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Chapter 15

Organizational Change and Structure

Case Study: Google’s Organizational Development and Change

Case Questions:

Why might Google’s tactics for employee compensation need to vary in different places in the world?

Why do companies often run into resistance when trying to implement new organizational development and changes?

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

The Change Process

Agile and adaptive

Careful planning

Hard work

Cooperation and excellent communication

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

LO 15.1 Compare and contrast various conceptualizations of the change process

Organizations must be both agile and adaptive to deal with the pressure of constant change. It is not easy to implement change inside an organization, however, and successful change requires careful planning, hard work, cooperation, and excellent communication. Change management has been around for over 50 years, yet studies show that 60−70% of organizational change projects fail, despite huge investments in training and education to support them. What are the reasons for these failures? One theory proposes that too many organizations hire outside consultants or experts to design the change projects rather than assigning the responsibility to the managers inside the organization. This means managers do not get the opportunity to fully embrace the changes, and it weakens their ability to implement the changes effectively when the time comes.

The Change Process

The DADA Syndrome

Denial

Anger

Depression

Acceptance

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

The DADA Syndrome is experienced by individuals faced with unwanted change. The syndrome consists of four stages: denial, anger, depression, and finally acceptance.4 During the denial stage, people deliberately ignore the change; in the anger stage, they begin to express rage about the change; in the depression stage, they often experience low emotional states and lack of motivation; and finally, in the acceptance stage, they begin to come around to the idea of the change and try and make the best of it. In worst-case scenarios, people will leave an organization if they are unable to accept the changes being implemented.

The Change Process

Lewin’s Basic Change Model

Unfreezing

Transforming

Refreezing

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Kurt Lewin was a German-American psychologist who developed a three-stage model of planned change that explained how to initiate, manage, and stabilize the change process. The three stages are known as unfreezing, transforming, and refreezing.

Unfreezing requires explaining the rationale for change, breaking down the status quo, challenging existing beliefs, and understanding how starting on a new path is essential for the company’s survival. After the unfreezing stage comes the transforming stage, in which people begin to make peace with their doubts and uncertainties and embrace the new direction of the company. When employees appear to have embraced the change, managers use refreezing to reinforce the new approach and help people internalize the changes

The Change Process

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Before implementing any changes, organizations need to assess the validity of the change. Force Field Analysis is a useful decision-making technique that helps to assess the reasons for and against making certain changes. The drivers for change must be stronger than the restraining forces in order for the change to work.

Forces for Change

External forces

Demographic characteristics

Technological advancements

Customer and market changes

Social and political pressures

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

LO 15.2 Identify the forces for change in organizations

Every day, employees are affected by a range of internal and external forces as they try to perform their roles in organizations. Managers who promote an awareness of these forces and make an effort to counteract them have a better chance of creating a more productive and loyal workforce. This means organizations need to adapt to external forces, which are outside influences such as competitors’ actions and customers’ changing preferences, and to internal forces, which are inside influences such as company culture and employee diversity.

Demographic characteristics: Organizations need to adapt to demographic changes such as aging and increasingly diversified customer populations. To deal with these changes, many organizations have tailored their marketing strategies to appeal to a variety of different consumers, and to ensure fair treatment for people of all ages, religions, sexual orientation, and ethnicities.

Technological advancements: The rapid rise of and continuous innovation in computer and wireless technology means that organizations must move equally fast to compete. Many organizations now use social networks to market their products, build awareness of their brands, and connect more fully with their consumers.

Customer and market changes: Social media has given customers a platform for sharing their opinions in ways that companies have never had to deal with before. Negative feedback from customers that has the potential to reach countless others online can immediately influence sales, and it can also enhance or damage the organization’s reputation in the long term.

Social and political pressures: Social values are changing. Consumers are interested in buying environmentally safe products that have been manufactured in an ethical manner, and many organizations have adapted their practices to cater to these values.

Forces for Change

Internal forces:

Management change

Organizational restructuring

Intrapreneurship

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Management change: New CEOs or executive management can have a significant impact on an organization’s culture and strategy.

Organizational restructuring: There may be instances in which organizations need to change their organizational structure in order to adapt to new strategies, new product lines, or global expansion. Intrapreneurship: Many organizations foster a spirit of intrapreneurship in their employees by encouraging them to come up with new ideas and new ways of doing things. When an employee suggests something innovative, the organization must consider the best way of implementing the idea, which may mean allocating more resources, putting more people to work on the initiative, or coming up with different branding in the case of a new product. American manufacturing company W. L. Gore encourages intrapreneurship by giving employees 10% of their working day to develop new ideas.

Resistance to Change

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

LO 15.3 Describe where resistance to change comes from and how to reduce it

The diagram includes the following as sources of resistance to change: economic factors, self-interest/fear of loss, uncertainty/fear of the unknown, routines, dissimilar goals, lack of understanding and trust, and selective information processing. These tend to be individual factors. Organizational factors will be addressed in the next slide.

There are various sources of resistance to change such as an individual’s fear of the unknown, insecurity, about the change or the inability to change a long established habit. In the selective information processing, the individuals only hear what they want to hear and block out factual information. Resistance might be due to economic factors which would occur as a result of the change. Some people have a predisposition toward change, which means their personalities will not allow them to readily adapt. Still others are judging everything on the past successes they have had working in more autocratic environments. Loss of status can also influence an individual’s readiness to accept change. Sometimes, personality conflicts are an issue or a lack of understanding about the benefits of what this change in management style could entail.

Resistance to Change

Lack of clarity

Fear of unknown

Lack of skills

Over commitment to current model

Lack of trust

Being left out

Change to routine

Resignation

Perceptions of change

Inadequate benefits and rewards

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Individual sources of resistance to change

Resistance to Change

Kottler’s 8-Step Change Model

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

By following these eight steps, organizations have a better chance of gaining support from employees, implementing and consolidating the change, and overall creating the right environment for change to take place in the future.

1. Create a sense of urgency

During the first step, employees must be made aware of how important the change is to them and the organization. This requires honest and open dialogue, outlining the threats and risks of not making the change, and the importance of taking action at this time.

2. Create a guiding coalition

It is important to create a project team, preferably comprised of employees from different roles and positions, that focuses on the changes required by the organization. This team would encourage the rest of the employees to get on board with the changes and act as a sounding board for those who have any questions or concerns.

3. Create a vision for change

For change to work, people need a clear vision of what the organization is trying to achieve. Employees will need to be a part of that vision in order for them to accept the changes ahead.

4. Communicate the vision

Once the vision has been formulated, it is essential that it is communicated effectively to all employees across the entire organization. Talking to employees and keeping them informed increases the chances of acceptance, especially when their opinions and concerns are taken into account.

5. Remove obstacles

Change will not be successful unless all obstacles are removed beforehand. IN this context, the obstacles are usually employees who are resisting the change. Talking to these employees is the best way of understanding the reasons why they don’t want the changes to go ahead. Incorporating their ideas into the change process is also a powerful way to get them onboard.

6. Create short-term wins

Change can be a long process, and employees need to be motivated in order to go the distance. This is why it is important to create short-term goals, where employees are given rewards and acknowledgement when they have successfully achieved their targets. Not only will this encourage employees to continue to pursue long-term goals, but it sends a message to the rest of the organization that the change is definitely going ahead.

7. Consolidate improvements

Kotter believed that many change processes tend to fail because victory is declared too soon. Change is an ongoing process which needs to be incorporated into the overall organizational culture. Therefore, organizations must promote the idea of continuous change and constantly look for ways to improve processes.

8. Anchor the changes

For change to stick, it needs to be at the core of an organization. It must match the company’s vision and values as well as the behavior of its employees. As time goes on, the changes must still be supported by employees. Building in this new climate of change involves telling success stories, ensuring new hires are made aware of the change ideals and values, and publicly acknowledging the employees most instrumental in the change process.

Resistance to Change

Organizational sources of resistance to change:

Structural inertia

Limited focus of change

Group inertia

Threat to expertise

Disrupt cultural traditions or relationships

Threat to power

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

In addition to individual sources of resistance to change, organizational factors may prove to be barriers as well. For example, many organizations are based on stability--people are recruited because they fit in with the organizational culture and are then socialized to behave in certain ways through training, rules, processes, and procedures. However, this uniformity can lead to structural inertia, which makes an organization slow to change after having followed the same rules and procedures for many years. Organizations can also fall prey to limited focus of change, which arises when only a small number of departments apply the change rather than the whole organization. Confusion often results because the change is not being fully enforced. Another organizational source of resistance to change is group inertia. This means that even if individuals agree with the change, they may be constrained by group norms--a situation that often occurs in unions. Groups may also feel that organizational changes are a threat to expertise. The group may resist learning the program because of fear that it will render their roles obsolete. Furthermore, the group may not want to entertain decisions that disrupt cultural traditions or group relationships, which means they will cling to the familiar way of doing things. Finally, an organization can experience threat to established power relationships particularly when it is undergoing a restructure. Companies moving from an autocratic structure to a participative or self-managed one are likely to experience opposition from middle managers who may feel their source of power is being threatened.

Resistance to Change

Reducing resistance to change:

Education and communication

Participation

Negotiation

Manipulation

Coercion

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

There are a number of methods commonly used to deal with resistance to change. These include education and communication, participation, negotiation, manipulation, and coercion.

Organizational Structure

Organizational structure is the framework of work roles and functions that helps shape and support employee behavior.

An organization’s structure affects how successfully it can coordinate and accomplish its work activities.

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

LO 15.4 Describe how organizational structure helps shape behavior in organizations

Implementing a strategy requires installing and empowering people at the right levels of authority; and reacting to change is possible only when the organization’s structure reflects its business goals and objectives. We define organizational structure as the framework of work roles and functions that helps shape and support employee behavior.1 There are many different ways to organize work.

An organization’s structure affects how successfully it can coordinate and accomplish its work activities. (Think about why elementary and high schools organize their students by age rather than by height, for instance.) Several different organizing concepts, such as how specialized a given job is and how many people report to an individual manager, describe the kinds of choices an organization’s top managers must make in choosing the most appropriate structure.

Organizational Structure

Specialization and division of labor

Work specialization, also known as division of labor, is the degree to which jobs are divided into specific tasks.

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Work specialization, also known as division of labor, is the degree to which jobs are divided into specific tasks. When work is specialized, employees who work in a certain department will carry out only the tasks that relate to their role. For example, at a restaurant, there might be someone greeting the customers, another person showing them to their table, someone taking their order, and another person bussing the tables, but all the employees would not perform all these tasks to accomplish the job of feeding customers. The advantages of specialization may include increased efficiency and more accurate production as workers become more skilled in a particular task.

Organizational Structure

Departmentalization

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Departmentalization is a process of grouping people with related job duties, skills, and experiences into the same area within the overall organizational structure. Many mid-sized and larger companies structure their organizations in this way. For example, a manufacturing plant may be divided into production, sales and marketing, accounting, and human resources with very little crossover between the departments.

Organizational Structure

Chain of command

Some organizations devise a chain of command, a flow of authority and power from the highest to the lowest levels of the organization. As we have explored over the course of this book, many organizations such as Campbell Soup and Microsoft are advocating a more inclusive and participative approach, rather than a strict chain of command such as in the military, as a way to meet organizational goals and objectives.

Organizational Structure

Span of control:

The number of direct reports to a given manager.

Centralization versus decentralization

Decision-making can be either centralized or decentralized.

When organizations expand by hiring more people, the number of direct reports to a given manager usually increases, giving that manager a wider span of control. Some of the advantages of a wide span of control for both employees and managers are better communication and collaboration as more employees are included in the decision-making process, and higher morale as employees are given more responsibility and less supervision. Some of the disadvantages are that managers may lose control over what employees are doing, and they can become overloaded with work.

Decision-making can be either centralized or decentralized. In a centralized organizational structure, such as McDonald’s or Burger King, senior management makes all the major decisions, whereas in a decentralized organization like UK department stores. John Lewis and Debenhams, employees at lower levels, are given the power to make decisions and solve problems without seeking approval from senior management. Again, many organizations are seeking to move toward a decentralized approach, because the evidence suggests that empowered employees are a key factor of organizational success.

Organizational Structure

Mechanistic versus organic models

The mechanistic model:

Formalized structure

Centralization

Departmentalization

The organic model:

Less formalized

Decentralization

Cross-functional teams

In direct contrast to the decentralized structure, the mechanistic model is a formalized structure based on centralization and departmentalization. There is a definite chain of command, employees tend to work separately rather than collaborating, and there is very little communication between lower level employees and the higher management. This sort of model is predominant in manufacturing where everybody is assigned specific tasks and expected to follow certain rules and procedures. While the mechanistic structure is relatively easy to implement, it can be difficult to adapt it to rapid change. The organic model is a less formalized structure based on decentralization and cross-functional teams. Decision-making is participative and distributed throughout the organization. Communication is open and frequent, and employees are more likely to accept and adapt to change.

Organizational Structure

Formalization

Bureaucracy

Formalization is the degree to which rules and procedures are standardized in an organization. McDonald’s is an example of an organization whose employees are expected to follow strict guidelines. While there are some benefits to having strict rules, such as less confusion about how and why things are done, employees may become frustrated at the lack of opportunity to exercise their own judgment. Today’s organizations tend to follow a less formalized structure to manage employee behavior. Bureaucracy is characterized by formalized rules and regulation, specialized routine tasks, division of labor, and centralized authority. Bureaucratic structures, such as the IRS or the Motor Vehicle Bureau, tend to follow a chain of command with decision-making and power lying firmly at the top.

Organizational Structure

There are four main types of organizational structures:

Simple structures

Functional structures

Divisional structures

Matrix structures

Organizational Structure

Functional structure

Functional structures group employees according to the tasks they perform for the organization, such as marketing, finance, and human resources. Here employees are managed by means of clear levels of authority. In general, this structure works well for smaller organizations, but there is a risk of lack of communication between the different departments because of their tendency to work separately from each other. Yolande shows that the Frankfurt branch of Pioneering Health operates partly as a functional structure.

Organizational Structure

Divisional structure

The Divisional Structure--sometimes called multidivisional structure--groups employees by products and services, by geographic regions, or by customers. While divisional structures are ideally placed to meet external demands, divisions that are performing similar tasks--in different locations, for example--may be at risk of duplicating their work. They may also compete for shared resources.

Organizational Structure

Matrix structure

Yolande has proposed a matrix structure for Pioneering Health’s Frankfurt office, which is an organizational structure that combines both functional and divisional departmentalization, with dual lines of authority. The group looks at the figure trying to absorb what it means to each of them.

Organizational Development

Organizational development (OD): A planned system that uses behavioral science knowledge to increase an organization’s efficiency and effectiveness.

LO 15.5 Describe the concept of organizational development in organizations and identify different types of OD change interventions

Organizational Development

Researchers tend to follow three basic steps in an OD model: diagnosis, interventions, and progress monitoring (see Figure 15.11).

First, they seek to diagnose the problem and bring any issues to the surface so they can be resolved.

Once this feedback has been collated, interventions can be used that are designed to address the underlying problems.

Finally, OD specialists monitor the effects of the intervention after it has been implemented in order to gauge its effectiveness.