types of Change

Type of Change	Description
Planned	Implemented in anticipation of, or in response to, known developments
Emergent	Just happens, or has to happen, in response to unforeseen events
Incremental	Gradual, small scale
Transformational	Radical, groundbreaking, disruptive
First-order	Solves a problem using methods based on current assumptions
Second-order	Transforms the organization with creative thinking and new business models
Third-order	Habitual overturning of assumptions, continual adaptation and self-renewal
Shallow	Another label for incremental, small-scale change, fine-tuning
Deep	Another label for transformational, disruptive change, mold-breaking

Reflections for the Practicing Change Manager

· In what kinds of change initiatives are you currently involved—shallow, deep, mixed? If your current involvement concerns mostly shallow initiatives, how will that affect your ability to answer questions about your change management experience at the next job/promotion interview? Do you need to “reposition” your profile to include deeper changes?

· Does your personal comfort zone favor involvement in major, transformational, deep changes? Why? Or are you more comfortable implementing lower-risk, shallow changes—which can of course still be highly effective? In your judgement, what are the personal and organizational implications of your preferences?

· In your judgement, does your organization need disruptive innovation, in which areas, and why? Or would those changes be too “disruptive” and less effective than continuing to implement sustaining innovations?

· You are a social media user, accessing your favorite websites from at least one mobile device—your smartphone or tablet. You also use those sites through your smart Internet-connected television. How do you feel about your organization using social media to communicate with you? Does this open up new sources of information and fresh communication channels with management and staff? Or will this open you to 24/7 availability and give you information overload? How do employees in general in your organization feel about this?

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LO 5.2 Identify practical implications of different types of change for the change manager.

One practical implication of our change classification system concerns, as just mentioned, the potential of small changes to deliver benefit in their own right and to contribute to deeper initiatives. A second implication for the change manager is that shallow changes are likely to be more straightforward to implement: less cost, less risk, less disruption, less resistance. Organizational transformations present a different order of change management challenge. A third implication, however, is that a change manager’s involvement in deep change is more likely to contribute to experience, reputation, and career than managing small initiatives. This leads to the suspicion that some deep changes could be designed to address personal interests rather than corporate needs.

At any given time, especially in larger organizations, there are likely to be many change initiatives under way, across the spectrum of figure 5.1, from shallow, to mid-range, to deep. The problem of coordinating such a pattern of change has led to the establishment of program management offices (PMOs) in many organizations. PMOs can thus support change and help to avoid the duplication of effort and cost. Where they are seen as “change police,” their contributions may be curtailed.

LO 5.3 Understand the difference between sustaining and disruptive innovation, and explain the practical implications of this distinction for change management.

Sustaining innovations improve current practice, while disruptive innovations introduce wholly new ways of doing things. From a change management perspective,165it is usually easier to persuade others of the value of sustaining innovations; disruptive innovations are more difficult to explain, and because they make current practice obsolete, they may be seen as more risky. Most organizations do not have established procedures or routines for handling disruptive innovations—which are thus often implemented by small start-up companies rather than large established organizations.

The change manager can become a “disruptive innovator” by adopting five habits: associating, questioning, observing, experimenting, and networking. These are habits that anyone can develop, with practice.

LO 5.4 Assess the significance of organizational culture with regard to organizational performance and reputation, and the role of leaders as culture architects.

Organization culture is regarded by some commentators as an abstract concept with limited organizational use. Defining culture as “the way we do things,” however, it seems that some organizations have dysfunctional cultures, which can lead to highly undesirable consequences. We saw how dysfunctional cultures at Barclays bank, NASA, and BP contributed to financial crisis, loss of life and serious injury, widespread economic and environmental damage, damage to the reputations and careers of senior management, loss of public trust and confidence in the organization, and massive fines for misconduct. Culture change, where necessary, becomes a priority in the face of such evidence, and culture change programs have consequently become popular.

LO 5.5 Assess the potential impact of new digital technologies in general, and the potential organizational benefits of applications of social media in particular.

A “moving target,” digitization offers three sets of strategic opportunities: enhanced interaction with stakeholders, improved management decisions, and new business models. Many organizations have seen their successful business models undermined by digital start-ups. Social media also seem to have many applications with regard to communications, staff engagement, recruitment, and learning. These tools could thus offer platforms for developing more open, communicative, egalitarian, collaborative, and responsive cultures. However, organizations have been slow to respond to these opportunities, and we may be in an “experiment and learn” phase. As mentioned earlier, this context puts a premium on the coach, interpreter, and navigator images of change management.

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