MGT 435 Paper - Change Model Assignment

Learning Objectives

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

1. Describe the major reasons why change programs fail in organizations. 2. Identify the role of leaders in shaping and sustaining change. 3. List the five pillars of successful, sustainable change and describe the relationship among the pillars. 4. Recognize useful principles and practices in sustaining change. 5. Describe the different levels of strategies involved when planning a change. 6. Describe the importance of attracting and retaining the right talent in sustaining change. 7. Identify the characteristics of “built-to-change organizations” that position them to successfully

sustain change. 8. Describe self-designing organizations and the practice of creating a learning and continuous change

environment in organizations.

Shaping and Sustaining Change4

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CHAPTER 4Section 4.1 Introduction: Back to the Future

4.1 Introduction: Back to the Future

Sustaining major organizational changes does not involve “one-shot” or quick-fix solu-tions to problems. Embedding change in organizations requires continuous top-down, bottom-up leadership and process improvements—including supportive and innovative actions throughout the enterprise. The CEO and top-level team generally define and lead the change, but everyone must get involved in managing, recreating, and rejuvenating the ongoing renewal processes.

Chapter 4 Outline

4.1 Introduction: Back to the Future Long Marches, Not Bold Strokes Why Change Programs Fail Organizing to Succeed at Change:

The Big Picture

4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

Lessons from the Great Companies Revitalizing Leadership Revitalizing Strategy Revitalizing Culture Revitalizing Structure Revitalizing Systems and Processes

4.3 Attracting Talent and Empowering Employees

Recruiting through Branding Using Social Media to Recruit Seeking Recruits Using a Talent Mindset Empowering Employees for Change

4.4 Sustaining Change: Built-to-Change Organizations

Seeking Temporary Competitive Advantages Continuous Change and the Virtuous Spiral Creating Job Structures without Job Titles Implementing Downward Decision Making Leading As a Team

4.5 Future Change Challenges and Best Practices

Self-Designing Organizations Corporate Social Responsibility (CSR) Core Competencies Sustainability Analytics Capability Meeting the Challenges of Globalization Meeting the Challenges of Disruptive

Change Developing EI (Emotional Intelligence)

“Nothing is easier than saying words. Nothing is harder

than living them day after day.” —Arthur Gordon

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CHAPTER 4Section 4.1 Introduction: Back to the Future

Long Marches Not Bold Strokes

While some transformational changes may start with a “big bang,” embedding and sus- taining them takes time, talent, and effort. Rosabeth Moss Kanter, Harvard professor and change expert, says,

Years of study and experience show that the things that sustain change are not bold strokes but long marches—the independent, discretionary, and ongoing efforts of people to adjust their behavior, and that behavior is often beyond the control of top management. Yes, as a senior executive, you can allocate resources for new product development or reorganize a unit, but you cannot order people to use their imaginations or to work col- laboratively. That’s why, in difficult situations, leaders who have neglected the long march often fall back on the bold stroke. (Kanter, 2002, p. 48)

In order to know how to revitalize and sustain large-scale changes, it is important to know some of the major reasons why changes fail in the first place.

Why Change Programs Fail

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

• Opposition to change • Failure to recognize the need for change • Superficial recognition of the need for change • Failure to systematically implement change • Short-term fix approach • Structural impediments to change • Cultural impediments to change • Failure to sustain change

Opposition to Change Change programs are often destined to fail because of the top-down imposed nature of the process. The scenario is familiar: a CEO or top-level team member has some new ideas from talking to friends, witnessing a change from a competitor, attending a seminar, or reading current business trends; and from impulse or a revelation, decides to move for- ward and try something new with a division or the company. Following a current man- agement fad is another frequently observed reason to initiate a change. Fletcher and Tap- lin quote an electronics plant manager:

Over the years, we’ve tried quality circles, management by objectives, TQM [total quality management], and JIT [just in time]. We’ve reengi- neered twice in the last decade. We’ve tried teamwork twice, and we’ve

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CHAPTER 4Section 4.1 Introduction: Back to the Future

had more initiatives than I care to remember. Every time there’s something new, the CEO is calling meetings to tell us what to do. There is so much change going on that no wonder we’re not efficient anymore. We just keep playing around with new ideas. (Fletcher & Taplin, 2002, p. 180)

When change is arbitrarily imposed, poorly explained, and hastily announced from the top, managers and employees can become disillusioned, lose motivation, and become increasingly resentful and resistant to the change. Their work often changes and increases while resources and time for quality decreases. Managers in particular are thrown into confusion when they are asked to implement and guide changes that are not adequately explained and for which they have few or no blueprints or models to guide the implemen- tation. Also, when managers are given little strategic direction or rationale for implement- ing changes, they typically revert to emphasizing what they know best: operational detail that is activity (not goal) driven. For example, Friendly’s restaurant chain recently filed for bankruptcy (Lehman, 2011). While many reasons explain this chain’s failure—including the slumping economy, the chain’s debt and financial situation—the lack of a clear strate- gic direction was also an issue. O’Brien wrote in 2009,

To compete—and potentially thrive—in this environment, restaurants like Friendly’s, founded nearly 75 years ago by Curtis and S. Prestley Blake, must find ways to differentiate themselves, and then continually drive home to the consuming public what makes them different, said Lid- vall [Friendly’s President and CEO], adding that, with Friendly’s, that differentiator is ice cream. . . . As the industry has continued to segment, the lines and the definitions of brands have blurred somewhat, I believe. (O’Brien, 2009)

Unfortunately Friendly’s attempts at competitiveness, including placing the emphasis on ice cream and other piecemeal marketing ideas, proved unsuccessful. Failure can also occur when the purpose of the change is not shared by the people and is, in turn, sepa- rated from the organizational processes required for implementation.

Failure to Recognize the Need for Change In the 1970s and 1980s, CEOs of some of the largest, most innovative world-class U.S.- based international firms were entering a period they did not anticipate, one featuring fierce global competition and new ways of streamlining operations. IBM, Digital Equip- ment Corporation, Polaroid, General Motors—to name a few—were still resting on their past successes. Digital and Polaroid were not able to survive. They had the arrogance to believe they could continue to dominate their industries with bulky hierarchies, unreal- istic overhead costs, and outdated operations. Japanese auto and electronics companies entered with the first wave of new and competitively priced products that were made with higher efficiency operational methods. The result was two decades of radically induced change for all U.S. industries: TQM, JIT, reengineering, and the introduction of IT (infor- mation technology) into the assembly-line process.

The failure to recognize the need for change continues to be a major cause of change pro- grams that are initiated too late to regain competitiveness; are initiated poorly, without proper attention to how change processes should be planned; or are still not initiated at all.

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CHAPTER 4Section 4.1 Introduction: Back to the Future

Superficial Recognition of the Need for Change Some CEOs and organizations decide to go forward with a change, but without the nec- essary commitment to allot the resources and the energy of the entire enterprise. They believe that targeting for change a certain division, business unit, department, program, or management practice will, itself, solve the problem and generate new opportunities throughout the entire organization. In reality, a comprehensive plan is typically called for. In such instances, concern for cost, in terms of time and money, is the prohibitive factor. In other instances, such short-sightedness may be due to a top-level individual, team, or dominant coalition’s lack of political or business acumen, or some other limiting capacity. Whatever the specific reasons for not understanding and taking action on the need for total change, this general type of thinking has been characterized as “myopic” (Morgan, 1997, p. 3)—that is, top-level leaders are trapped into thinking in terms of the status quo or “If it isn’t broken, don’t fix it.” When incremental, piecemeal, or selected organizational targets for limited change are adopted in place of needed enterprise-wide and transfor- mational changes, the result is often loss of resources, time, effort, and competitiveness.

Failure to Systematically Implement Change Failure to systematically lay out a complete change program and then implement accord- ing to that plan, leads to the failure of intended results. A U.S. Department of Labor study concluded that productivity and financial gains are more likely to be obtained when implemented from a systematic approach (U.S Dept. of Labor, 1993; also see Matthews, 2009). Companies that attempt to change one system without coordinating and align- ing complementary related systems to facilitate the change, generally fail to achieve their original goals. For examples, airlines that attempt to improve customer relations by train- ing flight attendants but not check-in agents; firms that attempt to decrease time between point-of-sale and collection of payment by improving sales professional’s strategies, but not changing the internal processing of payments; companies that move marketing con- tent online to extend their products’ reach to potential customers, but do not create sys- tems to process online purchases; and the list goes on. When organizations do not study all the core processes in their business from the perspective of their new vision and change goals, and then decide on an implementation plan that aligns all the major systems, failure is on the horizon.

Short-Term Fixes The American capitalist business and financial system is based on short-term time hori- zons. U.S. corporations operate on a quarterly basis and are valued on both short- and long-term information. Financial analysts evaluate, predict, and recommend “buys, holds, and sells” on stocks from quarterly reports—using past and future trends. While speed, efficiency, and innovation are hallmarks of the American capitalist business sys- tem, the short-term perspective also can and does contribute to myopic decision making and short-term fixes.

This logic also holds true for change programs. CEOs and executive teams that unnecessar- ily rush the environmental scanning, planning, and diagnosis of identifying the problems and opportunities for change, risk making the mistake of identifying the wrong problems and opportunities to be targeted. Then, the rush to hasty and ill-prepared implementation

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CHAPTER 4Section 4.1 Introduction: Back to the Future

compounds the problems of building in further failure: poorly coordinated and prepared teams to implement, forcing a sacrifice in quality of implementation, sub-optimizing goals (selecting less than desirable goals in order to meet time and task completion pressures), and then preparing the change effort for failure in costs, wasted effort, and lack of goal attainment. A study by Weiss and Datta (2002) of three large global firms’ change pro- grams that moved marketing content to the Web found that:

. . . technology objectives tended to continually overwhelm enterprise and business strategies. The subordination of enterprise strategy resulted in dysfunctional organizational conflict and unnecessary project delays. Also, unanticipated, disruptive consequences of the changes resulted in con- fused organizational roles and work practices, which were not adequately addressed. This study recommends: (1) Enterprise and information tech- nology (IT) strategy should be jointly planned before the content change process begins. Project sponsors representing top-down and bottom-up organizational levels should be assigned to coordinate IT and business goals throughout the project life cycle. The primary role of the project spon- sors would be to anticipate and solve team and individual work-related needs during the project. (2) Change management interventions should also be incorporated into the enterprise method to commit, involve, and train those affected by the change. (Weiss & Datta, 2002, p. 39)

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

Structural Impediments to Change Bureaucratic structures and hierarchies in large corporations have presented a major obstacle for implementing large-scale change. In fact, the methods of BPE (business process engineering) and reengineering were revolutionary in that these approaches cut through and eliminated unneces- sary barriers and blockages in all business pro- cesses, and were designed to decrease time, effort, and costs while increasing speed and effectiveness in moving a task from start to completion. Orga- nizations that continue to start with structure over strategy and purpose risk failure in transforming a company’s vision toward a new state.

Corporations are generally moving toward less structure to achieve more economies of scale and effectiveness. As we will discuss in the following section, alternative solutions to traditional verti- cal structures are being used as a result of change

Sometimes there are structural impedi- ments to change. Bureaucratic structures and hierarchies in large corporations, for example, can present a major obsta- cle for implementing large-scale change.

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CHAPTER 4Section 4.1 Introduction: Back to the Future

initiatives. Among these alternative solutions are outsourcing, streamlining business pro- cesses, and experimenting with new forms of networked structures and communities of shared competencies.

Cultural Impediments to Change Resistance to change usually stems from an old culture whose leaders’ dominant values, assumptions, and norms refuse to be given up by people in the organization. The past state of the organization may have worked well in a past environment or era, but is no longer as efficient as it needs to be. With a new vision and values—and perhaps leaders— new cultural meanings, languages, symbols, and experiences must be embedded. When the change champions and leaders do not pave the way for the shift in the alignment of all the organization’s dimensions and systems, previous cultural values tend to prevail with some groups and managers; the status quo is often the default position, even if it’s to the detriment of the organization.

Failure to Sustain Change Gareth Morgan estimated that 70 percent of companies abandoned new and innovative work practices that were adopted through some form of change—such as reengineering, restructuring, quality and/or productivity improvement, or customer service (Morgan, 1997). Companies fail in their large-scale change efforts due to any one or combination of the factors discussed. Generally, people settle back into a status quo position if they do not have to change. Change cannot be sustained if people in an organization main- tain a bureaucratic and functional mindset that refuses to adopt new attitudes, beliefs, and behaviors. Sustaining change requires strong, committed, and informed leaders who involve others in the alignment of all an organization’s systems around the new vision.

Organizing to Succeed at Change: The Big Picture

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

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CHAPTER 4Section 4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

Figure 4.1: Strategic alignment model

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

Source: Joseph W. Weiss (2001) based on Weisbord (1987), Productive Workplaces. San Francisco: Jossey-Bass and W. Burke in Ann Howard (ed.)

Diagnosis for Organizational Change, Guilford Press, 1994.

We provide examples of how leaders in different organizations and industries use inter- ventions to sustain change in an effort to compete in their external environments while empowering people and culture in the internal organization.

4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

For a company to shape and sustain growth, it must continually work to revitalize the principle elements that made it strong in the first place. This section focuses on five principle components that are integral to any successful company: leadership, strategy, culture, structure, and systems.

Lessons from the Great Companies

Jim Collins, author of the best-selling books Built to Last (Collins & Porras, 1994) and Good to Great (Collins, 2001), spent five years during his research for Good to Great identifying

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CHAPTER 4Section 4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

and studying companies that sustained market competitiveness over 15-year periods. His findings are relevant to our topic on how organizations can sustain change programs to reach higher levels of competitiveness. Not all organizations that pursue large-scale change can or will become great. However, the principles and practices that underlie how many companies reached and maintained mar- ket dominance for long time periods— while their comparable competitors did not—are noteworthy. The dominant mes- sages and themes regarding the principles on how good companies become great are relevant to sustaining effective leadership, strategy, culture, structure, and systems:

• Level 5 Leadership: The leaders led and worked not flamboyantly or with highly observable charismatic, loud, or dramatic styles; but calmly, quietly, humbly—even shyly—in strong-willed ways.

• First Who, Then What: The leaders found and placed the right people in the right places and let the wrong people go first, before setting a new vision and strategy.

• Confronting Brutal Facts: The great companies and their leaders confronted harsh, unflattering truths about the organization, while never losing faith that they could and would prevail in the face of adversity.

• Hedgehog Concept: When a hedgehog faces a predator, it simply rolls up into a ball. Unlike the clever fox, the hedgehog’s strategy is surprisingly easy, repetitive, and effective. Great companies and their leaders learned and fol- lowed what they did best by understanding and implementing their (1) pas- sion, (2) what they could do best, and (3) what drove their economic engine.

• Culture of Discipline: They developed a culture of discipline that made hier- archies excessive and unnecessary.

• Technology Accelerators: They carefully applied selected technologies to ignite and accelerate their transformation—not to define their change.

• The Flywheel: They used the “flywheel” approach to change, i.e., not seeking a grand, single defining moment, or killer application, but relent- lessly pushing a large, heavy flywheel in one direction, turn after turn, until momentum built to a point of breakthrough after breakthrough. (Collins, 2001, pp. 13–14)

While the great companies Collins wrote about did not all represent exciting or glamor- ous industries, their evolutionary journeys and transitions to greatness are based on com- binations of the principles and practices summarized above.

The good-to-great companies, which must be seen in historical context, along with their respective 15-year cumulative stock market results are shown in Table 4.1. Data includes the multiple times the great companies beat the Dow Jones average for that time period.

Leadership, strategy, culture, structure, and systems serve as foundational elements of suc- cessful companies and successful change proj- ects. They act as pillars upon which everything else can be built and developed.

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CHAPTER 4Section 4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

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

Company Times the Market Years

Abbott 3.98 1974–1989

Circuit City 18.50 1982–1997

Fannie Mae 7.56 1984–1999

Gillette 7.39 1980–1995

Kimberly Clark 3.41 1972–1987

Kroger 4.17 1973–1988

Nucor 5.16 1975–1990

Philip Morris 7.06 1964–1979

Pitney Bowes 7.16 1973–1988

Walgreen’s 7.34 1975–1990

Wells Fargo 3.99 1983–1998

Collins, J. (2001). Good to great. New York: HarperBusiness, p. 7.

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

Table 4.2: Comparison companies

Good-to-Great Comparison

Abbot Upjohn

Circuit City Silo

Fannie Mae Great Western

Gillette Warner-Lambert

Kimberly-Clark Scott Paper

Kroger A&P

Nucor Bethlehem Steel

Philip Morris R.J. Reynolds

Pitney Bowes Addressograph

Walgreen’s Eckerd

Wells Fargo Bank of America

Collins, J. (2001). Good to great. New York: HarperBusiness, p. 8.

Interestingly, Bank of America and Wells Fargo have survived the more recent financial meltdown among banks and some other financial institutions, and are prospering. While even great firms cannot maintain superior stock market returns indefinitely, Collins has

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presented an important and interesting set of leadership and management principles rel- evant to sustaining best practices and change mandates across industries.

Collins recently reflected on other important elements that great companies continue to use currently, during times with nearly unprecedented global economic and political tur- moil. His response is relevant to leadership and management seeking to identify and sus- tain organizational change in real time:

. . . in times of great duress, tumult, and uncertainty, you have to have moor- ings. Companies like P&G (PG, Fortune 500), GE (GE, Fortune 500), J&J (JNJ, Fortune 500), and IBM (IBM, Fortune 500) had an incredible fabric of values. . . . One of the things that was very distinctive about P&G, for exam- ple, was that they said a customer will always be able to depend on the fact that a product is what we say it is—we will always build our reputation on quality. . . . What we have found is that what really matters is that you actu- ally have core values. . . . The more challenged you are, the more you have to have your values. (Reingold, 2009)

Revitalizing Leadership

We have seen that leaders must first guide the design, diagnosis, and then implementa- tion of change within their organizations. They must then sustain it. Leaders, as integra- tors, orchestrators, and strategists, have a primary role in keeping the strategy, culture, structure, and systems of the organization in alignment. As Michael Porter writes, a leader is primarily a strategist. “The leader must provide the discipline to decide which industry changes and customer needs the company will respond to, while avoiding organizational distractions and maintaining the company’s distinctiveness” (Porter, 1996, p. 77). The leader, as strategist, is responsible for teaching those in the organization about strategy and setting limits (Porter, 1996).

Leader as Change Integrator and Orchestrator Leaders are not only strategists but are also integrators. They integrate the new vision, mission, and values of the organization with its changed strategy, culture, structure, and systems. A 2010 IBM leadership report acknowledges that leaders “must create within their organizations integrated, cross-functional capabilities and tear down the institutional silos that inhibit creativity and speed” (IBM Global Business Services, 2010, p. 26). Take Shelley Nandkeolyar, for example. Nandkeolyar was an e-commerce group manager at the kitchen retailer Williams-Sonoma. He created a new position within the company spe- cifically for improving connection and communication among operations groups. Patricia Skerritt was hired as the new integrator (Kanter, 2006). Leggatt (2011) reported that “With

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an average response time of 11.58 seconds and an impressive 99.98% availability, the home and kitchen furnishing store (Williams-Sonoma) took top place in AlertSite’s recent rank- ings.” AlertSite is a respected ranking group that measures effectiveness of retail online businesses in terms of Website performance, which indicates customer focus and concern. Online shoppers expect to wait fewer than two seconds for a company’s page to load; 40 percent reportedly wait no longer than three seconds before leaving a site (Leggat, 2011).

With continuous change a present reality in the marketplace, leaders must carefully and creatively orchestrate the facets of the organization. “Building an organization with flexibil- ity and dexterity requires leadership with the creativity to adapt to a constantly changing environment. These leaders must be able to negotiate through a maze of differing cultures, complex inter-generational dynamics and varied communication styles” (IBM Global Busi- ness Services, 2010, p. 24). The kind of creative leadership needed today is not a one-person show. It requires collective input and output across the organization. The leader must inte- grate the organization to create collectivity through frequent, clear, consistent communica- tion and then orchestrate its functionality around the vision, mission, and values of the organization. As Porter observes, a key function of leadership is the ability to set limits (Porter, 1996). Limits should be informed by the organization’s vision, mission, and values.

Take Seagate Technology as an example. Seagate is a large manufacturer of hard drives and other storage solutions for personal computers. In the 1990s, the lack of integration from Seagate’s leadership created a fragmented organization. The culture, vision, and mission were not integrated, and communication was poor. This led to seven separate R&D groups and internal competition. Employees were given awards for the worst conduct in execu- tive meetings. Seagate had no common vision or mission communicated and exercised by its employees. New management—CEO Steve Luczo and COO Bill Watkins—worked as partners and integrators. They brought Seagate together under one vision. They set limits on behavior and integrated organizational goals. They formed cross-functional teams and performed common training for employees. This integrated approach allowed Seagate to become a market leader equipped for change (Kanter, 2006).

Leader as Interpersonal Communicator and Motivator As we consider the difficulty many leaders still have with change, Gilley, McMillan, and Gilley (2009) suggest a model based on interpersonal skills. They suggest that a leader’s success with change may be improved through his or her ability to build teams, motivate, and communicate within the organization. The research done by Gilley and colleagues (2009) echoes these suggestions. The study noted that the ability and skill of leaders to communicate, motivate, coach, build teams, reward, and involve others has been asso- ciated with the successful implementation of change within organizations. The skills of motivation, effective communication, and team building are ranked by the study as most important to the rate of success with change (Gilley, McMillan, & Gilley, 2009).

Leader as Resource and Change Support Champion Leaders must also provide resources, build a support system for change agents, reinforce the development of new skills and behaviors, and stay on course to sustain implemented changes (Cummings & Worley, 2010). Financial support for large-scale change must be administered and given approval from the top, otherwise potential feuding and quarreling

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over “who gets what” resources can occur at lower levels. For example, a company that changes its vision by adding an online, e-business dimension to its marketing and product operations must ensure that clear communications, structural, and skills changes are sus- tained and supported with necessary budgets. When such a dramatic change occurs without the necessary funding investment for operations, conflict and confusion are sure to ensue.

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

Managing Change The Qualities of a Change Leader

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

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

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

1. What roles does the leader have, specifically, in sustaining change? 2. What must the leader integrate for successful implementation of change? 3. What kinds of capabilities should a leader possess to increase the likelihood of success? 4. What additional responsibilities, in general, does the leader have?

See page 220 for possible answers.

Revitalizing Strategy

Enterprise or corporate strategies must define a purpose and mission for an organization to satisfy stockholder and stakeholder expectations, and also set a course to meet the demands of rapidly changing external environments while accommodating the needs of internal sys- tems to meet those demands (Johnson & Scholes, 1993). Business-level strategies define the logic and actions organizations take to gain a competitive advantage using their competen- cies in a specific business. Operational and functional-level strategies define ways each part

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of the business or functional area (marketing, production, sales, research and development) is organized to deliver the corporate and business-unit level strategic direction (Johnson & Scholes, 1993). Strategies for continuous change may also differ from those employed in tra- ditional and other types of environments. Rosabeth Kanter observed several mistakes made in relation to implementing strategy, especially at the corporate and/or business levels:

• Rejecting what appear to be small innovations to go after a “blockbuster” • Focusing only on new product development, rather than on new services or

improved processes • Confusing customers and increasing “internal complexity” with too many

minor product changes. (Kanter, 2006, pp. 76, 79)

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

Another important consideration with regard to strategy and sustaining change is strate- gic positioning, or the way in which the organization’s vision and values aligns with the strategy. “Strategic positioning attempts to achieve sustainable competitive advantage by preserving what are distinctive about a company. It refers to performing different activi- ties from rivals, or performing similar activities in different ways” (Porter, 1996, p. 62). Porter, a strategy expert, goes on to describe three different sources of strategic position:

• Variety-based positioning: Serves few needs of many customers; choosing a strategy based on a specific variety of products, rather than a group of customers. Jiffy Lube International specializes in oil changes and automotive repair services. Before also offering repair services, Jiffy Lube exemplified “variety-based positioning” by specializing only in oil changes. The company based its strategy on this single service.

• Needs-based positioning: Serving many needs of few customers; choosing a strategy based on a group of customers, rather than a specific set of prod- ucts. IKEA based its strategy on its target customers, and offers products and services to meet all of their home furnishing needs. With this strategy, IKEA offers furniture, kitchenware, home decorations, and more.

• Access-based positioning: Serving many needs of many customers in a nar- row market; choosing a strategy based on the accessibility of certain custom- ers. Carmike Cinemas, based out of Georgia, targets exclusively small to mid- size markets when determining locations for their theaters. The company bases its strategy on small-town populations. (Porter, 1996, pp. 65–67)

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

A classic example was Avis Rent-a-Car’s proud claim: “We’re No.2, We Try Harder”— it caught the attention of customers and hurt Hertz’s positioning as number one in the

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CHAPTER 4Section 4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

industry at that time. Avis was near bankruptcy when the company created the strategy of being number two. This strategy succeeded not as a gimmick or slick marketing slo- gan. Feinberg (2008) argued that strategically Avis was able to “shift” time, interactions, perceptions, and structures to generate new possibilities with customers, transform the nature of the competitive game with Hertz, and even change consumers behavior toward Avis. The strategy led the way for the company to change its way of doing business with customers; Avis did in fact “try harder” and it paid off.

Revitalizing Culture

The culture of the organization may be the most critical but challenging factor in suc- cessfully navigating change. Strong cultures exist when there is unified and supported understanding and perspective on who the organization is, what it stands for, and how it functions. Changing it is often easier said than done. There are numerous aspects of culture that can affect, either positively or negatively, an organization’s ability to handle change, as authors Senior and Fleming (2002) suggest in Figure 4.2.

Figure 4.2: Capacities for change and culture

ORGANIZATION’S CAPACITY

TO CHANGE

Degree of management’s openness to new ideas—

especially from below

Degree of willingness to discuss sensitive

issues openly

Attitudes to conflict

Degree of willingness to give people authority and

support them in their actions

Degree to which the organization’s structure

facilitates chage

Attitudes to experimentation in

processes and products

Attitudes to sharing information

Attitudes to criticism

Source: Senior, B. and J. Fleming, 2006, Organizational Change, 3rd ed. Edinburgh Gate-- Harlow, England: Prentice Hall, Figure 4.9, p. 173, Copyright Licensing Agency, Ltd.,

90 Tottenham Court Road, London, @1T 4LP. www.pearsoned.co.uk.

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CHAPTER 4Section 4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

Attitude, willingness, and communication are key factors in successfully navigating change. Figure 4.2 shows that the attitudes of experimentation sharing, and the willing- ness to provide autonomy and support are most interrelated in the organization’s ability to change. When the sharing of information is encouraged and experimentation—even if it leads to failure—is rewarded, the organization will be more flexible and innovative in dealing with change. Good communication among all levels of the organization is also a critical success factor. Employees at all levels should be willing to discuss sen- sitive issues without fear of immediate negative repercussions. Management must be open to new ideas, and all employees must have a positive attitude toward conflict and criticism. In the case of a change organization, conflict and criticism are fruitful tools that help continuously mold the organization. The attitudes, willingness, and communication of the organization all work together to facilitate—or resist—change. An organization seeking to successfully navigate change should be careful to evaluate these factors inter- nally. Take Google for example, whose bottom-up culture is one of open communication and collaboration. “Googlers” (Google employees) take part in “Thank Goodness It’s Friday” (TGIF) forums nearly every Friday to ask the company founders questions and have an open dialogue. Google also holds “Fixit” forums to discuss company challenges and potential solutions. This perpetuates a culture of communication, collaboration, and openness to change. Attitudes at all levels of the organization are receptive, rather than resistant (CEB, 2009).

A collaborative effort from top to bottom is needed in creating a culture conducive to change. “More organic and integrative organizational cultures are said to support change and, in particular, the increasing requirement for creativity and innovation in order for organizations to remain forward looking and competitive” (Senior & Fleming, 2006, p. 186). Kanter echoes this thought that “because innovations need connectors—people who know how to find partners in the mainstream business or outside world—they flour- ish in cultures that encourage collaboration” (Kanter, 2006, p. 79).

As in any business function, risk assessment is a valuable tool for increasing efficiency and improving operations. Cultural risk is the risk that strategy and culture will be incompat- ible, creating a resistance to change. Management should assess cultural risk to determine the specific areas of incompatibility and to determine the best course of action. In some cases, culture may be changed to fit the new strategy; while in other cases, the strategy should be changed to fit the culture (Senior & Fleming, 2006).

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

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

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CHAPTER 4Section 4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

Revitalizing Structure

The top leaders at IBM have stated,

Ineffective collaboration and knowledge sharing:

Application of collective organizational knowledge and experience is essential to building an agile and responsive workforce. Yet many orga- nizations lack the structure and resources to facilitate institutional knowl- edge sharing and collaboration.

Cultural and organizational silos often compromise the ability of com- panies to share information across functional boundaries. As one North American senior vice president of HR said: “We need to know our stuff and be self-reliant, to solve problems cross-functionally and to fully lever- age our talent and our ideas.” (IBM Global Business Services, 2010, p. 20)

Integrated structure and communication are key. Organizations must avoid the temptation of working in silos. Silo is a term used for specific processes or depart- ments working independently of each other; that is, in separate silos without strong communication between or among them. Instead, companies should encour- age “mutual learning” through frequent communication and strong interpersonal connections (Kanter, 2006, p. 82).

When departments in a company are too isolated from each other, the com- pany runs a higher risk of losing valuable opportunities. In the 1990s, for example, personal care giant, Gillette, “had a tooth- brush unit (Oral B), an appliance unit (Braun), and a battery unit (Duracell), but lagged in introducing a battery-powered

toothbrush” (Kanter, 2006, p. 77). In environments of continuous change, organizations cannot afford to have segregated operations. Integrated communication and shared knowledge within the structure increases operational efficiencies and helps the organi- zation manage change.

Processes and systems, too, need to be flexible and integrated. Budgeting, planning, reviews, and other processes should be adaptable. Tight processes discourage, and often punish, flexibility within the organization. BBC, a television network in the United King- dom, implemented greater flexibility in its processes and systems by creating a special reserve fund for new business ideas. Money that was meant for a new training film was used by a new recruit to instead make a pilot episode for a new series, The Office. The new show was a phenomenal hit and was the inspiration for NBC’s The Office, which

Silos is a term used for specific processes or departments working separately from each other without strong communication between or among them. Such a lack of communication and collaboration is an impediment to success- ful change.

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CHAPTER 4Section 4.2 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

premiered in the United States in 2005. The flexibility of BBC’s processes allowed for new ideas to be implemented from any level of the organization—in this case, a new recruit (Kanter, 2006).

Revitalizing Systems and Processes

The availability of accurate, timely data is often the make or break factor in an orga- nization’s capacity for change. Organizations are using IT (information technology) to assist strategic and operational decision making to support and sustain organizational changes. For example, organizations use increasingly large amounts of complex data for reporting and decision making. Data warehousing and business intelligence soft- ware, for example, provide solutions to the evolving need not only for locating and storing data but also for strategically applying data to marketing, sales, and competitive analysis opportunities and issues in the marketplace, especially to support new organi- zational changes. “Data warehousing is the use of huge databases that combine all of a company’s data and allow users to access the data directly, create reports, and obtain responses to what-if questions” (Daft, 2010, pp. 296–297). Business intelligence, or data mining, is “the high-tech analysis of a company’s data in order to make better strate- gic decisions” (p. 297). Systems that allow for data warehousing and data mining help organizations manage large amounts of data and facilitate both horizontal and vertical communication. For example, organizational restructuring uses IT systems, as described here, to integrate departments that were silos (isolated physical locations) within and across other functional and expertise areas (like production, research and development, marketing, and sales). Because each expertise area can now easily share data and infor- mation to improve decision making, quality and efficiency of decision making is more accessible. This is particularly important when an organization is facing continually changing environments.

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

Many companies now also practice knowledge management, and some even have depart- ments dedicated to this task. Knowledge management “refers to the efforts to systemati- cally find, organize, and make available a company’s intellectual capital and to foster a culture of continuous learning and knowledge sharing so that organizational activities build on what is already known” (World Academy Online, 2010–11). (For further reference, also see Mayo, 1998, pp. 34–38; Miller, 1999, pp. 42–45; and Data, 1999, pp. 46–52.) Companies

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CHAPTER 4Section 4.3 Attracting Talent and Empowering Employees

that make a concerted effort to share knowledge and create a culture of learning are more equipped to handle change. Dow Chemical, for instance, understands the importance of knowledge management. The company shares its sales and inventory figures daily with all employees, recognizing that this information helps each employee understand how his or her role contributes to the success of the business (Rosen, 2011).

Change should be the expectation, not the exception, when planning and developing business processes, policies, and control systems. There should be room for flexibility and adaptation. “Companies should expect deviations from plan: If employees are rewarded simply for doing what they are committed to do, rather than acting as circumstances would suggest, their employers will stifle and drive out innovation” (Kanter, 2006, p. 79).

4.3 Attracting Talent and Empowering Employees

A critical task of sustaining change involves continually attracting, involving, and empowering the right talent. Because people are the most important asset of organi- zations, and leaders can only get things done through people, revitalizing organizations requires developing strategies for leading and managing individuals and human capital. Human capital refers to the skills, knowledge, and experience of individuals or a work- force with regard to their value and cost as invested and incurred by an organization (Fitz-enz, 2000). Managing human capital is a process in which senior executives spend as much time “. . . making decisions about the acquisition, allocation, development, and retention of human capital as they spend making decisions about other kinds of capital” (Lawler & Worley, 2006, p. 179).

Recruiting through Branding

Hiring the right talent who fit with the organization’s new vision, strategy, and ways of doing business is not easy. Organizations generally use branding—their image, rep- utation, identity, and what they are known for—to attract new hires. Highly visible, successful organizations like Google, Microsoft, Facebook, and others do not worry about their branding as a recruiting method because they are so well known. However, smaller, less visible companies need to make a more deliberate attempt to promote their brand to potential employees, yet few companies in general seem to succeed at this strategy. Consequently, it has been recommended that organizations “. . . must think of recruits as customers, use sophisticated marketing analysis to identify its key rivals, determine which corporate attributes matter most to specific types of recruits, and understand how best to reach them” (Hieronimus, Schaefer, & Schröder, 2005). In two McKinsey surveys Hieronimus and colleagues (2005) showed that traditional recruiting methods focused on job security, opportunities for creativity and individual growth, and compensation, but that a hiring company’s intangible and emotional associations appeared to be strong motivators for potential recruits. Whatever techniques are used to attract and recruit promising new talent, the McKinsey study concluded that “. . . the initiative must fit in closely with the company’s overall brand strategy” (Hieronimus, Schafer, & Schröder, 2005).

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CHAPTER 4Section 4.3 Attracting Talent and Empowering Employees

Using Social Media to Recruit

Another recent recruiting method is the use of social media. LinkedIn, Facebook, Twitter, and YouTube are popular recruiting sources. For example, the large online retailer Zappos .com uses social media for branding and recruiting. Zappos.com also uses Jobvite, one of several services that enable employers to combine social media channels, like those men- tioned above, into its talent acquisition systems (WebNews, 2011). JobVite enables Zappos.com employees to “. . . simultane- ously post job openings to multiple social media sites with links that allow readers to view job descriptions, share them on their Facebook page, retweet them on Twit- ter, forward them via email or go directly to Zappos.com’s career site” (WebNews, 2011). Hiring managers then follow up by tracking responses from the social media channels using Jobvite’s dashboard.

Even with the popularity of social media recruiting, Jobvite (through e-mail or social media) generated only 3.2 percent of Zappos.com’s 2,220 hires in 2010 (Web- News, 2011). Talent acquisition experts observe that large employers are using online job boards and social media com- bined with traditional recruiting methods to post new listings.

Seeking Recruits Using a Talent Mindset

Organizations looking for talent to ramp up operations quickly, start new business models, and create new roles acquire and/or merge with other companies. While companies like General Electric, PepsiCo, and Colgate-Palmolive are renown for their ability to develop top-notch employees and emerging leaders in their industries, they also “. . . are as com- mitted to external recruiting as they are to talent development” (Beeson, 2011). Part of these firms’ success at external recruiting is their ability to integrate newcomers into their established high performing cultures. Beeson (2011) calls such firms that combine exter- nal talent recruiting with internal integration practices “talent mindset companies.” Such firms seamlessly combine talent acquisition with talent development. Firms that recruit externally to fill job positions generally focus on candidates’ job-specific experience. So- called talent mindset companies also pay attention to potential hires’ leadership ability and prospective career growth. Talent mindset companies are particularly interested in these potential characteristics of candidates:

• Abstract, conceptual thinking ability and ease in handling ambiguity, which are needed in strategic thinking.

• Risk-taking and ease taking independent positions and not going along with what everyone else in the company thinks, which are building blocks of

Social media, such as LinkedIn, is changing the way we interact and communicate. Pictured here, LinkedIn CEO, Jeff Weiner, is at a town- hall meeting with President Obama, but such social media companies are also changing the way business is conducted in terms of recruit- ing, hiring, and branding.

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CHAPTER 4Section 4.3 Attracting Talent and Empowering Employees

innovation and leading change—even if these characteristics means moving an organization out of its comfort zone in order to implement effective change.

• Empathy and organization knowledge/savvy, which embody the ability to read people and situations and to influence peers and co-workers so that projects and initiatives can be implemented across organizational boundaries.

• The ability to set high standards and let go of certain detailed work, which are important elements of managing implementation without getting mired, again, in too much detail or getting involved in micromanagement. (Beeson, 2011)

Managing Change Recruiting Talent in the Twenty-First Century

You are the director of human resources at a growing e-commerce company. The company must stay dynamic to keep up with changing technology and changing social attitudes, as well as be agile to respond to customer demand. Your company’s reputation is positively received, but the sales and mar- keting teams are working to spread the word about your service.

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

Naturally, your HR team turns to social media to find Web-savvy candidates. But you must pay atten- tion to your company’s mission and values, what role they play in your brand, and how that relates to recruiting.

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

See page 220 for possible answers.

Empowering Employees for Change

Recruiting the right talent also involves the organization’s need to integrate new recruits by providing opportunities for their meaningful involvement and participation in achieving the organization’s objectives. Cameron Kauffman, CPA, suggests five areas of employee involvement that she used in her San Francisco-based firm. We have adapted these involvement areas from a professional services firm for general business: personal, organizational, customer, professional, and community.

Personal employee involvement is achieved through training, mentoring, and career devel- opment programs. Organizational involvement includes efforts that enable employees to get involved in organization-wide visioning, planning, and addressing generational differ- ences. Employee customer involvement will differ, depending of the specific business of the

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CHAPTER 4Section 4.3 Attracting Talent and Empowering Employees

organization, but may include meetings or events with customers and direct interaction, such as having them sit in on certain planning and focus groups. Professional development refers to providing individual employees opportunities for their own career, personal, and professional growth. This may mean involvement in professional organizations like state CPA organizations, in the case of an accounting firm. Finally, community involvement is achieved through providing volunteering opportunities and is often linked to the orga- nization’s corporate social responsibility (CSR) initiative, which we discuss later in this chapter (Kauffman, 2010).

Fortune magazine’s annual “Best Companies to Work For” list provides abundant exam- ples of the types of involvement organizations provide employees for their own career, personal, and professional development. The competition for being on this list is rigorous because the rewards include name and reputation recognition, extensive marketing, and high visibility for recruiting top talent. Based on the “Trust Index,” organizations that submit their proposals are rigorously evaluated on such criteria as evidence of credibility, respect, fairness, and pride and camaraderie. Methods used to evaluate companies are extensive surveys from employees and managers, and analyses of employee engagement using criteria from the Trust Index (Zappe, 2011).

The North Carolina software giant SAS has been on the list for 14 years, and ranked num- ber one for 2010 and 2011. The company maintains onsite child care, health care, and an employee gym as only a few examples (Zappe, 2011). Wegman’s Food Markets, Google, Net App, and Boston Consulting all populate the top 10 list. Zappos, the popular shoe company—owned by Amazon—and REI, the camping and outdoor recreation provi- sioner, are the only newcomers to the list in 2011 (Zappe, 2011).

Finding and involving the right employees is only one aspect of developing a work- force built to change. Once the right employees are working for the organization, management must then create an engaging and empowering environment to “keep the right people” (Lawler & Worley, 2006, p. 181). Right Management, Inc. performed a global survey in 2009 to evaluate workplace engagement. The survey identified a correlation between engagement and effective change management: “globally, 34 per- cent of employees reported being fully engaged, and of those employees, 76 percent responded favorably when asked to report on their organization’s performance in key areas impacting change management” (Right Management Inc., 2009, p. 5). Empow- ered, engaged employees are a critical resource in achieving organizational objectives. Employees carry the knowledge (intellectual capital) of the organization and are the source of innovative ideas and successful change management. “By looking for ways to improve morale and enhance leadership capability during change, organizations can increase retention and minimize disruptions to productivity and engagement” (Right Management, Inc., 2009, p. 11).

Right Management’s survey suggests that empowerment (providing employees with the necessary motivation and autonomy to achieve great things toward the organization’s objectives) is achieved through clear reporting structures, meaningful opportunities for employees to share their opinions, clear and understood career opportunities, and auton- omy (Right Management, Inc. 2009, p. 12). Lawler and Worley echo the need for employees to be autonomous and responsible for their own careers (Lawler & Worley, 2006, p. 179).

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CHAPTER 4Section 4.4 Sustaining Change: Built-to-Change Organizations

In order to sustain change, organizations must “be keenly aware of what activities and competencies are critical to the execu- tion of the present strategy, and also need to think one or two steps ahead” (p. 197).

As Styhre puts it, “Empowerment is aimed at eliminating sources of powerlessness” (Styhre, 2004, p. 1445). Powerlessness is often a trademark of continuous change, if an organization is not prepared. Good structures of attracting, involving, and retaining the right talent hedge against this powerlessness and give an organiza- tion powerful tools to sustain and even shape change.

When empowerment is lacking, the orga- nization will not be able to manage change

efficiently, leading to “decreased employee trust in the organization’s stated values and the employment brand” and “impairing its ability to attract the new leaders and skilled talent needed to grow the business” (Right Management Inc., 2009, p. 13). Good recruiting through branding, social media, or acquisition are misdirected efforts if those employees cannot be retained. Chapter 5 of this book describes in detail empowerment principles and strategies of learning organizations.

4.4 Sustaining Change: Built-to-Change Organizations

As we’ve discussed, change is a continuous reality that successful organizations learn to sustain. In 1942, the economist Joseph Schumpeter created the term creative destruction, which describes industrial transformation that accompanies radical inno- vations introduced by entrepreneurs. These forces sustain long-term economic growth, even if they destroy established companies that had monopoly power (Hughes, 2011). Foster and Kaplan (2001) extended this argument in their book on organizations, Creative Destruction, Why Companies That Are Built to Last Underperform the Market—and How to Suc- cessfully Transform Them.

They studied more than one thousand corporations in 15 industries over 36 years. The companies included old-economy industries, such as paper and chemicals, and new- economy industries, like semiconductors and software. They found that old-school cor- porations used management philosophies rooted in the assumption of continuity—which meant that they cannot change or create value at the speed and scale of markets. The technology and processes that enabled their long-term survival endangered them in the new economy’s constant need for change. Foster and Kaplan argued that restructuring corporations to change at the speed and scale of capital markets rather than focusing on changing controls required more than simple adjustments (PowerHomeBiz.com, 2011).

Empowering employees with motivation and autonomy to be creative and industrious is a powerful step towards achieving change objectives.

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CHAPTER 4Section 4.4 Sustaining Change: Built-to-Change Organizations

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

Less sweeping in their analysis and views on organizational change, authors Edward E. Lawler III and Christopher G. Worley also evaluated contemporary organizational effec- tiveness and developed key practices for creating organizations that are self-sustaining change in their book, Built to Change: How to Achieve Sustained Organizational Effective- ness (2006). They define “b2change” organizations as those that are built with practices in place to encourage change, rather than obstruct it. Here we explore several of those key practices with the intent of identifying ways to sustain and invigorate organizations that are changing. Those practices include: seeking temporary competitive advantages, embracing continuous change and the virtuous spiral, creating structures without jobs, implementing downward decision making, and leading as a team.

Seeking Temporary Competitive Advantages

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

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

Human and social capital has become a critical source of competitive advantage, as an intangible asset (a non-physical asset that is often not found in the organization’s accounting records; for example, goodwill, patents, and a skilled workforce) and now make up more of a firm’s market value. In 1982, tangible assets, like the facility and equip- ment, represented 62 percent of the value of a typical NYSE (New York Stock Exchange) company; but in 2000, tangible assets represented only 15 percent of the company’s value (Lev, 2001; Lawler & Worley, 2006). Knowledge and technology are growing rapidly, increasing the need for human capital and knowledge within the organization.

Moreover, the very nature of work is being redefined. Individual work is now primar- ily knowledge-oriented, no longer task-oriented, as the founder of modern management,

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CHAPTER 4Section 4.4 Sustaining Change: Built-to-Change Organizations

Peter Drucker, stated in the late 1950s (Drucker, 1999). Consider the significant outsourc- ing that takes place today. Many outsourced jobs require advanced technical knowledge and expertise. Many manual jobs are now performed by machines, which require new human capital to develop and maintain those machines. As our knowledge grows, it must be used differently by organizations to develop new competitive advantages (Lawler & Worley, 2006).

Organizational structure itself can now be a competitive advantage. Traditional depart- ments—sales, accounting, and others—are no longer sufficient. New departments like TQM (total quality management), knowledge management, talent management, and oth- ers play a significant role in differentiating the organization and sustaining change (Lawler, Mohrman, & Benson, 2001; Lawler & Worley, 2006). Many of these new departments seem to focus on the importance of human capital within the organization—managing talent, managing knowledge, engaging employees, and improving the workplace environment. Organizations with these structures understand that the ability to sustain change starts with its human capital. Employees generate knowledge and carry it with them at all times. In order to keep those knowledgeable employees working at the organization, they must be engaged, managed well, and rewarded properly. Organizations compete with people more than with products. Think about the computer technology industry. Most people would say that Apple has a competitive advantage over Microsoft, but why? Apple’s human capi- tal has, for many years, been a significant factor. Former CEO Steve Jobs was instrumen- tal in developing new products, strategies, and vision, often creating the change in the market (Lawler & Worley, 2006).

Traditionally, sustaining organizational change was determined by its ability to unfreeze, freeze, and refreeze (Lewin, 1997; Lawler & Worley, 2006). Unfreez- ing dissolves the normalcy of the organi- zation, allowing it to then refreeze new structures and practices. It disrupts one period of stability for the organization to create a different one. It is a singular event, which Lawler and Worley have established is not the practice of built-to- change organizations. These organiza- tions are successful at sustaining change because they are designed for continuous change—seeking temporary competitive advantages through structures, strategies, and leadership.

Continuous Change and the Virtuous Spiral

The ability to strategize well and sustain change is centered around the identity of the organization. As Figure 4.3 illustrates, identity functions as the core, providing a platform for designing, strategizing, and creating value.

Instead of the old model of unfreeze, freeze, refreeze, organizations are increasingly turning to a model that allows for continuous change regardless of the environment. An organiza- tion, then, is more fluid and can better adapt to various conditions and market demands.

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CHAPTER 4Section 4.4 Sustaining Change: Built-to-Change Organizations

Figure 4.3: Continuous change model

Formulating Strategies

Organizational Identity Adding ValueCreating Design

Source: Created by Joseph Weis. Based on Lawler, E. and C. Worley (2006). Build to Change: How to Achieve Sustained Organizational Effectiveness.

San Francisco: Jossey-Bass.

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

Once identity is established and communicated, strategic intent is the next step in man- aging continuous change. Strategic intent refers to the ways in which the organization develops its temporary competitive advantages. Good strategic intent is characterized by five elements: breadth, aggressiveness, differentiation, logic, and orchestration. Breadth refers to the broadness of a strategy. For example, Procter & Gamble has a broad, global strategy involving multiple markets and consumer products. The WD-40 company on the other hand, has a very narrow strategy and makes only a single type of lubricant. Aggressiveness is how the organization grows, interacts with competitors, and creates new products. Consider the Coca-Cola versus Pepsi feud for market share, or Apple ver- sus Microsoft. The Mac versus PC commercials hit such a chord with consumer rivalries that many are posted online with large numbers of viewers worldwide. Differentiation is the degree to which an organization’s products and services vary from the competition. We see this daily in the automotive industry. Each manufacturer offers unique features for its vehicles in an attempt to capture more of the market and differentiate itself from com- petitors. Logic refers to the core business model behind the organization’s revenue, costs,

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CHAPTER 4Section 4.4 Sustaining Change: Built-to-Change Organizations

and profits. Some companies, like Wal-Mart, choose a high volume, low cost model. Oth- ers, like Ferrari, choose a low volume, high cost model. Logic affects the way a company markets its products and how it interacts with the consumer. Finally, orchestration is the process of planning and sequencing different strategies. Orchestration is the way in which the organization predicts and responds to environmental changes through the breadth, aggressiveness, and differentiation of its strategies (Lawler & Worley, 2006).

For example, Southwest Airlines has long relied on a ‘keep-it-simple’ strategy—low costs, “bags fly free”, and a well-known corporate culture—promulgated by legendary CEO Gary Kelly. This has given Southwest a unique strategic position and allowed it to man- age continuous change. In 2010, the airline announced its acquisition of AirTran to create

“the most expansive network of any low- cost carrier in the U.S” (Reed & Jones, 2010). The strategic shift maintained the identity of the company as a low-cost air- line and gave it a new competitive advan- tage, expanding its network to new cities and new international flights—a first for Southwest. Kelly acknowledged that this strategic shift was “a unique opportunity to grow Southwest Airlines’ presence in key markets we don’t yet serve and takes a significant step toward positioning us for future growth” (Reed & Jones, 2010). Southwest is approaching strategy with flexibility and vision, allowing it to sus- tain change.

Organizations built to change think about strategy continuously and evaluate the appro- priateness of their identity and strategic intent in relation to the changing environment. Those that are successful in this are able to create virtuous spirals. A virtuous spiral is an upward spiral of increasing performance that is created when an organization can match its strategy, value-creation, and design with the changes of its environment.

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

Creating Job Structures without Job Titles

Traditional job descriptions and titles are now stagnant and high-cost hindrances to organizational change. If not kept up-to-date, they become irrelevant to the organiza- tion. Built-to-change organizations, instead, create job structures without job titles. They focus on creating a dynamic employee experience, through changing work relationships

Southwest is approaching strategy with flexi- bility and vision, allowing it to sustain change.

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CHAPTER 4Section 4.4 Sustaining Change: Built-to-Change Organizations

and assignments. Similar to many professional services like accounting or consulting firms, employees are assigned responsibility for a set of tasks on a temporary basis. As change occurs, tasks are adjusted to fit the new needs of the organization and the cus- tomer. While this approach expects much from employees and management in terms of frequent job redesign, it has significant advantages for sustaining change. Such a structure allows employees to be defined not by a job title, but by their unique skillset and current tasks. Their work is always relevant to the organization, and learning opportunities are increased as different teams are created (Lawler and Worley, 2006).

For example, GE, a successful and long-standing built-to-change organization, encourages a dynamic work environment. Its entry-level rotational programs allow new employees to spend several months in different divisions, for a period of several years. This provides exposure to the different operations of the organization, and instills the GE culture of adaptation and teamwork. “At a time when many view training as a burdensome cost center, GE continues to treat human resources as a sacred art, spending $1 billion a year on training and devoting weeks or months of each year to evaluating talent” (Brady, 2010). The focus is not on the job title, but on what you can do. GE’s method of frequently chang- ing teams establishes change as the norm and encourages horizontal and vertical commu- nication and knowledge sharing.

Another aspect of this structure is business process outsourcing (BPO). BPO involves outsourcing certain business functions like accounting or human resources to firms dedi- cated to those services. These focused outsourcing firms have the most current knowledge in their respective fields and can more easily handle change. This transfer of change from the organization to an outsourcing firm through BPO reduces the stresses on the organiza- tion and the resources needed to change. It can also represent a significant cost savings. New “jobless” structures and outsourcing put built-to-change organizations in a position for different communication and decision making (Lawler and Worley, 2006).

Implementing Downward Decision Making

Sustaining change requires good communication and involvement from top (manage- ment) to bottom (line employees and staff). If the first-year sales associate does not know what new products management just approved and put into production, he or she can- not start selling that new product. Likewise, if the first-year sales associate does not tell management about his or her idea for a great new product, management cannot con- sider it. IBM is a company that understands the importance of vertical (top–bottom) and horizontal (interdepartmental) communication. IBM holds “jam sessions” through its intranet (internal company Internet site) to gather ideas and to communicate about current and future company issues. One such session involved more than 50,000 employ- ees and 10,000 comments posted. CEO Sam Palmisano understands that a good idea can come from anywhere, and that good feedback is not just from your superior (Brady, 2010).

For communication and downward decision making to occur, the organization must have a good information system. Lawler and Worley suggest the seven most important charac- teristics of a good information system:

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CHAPTER 4Section 4.4 Sustaining Change: Built-to-Change Organizations

1. Provide comprehensive data on key processes 2. Integrate data across departmental boundaries 3. Monitor capabilities as well as performance 4. Are linked to goal setting and rewards 5. Include information on competitors 6. Provide trend data on the business environment 7. Make measurements visible throughout the organization (Lawler & Worley,

2006, p. 126)

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

Leading As a Team

Leadership in built-to-change organiza- tions is the common thread. What is unique about leaders in this context, however, is the combination of leadership and mana- gerial skills. Individuals that are both lead- ers and managers are able to react to the external environment and practice shared leadership. Shared leadership involves developing an entire organization of lead- ers, at all levels, in order to distribute deci- sion making and uncertainty throughout an organization of knowledgeable leaders. To do this, as Lawler and Worley recom- mend, requires that organizations either hire managers with flexible styles or replace those whose styles are inconsistent with the organization’s strategy and iden- tity. The CEO of HP describes leadership as a “team sport” (Tam, 2005, p. B1; Lawler & Worley, 2006, p. 217). The best teams are designed for organic growth—individuals are thoughtfully placed with the intention of maximizing innovative output and flexibility. Leadership development should occur at all levels. The attitude of the organization inspires all employees to gain the knowledge and skills to be a leader within the organization and makes those resources readily available (Lawler & Worley, 2006).

For example, Procter & Gamble, led by CEO A.G. Lafley, puts special emphasis on leader- ship development within the organization. The company is “committed to strengthening P&G’s leadership and management from top to bottom” and recognizes that “nothing was more important to the short- and long-term health of the business than leadership

Shared leadership involves developing an entire organization of leaders, at all levels, in order to distribute decision making and uncer- tainty throughout an organization of knowl- edgeable leaders.

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

development and training” (Lafley, 2011, p. 68). Lafley understood that leadership was not the responsibility of a single person; rather, the more leaders he could help create within the organization, the better P&G could sustain change:

It was my responsibility to develop as many potential CEOs as we could— leaders who would be ready and able at any time to lead P&G under any circumstances. . . . My objective was to groom more horses for the race. I wanted horses that could run in all kinds of conditions and on all kinds of tracks. (Lafley, 2011, p. 70)

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

Not only should organizations develop leaders at all levels; they should reward employ- ees for being leaders. Many reward systems are designed around stability; but consis- tent, stable performance is not the goal for built-to-change organizations (Lafley, 2011). Employees often need an incentive to change. Incentives should be given for both suc- cesses and failures. In a continuously changing organization, failure cannot be avoided and is not necessarily something to avoid. “Good failure,” as Lawler and Worley describe, should be rewarded and included in the organization’s learning process (Lawler & Wor- ley, 2006, p. 280).

4.5 Future Change Challenges and Best Practices

Shaping and sustaining change requires that an organization continually evaluate and respond to its environment, as we discussed in Chapter 2. The environment creates change, but innovative leaders can also change and shape competitiveness in the envi- ronment, as we noted about Steve Jobs and Apple earlier in this text. In this section, we discuss effective change practices that apply to sustaining organizational change.

Self-Designing Organizations

One of the most important practices is, as discussed earlier, building organizations for change. For existing organizations the challenge becomes that of creating learning orga- nizations (which is the topic of Chapter 5) and self-designing organizations; that is, organizations that have capabilities to renew and change themselves fundamentally and continuously (Cummings & Worley, 2009). Creating self-designing organizations “. . . is a highly participative process in which multiple stakeholders set strategic direction, design appropriate structures and processes, and implement them” (Cummings & Wor- ley, 2009, p. 535).

As we move into the future, organizations will also need the following practices to sur- vive and thrive: a strategic CSR (corporate social responsibility) focus; attention to core competencies; an emphasis on sustainability (with regard to operations and toward the environment); focus on incorporating analytics as a capability; managing globalization;

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

meeting the challenges of disruptive change; and developing leaders’ and followers’ EI (emotional intelligence).

Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is an organization’s self-imposed efforts toward a positive social, environmental, and ethical impact, considering its core identity and industry. Many organizations are now global players, recognizing that the impact of their operations extends far beyond headquarters. “Ethisphere’s World’s Most Ethical (WME) Companies have demonstrated that going beyond legal minimums and introducing inno- vative ethical standards has been a market differentiator, both improving financial perfor- mance and forcing their competitors to follow suit” (Mitchell, 2011). Aflac, GE, Marriott, and others are shaping change. They are creating new standards for business practices and consumers, stockholders, and stakeholders are responding. “On average, the WME compa- nies outperformed the S&P 500 by 7.3 percent annually. In addition to increased financial performance, ethical companies benefit from better brand reputation, consumer loyalty and higher employee retention rates” (Mitchell, 2011). In the realm of business today and in the future, the “how” is just as important, if not more important, than the “why.”

Figure 4.4: Strategic contingency framework

What are our core competencies?

What business are we in?

Who is our customer?

What is our product or service?

• Vision (Who are we? Who will we become?)

• Mission (What is our strategic purpose

for operating?)

• Values (What do we stand for and believe? What standards

can be used to evaluate and judge us?)

Source: Joseph W. Weiss, Bentley University, 2011.

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

For example, IKEA, the multinational furniture retailer with an iconic brand, is pointed to as one of the most socially responsible corporations in the world. Its identity and com- mitment to CSR was exemplified in its actions regarding child labor in the 1990s. Rugs are a key product for IKEA’s business—IKEA purchases rugs from suppliers in the Middle East and India, among other countries. Local media discovered that child labor was used in the production of some of the rugs purchased and resold by IKEA and confronted the company. IKEA examined its entire supply chain (all the participants involved in bringing a product to its end user) and established its own set of supplier standards. Standards included restrictions against child labor, but also environmental standards.

IKEA created positions dedicated to eval- uating supplier compliance, and the con- tracts with those suppliers that were not in compliance were suspended and/or terminated. IKEA also formed a partner- ship with UNICEF to develop programs for children and women in developing areas in which IKEA does business and address the issue of child labor at its root causes. IKEA takes its role as a global player very seriously. It considers the negative externalities of its operations, and addresses its responsibility to society and the environment.

“Long before social responsibility became the buzzword it is today, IKEA was already holding to the standard. It now sets the standard in many ways, and this is by no means a cheap investment” (Llopis, 2011).

IKEA’s approach to CSR is comprehensive, but all companies can learn from IKEA as we move into the future. Ethics and social responsibility are not just words or individual choices; they have a significant impact on an organization’s reputation and financial per- formance. Companies like IKEA that understand and embrace this behavior can shape change in the global business world.

CSR and ethical practices are increasingly important dimensions of all organizations, and especially those trying to sustain changes and new practices involving stakehold- ers. “Top leaders are responsible for creating and sustaining a culture that empha- sizes the importance of ethical behavior for every employee” (Daft, 2010, p. 393). In some instances, ethical behavior is intuitive; however, there are many instances that are not so black and white. Ethics are often subjective, meaning something different to each individual and each organization. That is why it is critical, in the gray areas, that company leadership at all levels model ethics and create a culture of ethical practices. Most companies today have created a code of ethics, a “formal statement of the com- pany’s values concerning ethics and social responsibility; it clarifies to employees what the company stands for and its expectations for employee conduct” (Daft, 2010, p. 397). The code of ethics informs the vision, mission, and values of the organization, which in turn dictate the organization’s core competencies (see Figure 4.4).

IKEA is a multinational furniture retailer with an iconic brand that is also noted as one of the most socially responsible corporations in the world.

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

Core Competencies

Core competencies are an organization’s strongest capabilities, based on the combination of production skills and technologies and they are also critical factors in creating sustain- able organizations (Prahalad & Hamel, 1990). But businesses can’t solely rely on a core competency forever; rather, every business needs to adapt its core competencies to mar- ket changes and demands. Digital Equipment Corporation (DEC) was once IBM’s major competitor before it foundered and failed to identify and read the competitive environ- ment correctly. The shift from mainframes to desk and laptop computers and PCs was not taken seriously. Consequently, DEC did not shift its core capabilities to match customer and industry changing demands. The company was a market leader as a manufacturer of mini-computers in the 1960s through the 1980s. The company fell apart as the personal computer (PC) market exploded. DEC’s business processes and costs had been designed around building and integrating components internally, whereas the PC market relied heavily on outsourcing and speed of design. Its organizational structure was not sustain- able for the change in the market, and DEC did not recover (Christensen & Overdorf, 2000).

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

Determining the core competencies of the organization, however, can be more difficult than it might initially sound. Management must first evaluate the vision, mission, and values, and see how this identity aligns with what the organization does best. Prahalad and Hamel developed three tests:

1. It is a core competence if it provides “potential access to a wide variety of markets”

2. It is a core competence if it makes “a significant contribution to the perceived customer benefits of the end product”

3. It is a core competence if it is “difficult for competitors to imitate” (Prahalad & Hamel, 1990, pp. 83–84)

Consider 3M and its core competency in chemical processes and materials (Lawler & Wor- ley, 2006). 3M’s core competency allows it to produce products ranging from tape, to the legendary Post-it- notes, to “bonding materials for the aerospace industry” (p. 38). The fact that 3M has a unique ability to manufacture bonding materials that are difficult to imitate provides it access to many markets and adds value in the customer’s mind.

Sustainability

Sustainability is an organization’s responsible ability to maintain its operations and rel- evance to all stakeholders, even as regards the physical environment, into the future.

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Sustainability, according to Christensen and Overdorf (2000), is influenced by the identity, structure, and capabilities of the organization or “the factors that define an organization’s capabilities and disabilities evolve over time—they start in resources; then move to visible, articulated processes and values, and migrate finally to culture” (Christensen & Overdorf, 2000, p. 71). Organizations practicing sustainable policies integrate such practices into their leadership mindsets, strategies, cultures, products and services. We have discussed such examples in companies like GE, P&G, and IBM.

Another important aspect of sustainability is minimizing the negative environmental and societal impact of business practices. Companies are measured not only by financial per- formance, but also by the quality of their actions. Shaping change in the future requires an analysis of negative externalities (unintended negative social and environmental con- sequences of doing business, such as pollution emitted) in decision making. The shift toward “green” business practices is not just a fad. Businesses are more concerned than ever before about using renewable resources, and the government has begun to support sustainability. “On June 8, 2010, the U.S. General Services Administration selected Eleni Reed as the first Chief Greening Officer, responsible for aggressively pursuing innovative sustainable practices” (Hoffman, 2010). Businesses cannot sustain change in the future if they do not address sustainability. We see this already reflected in expanded corporate social responsibility programs.

Managing Change Embedding CSR and Sustainability into Business Practices

You are responsible for instituting corporate social responsibility and sustainability into a manufactur- ing company. This company still does things with a focus on classic business principles, but must now consider its social and environmental impact. It has been proven that becoming a leader in CSR and sustainability has a positive impact on revenues and customer loyalty. Competitive advantage also increases: customers favor companies that engage in these efforts and even come to expect them from the brands they have habitually purchased.

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

The company begins to communicate its plans to employees well in advance of the change, because making them feel a part of the change initiative and appealing to their ethical and environmental con- cerns also has a positive effect on employees. When employees believe in the mission and feel like their daily responsibilities contribute to it, their sense of fulfillment and employee engagement increases.

1. What is the difference between corporate social responsibility and sustainability? 2. What are some specific ways in which this company can change its way of doing business to adhere

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

See page 221 for possible answers.

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

Analytics Capability

When considering core competencies, organizations cannot afford to ignore technology and analytics. Analytics is the collecting and organizing of relevant data in order to deter- mine trends and evaluate performance. It is another evolving core competency that has become a necessary benchmark. With technology advancing daily, we now have more tools than ever before to collect and analyze data. Those organizations with the knowledge to best leverage available information will have an advantage over change. UPS, for exam- ple, uses analytics comprehensively to anticipate customer actions and needs. It tracks the movement of each package and even evaluates the likelihood of problems. The company has created The UPS Customer Intelligence Group to analyze customer usage patterns and complaints. Companies like UPS want to be as informed as possible and have the means to be so. This improves decision making and quickens reaction time (Davenport, 2006).

Meeting the Challenges of Globalization

The last few decades have already seen a trend toward globalization—the expansion of business operations across the globe. Large, sustainable companies like IKEA have been successful at globalization. These multinational corporations have the wisdom to see that “creative leaders will help to dissolve boundaries through the creation of innovative strat- egies, the development of commonly shared vision and the ability to motivate individuals from across the globe” (IBM Global Business Services, 2010, p. 54). McKinsey & Company, in its 2010 McKinsey Global Survey, has identified five themes of globalization: “growth in emerging markets; labor productivity and talent management; the global flow of goods, information, and capital; natural-resource management; and the increasing role of gov- ernments” (McKinsey & Company, 2010).

Emerging markets are those markets—like China, India, Russia, and many others—that are experiencing significant and rapid growth through industrialization. “Companies in emerg- ing markets will continue aggressively moving beyond their own borders and become fierce competitors on the world stage” (IBM Global Business Services, 2010, p. 14). To respond to these emerging markets, companies must “build a local presence, develop partnerships or joint ventures with local companies, recruit talent from emerging markets, and develop new business models” (McKinsey & Company, 2010). Organizational structures must become more flexible, evolving as emerging markets present frequent change. Sam Falk terms this organizational evolution as “boundarylessness” (Falk, 2001, p. 7). To successfully sustain change in growing emerging markets, organizations must become “boundaryless.” When boundaries are removed, the company allows for flexibility and expansion.

Heinz CEO Bill Johnson implemented a strategy of “Four A’s” for the company’s approach to emerging global markets: applicability, availability, affordability, and affinity (Feigen- baum, White, & Matticks, 2011). Applicability involves fit—how well the product applies to the local culture. In China, for example, Heinz’s main condiment sold is soy sauce, rather than the company’s iconic ketchup. Applicability also relates to how the same product may be used differently in different markets. In Korea, ketchup is eaten primar- ily on pizza; and ketchup in the Philippines is made with bananas. Availability involves selling the product in the relevant local channels. Most emerging markets don’t use

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

large grocery stores, so Heinz had to rethink its distribution channels to reach more of the local population. Affordability seems to be self-explanatory. Emerging markets, while growing, are still fractionally as wealthy as markets in Western, developed countries. To address affordability, for example, Heinz offers its products in different sizes. Soy sauce is sold in small, three-cent packets in Indonesia. Finally, affinity involves the attitude of local employees and customers toward the company’s brand. Affinity can be built through CSR and sustainability. Heinz created its core capabilities in emerging markets primarily through acquisitions and has been very successful in sustaining that change, with more than 20 percent of the company’s 2011 revenues originating in emerging mar- kets (Feigenbaum, White, & Matticks, 2011).

McKinsey’s second theme of globalization is labor productivity and talent management. Globalization has created a need for more productive and skilled labor in management, R&D, and strategy. As we move into the future, talent will be found mostly in “emerg- ing markets to work there, new talent entering developed labor markets, and talent from developed markets deployed to emerging markets” (McKinsey & Company, 2010). Com- panies must learn to leverage the productivity of aging workers and efficiently acquire and place the right talent in the right places.

The “global flows of goods, information, and capital” is both a cost and a benefit of global- ization (McKinsey & Company, 2010). New technologies allow for information to be avail- able around the world. This helps companies make quicker, more informed decisions, but also presents a risk of theft of intellectual capital and a high cost to obtain and maintain these technologies. As McKinsey’s survey notes, “the free global flow of information has already resulted in radical pricing transparency and new networks of engaged consum- ers” (McKinsey & Company, 2010). More information available means more informed consumers, now on a global scale.

Managing natural resources is the fourth theme of globalization. As operations expand across the globe, the issue of sustainability and the supply and use of resources is more critical than it ever has been. Constraints on natural resources have a significant effect on the strategies of global companies. And finally, the increasing role of governments shapes globalization, now and in the future. Concerns of volatility and high debt are relevant in developed and emerging markets. Government actions affect which markets may be invested in and how business may be conducted in those markets. Natural resources and governmental oversight are significant external factors to be considered in globalization (McKinsey & Company, 2010).

As globalization becomes the norm for business in the future, companies must consider these five themes and respond accordingly to sustain the change that comes with glo- balization. Companies like IKEA and Heinz have been successful, and even ahead of the curve, in sustaining this change.

Meeting the Challenges of Disruptive Change

Change, particularly as the playing field expands globally, will become more significant and often more disruptive. Leaders must shift their thinking from individual employees’ capabilities to organizational capabilities. “To succeed consistently, good managers need to be skilled not just in assessing people, but also in assessing the abilities and disabilities

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

of their organization as a whole” (Christensen & Overdorf, 2000, p. 68). When consider- ing the “big picture” of the organization, Christensen and Overdorf identify three factors that “affect what an organization can and cannot do: its resources, its processes, and its values” (p. 68).

What an organization has (its assets) affects what it can do. Both tangible (equipment, cash, inventory) and intangible (patents, employees, knowledge) resources help compa- nies navigate disruptive change. Processes are “the patterns of interaction, coordination, communication, and decision making employees use to transform resources into prod- ucts and services of greater worth” (Christensen & Overdorf, 2000, p. 68). Inherently, processes are designed to be stable and unchanging. The difficultly arises in creating organizational flexibility in order to respond to change. Finally, values are “the standards by which employees set priorities” (p. 69). The ideal combination of resources, processes, and values will be different for each organization; and finding this balance is the key to sustaining change.

Disruptive change is most difficult when the organization’s capabilities are found primar- ily in its processes and values, rather than in its people, and are embedded in the culture of the organization. In this case, Christensen and Overdorf suggest dealing with disruptive change by creating new capabilities three ways: internally, through spinout organizations, and through acquisitions (p. 71). Internally creating new capabilities requires a change in organizational boundaries and the creation of new teams. Chrysler, for example, recog- nized the need for a change in capabilities to focus on automobile types rather than on com- ponents. The company sold its stake in Maserati, Lamborghini, and Diamond Star to focus on developing “great cars, great trucks.” This move sent a signal to employees and other stakeholders that helped jump start the company’s renaissance (Ott, Katz, & Thomas, 2011).

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

Spinout organizations (new, independent organizations related to parent organization, i.e., a new division) can also be an effective way of creating new capabilities in the face of disruptive change. When HP first entered the ink-jet printer business, it had difficulty integrating it with its existing laser-jet operations because the capabilities needed were different. HP decided to create a new ink-jet division in Vancouver, British Columbia. This spinout division allowed HP to create new capabilities for the ink-jet business and maintain its capabilities in laser-jet printers. More recently, HP, as noted previously, chose to sell its PC (personal computer) operation and bought the United Kingdom’s largest software firm, Autonomy, to enter the software business (BBC, 2011).

“Creating capabilities through acquisition” allows organizations to purchase new capa- bilities, rather than create them internally or through a spinout organization (BBC, 2011, p. 74). An acquisition is an organization’s purchase of all or a portion of another existing company. Rather than expending valuable resources to create capabilities from scratch, an organization may be able to purchase an existing company that has the desired capabili- ties. Any of these three methods allow an organization to navigate disruptive change by creating new organizational capabilities.

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CHAPTER 4Section 4.5 Future Change Challenges and Best Practices

Developing EI (Emotional Intelligence)

Finally, shaping and sustaining change in a global playing field with socially responsible and ethical players requires a new kind of intelligence. According to psychologist Daniel Goleman, “The most effective leaders are alike in one crucial way: they all have a high degree of emotional intelligence. It’s not that IQ and technical skills are irrelevant. They do matter, but mainly as ‘threshold capabilities’” (Goleman, 1998, p. 94). Emotional intelli- gence encompasses self-awareness, self-regulation, motivation, empathy, and social skill (p. 95). These five components, as identified by Goleman, are shown in Figure 4.5. This kind of intelligence requires much more than technical skills or know-how. It is very rela- tional and self-reflective and is not just for leaders.

Figure 4.5: Emotional intelligence

Definition Hallmarks

Self-Awareness the ability to recognize and understand your moods, emotions, and drives, as well as their effect on others

self-confidence

realistic self-assessment

self-deprecating sense of humor

Self-Regulation the ability to control or redirect disrup- tive impulses and moods

the propensity to susupend judgment— to think before acting

trustworthiness and integrity

comfort with ambiguity

openness to change

Motivation a passion to work for reasons that go beyond money or status

a propensity to pursue goals with energy and persistence

strong drive to achieve

optimism, even in the face of failure

organizational commitment

Empathy the ability to understand the emotional makeup of other people

skill in treating people according to their emotional reactions

expertise in building and retaining talent

cross-cultural sensitivity

service to clients and customers

Social Skill proficiency in managing relationships and building networks

an ability to find common ground and build rapport

effectiveness in leading change

persuasiveness

expertise in building and leading teams

Leaders and followers need emotional intelligence (EI) to shape and sustain change in the future. To motivate the diversity of a global workforce that is becoming more local each day, and to read and even predict markets based on this diversity requires emotional intel- ligence. The first and fundamental component of EI is self-awareness. Goleman defines self-awareness as a “deep understanding of one’s emotions, strengths, weaknesses, needs, and drives” (pp. 95–96). This is often easier said than done; however, if understanding the organization is fundamental to sustaining change, how much more important is first

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CHAPTER 4Summary

understanding yourself? Self-awareness provides a context for the role of the individual within the organization. One cannot enact an organization’s vision, mission, and values without first understanding one’s own vision, mission, and values.

Self-regulation involves thinking before acting and the ability to control impulses. “Peo- ple who are in control of their feelings and impulses—that is, people who are reasonable —are able to create an environment of trust and fairness” (Goleman, 1998, p. 98). An orga- nization cannot sustain change without an environment of trust. Such an environment takes time to establish. Motivation “is the drive ‘to achieve beyond expectations—their own and everyone else’s’” (p. 98). Change is rarely easy—successfully and efficiently implementing change requires drive, trust, and communication. Trust can be developed if leadership has an attitude of empathy. Empathy is thoughtful consideration of “employ- ees’ feelings—along with other factors—in the process of making intelligent decisions” (p. 100). Finally, social skill “is friendliness with a purpose: moving people in the direc- tion you desire” (p. 101).

Emotional intelligence is more than a personality trait. It’s a new kind of intelligence, and it can be learned (Goleman, 1998). EI involves the ability to identify and control the emo- tions of yourself and others. Positive manipulation, in this way, is a critical success factor in shaping and sustaining change. Leaders with EI, at all levels of a company, create and motivate cohesive work environments, supporting and inspiring change.

Summary

Shaping and sustaining planned and continuous organizational changes are the tasks of the entire organization, from the leaders to employees. The previous chapters defined and explained the nature and different types of change and discussed methods for diag- nosing and planning change. Sustaining change requires not only keeping what has been planned updated and on course, but also demands that leaders continue to benchmark organizational operations and expertise to the latest technologies and practices in their fields and those used by their most successful competitors.

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

Challenges to organizations and current best practices that address these challenges are discussed. Global threats (and opportunities) and disruptive changes brought about by a number of sources, including new technologies, are some of the major challenges orga- nizations face. Addressing these challenges is the subject of the chapter, and, in the last section, the chapter also explains why strategic CSR, an organization’s core competencies, sustainability, the practice of analytics, and emotional intelligence throughout the organi- zation create a competitive advantage.

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Learning Objectives Recap

1. Change programs fail for many reasons, including: opposition to change, failure to recognize the need for change, superficial recognition of the need for change, failure to systematically implement change, short-term fix approach, structural impediments to change, cultural impediments to change, and failure to sustain change. Often change is arbitrarily imposed and poorly explained; and employ- ees are given little or inadequate direction.

2. Leaders guide the alignment of organizational dimensions to the new vision and future state through the change process. Figure 4.1 illustrates this role. Leaders use interventions and empowerment to sustain change. Leaders are integrators, orchestrators, motivators, communicators, and strategists.

3. The five pillars of successful, sustainable change are leadership, strategy, culture, structure, and systems. These five pillars are interrelated and interdependent. Leaders guide the new strategy and shape the culture, which, in turn, suggests the appropriate structure and systems. All five dimensions must be in alignment for change to be successful and sustainable.

4. Jim Collins offers the following principles: level five leadership, good personnel placement, confrontation of reality, the hedgehog concept, a culture of discipline, use of technology, and the flywheel approach. Level five leadership is servant leadership characterized by a calm, quiet, and humble style. The hedgehog con- cept refers to a company understanding its passion, what it does best, and what drives its economic engine. The flywheel approach involves building momen- tum, as if pushing a large flywheel in one direction.

5. Enterprise or corporate strategies are broader, high-level strategies that define a purpose and mission for the organization to satisfy stakeholders. Business-level strategies focus on the actions the organization needs to take to gain a competi- tive advantage. Finally, operational or function-level strategies focus on the organization of each functional area in order to achieve corporate and business- level strategies.

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

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

8. Self-designing organizations are organizations that have the ability to change themselves fundamentally and continuously. Existing organizations often have greater difficulty in becoming a learning organization. To help make this transi- tion, organizations need a strategic CSR focus, an emphasis on sustainability, attention to core competencies, a way to manage globalization, an effort to meet the challenges of disruptive change, to incorporate analytics, and to develop emotional intelligence among employees.

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Discussion Questions

1. You have been invited to give a talk to a local business group on “Why organiza- tional change programs fail and how they can succeed.” Outline your presenta- tion that would be understandable to such an audience.

2. If you had to advise a group of newly appointed CEOs on specific roles and func- tions that leaders can play to help sustain organizational change, what would you say?

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

4. Argue the pros and cons of the following statements using Section 4.3 of this chapter: (a) Human capital cannot be easily developed after an organizational change is implemented. (b) Recruiting new talent through an organization’s branding is more myth than reality. (c) Organizations, human resource personnel, and leaders can’t really empower employees to sustain a change, people have to motivate themselves.

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

6. Argue this statement and present evidence (use Section 4.5): When organiza- tions change to satisfy customer and competitive demands, CSR (corporate social responsibility) is a great theory; but in the real world every company and orga- nization has to do what is required to survive and succeed—and that sometimes involves questionable legal and ethical activities.

7. Comment on why the following practices are important in sustaining organiza- tional change: (a) Self-designing organizations; (b) Defining and updating core competencies; (c) Sustainability; (d) Analytics; (e) Global competitiveness.

8. Respond to these statements, backing up your logic: (a) Disruptive change may be desirable in theory, but in reality it should be prevented, controlled, and, if possible, extinguished. (b) Emotional intelligence (EI) is a great trait to have if you’re born with it; but many people who are shy, introverted, and not out- wardly oriented should not be pressured to learn or demonstrate “emotional intelligence,” especially by organizational leaders and trainers.

Key Terms

access-based positioning

acquisition

aggressiveness

analytics

assets

b2change organizations

branding

breadth

business intelligence (data mining)

business-level strategies

business process outsourc- ing (BPO)

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CHAPTER 4Summary

code of ethics

competitive advantages

confronting brutal facts

connectors

core competencies

corporate social responsi- bility (CSR)

creative destruction

culture of discipline

cultural risk

data warehousing

differentiation

emerging markets

emotional intelligence (EI)

empathy

empowerment

enterprise or corporate strategies

executive dashboards

executive information system (EIS)

first who, then what

flywheel

globalization

hedgehog concept

horizontal communication

human capital

identity

intangible asset

intranet

knowledge management

level 5 leadership

logic

management information system (MIS)

motivation

needs-based positioning

negative externalities

operational and func- tional-level strategies

orchestration

processes

self-awareness

self-designing organizations

self-regulation

shared leadership

silos

social skill

spinout organizations

strategic intent

strategic positioning

supply chain

sustainability

sustaining major organiza- tional changes

technology accelerators

values

variety-based positioning

vertical communication

virtuous spiral

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