Chapter 3 Why Organizations Change The Risks Associated With Change Risks in undertaking change Risks in NOT undertaking change Up to 84 percent of US firms are involved in a major organizational change although many are deemed not successful ID: 372345
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Slide1
Managing Organizational Change
Chapter 3
Why Organizations ChangeSlide2
The Risks Associated With Change
Risks in undertaking change
Risks in NOT undertaking change
“Up to 84 percent of U.S. firms are involved in a major organizational change, although many are deemed not successful.”
Often shareholders demand change
Organizational learning perspective assumes that organizations and human systems of all sorts are complex and evolving and therefore cannot be reduced to a single, linear objective of maximizing shareholder valueSlide3
Complex Role of Managers
“Managers are called upon to stabilize the unstable and destabilize the rigid, adapt to the present and anticipate the future; improve what is and invent what is to be; lead a renaissance while preserving tradition, the possibilities for which are grounded in the belief that progress is possible and that managers can make a difference.”Slide4
Environmental Pressures for Change
Pressures to carry out fashionable management changes
Pressures that are forced or mandated on the organization from outside agencies
Broad changes in geopolitical relationships necessitating changes in organizational operations
Pressures associated with declining markets
Hypercompetitive business pressures
Pressure to maintain corporate reputation and credibility with stakeholdersSlide5
1. Pressures to carry out fashionable management changes
Mimetic isomorphism
– when organizations imitate the structures and practices of other organizations in their field or industry, usually ones that they consider as legitimate or successful
Eg
. Boeing copying elements from GE
Such pressures may lead organizations to adopt fashionable ideas but often with little critical assessment of the need for the change and without having clear information about the performance effects of making the changeSlide6
2. Mandated Pressures
Eg
. Texaco, Coca-Cola, and Denny’s Restaurants being under court order to improve their record on diversity management
Led to major company changes in policies and cultural practices –
eg
. diversity training, minorities targeted for new hires, etc.
Eg
. asbestos-related disease fund
Coercive-isomorphism
– organizations are forced to take on activities similar to those of other organizations because of outside demands placed on them to do so
Formal and informal coercive pressuresSlide7
3. Geopolitical Pressures
May be in the form of immediate crises or longer-term geographic realignments
Eg
. cost control through layoffs, escalation of mergers and acquisitions
World events –
eg
. 9/11, Berlin WallSlide8
Global Environmental Forces for Change (
Kotter
, 1996)
Technological, which requires more globally connected people and faster communication and transportation
Greater economic integration of currencies and international capital flows
Maturation and slowdown of domestic markets, leading to greater emphasis on exports and deregulation
Fall of socialist countries and their reorientation toward capitalist economiesSlide9
4. Market Decline Pressures
Declining markets for products and services place organizations under pressure to remain relevant
Eg
. Steve Jobs returning to Apple, Verizon Communications choosing to focus on wirelessSlide10
5. Hypercompetition
Pressures
Eg
. Dell vs. Gateway and Dell vs. HP and Lenovo
Organizations are forced to deliver goods and services more quickly, more customized, and more flexibly.
Eg
. YouTube and Netflix disrupting televisionSlide11
6. Reputation and Credibility Pressures
Eg
. Mattel and toy recall, Johnson & Johnson and the Tylenol recall
Eg
. Enron, Tyco,
Worldcom
scandals
Change is associated with maintaining proper corporate governance mechanisms to ensure a positive corporate reputation
One common change, meant to signal “a new era,” is the symbolic exiting of a high-profile organizational person such as the CEOSlide12
Why Organizations May Not Change in the Face of External Environmental Pressures
Organizational Learning vs. Threat-Rigidity
Environment as Objective Entity vs. Environment as Cognitive Construction
Forces for Change vs. Forces for Stability
Bridging (Adapting) vs. Buffering (Shielding)Slide13
1. Organizational Learning vs. Threat-Rigidity
Organizational learning theorists argue that environmental pressures such as market decline will lead to innovative organizational adaptation and change as managers learn from the problems and try to close the gap between performance and aspirations
Threat-rigidity theorists argue that such pressures will inhibit innovative change as managers’ cognitive and decision-making processes become restricted when confronted with threatening problemsSlide14
Discontinuous Change
An organization faces discontinuous change – where it faces new, fundamentally different trends in its operating environment
Gilbert (2006) points out that “it is not that one set of capabilities suddenly becomes obsolete, to be replaced with another – rather
the path from one capability to the other is not continuous
.”
Eg
. newspapers to digital content (both exist at the same time)Slide15
Paradox
The paradox suggests that companies in this situation need to be able to have frames co-existing within it that focus on both opportunities and threats, one protecting the current business and the other helping to transition the company into new arenas.
This can occur through structural differentiation of the company, separating it into different organizational units dominated by different cognitive frames and operations
At the same time it is up to senior management to be able to strategically integrate these competing frames, ensuring that the company takes appropriate, timely actions across its operationsSlide16
Trapped By Success
Companies that have a winning business formula may become trapped by this when conditions change
This view is fueled by their cognitive frames, which become blinkered by success; by routines that become embedded in the organization as correct ways of operating; by relationships to stakeholders that act as shackles and inhibit them from exploring new business ventures; and by shared beliefs that become company dogmas that they are proceeding in the right direction.Slide17
2.
Environment
as Objective
Entity
vs.
Environment
as Cognitive Construction
Type 1 error
occurs when the environment is (objectively) stable, but managers perceive it as turbulent and take (unnecessary) actions accordingly
Type 2 error
occurs when managers threaten the survival of their firms by failing to take actions as they perceive their environment as stable when it is (objectively) turbulentSlide18
Constructivist View
The outside world is brought into existence through individuals’ perceptions of it – further questions the very status of the terms used in discussion about why organizations change – or don’t take actions to change
“Success is based on a series of rapid and anticipatory actions that move industry to the next round of competition”Slide19
3. Forces for Change vs. Forces for Stability
Whether environmental pressures will lead to innovative change will be affected by three factors (
Mone
, et al, (1998)):
The extent to which an organization’s mission is institutionalized in stakeholders and the external environment: the less institutionalized it is, the more flexibility the organization will have to respond to innovative changeSlide20
Factors affecting whether environmental pressures will lead to innovative change – continued
(
Mone
, et al, (1998)):
2. The extent of diffusion of power and resources throughout the organization: the more concentrated the power in the organization, the greater the ability to make decisions and allocate resources to achieve change
3. The rationale managers employ to explain decline: the more controllable or stable the causes, the more likely manages are to introduce innovative changes since the causes of decline are perceived to be permanentSlide21
4. Bridging (Adapting) vs. Buffering (Shielding)
Bridging strategies
are designed to keep the organization effective by adapting parts of it to changes happening in the outside environment
Buffering strategies
are designed to keep the organization efficient by avoiding change through shielding parts of it from the effects of the environment –
eg
. using public affairs techniques in order to alter public rules, perceptions, and expectations.Slide22
Buffering Strategies
“By the time environmental shock waves reach the stability-sensitive technical core…they are diffused into manageable adjustments and innovations” (Lynn, 2005)Slide23
Organizational Pressures for Change
Growth Pressures
Integration and Collaboration Pressures
Identity Pressures
New Broom Pressures
Power and Political PressuresSlide24
1. Growth Pressures
Change in the form of growth
Need for rules, policies, and procedures once an organization reaches a certain size
Some managers resist the growth of their organization beyond where they lose personal control of the day-to-day operations – beyond this point they lost job satisfactionSlide25
2. Integration and Collaboration Pressures
Some changes are made in order to better integrate the organization or create economies of scale across different business units
Goal is to have better coordination and collaboration across multiple business units of the company in order to produce a customer-oriented cultureSlide26
3. Identity Pressures
Employees might lack cultural identity with the organization and its name brand
Goal is to enhance the identity and commitment of staff to the organization’s brand as well as to achieve service excellence
Eg
. the U.S. Mint – seen as a slow, inefficient organization – became more modern, customer-focused Slide27
4. New Broom Pressures
When a new CEO arrives it can act as a signal that the old ways are about to change
Not all new broom changes are necessarily the right changesSlide28
Advantages New CEOs Have
Likely to be able to create energy for change
Unhampered by adherence to past organizational practices (will not appear inconsistent if they change things)
Can focus on problems that may have been known but not able to be named in the past as they were organizational “sacred cows” that could not be brought into question
Likely to be able to tackle customer problems with credibility since they are not associated with previous problemsSlide29
5. Power and Political Pressures
Competition between CEOs when companies merge
Ousting of CEOs by powerful investors
Sam
Palmisano
abolishing the IBM Executive Management Team when he took over as CEO
Internal conflicts within organizations