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Chapter 14 Organizational Structure and Change

L E A R N I N G O B J E C T I V E S

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

1. Define organizational structure.

2. Identify the basic elements of structure.

3. Explain the difference between mechanistic and organic structures and describe

factors shaping an organization’s structure.

4. Describe matrix, boundaryless, and learning organizations.

5. Understand how structure affects ethics.

6. Understand cross-cultural influences on structure and change.

Success at Toyota In the first quarter of 2007, Toyota Motor Company overtook General Motors

Corporation in sales for the first time as the top automotive manufacturer in

the world. Thus, the largest automotive manufacturer of Japan became the top

manufacturer of cars in the world. In terms of productivity, efficiency, and

profitability, Toyota was already at the top. Analysts and observers are eager

to explain Toyota’s success, and one frequently cited reason for this

accomplishment is Toyota’s unique lean manufacturing system.

What is lean manufacturing? Toyota Production System (TPS) is built on the

principles of “just-in-time” production. In other words, raw materials and

supplies are delivered to the assembly line exactly at the time they are to be

used. This system has little room for slack resources, emphasizes the

importance of efficiency on the part of employees, and minimizes wasted

resources. TPS also gives power to the employees on the front lines. Assembly

line workers are empowered to pull a cord and stop the manufacturing line

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when they see a problem. In a system based on just-in-time delivery, assembly

line stoppages might have been viewed as costly, but Toyota employees would

find it unthinkable to let a flaw pass through the system.

Toyota enacts its production system with the help of its human resource

strategies, culture, and structure. From the human resource perspective, they

have employment stability, high investment in training and development, and

internal promotions, all promoting a sense of employee ownership of the

process. On the culture side, an emphasis on learning and modesty when it

comes to evaluating past successes differentiates them from competitors, yet

their structure is also a key reason for their ability to put TPS into action.

TPS requires all employees to be an expert in what they do, which encourages

specialization. Thus, Toyota is a functional organization. Each employee

reports to a functional manager. At the same time, they understand the

importance of a focus on the final product. As a result, a matrix organization is

created where each employee also reports to a chief engineer who represents

the interests of the customer. Meetings are conducted every two days to

coordinate the relations between chief engineers and functional managers.

Toyota’s structure also has other formal mechanisms facilitating

communication among functions, such as module development teams, which

are cross-functional teams that bring together product and production

engineers. Through this structure, Toyota strikes a balance between being

highly traditional and bureaucratic while at the same time agile and

innovative.

Toyota culture and structure facilitate constant learning and continuous

improvement. Employees at all levels are expected to analyze the gap between

actual and expected performance and understand the causes of all problems.

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Without such understanding, they believe, improvements are not likely. Their

culture emphasizes rethinking of how things are done, and sayings such as

“never be satisfied” and “there’s gotta be a better way” are part of their daily

life. For example, if a car comes down the assembly line with a defect, fixing

the defect is not the priority. Instead, the emphasis is on understanding the

cause of the defect so it is not repeated. Management encourages

experimentation and views failures as the key to learning. One way in which

they learn from mistakes is to hold “reflection” meetings to recount what went

wrong and how things can be improved in the future. In addition to facilitating

learning at the individual and team levels, they take steps to make sure that

what is learned is shared with the rest of the organization. This is achieved by

putting implied knowledge into writing.

Just-in-time production requires harmonious relations with suppliers,

because suppliers are responsible for ensuring timely delivery of quality

components. In fact, around 75% of each Toyota car is produced by suppliers.

Toyota managed to create strategic alliances that eliminate some of the

boundaries that exist between typical manufacturers and suppliers. Unlike

GM or Ford Motor Company, Toyota does not go to the lowest bidding

supplier, pit suppliers against each other, or threaten them. In fact, while GM

and Ford are known as having poor relations with their suppliers, Toyota

manages to build highly effective and long-term relations with the exact same

suppliers, becoming their best customer and partner in the process despite

cross-cultural differences. Toyota invests in its suppliers by sending engineers

to observe and improve production processes and provides guest engineers to

introduce suppliers to Toyota’s own production methods. Toyota even shares

critical information with supply companies to help them be successful. In fact,

Toyota and its suppliers are called the “Toyota group” in Japan. The level of

cooperation Toyota has with its suppliers blurs the lines between

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organizations and moves them one step closer to becoming a boundaryless

organization.

Sources: Based on information from Dyer, J. H., & Nobeoka, K. (2000).

Creating and managing a high-performance knowledge-sharing network: The

Toyota case.Strategic Management Journal, 21, 345–367; Liker, J. K., & Choi,

T. Y. (2004, December). Building deep supplier relationships. Harvard

Business Review, 82(12), 104–113; Liker, J. K., & Morgan, J. M. (2006). The

Toyota way in services: The case of lean product development. Academy of

Management Perspectives, 20(2), 5–20; Spear, S. J. (2004, May). Learning to

lead at Toyota. Harvard Business Review,82(5), 78–86; Takeuchi, H., Osono,

E., & Shimizu, N. (2008, June). The contradictions that drive Toyota’s

success. Harvard Business Review, 86(6), 96–104.

As much as individual and team level factors influence work attitudes and

behaviors, the organization’s structure can be an even more powerful

influence over employee actions. Organizational structure refers to how the

work of individuals and teams within an organization is coordinated. In order

to achieve organizational goals and objectives, individual work needs to be

coordinated and managed. Structure is a valuable tool in achieving

coordination, as it specifies reporting relationships (who reports to whom),

delineates formal communication channels, and describes how separate

actions of individuals are linked together.

14.1 Organizational Structure

L E A R N I N G O B J E C T I V E S

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1. Explain the role of formalization, centralization, levels in the hierarchy, and

departmentalization for employee attitudes and behaviors.

2. Describe how the elements of organizational structure can be combined to create

mechanistic and organic structures.

3. Understand the advantages and disadvantages of mechanistic and organic structures

for organizations.

4. Explain what a matrix structure is, and the challenges of working in a structure such

as this.

5. Define boundaryless organizations.

6. Define learning organizations and list the steps organizations can take to become

learning organizations.

Building Blocks of Structure

What exactly do we mean by organizational structure? In other words, which

elements of a company’s structure make a difference in how we behave and

how work is coordinated? We will review four aspects of structure that have

been frequently studied in the literature. We view these four elements as the

building blocks, or elements, making up a company’s structure. Then we will

examine how these building blocks come together to form two different

configurations of structures.

Centralization

Centralization is the degree to which decision making authority is

concentrated at higher levels in an organization. In centralized companies,

many important decisions are made at higher levels of the hierarchy, whereas

in decentralized companies, decisions are made and problems are solved at

lower levels by employees who are closer to the problem in question.

As an employee, where would you feel more comfortable and productive? If

your answer is “decentralized,” you are not alone. Decentralized companies

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give more authority to lower level employees, resulting in a sense of

empowerment. Decisions are often faster, and employees believe that

decentralized companies provide greater levels of procedural fairness to

employees. Job candidates are more likely to be attracted to decentralized

organizations. Because centralized organizations assign decision making

responsibility to higher level managers, there are greater demands on the

mental and physical capabilities of CEOs and other high-level managers.

Despite many perceived disadvantages, centralization may lead to more

efficient operations, particularly if the company is operating in a stable

environment. [1]

Many companies find that the centralization of operations leads to

inefficiencies in decision making. For example, in the 1980s, Caterpillar Inc.

suffered the consequences of centralized decision making. At the time, all

pricing decisions were made in the corporate headquarters in Peoria, Illinois.

This meant that when a sales representative working in Africa wanted to give a

discount on a product, they needed to check with headquarters. Headquarters

did not always have accurate or timely information about the subsidiary

markets to make an effective decision. The dramatic reorganization of the

company sought to avoid problems such as these. [2]

At the other end of the

spectrum, organizations can suffer from extreme decentralization. For

example, some analysts believe that the Federal Bureau of Investigation (FBI)

experiences some problems because all its structure and systems are based on

the assumption that crime needs to be caught after it happens. Over time, this

assumption led to a situation in which, instead of following an overarching

strategy, each unit is completely decentralized, and field agents determine

how investigations should be pursued. It has been argued that due to the

change in the nature of crimes, the FBI’s need to gather accurate intelligence

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before a crime is committed requires more centralized decision making and

strategy development. [3]

Hitting the right balance between decentralization and centralization is a

challenge for many organizations. At the Home Depot Inc., the retail giant

with over 2,000 stores across the United States, Canada, Mexico, and China,

one of the major changes their former CEO Robert Nardelli did was to

centralize most of its operations. Before the transition, Home Depot store

managers made a number of decisions autonomously and each store had an

entrepreneurial culture. Nardelli’s changes initially saved the company a lot of

money. For example, for a company of that size, centralizing purchasing

operations led to big cost savings, because the company could negotiate

significant discounts from suppliers. At the same time, many analysts think

that the centralization went too far, leading to the loss of the service-oriented

culture at the stores. [4]

Formalization

Formalization is the extent to which policies, procedures, job descriptions, and

rules are written and explicitly articulated. In other words, formalized

structures are those in which there are many written rules and regulations.

These structures control employee behavior using written rules, and

employees have little autonomy to make decisions on a case-by-case basis.

Formalization makes employee behavior more predictable. Whenever a

problem at work arises, employees know to turn to a handbook or a procedure

guideline. Therefore, employees respond to problems in a similar way across

the organization, which leads to consistency of behavior.

While formalization reduces ambiguity and provides direction to employees, it

is not without disadvantages. A high degree of formalization may actually lead

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to reduced innovativeness, because employees are used to behaving in a

certain manner. In fact, strategic decision making in such organizations often

occurs only when there is a crisis. A formalized structure is associated with

reduced motivation and job satisfaction as well as a slower pace of decision

making. [5]

The service industry is particularly susceptible to problems

associated with high levels of formalization. Sometimes employees who are

listening to a customer’s problems may need to take action, but the answer

may not be specified in any procedural guidelines or rulebook. For example,

while a handful of airlines such as Southwest Airlines Company do a good job

of empowering their employees to handle complaints, in many airlines lower

level employees have limited power to resolve a customer problem and are

constrained by stringent rules that outline a limited number of acceptable

responses.

Hierarchical Levels

Another important element of a company’s structure is the number of levels it

has in the hierarchy. Keeping the size of the organization

constant, tall structures have several layers of management between frontline

employees and the top level, whileflat structures consist of few layers. A

closely related concept is span of control, or the number of employees

reporting to a single manager. In tall structures, span of control tends to be

smaller, resulting in greater opportunities for managers to supervise and

monitor employee activities. In contrast, flat structures involve a wider span of

control. In such a structure, managers will be relatively unable to provide close

supervision, leading to greater levels of freedom of action for each employee.

Research indicates that flat organizations provide greater need satisfaction for

employees, and greater levels of self-actualization. [6]

Companies such as the

IKEA Group, the Swedish furniture manufacturer and retailer, are successfully

using flat structures to build an employee mentality of job involvement and

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ownership. At the same time, there may be some challenges associated with

flat structures. In flat structures, employees will not have many opportunities

to receive supervision and guidance from the manager, making it necessary for

employees to be self-reliant. In fact, research shows that when managers

supervise a large number of employees, which is more likely to happen in flat

structures, employees experience greater levels of role ambiguity. [7]

This may

be a disadvantage for employees who need closer guidance from their

managers. Moreover, in a flat structure, advancement opportunities will be

more limited, because there are fewer management layers. Finally, while

employees report that flat structures are better at satisfying their higher order

needs such as self-actualization, they also report that tall structures are better

at satisfying security needs of employees. [8]

Because tall structures are typical

of large and well-established companies, it is possible that when working in

such organizations, employees feel a greater sense of job security.

Departmentalization

Organizational structures differ in terms of departmentalization.

Organizations using functional structures group jobs based on similarity in

functions. Such structures may have departments such as marketing,

manufacturing, finance, accounting, human resources, and information

technology. In these structures, each person serves a specialized role and

handles large volumes of transactions. For example, a marketing employee

working in a functional structure may serve as an event planner, planning

promotional events for all the products of the company. In organizations

usingdivisional structures, departments represent the unique products,

services, customers, or geographic locations the company is serving. In other

words, each unique product or service the company is producing will have its

own department. Within each department, functions such as marketing,

manufacturing, and other roles are replicated. In these structures, employees

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act like generalists as opposed to specialists. Instead of performing specialized

tasks, employees will be in charge of performing many different tasks in the

service of the product. For example, a marketing employee working in this

structure may be in charge of planning promotions, coordinating relations

with advertising agencies, and planning and conducting marketing research.

In reality, many structures are a hybrid of functional and divisional forms. For

example, if the company has multiple product lines, departmentalizing by

product may increase innovativeness and reduce response times. Each of these

departments may have dedicated marketing, manufacturing, and customer

service employees serving the specific product, yet the company may also find

that centralizing some operations and retaining the functional structure makes

sense and is more cost effective for roles such as human resources

management and information technology. The same organization may also

create geographic departments, if it is serving different countries.

Figure 14.5 An Example of a Pharmaceutical Company With Product

Departments

Functional structures tend to be effective when an organization does not have

a large number of products and services requiring special attention. When a

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company has a diverse product line, each product will have unique demands,

deeming traditional structures less useful for promptly addressing customer

demands and anticipating market changes. Functional structures are also

more effective in stable environments that are slower to change. In contrast,

organizations using product departments are more agile and can perform

better in turbulent environments. The type of employee who will succeed

under each structure is also different. Research shows that when employees

work in product departments in turbulent environments, because activities are

diverse and complex, their performance depends on their general mental

abilities. [9]

Two Configurations: Mechanistic and Organic Structures

The different elements making up organizational structures in the form of

formalization, centralization, number of levels in the hierarchy, and

departmentalization often coexist. As a result, we can talk about two

configurations of organizational structures, depending on how these elements

are arranged.

Mechanistic structures are similar to bureaucracies, as they are highly

formalized and centralized. Communication tends to follow formal channels,

and employees are given specific job descriptions delineating their roles and

responsibilities. Mechanistic organizations are often rigid and resist change,

making them unsuitable for being innovative and taking quick action. These

forms have the downside of inhibiting entrepreneurial action and

discouraging the use of individual initiative on the part of employees. Not only

do mechanistic structures have disadvantages for innovativeness, they also

limit individual autonomy and self-determination, which will likely lead to

lower levels of intrinsic motivation on the job. [10]

Despite these downsides,

mechanistic structures have advantages when the environment is more stable.

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The main advantage of a mechanistic structure is its efficiency. Therefore, in

organizations that are trying to maximize efficiency and minimize costs,

mechanistic structures provide advantages. For example, McDonald’s

Corporation has a famously bureaucratic structure in which employee jobs are

highly formalized, with clear lines of communication and very specific job

descriptions. This structure is an advantage for them, because it allows

McDonald’s to produce a uniform product around the world at minimum cost.

Moreover, mechanistic structures tend to be advantageous for new ventures.

New businesses often suffer from a lack of structure, role ambiguity, and

uncertainty. The presence of a mechanistic structure has been shown to be

related to firm performance in new ventures. [11]

Organic structures are flexible, decentralized structures with low levels of

formalization. Communication lines are more fluid and flexible. Employee job

descriptions are broader, and employees are asked to perform duties based on

the specific needs of the organization at the time as well as their own expertise

levels. Organic structures tend to be related to higher levels of job satisfaction

on the part of employees. These structures are conducive to entrepreneurial

behavior and innovativeness. [12]

An example of a company that has an organic

structure is 3M. The company is strongly committed to decentralization. At

3M, there are close to 100 profit centers, with each division feeling like a small

company. Each division manager acts autonomously and is accountable for his

or her actions. As operations within each division get too big and a product

created by a division becomes profitable, the operation is spun off to create a

separate business unit. This is done to protect the agility of the company and

the small-company atmosphere. [13]

Contemporary Forms of Organizational Structures

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Matrix Organizations

Matrix organizations cross a traditional functional structure with a product

structure. Specifically, employees reporting to department managers are also

pooled together to form project or product teams. As a result, each person

reports to a department manager as well as a project or product manager. In

this structure, product managers have control and say over product-related

matters. Matrix structures are created in response to uncertainty and

dynamism of the environment and the need to give particular attention to

specific products or projects. Instead of completely switching from a product-

based structure, a company may utilize a matrix structure to balance the

benefits of product-based and traditional functional structures.

Using the matrix structure as opposed to product departments may increase

communication and cooperation among departments, because project

managers will need to coordinate their actions with department managers. In

fact, research shows that matrix structure increases the frequency of informal

and formal communication within the organization. [14]

Matrix structures also

have the benefit of providing quick responses to technical problems and

customer demands. The existence of a project manager keeps the focus on the

product or service that is being provided.

Despite these potential benefits, matrix structures are not without costs. In a

matrix, each employee reports to at least two or more managers. In other

words, the matrix organization violates the unity of command principle that is

often prevalent in traditional organizations. In organizations with unity of

command, each person reports to a single manager. As a result,

communication flows through predictable lines and coordination is easier.

Because matrix organizations do not follow unity of command, this is a

situation ripe with conflict. Because multiple managers are in charge of

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guiding the behaviors of each employee, there may be power struggles or turf

wars among managers. The managers are more interdependent compared to a

traditional or product-based structure, and they will need to spend more effort

coordinating their work. From the employee’s perspective, there is potential

for interpersonal conflict with team members as well as with leaders. The

presence of multiple leaders may create role conflict. The necessity to work

with a team consisting of employees with different functional backgrounds

increases the potential for task conflict at work. [15]

Solving these problems will

require a great deal of patience and proactivity on the part of the employee.

Figure 14.6

An example of a matrix structure at a software development company. Business

analysts, developers, and testers each report to a functional department

manager and to a project manager simultaneously.

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The matrix structure is used in many information technology companies

engaged in software development. See the example of a matrix structure for an

IT company presented in the following figure. Nike Inc. is another company

that utilizes the matrix organization successfully. New product introduction is

a task shared by regional managers and product managers. While product

managers are in charge of deciding how to launch a product, regional

managers are allowed to make modifications based on the region. [16]

OB Toolbox: Managed by a Crowd Due to the widespread use of matrix structures and similar organizational

forms, you may find that you are reporting to multiple bosses as opposed to

just one. Here is what you can do to make this situation work more smoothly

for everyone involved:

 Do not assume that having multiple bosses is necessarily a bad thing! Yes,

there are more opportunities for role overload and role conflict, but there are

also more chances of learning from several senior people. This may turn out to

be a great learning experience.

 Make sure that all your managers are familiar with your overall work load.

One challenge of having multiple bosses is that you may end up with too much

work, because they may place expectations on you without checking with each

other. For example, you may post your “to do” list on a Web board or on a

whiteboard in your office for them to keep track of.

 Make conflicts known to managers. Another challenge is the potential for role

conflict. If the managers are not coordinating with each other, they may place

contradictory expectations on you. Also, keep good records of all e-mails and

CC all relevant managers in conversations that are pertinent to them.

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 Do not be afraid to request a meeting with all your managers, and

potentially with their own managers if you reach an impasse. This structure

places serious communication and coordination challenges on all those

involved, and having meetings may clear the air.

 Make an effort to establish an effective relation with each manager. When

you have multiple bosses, you will need to manage good relations with each of

them.

 You need to understand the styles of each manager and vary your style with

each. Some may appreciate frequent updates on all you are doing, while others

may judge you based solely on ultimate results. Make an effort to understand

their styles and do not assume that something that works with one will work

with the other.

 Be cognizant of the relationships among those managers as well. Never

complain about one to the other. Also, be aware that if two managers truly

dislike each other, being too friendly with one in the presence of the other may

affect your relations with the other.

Sources: Adapted from information in Frings, C. S. (2002, August).

Management Q & A: Answering your questions on multiple bosses and not

following standard operating procedure. Medical Laboratory Observer, 34(8),

24–25; Hymowitz, C. (2003, August 12). Managers suddenly have to answer to

a crowd of bosses. Wall Street Journal, B1; McCune, J. (2006, August–

September). Multiple bosses multiple directions. Office Pro, 66(6), 10–14.

Boundaryless Organizations

Boundaryless organization is a term coined by Jack Welch of General Electric

Company and refers to an organization that eliminates traditional barriers

between departments, as well as barriers between the organization and the

external environment. Many different types of boundaryless organizations

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exist. One form is themodular organization where all the nonessential

functions are outsourced. The idea behind this format is to retain only the

value-generating and strategic functions in-house, while the rest of the

operations are outsourced to many suppliers. An example of a company doing

this is Toyota. By managing relationships with hundreds of suppliers, Toyota

achieves efficiency and quality in its operations. Strategic alliances constitute

another form of boundaryless design. Here, similar to a joint venture, two or

more companies find an area of collaboration and combine their efforts to

create a partnership that is beneficial for both parties. In this form, the

traditional boundaries between two competitors may be broken. As an

example, Starbucks Corporation formed a highly successful partnership with

PepsiCo Inc. to market its Frappuchino cold drinks. Starbucks has immediate

brand name recognition in this cold coffee drink, but its desire to capture shelf

space in supermarkets required marketing savvy and experience that

Starbucks did not possess at the time. By partnering with PepsiCo, Starbucks

gained an important head start in the marketing and distribution of this

product. Finally, boundaryless organizations may involve eliminating the

barriers separating employees, such as traditional management layers or walls

between different departments. Structures such as self-managing teams create

an environment where employees coordinate their efforts and change their

own roles to suit the demands of the situation, as opposed to insisting that

something is “not my job.” [17]

Learning Organizations

A learning organization is one where acquiring knowledge and changing

behavior as a result of the newly gained knowledge are part of an

organization’s design. In these structures, experimenting, learning new things,

and reflecting on new knowledge are the norms. At the same time, there are

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many procedures and systems in place that facilitate learning at the

organizational level.

In learning organizations, experimentation and testing potentially better

operational methods are encouraged. This is true not only in response to

environmental threats, but also as a way of identifying future opportunities.

3M is one company that institutionalized experimenting with new ideas in the

form of allowing each engineer to spend one day a week working on a personal

project. At IBM Corporation, this is achieved by taking highly successful

business managers and putting them in charge of emerging business

opportunities (EBOs). IBM is a company that has no difficulty coming up with

new ideas, as evidenced by the number of patents it holds. Yet

commercializing these ideas has been a problem in the past, owing to an

emphasis on short-term results. To change this situation, the company began

experimenting with the idea of EBOs. By setting up a structure in which failure

is tolerated and risk taking is encouraged, the company took a big step toward

becoming a learning organization. [18]

Learning organizations are also good at learning from experience, be it their

own or a competitors’. In order to learn from past mistakes, companies

conduct a thorough analysis of them. Some companies choose to conduct

formal retrospective meetings to analyze the challenges encountered and areas

for improvement. In order to learn from others, these companies vigorously

study competitors, market leaders in different industries, clients, and

customers. By benchmarking against industry best practices, they constantly

look for ways of improving their own operations. Learning organizations are

also good at studying customer habits to generate ideas. For example, Xerox

Corporation uses anthropologists to understand and gain insights into how

customers are actually using their office products. [19]

By using these

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techniques, learning organizations facilitate innovativeness and make it easier

to achieve organizational change.

K E Y T A K E A W A Y

The degree to which a company is centralized and formalized, the number of levels

in the company hierarchy, and the type of departmentalization the company uses

are key elements of a company’s structure. These elements of structure affect the

degree to which the company is effective and innovative as well as employee

attitudes and behaviors at work. These elements come together to create

mechanistic and organic structures. Rigid and bureaucratic, mechanistic structures

help companies achieve efficiency, while organic structures, which are decentralized

and flexible, aid companies in achieving innovativeness. The changing environment

of organizations creates the need for newer forms of organizing. Matrix structures

are a cross between functional and product-based divisional structures. They

facilitate information flow and reduce response time to customers but have

challenges, because each employee reports to multiple managers. Boundaryless

organizations blur the boundaries between departments or the boundaries between

the focal organization and others in the environment. These organizations may take

the form of a modular organization, strategic alliance, or self-managing teams.

Learning organizations institutionalize experimentation and benchmarking.

E X E R C I S E S

1. What are the advantages and disadvantages of decentralization?

2. All else being equal, would you prefer to work in a tall or flat organization? Why?

3. What are the advantages of departmentalization by product?

4. Have you ever reported to more than one manager? What were the challenges of

such a situation?

5. What do you think are the advantages and disadvantages of being employed by a

boundaryless organization?

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6. What can organizations do to institutionalize organizational learning? What practices

and policies would aid in knowledge acquisition and retention?

14.2 Organizational Change

L E A R N I N G O B J E C T I V E S

1. Identify the external forces creating change on the part of organizations.

2. Understand how organizations respond to changes in the external environment.

3. Understand why people resist change.

Why Do Organizations Change?

Organizational change is the movement of an organization from one state of

affairs to another. Organizational change can take many forms. It may involve

a change in a company’s structure, strategy, policies, procedures, technology,

or culture. The change may be planned years in advance or may be forced

upon an organization because of a shift in the environment. Organizational

change can be radical and alter the way an organization operates, or it may be

incremental and slowly change the way things are done. In any case,

regardless of the type, change involves letting go of the old ways in which work

is done and adjusting to the new ways. Therefore, fundamentally, it is a

process that involves effective people management.

Workforce Demographics

Organizational change is often a response to changes in the environment. For

example, both the United States Department of Labor and Organization for

Economic Co-operation and Development (OECD) estimate that the age of the

workforce is on the rise. [1]

What does this mean for companies? Organizations

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may realize that as the workforce gets older the types of benefits they prefer

may change. Work arrangements such as flexible work hours and job sharing

may become more popular as employees remain in the workforce even after

retirement. As the workforce rapidly ages, it also becomes possible that

employees who are unhappy with their current work situation will choose to

retire, resulting in a sudden loss of valuable knowledge and expertise on the

part of organizations. Therefore, organizations will have to devise strategies to

retain these employees and plan for their retirement. Finally, a critical issue is

finding ways of dealing with age-related stereotypes, which act as barriers in

the retention of these employees.

Technology

Sometimes change is motivated by rapid developments in technology. Moore’s

law (a prediction by Gordon Moore, cofounder of Intel Corporation) dictates

that the overall complexity of computer circuits will double every 18 months

with no increase in cost. [2]

Such change is motivating corporations to rapidly

change their technology. Sometimes technology produces such profound

developments that companies struggle to adapt. A recent example is from the

music industry. When CDs were first introduced in the 1980s, they were

substantially more appealing than the traditional LPs. Record companies were

easily able to double the prices, even though producing CDs cost a fraction of

what it cost to produce LPs. For decades, record producing companies

benefited from this status quo. Yet when peer-to-peer file sharing through

software such as Napster and Kazaa threatened the core of their business,

companies in the music industry found themselves completely unprepared for

such disruptive technological changes. Their first response was to sue the

users of file-sharing software, sometimes even underage kids. They also kept

looking for a technology that would make it impossible to copy a CD or DVD,

which has yet to emerge. Until Apple Inc.’s iTunes came up with a new way to

23

sell music online, it was doubtful that consumers would ever be willing to pay

for music that was otherwise available for free (albeit illegally so). Only time

will tell if the industry will be able to adapt itself to the changes forced upon

it. [3]

Globalization

Globalization is another threat and opportunity for organizations, depending

on their ability to adapt to it. Organizations are finding that it is often cheaper

to produce goods and deliver services in some countries compared to others.

This led many companies to utilize manufacturing facilities overseas, with

China as a popular destination. For a while, knowledge work was thought to be

safe from outsourcing, but now we are also seeing many service operations

moved to places with cheaper wages. For example, many companies have

outsourced software development to India, with Indian companies such as

Wipro Ltd. and Infosys Technologies Ltd. emerging as global giants. Given

these changes, understanding how to manage a global workforce is a necessity.

Many companies realize that outsourcing forces them to operate in an

institutional environment that is radically different from what they are used to

at home. Dealing with employee stress resulting from jobs being moved

overseas, retraining the workforce, and learning to compete with a global

workforce on a global scale are changes companies are trying to come to grips

with.

Market Conditions

Changes in the market conditions may also create changes as companies

struggle to adjust. For example, as of this writing, the airline industry in the

United States is undergoing serious changes. Demand for air travel was

affected after the September 11 terrorist attacks. Also, the widespread use of

the Internet to book plane travels made it possible to compare airline prices

24

much more efficiently and easily, encouraging airlines to compete primarily

based on cost. This strategy seems to have backfired when coupled with the

dramatic increases in the cost of fuel. As a result, airlines are cutting back on

amenities that were taken for granted for decades, such as the price of a ticket

including meals, beverages, and checking luggage. Some airlines, such as Delta

Air Lines Inc. and Northwest Airlines Inc., have merged to deal with this

climate, and talks involving other mergers in this industry continue.

How does a change in the environment create change within an organization?

Note that environmental change does not automatically change how business

is done. Whether or not the organization changes in response to

environmental challenges and threats depends on the decision makers’

reactions to what is happening in the environment.

Organizational Growth

It is natural for once small start-up companies to grow if they are successful.

An example of this growth is the evolution of the Widmer Brothers Brewing

Company, which started as two brothers brewing beer in their garage to

become the 11th largest brewery in the United States. This growth happened

over time as the popularity of their key product—Hefeweizen—grew in

popularity; the company had to expand to meet demand, growing from the 2

founders to 400 employees in 2008 after Widmer Brothers merged with

Redhook Ale Brewery to become Craft Brewers Alliance Inc. The newly formed

company has five main departments, including Operations, Sales, Marketing,

Finance, and Retail, who report to the CEO. Anheuser-Busch Companies Inc.

continues to have a minority stake in both beer companies. So, while 50% of

all new small businesses fail in their first year, [4]

those that succeed often

evolve into large, complex organizations over time.

25

Poor Performance

Change is more likely to happen if the company is performing poorly and if

there is a perceived threat from the environment. In fact, poorly performing

companies often find it easier to change compared to successful companies.

Why? High performance actually leads to overconfidence and inertia. As a

result, successful companies often keep doing what made them a success in

the first place. When it comes to the relationship between company

performance and organizational change, the saying “nothing fails like success”

may be fitting. For example, Polaroid Corporation was the number one

producer of instant films and cameras in 1994. The company filed for

bankruptcy in less than a decade, unable to adapt to the rapid advances in the

1-hour photo development and digital photography technologies. Successful

companies that manage to change have special practices in place to keep the

organization open to changes. As a case in point, Nokia finds that it is

important to periodically change the perspective of key decision makers. For

this purpose, they rotate heads of businesses to different posts to give them a

fresh perspective. In addition to the success of a business, change in a

company’s upper level management is a motivator for change at the

organization level. Research shows that long-tenured CEOs are unlikely to

change their formula for success. Instead, new CEOs and new top

management teams create change in a company’s culture and structure. [5]

Resistance to Change

Changing an organization is often essential for a company to remain

competitive. Failure to change may influence the ability of a company to

survive. Yet, employees do not always welcome changes in methods.

According to a 2007 survey conducted by the Society for Human Resource

Management (SHRM), resistance to change is one of the top two reasons why

change efforts fail. In fact, reactions to organizational change may range from

26

resistance to compliance to being an enthusiastic supporter of the change,

with the latter being the exception rather than the norm. [6]

Figure 14.10

Reactions to change may take many forms.

Active resistance is the most negative reaction to a proposed change attempt.

Those who engage in active resistance may sabotage the change effort and be

outspoken objectors to the new procedures. In contrast, passive resistance

involves being disturbed by changes without necessarily voicing these

opinions. Instead, passive resisters may quietly dislike the change, feel

stressed and unhappy, and even look for an alternative job without necessarily

bringing their point to the attention of decision makers. Compliance, on the

other hand, involves going along with proposed changes with little

enthusiasm. Finally, those who show enthusiastic support are defenders of the

new way and actually encourage others around them to give support to the

change effort as well.

Any change attempt will have to overcome the resistance on the part of people

to be successful. Otherwise, the result will be loss of time and energy as well as

an inability on the part of the organization to adapt to the changes in the

environment and make its operations more efficient. Resistance to change also

has negative consequences for the people in question. Research shows that

27

when people negatively react to organizational change, they experience

negative emotions, use sick time more often, and are more likely to voluntarily

leave the company. [7]

The following is a dramatic example of how resistance to change may prevent

improving the status quo. Have you ever wondered why the letters on

keyboards are laid out the way they are? The QWERTY keyboard, named after

the first six letters in the top row, was actually engineered to slow us down.

The first prototypes of the typewriter keyboard would jam if the keys right

next to each other were hit at the same time. Therefore, it was important for

manufacturers to slow typers down. They achieved this by putting the most

commonly used letters to the left-hand side, and scattering the most

frequently used letters all over the keyboard. Later, the issue of letters being

stuck was resolved. In fact, an alternative to the QWERTY named the Dvorak

keyboard provides a much more efficient design and allows individuals to

double traditional typing speeds. Yet the shift never occurred. The reasons?

Large numbers of people resisted the change. Teachers and typists resisted,

because they would lose their specialized knowledge. Manufacturers resisted

because of costs inherent in making the switch and the initial inefficiencies in

the learning curve. [8]

In short, the best idea does not necessarily win, and

changing people requires understanding why they resist.

Figure 14.11

28

The Dvorak keyboard is a more efficient design compared to the QWERTY

keyboard. Due to resistance from typists, manufacturers, and teachers, it never

gained widespread adoption.

Why Do People Resist Change?

Disrupted Habits

People often resist change for the simple reason that change disrupts our

habits. Do you think about how you are driving when you drive? Most of the

time probably not, because driving generally becomes an automated activity

after a while. You may sometimes even realize that you have reached your

destination without noticing the roads you used or having consciously thought

about any of your body movements. Now imagine you drive for a living, and

even though you are used to driving an automatic car, you are now forced to

use a stick shift. You can most likely figure out how to drive a stick, but it will

take time, and until you figure it out, you cannot drive on auto pilot. You will

have to reconfigure your body movements and practice shifting until you

become good at it. You may find that for this simple reason, people sometimes

are surprisingly outspoken when confronted with simple changes such as

updating to a newer version of a particular software or a change in their voice

mail system.

29

Personality

Some people are more resistant to change than others. Research shows that

people who have a positive self-concept are better at coping with change,

probably because those who have high self-esteem may feel that whatever the

changes are, they are likely to adjust to it well and be successful in the new

system. People with a more positive self-concept and those who are more

optimistic may also view change as an opportunity to shine as opposed to a

threat that is overwhelming. Finally, risk tolerance is another predictor of how

resistant someone will be to stress. For people who are risk avoidant, the

possibility of a change in technology or structure may be more threatening. [9]

Feelings of Uncertainty

Change inevitably brings feelings of uncertainty. You have just heard that your

company is merging with another. What would be your reaction? Such change

is often turbulent, and it is often unclear what is going to happen to each

individual. Some positions may be eliminated. Some people may see a change

in their job duties. Things can get better—or they may get worse. The feeling

that the future is unclear is enough to create stress for people, because it leads

to a sense of lost control. [10]

Fear of Failure

People also resist change when they feel that their performance may be

affected under the new system. People who are experts in their jobs may be

less than welcoming of the changes, because they may be unsure whether their

success would last under the new system. Studies show that people who feel

that they can perform well under the new system are more likely to be

committed to the proposed change, while those who have lower confidence in

their ability to perform after changes are less committed. [11]

30

Personal Impact of Change

It would be too simplistic to argue that people resist all change, regardless of

its form. In fact, people tend to be more welcoming of change that is favorable

to them on a personal level (such as giving them more power over others, or

change that improves quality of life such as bigger and nicer offices). Research

also shows that commitment to change is highest when proposed changes

affect the work unit with a low impact on how individual jobs are

performed. [12]

Prevalence of Change

Any change effort should be considered within the context of all the other

changes that are introduced in a company. Does the company have a history of

making short-lived changes? If the company structure went from functional to

product-based to geographic to matrix within the past five years, and the top

management is in the process of going back to a functional structure again, a

certain level of resistance is to be expected because people are likely to be

fatigued as a result of the constant changes. Moreover, the lack of a history of

successful changes may cause people to feel skeptical toward the newly

planned changes. Therefore, considering the history of changes in the

company is important to understanding why people resist. Also, how big is the

planned change? If the company is considering a simple switch to a new

computer program, such as introducing Microsoft Access for database

management, the change may not be as extensive or stressful compared to a

switch to an enterprise resource planning (ERP) system such as SAP or

PeopleSoft, which require a significant time commitment and can

fundamentally affect how business is conducted. [13]

31

Perceived Loss of Power

One other reason why people may resist change is that change may affect their

power and influence in the organization. Imagine that your company moved to

a more team-based structure, turning supervisors into team leaders. In the old

structure, supervisors were in charge of hiring and firing all those reporting to

them. Under the new system, this power is given to the team itself. Instead of

monitoring the progress the team is making toward goals, the job of a team

leader is to provide support and mentoring to the team in general and ensure

that the team has access to all resources to be effective. Given the loss in

prestige and status in the new structure, some supervisors may resist the

proposed changes even if it is better for the organization to operate around

teams.

In summary, there are many reasons individuals resist change, which may

prevent an organization from making important changes.

Is All Resistance Bad?

Resistance to change may be a positive force in some instances. In fact,

resistance to change is a valuable feedback tool that should not be ignored.

Why are people resisting the proposed changes? Do they feel that the new

system will not work? If so, why not? By listening to people and incorporating

their suggestions into the change effort, it is possible to make a more effective

change. Some of a company’s most committed employees may be the most

vocal opponents of a change effort. They may fear that the organization they

feel such a strong attachment to is being threatened by the planned change

effort and the change will ultimately hurt the company. In contrast, people

who have less loyalty to the organization may comply with the proposed

changes simply because they do not care enough about the fate of the company

32

to oppose the changes. As a result, when dealing with those who resist change,

it is important to avoid blaming them for a lack of loyalty. [14]

OB Toolbox: Life After Being Downsized Organizational change sometimes means reducing the number of people

working in the company to make operations more efficient. Sometime in your

career, you may find that you go through this painful, sometimes traumatic

experience. What do you do to recover in the aftermath of a downsizing?

 Be calm. This is easier said than done, but it happens to the best of us.

Remember that it was not your fault. Many companies lay off employees

during downsizing despite their stellar performance, so do not take it

personally.

 Do not get angry. When you hear the news, make sure that you do not express

your disappointment in a way that would burn your bridges. In fact, many

companies rehire workers they lay off or bring them in as external

consultants. Do not say or do something in anger that closes all doors.

Remember, during downsizing companies are often forced to let go of

employees they want to keep.

 Know your rights. Are you getting a severance package afterward? Are you

going to have continued access to some benefits? Does the company provide

assistance to those who are laid off? Find out what is being offered. You may

also want to ask for a letter of recommendation from your former boss to help

with your job hunt.

 Think about your ideal job situation. Are you in the right field? Do you have

all the skills and education you need to work in the right field? Some people

will look at a layoff as a time to settle for any job that comes along, but this

may not be an effective long-term strategy. Instead, imagine your ideal

situation and find out what you can do to get there.

33

 Get help. There are many organizations and career coaches offering career

support, advice, and networking opportunities. Surround yourself with

positive people who are supportive. Getting assistance may help you make

yourself more marketable or simply provide you with necessary emotional

support.

 Polish your resume and job hunting skills. You may benefit from someone

else proofreading your resume and practicing interviews with you.

 Do not give up! You found a job once, you will find it again. Stay positive, be

patient, and do not lose hope.

Sources: Based on information in How to maximize your take when you get

laid off. (2008, November). Money, 37(11), 132; Kamberg, M. L. (2000, May–

June). Surviving the ups & downs of corporate restructuring. Women in

Business, 52(3). Palmer, K. (2008, March 24). Re-energizing your career. U.S.

News & World Report, 144(9). Weinstein, B. (2008, September 29).

Downsizing 102: When it happens to you. Business Week Online. Retrieved on

October 25, 2008,

fromhttp://www.businessweek.com/managing/content/sep2008/ca2008092

6_140228.htm.

Planning and Executing Change Effectively

Figure 14.13

34

Lewin’s three-stage process of change emphasizes the importance of

preparation or unfreezing before change, and reinforcement of change

afterward or refreezing.

How do you plan, organize, and execute change effectively? One of the most

useful frameworks in this area is Kurt Lewin’s three-stage model of planned

change. [15]

The assumption is that change will encounter resistance.

Therefore, executing change without prior preparation is likely to lead to

failure. Instead, organizations should start within freezing, or making sure

that organizational members are ready for and receptive to change. This is

followed by change, or executing the planned changes. Finally,

refreezing involves ensuring that change becomes permanent and the new

habits, rules, or procedures become the norm. John Kotter, a Harvard

University professor, wrote a book in 1996 titled Leading Change in which he

discussed eight steps to changing an organization. [16]

In the next section, we

integrate the two models with more recent work in the area to present a

roadmap to how organizations may want to approach change.

35

Unfreezing Prior to Change

Many change efforts fail because people are insufficiently prepared for change.

When employees are not prepared, they are more likely to resist the change

effort and less likely to effectively function under the new system. What can

organizations do prior to change to prepare employees? There are a number of

things that are important at this stage.

Create a Vision for Change

In successful change efforts, the leader has an overall vision for the

change. [17]

When this vision is exciting and paints a picture of a future that

employees would be proud to be a part of, people are likely to be more

committed to change. For example, Toyota is a master of kaizen, or

continuous improvement. They also follow the philosophy of kakushin, or

revolutionary change, as needed. Regardless of the nature of the particular

change, there is an overall vision for the company that justifies and explains

why change is necessary “to build the dream car of the future.” [18]

Communicating a Plan for Change

Do people know what the change entails, or are they hearing about the

planned changes through the grapevine or office gossip? When employees

know what is going to happen, and when and why, they may conquer their

discomfort with change. Research shows that those who have more complete

information about upcoming changes are more committed to a change

effort. [19]

Ensuring that top management communicates with employees about the

upcoming changes also has symbolic value. [20]

In any organization, many

changes are done on a daily basis, with some taking root and some

disappearing after a short while. When top management and the company

36

CEO discuss the importance of the changes in meetings, employees are

provided with a reason to trust that this change is a strategic initiative. For

example, while changing the employee performance appraisal system, the

CEO of Kimberly-Clark Corporation made sure to mention the new system in

all meetings with employees, indicating that the change was supported by the

CEO.

Develop a Sense of Urgency

People are more likely to accept change if they feel that there is a need for it. If

employees feel their company is doing well, the perceived need for change will

be smaller. Those who plan the change will need to make the case that there is

an external or internal threat to the organization’s competitiveness,

reputation, or sometimes even its survival, and failure to act will have dire

consequences. For example, Lou Gerstner, the former CEO of IBM, executed a

successful transformation of the company. In his biography Elephants Can

Dance, he highlights how he achieved cooperation as follows: “Our greatest

ally in shaking loose the past was IBM’s eminent collapse. Rather than go with

the usual impulse to put on a happy face, I decided to keep the crisis front and

center. I didn’t want to lose the sense of urgency.” [21]

Building a Coalition

In order to convince people that change is needed, the change leader does not

necessarily have to convince every person individually. In fact, people’s

opinions toward change are affected by opinion leaders, or those people who

have a strong influence over the behaviors and attitudes of others. [22]

Instead

of trying to get everyone on board at the same time, it may be more useful to

convince and prepare the opinion leaders. Once these individuals agree that

change is needed and will be useful, they will become helpful allies in ensuring

that the rest of the organization is ready for change. [23]

For example, Paul

37

Pressler, after becoming the CEO of Gap Inc. in 2002, initiated a culture

change effort in the hope of creating a sense of identity among the company’s

many brands such as Banana Republic, Old Navy, and Gap. For this purpose,

management segmented the employees into groups instead of trying to reach

out to all employees at the same time. Gap Inc. started by training the 2,000

senior managers in Leadership Summits, who in turn were instrumental in

ensuring the cooperation of the remaining 150,000 employees of the

company. [24]

Provide Support

Employees should feel that their needs are not ignored. Therefore,

management may prepare employees for change by providing emotional and

instrumental support. Emotional support may be in the form of frequently

discussing the changes, encouraging employees to voice their concerns, and

simply expressing confidence in employees’ ability to perform effectively

under the new system. Instrumental support may be in the form of providing a

training program to employees so they know how to function under the new

system.

Allow Employees to Participate

Studies show that employees who participate in planning change efforts tend

to have more positive opinions about the change. Why? They will have the

opportunity to voice their concerns. They can shape the change effort so that

their concerns are addressed. They will be more knowledgeable about the

reasons for change, alternatives to the proposed changes, and why the chosen

alternative was better than the others. Finally, they will feel a sense of

ownership of the planned change and are more likely to be on board. [25]

Participation may be more useful if it starts at earlier stages, preferably while

the problem is still being diagnosed. For example, assume that a company

38

suspects there are problems with manufacturing quality. One way of

convincing employees that there is a problem that needs to be solved would be

to ask them to take customer calls about the product quality. Once employees

experience the problem firsthand, they will be more motivated to solve the

problem.

Executing Change

The second stage of Lewin’s three-step change model is executing change. At

this stage, the organization implements the planned changes on technology,

structure, culture, or procedures. The specifics of how change should be

executed will depend on the type of change. However, there are some tips that

may facilitate the success of a change effort.

Continue to Provide Support

As the change is underway, employees may experience high amounts of stress.

They may make mistakes more often or experience uncertainty about their

new responsibilities or job descriptions. Management has an important role in

helping employees cope with this stress by displaying support, patience, and

continuing to provide support to employees even after the change is complete.

Create Small Wins

During a change effort, if the organization can create a history of small wins,

change acceptance will be more likely. [26]

If the change is large in scope and

the payoff is a long time away, employees may not realize change is occurring

during the transformation period. On the other hand, if people see changes,

improvements, and successes along the way, they will be inspired and

motivated to continue the change effort. For this reason, breaking up the

proposed change into phases may be a good idea, because it creates smaller

targets. Small wins are also important for planners of change to make the

39

point that their idea is on the right track. Early success gives change planners

more credibility, while early failures may be a setback. [27]

Eliminate Obstacles

When the change effort is in place, many obstacles may crop up along the way.

There may be key people who publicly support the change effort while silently

undermining the planned changes. There may be obstacles rooted in a

company’s structure, existing processes, or culture. It is the management’s job

to identify, understand, and remove these obstacles. [28]

Ideally, these obstacles

would have been eliminated before implementing the change, but sometimes

unexpected roadblocks emerge as change is underway.

Kotter’s Eight-stage Process for Change Harvard Business School professor John P. Kotter proposed that companies

should follow eight stages when instituting change. Here is a summary of his

suggested steps.

1. Create a sense of urgency when introducing the change effort.

2. Build a coalition.

3. Create a vision for change and make change a part of the vision.

4. Communicate a plan for change

5. Eliminate obstacles to change

6. Create small wins

7. Build on change

8. Make change a part of culture.

Source: Kotter, J. P. (1996). Leading change. Boston, MA: Harvard Business.

School Press.

40

Refreezing

After the change is implemented, the long-term success of a change effort

depends on whether change becomes part of the company’s culture. In other

words, the revised ways of thinking, behaving, and performing should become

routine. For this reason, there are a number of things management can do.

Publicize Success

In order to make change permanent, the organization may benefit from

sharing the results of the change effort with employees. What was gained from

the implemented changes? How much money did the company save? How

much did the company’s reputation improve? What was the reduction in

accidents after new procedures were put in place? Sharing concrete results

with employees increases their confidence that the implemented change was a

right decision.

Build on Prior Change

Once results start coming, it is important to benefit from the momentum

created by these early successes by pushing for even more change. Following

the philosophy of continuous improvement may be a good idea here. Instead

of declaring victory early, the company is advised to make continuous

improvements to how business is conducted.

Reward Change Adoption

In order to ensure that change becomes permanent, organizations may benefit

from rewarding those who embrace the change effort. The rewards do not

necessarily have to be financial. The simple act of recognizing those who are

giving support to the change effort in front of their peers may encourage

others to get on board. When the new behaviors employees are expected to

41

demonstrate (such as using a new computer program, filling out a new form,

or simply greeting customers once they enter the store) are made part of an

organization’s reward system, those behaviors are more likely to be taken

seriously and repeated, making the change effort successful. [29]

Make Change a Part of Organizational Culture

If the change effort has been successful, change will have become a part of

corporate culture. In other words, in addition to the changes in procedures,

processes, or technology, the mindset of people will also have changed. If

change occurs only in superficial elements, it would be misleading to declare

change a success. For example, if a company institutes a wellness program

emphasizing healthy habits, rewarding employees for adopting healthy choices

and providing resources to maximize health, this change effort would be

deemed a true success if valuing employee health and well-being also becomes

a part of the organization’s culture. Creating a Web site, and printing booklets

and distributing them are all tools leading to this goal, but achieving the true

goal also necessitates a change in ingrained assumptions of management and

employees putting work before employee health and well-being.

OB Toolbox: Overcome Resistance to Your Proposals You feel that change is needed. You have a great idea. But people around you

do not seem convinced. They are resisting your great idea. How do you make

change happen?

 Listen to naysayers. You may think that your idea is great, but listening to

those who resist may give you valuable ideas about why it may not work and

how to design it more effectively.

 Is your change revolutionary? If you are trying to dramatically change the

way things are done, you will find that resistance is greater. If your proposal

involves incrementally making things better, you may have better luck.

42

 Involve those around you in planning the change. Instead of providing the

solutions, make them part of the solution. If they admit that there is a problem

and participate in planning a way out, you would have to do less convincing

when it is time to implement the change.

 Do you have credibility? When trying to persuade people to change their

ways, it helps if you have a history of suggesting implementable changes.

Otherwise, you may be ignored or met with suspicion. This means you need to

establish trust and a history of keeping promises over time before you propose

a major change.

 Present data to your audience. Be prepared to defend the technical aspects of

your ideas and provide evidence that your proposal is likely to work.

 Appeal to your audience’s ideals. Frame your proposal around the big picture.

Are you going to create happier clients? Is this going to lead to a better

reputation for the company? Identify the long-term goals you are hoping to

accomplish that people would be proud to be a part of.

 Understand the reasons for resistance. Is your audience resisting because

they fear change? Does the change you propose mean more work for them?

Does it impact them in a negative way? Understanding the consequences of

your proposal for the parties involved may help you tailor your pitch to your

audience.

Sources: McGoon, C. (1995, March). Secrets of building

influence. Communication World, 12(3), 16; Michelman, P. (2007, July).

Overcoming resistance to change. Harvard Management Update, 12(7), 3–4;

Stanley, T. L. (2002, January). Change: A common-sense

approach. Supervision, 63(1), 7–10.

K E Y T A K E A W A Y

Organizations change in response to changes in the environment and in response to

the way decision makers interpret these changes. When it comes to organizational

43

change, one of the biggest obstacles is resistance to change. People resist change

because change disrupts habits, conflicts with certain personality types, causes a fear

of failure, can have potentially negative impacts, can result in a potential for loss of

power, and, when done too frequently, can exhaust employees. Change effort can be

conceptualized as a three-step process in which employees are first prepared for

change, then change is implemented, and finally, the new behavioral patterns

become permanent.

E X E R C I S E S

1. Can you think of an organizational or personal change that you had to go through?

Have you encountered any resistance to this change? What were the reasons?

2. How would you deal with employees who are resisting change because their habits

are threatened? How would you deal with them if they are resisting because of a

fear of failure?

3. What are the benefits of employee participation in change management?

4. Imagine that you are introducing a new system to college students in which they

would have to use a special ID number the university creates for them for activities

such as logging onto campus computers or using library resources. How would you

plan and implement the change? Explain using Lewin’s three-step framework.

5. Why are successful companies less likely to change? What should companies do in

order to make organizational change part of their culture?

14.3 The Role of Ethics and National Culture

L E A R N I N G O B J E C T I V E S

1. Consider the role of organizational structure and change in ethical behavior.

2. Consider the role of national culture for organizational structure and change.

44

Organizational Structure, Change, and Ethics

Is there a relationship between how a company is structured and the degree of

ethical behavior displayed within an organization? Research indicates that

such a link exists. Specifically, when corporate culture is too rigid and

hierarchical, employees have fewer opportunities to develop their moral

intelligence. Understanding what is ethical or not requires employees to be

regularly confronted with ethical dilemmas. When employees do not have any

autonomy to make decisions, and when such decisions are usually referred to

a higher level, they do not find the opportunity to experience moral

development, which may have implications for the degree of ethical behaviors

demonstrated by employees. [1]

Organizational change is a time when managers are expected to behave

ethically, because many moral dilemmas are likely to emerge when an

organization is faced with change. One of the common issues occurs when

organizational change takes the form of downsizing or rightsizing. Many

organizations realize the human impact of downsizing on employees and

prefer to deal with the rising cost of human resources in other ways.

Retraining employees in different areas, early retirement programs, hiring

freezes, and job sharing are all alternatives to downsizing. There are also

ethical issues that arise when the decision to terminate some employees is

made, such as whether employees are going to be given advance notice

regarding the layoffs, if they will be allowed to return to their work stations

and say good-bye to their colleagues, or if they will be escorted to the door by

security. If the company takes precautions to soften the blow of layoffs, such

downsizing is likely to be perceived as more ethical.

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Organizational Structure and Change Around the Globe

Organizations around the globe are not uniform in terms of organizational

structure. In fact, there seem to be systematic differences in how companies

are structured based on the country of origin. For example, one study

compared Japanese, Swedish, and British organizations and found significant

differences in the degree of centralization and formalization of these

structures. Japanese organizations were much more centralized, as evidenced

by a decision making system named ringi. The ringi system involves proposals

at lower levels being signed and passed along to higher level management in

an effort to build consensus. [2]

In another study, organizations in the United

States and Australia were found to be characterized by higher levels of

decentralization, whereas organizations in Singapore and Hong Kong

emphasized group-centered decision making and higher levels of

centralization. These differences can be traced to the degree of individualism

inherent in the national culture. Individualistic cultures attach greater

importance to autonomy and personal freedom. Therefore, in these cultures,

structures giving responsibility to lower level employees will be more

common. [3]

How change is instituted depends at least partly on national culture. Cultures

differ in the degree to which they are open to change. Cultures that are

uncertainty avoidant (such as Germany and France) are relatively

uncomfortable with change and prefer structured situations that reduce

ambiguity, whereas cultures low in uncertainty avoidance (such as the United

States and China) are more comfortable with change.

Additionally, the way in which change is introduced to an organization is likely

to differ across cultures. Research shows that in the United States, change

agents are more likely to use inspirational appeals and rational persuasion

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(such as “This change will ensure that we will remain competitive in the

marketplace.”). On the other hand, in China a more effective influence strategy

seems to be asking for the help of a higher level person to ensure the success of

the change process. The change agent may visit the higher status individual

outside the work environment (such as going to the person’s home to discuss

the issue), and then the cooperation of this person becomes instrumental in

achieving change. [4]

K E Y T A K E A W A Y

Structure has implications for the degree of ethical behaviors that may be found in

an organization. Moreover, organizational change involves events during which a

company’s ethics may be put to test. National culture is one reason companies are

structured in a certain way, and individualistic societies may have a greater

frequency of organizations that are decentralized. National culture affects the extent

to which organizations are open to change and how change is executed within an

organization.

E X E R C I S E S

1. What is an ethical way of conducting layoffs?

2. Do you believe that it is an organization’s ethical obligation to share all information

about the planned changes with employees? Why or why not?

3. What is the relationship between organizational change and national culture?

14.4 Conclusion Organizations can function within a number of different structures, each

possessing distinct advantages and disadvantages. Although any structure that

is not properly managed will be plagued with issues, some organizational

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models are better equipped for particular environments and tasks. A change in

the environment often requires change within the organization operating

within that environment.

Change in almost any aspect of a company’s operations can be met with

resistance, and different cultures can have different reactions to both the

change and the means to promote the change. In order to better facilitate

necessary changes, several steps can be taken that have been proven to lower

the anxiety of employees and ease the transformation process. Often, the

simple act of including employees in the change process can drastically reduce

opposition to new methods. In some organizations this level of inclusion is not

possible, and instead organizations can recruit a small number of opinion

leaders to promote the benefits of coming changes.

Some types of change, such as mergers, often come with job losses. In these

situations, it is important to remain fair and ethical while laying off

employees. Once change has occurred, it is vital to take any steps necessary to

reinforce the new system. Employees can often require continued support well

after an organizational change.

14.5 Exercises

E T H I C A L D I L E M M A

Imagine that you are a manager at a consumer products company. Your company is

in negotiations for a merger. If and when the two companies merge, it seems

probable that some jobs will be lost, but you have no idea how many or who will be

gone. You have five subordinates. One is in the process of buying a house while

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undertaking a large debt. The second just received a relatively lucrative job offer and

asked for your opinion as his mentor. You feel that knowing about the possibility of

this merger is important to them in making these life choices. At the same time, you

fear that once you let them know, everyone in the company will find out and the

negotiations are not complete yet. You may end up losing some of your best

employees, and the merger may not even happen. What do you do? Do you have an

ethical obligation to share this piece of news with your employees? How would you

handle a situation such as this?

I N D I V I D U A L E X E R C I S E

Planning for a Change in Organizational Structure

Imagine that your company is switching to a matrix structure. Before, you were

working in a functional structure. Now, every employee is going to report to a team

leader as well as a department manager.

 Draw a hypothetical organizational chart for the previous and new structures.

 Create a list of things that need to be done before the change occurs.

 Create a list of things that need to be done after the change occurs.

 What are the sources of resistance you foresee for a change such as this? What is

your plan of action to overcome this potential resistance?

G R O U P E X E R C I S E

Organizational Change Role Play

Get your assigned role from your instructor.

Discussion Questions

1. Was the manager successful in securing the cooperation of the employee? Why or

why not?

2. What could the manager have done differently to secure the employee’s

cooperation?

3. Why was the employee resisting change?

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