Company Vision and Mission Statement
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Principles of Management
Defining Management
Management is the act of engaging with an organiza�on’s human talent and other resources to
accomplish desired goals and objec�ves.
Management comprises planning, organizing, staffing, leading and
direc�ng, and controlling an organiza�on (a group of one or more
people or en��es) or effort to accomplish a goal.
In for-profit work, the primary func�on of management is mee�ng
the needs of various stakeholders, such as customers, debtors, and
owners.
In representa�ve democracies, voters elect poli�cians to public
office, who then hire managers and administrators to oversee the
everyday responsibili�es of public-sector organiza�ons.
Since an organiza�on can be viewed as a type of system, managers
provide the human ac�on needed for the organiza�onal system to
produce planned outcomes or goals that the stakeholders desire.
Key Terms
stakeholders—persons or organiza�ons with a legi�mate interest in a
given situa�on, ac�on, or enterprise that are directly affected by the
organiza�on’s ac�ons
Learning Resource
Key Points
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theore�cal—of or rela�ng to the underlying principles or methods of
a given technical skill, art, etc., as opposed to its prac�ce
shareholder—the real owner (through stock holdings) of a publicly
traded business that is run by management
Overview
Management is the act of engaging with an organiza�on’s human talent and using the physical
resources at a manager’s disposal to accomplish desired goals and objec�ves efficiently and
effec�vely. Management comprises planning, organizing, staffing, leading, direc�ng, and
controlling an organiza�on (a group of one or more people or en��es) or effort to accomplish
a goal.
One of the most important du�es for a manager is effec�vely using an organiza�on’s
resources. This duty involves deploying and manipula�ng human resources (or human capital),
as well as efficiently alloca�ng the organiza�on’s financial, technological, and natural
resources.
Since organiza�ons can be viewed as systems, management can also be defined as human
ac�on, such as product design, that enables the system to produce useful outcomes. This view
suggests that we must manage ourselves as a prerequisite to a�emp�ng to manage others.
Theore�cal Scope
Management may be considered as a type of func�on, one which measures financial metrics,
adjusts strategic plans, and meets organiza�onal goals. This applies even in situa�ons where
planning does not take place. From this perspec�ve, Henri Fayol (1841–1925) considers
management to consist of six func�ons: forecas�ng, planning, organizing, commanding,
coordina�ng, and controlling. He was one of the most influen�al contributors to modern
concepts of management.
In another way of thinking, Mary Parker Folle� (1868–1933) defined management as “the art
of ge�ng things done through people.” She described management as philosophy. Some
people, however, find this defini�on useful but far too narrow. The phrase “management is
what managers do” occurs widely, sugges�ng the difficulty of defining management, the
shi�ing nature of defini�ons, and the connec�on of managerial prac�ces with the existence of
a managerial cadre or class.
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Another perspec�ve regards management as equivalent to “business administra�on” and thus
excludes management in places outside of commerce, for example in chari�es and in the
public sector. More realis�cally, however, every organiza�on must manage its work, people,
processes, technology, and other resources to maximize their effec�veness and accomplish its
goals.
Nature of Managerial Work
In the for-profit environment, management’s role is primarily to meet the needs of a range of
stakeholders. This typically involves making a profit (for the shareholders), crea�ng valued
products at a reasonable cost (for customers), and providing rewarding employment
opportuni�es (for employees). Nonprofit management has the added responsibility to a�ract
and retain donors.
In most models of management and governance, shareholders choose the board of directors
by vo�ng, and the board then hires senior management. Some organiza�ons have
experimented with other methods (such as employee-vo�ng models) of selec�ng or reviewing
managers, but this occurs only very rarely. In representa�ve democracies, voters elect
poli�cians to public office and the poli�cians hire managers and administrators to run
organiza�ons in the public sector.
Several historical shi�s in management have occurred throughout the ages. Toward the end of
the twen�eth century, business management came to consist of six separate branches:
human resource management
opera�ons or produc�on management
strategic management
marke�ng management
Basic Func�ons
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Mary Parker Folle�
defined management as
“the art of ge�ng
things done through
people.”
Management operates through various func�ons, such as planning, organizing, staffing,
leading/direc�ng, controlling/monitoring, and mo�va�ng:
Planning. Deciding what needs to happen in the future (today, next week, next month,
next year, over the next five years, etc.) and genera�ng plans for ac�on.
Organizing. Implemen�ng a pa�ern of rela�onships among workers and making op�mum
use of the resources required to enable the successful execu�on of plans.
Staffing. Job analysis, recruitment, and hiring of people with the necessary skills for
appropriate jobs. Providing or facilita�ng ongoing training, if necessary, to keep skills
current.
Leading and direc�ng. Determining what needs to be done and ge�ng people to do it.
Controlling and monitoring. Checking current outcomes against forecast plans and
making adjustments as needed so that goals are achieved.
Mo�va�ng. Mo�va�on is a basic func�on of management because without mo�va�on,
employees may feel disconnected from their work and the organiza�on, which can lead
to ineffec�ve performance. If managers do not mo�vate their employees, the workers
may not feel their work is contribu�ng to the overall goals of the organiza�on, which are
usually set by top-level management.
Fulfilling the Organizing Func�on
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Management organizes by crea�ng pa�erns of rela�onships among workers and op�mizing
use of resources to accomplish business objec�ves.
The organizing func�on typically follows the planning stage. Specific
organizing du�es involve assigning tasks, grouping tasks into
departments, assigning authority, and alloca�ng resources across the
organiza�on.
Authority is a manager’s formal and legi�mate right to make
decisions, issue orders, and allocate resources to achieve the
organiza�on’s objec�ves. Types of authority include line, func�onal,
and staff.
Organiza�ons will use different structural strategies, which
significantly affects the chain of command and decision-making
process within an organiza�on. These structures include centralized,
decentralized, tall, and flat.
When approaching an organiza�on within a company or ins�tu�on, it
is important to understand the implica�ons of different structures as
they pertain to the strategy and opera�ons of the company.
Key Terms
capital expenditure—funds a company spends to acquire or upgrade
a long-term asset
controller—a person who audits and manages the financial affairs of
a company or government; comptroller
delega�on—the act of commi�ng a task to someone, especially a
subordinate
organize—to cons�tute in parts, each having a special func�on, act,
office, or rela�on
Key Points
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Management and Organiza�on
Management operates through various func�ons, o�en classified as planning, organizing,
staffing, leading and direc�ng, controlling and monitoring, and mo�va�ng. The organizing
func�on creates the pa�ern of rela�onships among workers and makes op�mal use of
resources to enable the accomplishment of business plans and objec�ves.
The organizing func�on typically follows the planning stage. Specific organizing du�es involve
the assignment of tasks, grouping tasks into departments, and assigning authority and
alloca�ng resources across the organiza�on.
The Management Process
The management process involves planning, organizing,
direc�ng, and controlling.
Structure
Structure is the framework for how tasks are divided, resources are deployed, and
departments are coordinated. It is a set of formal tasks assigned to individuals and
departments. Formal repor�ng rela�onships include lines of authority, decision responsibility,
number of hierarchical levels, and the spans of managers’ control. Structure is also the design
of systems to ensure effec�ve coordina�on of employees across departments.
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Authority and Chain of Command
Authority is a manager’s formal and legi�mate right to make decisions, issue orders, and
allocate resources to achieve desired organiza�onal outcomes. Responsibility is an employee’s
duty to perform assigned tasks or ac�vi�es. Accountability means that those with authority
and responsibility must report and jus�fy task outcomes to those above them in the chain of
command.
Through delega�on, managers transfer authority and responsibility to their subordinates.
Organiza�ons today tend to encourage delega�on from the highest to the lowest possible
levels. Delega�on can improve flexibility to meet customers’ needs and adapt to compe��ve
environments. Managers may find delega�on difficult, since control over the task assigned
(and eventual outcome) is relinquished.
One cri�cal risk of command chains is micromanagement, where managers fail to delegate
effec�vely and exercise excessive control over their subordinates’ projects. Micromanagement
reduces efficiency and limits autonomy, thus limi�ng the adaptability of a given organiza�on.
Effec�ve chains of command must allow for flexibility and efficient delega�on.
Types of Authority and Responsibility
There are three types of authority:
Line authority. Managers have the formal power to direct and control immediate
subordinates execu�ng specific tasks within a chain of command, usually within a
specific department. The superior issues orders and is responsible for the result, and the
subordinate obeys, assuming responsibility only for execu�ng the order according to
instruc�ons.
Func�onal authority. Managers have formal power over a specific subset of ac�vi�es
that include outside departments. For instance, a produc�on manager may have the line
authority to decide whether and when a new machine is needed, but a controller with
func�onal authority requires that a capital expenditure proposal be submi�ed first,
showing that the investment in a new machine will yield a minimum return. The legal
department may also have func�onal authority to interfere in any ac�vity that could
have legal consequences. For example, a purchase contract for a new machine cannot be
approved without a review of the machine’s safety standards.
Staff authority. Staff specialists manage opera�ons in their areas of exper�se. Staff
authority is not real authority because a staff manager does not order or instruct; he or
she instead advises, recommends, and counsels within his or her area of exper�se. Staff
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authority represents a communica�on rela�onship with management. Its influence
comes indirectly through the line authority at a higher level.
Organiza�onal Structure and Control/Decision Making
There are four basic structures related to decision-making authority:
Tall structure. A management structure characterized by an overall narrow span of
management, a rela�vely large number of hierarchical levels, �ght control, and reduced
communica�on overhead. Decision making can be rapid if it occurs from the top down.
Flat structure. A management structure characterized by a wide span of control and
rela�vely few hierarchical levels, loose control, and ease of delega�on. Decision making
is o�en slower, as it involves a high degree of integra�on across the company.
Centraliza�on. The loca�on of decision-making authority near top organiza�onal levels.
Similar to a tall structure, this expedites decision making from the top down.
Decentraliza�on. The loca�on of decision-making authority is rela�vely evenly dispersed
across the company. This works well when crea�vity and independent opera�ons create
value for the organiza�on.
As each structure creates a different organiza�onal approach to opera�ons, it is cri�cal to
consider how the selec�on of a structure will affect the business process. Enabling crea�vity
and minimizing control o�en has costs of speed and efficiency, and vice versa.
Fulfilling the Controlling Func�on
Management control can be defined as a systema�c effort to compare performance to
predetermined standards and address deficiencies.
Control is a con�nuous and forward-looking process designed to
objec�vely benchmark opera�ons with the projected plan or
projec�ons.
The four basic elements in a control system are: the characteris�c or
condi�on to be controlled, the sensor, the comparator, and the
ac�vator.
Key Points
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Control is a con�nuous process.
Control is a con�nuous and forward-looking process designed to
benchmark opera�ons with the projected plan or projec�ons.
Key Terms
systema�c—methodical, regular, and orderly
control—influence or authority over
hierarchy—arrangement of items in which the items are represented
as being above, below, or at the same level as the others
Defini�on of Control
In 1916, Henri Fayol formulated one of the first defini�ons of control as it pertains to
management: “Control consists of verifying whether everything occurs in conformity with the
plan adopted, the instruc�ons issued, and principles established. Its object is to point out
weaknesses and errors in order to rec�fy [them] and prevent recurrence.”
Management control can be defined as a systema�c effort by business management to
compare performance to predetermined standards, plans, or objec�ves in order to determine
whether performance meets these standards. It is also used to determine if any remedial
ac�on is required to ensure that human and other corporate resources are being used in the
most effec�ve and efficient ways to achieve corporate objec�ves.
Control can also be defined as “that func�on of the system that adjusts opera�ons as needed
to achieve the plan, or to maintain varia�ons from system objec�ves within allowable limits.”
The control subsystem func�ons in close harmony with the opera�ng system. The degree to
which they interact depends on the nature of the opera�ng system and its objec�ves. Stability
concerns a system’s ability to maintain a pa�ern of output without wide fluctua�ons. Rapidity
of response pertains to the speed with which a system can correct varia�ons and return to
expected output.
These defini�ons show that there is a close link between planning and controlling. Planning is
a process by which an organiza�on's objec�ves and the methods to achieve them are
established, and controlling is a process that measures and directs the performance against the
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organiza�on’s planned goals. Therefore, goals and objec�ves are closely �ed: The managerial
func�on and the correc�on of performance help to ensure that enterprise objec�ves and the
goals devised to a�ain them are accomplished.
Characteris�cs of Control
Control has several characteris�cs:
a con�nuous process
a management process
embedded in each level of organiza�onal hierarchy
forward looking
closely linked with planning
a tool for achieving organiza�onal ac�vi�es
an end process
Sequence of Control
A sequence of four basic elements comprise a control system:
1. The characteris�c or condi�on to be controlled. We select a specific characteris�c
because there is a correla�on between the characteris�c and how the system is
performing. The characteris�c may be system output during any stage of processing or a
condi�on that is the result of the system. For example, in an elementary school system,
the hours a teacher works and the knowledge students gain on a na�onal exam are
characteris�cs that may be selected for measurement or control.
2. The sensor. This is the means for measuring the characteris�c or condi�on. For example,
in a home-hea�ng system, the sensor would be the thermostat. In a quality control
system, the measurement might be performed by visual inspec�on.
3. The comparator. This determines the need for correc�on by comparing what is occurring
to the plan. Some devia�on from the plan is usual and expected, but when varia�ons are
beyond those considered acceptable, correc�ve ac�on is required. It involves a sort of
preventa�ve ac�on to indicate that control is being achieved.
4. The ac�vator. This is the correc�ve ac�on taken to return the system to expected
output. The actual person, device, or method used to direct correc�ve inputs into the
opera�ng system may take a variety of forms. It may be a hydraulic controller posi�oned
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by a solenoid or electric motor in response to an electronic error signal, an employee
directed to rework parts that failed to pass quality inspec�on, or a school principal who
decides to buy more books to provide for an increased number of students. As long as a
plan is performed within allowable limits, correc�ve ac�on is not necessary; however,
this seldom occurs in prac�ce.
These occur in the same order and maintain a consistent rela�onship to each other in every
system.
Fulfilling the Leading Func�on
Managers lead their organiza�ons and can vary their style and approach to achieve the desired
outcome.
Leaders who demonstrate persistence, tenacity, determina�on, and
synergis�c communica�on skills will bring out the same quali�es in
their groups.
Leadership can be viewed as either individualis�c or group-based
and can be considered “transac�onal” (i.e., procedures, rewards,
incen�ves) or “transforma�onal” (i.e., charisma, crea�vity, personal
rela�onships).
A leadership style is o�en determined by context, whereas the
degree of control (autocra�c or democra�c) may alter based upon a
situa�on or process.
Posi�ve reinforcement is an example of a leadership technique. It
occurs through a posi�ve s�mulus in response to a behavior, to
increase the likelihood of that behavior in the future.
Key Term
laissez-faire—in business, an environment in which an organiza�on’s
employees are free from excessive oversight or management, with
sufficient control only to ensure organiza�onal goals are met
Key Points
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Defining Leadership
Over the years the philosophical terms “management ” and “leadership” have been used both
as synonyms and with clearly differen�ated meanings. Debate is fairly common about whether
these terms should be restricted, reflec�ng an awareness of the dis�nc�on made by Burns
(1978) between “transac�onal” leadership (characterized by emphasis on procedures,
con�ngent reward, management by excep�on) and “transforma�onal” leadership
(characterized by charisma, personal rela�onships, crea�vity). Management is o�en associated
with the former and leadership with the la�er.
Leaders who demonstrate persistence, tenacity, determina�on, and synergis�c communica�on
skills will bring out the same quali�es in their groups. Good leaders use their own inner
mentors to energize their teams and organiza�ons, and lead their teams to achieve success.
Group Leadership
In contrast to individual leadership, some organiza�ons have adopted a group leadership
model. As the term suggests, with group leadership more than one person provides direc�on
for a group. Some organiza�ons have taken this approach in hopes of increasing crea�vity,
reducing costs, or downsizing. Others may see the tradi�onal leadership of a boss as too
costly to team performance. In some situa�ons, team members best able to handle any given
phase of a project become its temporary leaders. Staff may experience more energy and
success when each team member has access to elevated levels of empowerment.
Leadership Styles
A leadership style is a leader’s approach to providing direc�on, implemen�ng plans, and
mo�va�ng people. It is the result of the philosophy, personality, and experience of the leader.
Rhetoric specialists have also developed models for understanding leadership (Hariman, 1995)
(Salazar, 2009).
Different situa�ons call for different leadership styles. In an emergency, when there is li�le
�me to reach an agreement and where a designated authority has significantly more
experience or exper�se than the rest of the team, an autocra�c leadership style may be most
effec�ve. However, in a highly mo�vated and aligned team, with a homogeneous level of
exper�se, a more democra�c or laissez-faire style may be more effec�ve. The leadership style
adopted should be the one that will achieve the objec�ves of the group while balancing the
interests of its individual members.
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Posi�ve Reinforcement
Anyone thinking about managing a team must consider posi�ve reinforcement. B. F. Skinner,
the father of behavior modifica�on, developed this concept. Posi�ve reinforcement occurs
when a posi�ve s�mulus is presented in response to a behavior, increasing the likelihood of
that behavior in the future.
The following is an example of how posi�ve reinforcement can be used in a business se�ng.
Assume praise is a posi�ve reinforcement for a par�cular employee. The employee is o�en
late for work. The manager of the employee decides to praise the employee for showing up on
�me when the employee actually does so. As a result, the employee comes to work on �me
more o�en because the employee likes to be praised. In this example, praise (the s�mulus) is a
posi�ve reinforcement for this employee because the employee arrives at work on �me (the
behavior) more frequently a�er being praised for it.
The use of posi�ve reinforcement is a successful and growing technique used by leaders to
mo�vate and a�ain desired behaviors from subordinates. Organiza�ons including Frito-Lay
and 3M have used posi�ve reinforcement to increase produc�vity. Praise is an inexpensive
way to poten�ally increase performance and employee sa�sfac�on.
Fulfilling the Planning Func�on
Planning is the process of thinking about and organizing the ac�vi�es required to achieve
strategic objec�ves.
Planning involves the maintenance and organiza�onal approach of
achieving strategic objec�ves.
Business plans and marke�ng plans are examples of plans managers
may develop to meet objec�ves.
Strategic planning is an organiza�on’s process of defining its strategy
or direc�on and deciding how to allocate resources to pursue the
strategy.
When pursuing strategic planning, organiza�ons should ask
themselves what they do, for whom, and how they can excel (or
Key Points
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differen�ate from) compe�tors.
Execu�ng the planning func�on requires a comprehensive
understanding (or genera�on of) a vision, mission, set of values, and
general strategy.
Key Terms
strategy—plan of ac�on intended to accomplish a specific goal
alloca�ng—the act of distribu�ng a given set of resources according
to a plan.
forecas�ng—the act of es�ma�ng future outcomes
Planning
Planning is the process of thinking about and organizing the ac�vi�es required to achieve a
desired goal. It involves crea�ng and maintaining a given organiza�onal opera�on. This
thought process is essen�al to refining objec�ves and integra�ng with other plans. Planning
combines forecas�ng of developments with preparing scenarios for how to react to those
developments. It is important to keep in mind that forecas�ng predicts what the future will
look like, whereas planning predicts what the future should look like.
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Research Planning
Planning involves both forecas�ng and prepara�on.
John Fedele/Ge�y Images
Planning is also a management process, concerned with defining goals for a company’s future
direc�on, and determining the missions and resources to achieve those targets. To meet
objec�ves, managers may develop plans—such as business or marke�ng plans—to achieve
specific goals or targets. Planning revolves largely around iden�fying the resources available
for a given project and using them to achieve the best outcomes.
Strategic Planning
Strategic planning is an organiza�on’s process for defining its direc�on and making decisions
about resource alloca�on to pursue its strategy. To determine the direc�on of the
organiza�on, it is necessary to understand the organiza�on’s current posi�on and the possible
avenues for pursuing a par�cular course of ac�on. Generally, strategic planning deals with at
least one of three key ques�ons:
What do we do?
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For whom do we do it?
How do we excel?
The key components of strategic planning include an understanding of the firm’s vision,
mission, values, and strategies. (O�en there is a vision statement as well as a mission
statement.) Following are explana�ons for these four elements:
1. Vision. The vision outlines what the organiza�on wants to be or how it wants the world
in which it operates to be (an “idealized” view of the world). It is a future-focused, long-
term view. It can be emo�ve and a source of inspira�on. For example, a charity working
with the poor might have a vision statement that reads “A World Without Poverty.”
2. Mission. The fundamental purpose of an organiza�on or an enterprise, is succinctly
described in its mission. Why does it exist? What does it do to achieve its vision? For
example, the charity above might state that its mission is “providing jobs for the
homeless and unemployed.”
3. Values. These are beliefs shared among the stakeholders of an organiza�on. Values drive
an organiza�on’s culture and priori�es, and provide a framework for decision making. For
example, “Knowledge and skills are the keys to success,” or “Give a man bread and feed
him for a day, but teach him to farm and feed him for life.” These examples of values
place long-term development and self-sufficiency over immediate gra�fica�on.
4. Strategy. Strategy, narrowly defined, is “the art of the general”—a combina�on of the
ends (goals) for which the firm is striving and the means (policies) by which it is seeking
to get there. A strategy is some�mes called a roadmap—the path chosen to move toward
the end vision. The most important part of implemen�ng the strategy is ensuring the
company is going in the right direc�on, which is toward the end vision.
Tools and Approaches
There are many approaches to strategic planning, but typically one of the following is used:
Situa�on-Target-Proposal. Situa�on: Evaluate the current situa�on and how it came
about. Target: Define goals and/or objec�ves (some�mes called ideal state).
Path/Proposal: Map a possible route to achieve the goals/objec�ves.
Draw-See-Think-Plan. Draw: What is the ideal image or the desired end state? See:
What is today’s situa�on? What is the gap from ideal and why? Think: What specific
ac�ons must be taken to close the gap between today’s situa�on and the ideal state?
Plan: What resources are required to execute the ac�vi�es?
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Among the most useful tools for strategic planning is a SWOT analysis (strengths, weaknesses,
opportuni�es, and threats). The main objec�ve of this tool is to analyze internal strategic
factors (strengths and weaknesses a�ributed to the organiza�on) and external factors beyond
control of the organiza�on, such as opportuni�es and threats.
References
Hariman, R. (1995, October). Poli�cal style: The ar�stry of power. University of Chicago Press.
Salazar, P. (2009). L’Hyperpoli�que. Technologies poli�ques De La Domina�on, Paris.
Reference retrieved from h�ps://en.wikipedia.org/wiki/Entrepreneurial_leadership#cite_note-
20
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Leadership vs. Management
Though they have traits in common, leadership and management both have unique
responsibili�es that do not necessarily overlap.
Many view leaders as those who direct the organiza�on through
vision and inspira�on, whereas managers are results-oriented and
more focused on task organiza�on and efficiency.
Managers sustain current systems and processes for accomplishing
work, while leaders challenge the status quo and make change
happen.
Such dis�nc�ons may create a nega�ve concept of managers. Leader
brings to mind heroic figures rallying people together for a cause,
while manager suggests less charisma�c individuals focusing solely
on efficiency.
Key Terms
leadership—a process of social influence in which one person enlists
the aid and support of others in accomplishing a common task
management—the act of ge�ng people together to accomplish
desired goals and objec�ves using available resources efficiently and
effec�vely
Learning Resource
Key Points
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Tasks vs. Vision
The terms management and leadership have been used interchangeably, yet there are clear
similari�es and differences between them. Both terms suggest direc�ng the ac�vi�es of
others. In one defini�on, managers do so by focusing on the organiza�on and performance of
tasks, and by aiming at efficiency, while leaders engage others by inspiring a shared vision and
effec�veness. Managerial work tends to be more transac�onal, emphasizing processes,
coordina�on, and mo�va�on, while leadership has an emo�onal appeal, is based on
rela�onships with followers, and seeks to transform.
One tradi�onal way of understanding the differences between managers and leaders is that
people manage things but lead other people. More concretely, managers administer and
maintain the systems and processes by which work gets done. This includes planning,
organizing, staffing, leading, direc�ng, and controlling the ac�vi�es of individuals, teams, or
organiza�ons to accomplish a goal. Basically, managers are results-oriented problem-solvers
responsible for day-to-day func�ons. They focus on the immediate, short-term needs of an
organiza�on.
In contrast, leaders take the long-term view and are responsible for where a team or
organiza�on is heading and what it achieves. They challenge the status quo, make change
happen, and work to develop the capabili�es of people to contribute to achieving their shared
goals. Addi�onally, leaders act as figureheads for their teams and organiza�ons by
represen�ng their vision and values to outsiders. This defini�on of leadership may create a
nega�ve bias against managers as less noble or less important: Leader suggests a heroic figure,
rallying people to unite under a common cause, while manager calls to mind less charisma�c
individuals who are focused solely on ge�ng things done.
Licenses and A�ribu�ons
Defining Leadership (h�ps://courses.lumenlearning.com/boundless-
management/chapter/defining-leadership/) from Boundless Management by Lumen Learning,
originally published by Boundless.com, is available under a Crea�ve Commons A�ribu�on-
ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-sa/4.0/) license. UMUC
has modified this work and it is available under the original license.
© 2019 University of Maryland University College
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informa�on located at external sites.
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Adap�ng and Innova�ng
Benefits of Innova�on
Innova�on may be linked to posi�ve changes in efficiency, produc�vity, quality,
compe��veness, and market share, among other factors.
Innova�on is the development of customer value through solu�ons
that meet new needs, unar�culated needs, or exis�ng market needs
in unique ways.
Innova�ve employees increase produc�vity by crea�ng and
execu�ng new processes that may increase compe��ve advantage
and provide meaningful differen�a�on.
Managers who promote an innova�ve environment can see value
through increased employee mo�va�on, crea�vity, and autonomy;
stronger teams; and strategic recommenda�ons from the bo�om up.
Clarity about and understanding of roles, increased responsibili�es,
strategic partnerships, senior management support, organiza�onal
restructuring, and investment in human resources can all enrich
organiza�onal culture and innova�on.
Key Terms
efficiency—the extent to which a resource, such as electricity, is used
for the intended purpose; the ra�o of useful work to energy
expended
Learning Resource
Key Points
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produc�vity—the rate at which goods or services are produced by a
standard popula�on of workers
innova�on—change in customs; something new and contrary to
established customs, manners, or rites
Defining Innova�on
Innova�on is the development of customer value through solu�ons that meet new, undefined,
or exis�ng market needs in unique ways. Solu�ons may include new or more effec�ve
products, processes, services, technologies, or ideas that are more readily available to markets,
governments, and society.
Innova�on is some�mes confused with inven�on or improvement. They are, however,
different. Innova�on is coming up with a be�er idea or method, or integra�ng a new approach
within a contextual model, while inven�on is about crea�ng something new. Innova�on refers
to finding new ways to do things, while improvement is about doing the same thing more
effec�vely.
Organiza�onal Benefits of Innova�on
From an organiza�onal perspec�ve, managers encourage innova�on because of the value it
can capture. Innova�ve employees increase produc�vity by crea�ng and execu�ng new
processes, which in turn may increase compe��ve advantage and provide meaningful
differen�a�on. Innova�ve organiza�ons are inherently more adaptable to the external
environment; this allows them to react faster and more effec�vely to avoid risk and capture
opportuni�es.
From a managerial perspec�ve, innova�ve employees tend to be more mo�vated and involved
in the organiza�on. Empowering employees to innovate and improve their work processes
provides a sense of autonomy that boosts job sa�sfac�on. From a broader perspec�ve,
empowering employees to engage in organiza�on-wide innova�on creates a strong sense of
teamwork and community, and ensures that employees are ac�vely aware of and invested in
organiza�onal objec�ves and strategy. Managers who promote an innova�ve environment can
see value through increased employee mo�va�on, crea�vity, and autonomy; stronger teams;
and strategic recommenda�ons from the bo�om up.
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Managers can accomplish this by being clear about employees’ roles and responsibili�es and
providing top-down support, while allowing individuals freedom to pursue their assignments
as they see fit. Suppor�ng the HR and IT departments so that they can provide training and
tools for higher employee efficiency can contribute substan�ally to a culture of internal
innova�on. This requires open-minded and mo�va�onal leaders in managerial posi�ons. They
must be able to steer employee efforts without diminishing employee crea�vity.
Characteris�cs of Innova�ve Organiza�ons
According to recent research, companies that make a commitment to innova�on are
excep�onal performers in their respec�ve industries.
Being recep�ve to new business ideas means being recep�ve to the
idea that mistakes are a necessary part of the process.
Everyone in the business needs to keep an open mind and develop
the capacity to look at things with fresh eyes.
It is likely that some successful innova�ons will result from chance
discoveries.
Managers must understand that employees too mired in rou�ne
work and too cri�cized for trying new methods will inherently fail to
create innova�ons that may drive organiza�onal growth.
Many business experts argue that companies that make a substan�al commitment to
innova�on and entrench it deeply throughout their culture will perform excep�onally well. But
how can innova�on be facilitated within the organiza�onal framework? The following are
some examples of characteris�cs that lead to successful innova�on.
Accept Mistakes as Part of the Process
A 3M researcher was looking for ways to improve the adhesives used in tape. At first, it
seemed as though his work was a failure. However, the adhesive he discovered in this process
was later used on Post-it notes—a great innova�on and business success for the company.
Key Points
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Being recep�ve to new business ideas means being recep�ve to mistakes as a necessary, and
some�mes even crucial, part of the process.
Keep an Open Mind and Think Laterally
Possibili�es for innova�on exist everywhere. To realize them, everyone in the business needs
to keep an open mind and develop the capacity to look at things with fresh eyes.
A drama�c example of company transforma�on through lateral thinking is the Finnish
company Nokia. Its core business was originally wood pulp and logging. But when communism
collapsed, it opened new markets for Russia’s seemingly limitless supply of wood forests,
making it more difficult for Nokia to compete. Nokia’s management concluded that the only
real compe��ve advantage they retained was their very efficient communica�ons system
developed in the 1970s to help managers keep in touch with remote logging opera�ons. That
single realiza�on transformed the company into one of the world’s most successful vendors of
communica�ons equipment.
Nokia successfully transformed itself from a logging company to an electronic-
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communica�ons company through innova�on.
Managerial Implica�ons
As is usually the case, these principles are easier said than done. Managers must carefully
consider what type of work environment they project for their subordinates. Managers must
understand that employees too mired in rou�ne work and who are cri�cized for trying new
methods will inherently fail to create innova�ons that may drive organiza�onal growth. There
is therefore a balancing act between enabling employees to try new things and take risks vs.
ensuring that tasks are completed on �me with reasonable success.
Types of Innova�on
There are three main modes of innova�on: entrepreneurial value-based, technology-based,
and strategic-reflexive.
The entrepreneurial method of innova�on is one in which change is
ini�ated by an individual’s ac�ons and drive to create a business
venture of adapta�on.
technology-based func�onal innova�on occurs when the
development of new technology drives innova�on.
The strategic-reflexive mode describes innova�on that springs from
individuals’ interac�ons with their organiza�on’s common values and
goals.
Other types of innova�on include: incremental, architectural,
genera�onal, manufacturing, financial, and cumula�ve.
In business and economics, innova�on is the catalyst to growth. Fuglsang and Sundbo (2005)
suggest that there are three modes of innova�on. The first is an entrepreneurial value-based
method where change is ini�ated by an individual’s ac�ons. The second is a technology-based
func�onal mode in which the development of new technology drives innova�on. The third is a
Key Points
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strategic-reflexive mode in which innova�on results from individuals’ interac�ons with their
organiza�on’s set of common values and goals. The following graphic provides an example of
the innova�on process.
Innova�on process: Innova�on involves con�nuous improvement throughout phases of a
development program. Phases can be itera�ve and recursive (meaning that they do not
proceed linearly from one to the next; rather, earlier phases can be returned to for further
improvement as needed). Such phases include market analysis and consumer research, which
progress to design and prototyping, then naming and packaging design, and ul�mately retail
and produc�on support.
Entrepreneurial Innova�on
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The innova�on dimension of entrepreneurship refers to the pursuit of crea�ve or novel
solu�ons to challenges confron�ng a firm. These challenges can include developing new
products and services or new administra�ve techniques and technologies for performing
organiza�onal func�ons (e.g., produc�on, marke�ng, and sales and distribu�on).
Technological Innova�on
Technological innova�on takes place when companies try to gain a compe��ve advantage
either by reducing costs or introducing a new technology. Technological innova�on has been a
hot topic in recent years, par�cularly when coupled with the concept of disrup�ve innova�on.
Disrup�ve innova�on is usually a technological advancement that renders previous
products/services (or even en�re industries) irrelevant. For example, the smartphone disrupted
landlines, Ne�lix made Blockbuster obsolete, and MP3s have marginalized CD players.
Strategic Innova�on
The strategic-reflexive mode of innova�on is the most effec�ve mode for change and
innova�on. While technological innova�on is clear and easy to define, strategic innova�on is
inherently intangible and organiza�onal in nature. Strategic innova�on pertains to processes:
how things are done as opposed to what the end product is. Strategic changes can be
disrup�ve but are more o�en incremental. Incremental innova�on is the idea that small
changes, when effected in large volume, can rapidly transform the broader organiza�on.
Walmart’s “Hub and Spoke” distribu�on model is a classic example of strategic innova�on.
Walmart succeeded thanks to process efficiency enabled via innova�ve opera�onal paradigms
and distribu�on strategies. By u�lizing a maximum efficiency warehousing and distribu�on
model, refined over and over again incrementally for improvement, Walmart has sustained a
compe��ve advantage for decades.
Other Applica�ons of Innova�on
Genera�onal innova�on involves changes in subsystems linked together with exis�ng
linking mechanisms.
Architectural innova�on involves changes in linkages between exis�ng subsystems.
Incremental innova�ons improve price/performance advancement at a rate consistent
with the exis�ng technical trajectory. Radical innova�ons advance the price/performance
fron�er by much more than the exis�ng rate of progress.
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Manufacturing process innova�on refers to all the ac�vi�es required to invent and
implement a new manufacturing process.
Cumula�ve innova�on is any instance of something new being created from more than
one source. Remixing music is a direct example of cumula�ve innova�on.
Financial innova�on has brought many new financial instruments with payoffs or values
depending on the prices of stocks. Examples include exchange-traded funds (ETFs) and
equity swaps.
Speed of Innova�on
Companies compete to adapt their products and services to incorporate new innova�ons first.
Speed of innova�on can pose a major challenge for organiza�ons
responding to external change.
Profits depend on speed of innova�on and the ability to a�ract
customers. Big corpora�ons used to dominate, but now industry
leaders are o�en small, highly flexible groups that come up with
great ideas, build trustworthy branding for themselves and their
products, and market them effec�vely.
A first-mover in a given innova�on captures the obvious advantage
of tapping into a new market before the compe��on. This can also
allow the first-mover to capture the new technology for its own
brand.
First-movers encounter high fiscal risks in integra�ng a new product
or service into their distribu�on, and failure o�en means sunk costs.
Latecomers to the game can simply observe the success or failure of
other compe�tors and make a more informed (and less risky)
decision.
Key Term
cannibaliza�on—the reduc�on of sales or market share for one of
your own products by introducing another
Key Points
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The best ideas should be implemented as quickly as possible—not just by the idea generator
but also by others who have a different viewpoint. It is impera�ve that the idea is honed and
refined while it is s�ll fresh. For example, an idea for a new product might start out as a crude
model built from polystyrene, foam, or cardboard that will evolve quickly into a more
professional prototype.
Innova�on involves con�nuous improvement throughout phases of a development program.
Phases can be itera�ve and recursive (meaning that they do not proceed linearly from one to
the next; rather, earlier phases can be returned to for further improvement as needed). Phases
include market analysis and consumer research, which progress to design and prototyping,
then naming and packaging design, and ul�mately retail and produc�on support.
Robert Reich observes that profits in the old economy came from economies of scale, i.e., long
runs of almost iden�cal products. Thus, we had factories, assembly lines, and industries.
Today, profits come from speed of innova�on and the ability to a�ract and keep customers.
Therefore, while the big winners in the old economy were big corpora�ons, today’s big
winners are o�en small, highly flexible groups that devise great ideas, develop trustworthy
branding for themselves and their products, and market these effec�vely. The winning
compe�tors are those first to provide lower prices and higher value through intermediaries of
trustworthy brands. To keep the lead, however, these companies have to keep innova�ng lest
they fall behind the compe��on.
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The Benefit of Moving First
Speed of innova�on poses a major challenge for organiza�ons responding to external change.
A high rate of change can be seen in the shortening of product life cycles, increased
technological change, increased speed of innova�on, and increased speed of diffusion of
innova�ons. These are key challenges for organiza�ons, as the profit genera�on of new ideas
must fit into a slimmer chronological window—thus underlining the great value of being a first-
mover.
A first-mover in a given innova�on captures the obvious advantage of tapping into a new
market before its compe�tors. This also some�mes allows the first mover to iden�fy its brand
with the new technology (i.e., saying you’re going to “Google” something as shorthand
meaning search for it online, or calling any MP3 player an iPod). These branding hurdles must
be tackled by any compe�tor following in the footsteps of the first-mover.
However, speed is not everything. First-movers encounter serious disadvantages, the most
notable being freeloaders. First-movers also encounter high financial risks in integra�ng a new
product or services into their distribu�on, and failure o�en means sunk costs. Latecomers to
the game can simply observe the success or failure of other compe�tors and make more
informed (and less risky) decisions about entering the market segment. Similarly, first-movers
must carefully consider cannibaliza�on—where their new innova�ve products steal sales from
their older products s�ll on store shelves. Speedy innova�on and moving first requires great
foresight, planning, and managerial skill to execute effec�vely and minimize risks.
Sustainability Innova�on
Sustainability innova�on combines sustainability (endurance through renewal, maintenance,
and sustenance) with innova�on.
Sustainopreneurship is using crea�ve organizing to solve problems
related to sustainability and in turn create social and environmental
sustainability as a strategic objec�ve and purpose.
Solving sustainability-related problems is the be-all and end-all of
sustainability entrepreneurship.
Key Points
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Passively heated houses, solar cells, organic food, fair trade products,
hybrid cars, and car sharing are all examples of sustainability
innova�ons.
Key Term
sustainability—configuring human ac�vity so that socie�es are able
to meet current needs while preserving biodiversity and natural
ecosystems for future genera�ons
Sustainability is the capacity to endure through renewal, maintenance, and sustenance (or
nourishment), which is different than durability (the capacity to endure through resistance to
change). Innova�on is the crea�on of new value through the use of solu�ons that meet new,
previously unknown, or exis�ng needs in new ways. Innova�on should be pursued with
sustainability in mind as a cri�cal strategic objec�ve, as the integra�on of new business ideas
with the broader community and environment is central to long-term success.
Sustainability Entrepreneurship
Sustainopreneurship is using crea�ve business organizing to solve problems related to
sustainability to create social and environmental sustainability as a strategic objec�ve and
purpose, with an understanding that markets are embedded as part of the socio-sphere that is
part of the biosphere. It is “business with a cause,” where the world’s problems are turned into
business opportuni�es for deploying sustainability innova�ons. Sustainopreneurship is
entrepreneurship and innova�on for sustainability.
This defini�on has three dis�nguishing dimensions. The first is oriented toward why, or a
company’s purpose and mo�ve in adop�ng sustainable entrepreneurship. The second and
third reflect how the process is carried out.
Entrepreneurship consciously sets out to find or create innova�ons to solve
sustainability-related problems.
Entrepreneurship moves solu�ons to market through crea�ve organizing.
Entrepreneurship adds sustainability value while respec�ng the systems which support
life.
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Solving sustainability-related problems from the organiza�onal framework is the be-all and
end-all of sustainability entrepreneurship. This means that all three dimensions are
simultaneously present in the process.
Example
Sustainability is the core opera�ng mission and vision of Interface Global, which
produces modular carpe�ng. Through greening their supply chain, minimizing water use,
cu�ng electric costs, reducing fuel costs through be�er distribu�on, and a number of
other innova�ve process improvements, the company produces high quality carpets at a
lower cost with a smaller environmental footprint. The company created a sustainable
business strategy through innova�ve thinking.
Social Innova�on
Social innova�on refers to new strategies, concepts, ideas, and organiza�ons that meet
societal needs.
Social innova�on can refer to social processes of innova�on, such as
open-source methods and techniques.
Social innova�on can also refer to innova�ons that have a social
purpose, like microcredit or distance learning. It can be related to
social entrepreneurship.
Social innova�on can take place within the government, for-profit,
and nonprofit sectors, or in the spaces between them.
Key Terms
social—of or rela�ng to society
social capital—the value created by interpersonal rela�onships with
expected returns in the marketplace
Key Points
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Social innova�on refers to new strategies, concepts, ideas, and organiza�ons that extend and
strengthen civil society or meet societal needs of all kinds—from working condi�ons and
educa�on to community development and health.
Organiza�ons, both for for-profit and nonprofit, benefit enormously from incorpora�ng social
innova�on into their opera�ons. Giving back to the community and empowering the
individuals you work with and sell to (i.e., stakeholders) improves employee morale, grows
wealth for poten�al customers, builds a strong brand, and underlines social responsibility and
high ethical standards as central to the organiza�onal character.
Health Fair in India
A health fair conducted through a partnership of the Max India Founda�on and the SOIL social
innova�on program
The term social innova�on has overlapping meanings. Some�mes it refers to social processes
of innova�on like open-source methods and techniques. Other �mes it refers to innova�ons
that have a social purpose, like microcredit or distance learning. The concept can also be
related to social entrepreneurship (entrepreneurship is not necessarily innova�ve, but it can be
a means of innova�on). On occasion, it also overlaps with innova�on in public policy and
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governance. Social innova�on can take place within the government sector, the for-profit
sector, the nonprofit sector, or in the spaces between them. Research has focused on the
types of pla�orms needed to facilitate collabora�ve cross-sector social innova�on.
The Process of Social Innova�on
Social innova�on is o�en an effort of mental crea�vity that involves fluency and flexibility
across a wide range of disciplines. The act of social innova�on in a sector encompasses diverse
disciplines within society. The social innova�on theory of connected difference emphasizes
three key dimensions of social innova�on:
It usually produces new combina�ons or hybrids of exis�ng elements, rather than
something completely new.
It cuts across organiza�onal or disciplinary boundaries.
It creates compelling new rela�onships between previously separate individuals and
groups. Social innova�on is currently gaining visibility within academia.
Examples of Social Innova�on
There are many examples of social innova�on making a meaningful difference across the globe
—from huge organiza�ons like the Bill and Melinda Gates Founda�on funding mul�na�onal
ini�a�ves to small groups of community leaders collec�ng money to help buy new high school
textbooks. Specific examples include the following:
The University of Chicago sought to develop social innova�ons that would address and
ameliorate the immense problems caused by poverty in a largely immigrant city around
the turn of the twen�eth century.
Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of
Grameen Bank, who pioneered the concept of microcredit for suppor�ng innovators in
mul�ple developing countries in Asia, Africa, and La�n America.
Stephen Goldsmith, former Indianapolis mayor, engaged the private sector in providing
many city services.
Commercializing Innova�ve Products
Commercializa�on is the process or cycle of introducing a new product or produc�on method
into the market.
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The launch of a new product is the final stage of new product
development. This is when the most money is spent for adver�sing,
sales promo�on, and other marke�ng efforts.
It is important to emphasize that the commercializa�on strategy and
feasibility should have been considered and approved long before
the actual execu�on of commercializa�on—as the �me, efforts, and
development costs have already largely been incurred.
Organiza�ons must consider who they are selling to and where they
are selling when determining the most effec�ve process for
commercializa�on.
The primary target consumer group includes innovators, early
adopters, heavy users, and opinion leaders. Their buy-in will ensure
adop�on by other consumers in the marketplace during the product
growth period.
Key Terms
commercializa�on—the act of posi�oning a product to make a profit
early adopter—a person who begins using a product or service at or
around the �me it becomes available
Commercializa�on is o�en confused with sales, marke�ng, or business development. In the
context of innova�on, commercializa�on is the process of introducing a new product or
service to the public market. Innova�ons are defined as new products or services that improve
upon their predecessors, and the process of integra�ng them into the current market is a
cri�cal component of successfully bringing them to market. Because of poor planning, great
innova�ons are not always brought to market due to a lack of feasibility or poor planning.
Long-term planning is crucial in the commercializa�on process because this is when the most
money will be spent—on adver�sing, sales promo�ons, and other marke�ng efforts a�er the
launch of a new product.
The Commercializa�on Process
Key Points
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The commercializa�on process has three key aspects:
carefully selec�ng, based upon comprehensive market research, which products can be
sustained financially in which markets for long-term success
planning for various phases in the commercializa�on process, and considering
geographic distribu�on, demographics, and other relevant factors
iden�fying and involving key stakeholders, including consumers, early in the process
Key Strategic Ques�ons
When bringing a product to market, a number of strategic ques�ons must be answered long
before substan�al costs are incurred for commercializa�on. These ques�ons are simple to ask
but complex to answer, and business analysts and market researchers will spend a
considerable amount of �me approaching them via research models and careful financial
considera�on.
When? The company has to �me product introduc�on perfectly. If there is a risk of
cannibalizing the sales of the company’s other products, if the product could benefit
from further development, or if the economy is forecasted to improve in the near future,
the product’s launch should be delayed. Similarly, many products (e.g., in the fashion
industry) are seasonal, so they must be �med appropriately to maximize revenue.
Where? The company has to decide where to launch its products. This can be in a single
loca�on, in one or several larger regions, or in a na�onal or interna�onal market. The
decision will be strongly influenced by the company’s resources: Larger companies can
reach broader geographic audiences. It is important to keep in mind where the early
adopters will be and where compe��ve gaps may exist. In the global marketplace, this
ques�on is increasingly complex.
To whom? The primary target consumer group will have been iden�fied earlier through
research and test marke�ng. This group will include innovators, early adopters, heavy
users, and opinion leaders. Their buy-in will ensure adop�on by other consumers in the
marketplace during the product growth period.
How? The company has to decide on an ac�on plan for introducing the product,that will
apply the answers to the previous three ques�ons. It has to develop a viable marke�ng
mix and create a marke�ng budget.
While these ques�ons are key considera�ons in commercializa�on, they should have been
answered long before the commercializa�on stage. A�er all, if the need is not sufficiently
widespread or the market not sufficiently developed, there is li�le reason to pursue an
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innova�on in the first place.
Fostering Innova�on
Offering employees challenges, freedom, resources, encouragement, and support can help
them to innovate.
People perform best when they are driven by inspira�on and are
encouraged to push their boundaries and think outside the box.
Teamwork enhances people’s strengths and lessens their individual
weaknesses.
One of the most powerful tools for promo�ng employee crea�vity
and innova�on is recogni�on.
Ul�mately, in developing a culture of innova�on you want employees
to feel comfortable experimen�ng and offering sugges�ons without
fear of cri�cism or punishment for mistakes.
Strategies capable of producing innova�on require resources and energy. Therefore, a
business plan should include a discussion of the organiza�onal structures and prac�ces that
will be put in place to encourage and support innova�on. Amabile (1998) points to six general
categories of management prac�ce that affect crea�vity:
challenge
freedom
resources
work groups
encouragement from supervisors
organiza�onal support
Create a Culture of Innova�on
Key Points
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You will likely find that you need to generate hundreds of ideas to find ten good ones that will
create value for your organiza�on. This is part of the crea�ve brainstorming process, and it
should be encouraged. It is every staff member’s responsibility to generate ideas, not just top
leadership's. Following are sugges�ons to encourage the flow of ideas:
Encourage Crea�vity
Encouraging crea�vity helps keep staff happy. If they think something is important and has the
poten�al to create a financial payoff for the company, let them follow their idea. People
perform best when they are driven by inspira�on, and encouraged to push boundaries and
think outside the box. Micromanagement discourages crea�vity, while independence
encourages employees to own their innova�ve thinking and pursue the ideas they are
passionate about. If management fosters a crea�ve and open environment, innova�on will
happen naturally.
Encourage Par�cipa�on
Teamwork enhances people’s strengths and mi�gates individual weaknesses. Effec�ve
teamwork promotes awareness that it is in everyone’s best interests to keep the business
growing and improving. Crea�ng a par�cipa�on-based environment means crea�ng smart
teams, encouraging open dialogue, and minimizing authority. Cri�cism is produc�ve and
should be encouraged, but it must be used construc�vely.
Provide Recogni�on and Rewards
One of the most powerful tools for promo�ng employee crea�vity and innova�on is
recogni�on. People want to be recognized and rewarded for their ideas and ini�a�ves, and it is
a prac�ce that can have tremendous payoff for the organiza�on. Some�mes the recogni�on
required may be as simple as men�oning a person’s effort in a newsle�er. If a staff member
comes forward with a crea�ve idea, recognize them in the company newsle�er or at a staff
mee�ng even if their idea can’t be implemented immediately. Make it clear that compensa�on
and promo�ons are �ed to innova�ve thinking.
Enable Employee Innova�on
You may have an innova�ve culture in your organiza�on, but you also need to familiarize staff
with some of the hallmarks of con�nuing innova�on. For example, you could educate
employees at regular training sessions on topics such as crea�vity, entrepreneurship, and
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teamwork. Each session might conclude by assigning an exercise to be performed over a few
weeks that will consolidate lessons learned. Your aim here is to give employees a taste of
innova�on so they will embrace the process.
Other Mo�vators
Profit-sharing and bonuses
Days off
Extra vaca�on �me
Encourage employees to take advantage of coffee breaks, lunch breaks, and taxi rides. O�en
great ideas that can lead to innova�on will happen where we least expect them. If it’s hard to
get staff together for common informal breaks, consider taking them out for an informal meal
where you can encourage crea�ve discussion about work. Also be sure to encourage laughter
at mee�ngs because laughter is an effec�ve measure of how comfortable people feel about
expressing themselves.
References
Amabile, T. M. (1998, September–October). How to kill crea�vity. Harvard Business Review,
77–87.
Fuglsang, L., & Sundbo, J. (2005). The organiza�onal innova�on system: Three modes. Journal
of Change Management, 5, 3, 329–344. doi: 10.1080/14697010500258056
Licenses and A�ribu�ons
Adap�ng and Innova�ng (h�ps://courses.lumenlearning.com/boundless-
management/chapter/adap�ng-and-innova�ng/) from Boundless Management by Lumen
Learning, originally published by Boundless.com, is available under a Crea�ve Commons
A�ribu�on-ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-sa/4.0/)
license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
informa�on located at external sites.
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Technology and Innova�on
A Powerful Driver and an Enabler
Technology is a powerful driver of both the evolu�on and prolifera�on of innova�on.
Innova�on is a primary source of compe��ve advantage for
companies in essen�ally all industries and environments. It drives
efficiency, produc�vity, and differen�a�on to fill a variety of needs.
Technology builds upon itself, enabling innova�ve approaches within
the evolu�on of technology.
Technological hubs such as Silicon Valley provide powerful resources
that entrepreneurs and businesses can leverage in pursuing
innova�on.
Technological advances, par�cularly in communica�on and
transporta�on, further innova�on.
India, China, and the United States are all strong representa�ons of
how embracing technology leads to innova�on, which in turn leads
to economic growth.
Key Terms
innova�on—the introduc�on of something new; the development of
an original idea
scalable—capable of expansion
Learning Resource
Key Points
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Innova�on is a primary source of compe��ve advantage for companies in essen�ally all
industries and environments, and drives forward efficiency, higher produc�vity, and
differen�a�on to fill a wide variety of needs. One par�cular perspec�ve on economics isolates
innova�on as a core driving force, alongside knowledge, technology, and entrepreneurship.
This theory of innova�on economics notes that the neoclassical approach (monetary
accumula�on driving growth) overlooks the cri�cal aspect of appropriate knowledge and
technological capabili�es.
Scaling Technology
Technology is a powerful driving force in innova�ve capacity, par�cularly as it pertains to both
the evolu�on of innova�ons and the way they proliferate. Technology is innately scalable,
demonstra�ng a consistent trend toward new innova�ons as a result of improving upon
current ones. During a product's life cycle economic returns go through a steep exponen�al
growth phase and an eventual evening out, which mo�vates businesses to leverage
technology to produce new innova�ons.
Technology Innova�on Trajectory
Note the overlapping trajectories of technologies: While an
emerging product may start lower on the graph, its steep
upward trajectory eventually overtakes current technology,
domina�ng the market as both the technology and product
produc�on are refined and improved.
Technology Hubs
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The prolifera�on of innova�on pertains to two important factors of technology driving
innova�on: the crea�on of geographic hubs for technology, and empowerment of knowledge
exchange through communica�on and transporta�on. Places like California’s Silicon Valley and
Baden-Wür�emberg, Germany, are examples of the value of technological hubs. The close
proximity of various resources and collaborators in each hub s�mulates a higher degree of
innova�ve capacity.
Communica�on and cumula�ve knowledge in these technology hubs allow for innova�ons to
spread via technology, and be adopted across the globe quicky. This spread of ideas can be
built upon quickly and universally, crea�ng the ability for innova�on to be further expanded
globally. Collabora�on on a global scale as a result of technological progress has allowed
exponen�al levels of innova�on.
Correla�ons Between Technology, Innova�on, and Growth
Empirical evidence generates a posi�ve correla�on between technological innova�on and
economic performance. Between 1981 and 2004, India and China developed a Na�onal
Innova�on System designed to invest heavily in research and development (R&D) with a
par�cular focus on patents, high-tech, and service exports. During this �me frame, both
countries experienced extremely high levels of GDP growth by linking the science sector with
the business sector, impor�ng technology, and crea�ng incen�ves for innova�on.
Addi�onally, the Council on Foreign Rela�ons asserted that the United States’ large share of
the global market in the 1970s was likely a result of its aggressive investment in new
technologies. These technological innova�ons are hypothesized to be a central force driving
steady US economic expansion, allowing it to maintain its place as the world’s largest
economy.
The Technology Life Cycle
The technology life cycle describes the costs and profits of a product from technological
development, to market maturity, to decline.
The technology life cycle seeks to predict the adop�on, acceptance,
and eventual decline of new technological innova�ons.
Key Points
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Understanding and effec�vely es�ma�ng technology life cycle allows
for a more accurate reading of whether, and when, research and
development costs will be offset by profits.
The technology life cycle has four dis�nct stages: research and
development, ascent, maturity, and decline.
The adop�on of these technologies also has a life cycle with five
chronological demographics: innovators, early adopters, early
majority, late majority, and laggards.
By leveraging these models, businesses and ins�tu�ons can exercise
foresight in ascertaining return on investment as their technologies
mature.
Key Terms
foresight—the ability to accurately es�mate future outcomes
demographic—a characteris�c that iden�fies popula�ons within a
sta�s�cal framework
The technology life cycle (TLC) describes the costs and profits of a product, from the
technological development phase, to market maturity, to eventual decline. R&D costs must be
offset by profits once a product comes to market. Varying product lifespans mean that
businesses must understand and accurately project returns on their R&D investments based
on poten�al product longevity in the market.
Due to rapidly increasing rates of innova�on, products such as electronics and
pharmaceu�cals, in par�cular, are vulnerable to shorter life cycles (when considered against
such benchmarks as steel or paper). Thus, TLC is focused primarily on the �me and cost of
development as it relates to the projected profits. TLC can be described as having four dis�nct
stages:
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This graph illustrates the stages in the technological life cycle.
Research and development. During this stage, risks are taken to invest in technological
innova�ons. By strategically direc�ng R&D toward the most promising projects,
companies and research ins�tu�ons slowly work their way toward beta versions of new
technologies.
Ascent. This phase covers the �me frame from product inven�on to the point at which
out-of-pocket costs are fully recovered. At that point the goal is to see to the rapid
growth and distribu�on of the inven�on and leverage the compe��ve advantage of
having the newest and most effec�ve product.
Maturity. As a new innova�on becomes accepted by the general popula�on and
compe�tors enter the market, supply begins to outstrip demand. During this stage,
returns begin to slow as the concept becomes normalized.
Decline. The final phase is when the u�lity and poten�al value to be captured in
producing and selling the product begins dipping. This decline eventually reaches the
point of a zero-sum game, where margins are no longer procured.
Product development and capitalizing on the new inven�on covers the business side of these
R&D investments in technology. The other important considera�on is the differen�a�on in
consumer adop�on of new technological innova�ons. These have also been distributed into
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phases which effec�vely summarize the demographic groups presented during each stage of
TLC:
Technology Adop�on Life Cycle
This adop�on chart highlights the way in which consumers embrace new products and
services.
Innovators. These are risk-oriented, leading-edge minded individuals who are extremely
interested in technological developments (o�en within a par�cular industry). Innovators
are a frac�onal segment of the overall consumer popula�on.
Early adopters. A larger but s�ll rela�vely small demographic, these individuals are
generally risk-oriented and highly adaptable to new technology. Early adopters follow
innovators in embracing new products. They tend to be young and well-educated.
Early majority. Much larger and more careful than the previous two groups, the early
majority is open to new ideas but generally waits to see how they are received before
inves�ng.
Late majority. Slightly conserva�ve and risk-averse, the late majority is a large group of
poten�al customers who need convincing before inves�ng in something new.
Laggards. Extremely frugal, conserva�ve, and o�en technology-averse, laggards are a
small popula�on of usually older and uneducated individuals who avoid risks and only
invest in new ideas once they are extremely well-established.
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Taking these two models into considera�on, a business unit with a new product or service
must consider the scale of investment in R&D, the projected life cycle the technology will
likely maintain, and how customers will adopt the product. By leveraging these models,
businesses and ins�tu�ons can ascertain the returns on investment as their technologies
mature.
Assessing an Organiza�on’s Technological Needs
Assessing the internal technological assets and future needs of an organiza�on prepares
management for successful technology integra�on.
Companies must priori�ze the ability to assess their technological
needs, par�cularly those related to achieving op�mal efficiency and
produc�vity.
Companies looking to stay ahead of the compe��on should gather
data internally and externally to facilitate forecas�ng and help cra�
technology implementa�on strategies.
The assessment process requires that companies work internally to
isolate their technological strengths and weaknesses.
Key Terms
introspec�on—self-assessment, or an individual's or company's
looking inward to measure strengths and weaknesses
forecas�ng—es�ma�ng how a condi�on will be in the future
produc�vity—the rate at which products and services are produced
rela�ve to a par�cular workforce
Remaining compe��ve and technologically vigilant are virtually synonymous in business
development today. Companies must priori�ze their ability to assess their technological needs,
par�cularly as they relate to achieving op�mal efficiency and produc�vity. The following
concepts are relevant to this needs assessment:
Key Points
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technology strategy—iden�fying the logic or role of technology within the company
technology forecas�ng—iden�fying applicable technologies for the company, poten�ally
through scou�ng
technology roadmapping—ascertaining the trajectories of technological advancement,
and applying business or market needs to the assessment
technology por�olios—accumula�on of all technologies relevant to products or
opera�ons to determine which are ideal for internal implementa�on
All four concepts involve informa�on gathering as well as introspec�on into business
opera�ons and processes. All four can be improved upon through technological advances.
Integrated planning in pursuit of op�miza�on through new technologies keeps efficiency at or
above compe��ve levels. This internal technology assessment also includes no�ng when and
whether it is necessary to construct employee training programs for new technology.
Innova�on Adop�on Life Cycle
As successive groups of consumers adopt new technology a bell curve emerges: This is called
the innova�on adop�on life cycle. It is represented by the blue line on the graph. The
percentages on the horizontal axis indicate the size of the popula�ons (rela�ve to the en�re
consumer group for a given good) in each segment. By keeping pace with technological
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innova�on, and offering products early enough to capture the majority of the market,
businesses can gain compe��ve advantage. If a business is too late to enter a newly emerged
technological market, market share has o�en been claimed by others, as the yellow line on the
graph indicates.
Understanding Current Trends in Technology
Understanding current technologies and trends allows a company to align and synchronize
opera�ons to op�mize returns on innova�on.
Business technology management (BTM) provides a bridge between
previously established tools and standards within a business
environment and the newer, more opera�onally efficient tools and
standards technological progress provides.
Aligning technologies with current business ini�a�ves and strategies
is the most basic way for a business to remain compe��ve in the
current technological climate.
Companies that can improve on alignment to synchronize their
internal technological landscape (researching and developing
innova�ons in-house) can achieve foresight and long-term benefits
by forecas�ng future technological needs.
BTM has four dimensions: process, organiza�on, informa�on, and
technology.
Effec�vely employing these four dimensions of BTM provides
companies the poten�al to project technological trends, and
synchronize them with their strategies.
Key Terms
alignment—the process of adjus�ng a mechanism (or business) so
that its parts act in concert
synchroniza�on—the process of aligning all inputs to op�mize
output
Key Points
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SBUs—strategic business units, or separate elements of a company
organized by similar processes and objec�ves
Businesses have the ongoing responsibility of keeping up with evolving technology trends to
stay compe��ve. Trends in technology extend out like the branches of a tree: Each innova�on
creates the possibility for more new ones. The field of business technology management
(BTM) arose to provide businesses with the best approaches for assessing and implemen�ng
technological advances in their strategies.
BTM
Alignment
BTM provides a bridge between previously established tools and standards within a business
environment and newer, more opera�onally efficient tools and standards in technology. BTM
does this by crea�ng a set of principles and guidelines for companies to follow as they pursue
alignment. Alignment, in this respect, can be defined as how an ins�tu�on’s technology
supports and enables technology, while avoiding constraints related to company strategies,
objec�ves, and compe��on. When companies accomplish this in any given technological
environment, they have a�ained BTM maturity within a par�cular �me frame and industry.
Synchroniza�on
Alignment is only the first step. The next step is synchroniza�on. Like alignment,
synchroniza�on enables execu�on, but it also helps companies develop the capacity to
an�cipate and adapt future business models and strategies. This is generally accomplished by
inves�ng in R&D and staying ahead of the standard technologies by an�cipa�ng or even
innova�ng past them. This business technology leadership role is long-term oriented and very
effec�ve in maintaining compe��ve advantages in a given industry, but it is par�cularly
important for industries in the tech sectors.
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R&D Cycle
The cycle of research and development moves through theorizing, to hypothesizing, design,
implementa�on, scale-up and study, and back to theorizing to begin the cycle again.
Companies use four specific dimensions of BTM to achieve understanding of current
technologies and trends:
Process. Companies must execute a set of fluid and repeatable processes that can be
consistently scaled up through evalua�on.
Organiza�on. U�lizing an organized business structure or corporate framework, o�en
through strategic business units ( SBUs ), provides substan�al value in centralizing
processes and assessing needs.
Informa�on. Scou�ng and assessing the current technological environment through
extensive research teams is necessary to make the appropriate decisions.
Technology. Finally, improving upon these processes within SBUs via leveraging the
appropriate data and informa�on will drive strategic acquisi�on of beneficial
technological improvements based upon current trends.
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Taken together, these four dimensions applied to alignment and synchroniza�on of new
technology can help businesses keep up with or stay ahead of current technologies and
trends. Companies can benefit from the intrinsic opportuni�es technological progress provides
while offse�ng the intrinsic risks of external technological development.
Sourcing Technology
Technology sourcing involves isola�ng and implemen�ng new innova�ons within an exis�ng
business framework.
Sourcing new technology involves the scou�ng and researching of
new technological poten�al and the eventual transfer of new
technologies to a company.
Technology scou�ng includes iden�fying new technologies,
organizing and channeling data on them, and assessing the ease and
value of implemen�ng them.
Companies capitalize on the successful scou�ng of a new technology
by sourcing it from the appropriate party for their own use.
Tech transfer drawbacks primarily involve the cost of licensing
patents and training employees to effec�vely use the new
technology.
Some organiza�ons, such as Sourceforge, Wikipedia, and Boundless,
provide knowledge and technology for free in an open-source
strategy.
Key Terms
patent—legal right to a par�cular innova�on, protec�ng it from being
copied or employed by another without consent or license
sourcing—obtaining the resources needed by a par�cular company or
individual
Key Points
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scou�ng—the act of seeking or searching
Technology Sourcing Strategies
Technology sourcing, or the pursuit of implemen�ng new technologies within a business’s
strategic framework, involves isola�ng and applying new technologies to current models.
Technology can be developed internally, or isolated through technology scou�ng and then
implemented through technology transfer. In deciding which approach is op�mal for them,
organiza�ons must consider factors such as as the advantage of being first to market, R&D
costs and capabili�es, and market-research and data-gathering costs. Therefore the strategies
behind sourcing technology can be complex, varying by industry, company size, economic
strength, and the availability of easily implemented technology.
Technology Scou�ng
Technology Readiness Levels (TRL)
Stages of technology development
include basic technology research,
research to prove feasibility,
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technology development,
technology demonstra�on,
system/subsystem development, and
system test, launch, and opera�ons.
Technology scou�ng is essen�ally forecas�ng technological developments through
informa�on gathering. Technology scouts can either be internal employees or external
consultants specifically designated to the task of researching developments in a par�cular
technological field. This can be loosely referred to as a three-step process:
1. Iden�fy emerging technologies.
2. Channel and organize new technological data within an organiza�on.
3. Provide a corporate context to support or refute the acquisi�on of technology.
When technology scou�ng isolates new developments that could poten�ally provide
advantages for an incumbent, strategies to acquire or source the technology become a focal
point. Technology transfer, and the commercializa�on of technological abili�es, is an
enormous market both in the United States and abroad. Though governments, universi�es,
and open-source websites o�en provide knowledge and technological know-how free of
charge, most o�en technology is not free.
Technology Sourcing Pros and Cons
In the Informa�on Age knowledge is power, and more than ever companies are trying to
protect their knowledge from compe�tors or freeloaders by using patents and trade secrets.
Transfer of technology is therefore expensive, from licensing the patented technology to
reques�ng training in new technological advances for staff.
Despite the dis�nct advantages of staying ahead of the curve, there are some drawbacks to
tech transfer. Investors must accept the inherent risk of the new technology, presen�ng
significant hurdles to op�mizing perceived poten�al or effec�ve implementa�on. Early
adopters and innovators suffer the risk of employing a new technology that has not been fully
debugged, minimizing what should have been strong returns on investment (ROI). Technology
scouts should therefore be highly circumspect and me�culous in their research processes,
ensuring that new technological innova�ons will indeed provide what they promise.
Licenses and A�ribu�ons
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Technology and Innova�on (h�ps://courses.lumenlearning.com/boundless-
management/chapter/technology-and-innova�on/) from Boundless Management by Lumen
Learning, originally published by Boundless.com, is available under a Crea�ve Commons
A�ribu�on-ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-sa/4.0/)
license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
informa�on located at external sites.
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Managing Change for Organiza�ons
Managers as Leaders of Change
Leaders are in the unique role of not only designing change ini�a�ves but also enac�ng and
communica�ng them.
Managing change requires more than simple planning. Resistance to
change, a human tendency, is significant. It must be addressed to
ensure success.
Leaders must define change strategy and communicate it effec�vely
to shareholders, empower and support employees, and mi�gate
resistance to the change ini�a�ve.
Conner iden�fies six dis�nct leadership styles related to change:
an�-change, ra�onal, panacea, bolt-on, integrated, and con�nuous.
Each leadership style represents a unique set of percep�ons,
a�tudes, and behaviors regarding how organiza�onal disrup�on
should be addressed.
Conner also posited that the six leadership styles are related to two
different types of organiza�onal change: first-order change and
second-order change. Different leadership styles are more effec�ve
in different situa�ons.
Key Terms
a�ribute—a characteris�c or quality of a something
Learning Resource
Key Points
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lead—to conduct or direct with authority
Managing change requires strong leadership and an understanding of how organiza�onal
change occurs. Leaders are in the unique posi�on not only of designing change ini�a�ves but
also enac�ng and communica�ng them to subordinates. Managing change requires more than
simple planning: Resistance to change, a natural human tendency, needs to be addressed to
ensure success.
Leadership Strategies for Change
The following six components of change are the responsibility of management:
Create a definable strategy. Define measurable stakeholder goals and objec�ves, create
a business case for them and update it con�nuously; and monitor assump�ons, risks,
dependencies, costs, return on investment, and cultural issues affec�ng work progress.
Communicate effec�vely. Explain to stakeholders why the change is being made, the
benefits of successful implementa�on, and how the change is being rolled out.
Empower employees. Devise an effec�ve organiza�on-wide plan for educa�on, training,
and other means for upgrading skills.
Counter resistance. Iden�fy employee issues and align them to the overall strategic
direc�on of the organiza�on. Adapt the change ini�a�ve as needed to mi�gate
discontent.
Support employees. Provide personal counseling as needed to alleviate change-related
fears.
Track progress. Monitor and fine-tune implementa�on along the way.
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Reengineering
This flowchart shows the reciprocal rela�onships involved in each step of
change management, some�mes referred to as reengineering.
Six Leadership Styles for Change
Conner (1998) iden�fied six dis�nct leadership styles related to change: an�-change, ra�onal,
panacea, bolt-on, integrated, and con�nuous. Each style “represents a unique set of
percep�ons, a�tudes, and behaviors regarding how organiza�onal disrup�on should be
addressed.” Stopper (1999) described Conner’s six leadership styles as follows:
The an�-change leader. A leader embracing this style seeks to avoid change as much as
possible. The message is, “Stay the course. Keep adjustments small. No need to change
in any major way.”
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The ra�onal leader. This leader focuses on how to constrain and control change with
logical planning and clearly defined steps.
The panacea leader. The panacea leader believes that the way to respond to pressure for
change is to communicate and mo�vate. These leaders understand resistance to change
as well as the inevitability of change as organiza�ons evolve. They tend to focus on
fostering enthusiasm for change.
The bolt-on leader. This leader strives to regain control of a changing situa�on by
a�aching (bol�ng on) change-management techniques to ad-hoc projects that are
created in response to pressure for change. This manager is more concerned about
helping others change than crea�ng a strategy for the change itself.
The integrated leader. The integrated leader searches for ways to use the structure and
discipline that Harding and Rouse (2007) called “human due diligence” (the leadership
prac�ce of understanding the culture of an organiza�on and the roles, capabili�es, and
a�tudes of its people) as individual change projects are created and implemented. The
concept is simply to combine, or integrate, human and cultural concerns with the
strategy itself.
The con�nuous leader. The con�nuous leader works to create an agile and quick-
response organiza�on that can an�cipate threats and seize opportuni�es rapidly as
change ini�a�ves are designed and implemented. Con�nuous leaders believe that
disrup�on is con�nuous, and adaptability is a necessary organiza�onal competency.
Conner says that the six leadership styles are related to two different types of organiza�onal
change: first-order change and second-order change. First-order change is incremental,
piecemeal change. Second-order change is “nonlinear in nature and reflects movement that is
fundamentally different from anything seen before within the exis�ng framework.” He
iden�fies the first four leadership styles as appropriate for managing first-order change. When
an organiza�on is engaging in discon�nuous, transforma�onal change, however, integrated
and con�nuous leadership styles are more appropriate.
Types of Organiza�onal Change
There are three main categories of change: business process reengineering, technological
change, and incremental change.
Key Points
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Business process reengineering focuses on the analysis and design of
workflows and processes within an organiza�on.
Technological change refers to the process of inven�on, innova�on,
and diffusion of technology or processes.
incremental change means introducing many small, gradual changes
to a project instead of a few large, rapid changes.
Key Terms
devise—to use one’s intellect to plan or design something
incremental model—method of product development where the
model is designed, implemented, and tested in a series of small steps
un�l the product is finished
Change management is an approach to shi�ing or transi�oning individuals, teams, and
organiza�ons from their current state to a desired future state. It is an organiza�onal process
aimed at helping stakeholders accept and embrace change in their business environment. In
some project management contexts, change management refers to a project management
process wherein changes to a project are formally introduced and approved.
Ko�er defines change management as the u�liza�on of basic structures and tools to control
any organiza�onal change effort. Change management’s goal is to maximize organiza�onal
benefit, minimize impacts on workers, and avoid distrac�ons. There are different types of
change an organiza�on can face.
Business Process Reengineering
Business process reengineering (BPR) is a business management strategy first pioneered in the
early 1990s. It focuses on the analysis and design of workflows and processes within an
organiza�on. BPR aims to help organiza�ons fundamentally rethink how they do their work in
order to drama�cally improve customer service, cut opera�onal costs, and become world-class
compe�tors. In the mid-1990s, as many as 60 percent of the Fortune 500 companies claimed
to have either ini�ated reengineering efforts or begun planning for them.
BPR helps companies radically restructure their organiza�ons by focusing on their business
processes from the ground up. A business process is a set of logically related tasks performed
to achieve a defined business outcome. Reengineering emphasizes a holis�c focus on business
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objec�ves and how processes relate to them, encouraging full-scale recrea�on of processes
rather than itera�ve op�miza�on of sub-processes.
Business process reengineering is also known as business process redesign, business
transforma�on, and business process change management.
Incremental Change
Incremental change is a method of introducing many small, gradual (and o�en unplanned)
changes to a project instead of a few large, rapid (and extensively planned) changes. Wikipedia
illustrates the concept—an encyclopedia built bit by bit. Another example of incremental
change is a manufacturing company making hundreds of small components that go into a
larger product, like a car. Improving the manufacturing process of each of these integral
components one at a �me to cut costs and improve process efficiency overall is incremental
change.
Technological Change
Technological change (TC) describes the overall process of inven�on, innova�on, and diffusion
of technology or processes. The term is synonymous with technological development,
technological achievement, and technological progress. In essence, TC is the inven�on of a
technology (or a process), the con�nuous process of improving a technology (which o�en
makes it cheaper), and its diffusion throughout industry or society. In short, technological
change is based on both be�er and more technology integrated into the framework of exis�ng
opera�onal processes.
Inside and Outside Forces for Organiza�onal Change
Inside forces include strategic and human resource changes, while outside forces include
macroeconomic and technological changes.
Change management is an approach to shi�ing individuals, teams,
and organiza�ons to a desired future state. Strategic, opera�onal,
and technological change are examples that can come from inside or
outside the organiza�on.
Key Points
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Outside forces for change include macroeconomics, technological
evolu�on, globaliza�on, new legisla�on, and compe��ve dynamics.
Inside forces for change include intrapreneurship, new management,
and restructuring.
The first step in effec�ve change management is being prepared, in a
�mely and knowledgeable fashion, for internal and external
poten�ali�es that may force organiza�onal adapta�on.
Key Term
macroeconomic—rela�ng to the en�re economy, including the
growth rate, money and credit, exchange rates, the total amount of
goods and services produced, and other broad economic concerns
Change management is an approach to shi�ing or transi�oning individuals, teams, and
organiza�ons from their exis�ng state to a desired future state. Examples of organiza�onal
change can include strategic, opera�onal, and technological changes coming from inside or
outside the organiza�on. Understanding key internal and external change catalysts is cri�cal
to successful change management for organiza�onal leaders.
Outside Forces
While there are seemingly endless external considera�ons that can mo�vate an organiza�on
to change, a few common considera�ons should be constantly monitored. These include
economic factors, compe��ve dynamics, new technology, globaliza�on, and legisla�ve
changes:
Economics. The 2008 economic collapse is a strong example of why adaptability is
important. As consumers �ghtened their belts, organiza�ons had to either do the same—
lowering supply to match lower demand, or en�ce consumers with other goods.
Migra�ng from one volume to another can be financially challenging, but change
strategies like crea�ng new affordable product lines or more efficient opera�onal
paradigms are key to success.
Compe��on. Changes in the compe��ve landscape, such as new incumbents, mergers
and acquisi�ons, new product offerings, and bankruptcies, can substan�ally impact a
company’s strategy and opera�ons. For example, if a compe�tor releases a new product
that threatens to steal market share, an organiza�on must be ready to change and adapt
to retain its customer base.
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Technology. Technological changes are a constant threat, and embracing new
technologies ahead of the compe��on requires adaptability. When media went digital,
adaptable companies found ways to evolve their opera�ons to stay compe��ve. Many
companies that could not evolve quickly failed.
Globaliza�on. Capturing new global markets requires product, cultural, and
communica�ve adaptability. Catering to new demographics and iden�fying opportuni�es
and threats as they appear in the global market is integral to adap�ng for op�mal value.
Legisla�on. New laws can drama�cally change opera�ons. Companies in industries that
impact the environment must constantly strive to adapt to cleaner and more socially
responsible opera�ng methodologies. Failure to keep pace can result in substan�al fines
and other financial consequences, as well as nega�ve branding.
Inside Forces
There are many inside forces to keep in mind too, ranging from employee changes, to cultural
reform, to opera�onal challenges. Understanding where change is coming from is the first step
toward �mely and appropriate change management.
Management change. New CEOs or other execu�ve players can significantly impact
strategy and corporate culture. Understanding the risks associated with hiring (or
promo�ng) new upper management is key to making good decisions on the person who
will be the best fit.
Organiza�onal restructuring. Organiza�ons may have to significantly alter their exis�ng
structure to adapt to the development of new strategic business units, new product
lines, or global expansion. Changing structure means disrup�ng hierarchies and
communica�ons, which must then be reintegrated. Employees must be trained on
change and its implica�ons for their everyday opera�ons.
Intrapreneurship. New ideas come from inside as well as outside the organiza�on, and
capitalizing on a great new idea will likely require some internal reconsidera�on.
Integra�ng a new idea may require realloca�on of resources, new hires and talent
management, and new branding.
Common Targets of Organiza�onal Change
Change management can be implemented to change an organiza�on’s mission, strategy,
structure, technology, or culture.
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Organiza�onal change management should begin with a systema�c
diagnosis of the current situa�on in order to determine the
organiza�on‘s need for and ability to change.
Prior to a cultural change ini�a�ve, a needs assessment should
examine the current organiza�onal culture and opera�ons. The goal
is a careful and objec�ve considera�on of what is working and what
is not.
Areas of change include mission, strategy, opera�ons, technology,
culture, branding, employees, and workflows.
Change management should also make use of performance metrics,
such as financial results, opera�onal efficiency, leadership
commitment, communica�on effec�veness, and the perceived need
for change.
Key Terms
change management—the controlled implementa�on of required
changes to a system, with version control and planned fallback
organiza�on—a group of people or legal en�ty with an explicit
purpose and wri�en rules
When an organiza�on requires changes to address counterproduc�ve aspects of its culture,
the process can be daun�ng. Cultural change is usually necessary to reduce employee
turnover, influence employee behavior, make improvements to the company, refocus company
objec�ves, rescale the organiza�on, provide be�er customer service, or achieve other specific
company goals and results. Many elements can impact cultural change, including the external
environment and industry compe�tors, changes in industry standards, technology changes, the
size and nature of the workforce, and the organiza�on’s history and management.
Assessing Change Needs
Key Points
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Prior to launching a cultural change ini�a�ve, a company should carry out a needs assessment
to examine the exis�ng organiza�onal culture and opera�ons. Careful and objec�ve
considera�on of what is working and what is not, as well as what is consistent with broader
organiza�onal objec�ves and what is not, are cri�cal to success.
Areas that need to change can be iden�fied through interviews, focus groups, observa�on,
and other methods of internal and external research. A company must clearly iden�fy the
exis�ng culture and then design a change process to implement it.
Common Areas of Change
Common areas of organiza�onal change include
mission
strategy
opera�onal changes, including structure and hierarchies
technology
culture
employees and/or management
workflows (par�cularly relevant in manufacturing)
branding
Organiza�onal change management should begin with a systema�c diagnosis of the exis�ng
situa�on to determine the organiza�on’s need for and ability to change. The change
management plan should specify the objec�ves, content, and process for change.
Change management processes can benefit from crea�ve marke�ng to facilitate
communica�on between change audiences and a deep social understanding of leadership
styles and group dynamics. To track transforma�on projects, organiza�onal change
management should include alignment of group expecta�ons, communica�on, integra�on of
teams, and training. To make the change in organiza�onal culture as smooth and efficient as
possible, change management should also use metrics to measure important indicators like
financial results, opera�onal efficiency, leadership commitment, communica�on effec�veness,
and percep�ons about the need for change.
Organiza�onal Development
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Organiza�onal development is a deliberately planned effort to increase an organiza�on’s
relevance and viability.
Organiza�onal development (OD) is an ongoing, systema�c process
of implemen�ng effec�ve organiza�onal change.
The purpose of organiza�onal development is to address the
evolving needs of successful organiza�ons.
Organiza�onal development is o�en facilitated with the assistance of
a “catalyst ” or “change agent,” such as an effec�ve or influen�al
leader.
An important role of a leader is to analyze and assess the
effec�veness of the developmental process and mo�vate the
organiza�on to its targets.
Key Terms
viability—the ability to live or succeed
catalyst—a person or other agent of progress or change
OD is a deliberately planned effort to increase an organiza�on’s relevance and viability. This
process helps the organiza�on to be�er absorb disrup�ve technologies, market opportuni�es,
and ensuing challenges and chaos. Essen�ally, organiza�onal development is the framework
for a change process that is designed to produce desirable and posi�ve results for all
stakeholders and the environment.
The Nature of Organiza�onal Development
Organiza�onal development is a lifelong, built-in mechanism to improve an organiza�on
internally. This is o�en done with the assistance of a change agent, a catalyst who enables the
applica�on of theories and techniques from applied behavioral sciences, anthropology,
sociology, and phenomenology. The terms change agent and catalyst suggest a leader who is
engaged in transforma�onal leadership as opposed to management, which is a more
incremental or efficiency-based change methodology.
Key Points
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Although behavioral science provided the basic founda�on for the study and prac�ce of OD,
new and emerging fields of study have made their presence felt. Experts in systems thinking
and organiza�onal learning have also emerged as OD catalysts. These emergent perspec�ves
view the organiza�on as the holis�c interplay of a number of systems that impact the
processes and outputs of the en�re organiza�on.
Applica�ons of Organiza�onal Development
Twenty-first century management concepts such as system thinking are impac�ng the way we
view the development of the organiza�on today. The purpose of OD is to address the evolving
needs of successful organiza�ons. It involves concerted collabora�on to discover the
processes an organiza�on can use to become more effec�ve.
Organiza�onal development aims to improve an organiza�on’s capacity to handle its internal
and external func�oning and rela�onships. This includes improving interpersonal and group
processes, communica�on, the organiza�on’s ability to cope with problems, decision-making
processes, leadership styles, conflict and trust, and coopera�on among organiza�onal
members.
Weisbord
Weisbord presents a six-box model for understanding, and thereby changing and improving an
organiza�on:
1. Purposes. Are employees clear about the organiza�on’s mission, purpose, and goals? Do
they support the organiza�on’s purpose?
2. Structure. How is the organiza�on’s work divided? Is there an adequate fit between the
purpose and the internal structure?
3. Rela�onships. What are the rela�onships between individuals, units, or departments that
perform different tasks? What are the rela�onships between the people and the
requirements of their jobs?
4. Rewards. For what ac�ons does the organiza�on formally reward or punish its members?
5. Leadership. Does leadership watch for “blips” among the other areas and maintain
balance among them?
6. Helpful mechanisms. Do planning, control, budge�ng, and other informa�on systems
help organiza�on members accomplish their goal?
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Lewin
Lewin’s descrip�on of the change process involves three steps:
1. Unfreezing. Faced with a dilemma or issue, the individual or group becomes aware of a
need to change.
2. Changing. The situa�on is diagnosed and new models of behavior are explored and
tested.
3. Refreezing. Applica�on of new behavior is evaluated, and if it proves to be reinforcing,
the behavior is adopted.
Effec�veness of Organiza�onal Development
The efficacy of organiza�onal development is predicated on the adaptability of the
organiza�on and the overall successful integra�on of new ideas and strategies within an
exis�ng framework. Resistance to change is a fundamental organiza�onal problem, as all
organiza�ons have a degree of general iner�a. This is further complicated by the difficulty in
quan�ta�vely measuring changes in areas that are generally intangible, like culture.
To remedy this, organiza�ons pursuing OD must set clear and measurable objec�ves prior to
commi�ng to a change ini�a�ve. An important role of the leader is to analyze and assess the
effec�veness of this developmental process and mo�vate the organiza�on to achieve
developmental targets.
References
Conner, D. R. (1998). Leading at the edge of chaos. New York, NY: John Wiley & Sons Inc.
Harding, D. & Rouse, T. (2007, April). Human due diligence. Harvard Business Review.
Retrieved from h�ps://hbr.org/2007/04/human-due-diligence
Stopper, W. G. (1999, June 1). Hiring to build change capacity: The human resource role.
Human Resource Planning, 1–6.
Licenses and A�ribu�ons
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Managing Change for Organiza�ons (h�ps://courses.lumenlearning.com/boundless-
management/chapter/managing-change-for-organiza�ons/) from Boundless Management by
Lumen Learning, originally published by Boundless.com, is available under a Crea�ve
Commons A�ribu�on-ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-
sa/4.0/) license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
informa�on located at external sites.
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Managing Change for Employees
Phases of Organiza�onal Change: Lewin
Kurt Lewin’s phases of change (unfreezing, change, and freezing) describe how people react
and adapt to change.
Kurt Lewin described change as a three-stage process that includes
unfreezing, change, and freezing. Lewin emphasizes that change is
not a series of individual processes but rather a con�nuous flow from
one process to the next.
The first stage (unfreezing) involves overcoming iner�a and
dismantling the exis�ng mind-set. This involves overcoming the
ini�al defense mechanisms that people exhibit to avoid making a
change.
In the second stage, the actual change occurs. This is typically a
period of confusion and transi�on. People are unsure about the
change and what may happen in the future.
In the third stage (freezing), the new mind-set of the change is
becoming the standard, and people’s comfort levels return to normal.
Although some managers s�ll use Lewin’s model, its most important
contribu�on is the idea that change should be thought of as a
process instead of as individual stages.
Key Terms
Learning Resource
Key Points
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organiza�onal psychology—the scien�fic study of employees,
workplaces, and organiza�ons
defense mechanisms—psychological strategies (such as denial,
repression, or ra�onaliza�on) for avoiding or adjus�ng to
uncomfortable situa�ons
Change is a fundamental component to the con�nuous improvement and evolu�on of any
organiza�on. A few researchers and academics have determined how to best model and
present methods of change for managing employees. Kurt Lewin, a leader in organiza�onal
psychology, was one of these academics.
Kurt Lewin
Lewin was an influen�al behavioral
and organiza�onal psychologist who
proposed the Phases of Change
model.
The Three Phases of Change
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This early model developed by Lewin describes change as a three-stage process of unfreezing,
change, and freezing. In this Phases of Change model, Lewin emphasizes that change is not a
series of individual processes; rather, change flows from one process to the next.
The first stage, unfreezing, involves overcoming iner�a and dismantling the exis�ng mind-set.
It involves people ge�ng over the ini�al defense mechanisms they exhibit to avoid making a
change. People eventually realize that change is necessary and urgent, and this realiza�on
allows them to move on to the next stage.
In the second stage, the change occurs. This is typically a period of confusion and transi�on:
People are unsure about the change and what may happen in the future. They know that the
old ways are being challenged, but they do not yet have a clear picture of what will replace
them. During this stage, an organiza�on’s leaders need to focus on clearly communica�ng to
employees the reasons for change and the steps needed to achieve it.
Lewin labeled the third and final stage freezing, though it may be useful to think of this stage
as refreezing. During this stage, the new mind-set of the change begins to become the
standard, and people’s comfort levels return to normal. Many people cri�cize this component
of Lewin’s model, arguing that there is never �me for people to comfortably adapt to change
in today’s fast-paced world.
Although some managers s�ll use Lewin’s model, its most important contribu�on is the idea
that change should be thought of as a process instead of individual stages. This is important
for understanding how employees may react to change in the workplace and why some may
adapt more quickly to change than others.
Strategies for Successful Organiza�onal Change
To implement a successful change, managers should focus on communica�on, training,
monitoring, and counseling for their workforce.
Organiza�onal change o�en elicits concern and discomfort among
employees. Change is a human effort as much as a strategic one.
During an organiza�onal change, managers must communicate the
reasons for the change as well as the process needed to make the
Key Points
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change. This should include clear objec�ves and strategic
implica�ons.
Effec�ve educa�on and training are essen�al for employees to
understand and adapt to a change in the workplace.
One of the most important steps in managing change is monitoring
its effects in the organiza�on. Quan�ta�ve tools can be used to
measure and assess effec�veness.
Key Terms
proac�ve change—the shi�ing or transi�oning of individuals, teams,
and organiza�ons from a current state to a desired future state
before an event provokes change
reac�ve change—the shi�ing or transi�oning of individuals, teams,
and organiza�ons from a current state to a desired future state in
response to an event
Understanding Change Management
There is o�en internal resistance to organiza�onal change. This resistance o�en stems from
people’s fear—of change in the work itself, change in the process for comple�ng work, or the
possibility that change may result in job loss. As a result, managers and organiza�onal leaders
should have a strategic approach to enabling change while preserving organiza�onal
effec�veness.
Change management is the study of how to integrate changes without damaging an
organiza�on’s culture or efficiency. It is about knowing strategically what to change and how
to manage the human element of the change process. Four elements comprise the change
process:
recognizing changes in the broader business environment
developing the adjustments required to meet the company’s needs
training employees on the changes
winning employee support for the changes
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Note that training and suppor�ng employees is an important facet of change management.
This is a cri�cal managerial responsibility to enable successful change.
Key Enablers of Change
Transparency and Effec�ve Communica�on
During an organiza�onal change, it is essen�al for managers to communicate the reasons for
the change as well as the process needed to make the change. For example, if management
wants to implement a procedure that will help to improve the produc�vity of the workforce,
but the procedure requires more labor to get the new procedure up and running, they should
communicate why the change in procedure is necessary. Staff understanding of why the
change is taking place helps foster agreement with the implementa�on, because the staff can
see the benefit.
Effec�ve Educa�on and Training
Educa�on and training are essen�al for employees to understand and adapt to a change in the
workplace. Employees will likely be unfamiliar with a new process being introduced, and with
how it will fit into their daily workflow. Training is necessary to help employees become
familiar with the change and be�er adapt to it.
Personal Counseling
When a major change happens in the workplace, some employees may feel very
uncomfortable with it—especially those who are most affected by the change. For these
employees it may be useful to have a program, most likely through human resources, that will
help them adapt to the change.
Monitoring the Implementa�on
One of the most important steps in managing a successful change is monitoring how the
change is playing out in the organiza�on. This can be accomplished by looking at historical
data and examining how employees are performing in the changed environment compared to
how they performed in the past. Management will want to monitor how the change is
affec�ng the overall produc�on process. If, a�er the ini�al implementa�on, the change has not
improved the process, managers may want to fine-tune the process to make sure the change is
successful.
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Steps to Smooth Organiza�onal Change: Ko�er
Ko�er’s model details a process where managers may ini�ate, direct, implement, and foster
organiza�onal change via employee engagement.
John Paul Ko�er is a former professor at the Harvard Business
School who is regarded as an authority on leadership and change.
The eight stages of Ko�er’s change model include: increase urgency,
build the guiding team, get the vision right, communicate for buy-in,
empower ac�on, create short-term wins, don’t let up, and make
change s�ck.
By following Ko�er’s eight steps, managers can implement change
and make it an integral part of the organiza�on’s culture. This is
accomplished by making sure that change remains a part of the
culture and becomes an expecta�on for con�nued development of
the organiza�on.
Key Terms
vision—clear, dis�nc�ve, and specific vision of the future, usually
connected with a leader’s strategic advances for the organiza�on.
buy-in—support, agreement, approval; a sense of belief in the
poten�al outcomes achieved through a group process
John Paul Ko�er
John Paul Ko�er was a professor at the Harvard Business School, an acclaimed author, and
chief innova�on officer at Ko�er Interna�onal. He is regarded as an authority on leadership
and change. Ko�er created the Eight Steps to Change model, currently the most widely used
framework for managing organiza�onal change. Through observa�on, Ko�er concluded that
the organiza�ons that are the most successful in implemen�ng change go through the
following eight steps.
Key Points
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The Eight Steps
1. Increase urgency. Managers must inspire people to move, make objec�ves real and
relevant, and further employees’ desire to make change happen. Ge�ng momentum for
change is key.
2. Build the guiding team. The company must get the right leaders in place—those with the
right emo�onal commitment and understanding, and the right mix of skills and levels.
3. Get the vision right. Managers must encourage the team to establish a simple vision and
strategy, and then focus on the emo�onal and crea�ve aspects necessary to drive
service and efficiency.
4. Communicate for buy-in. Involving as many people as possible, managers must
communicate the essen�als, and appeal and respond to people’s needs. Addi�onally,
they must remove clu�er and streamline communica�ons, making change efficient rather
than overwhelming for employees.
5. Empower ac�on. This step focuses on removing obstacles, enabling construc�ve
feedback, and garnering support from leaders—complete with rewards that mo�vate
people, and recognize progress and achievements.
6. Create short-term wins. Managers must set goals that can be broken down into
manageable objec�ves. They must also manage a number of ini�a�ves taking place
simultaneously, and finish current stages before star�ng new ones.
7. Don’t let up. Managers must foster and encourage determina�on, persistence, and
ongoing progress repor�ng. This can be done by highligh�ng achieved and future
milestones.
8. Make change s�ck. This step reinforces the value of successful change via recruitment,
promo�on, and new change leadership. The company should change a fundamental part
of the culture during this step, so people do not consider change as foreign.
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A step in Ko�er’s model of change is to celebrate short-term wins while
working toward an overall goal of change.
By following these eight steps to successful change, managers can work to mi�gate the risks
associated with changes that employees do not like. In order to reduce poten�al
organiza�onal obstacles, managers have to make sure that all of their employees are on board
and willing to help make change.
Licenses and A�ribu�ons
Managing Change for Employees (h�ps://courses.lumenlearning.com/boundless-
management/chapter/managing-change-for-employees/) from Boundless Management by
Lumen Learning, originally published by Boundless.com, is available under a Crea�ve
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Commons A�ribu�on-ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-
sa/4.0/) license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
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Porter's Compe��ve Strategies
Michael Porter classifies compe��ve strategies as cost leadership, differen�a�on, or market
segmenta�on.
Michael Porter defines three strategy types that can a�ain
compe��ve advantage. They are cost leadership, differen�a�on, and
market segmenta�on (or focus).
Cost leadership is about achieving scale economies and using them
to produce high volume at a low cost. Margins may be narrower but
quan�ty is larger, enabling high revenue streams.
Differen�a�on is crea�ng a unique service or product offering, either
through good branding or strong internal skills. This strategy aims to
offer something that is difficult to copy. The strategy is strongly
associated with an organiza�on's brand.
Both cost leadership and differen�a�on are rela�vely broad in
market scope, and can encompass both strategic advantages on a
smaller scale.
Porter warns that companies that try to accomplish both cost
leadership and differen�a�on may fall into the “hole in the middle.”
He notes that specializing is the ideal strategic approach.
Market segmenta�on strategy is narrower in scope than both cost
leadership and differen�a�on.
Key Term
Learning Resource
Key Points
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market share—percentage of a specific market held by a company
Strategic Scope and Strategic Strength
Michael Porter described a category scheme with three general types of strategies commonly
used by businesses to achieve and maintain compe��ve advantage. These three strategies are
defined along two dimensions: strategic scope and strategic strength. Strategic scope is a
demand-side dimension and considers the size and composi�on of the market the business
intends to target. Strategic strength is a supply-side dimension and looks at the strength or
core competency of the firm.
Porter iden�fies two competencies as most important: product differen�a�on and product
cost (efficiency). He originally ranked each of the three dimensions (level of differen�a�on,
rela�ve product cost, and scope of target market) as either low, medium, or high, and
juxtaposed them in a three-dimensional matrix. That is, the category scheme was displayed as
a 3 × 3 × 3 cube; however, most of the 27 combina�ons were not viable.
Cost Leadership, Differen�a�on, and Market Segmenta�on
Porter simplified the scheme by reducing it to the three most effec�ve strategies: cost
leadership, differen�a�on, and market segmenta�on (or focus). He characterizes each as the
following:
Cost leadership. A firm that creates economies of scale though extremely efficient
opera�ons that produce a large volume is exercising a cost leadership strategy. Cost
leaders include companies like Procter & Gamble, Walmart, McDonald’s, and other large
firms genera�ng a high volume of goods that are distributed at a rela�vely low cost
(compared to the compe��on).
Differen�a�on. Less tangible or easily defined is the differen�a�on strategy, which can
be extremely effec�ve when properly executed. Differen�a�on refers to a firm’s ability
to create a good that is difficult to replicate, thereby fulfilling a niche. The strategy can
include crea�ng a powerful brand image, which allows the organiza�on to sell its
products or services at a premium. Coach handbags are a good example of
differen�a�on; the company’s margins are high due to the markup on each bag, which
mostly covers marke�ng costs, not produc�on.
Market segmenta�on. This strategy is narrow in scope compared to the broader scope
of both the cost leadership and differen�a�on strategies. Segmenta�on seeks out
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specific segments of the market that are not otherwise tapped by larger firms.
Porter’s compe��ve strategies: Porter’s three
strategies can be defined along two dimensions:
strategic scope and strategic strength.
Avoiding the “Hole in the Middle”
Empirical research on the profit impact of marke�ng strategy indicates that firms with a high
market share are o�en quite profitable, as are many with low market share. The least
profitable firms are those with moderate market share. This is some�mes referred to as the
“hole-in-the-middle” problem. Porter explains that firms with high market share are successful
because they pursue a cost-leadership strategy, and firms with low market share are
successful because they employ market segmenta�on or differen�a�on to focus on a small but
profitable market niche. Firms in the middle are less profitable because of the lack of a viable
generic strategy.
Licenses and A�ribu�ons
Internal Analysis Inputs to Strategy (h�ps://courses.lumenlearning.com/boundless-
management/chapter/internal-analysis-inputs-to-strategy/) from Boundless Management by
Lumen Learning, originally published by Boundless.com, is available under a Crea�ve
Commons A�ribu�on-ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-
sa/4.0/) license. UMUC has modified this work and it is available under the original license.
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© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
informa�on located at external sites.
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Crea�ng Strategy: Common Approaches
Strategic Management
Strategic management entails five steps: analysis, forma�on, goal se�ng, structure, and
feedback.
Strategic management analyzes the major ini�a�ves, involving
resources and performance in external environments, that a
company’s top management takes on behalf of owners.
The first three steps in the strategic management process are part of
the strategy formula�on phase. These include analysis, strategy
formula�on, and goal se�ng.
The final two steps in strategic management cons�tute
implementa�on. These steps include crea�ng the structure (internal
environment) and obtaining feedback from the process.
By integra�ng these steps into the strategic management process,
upper management can ensure resource alloca�on and processes
align with broader organiza�onal purpose and values.
Key Terms
objec�ves—the goals of an organiza�on
implementa�on—the process of moving an idea from concept to
reality. In business, engineering, and other fields, implementa�on
refers to the building process rather than the design process.
Learning Resource
Key Points
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Strategic management analyzes the major ini�a�ves involving resources and performance in
external environments that a company’s top management takes on behalf of owners. It entails
specifying the organiza�on‘s mission, vision, and objec�ves, as well as developing policies and
plans that allocate resources to drive growth and profitability. Strategy, in short, is the
overarching methodology behind the business opera�ons.
The five steps of management include: (1) analysis (internal and external), (2) strategy
forma�on (diagnosis and decision making), (3) goal se�ng (objec�ves and measurement), (4)
structure (leadership and ini�a�ves), and (5) control and feedback (budgets and incen�ves).
Five Steps of Strategic Management
As strategic management is a large, complex, and ever-evolving endeavor, it is useful to divide
it into a series of concrete steps to illustrate the process of strategic management. While many
management models pertaining to strategy deriva�on are in use, most general frameworks
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include five steps embedded in two general stages, formula�on and implementa�on:
Formula�on
1. Analysis. Strategic analysis is a �me-consuming process, involving comprehensive market
research on the external and compe��ve environments as well as extensive internal
assessments. The process involves conduc�ng Porter’s Five Forces, SWOT, PESTEL, and
value chain analyses and gathering experts in each industry rela�ng to the strategy.
2. Strategy forma�on. Following the analysis phase, the organiza�on selects a generic
strategy (for example, low-cost, differen�a�on, etc.) based upon the value-chain
implica�ons for core competence and poten�al compe��ve advantage. Risk assessments
and con�ngency plans are also developed based upon external forecas�ng. Brand
posi�oning and image should be solidified.
3. Goal se�ng. With the defined strategy in mind, management iden�fies and
communicates goals and objec�ves that correlate to the predicted outcomes, strengths,
and opportuni�es. These objec�ves include quan�ta�ve ways to measure the success or
failure of the goals, along with corresponding organiza�onal policy. Goal se�ng is the
final phase before implementa�on begins.
Implementa�on
1. Structure. The implementa�on phase begins with the strategy in place, and the business
solidifies its organiza�onal structure and leadership (making changes if necessary).
Leaders allocate resources to specific projects and enact any necessary strategic
partnerships.
2. Feedback. During the final stage of strategy, all budgetary figures are submi�ed for
evalua�on. Financial ra�os should be calculated and performance reviews delivered to
relevant personnel and departments. This informa�on will be used to restart the
planning process, or reinforce the success of the previous strategy.
Combining Internal and External Analyses
Using combined internal and external analyses, companies are able to generate strategies in
pursuit of compe��ve advantage.
Key Points
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Organiza�ons must carefully consider what internal assets are
available that will differen�ate them from the compe��on within the
same compe��ve environment.
Similarly, organiza�ons must understand the context in which they
operate if they aspire to acquire compe��ve advantage over other
incumbents.
By understanding how internal and external factors relate,
companies can piece together the ideal way in which their strengths
can capture opportuni�es while offse�ng threats and rec�fying
weaknesses.
Implemen�ng strategies that take into account both the internal and
external environments will likely achieve compe��ve advantage and
improve an organiza�on’s ability to adapt. This is profit-genera�ng
strategic thinking.
Key Terms
internal—concerned with the non-public affairs of a company or
other organiza�on
external—concerned with the public affairs of a company or other
organiza�on
Organiza�ons must carefully consider what internal assets will differen�ate them from the
compe��on within the same compe��ve environment. This internal analysis requires careful
considera�on of the following models and factors:
core mission
overall strategy
Porter’s compe��ve strategies
SWOT analysis
forecasts
resource-based view
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The SWOT analysis matrix includes strengths,
weaknesses, opportuni�es, and threats.
Similarly, organiza�ons must understand the context in which they operate if they aspire to
acquire compe��ve advantage over other incumbents. Models such as the following outline
these concerns effec�vely:
Porter’s five forces (and limita�ons)
PESTEL and SCP (structure-conduct-performance)
compe��ve dynamics
Merging Analyses for Compe��ve Advantage
These inputs generally outline each of the specific analyses a company should conduct to
understand its internal and external environments. Combining these two cons�tutes context
analysis, which is a method of analyzing the environment in which a business operates.
Environmental scanning focuses mainly on the macro-environment of a business. Context
analysis considers the en�re environment of a business, both internal and external.
Using context analysis, alongside the necessary external and internal inputs, companies are
able to generate strategies that ac�vely capitalize on this knowledge in pursuit of compe��ve
advantage. This strategic development requires companies to understand the opportuni�es
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and threats in the external environment and benchmark them against the strengths and
weaknesses of their internal environment. By understanding how internal and external factors
relate, companies can piece together the ideal way to use their strengths to capture
opportuni�es while offse�ng threats and rec�fying weaknesses.
This melding of internal and external factors in pursuit of compe��ve advantage is an ongoing
process, as the company must evolve and change in concert with the environment. As a result,
strategic management is the process of constantly assessing both environments to ensure that
the company retains a unique compe��ve posi�on in which to generate value for stakeholders
and customers. This implementa�on of strategies that takes into account both the internal and
external environments eventually achieves dynamic capabili�es for the companies involved.
Change is costly, so firms must develop processes to find minor changes that will not have the
same financial implica�ons that major changes will. The ability to change depends on the
ability to scan the environment, evaluate markets, and quickly accomplish reconfigura�on and
transforma�on ahead of the compe��on. These ac�ons can be supported by decentralized
structures, local autonomy, and strategic alliances.
Implemen�ng Strategy
Strategic planning involves managing the implementa�on process, which translates plans into
ac�on.
Implementa�on requires establishing or modifying the organiza�onal
hierarchy, alloca�on of resources, accountability, and control
processes.
Depending on industry and geographic loca�on, implementa�on
o�en requires integra�ng an organiza�on with other firms via
strategic partnerships (suppliers, joint ventures, acquisi�ons, etc.).
To implement a strategy requires moving beyond the theore�cal and
research-based view. This demands prac�cal pragma�sm on the part
of senior strategists.
Ac�on plans that describe the way processes are transformed into
tangible opera�ons are a cri�cal success factor and o�en a point of
Key Points
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difficulty for conceptual strategists.
Key Terms
hierarchy—an arrangement in which items are represented as above,
below, or at the same level as one another
implementa�on—the process of moving an idea from concept to
reality. In business, engineering, and other fields, implementa�on
refers to the building process rather than the design process.
execute—to carry out; to put into effect
The implementa�on process requires establishing or modifying an organiza�onal hierarchy so
the company can achieve its objec�ves. The following stages cons�tute the strategic
implementa�on process:
Alloca�ng and managing sufficient resources (financial, personnel, opera�onal support,
�me, technology support)
Establishing a chain of command or some alterna�ve structure (such as cross-func�onal
teams)
Assigning responsibility of specific tasks or processes to specific individuals or groups.
Accountability is cri�cal to the ac�on plan process.
Crea�ng a feedback loop for control processes
Strategy implementa�on also involves managing the overall process. It comprises monitoring
results, measuring benchmarks, following best prac�ces, evalua�ng the efficacy and efficiency
of the process, controlling for variances, and adjus�ng the process as necessary. When an
organiza�on implements specific programs, it must acquire the requisite resources, develop
the process, train, and perform process tes�ng, documenta�on, and integra�on with legacy
processes.
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The Strategy Management Process
The strategic management process never ends. The process restarts a�er a plan ends, when
the company reviews the results and reevaluates its posi�on.
Businesses must consider precisely how they will implement a strategy, including:
alliances with other firms to fill capability, technology, resource and legal needs
investment in internal development
mergers, acquisi�ons, or both, including products or companies, to reduce �me to market
business with protec�onist countries like India and China, which require companies
entering their markets to operate via partnerships with local firms
Execu�ng a Strategic Plan
One of the core goals in dra�ing a strategic plan is to develop it so that it is easily translated
into ac�on plans. Most strategic plans address high-level ini�a�ves and overarching goals but
are not always translated into the day-to-day projects and tasks required to achieve the plan.
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Poor terminology or word choice and the wrong level of wri�ng are both examples of ways to
fail to translate a strategic plan so that it makes sense and is executable. O�en, plans are filled
with conceptual terms that do not connect to day-to-day reali�es for the staff that is expected
to carry out the plans. Strategists need to be pragma�c in devising a strategy, so that it can be
carried out.
Put simply, walking the talk is easy to say and difficult to accomplish. Strategy formula�on
must always consider implementa�on as the primary framework. Ac�on plans that describe
how processes are transformed into tangible opera�ons are cri�cal for success, but o�en a
point of difficulty for conceptual strategists.
Maintaining Control
Controlling requires taking an aerial view of opera�onal processes, and iden�fying gaps and
weaknesses to improve efficiency.
There is o�en dissonance between the way a company ideally wants
to operate strategically, and how it actually operates.
Planning and controlling are closely linked. Planning is the
benchmark which controlling uses to outline devia�ons. In this sense,
they are two sides of the same strategic process of improvement.
Once a company designs a strategic plan parallel with the corporate
mission and vision, implementa�on requires both control and
planning to ensure it is appropriately communicated and executed.
Managers must ensure that the organiza�onal processes reflect the
mission statement and vision as closely as possible, controlling
aspects of the opera�ons in pursuit of this goal.
Key Terms
planning—the act of formula�ng a course of ac�on or drawing up
plans
control—to exercise influence over; to suggest or dictate behavior
Key Points
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Controlling is a primary theore�cal managerial func�on (alongside planning, organizing,
staffing, and direc�ng). Maintaining control is about iden�fying devia�ons from intended
results and improving the process to achieve desired outcomes. According to modern
concepts, control is a foreseeing ac�on, in contrast to earlier concepts of control as chiefly
error detec�on.
Control in management means se�ng standards, measuring performance, and taking
correc�ve ac�on. Control thus comprises three main ques�ons: Where are we now? Where
did we plan to be? How can we bridge the gap between the two? Control is inherently cyclical.
Measurement, Evalua�on, Correc�on
Monitoring and controlling project ac�vi�es:
These steps are involved in management
control of project ac�vi�es.
Robert J. Mockler on Control
Management expert and author Robert J. Mockler presented a more comprehensive defini�on
of managerial control. He defined it as a systema�c effort by business management to
compare performance to predetermined standards, plans, or objec�ves; to assess whether
performance is in line with these standards; and, presumably, to take any remedial ac�on
required. According to Mockler, the purpose of control is to ensure that human and other
corporate resources are being used in the most effec�ve and efficient way possible in
achieving corporate objec�ves.
Rela�onship Between Planning and Controlling
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Mockler’s defini�on shows the close link between planning and controlling. Planning is a
process that establishes an organiza�on‘s objec�ves and the methods to achieve them.
Controlling is a process that measures and directs the actual performance against the planned
goals of the organiza�on. Thus, goals and objec�ves are o�en strongly linked to manage and
correct performance, so that enterprise objec�ves and the goals designed to a�ain them are
accomplished.
Applica�on to Strategy
Control defines the la�er stage of overall strategy. Once a company designs a strategic
overview parallel with its corporate mission and vision, implementa�on requires control to
ensure that strategy is appropriately communicated and executed. The direc�on of
organiza�onal control derives from the strategic plan of the organiza�on.
Control is an ac�ve process that evaluates current performance against this strategic backdrop
to ascertain how closely a company’s opera�ons resemble the desired model of func�oning.
There is o�en dissonance between the way a company operates and the ideal of opera�on
from a strategic perspec�ve. This is where control comes into play. A manager’s job is to
ensure that the organiza�onal processes reflect the mission statement and vision as closely as
possible, controlling aspects of the opera�ons in pursuit of this goal. As a result, maintaining
control is a constant responsibility that keeps the business as close as possible to its core
strategies.
Licenses and A�ribu�ons
Crea�ng Strategy: Common Approaches (h�ps://courses.lumenlearning.com/boundless-
management/chapter/crea�ng-strategy-common-approaches/) from Boundless Management
by Lumen Learning, originally published by Boundless.com, is available under a Crea�ve
Commons A�ribu�on-ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-
sa/4.0/) license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
informa�on located at external sites.
- eBook Resource_ Defining Management
- eBook Resource_ Leadership vs Management
- eBook Resource_ Adapting and Innovating
- eBook Resource_ Technology and Innovation
- eBook Resource_ Managing Change for Organizations
- eBook Resource_ Managing Change for Employees
- eBook Resource_ Porters Competitive Strategies
- eBook Resource_ Creating Strategy_ Common Approaches
