MGT 435 Paper - Change Model Assignment

Learning Objectives

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

1. Define planned organizational change. 2. Describe the importance and necessity of planned change for organizations. 3. Describe the fields of Organizational Development (OD) and change management. 4. Identify the competencies/skills of OD and change management specialists. 5. Describe the external forces of change affecting organizations. 6. State the forces for change and those that balance change with stability. 7. Identify the three basic types of organizational change. 8. State the differences between strategic and tactical responses to change, proactive versus reactive. 9. Explain the differences among the following four approaches to change: open systems, contingency alignment, balanced scorecard, and stakeholder approach.

Organizational Change Management: An Introduction1

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CHAPTER 1Section 1.1 Introduction

1.1 Introduction

Three decades ago, courses on change management were not listed in most univer-sity and college curricula. Now such courses are commonplace (Worren, Ruddle, & Moore, 1999). This is due in large part to, well, change. The ways in which we think, work and communicate have changed dramatically over the last 30 years. Globaliza- tion and technology have made the world smaller and far more interconnected, so what affects one business sector or one part of the world invariably affects everyone. Eco- nomic uncertainty in Europe and Asia affects exports here in the United States, and vice versa. An oil spill in the Gulf of Mexico affects the restaurant industry in every corner of the country, from Boston to Seattle. Decades ago, events could be isolated; today change is everywhere and can come at any time. To be effective in such a marketplace, managing change has become essential. Leading and managing organizational change has become a core competency for business professionals. Not only do companies

Chapter 1 Outline

1.1 Introduction

1.2 Organizational Development (OD) and Change Management

Organizational Development Change Management

1.3 Forces Driving Change in Organizations Technology Forces Economic Forces The Environment Healthcare Government and Political Forces Sociocultural Forces Globalization Forces Organizational and Managerial Responses

to These Changes Change with Stability: Balancing Perception

with Wisdom

1.4 Nature and Types of Organizational Change Dunphy and Stace’s Four Levels of Change Balogun and Hailey’s Change Model Proactive Versus Reactive Changes Strategic Change Versus Tactical Change Tichy’s Three Types of Change

1.5 Organizational Effectiveness: Frameworks for Change

Open-Systems Framework Contingency Alignment Framework Balanced Scorecard The Stakeholder Approach

“Everybody has accepted by now that change is

unavoidable. But that still implies that change

is like death and taxes— it should be postponed as

long as possible and no change would be vastly

preferable. But in a period of upheaval, such as the

one we are living in, change is the norm.” —Peter Drucker,

Management Challenges for the 21st Century (1999)

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CHAPTER 1Section 1.1 Introduction

need to manage change to survive, they need to manage change to create a competitive advantage. In order to do so, companies must not only know what types of change to look out for, but also how to implement effective strategies for dealing with it. This chapter will provide a broad overview of types of changes, the forces that induce change, and organi- zational frameworks for dealing with change.

Broadly speaking, planned organizational change is a process that moves companies from a present state to a desired future state with the goal of enhancing their effective- ness. Ultimately, the goal of planned organizational change is to improve an organiza- tion’s capabilities, thus enhancing its value to stakeholders and stockholders (Beer, 1980). Organizational leaders who do not—or cannot—use change to their organization’s stra- tegic advantage may see change as threatening. Those leaders who work with change specialists to plan, respond to, and even create change, can view change as a competitive advantage if effectively planned and implemented.

A glance at rival Internet companies Google and Facebook is a good place to turn to see the importance of using change as a competitive advantage. Facebook managed to knock other social network- ing sites out of the market. Friendster, MySpace, and AOL have all been relegated to secondary status in comparison to Face- book. But the larger competitors, such as Google, Microsoft, Apple, and others, are not waiting for their turf to be overtaken, and Google seems to be trying to venture into the social networking domain more aggressively than the rest. In the words of David Rowan, editor of Wired maga- zine, Facebook and Google are “. . . in the ultimate battle for control of the Internet” (Rowan, 2010). He writes that Google hires the world’s smartest software engineers and through algorithm-based computing power has been able to dominate the desktop-Internet era for a decade. He specifically states,

. . . Facebook intends to dominate by knowing what we are thinking, doing and intending to spend—wherever we happen to be. As Facebook’s founder Mark Zuckerberg sees it, ‘this ‘social graph’, built around our friends, fam- ily and colleagues, will determine how hundreds of millions of us decide on everything from holidays to cosmetic surgeons. (Rowan, 2010).

As Facebook’s scope and reach continues to grow without limits, Google’s executives are taking notice. Both companies are extending into markets that no one ever anticipated. For example, Google’s recent $12.5 billion purchase of Motorola Mobility business puts the search company into mobile phones (Waters, 2011). As this trend unfolds, more com- panies will, no doubt, build some form of social networking into their technology capa- bilities and businesses.

A company such as Google is internally driv- ing change, but must also must plan for exter- nal changes brought on by the market from technology companies such as Facebook.

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CHAPTER 1Section 1.1 Introduction

Not all companies are as competitive or as successful in responding to and creating change as Google and Facebook have been. Gary Hamel, a leading business strategist, notes the danger in standing pat in an increasingly fluid marketplace: “Somewhere out there is a bullet with your company’s name on it. Somewhere out there is a competitor, unborn and unknown, that will render your business model obsolete” (Hamel, 1998a, p. 81). Most organizations acknowledge that they must continuously anticipate, plan, and implement different types of change to be effective and prepared for that bullet. Facebook, Google, Microsoft, Apple, and other highly successful technology companies have all had to (and must continue to) make changes in their leadership, strategy, structures, marketing, sales, and products to maintain competitiveness.

On the other hand, several U.S. firms that were once stable icons have not survived chang- ing competitive environments. For example, great companies such as Polaroid, Digital Equipment Corporation, American Motors, Sperry Rand, and Lipton (Unilever owns and sells the Lipton tea brands), to name only a few, have perished because they could not effectively transform or transition themselves to compete in their changing markets. IBM is another example of a once-powerful corporate giant that struggled for a time to adjust to shifting market forces in a timely way:

In 1962, there were eight companies in the computer hardware industry: IBM and the seven dwarfs (Burroughs, Sperry, etc.). In 1967 IBM accounted for more than 55 percent of all sales in the sector. . . . IBM earned 80 percent of all net operating profits within the industry in 1967; by 1995 that number was 40 percent. (Hamel, 1998b, p. 161)

As the technology industry evolved during the 1970s and 1980s, and as more competitors entered the field, IBM failed to adjust fast enough and saw its profits plummet. Many labeled the nearly century-old company a dinosaur, thinking it would eventually go under completely. IBM, however, recouped and continues to be a player in the computer hardware industry; it’s simply no longer the only player in town.

Authors of the book Creative Destruction predicted that “. . . by the year 2025, the average length of time a company resides on the S&P 500 will be no more than ten years, compared to twenty years today” (Rao, 2010). In fact, General Electric (GE) is the only surviving company from the top 12 firms in the Dow Jones Index in 1900 (Rao, 2010). It’s no coin- cidence that GE, as we discuss later, has also been a champion at leading and manag- ing organizational change. Other firms such as UPS (United Postal Service), Apple, Intel, AMD (Advanced Micro Devices), McDonalds, Kodak, and Motorola have also planned and implemented highly successful turnarounds to reinvent themselves, not by luck but by strategically planned and managed change leadership. The pace of change is accelerat- ing. Survival alone, as we have seen, is no guarantee of performance (Foster & Kaplan, 2001); in other words, hypercompetition in many industries now requires that companies not only do well, but that they must also innovate to stay ahead.

It is not only the giant corporate firms or famous CEOs (Chief Executive Officers) who must address issues related to change. Universities, hospitals, nonprofits, and small companies across industries must plan for change. It is estimated that 7 out of 10 new employer firms survive just two years, and only about half survive five years. There are 29.6 million small businesses in the United States. Of that number, 627,200 are new businesses from which

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CHAPTER 1Section 1.2 Organizational Development (OD) and Change Management

595,600 were recently listed as business closures and 43,546 as bankruptcies (SCORE, 2010). A major challenge for small businesses in general is com- petitiveness (the ability of a business and organiza- tion to succeed in meeting the owners’ broad busi- ness goals to serve customers). In particular, small firms reportedly experience difficulty in gaining access to needed capital and in effectively innovat- ing and marketing (Network Solutions, 2010), two key factors in becoming more competitive.

Not all changes involve entire organizations and their leaders, managers, and employees in dramatic ways. Some divisions, business units, departments, teams, and even individuals may require different types of change, coaching, and improvements to increase effectiveness and to obtain desired results. As we discuss later, dif- ferent types of change specialists offer particular expertise, experience, and knowledge in diagnos- ing and addressing issues. While we do focus on large-scale change here, we also acknowledge and discuss different types, scales, and scopes of orga- nizational change, models, and skills to plan and implement these strategies.

In organizations both large and small, significant changes are usually not easy or linear. In fact, the

larger changes tend to be messy, especially if there is not a realistic plan. Because orga- nizational changes involve people, emotions, courage and energy, resistance is natural. Who wants to give up or change jobs and routines they know? A 2008 McKinsey survey of 3,199 executives worldwide found that only one in three transformational organizational change programs succeeds (Aiken & Keller, 2009). Leadership is crucial to executing an effective change program. Effective change projects call for emotionally intelligent and mindful leaders and managers. Such leaders need to be flexible, creative, and good com- municators who can work well with people.

Let’s now turn our attention to how organizations are developed and how an understand- ing of two fields of change specialists can help in negotiating and managing changes that will occur both internally and externally.

1.2 Organizational Development (OD) and Change Management

In this section we discuss and compare the two fields and professions that created the modern principles of planned change: organizational development and change man- agement. The approaches used by specialists in these two fields are essential for achieving planned change in organizations.

Companies must continually change and reinvent themselves in accor- dance with market demands. See, for example, how McDonald’s is trying to reposition itself with healthier menu options, such as its new Happy Meal with apple slices rather than fries.

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CHAPTER 1Section 1.2 Organizational Development (OD) and Change Management

Organizational Development

The field of organizational development (OD) is “the practice of changing people and organizations for positive growth” (Richards, n.d.). Beckhard (1969) expands this straight- forward definition by adding that “Organizational development is an effort, planned, organization-wide, and managed from the top, to increase organization effectiveness and health through planned interventions in the organization’s processes, using behavioral- science knowledge” (p. 9). It was the first professional field in management/organizational behavior and development to develop social-science based strategies and skills to diag- nose, plan, and help business leaders implement changes for organizational improvement. Waclawski and Church (2002) noted that OD as a specialized area has been described in different ways, for example: it has been called a data-based process supported by survey feedback (Nadler, 1977), a sociotechnical approach that is centered on job tasks and char- acteristics (Hackman & Oldham, 1980), and as an interpersonal process approach led by group dynamics (Schein, 1969). . . .” The authors continue to note that:

Unlike medicine, accounting, law, police work, national politics, and many other disciplines, professions, and vocational callings that one might choose to pursue, all of which have a clear, consistent, and focused sense of purpose, the field of organization development is somewhat unique in its inherent and fundamental lack of clarity about itself. OD is a field that is both constantly evolving and yet constantly struggling with a dilemma regarding its fundamental nature and unique contribution as a collection of organizational scientists and practitioners. Although OD practitioners have been thinking, writing, and debating about the under- lying nature of the field for decades (Church, Hurley, & Burke, 1992; Friedlander, 1976; Greiner, 1980; Weisbord, 1982), the field itself has yet to come to agreement on its basic boundaries or parameters. (Waclawski & Church, 2002, pp. 3, 4)

Pioneers and those active in the OD field pride themselves on the inclusivity and diversity of their profession’s values and approaches for dealing with organiza- tional change.

We also note at the outset and, as will be discussed in this text, that OD and change management specialists and con- sultants work closely with organizational officers and professionals in planning, diagnosing, and implementing change. HR (human resource) professionals in organizations are particularly charged with helping to plan and drive change. In large-scale changes, it is imperative that organizational professionals in all business units (divisions, departments, and other teams) be involved in this process.

HR professionals in organizations are particu- larly charged with helping to plan and drive change.

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CHAPTER 1Section 1.2 Organizational Development (OD) and Change Management

Organizational Development Specialists OD specialists, many of whom are academics and organizational behavior profession- als, are a major source of organizational change expertise, theoretical and applied. Orga- nizational development differs in several ways from change management. OD is based on humanistic, egalitarian, and process-oriented values; in short, OD was originally grounded more in the “people side” of things. Change management, on the other hand, is grounded more in business, finance, strategic and operations management content-based disciplines. Both fields have expanded to include parts of each, while each still main- tains certain subject-matter expertise as noted here. Leaders and consultants from both fields are important and complementary to organizations planning change. We use the term “specialists” for both OD and change management experts. This term encompasses consultants, practitioners, and others with expertise in these areas. Notice the differences between the two fields and specialists’ expertise areas as you continue to read.

OD methods that specialists use have focused mainly on people and the human dimen- sions of organizations such as culture, climate, leadership, and communication. These areas include methods that involve team building, survey feedback, quality of work life, restructuring work and positions, and job satisfaction (French & Bell, 1978). As the field of OD has evolved, it has incorporated change planning and interventions that also focus on structural, work process and organizational design changes with top level leaders as well as the entire organization.

An example of an OD specialist’s work is as follows. The leaders of a midsize firm need help in identifying objective criteria for the outputs of key goals of a major division in the company. The head of the company and the division manager want to hold people accountable for the stated goals, the criteria underlying the goals, and the desired results from the goals. No one at the company has this expertise. An OD consultant is interviewed and hired to identify the criteria of each goal and to articulate the goals to match those criteria. The consultant then meets with the hiring manager to clarify and articulate the desired work and outcomes. A proposal is submitted by the consultant that includes the work to be done, how it will be done, and the anticipated deliverables. This type of project requires interviewing, examining goals and documents, and constructing criteria that support the goals. It may turn out that after the consultant successfully completes this project, she may be called back to train teams in that division on how to effectively imple- ment these goals. She may also discover during her work with this division that the goals do not connect well with the overall strategy of the company. When reporting her findings to the hiring manager, she would share this discovery and perhaps extend the contract to address larger related issues in the organization.

OD specialists rely on a variety of theories, concepts, and practical applications that we describe in more detail in the following chapters. For example, specialists use systems theory—that is, organizations are viewed as a total system of interdependent subsystems with individual components that include people, technology, work, and culture, all of which operate together to respond to external environmental changes such as competi- tors, customers, or government regulations (Katz & Kahn, 1978). Relatedly, OD specialists also conceptualize organizational systems using contingency theory, that is, viewing these organizational dimensions (strategy, structure, people, work, rewards) as parts of a whole

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CHAPTER 1Section 1.2 Organizational Development (OD) and Change Management

that “fit” together. When one of these dimensions is out of sync with the others, issues emerge. When all subsystems function well together and fit with the external environment, the organization has a higher probability of fulfilling its goals (Burke & Bradford, 2005).

OD specialists also use a wide array of skills and tools in their change work: for example, intrapersonal (self-management and emotional intelligence) skills; interpersonal skills; one-on-one coaching and mentoring; group facilitating; interviewing and surveying; col- lecting, analyzing, diagnosing data and information; problem solving; assessing; program planning and implementing.

OD specialists need to look at an organizational problem in a number of different ways in an effort to accurately diagnose what exactly is wrong, and also to implement the most effective strategy for change. Major approaches that OD specialists may take include the following:

• A long-term change approach that focuses on lasting effects through changes in cultural norms including interventions that alter attitudes, behaviors, processes, knowledge, and structures.

• A top-down approach that seeks to gain top management commitment and involvement in order to significantly affect intended changes. While change begins at the top, it is implemented throughout the organization.

• A collaborative approach involving professionals who are affected by changes and who support the changes to the organization.

• An analytical approach that examines data, diagnoses present problems, and motivates change to resolve issues. Accurate diagnostic skills are a core compe- tency of OD change agents.

• A facilitation approach that uses skilled dialogue and discussion, listening, and feedback when assisting professionals to identify weaknesses and strengths of the organization; planning for change; managing the change process; and imple- menting, coaching, and problem solving during the change.

• A design approach that helps leaders and managers develop meaningful work climates where organizational members can accomplish their goals and objectives in healthy ways (Cummings & Worley, 2009; Church, Burke, & Van Eynde, 1994).

Organizational Effectiveness from an OD Perspective From an OD perspective, an effective organization is one that is adaptable and meets both internal and external requirements to thrive. Cummings and Worley (2010) portray an effective organization as one that solves its own problems and focuses attention, resources, and effort on obtaining major goals. OD specialists involve organizational leaders, man- agers, and members in change activities in order to equip them with the know-how and capabilities they need to manage their processes. Effective organizations also have satis- fied customers and stakeholders and continue to learn and improve their processes after OD specialists leave. Such organizations maintain best practices by improving products and services. Lower costs and increased productivity result from motivated employees. The organization, in turn, is able to attract other employees to perform at higher levels. Effective organizations, then, create a win-win-win situation with external stakeholders (suppliers, vendors, government agencies, the media), customers, and their employees.

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CHAPTER 1Section 1.2 Organizational Development (OD) and Change Management

Change Management

We have learned that OD emphasizes the people and behavioral dimensions of an orga- nization (i.e., ways to enhance their motivation and productivity, which in turn enhances the organization as a whole) while, at the same time, improves the overall alignment of an organization’s systems (i.e., works to ensure the strategy fits with the culture, reward system, and employee satisfaction and effectiveness). Now we focus on a complementary field called change management, which has more recently defined its domain to include both business and behavioral aspects of organizational change. Worren, Ruddle, and Moore (1999) stated, “We observe that the major consulting firms—including those that in the past dealt exclusively with strategy or operations—now have separate divisions or competency groups specializing in change management. . . .” (p. 273). In other words, organizations need help with content expertise in strategy, marketing, production, and finance, as well as behavioral expertise in human communication, motivation, job defini- tion, partnership with customers, and leadership.

Change management encompasses approaches used by business content and behavioral process specialists that assist leaders to move entire organizations, or units, from a pres- ent to a desired future state. Whereas OD specialists focus more on process (how leaders, managers, and employees communicate, relate, strategize, sell, and solve problems) and general systems-oriented interventions (how strategy, culture, structure, accounting and human resource systems work together to meet goals), change management specialists address such areas as:

• competitive business strategy • strategic firm (human resource benefits, budgeting, profit sharing) planning • IT (information technology) and engineering solutions design and development • IT infrastructure support • business process engineering and reengineering • marketing planning • financial analysis, inventory control and analysis, work-flow analysis and design

solutions • project management methods

Part of the role of change management specialists is to help align objectives and practices of the business with the new or desired strategy, structure, and systems. To do this effec- tively, change specialists must focus on both the content and process; for example, they too must be concerned about how organizational leaders communicate business strategy with IT teams, although this may not be their primary expertise.

More subtle differences between the fields of OD and change management also exist. For example, Worren, Ruddle, and Moore (1999) state that:

. . . technical experts (e.g., manufacturing engineers) tend to deal with tasks that can (and must) be standardized and controlled so that they can be repeated in a reliable fashion. In contrast, the typical OD practitioner tends to see routines and procedures as things that stifle creativity and foster dis- satisfaction. (Worren, Ruddle, & Moore, 1979, p. 279: Adler & Borys, 1996)

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CHAPTER 1Section 1.2 Organizational Development (OD) and Change Management

Scholars have also noted that, “The most important difference [between OD and change management] is that change man- agement consultants work in teams” (Wor- ren, Ruddle, & Moore, 1999, p. 276). Often these teams are composed of people with skills that complement one another. Mem- bers may, for example, come from entirely different segments of a business. One member might come from IT, another from marketing, another from engineering, and another from organizational design.

Change Management Specialists Change management specialists offer expertise that depends on the nature and

the type of programs where change is required. Larger, organization-wide change pro- grams may demand content changes in different functional areas (e.g., research & devel- opment, production, online marketing, and product distribution) that can redefine an entire organization. In such situations, change management specialists might provide detailed corporate strategy content—that is, an overall direction of a company and how its business operations and functions fit together to achieve the goals of the company—along with finance and business process expertise—that is, the sequencing of activities to pro- duce a product or service for customers. If an entire IT system is needed, then engineering, IT architecture, programming, and business-specific skills may be needed. More internal, piecemeal changes that relate to change control programs could require specific tools and processes related to daily operational or project specific changes (Clark, 2007).

Different types of skills are essential to an organization’s change requirements. The point here is that more engineering, IT, and functional area content expertise is specifically but not exclusively related to change management specialists. For example, Japan’s Matsushita Electric Company’s Saga plant managers decided to reinvent their phone- producing assembly line by replacing miles of conveyor belts with clusters of software- controlled robots that would synchronize production without downtime. One robot replaced another that might fail in the highly technical process. Skilled software and technical engineers working with business specialists executed this change. The result? What used to take 2 ½ days now took only 40 minutes. Five hundred phones were pro- duced every eight-hour shift, compared to half that number before the change (Hall, 2006; also, see Daft, 2010).

Currently, to oversee the entire transformational organizational change process, clients hire teams consisting of OD, change management, IT, and other content specialists. It is not uncommon in large organizations undergoing transformational changes to find different consultants with various skills working on projects. Organizations also hire and develop more “internal consultants” who have both OD and change management expertise.

Change management specialists often work in teams and must coordinate many facets of an organization to effectively execute a change plan.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

As change management, like OD, continues to evolve as a field, it encompasses process oriented skills found in OD.

In the field of planned organizational change, one of the few things we know with some certainty is that change programs are rarely successful if they are directed at only one component in isolation from others. A well- known university president once stated that you cannot lift a blanket by one corner; there must be efforts at several points . . . . Change manage- ment promises to be a discipline that will integrate the thought worlds that separate OD from strategy and technology, thus enabling the coordi- nated efforts necessary to bring about strategic change. (Worren, Ruddle, & Moore, 1999, p. 286)

1.3 Forces Driving Change in Organizations

Organizational change is generally triggered by external and/or internal forces. Such forces could include special industry events, an unforeseen opportunity for a com- pany to grow, industry trends, or any myriad of pressures generating inside or outside the company. Detecting signs of external change is important since failure to do so could mean missed opportunities and/or impending threats to an organization. For example, during the 1980s Japanese auto manufacturers Honda and Toyota were among the early entrants into the U.S. market with their fuel efficient 4-cylinder engine cars. U.S. auto- makers were much later to follow Japan’s lead with 4-cylinder vehicles, even though there was a severe shortage of oil and a gasoline crisis in the United States in the early 1970s, and the years that followed, which caused gas prices to become volatile and many Americans to seek more fuel-efficient options. Monitoring world events and looking at social trends is essential for organizational survival and success. This was certainly true for Steve Jobs at Apple who saw market potential for portable, inexpensive access to music over handheld devices like the iPod, iPhone, and iPad. Other companies continue to imitate and follow Jobs’ lead. Predicting the future and commercial trends is obviously not easy. However, companies and organizations are challenged to do just that, espe- cially in hypercompetitive markets and uncertain environments that continue to evolve at increasingly faster rates. Planned change begins with learning to read, interpret, and respond to trends triggered in external environments.

Macro-level external sources of change are depicted in Figure 1.1. These include gov- ernment and political, economic, technological, sociocultural, and natural- and human- related forces. When planning a change, we begin with this broader level of analysis before identifying more specific operational dimensions of change—that is, the particular industry and the niche of the organization in that industry.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

Figure 1.1: Macro forces and organizational change

Socio-Cultural Forces • Demographic trends • Lifestyle changes • Availability Skills • Attitudes toward work • Gender issues • Willingness to move • Ethics

Technological Forces • Information technology/the Internet • New production processes • Computerization of processes • How technology is sold and serviced

Natural Disasters & Human Induced Problems • Weather • Extreme storms (hurricanes, tsunamis, volcanoes, earthquakes) • Pollution • Health, food, stress

Natural Disasters & Human Induced Problems • Weather • Extreme storms (hurricanes, tsunamis, volcanoes, earthquakes) • Pollution • Health, food, stress

Economic Forces • Globalization • Competitors/suppliers • Currency exchange rates • Employment and wage rates • Government economic policies • Lending policies of financial institutions

Government & Political Forces • Government legislation • International law • Wars • Local regulations • Taxation • Trade unions activities

Organization

From a change perspective, there are many effects these environmental forces can have on an organization’s internal systems—that is, its leaders and employees, its strategy and operating systems (IT, HR, etc.), even its very culture. See Figure 1.2 for a depiction of the external influences on an organization’s internal systems.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

Figure 1.2: Environmental influence on internal organization

Political-Legal Forces

Socio-Cultural Forces

Technological Forces

Internal Environment The Organization

External Environment

Informal Subsystem Managers, Culture, Norms, Relationships, Politics, Leadership

Formal Subsystem Leadership, Strategy, Management, Goals, Marketing, Operations, Technology, Structure

Economic Forces

To help understand how organizational leaders and change specialists analyze environ- ments, try this exercise as you read this section. Think of an organization(s) in which you work or have worked, or think of an organization you’ve seen in the media. Then answer these questions, as you read this section.

1. Identify an influence(s) from Figure 1.1 that has affected the way an organization markets, produces, sells, and delivers its goods and/or services (also see Figure 1.2).

2. Can you think of a particular way the organization changed (Figure 1.2) or must change to compete as a result of any of the environmental influences in Figure 1.1?

3. How do you as a customer purchase a product from a company that reflects the result of an influence on that company’s way of doing business?

Your answers to these questions indicate changes organizations have to make or need to plan for in order to meet new market and customer demands.

Let’s look at the dimensions in Figure 1.1 to see how these forces and influences have and can create both threats and opportunities for organizations.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

Technology Forces

Technology is one of the primary drivers and enablers of change. Organizations use infor- mation technologies in their strategies and operations to gain speed, scale, scope, and reach with customers and stakeholders globally. The Internet, social media, and informa- tion technology have recently enabled the creation of new industries, business models, professions, products, and services. Take, for example, Google, Facebook, Twitter, Yahoo!, e-Bay, YouTube, Amazon.com, and Groupon.com, to name some of the prominent compa- nies that have dramatically shifted customer-to-customer as well as business-to-customer relationships. E-Bay introduced bartering and purchasing products electronically among customers. Amazon shifted people from sifting through bookshelves in bookstores to online Web pages—and then most recently to Kindle. Google and Yahoo! have practically replaced the Yellow Pages and traditional map-printing companies like Rand McNally. Facebook created not only networks of friends but also networks of clustered, self-promo- tional buyers. YouTube became an entertainment, educational, and journalistic resource center. These companies along with PayPal have changed the business practices of pay- ment for services and products, marketing, advertising, sales, and delivery. These firms and their uses of technology have also helped shift power to customers since they select from a wider and more differentiated set of Web sites and digital stores for doing business.

An example of the influence of technology on higher education is the University of Phoe- nix. Traditionally, universities held classes on campus during semesters or trimesters and used printed textbooks. John Sperling, founder of The University of Phoenix, pioneered a change in this model by questioning why students could not attend classes at other times of the year, use electronic texts, and study wher- ever they felt most comfortable. Sperling saw technology as a means to change a major educa- tional business model. The new model worked. 2010 statistics showed that the University of Phoenix, now owned by the Apollo Group, is sec- ond in the country to the State University of New York in student enrollment (Wilson, 2010) and is listed as a corporation on the S&P 500 exchange with a market cap of approximately $7.5 billion. The extent to which enrollment will continue to increase at this level is questionable. However, the point is that innovations in technology like for-profit (and online) programs and institutions are making an impact on traditional higher edu- cational business models and practices.

Mobile technology, such as smartphones and iPads, have profoundly impacted and changed the way we think about and do business, as well as how we conceive of personal time in relation to work time. Mobile technology has greatly dimin- ished the need for physical office space and the need for face-to-face business time, and it’s dras- tically increased the speed at which business com- munication and transactions can be conducted. Because people can be accessed or communicated

Mobile technology and devices such as the smartphone have changed the way we think about and consume informa- tion. To remain viable and competitive, organizations must effectively plan for how technology will continue to evolve in the future.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

with pretty much anywhere and at any time, traditional “work hours” are quickly going by the wayside. The print media industries—newspapers, magazines, and books—have also been significantly impacted because of digital e-readers like Nook and Kindle. More- over, blogs and YouTube now complement and replace network news. Hulu and NetFlix on the iPad, smartphone, and TV, for example, now complement and may perhaps one day replace the movie theatre.

Social networking technologies are also changing politics and the way political leaders interact and try to convey messages to their constituents. President Obama’s election cam- paign was empowered by social network communications and information sharing. He was able to directly e-mail campaign messages and updates to potential voters, and he was able to create local networks of volunteers to help at a grassroots level. Since then, it’s become standard for an elected official or a political figure to maintain a Facebook page and even a Twitter account to post updates, convey messages, and organize events. Simi- larly, young people throughout the Middle East are rebelling in mass numbers in what’s being called the “Arab Spring.” They have been efficient and effective in organizing grass- roots movements due, in no small part, to social networking sites such as Facebook. Mov- ing forward, we can expect many social and political events, from election campaigns to grassroots social movements, to achieve their goals via social networking technologies.

Organizations, regardless of size, are becoming more effective, efficient, connected, and “globalized” because of the Internet and related technologies. Real-time production serving customized demand is the norm (Intuit 2020 Report, 2010). Many large firms with global supply chains are now networked to their suppliers, customers, and vendors through extranets and integrated internally through intranets, which are information networks that operate much like the Internet, but are restricted to a particular business or organization’s employees. Extranets are intranets that also allow access into an organization’s system to approved people outside of the business (www.1stflash.com).

According to The Journal of Business Strategy, between 1997 and 2001 “90 percent of major corporations implemented an intranet strategy”(Intranets and extranets, 2011). By the early 2000s, “extranets also were rapidly becoming an expectation rather than a bonus.” According to Information Week, most IT managers expect a positive return on investment in network infrastructure such as this (Intranets and extranets, 2011). And with regard to social media, another survey showed that “29 percent of organizations with fewer than 500 employees said they use social media to promote their companies, while that percent- age jumps to 38 and 44 percent for companies with 501–1,000 and more than 1,000 employ- ees, respectively” (Needle, 2010). Innovation in this field will only lead to widespread use in companies big and small.

Organizations that lag behind in their production processes and in getting products or services to customers in timely and efficient ways are usually in need of organizational change. To change a major production process affects other parts of an organization’s internal system, as Figure 1.2 indicates. All aspects of the company, from leadership to company culture, could likely be affected.

Economic Forces

As we discussed at the beginning of this chapter, the world has become smaller, and what affects one region of the world has direct and immediate consequences everywhere else.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

Whereas once a troubled economy in a particular region could be isolated to that region, it now can quickly drag down economies the world over. We saw this effect firsthand with the Great Recession of 2008–2009. No country was spared in the fallout from the housing market bubble in the United States. Likewise, uncertainty in the European Union in 2011 has created economic instability in Asia and in the United States. Economies,

and the governments that manage those economies, are interconnected like at no other time in human history. Monitoring governmental decisions and economic con- ditions around the world has become a crit- ical necessity for any size business.

Economic predictions through 2020 that will influence organizations and consum- ers include an increase in consumer spend- ing in developing countries; depleted sav- ings in the United States; and continuing debt and deficits throughout the Western world that will restrain spending rates. However, economic growth globally is predicted with more than one billion new middle-class consumers who will increase spending. Mobile technologies as well as

those discussed in the previous paragraphs will grow in demand. New businesses and business models will be needed in large and small companies that can meet the demands of the new rising middle-class consumers (Intuit 2020 Report, 2010) and, at the same time, meet the demands of diminishing economies.

The Environment

Environmental issues present another factor that is driving change. Chronic smog and air pollution from carbon emissions in cities throughout the world is a major health hazard that must be dealt with. Climate change and sustainability considerations (“green” initia- tives) also present challenges for organizations, but dealing with these forces is no longer a choice; it’s becoming a competitive requirement, especially as companies try to dig their way out of the Great Recession. Companies’ growth, however, will be pressured by prices and resource supplies that will be influenced by increased regulation, taxes, and other restrictions to reduce carbon footprints. Consumers also will expect businesses to incorpo- rate sustainable practices in their operations, products, and services (Watson, n.d.).

In response to these pressures, some companies are taking the lead not only in managing these changes but also in making sustainability of a healthy and clean environment a goal of change management. Procter & Gamble, for example, committed to power all of their fac- tories with renewable energy within the next 10 years. FedEx committed to improve vehicle fuel efficiency by 20 percent by 2020. Walmart pledged to sell $1 billion of fresh produce that was sourced from 1,000 small- and medium-sized farms. Hasbro committed to having 75 percent of its paperboard packaging come from recycled materials in 2011 (Watson, n.d.). Corporations and organizations will be pressured to plan, budget, and implement the logic

In this globalized economy, monitoring and preparing for economic changes and condi- tions around the world has become a critical necessity for any size business.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

“think green” into their business strategies, production, manufacturing. They will need to plan and act responsibly with concern for the environment, use of energy, and disposal of waste in all their strategies, using the four Rs: “Reduce, Reuse, Recycle and Recover the resource into action.” And as technology allows for more ways to meet these growing envi- ronmental concerns, companies will be well-served to remain on the innovative forefront by seeking cost-effective ways to implement these sustainable technologies. Managing change in this regard will help companies become more efficient and also to appeal to a growing consumer base that is looking for such considerations (Sustainability Report, 2010).

Some industries and companies do not practice “green” or sustainable clean air and water strategies in their operations. For example, supporters of environmental sustainability contend that industries and firms that use coal in particular contribute to pollution (John- son, 2011). Converting to clean energies and sustainable business practices can be costly, and when governments do not offer industries and companies incentives for this effort, pollution and unhealthy consequences can result.

Healthcare

With an aging population, ever-evolving medical innovations, and a consumer demand for the highest quality medical products and services, the cost of health care is continuing to rise at an alarming rate, with no end in sight. Health-care costs in the United States are pre- dicted to rise from 16 percent of GDP to 20 percent by 2020. These costs will likely increase the already overburdened national debt and compete with other government programs. Likewise, businesses are saddled with escalating insurance premiums for their employees, which is contributing to a flattening out of real wages and handcuffing what companies can offer in terms of compensation and benefits packages. The ultimate effects that the recent health-care reform bill passed in 2010 under the Obama administration will have on alleviating these issues has yet to be determined. One thing is certain though: With the policies of the health-care bill set to be implemented in stages over the course of the next few years, companies will have to manage change on this front better than ever before. Health-care expansion will present business growth opportunities, but it will also present potential dangers. Change management will be critical in determining these outcomes.

Government and Political Forces

Governments and political forces will also continue to cope with high uncertainty as regime changes, wars, terrorism, and global economic instability persist. Political unrest can have the same effect as economic unrest. For example, in the spring of 2011, specula- tion abounded that political unrest in Libya and other parts of the Middle East was con- tributing to a rise in oil prices, which affects consumer behavior as well as how companies conduct business worldwide. In this volatile era, the U.S. government, with a lowered credit rating from Standard & Poor’s credit rating agency, must attempt to decrease unem- ployment, increase job creation—particularly in critical sectors such as engineering and manufacturing fields and technology—decrease the national debt, rebuild infrastructures, restructure the education system, and balance regulation with innovation in the financial, banking, and investment industries. At the same time, the EU (European Union) coun- tries must absorb the soaring debts of several member countries like Greece and Italy.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

Corporate leaders must think creatively and innovatively to move their economies forward by investing in new industries and creating new jobs.

Generating this kind of positive change in such unstable political and economic times will not be easy. According to The Global Competitiveness Report (Schwab, 2010–11), the United States ranked fourth globally in competitiveness, behind Swit- zerland, Sweden, and Singapore. This is the second consecutive year the United States has fallen in this ranking, having been ranked first in 2008–2009, then sec- ond in 2009–2010, and now sliding two more places down to fourth in 2010–2011. Stopping this slide rests on the shoulders of government and business leaders. Com- petitiveness, according to the report, is defined as “. . . the set of institutions, poli- cies, and factors that determine the level of productivity of a country” (Schwab, 4). Chang- ing organizational structures to meet external competitive demands generally calls for bold, sweeping ideas. Transformational change is needed, which we discuss in a later section.

Sociocultural Forces

Brainpower and talent are the keys to reignite corporate and economic growth, and to pro- vide opportunities for a new generation of students. At the same time, companies must also provide meaningful and challenging work to new employees who value learning, ethics, and flexible working conditions. Work/life and work/family issues are also major sources of workforce and workplace change. The increasing number of women (single with children and married with children) in the U.S. workforce has pressured manage- ment to rethink work schedules. Men and women employees from the “sandwiched gen- eration” must care for their children and also their elderly parents while working full time. Flextime, telecommuting, and other forms of virtual work arrangements are required. The aging and the handicapped in the workforce, highly skilled and unskilled international entrants, dual career couples with children—all of these changing demographics pressure management to think “outside the box” in terms of organizational changes to attract and retain an increasingly diverse and, in many instances, technologically savvy workforce.

Globalization Forces

The rise of China and India as high-volume, low-cost labor manufacturers continues to pres- sure other Western countries to outsource and find new innovative ways to compete. China is now the second largest economy. The “Asian Tigers” (Hong Kong, Singapore, South Korea, and Taiwan) have emerged as advanced economies serving as financial centers and information technology innovators. The emerging economies of the BRIC (Brazil, Russia,

Political unrest can have the same far-reaching effect as economic unrest. From Tea Party and Occupy Wall Street movements domestically, to social and political unrest in the Middle East, all businesses must have plans in place to deal with instability and change. Pictured here, mass protests in Syria.

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India, and China) countries have, over the past decade “. . . contributed over a third of world GDP growth and grown from one-sixth of the world economy to almost a quarter” (Wilson, Kelston & Ahmed, 2010) and many insiders think that this trend is likely to continue moving forward. Through the merging of national economies, such as in the European Union, and the merging of national economic interests, such as through the WTO (World Trade Organi- zation), geographic boundaries have been blurred and perhaps even somewhat diminished. This change has enabled low-cost international competitors using new technologies to drive down costs of doing business, and thus force companies to streamline structures and change strategies and business practices. This has profound implications for companies of all sizes, as well as for the labor forces that supply those companies in local markets.

As we discussed earlier, international economies are more interrelated than ever before. International investments and movements in the U.S. stock markets affect American pen- sion funds, corporate earnings, and market forecasts. Regulation and deregulation of industries (especially telecommunications, banking, financial services, and the airlines) continue to stir large-scale downsizing and restructuring in companies. Mergers, acquisi- tions, and consolidations within and across industries have also created significant orga- nizational change. Grant Thornton International’s 2010 survey, for example, showed that 34 percent of the 6,000 business respondents across 39 economies were planning acquisi- tions, an increase of eight percentage points on last year (Hughes, 2011). Also, since the 9/11 attacks of 2001, and with the continuing wars in Iraq and Afghanistan, the threat of global terrorism and the fight against it has created major realignment and flattening of structures in the FBI, CIA, and other government bureaucracies. Partnerships, strategic alliances, and developing synergies across private and public sector organizations are also necessary to capitalize on the positive aspects of globalization.

Organizational and Managerial Responses to These Changes

Companies have responded to the external forces of change in a number of ways. Some firms have surrendered, as noted at the beginning of this section. For example, Borders bookstore closed because its brick-and-mortar infrastructure could not compete with new handheld technologies, Internet connected devices, and services provided by such compa- nies as Amazon.com. Other organizations have strategically responded to external changes with innovative organizational structures and arrangements like networks, strategic alli- ances, and virtual corporations as are found in Ford, Sun Microsystems, IBM, Mitsubishi, General Electric, and others. As one observer noted, “Sun Microsystems’ network is so complex that some products it sells are never touched by a Sun employee” (Cummings & Worley, 2009, p. 5). Innovations such as this will be required if companies are not only to survive but prosper in the face of external change on so many fronts. Cummings and Worley illustrate what will be needed in managing and leading change effectively:

. . . a growing number of organizations are undertaking the kinds of orga- nizational changes needed to survive and prosper in today’s environment. They are making themselves more streamlined and nimble, more respon- sive to external demands, and more ecologically sustainable. They are involving employees in key decisions and paying for performance rather than for time. They are taking the initiative in innovating and managing change, rather than simply responding to what has already happened. (Cummings & Worley, 2009, p. 5)

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

Change with Stability: Balancing Perception with Wisdom

It is important to point out that not all organizations will or should respond to external environmental change the same way. Smircich and Stubbart (1985) argued that the exter- nal environment is not always a totally objective phenomenon. The ways the environment is perceived and responded to depend on individual interpretations—in this case, orga- nizational leaders’ and managers’ interpretations. How leaders and managers perceive pressures and forces in their environments affects whether and how they develop change strategies to respond.

Boyd, Dess, and Rasheed (1993) identified two types of errors that leaders and managers can make in perceiving change. Type 1 error happens when the environment is actually stable, but leaders and managers perceive it as turbulent and proceed to take unneeded actions to respond. Type 2 error happens when leaders and managers perceive the envi- ronment as stable when in actuality it is turbulent, and they fail to take necessary actions, thus possibly threatening the survival of their organizations. An example of a Type 1 error occurred when President George W. Bush and his cabinet declared immediate war on Iraq based on the perception (and/or belief) of that regime’s possession of weapons of mass destruction and the regime’s intention to use those weapons against its neighbors and the United States. There were no weapons of mass destruction in Iraq, and the costs from this misperception were and are substantial. An example of a Type 2 error occurred when, as mentioned earlier, the U.S. auto manufacturers perceived the environment in the 1980s as stable and failed to design and manufacture 4-cylinder fuel-efficient cars as did the Japanese, who later won and maintained a sizable market share in the U.S. auto industry as a result of their first-move advantage with quality cars. A lesson from this discussion is that trends and forces in the external environment must not only be monitored but must also be carefully scrutinized in conjunction with one’s own circumstance and near- and long-term goals.

Organizational leaders and change specialists need to consider the interaction and balance between the forces for change and stability. The need or drive for change can sometimes be exaggerated or romanticized. Leana and Barry (2000) argued that there are forces for stability and forces for change when considering hypercompetitive environments. They argue that both are essential for an organization’s long-term functioning. Figure 1.3 illus- trates these two types of forces and the balancing effects of each in organizations.

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CHAPTER 1Section 1.3 Forces Driving Change in Organizations

Figure 1.3: Change and stability forces

Source: Leana, C. & Barry, B. (2000). Stability and change as simultaneous experiences in organizational life.

Academy of Management Review 25(4), pp. 753–759; and Plamer, l., Dunford, R., & Akin, G. (2006). Managing Organizational Change.

2nd ed. New York, NY: McGraw-Hill, p. 60.

Forces for Change Forces for Stability

• Competitive Advantage (flexible and responsive to changing markets)

• Control (less hierarchy and more power through management performance targets)

• Impatient Capital Markets (short-term investments favored over long-term)

• Cost Containment (human resources seen as a cost, not an asset)

• Environmental Adaptability (stability impedes adaptability; flexibility adapts to change)

• Predictability and Uncertainty Reduction (stability enables, not impedes change)

• Organizational Social Capital (trust among employees is created as an asset)

• Sustained Advantage (created through stable interactions over time)

• Transaction Costs (stability creates rational investment in employee development)

• Institutionalism (power structures self-perpetuating, solidify relationships and practices

Note in Figure 1.3 that “competitive advantage” as a force for change is counterbalanced by a need for “predictability and uncertainty reduction.” While competitive advantage requires organizational flexibility and responsiveness, effective organizations also require stability and uncertainty avoidance to thrive. Also, while “control” as a force for change means less hierarchy and more emphasis on performance targets, “organizational social capital” requires developing and nourishing coworker trust, which is an invisible asset as a force for stability. “Impatient capital markets” that demand immediate, short-term invest- ment are indeed a force for change; but organizations also need to have “sustained advan- tage” that is gained through stable organizational relationships and interactions over time. Finally, environmental adaptability is a requirement for organizations that wish to change to be competitive; but, at the same time, organizations need to rely and draw on institution- alized best practices based on what worked well in the past, including sound relationships.

To sum up, macro external forces affect the operational and internal environments of organizations. Trends, events, and crises that occur in the global, technological, eco- nomic, governmental, political, and demographic/social environments influence organi- zations. These influences are felt by organizations through changing markets, laws and regulations, finances, natural disasters, and so on. Leaders and managers must create and change visions, strategies, structures, systems, and talent to compete and survive in their industry sectors. Organizations that excel in changing environments have become more streamlined and nimble, more responsive to external and customer demands, and more ecologically sustainable. They have also adopted information technologies in their mar- keting and operations to enhance speed, scale, and reach.

It is also important to consider those dimensions of an organization that need to be balanced with change forces. As a student of organizational change, your skills include the ability to identify the environments that are exerting changes on organizations and, as this course progresses, to suggest different types of changes and change strategies organizations can

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CHAPTER 1Section 1.4 Nature and Types of Organizational Change

use to respond to opportunities and threats from their environments. In the next section, we present specific types of organizational change that are used depending on relevant criteria.

1.4 Nature and Types of Organizational Change

Not all changes pressuring organizations are the same. The nature of change and change frameworks presented here illustrate these differences. Some frameworks overlap and are complementary; others deal with dissimilar change philosophies and approaches. All are intended to show how change specialists can use multiple perspec- tives to understand change and to gain insight into the types of interventions and strate- gies for effectively responding to change.

At the most general level, Ackerman (2010) identified three types of change: developmen- tal, transitional, and transformational.

Developmental change involves an improvement of what already exists. For example, an organization improving a previously established process or procedure, such as an HR policy regarding employee leave time or a particular department’s procedure for filing and sharing expertise on certain projects, are examples of developmental change. The change does not necessarily have to be large in scale and scope. Consequently, little stress or anxiety is created with this type of small-scale change. Transitional change consists of an implementation to achieve a known desired state that is different from the existing one. Examples of this more intrusive, larger change include, for example, organizational mergers and acquisitions or replacing a process or procedure and introducing a new one, such as installing a new technology system. Such changes can shake up an organizational culture, disturb relationships, unsettle jobs, and require retraining and hiring. Finally, transformational change involves the emergence of a new, unknown state for the organi- zation. Examples of such changes include a shift in radically different markets that require a different strategy and skills, a move to incorporate “bleeding edge” technologies, or a new CEO and top-level team who change the structure and culture of the company. This model differentiates among the three types of change, each which has a different purpose, requires different change interventions, and presents different risks. The following mod- els expand upon and add to these three fundamental change types.

Dunphy and Stace’s Four Levels of Change

After deciding whether the desired change is developmental, transitional, or transforma- tional, it is helpful to refer to Dunphy and Stace’s (1993) four levels of change.

Level 1 - Fine tuning. This type of change involves an ongoing process of matching and “fitting” an organization’s strategy, structure, people, and processes with the environment. Fine-tuning change occurs more at a divisional and departmental level and includes such activities as refining policies, methods, and procedures; developing personnel; fostering group and individual morale; and commitment to the organization’s mission and depart- ments. This type of change requires minimal effort and resources.

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CHAPTER 1Section 1.4 Nature and Types of Organizational Change

Level 2 - Incremental adjustment. Incremental adjustments are predictable changes that evolve slowly and systematically at a constant rate over time within the organization to fit the external environment. No radical changes are needed, but modifications are made such as shifting emphasis among products, expanding a sales territory, and modifying a mission statement to employees. Both this type of change and fine tuning are comparable to developmental change discussed earlier.

Level 3 - Modular transformation. Organizational change is radical in this type of change, but it is focused on subparts rather than on the entire organization; for example, restruc- turing departments or divisions; changes in key executives’ and managers’ responsibili- ties; introducing new processes in IT, human resources, or a business process. This type of change is related to transitional change.

Level 4 - Corporate transformation. This type of change, like transformational change in the previous model, involves a radical shift in the business strategy and changes in the vision, mission, culture, and systems. There is outside recruitment of new executives and key management positions. Most, if not all, of the internal systems and dimensions of an organization are affected.

Managing Change Organizational and Managerial Response to Change

You are in charge of marketing and communications for a consumer bank. The business environment in the banking industry has undergone remarkable changes in recent years with the merging and acquisition of companies, the effect of the economic recession on consumers, and the reputational impacts of corporate misconduct by banking executives, which in some cases has required extensive publicity campaigns and re-branding. In addition, the proposal of many national banks to charge fees on accounts is challenging customer attitudes about their bank.

In a reactive decision, you have decided collectively along with top leadership at the bank to imple- ment a brand new Web site with rapid-response online customer service functions. The goals are to strengthen competitive advantage, increase customer loyalty, and respond to growing consumer demands for adequate attention to customer needs.

Technology frequently drives the need for organizational change, and IT is an integral part of change management within companies. Not only is the proposed change IT-based, but technology can also be used to manage the change internally. In addition, the change will not only involve the IT department, but should be integrated with many other departments in the company so that everyone embraces the goals of the plan and the firm overall—a mark of an effective organization.

1. How do you get employees on board with the urgency and skill sets to implement the planned change?

2. How will you communicate this transitional change to employees and stakeholders? 3. What areas of the company will you direct the change management team to align to achieve this

objective? 4. Which levels of change are involved in this type of initiative?

(See page 215 for possible answers)

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CHAPTER 1Section 1.4 Nature and Types of Organizational Change

Balogun and Hope-Hailey’s Change Model

Balogun and Hope-Hailey’s (2004) model includes four types of change that combine into four strategies. Figure 1.4 illustrates these different types that are organized on two axes: “nature of change” on the vertical axis and “end result” on the horizontal axis. The two classifications of change under the “nature of change” are incremental and big bang (a sud- den change that occurs “all at once”). The change can be significant in size, scope, and impact, depending on the particular situation.

The other two classifications of change under the “end result” perspective include trans- formation and realignment. Transformational change, as discussed previously, has a sig- nificant impact on organizations, including their culture, people, and systems. Realign- ment types of change do not generally entail a fundamental reassessment of the central assumptions and beliefs in an organization’s culture. Still, a major restructuring, for exam- ple, can have a large impact on an organization (Balogun, 2001).

The four strategies that leaders and managers can use when estimating the nature of their change and the desired end result are:

1. Evolution: when the change is incremental but transformation is the result. This strategy suggests proceeding in a progressive way by also analyzing both the internal and external environments while implementing the change. Implementing a new software system in a division over a two-year period is such an example.

2. Adaptation: when the change is also incremental and the end result is realign- ment. This is the least intrusive in impact on the organization and the most commonly used. Installing software applications, revising job descriptions, and including online training are examples.

3. Revolution: when the change is big bang and transformational. An example might be a company that is bought by another parent firm and the new owner requests the present leaders and managers to change the vision and mission and then replace a majority of the workforce.

4. Reconstruction: when the change is big bang combined with realignment. The organization may experience turmoil as in a turnaround or large expansion and

Figure 1.4: Balogun and Hope-Hailey’s change model

Source: From Balogun, J. & Hope-Hailey, H. (2004). Exploring strategic change. Harlow, UK: Financial Times/Prentice Hall. Reprinted by permission of Pearson Education Ltd.

Transformation Realignment

Nature of Change

End Result

Revolution Reconstruction

Evolution AdaptationIncremental

Big Bang

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CHAPTER 1Section 1.4 Nature and Types of Organizational Change

the basic business model may remain intact. The final three types of change and change processes we discuss are proactive versus reactive changes, strategic ver- sus tactical, and Tichy’s change matrix.

Proactive Versus Reactive Changes

Organizational change also can occur by choice or by force, in other words, proactive or reactive change. According to Williams, “Proactive change involves actively attempting to make alterations to the workplace and its practices. Companies that take a proactive approach to change are often trying to avoid a potential future threat or to capitalize on a potential future opportunity. Reactive change occurs when an organization makes changes in its practices after some threat or opportunity has already occurred” (Williams, 2005).

Proactive versus reactive change also relates to a leader ’s style in responding to change. While the type of change can be a disaster or crisis, it can also be less dramatic. Organi- zational leaders deliberately choose proactive responses for different motivations: when the leader sees more gain than loss from actively responding to change, believes the risk to respond can lead to even greater gains, or chooses to proactively respond even if losses will be incurred. Promising market share growth, increased resources, and gain- ing ground with competitors are factors that encourage proactive responses to change. For example, recently the leaders of Groupon, a contemporary technology start-up, chose to turn down a $6 billion offer to be bought by Google. Was this a reactive or pro- active decision?

Groupon’s short track record and poten- tial were judged by its owners and inves- tors to be of more potential value than Google’s offer. Groupon’s business model is unique:

Groupon takes the old Enter- tainment Coupon Books that your mom used to buy and brings it to the social web. Groupon sells a ‘Deal of the Day’ in each of its now 52 supported cities offering sig- nificant savings for local res- taurants, service providers, activities and memberships, and takes a commission. The trick is that the deal is only “triggered” once enough people buy in. This creates the incentive to share the deal

with friends and family, until ‘the deal is on.’ It’s great for local businesses because they can set the parameters for the offer and they know a mini- mum for how many offers they will have sold in advance. (Carpenter, 2010)

Is the decision to turn down a buyout by Google a proactive or reactive change? Pictured here is Andrew Mason, founder and CEO of Groupon, attending his company’s IPO at Nasdaq on Nov. 4, 2011. Groupon saw its stock climb by nearly a third. The question will be if the company can sustain such strength and momentum over the long term.

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CHAPTER 1Section 1.4 Nature and Types of Organizational Change

In two years the company transformed itself from a struggling Web site into a nation- ally recognized and respected company with more than 3,000 employees worldwide, a presence in 35 countries, and expected revenues of at least $500 million in 2010 (Harris & Wong, 2010). Groupon’s leaders have also strategically navigated the company, through its public offering.

Reactive change often occurs when external or internal influences pressure organizational leaders to respond or to react. BP (British Petroleum) was slow to assume responsibility regarding its role in the disastrous oil rig explosion and spill. Similarly, several years ago Exxon avoided its responsibility when its tanker, the Valdez, hit a reef in Alaska causing the largest oil spill in American history. The then Exxon CEO was hesitant to address the crisis directly, and afterwards in court the company attempted to lay the blame on the ship’s captain, an employee of Exxon. In another example, Bill Gates did not choose to go to court when Microsoft was charged with antitrust violations. He and his leaders reacted defensively but finally responded by making several technical changes to products. All of these companies have recovered, although great damage was done to the environment, some competitors, and communities at the time of the incidents. When responding to crises many corporate executives are cautious to not admit blame to avoid costly liability. However, it is interesting to note that crisis management experts advise corporate lead- ers to actively respond, face the facts, and communicate honestly and directly with all involved—including victims—and then act responsibly to help resolve the crisis. Acting with deliberation and compassion can sometimes decrease the costs—emotional, reputa- tional, and monetarily—toward resolving crises.

Reactive leadership styles to change based on studies of crises indicate that the con- sequences to stakeholders were neither positive nor beneficial in the short- or long- term. Proactive leadership is more often a preferred response to change than a reactive response since acting proactively is more likely to open possibilities for solutions while decreasing stakeholder reactions. Being a good citizen increases social and reputational capital of a company.

Strategic Change Versus Tactical Change

Strategic versus tactical changes relate to the models presented earlier. Level 1 and devel- opmental changes are more likely to require tactical (hands-on) specialist and manage- rial knowledge and expertise than changes that are either transitional, transformational, Level 3 or Level 4 changes. Transformational and transitional, Levels 3 and 4, changes require leadership styles and skills that use long-term thinking and vision, excellent people skills, and strong problem-solving skills.

Two examples of organizations that have effectively dealt with strategic change are EMC and IBM. Both were forced in the 1980s to change their direction, strategies, and market niches to survive and remain competitive. EMC Corporation, a leading information stor- age firm headquartered in Massachusetts, strategically decided to extend its direction and strategy into the software business as well as data storage. Based on the anticipation that the storage business had several competing companies, EMC decided to spread its risk and venture potential gain. When IBM extended its strategy from a hardware firm to also become a global e-services technology company, it recruited new leadership and

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CHAPTER 1Section 1.4 Nature and Types of Organizational Change

successfully expanded its vision, mission, and sales strategies. In fact, during 2011 IBM overtook Microsoft in market value for the first time in 15 years (Rosoff, 2011; Rigby, 2011). IBM ranked fourth in market value in the United States in the summer of 2011, trailing only Exxon Mobil at $397.4 billion, Apple, and General Electric at $205.6 billion (Rigby, 2011). Both EMC and IBM continue to effectively change with their environments and with competition.

Tichy’s Three Types of Change

Tichy’s framework (1982) explains change from a combination of external forces (political, technical, and cultural) that affect internal organizational systems. Figure 1.5, based on Tichy’s work, summarizes his views from a change specialist perspective.

Figure 1.5: Change framework

Managerial Areas Mission, vision, and strategy

Organizational dimensions: structure and systems

Human Resource management system

Change Forces

Technical system Does the change strat- egy accommodate these dimensions: new vision? Mission? Strategy? Has an objective analysis been conducted inside and out- side the organization to determine the new fit?

Does the change strategy, invention fit with the new culture? Values? Structure? Systems? Have new roles been integrated into division, regions, departments?

Have performance crite- ria been designed into new roles? Do people understand and accept their new roles and responsibilities? Is there training available for these adjustments?

Political system Have key stakehold- ers been informed and aligned to the new strat- egy and direction of the change?

Has power been dis- tributed across func- tions, departments, business units, and roles?

Have reward, appraisal, and promotion sys- tems been redesigned, updated, and realigned? Are new reporting sys- tems in place?

Cultural system Has the new vision, mission, and strategy been defined with regard to the values of the organization?

Are new leadership and managerial styles defined and aligned with the new culture, structure, and systems?

Have the right people been selected to develop and embed the new values and culture? Will people be rewarded for new behaviors?

Source: Based on Tichy’s Strategic Management Mix from Tichy, N.M. (1982). Managing change strategically: The technical, political and cultural keys.

Organizational Dynamics, Autumn, 59–80.

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CHAPTER 1Section 1.4 Nature and Types of Organizational Change

The technical system refers to external changes that influence an organization that include technological and economic pressures in Tichy’s framework. Many of these types of exter- nal influences include information technology systems like ERP (enterprise resource planning) and SAP (systems, applications, and products) software that helps improve operational efficiency and productivity of business processes of the enterprise; changing interest rates; and hypercompetition. Internally, the organization’s technical systems must accommodate new external changes. The political system includes pressures for change that relate to power, influence, and resource distribution. This dimension also refers to the organization’s internal system in terms of who the new sources of authority and power are, and who will distribute rewards and allocate resources. The cultural system includes the norms and values shared by members in an organization. Tichy also refers to cul- tural forces for change that include demographic composition and cultural diversity of the labor pool and societal values. Internally, the organization’s people, cultural values, relationships, and norms must align to the change.

Tichy argued that organizational leaders who effectively adapt to external change suc- ceed by strategically aligning their three basic organizational areas to specific pressures from these three forces of change. The three organizational areas include the (1) mission and strategy that define the organization’s purpose, goals, strategies, and the managerial processes used to implement these; (2) organizational structure that includes the means by which tasks are arranged, people are coordinated to do the work, and the managerial processes to align structure and people; and (3) human resource management that refers to recruiting, selecting, hiring, training, and evaluating and developing people and sys- tems to fit people with other organizational systems.

Figure 1.6 shows that when considering particular pressures from the technical system, leaders must be prepared with a change plan that addresses the following questions with regard to the management area of their mission and strategy: Do the change plan and interventions accommodate the new mission and strategy? Has an objective analysis been conducted inside and outside the organization to determine the new fit? That same change plan should also address political pressures exerted on the organization: Have key stakeholders been informed and aligned to the new strategy and direction of the change? Finally, the change plan should address the key cultural question—that is, has the new vision, mission, and strategy been defined with regard to the values of the orga- nization? Similarly, Figure 1.7 describes key questions that can be asked of a particular change plan from the organizational structure and systems, from the human resource management system, and from technical, political, and cultural forces that pressure an organization to change.

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

Managing Change Becoming a Truly Global Organization

As the strategic planning leader of a mid-market HVAC manufacturing company, you are facing increased competition with emerging market manufacturers of very similar products. Your company weathered the Great Recession based on customer loyalty and a strong organizational structure built on a history of good performance and efficiency. You are predominantly U.S.-based, but with some international customers. You need to keep costs stable in order to generate growth, but you recognize the scale of business has enlarged and demands change.

The solution agreed upon in the organization is to go global. While this effort will incur up-front costs, the consensus is that it’s a worthwhile long-term investment. But how do you become global in this increasingly integrated global business environment? Your company decides to send unit managers to the BRIC nations as well as Indonesia, Taiwan, and Thailand to assess the business environments and leading companies active in these countries. However, it is important to keep regulatory issues and differences in mind, as well as the risks associated with third-party suppliers of companies with whom you will potentially do business. Also key to doing business abroad is a clear understanding of the labor markets in those companies’ headquarter countries.

1. As you embark on this initiative, how will you manage costs? 2. To achieve the goal of the needed change, what changes will you propose in the technical system,

political system, and cultural system in your organization? 3. How will you utilize the four strategies in the change model to anticipate the effects of this change? 4. As there are risks associated with doing business in emerging markets, how will you be proactive in

your dealings with new companies?

(See page 215 for possible answers)

1.5 Organizational Effectiveness: Frameworks for Change

Why change? What drives organizations to change? For-profit organizations that are publicly traded on the stock exchange and have obligations to shareholders, as well as privately held firms, are driven by revenues and profits, market share, growth, product quality, competitiveness, customer satisfaction, and social (as well as financial) respon- sibility to the stakeholders and communities in which they reside, pay taxes, and serve. Public organizations that serve the interests of stakeholders and society are driven to meet their missions and responsibilities to those who fund and support them as well as to those whom they serve. Understanding what drives and motivates organizations, their own- ers, leaders, and teams to change—or not—is an important part of this field of study and practice. Not all constituencies in organizations seek, promote, and sustain change for the same reasons, if at all in some circumstances. This concern is dealt with in some of the fol- lowing effectiveness frameworks.

There are many such frameworks and models that apply to both private, for-profit and to nonprofit, public organizations. The four classic and contemporary approaches presented here and referred to throughout the book each cover a dimension or area missing in the

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

others. The four include: (1) open-system, resource-based approach (Katz & Kahn, 1978), (2) contingency approach (Fiedler, 1967; Weisbord, 1987), (3) balanced scorecard (Kaplan & Norton, 1992, 2004), and (4) stakeholder theory (Freeman, 1972).

Open-Systems Framework

The open-system theory is based on Katz and Kahn’s (1978) work. Variations of the frame- works have evolved including the one shown in Figure 1.6.

Goal-driven organizations generally input resources into their internal systems, trans- form the resources into products, services, or some form of output, then sell, distribute or release the product, service, or output. This approach is based on the premise that to be successful, organizations must obtain scarce or valued resources and effectively integrate and increase their value (Daft, 2010) through their integrated systems. This approach applies to all types of organizations, nonprofit and for-profit alike. The extent to which these organizations require change depends on how they relate and respond to their external and internal environments. Any indicator of performance can be used to deter- mine the effectiveness and efficiency of the input-throughput-output process and how the processes work together.

This model depicts the internal environmental elements of a research organization show- ing the relationships among the inputs that provide resources for organizational func- tions, the structures and processes that define an organization’s operation, and the outputs and outcomes of an organization’s activities that are carried out by individual scientists, research groups or teams, and other research-related programs. All of these elements func- tion within the context of an organization’s culture and climate. The internal environment is affected by the external environment. The system is dynamic, and, as indicated by the feedback arrow, outputs and outcomes affect future inputs and resources.

The open-systems concepts are relevant to the organizations and agencies that comprise the U.S. “intelligence community” in particular, the CIA (Central Intelligence Agency) and FBI (Federal Bureau of Investigation). Prior to the 9/11 terrorist attack in 2001 on the World Trade Center towers, these organizations were responsible for taking in information (the input phase of the model), processing it (the throughput phase), and then alerting and

Figure 1.6: Open-systems, resource-based approach

Environment Environment Product, Service Outputs

OutputThrough-putInput

Transformational Organizational

Processes -leadership

-strategy, structure culture, systems

Resource Inputs

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

preventing such attacks (the output phase). Both agencies were created in the pre-World War II era (CIA, 2010; FBI, 2003) at different times in history with different missions and capabilities. Both were founded when centralized authority and intelli- gence operations required a top-down structure and decision-making hierarchy—as did most large organizations in those days. In the post 9/11 era, global and national terrorism has blurred and com- plicated the nature of intelligence, surveillance, and the way agencies like the FBI and CIA operate.

The National Commission on Terrorist Attacks Upon the United States (2004) published an insightful, researched report analyzing the organi- zational problems the broader “intelligence com- munity” experienced before and during the 9/11 attacks that led to the disastrous outcome. The FBI and CIA, as well as the other agencies involved in this “community,” were exposed as closed orga- nizational systems and networks—closed to the environments in which they operated, closed to each other with their communications, and closed to the responsibilities inherent in their missions to protect the American people.

As the open-systems model in Figure 1.7 illus- trates, the CIA and FBI could, and some argue should, have been taking in and sharing information on terrorist planning activities that were available to these agencies. These agencies, according to that report, should have processed the information they had and shared it with law enforcement and government agencies. If that had happened, the terrorist attacks might have been prevented. The fol- lowing excerpts are worth quoting from this report to illustrate the closed and inept nature of how the organizations operated in the intelligence network:

Management

The missed opportunities to thwart the 9/11 plot were also symptoms of a broader inability to adapt the way government manages problems to the new challenges of the twenty-first century. Action officers should have been able to draw on all available knowledge about al Qaeda in the gov- ernment. Management should have ensured that information was shared and duties were clearly assigned across agencies, and across the foreign- domestic divide. . . . .

There were also broader management issues with respect to how top lead- ers set priorities and allocated resources. For instance, on December 4, 1998, DCI [Director of Central Intelligence] Tenet issued a directive to sev- eral CIA officials and the DDCI [Deputy Director for Central Intelligence]

Even government organizations, such as the FBI (pictured here) and the CIA, must continually plan for change to keep up with national security threats domestically and abroad.

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

for Community Management, stating: ‘We are at war. I want no resources or people spared in this effort, either inside CIA or the Community.’ The memorandum had little overall effect on mobilizing the CIA or the intel- ligence community. This episode indicates the limitations of the DCI’s authority over the direction of the intelligence community, including agen- cies within the Department of Defense. . . .

The U.S. government did not find a way of pooling intelligence and using it to guide the planning and assignment of responsibilities for joint opera- tions involving entities as disparate as the CIA, the FBI, the State Depart- ment, the military, and the agencies involved in homeland security. . . .

The intelligence community struggled throughout the 1990s and up to 9/11 to collect intelligence on and analyze the phenomenon of transnational ter- rorism. The combination of an overwhelming number of priorities, flat budgets, an outmoded structure, and bureaucratic rivalries resulted in an insufficient response to this new challenge. (National Commission on Ter- rorist Attacks Upon the United States, 2004)

In fairness to both the CIA and FBI agencies, Franklin (2002) argued that these agen- cies were not designed to cooperate and their missions required them to keep separated boundaries. He wrote that:

The FBI is a law enforcement organization that was designed to track down and arrest the crooks that local cops can’t. The CIA is an intelligence agency that was designed to tell policy-makers what’s really going on in the world. One measures its accomplishment by successful convictions, the other by successful predictions. Both use intelligence to do their jobs, but catching the kidnapper of the Lindbergh baby and determining whether Gen. Bad- enov still has influence with Khrushchev are two very different goals. And because the work is so different, the two agencies differ in how they collect, analyze, act upon, and share intelligence. (Franklin, 2002)

Perhaps in the current era the missions and the nature of the work of both agencies will be reexamined. Large-scale organizational changes may be in the works. Franklin sug- gested creating a “dedicated counterterrorism agency” by removing the counterterror- ism divisions from both the FBI and the CIA and adding these to the Justice Department and NSA (National Security Agency). He noted that “The goals of intelligence collec- tion and criminal prosecution will still interfere with each other, but decisions of how to prioritize can be made by a single, top-level official, rather than by innumerable agents and analysts deciding on their own what to pass along and what to keep to themselves” (Franklin, 2002).

Contingency Alignment Framework

Contingency theory was developed in an organizational, leadership content by Fiedler (1967; Weisbord, 1987). The theory has since been applied to numerous disciplines and fields. Figure 1.7 illustrates a version somewhat related to the open-systems, resource-

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

based approach. This approach (framework) is also similar to Tichy’s matrix, discussed earlier. This framework has several different dimensions in addition to Tichy’s and also has an internal input dimension.

Another main difference in this framework is that the internal organizational dimensions (vision and strategy, structure, people, measurement systems, nature of work, culture, and technology) all should “fit” and work together to add value and synergy to both the input and the output of the organization. When any one or more dimensions do not cohere or fit together, any number of problems could arise—human, technical, performance, team, leadership, environmental resource, and so on. Organizational leaders and change spe- cialists could use this framework to anticipate how a change strategy and plan would affect the interrelationships of the different dimensions.

Using the above example of the U.S. intelligence community, including the CIA and FBI with regard to the 9/11 terrorist attacks, we see the added information that can be gained by using the contingency model. As with the open-systems model, the input-transformation- output phases are included to identify and assess the processes and outcomes that organi- zations use to complete products/services, or in this case, information about and actions to detect and prevent terrorist acts.

Figure 1.7: Contingency model

Source: Created by Weiss, J.W. (2001) based on Weisbord, M. (1987). Productive Workplaces. San Francisco: Jossey-Bass, and Burke, W. in Ann Howard (Ed.) (1994).

Diagnosis for organizational change. New York, NY: Guilford Press.

Customer Partnership

Transformation

Current to Future State

Customer Satisfaction

Outputs

Customer Requirements

Inputs

Vision and Strategy

Culture

Nature of Work

Structure

Technology

People

• Leadership • Environment • History • Resources

Organizational Level • Competitiveness • Market share • Product and service quality • Responsibility (environment and community)

Group Level • Synergy • Performance • Effectiveness • Satisfaction

Individual Level • Performance • Satisfaction • Development and growth

Measurement Systems

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

In the contingency model, the throughput (or transformational) phase shows that an organization’s vision, strategy, people, structure, and other dimensions should “fit” and interact with the culture to produce desired outcomes for customers—or in this case, the American people and system.

Using the contingency model to analyze the National Commission’s Report and recom- mendation on the intelligence agencies’ performance to the 9/11 attacks would involve selecting one or more organizations in that community (the FBI, the CIA, the Executive or Congressional branches of the federal government, or the State Department). Then using the same type of information from the open-systems model discussed above, an exami- nation of the inputs would be evaluated. These inputs would include who the organiza- tional leaders were, what they knew about the threats, and their record for taking action; resources the organization had available to deal with the terrorist threats; and the recent history of the organization. At the transformational phase, all the dimensions (vision and strategy, culture, structure, people, technology) would be examined to determine how the information about the terrorist threat was “processed” and dealt with to make decisions leading to the output phase.

It is interesting to note that the final National Commission Report is clearly critical of the overly bureaucratic, closed, and inept way the intelligence organizations and leaders handled—or mishandled—the information they did have. Moreover, the culture in most of the intelligence organizations seemed listless, helpless, and somehow stymied from taking responsible action. As the report noted, the government and management showed “. . . symptoms of a broader inability to adapt the way government manages problems to the new challenges of the twenty-first century” (National Commission on Terrorist, 2004). Had the leadership at the executive levels of government in particular, and at the FBI and CIA, taken the threats seriously, been prepared, used resources wisely, and acted more responsibly and aggressively in designing strategies, mobilizing structures, cultures, and people to detect and prevent terrorists attacks at the input and transformation stages of the contingency model, 9/11 may never have happened.

So, the contingency model offers added dimensions and information for studying how organizations prepare, plan, and respond to external threats and opportunities in their environments. Both the open-systems and the contingency models are useful approaches for students and specialists in change management.

Balanced Scorecard

Kaplan and Norton’s (1992, 2004) Balanced Scorecard is one of the most popularly used alignment frameworks by corporations globally to track and align performance at the indi- vidual, team, and division levels to the overall enterprise vision and strategy. Bain & Com- pany reported that by 2002 the Balanced Scorecard was in use by 50 percent of the Global 1000 companies (Calabro, 2001). Norton (2010) reported in a 2008 survey that 62 percent of organizations used the approach and strategy maps as their main organization framework (Balanced Scorecard, Performance Management, 2011). It is a popular framework in corpo- rations and organizations.

The scorecard is a contemporary, electronic version of contingency theory. As Figure 1.8 shows, the balanced scorecard adds “strategic non-financial performance measures to

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance” (Balanced Scorecard Institute, 1998-2011). The idea of this approach dates back to the 1950s with the work of French engineers, and to General Elec- tric’s measurement system in the 1990s.

As members of the Balanced Scorecard Institute note (Balancedscorecard.org), this approach evolved from a simple performance measurement model to a complete strategic planning and management system. The framework is currently used to transform organizations’ strategies into implementation guidelines. It is a management system, not just a measure- ment system. Kaplan and Norton state that:

The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that informa- tion age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation. (Balancedscorecard.org)

Figure 1.8: Balanced scorecard

Source: Balanced Scorecard Institute. http://www.balancedscorecard.org/ Adapted from Kaplan, R.S. & Norton, D.P. (1996, January–February).

Using the balanced scorecard as a strategic management system. Harvard Business Review, 76.

Financial “To succeed financialy, how should we appear to our shareholders?”

Internal Business Processes “To satisfy our shareholders and customers, what business processes must we excel at?”

Vision and Strategy

Customer “To achieve our vision, how should we appear to our customers?”

Learning and Growth “To achieve our vision, how will we sustain our ability to change and improve?”

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M e a su

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M e a su

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

Four Perspectives The four perspectives of the balanced scorecard, illustrated in Figure 1.9, include the financial, customer, learning and growth, and internal business processes. The balanced scorecard uses these four perspectives to view organizations, develop metrics, and gather data for analysis from each perspective. The four perspectives illustrated in Figure 1.9 are briefly summarized here.

The financial perspective includes traditional financial and related data such as risk assess- ment and cost-benefit data. The customer perspective refers to data and metrics on leading indicators such as how customers evaluate performance of the company and customer satisfaction that relates to types of customers and processes used to deliver services and products to different groups. The learning and growth perspective includes data and infor- mation on individual and corporate attitudes related to self-improvement. Resources and metrics refer to employee training and funds to support a knowledge–worker organiza- tion. This perspective also includes mentors and tutors in the organization and technolog- ical tools for “high performance work systems” (Balanced Scorecard Institute, 1998–2011). The business process perspective incorporates data and customized metrics on internal busi- ness processes that inform and update managers on the progress and status of their busi- nesses and whether products and services meet customer requirements.

From a change management perspective, the balanced score card offers a real-time auto- mated monitoring system for tracking and integrating an entire organization around its core strategy and mission. We will return to this and the other frameworks in the text to examine applications and examples of these approaches as they relate to change management.

Critique of the Balanced Scorecard Because of its broad contemporary appeal and use, this framework has critics and sup- porters. Like any organizational methodology, this alignment approach is not perfect. Salterio and Webb (2003) gave a mixed review, stating that it “may aid some organizations in better articulating and communicating their strategy, measuring the drivers of their performance and detecting the superiority of one strategy over another” but that “con- cerns over linking the scorecard to performance evaluation and hence to compensation seem just as challenging as with any other performance-based compensation system.”

Staff from the Balanced Scorecard Performance Management group (2011) reported that the most conclusive evaluative study of the scorecard’s effectiveness was performed by Crabtree and DeBusk (2008). That study compared 57 companies using the Balanced Scorecard with 107 firms that did not. The comparison was based on three key perfor- mances, two years pre-adoption, and three years post-implementation of the framework. The results showed that over a three-year period beginning with the year of adoption firms that used the framework significantly outperformed those that did not. The author of this article was quick to note, though, that widespread evidence of such efficacy is still scarce, and so more research and evaluation needs to be done.

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

The Stakeholder Approach

The stakeholder approach is also used here because of its capacity to enable users to iden- tify groups, their “ethics,” and how each affects and is affected by an organization’s change. Stakeholder theory originated as a strategic management approach to address the “Princi- ple of Who or What Really Counts” (Freeman, 1984) when addressing an organization’s stra- tegic interactions with different groups. Freeman’s classic definition of a stakeholder is any group or individual who can affect or is affected by the achievement of the organization’s objectives. The use of the term stakeholder(s) has become commonplace in organizations.

This also is a popular and useful method for organizational leaders and change specialists who wish to anticipate how a particular strategy will affect stakeholders before, during, and after a change plan is implemented. It has been used across disciplines such as infor- mation technology, public administration, and bioethics, to name only a few (Yates, Weiss, & Gulati, 2010; Hardwig, 2010; Heath & Norman (2004). More recently, the approach has been used to examine the values and ethics of different stakeholder groups:

Stakeholder theory begins with the assumption that values are necessarily and explicitly a part of doing business. It asks managers to articulate the shared sense of the value they create, and what brings its core stakehold- ers together. It also pushes managers to be clear about how they want to do business, specifically what kinds of relationships they want and need to create with their stakeholders to deliver on their purpose. . . . truth and freedom are best served by seeing business and ethics as connected. (Free- man, Wicks & Bidham, 2004, p. 364)

Ethics is part of a change management strategy, planning, and implementation process whether explicitly or implicitly acknowledged. Ethics simply stated is saying and doing the right thing. Generally, ethical behavior is principle based, that is, people think, speak, and act from principles such as honesty, integrity, openness, and a concern for others and their welfare. We can observe different individuals and groups’ ethics using a stakeholder approach by observing the values embedded in the goals, needs, and skills of different stakeholders.

Figure 1.9: Stakeholder map

Partners; alliances

Owners shareholders

Customers

Government

Vendors

Suppliers

Creditors

Community

Employees

Organization (Board of Directors,

Top level team)

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

Managing Change Adapting Company Strategy to Consumer Demands

Your health-care company faces continually rising costs for services and strained budgets of consum- ers, but increased demand for top-notch service. Insurance companies are contracting for lower pay- ments to providers and their companies, adding to the pressure, yet customers often need to utilize in-network benefits so it behooves your company to participate in insurance plans. Optimization of resources is more important than ever.

You and the management team decide on several measures of change in the organization to deliver on this, while keeping costs in check:

• a new scheduling system enabling the company to service more customers and see more patients, which requires transitional change management

• a system of payment plans to allow customers flexibility in out-of-pocket expenses, requiring devel- opment change to the existing billing structure

• employment of top health-care providers on a part-time basis, to maximize the level of care given without having to pay for full time while responding to the work/life considerations of these indi- viduals—this requires transformational change management

The management team is aware that cross-functional consideration will have to be given to these changes and their impact on all corners of the company, and that alignment to the company objectives is critical, so several theories are used to implement the changes effectively:

1. Using the stakeholder approach, identify the shared values of different departments in the com- pany, and evaluate how the proposed changes will affect all stakeholder groups.

2. How do the different units in the company fit together? Use the contingency theory to illustrate how the change will affect these interdependencies.

3. How would the balanced scorecard approach benefit the change initiative? 4. How do the four perspectives in the balanced scorecard play into the implementation of the

changes proposed?

(See page 216 for possible answers)

Because planned organizational changes can involve a wide range of both internal and external organizational stakeholders, depending on the type and scope of change, the probabilities of ethical issues and dilemmas occurring at any or all of the phases of a change program are high. Figure 1.10 illustrates the types of ethical dilemmas that can occur, episodically or over time, in any change project among stakeholders and, in this case, between or among change agents (specialists) and the client organization.

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CHAPTER 1Section 1.5 Organizational Effectiveness: Frameworks for Change

Figure 1.10: A role episodic model of ethical dilemmas

Source: From White, L. & Rhodeback, M. (1992). Ethical dilemmas in organizational development: A cross cultural analysis. Journal of Business Ethics, 11(9), September 1992, 663–670. Reprinted by permission of Springer Science + Business Media.

ANTECEDENTS PROCESS CONSEQUENCES

Values Goals Needs Skills

Abilities

Role of the change agent

Role episode Role conflict Role ambiguity

Ethical dilemmas

• Misrepresentation • Misuse of data • Coercion and

manipulation • Value & goal conflict • Technical ineptness

Role of the client system

As the figure shows, the antecedents or background/precipitating experiences of ethi- cal dilemmas in change projects involve the values, goals, needs, skills, and abilities in the roles of the change agent (specialist) and the client system (the organizational lead- ers, managers, or employees working with the change specialist). For example, change specialists may hold such professional—and personal—values as honesty, integrity, and openness. On the other hand, a representative from the client system may hold values of expediency (get the job done quickly regardless of the costs). During the process of imple- menting the change, role conflicts, and role ambiguity involving differences over values in goals, needs, skills, and abilities between a change specialist and someone from the client organization are likely to happen.

Figure 1.10 illustrates some of the kinds of common ethical dilemmas that occur over such differences, including misrepresentations, misuses of data, coercion, value and goal con- flict, and technical ineptness. A misrepresentation could occur for any number of reasons. For example, a change specialist may exaggerate claims about an outcome of an interven- tion process she or he implemented. Misuses of data could occur if client data collected by a change specialist was used by the organization to punish an employee. Coercion and manipulation in this figure refer to situations where organizational members of the client system are forced to participate in an OD or change management intervention against their will—for example, to take a survey that violates their rights. Value and goal conflict between change specialists and the organizational client can occur when the goal of the change is ambiguous and/or when there is lack of agreement over how to achieve a goal. Technical ineptness may occur when certain knowledge, skills, or abilities are lacking to effectively implement change strategies.

We will describe and show how specific ethical principles can and should be part of all change management engagements in this text. When fairness, honesty, and truthfulness are practiced by different stakeholders as depicted in Figure 1.10, the welfare and com- mon good of all can be honored. Organizational change engagements are more likely to be conducted ethically and professionally when the leaders, managers, and members of both the client organization and the change specialist team are:

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1. Aware of their own values and obligations and are guided by values and prac- tices that serve the interests of the common good of all as well as their own short- term needs.

2. Act with integrity, honesty, and openness in all communications and transac- tions, focusing on delivering goods and services as contracted with the highest level of required skills and professionalism.

3. Honor and respect the legal, human, and moral rights of all persons in the change engagement process. The Code of Ethics for the Project Management Profession is also an excellent ethical guide for students and professionals of organizational change.

Summary

Planned change has become a constant for most organizations and companies in the twenty-first century. Organizational change is now taught in many universities and colleges. Hypercompetition combined with weakened economies, including the global economy, has created the need for innovation, creative thinking, and change expertise. Apple’s late CEO Steve Jobs, Jeff Bezos at Amazon, Mark Zuckerberg at Facebook, and so many other less well-known leaders not only meet the external challenges organizations face, but they also create value through anticipating and leading change. Innovators wel- come change; those less prepared often fear it; but we all have to deal with it.

Organizational change can be learned by those who enter and are part of the workforce. The fields of Organizational Development (OD) and change management provide the- ory, models, skills, and lessons for all to use. Seasoned change leaders, professionals and students will at some point be called on to not only accept some type of organizational change, but also to help diagnose, plan, and implement changes designed to increase an organization’s effectiveness.

Understanding the sources of change is a first step. Dominant forces driving change stem from new technologies and elements in the following environments: economic, govern- ment, legal, political, sociocultural, natural disasters, and globalization. The three gen- eral types of change that characterize ways organizations respond are: developmental (small-scale improvements to part of an organization), transitional (larger, more intrusive changes that can involve several parts of an organization), and transformational (signifi- cant changes that affect the entire organization).

Organizational responses to change involve strategic, tactical, proactive, reactive, politi- cal, technical, and cultural dimensions. Knowing the elements of each of these dimensions offers those planning a change more options in which to respond. We end by explaining the following four organizational effectiveness frameworks that provide professionals and students “big picture” frameworks for aligning the internal organization to chang- ing external markets and industry environments: the open-systems, the resource-based approach, contingency alignment framework, the balanced scorecard, and the stake- holder approach.

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Learning Objectives Recap

1. Planned organizational change is a process that moves companies from a present state to a desired future state with the goal of enhancing their effectiveness. Ulti- mately, the goal of planned organizational change is to improve an organization’s capabilities.

2. Organizations must change to survive and maintain competitiveness by meeting customer needs and demands, and other external requirements (legal, techno- logical, cultural).

3. Organizational development is an effort, planned organization-wide, and man- aged from the top, to increase organization effectiveness and health through planned interventions in the organization’s processes, using behavioral-science knowledge. Change management encompasses approaches used by business- content and behavioral process specialists that assist leaders to move entire orga- nizations, or units, from a present to a desired future state.

4. OD change specialists have focused on people and human dimensions of orga- nizations such as culture, climate, leadership, and communication. These areas include methods that involve teambuilding, survey feedback, quality of work life, restructuring work and positions, and job satisfaction. They deal with strat- egy, structure, and other organizational dimensions, but less with the technical areas. Change management specialists deal with more technical management, strategy, finance, marketing, engineering, IT, and other functional area content expertise areas as well as with process.

5. Technological, economic, political–legal, sociocultural forces, natural disasters, and human-induced problems all affect organizations as Figure 1.1 illustrates.

6. Figure 1.3 illustrates major forces for change (competitive advantage, control, impatient capital markets, cost containment, environmental adaptability) and forces for stability (predictability, organizational social capital, sustained advan- tage, transaction costs, and institutionalism).

7. Three major types of change that affect organizations are developmental, transi- tional, and transformational.

8. Strategic change responses seek to address more long-term opportunities and issues that require planning; tactical change responses are more immediate and hands-on. Proactive responses to change are deliberate and planned and involve actively attempting to make alterations to the workplace and its practices. Reactive responses occur after a change has taken place and may involve less thoughtful and responsible actions.

9. These approaches address how organizations address effectiveness in responding to external requirements and demands: An open-systems approach addresses the ways an organization selects, transforms, and produces products and services to meet external demands. A contingency alignment approach deals with the way an organization’s internal dimensions “fit” together in meeting external require- ments. (The balance scorecard is also one form of contingency theory). The stakeholder approach addresses all relevant stakeholders as well as stockholders’ interests and needs when dealing with change. Being socially responsible as well as seeking profitability is part of this approach.

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Discussion Questions

1. Explain why organizations must change given the nature of the environments in which they operate.

2. In what ways do the fields of OD (organizational development) and change man- agement differ and overlap?

3. What are some skills and knowledge used by OD and change management specialists?

4. Describe a specific element of change that can be found in each of the following environments that affect organizations: economic, technological, sociocultural, government, and political.

5. What are the differences between Type 1 and Type 2 errors that leaders and man- agers can make in perceiving change?

6. Describe some ways that Dunphy and Stace’s Four Levels of Change can apply to and fit with Balogun and Hailey’s Change Model.

7. What are some differences and values from other models discussed in this chap- ter that Tichy’s Framework (Figure 1.3) offers?

8. Explain what you find interesting and different about each of the four change approaches presented in section 1.5 (open-systems, contingency alignment, bal- anced scorecard, and stakeholder approach).

Key Terms

adaptation

balanced scorecard

change management

competitiveness

contingency alignment framework

corporate transformation

cultural system

developmental change

evolution

fine tuning

incremental adjustment

modular transformation

organizational development

open systems theory

planned organizational change

political system

proactive change

reactive change

realignment

reconstruction

revolution

stakeholder

stakeholder theory

technical system

transformational change

transitional change

type 1 error

type 2 error

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Web Links

An Interview with a Human Resources OD Consultant, from DrKit.org “Human Resources Organizational Development Consultant, career interview from drkit .org” at http://www.youtube.com/

The International Organization Development Code of Ethics http://www.theodinstitute.org/od-library/code_of_ethics.htm

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