Greiner model of organizational change

Diagnosing An Issue In Need Of Organizational Change

Resources: Chapters 1, 2, and 3 of Organizational Change, and the Week 1 Electronic Reserve Readings sources.

Research an organization you have worked for or the one you are currently employed at.

Write a 700- to 1,050-word paper, written in the third person voice, and address the following issues:

Identify and diagnose a problematic organizational issue that you are aware of or have observed.
Describe the history of this problem, including the roles of any relevant personnel involved. Use fictitious names for individuals to maintain confidentiality.
Evaluate any actions that the organization has taken to resolve the situation. What could the organization have done to prevent the situation, and what more can the company do to ensure that this type of situation will not occur in the future?
Using Table 1.2 "Types of Organizational Change" in Organizational Change, identify and explain the type of organizational change necessary to remedy the issue.
Determine an organizational framework that can be used to help direct change management processes. Refer to any of the processes or models in Chapters 2 and 3 of your text, and support your choice of the process or model.
Include a conclusion that summarizes your research and provides a potential remedy for the issue.
Include justification for your responses by citing your Organizational Change text as well as a minimum of two of the Week 1 Electronic Reserve Readings sources in your paper. These sources must also be identified in your APA correctly formatted Reference page.

Chapter 3 Frameworks for Diagnosing Organizations “What” to Change in an Organization

There is nothing as practical as a good theory.

—Kurt Lewin

Chapter Overview

· Change leaders need to understand both the process of making organizational modifications (the how to change as outlined in Chapter 2 ) and the ability to diagnose organizational problems and take actions to change an organization.

· Determining what needs changing requires clear organizational frameworks. Change leaders need to comprehend the complexity and interrelatedness of organizational components: how analysis needs to occur at different organizational levels, and how organizations and their environments will shift over time, requiring further analysis and action.

· This chapter outlines several frameworks that one can use to analyze organizational dynamics:

1 Nadler and Tushman’s Congruence Model balances the complexity needed for organizational analysis, and the simplicity needed for action planning and communication, and provides the over-arching structure for this book;

2 Sterman’s Systems Dynamics Model views the nonlinear and interactive nature of organizations;

3 Quinn’s Competing Values Model provides a framework that bridges individual and organizational levels of analysis;

4 Greiner’s Phases of Organizational Growth Model highlights organizational changes that will—inevitably—occur over time in organizations, from their infancy to maturity; this model is particularly useful for entrepreneurs who sometimes need to be reminded that change needs to occur, even in their small start-up organizations; and

5 Stacey’s Complexity Theory is introduced to highlight the interactive, time-dependent nature of organizations and their evolutionary processes. • Each framework aids a change agent in diagnosing a particular kind of organizational issue and suggests remedies for what ails an institution.

In Chapter 2 , we considered the process of change (the Change Path). In this chapter, we deal with what aspects of an organization to change. Differentiating the process from the content is sometimes confusing, but the rather unusual example below will highlight the difference.

Bloodletting is a procedure that was performed to help alleviate the ills of mankind. . . . In the early 19th century, adults with good health from the country districts of England were bled as regularly as they went to market; this was considered to be preventive medicine. 1

The practice of bloodletting was based on a set of assumptions about how the body worked—bloodletting would diminish the quantity of blood in the system and thus lessen the redness, heat, and swelling that was occurring. As a result, people seemed to get better after this treatment—but only in the short term. The reality was that they were weakened by the loss of blood. As we know today, the so-called science of bloodletting was based on an inaccurate understanding of the body. It is likely that bloodletting professionals worked to improve their competencies and developed reputations based on their skills in bloodletting. They worked hard at the how aspects of their craft. Advances in medicine prove that they did not really understand the consequences of what they were doing.

Bruch and Gerber differentiate the what and the how in a leadership question—”What would be the right action to take?”—and a management question—”How do we do it right?” 2 They analyzed a strategic change program at Lufthansa that took place from 2001 to 2004. This program generated more than €1 billion in continuing cash flow. The how questions focused on gaining acceptance of the change: focusing the organization, finding people to make it happen, and generating momentum; and the what questions were analytical, asking what change was right, what should be the focus, and what can be executed given the culture and situation. Bruch and Gerber concluded that a focus on implementation was not sufficient. A clear grasp of the critical needs, the change purpose or vision, was also essential. 3

The two foundational models of this book are the Change Path Model ( Chapter 2 ) and the Nadler and Tushman’s Congruence Model ( Chapter 3 ). The latter helps in the analysis of what is going on in an organization and what components of an organization need to be changed. That is, it is the “what to change” model. In any organizational change, both process (how to) and content (what) are important. Thus, we embed the Nadler and Tushman model in the four-stage Change Path Model. Nadler and Tushman help us to understand what gaps exist between where the organization is and where we want the organization to be. Like all models, the Nadler and Tushman’s Congruence Model captures organizational reality from one perspective; consequently, Chapter 3 describes four additional organizational models designed to assist change leaders in their thinking about organizations and the reality that they represent.

For strengths, the Nadler and Tushman’s Congruence Model gives us a comprehensive picture of an organization, its component parts, and how they fit together. That is, it asks us to examine organizational tasks (the work of the organization), people, informal organization (often thought of as the culture), and the formal organization (structures and systems) in the context of an organization’s environment, resources, history, and inputs. Organizations are dynamic and highly interactive with their constantly changing environments. Change one aspect of an organization and other things are affected. Change the compensation system, for example, and we expect motivation and efforts of employees to change as well—which they might or might not do.

Our second model in this chapter, Sterman’s Systems Dynamics Model, helps us to understand underlying dynamics and to see potential unanticipated consequences before they happen. Sterman asks managers to discard their linear, rational, causative view of organizations and to expand their perspectives to complex, interactive, multi-goal viewpoints.

Much of the change literature and thinking focuses on the change leader or manager or on those who may be resisting change. Note that this perspective is at the individual level. If we focus only at that individual level, we will miss major environmental factors and system or organizational-level matters. Our third model of this chapter, Quinn’s Competing Values Model, reminds us to think of both levels. This model captures much of the dual reality. It categorizes organizations into four cultural types with matching roles and skills needed to effectively operate in each of the organizational cultures.

So, we know that we need to have a process to change (the Change Path helps). We need to know what to change (Nadler and Tushman help). We need to understand how systems are interactive and dynamic (Sterman helps). And we need to think about levels of analysis: individual and organizational (Quinn helps). But we also know that both the internal and external environment changes over time.

In order to help us think about time, our fourth model, Greiner’s Phases of Organizational Growth Model, helps. Greiner posits a series of predictable stages that occur in the life of an organization. While the empirical evidence to support this model is weak, many managers find this prescriptive stage model helpful in thinking about organizations and how they change over time and growth.

Finally, our fifth model recognizes just how complex organizational systems are. Stacey’s Complexity Theory provides a set of propositions about organizations that helps us to capture the implications of intricacies and convolutions.

In summary, to be a successful change leader we need to understand both how to change and what to change. We need to know that organizations are dynamic, they can be viewed at different levels of analysis (individual or organizational), they change over time, and they are complex. Each model described in this chapter builds our conceptual toolkit to better lead change.

Open Systems Approach to Organizational Analysis

Organizations interact with their environments in complex and dynamic ways. This open systems perspective is based on the following assumptions: 4

· Open systems exchange information, materials, and energy with their environments. As such, a system interacts with and is not isolated from its environment.

· A system is the product of its interrelated and interdependent parts and represents a complex set of interrelationships rather than a chain of linear cause–effect relationships.

· A system seeks equilibrium: when it is in equilibrium, it will only change if some energy is applied.

· Individuals within a system may have views of the system’s function and purpose that differ greatly from the views held by others.

· Things that occur within and/or to open systems (e.g., issues, events, forces) should not be viewed in isolation, but rather should be seen as interconnected, interdependent components of a complex system.

The adoption of an open systems perspective allows managers to identify areas of misalignment and risk between the external environment and the organization’s strategy and structure. Open systems analysis helps practitioners to develop a rich appreciation for the current condition of an organization, and plausible alternatives and actions that could improve it. For example, when people, products, or services within systems have operated without considering their environment for extended periods of time, they risk becoming seriously incongruent with the external environment. 5 Or, if an environment changes rapidly, the results can prove disruptive and, in some cases, disastrous for an organization. Consider how the innovations and actions at Apple and Google disrupted the smartphone market in ways that left Blackberry and Nokia scrambling to revive and reinvent themselves as relevant technology providers. Innovation by one company led to significant disruption and change for other organizations. Disruptions can shake organizations to their foundations, and they also have the potential to sow the seeds for renewal (hence the term creative destruction, coined by Joseph Schumpeter 6 ).

In summary, organizations should not be analyzed as if they exist in a bubble, isolated from their environments. But rather, organizations should be analyzed as to how effectively and efficiently they garner resources from the external environment and transform these resources into outputs that the external environment welcomes. Nadler and Tushman’s Congruence Model does just that.

(1) Nadler and Tushman’s Congruence Model

In this book, the Nadler and Tushman model is used as a framework to assist in structuring change leaders’ organizational analysis. The model has a reasonably complete set of organizational variables and presents them in a way that encourages straightforward thinking. It specifically links environmental input factors to the organization’s components and outputs. As well, it provides a useful classification of internal organizational components and shows the interaction among them. Nadler and Tushman’s model is one example of an open systems model.

Nadler and Tushman 7 provide a conceptual scheme that describes an organization and its relationship to its external environment. The Congruence Model is based on the principle that an organization’s performance is derived from four fundamental elements: tasks (or the work of the organization), people, formal organization (structure and systems), and informal organization (part of which is the “culture”). The more congruence there is among these four components, and the more aligned they are with the external environmental realities and the strategy of the organization, then the better the organization’s performance will be in the external marketplace—whether it is the quality of services for at-risk youths offered by a local school board, or a new electric vehicle an automobile firm hopes will achieve market acceptance. 8 An adaptation of their model is depicted in Figure 3.1 . This model is used as a framework for this book. Inputs are transformed to outputs, and the feedback links make the model dynamic and the components highly interdependent.

History and Environment

From its start-up phase, leaders of an organization make choices concerning where they want to locate themselves, what they want to do, and which resources they want to buy, access, or otherwise develop and deploy. These historical decisions set the stage for future actions and outcomes, and which human, technological, and capital resources they subsequently seek from the environment. The history of an organization provides insights into how it evolved its mission, culture, strategy, and approach to how it organizes and manages itself. 3M’s early experience, for example, as a near bankrupt mining company set the stage for a sustained culture that highly values flexibility and innovation as keys to its resilience and success.

Figure 3.1 Nadler and Tushman’s Organizational Congruence Model

Source: From Nadler, D.A. & M.L. Tushman, “Organizational Frame Bending: Principles for Managing Reorientation.” Academy of Management Executive, 1989, Volume III, Number 3, pp. 194–204.

In addition to history and resources, external environmental factors play a huge role in influencing what organizations choose to do. These include political, economic, social, technological, and ecological factors. For example, if a competitor launches a more attractive product/service, if new environmental regulations are enacted that create risk or opportunity for your products/services, or if an attractive new foreign market is emerging due to changing economic and demographic conditions, organizations will need to consider such environmental factors and trends as they decide upon their strategic approach. All organizational leaders must deal with an organization’s history, and recognize the impact and constraints, as they deal with the current external environment and seek to align their resources with the strategy to produce the desired results. In thinking about what to change, all inputs may be sources of opportunity and constraint.

For change leaders, an ability to analyze the organization’s external environment and see implications for action in the organization is a central change skill.

Strategy

An analysis of the organization’s competencies, strengths, and weaknesses, in light of the environmental threats and opportunities, leads to the strategy that organizational leaders decide to pursue. Strategic choices lead to the allocation of resources. Sometimes the strategy is consciously decided. At other times, it is a reflection of past actions and market approaches that the organization has drifted into. When there is a gap between what leaders say their strategy is and what they do (i.e., the actual strategy-in-use), one needs to pay close attention to the strategy in use. In Chapter 4 , we discuss strategy in depth.

For change leaders, the change strategy is a critical focus of their analysis. What are the purposes and objectives of the planned change in the context of the organizational strategy? Is it of the fine-tuning variety, to better align resources with the strategy, remove an obstacle, and more effectively deliver the desired results, or does the change involve something much more substantial, including changes to the strategy itself?

The Transformation Process

The next elements of the model are what Nadler and Tushman define as the transformation process. This is where the organization’s components are combined to produce the outputs. They include the work to be done, the formal structures, systems and process, the informal organization, and the people.

Work

The work is the basic tasks to be accomplished by an organization and its subunits in order to carry out the organization’s strategy. Some of these tasks are key success factors that the organization must execute in order to successfully implement its strategy. An organization’s work may be described in a very discrete way, listing, for example, the duties of a particular position, or, at the polar extreme, the basic functions such as marketing, production that the organization performs in its transformation processes. Tasks may be nested in teams, requiring coordination and integration, or be separated and independent from one another. The work may be designed to require a wide range of sophisticated skills and abilities or require a narrow set of basic skills. The work may require sophisticated judgment and decision making or require people to follow standardized procedures. Existing task designs reflect past decisions concerning what needs to be done and how best to do things. These designs often reflect cultural beliefs in the organization and are, to a degree, a matter of choice. Chapter 5 deals with how the work is formally structured and organized.

In change situations, change leaders should think through the necessary shifts in key tasks in order to carry out the change initiative. This will assist in developing a specific gap analysis and change plan.

The Formal Organization

The formal organization includes the “organizational architecture, a term that describes the variety of ways in which the enterprise structures, coordinates, and manages the work of its people in pursuit of strategic objectives.” 9 Once tasks are identified and defined, they are grouped to form reporting relationships, the formal organizational chart of roles, responsibilities, departments, divisions, and so on. The purpose of a structure is to enable efficient and effective task performance. The systems of an organization are the formal mechanisms that help the organization accomplish its work and direct the efforts of its employees. These include an organization’s human resource management systems (recruitment and selection, reward and compensation, performance management, training and development); information systems; measurement and control systems (e.g., budget, balanced scorecard); production systems; and so forth. Chapter 5 deals with designed systems and structures.

Change leaders need to understand how the formal systems and structures influence people’s behaviors and how structures can be used to facilitate change. Often formal systems, such as budgeting systems, need to be used to gather data for change.

The Informal Organization

The informal relationships among people and groups in the organization, the informal way things get done, and the norms accepted by organizational members reflect the way the culture manifests itself in the organization. While managers define the work necessary to accomplish the strategy and then structure those tasks in formal ways, many things occur that are unplanned, unanticipated, and/or evolve over time. For example, friendly relationships between individuals often ease communications; groups form and provide support or opposition for the accomplishment of tasks; and individuals and teams adapt procedures to make things easier or more productive.* The informal system will include an organization’s culture, the norms or understandings about “how we do things around here,” values (e.g., about the importance of customer service), beliefs (for example, about why the organization is successful), and managerial style (a “tough boss” style, for example). It will also reflect the informal leadership and influence patterns that emerge in different parts of the organization.

Culture is a product of both the organization’s history and its current organizational leadership. It acts as a control system in the sense that it defines acceptable and unacceptable behaviors, attitudes, and values and will vary in strength and impact, depending upon how deeply held and clearly understood the culture is. Other elements of the informal organization that are important to analyze when considering how to create change include power relationships, political influence, and decision-making processes. Chapter 6 deals with informal systems, power, and culture.

Change leaders need to make explicit the oftentimes implicit norms and behaviors of individuals and groups. Identifying the currently useful and dysfunctional norms and dynamics is a critical change agent activity.

People

The people in an organization perform tasks using both the organization’s designed systems and structures, and the informal cultural processes that have evolved. It is important that the attitude, knowledge, skills, and abilities of each person match the individual’s role, and that their responsibilities and duties match the organization’s needs. Understanding the individuals in the organization and how they will respond to the proposed change will be significant in managing the change process. The role of stakeholders and change recipients is discussed in Chapters 4 , 6 , and 7 .

Within every organization, certain key individuals are critical to its success. Often we think of the formal leaders as those who are most important in terms of accomplishing the mission, but others may be crucial. These people might have special technical skills or might be informal leaders of a key group of employees. People such as these, acting as change leaders, are described in Chapter 8 .

Change leaders need to understand the impact of proposed changes on the organization’s employees. Further, they need to identify key leaders in the organization who can facilitate the needed changes.

Outputs

The outputs of an organization are the services and products it provides to generate profitability or, especially in the case of public sector and nonprofit organizations, to meet mission-related goals. Additional outputs are also important: the satisfaction of organizational members, the growth and development of the competencies of the organization and its members, and customer satisfaction (to name just three). These outputs need to be defined and measured as attentively as profitability, return on investment (ROI), or numbers of clients served.

The above model reflects how one would look at the organization as a whole. However, this same approach can be adapted to look at internal parts of an organization that supply inputs or services for another part of the enterprise. The success of the organization in producing desired outputs should become part of the feedback loop and a new input to the organization. In a well-functioning organization, feedback could provide pressure to modify the strategy or internal alignments. Chapter 10 focuses on the measurement of change.

Change leaders need to recognize that “what gets measured is what gets done.” They need to select key measures that will track the change process.

In their work, Nadler and Tushman make three critical statements. First, the system is dynamic. This means that a diagnosis of how the organization should operate will change over time with different concerns and objectives. Second, the “fit” or congruence between components is significant in diagnosing why the organization performs well or poorly. And third, the better the fit is among organizational components and their alignment with the environment, the more effective the organization is. The organizational change challenge is to align the system’s components to respond to changing external and internal conditions.

The System is Dynamic

When an organization’s environment shifts, so must its diagnosis, in order to identify the changes needed to effectively realign its people, formal systems and processes, tasks, and culture to that environment and produce the desired outcomes. For example, when inflation was running at 1,100% per year in Brazil, 10 the influence of financial executives soared because financial management played a pivotal role in sustaining firms. When inflation slowed and stabilized in the range of 10 to 20%, power shifted away from finance and toward sales, marketing, and production. If the external environment alters significantly, the internal organization needs to change also. While this may seem like a statement of the obvious, it often goes unobserved in practice. Managers develop patterns of thinking about organizational performance that served them well in the past, but over time these patterned approaches may impair their ability to see when conditions change. Since the external environment is dynamic, the internal systems also need constant tuning, or even transformation.

The “Fit” Between and Among Organizational Components Is Critical

Nadler and Tushman argue that there are many different ways to think about the components of an organization. However, they choose to focus their model on four major components: “1) the task, 2) the individuals, 3) the formal organizational arrangements, and 4) the informal organization.” 11

A change agent needs to understand these four components of an organization and how they fit together and influence one another. Congruence is a measure of how well pairs of components fit together. For example, executives in an organization who restructure and ignore the knowledge and skills of people who will fill the newly created jobs do so at some risk. Restructured organizations with newly defined jobs either require the retraining of employees, or the hiring of new employees with the requisite skills. Or, if managers create structures to fit several key people and then those people leave, there may be a significant loss of fit between the structural components and the new key people.

Organizations With Good Fit Are More Effective Than Those With Poor Fit

Nadler and Tushman argue that effective organizations have excellent “fit” or “congruence” between components. Further, they argue that the strategy needs to flow from an accurate assessment of the environment and respond to or take advantage of changes occurring in that environment. Similarly, the strategy needs to fit the organization’s capabilities and competencies. If all of these are not aligned reasonably well, the strategy will fail and the organization will be less effective than it could have been. Inside the organization, the four components (tasks, designed structure and systems, culture, and people) must fit each other. For example, if an organization hires motivated, highly skilled individuals and assigns them routine tasks without challenge or decision-making opportunities, those individuals will likely be bored. There will be a lack of fit and productivity will suffer. Or, if the strategy demands the adoption of new technology and employees are not provided with the necessary training, fit is lacking. Within categories, elements might not fit. For example, an organization might decide to “empower” its employees to improve performance. If it fails to adjust the supervisory approach and reward system to reinforce the desired behaviors, this lack of fit could easily lead to a failure of the empowerment strategy.

Overall, lack of fit leads to a less effective organization. Good fit means that components are aligned and the strategy is likely to be attained.

For many managers, the notion of fit is easiest to understand as they follow the flow from strategy to key tasks to organizing those tasks into formal structures and processes to accomplish the desired objectives. This is a rational approach to management and appeals to one’s logic. At the same time, the reality of organizations often means that what appears to management as logical and necessary is not logical to employees. Managerial logic may be viewed by employees as against their interests or unnecessary. Peters recognizes the importance of the so-called nonrational aspects of organizations. 12 He argues that managers should tap into the power of teams to accomplish results and that individuals can be challenged to organize themselves to accomplish tasks. Thus, while fit is easiest to picture in logical terms, change agents need to consider it in terms of the informal system and the key individuals in the change process who will influence its success.

In a typical scenario, changes in the environment require leaders to rethink the organization’s strategy. This, in turn, results in changes in key tasks and how managers structure the organization to do those tasks. In developing a new strategy and in redesigning an organization’s systems and structures, managers need to become aware of and understand the influence of key individuals and groups.

Nadler and Tushman’s Congruence Model framework helps practitioners in three ways. First, it provides a template to assist in an organizational analysis. Second, it gives one a way of thinking about the nature of the change process—environmental factors tend to drive interest in the organization’s strategy, which, in turn, propels the transformational processes. These, then, determine the results. Third, the congruence framework emphasizes that, for organizations to be effective, a good fit among all elements in the process is required from environment to strategy through to the transformation process. Fit is also necessary within the transformation process; this is a constant challenge for incremental change initiatives such as continuous improvement programs. An emphasis on the internal fit between organizational components often focuses on efficiency. An emphasis on the external fit between the organization and its environment is an effectiveness focus. See Toolkit Exercise 3.2 to practice examining a situation through Nadler and Tushman’s model.

An Example Using Nadler and Tushman’s Congruence Model

Over the past several years, Dell Computers has transformed itself. Dell made its name by selling low-cost computers directly to customers. The company was renowned for an efficient supply chain that allowed it to receive payment for its computers before it incurred the cost of building them. The Dell story outlines the company’s attempt to reorient itself.

During its rapid growth years in the 1990s, Dell provided unrivalled service to its markets. Corporations wanted reliable equipment with good prices and excellent service. Dell provided this with online ordering and fast delivery. Its manufacturing, inventory management, and distribution systems were designed to deliver built-to-order PCs at a low cost. Speed of production became critical in order to minimize the delay between customer order and shipment to that customer. Relationships in the market were with customers, not retailers. While major clients (governments, etc.) had clout, as long as Dell delivered quality products and provided good technical service, the clients were satisfied. The key tasks, to use Nadler and Tushman’s terminology, were production and distribution.

During this growth phase, Dell’s organization was aligned well with its market. Internally, the production orientation fit those market needs. Systems were designed for efficiency and simplicity. There was no need for retail management. Inventories were minimized as Dell built to order. Finances were simple because customers paid as they ordered and before Dell incurred the costs of production. Dell’s management team excelled at getting efficiencies from this system, and the results showed for many years.

As the market shifted, the Dell organization became increasingly out of sync with the marketplace. Dell’s strategy was no longer a good fit as the marketplace shifted away from corporate demand to consumers, from machine power to design, from hardware to software and the Internet, from America to developing nations. The clean, straightforward organization that Dell had built could not meet the more complex market expectations.

Note how Michael Dell responded. All components of the company changed. First, the strategy shifted. Design was emphasized. Retailers became key parts of the distribution network. Product variety increased. With that strategic shift, the key success factors or critical tasks changed. Design became more important. Management of retail distribution became crucial and introduced an entirely new set of skills at Dell. As the product range increased, skills in the introduction and timing of new products became more important. To manage this, the company was reorganized into four divisions, each focused on one major customer segment. Financial systems would need to be overhauled to manage this complexity. New formal and informal networks were established as the company’s focus changed. Key executives were replaced by others with the skill sets demanded by this new strategy. In short, a new state of congruency was sought so that the internal operations fit the new strategy better.

Dell’s reorganization provides an excellent example of how the Nadler and Tushman model’s notions of congruency can be used to help to understand and analyze organizations. These efforts to introduce new key people, redesign organizational systems, modify the company’s strategy, and alter the product mix have shown mixed results—at the time of the writing of this book, it is too early to tell if they will yield desired results.

Nadler and Tushman’s model enables a change agent to think systematically about the organization. It serves as a checklist to ensure practitioners consider the critical components that must be matched with the strategy and environmental demands. Since the system is dynamic, the environment, the people, the competition, and other factors change over time, and part of that change is due to how the components interact with each other. Second, the fit between organizational components is critical. Dell’s products, organization, systems, and culture had become misaligned with the emerging environment. Finally, organizations with good fit are more effective than those with poor fit because they will be able to more efficiently and effectively transform inputs into outputs. The moves that Michael Dell made improved the fit and led to a modest turnaround in sales and margins in the short term, but subsequent competitive challenges suggest much more is needed—hence the move to take the company private so that needed changes could be made away from the glare of stock market pressures for short-term results.

Like any living entity, an organization survives by acting and reacting effectively to its external environment. Unless it adjusts with appropriate changes to its approach and, when needed, its strategy, it reduces its capacity to thrive. When one part of the organization is changed, then other parts also need to adapt to maintain the congruence or fit that leads to effectiveness. Michael Dell and his new management team have begun the realignment at Dell Computers. Whether Dell and his team made enough savvy changes for the long term will be demonstrated by the company’s future performance. Critical to this will be Dell’s ability to innovate and change in the face of shifts in its environment.

Dell Computers Reorients Itself 13

For years, Dell focused on being the low-cost, efficient producer of computers. As one report put it, “Dell long stuck with its old playbook of cranking out PCs as efficiently as possible.” Dell had focused on making the computer a commodity and sold online using generic parts. Dell focused on optimizing the business it already had while the market shifted. Its competitors, Hewlett-Packard, IBM, Apple, and others, marketed newer, sleeker laptops with better Internet capabilities using retail stores for distribution.

In 2007, company founder Michael Dell returned as CEO after three years of relative distance from operations. He replaced his senior management team, added new products and services, and focused on what customers wanted. However, the marketplace was changing radically as smartphones and similar products became the hot, new focus.

The troubles for Dell had begun when the market shifted. Growth in the corporate market lessened while the consumer sector flourished. As well, developing markets overseas became critical—markets that were less willing to buy over the Internet and use direct delivery. Additional processing power became less critical, and consumers demanded special features and more attractive machines. Dell saw the clear need to alter what it was doing. A diagnosis of what would work led to an overhaul of its products and the company.

After taking over, Michael Dell responded to the marketplace. He set up mechanisms to get customers’ input. He shifted Dell’s distribution strategy to sell in retail outlets, too. This required a shift in mindset for Dell managers, as they had to establish new distribution systems and manage their relationships with retailers. New machine designs were created and new hardware, including smartphones, were offered. Dell began selling mini-notebooks to appeal to overseas markets. And the company responded to changes in the corporate sector by providing systems solutions, not just computers.

To implement his strategy, Michael Dell installed a new senior management team. One of his first moves was to hire Ron Garriques, the executive who introduced Motorola’s Razr phone, as head of Dell’s consumer business. Garriques shut down work on the Mantra, a standard line of Dell products. As well, he stopped the introduction of Dell specialty stores and developed relationships with retailers. Product design became a new, central focus.

Michael Dell also brought in Brian Gladden from GE. Gladden believed that Dell needed to be restructured, that its systems and processes were not sophisticated enough for a company of its size. One major move was to shift how Dell focused on external markets by organizing around market segments, such as consumers, corporations, small- and mid-sized businesses, and governments and educational buyers.

Culture change was necessary to shift Dell to a more responsive, flexible company. Group leaders had clear financial targets but were given significant discretion in determining how to achieve these targets.

New products were developed and Dell began selling what in 2010 was the world’s thinnest notebook. Design and style were emphasized, along with “tech appeal.” Smartphones were also introduced, but Dell announced it was exiting this product category in December 2012 as they continued to search for a strategy that would work in this very competitive sector.

While Dell Inc. remained one of the leading companies in the technology industry, key financial ratios from 2006 and 2010 illustrate its problems: profit margins fell from 6.5% in 2006 to 2.7% in 2010. In 2006 Dell reported revenue growth at 13.6%; in 2010 the company reported a 13.4% decline in revenue. 14 Ever-the-optimist CEO Michael Dell said the business climate was improving and “repeated his expectations for a ‘powerful’ hardware refresh cycle beginning next year (2010).” 15 Somewhere in the 2011–2013 period, Michael Dell decided to take his eponymous company private. He had concluded that further changes were needed and that being a publically listed firm was getting in the way of accomplishing the longer-term objectives. By November 2013, he was celebrating his public to private deal with 350 employees in Silicon Valley. As one of the world’s richest men, Dell mixed in “his 16% ownership, valued at more than $3 billion, and another $750 million in cash, with $19.4 billion from Silver Lake Partners (a private equity firm) for a 75% stake in Dell Inc.” 16 Time will tell if Michael Dell can transform Dell Inc.

Evaluating Nadler and Tushman’s Congruence Model

Are the assumptions made by Nadler and Tushman’s Congruence Model reasonable ones? For example, should strategy always dictate the organization’s structure and systems? While that is one of the traditional views of how to achieve organizational effectiveness, it is not unusual to see the reverse where changes in the structures and systems drive alterations to strategy. For example, FedEx used its systems and expertise that it built to deliver packages to its own customers to provide logistical services to other companies. Amazon got into the cloud storage business by taking advantage of its capability to run large server farms. Thus, the implied direction of the Nadler and Tushman model is appropriate, but any analysis must recognize how dynamic and interactive organizational factors are. For many change agents, particularly those in middle management, the strategy of their organizations will be a given and their role will be to adapt internal structures and systems. Alternatively, change agents may attempt to influence the strategy directly (e.g., participation in a strategic task force) and/or indirectly (initiate activities that lead to the development of new internal capacities, learning, awareness, and interest that make new strategies viable).

Has the importance of fit been overstated? Probably not. For example, in an investigation into the mixed results achieved by total quality management (TQM) initiatives, Grant, Shani, and Krishnan found that “TQM practices cannot be combined with strategic initiatives, such as corporate restructuring, that are based on conventional management theories. The failure of one or both programs is inevitable.” 17 Thus, they found that the strategy, the structure, and new TQM processes need to fit with each other. Another example of issues of fit emerged following September 11, 2001, when the U.S. government created the Department of Homeland Security, which combined 22 government entities. However, reports subsequently emerged that suggested the secretary of the department had few levers needed to do his job: the formal structure had been created, but not the systems and processes that were necessary to give him leverage to be successful. 18 In both of these examples, a lack of alignment undermined the efforts to effectively change these organizations.

The need for change may not always be identified by looking at an organization’s environment. Problems surface in a variety of ways. There might be problems in the organization’s outcomes or outputs, indicating that some aspect of performance needs to be addressed. Further, there is the question of the magnitude of the change. The organization may decide to change its strategy, its culture, or some other core element. Generally, the more fundamental the change, the more other elements of the organization will need to be modified to support the desired change. For example, a change to one aspect of an organization may create a domino effect, requiring other changes to structure, systems, culture, and people. Mary Barra, GM’s new CEO appointed in 2014, is living with this challenge. While alignment has improved significantly since emerging from bankruptcy in 2009, as evidenced by positive product reviews and dramatic improvements in sales and profitability, GM’s leaders still deal with legacy cultural issues: Ignition switch design defects that resulted in deaths were not addressed for a decade. Internal investigations and congressional hearings report an organizational culture that promoted silence on such issues. Barra appears to be serious about acting on the dysfunctional aspects of GM’s culture. She has fired 15 executives found to have been involved with the situation, spoken about it with greater candor than ever before, and instituted a corporate-wide change initiative called “Speak up for Safety.” 19 She has affirmed that more recalls are likely as they search through their files: She stated that an “aggressive stance on product recalls is the new norm at GM” and that it is unacceptable for employees to stay silent on safety issues.

Finally, does better fit always increase the likelihood of effectiveness? This depends upon the measure of effectiveness. In the short run, fit focused on efficiency might mean increased profits as the organization reduces costs and becomes efficient. However, an innovation measure might show that fit focused primarily on efficiency has led to declining creativity. Efficiency is important but so is the development of appropriate adaptive capacities in an organization. It can be argued that in the long run, tight congruence in a stable environment leads to ingrained patterns inside the organization. Individuals and organizations develop formal systems and structures, as they should, but these can lead to ritualized routines and habits. Such patterns can be change resistant and can be hugely ineffective when the environment changes. Dell Computers suffered from this prior to Michael Dell’s reintroduction in 2007. If the pace of change an organization must deal with is rapid, then an overemphasis on getting congruence “just right” can lead to delays that put the health of the firm at risk. In a rapidly changing environment, approximations are appropriate: don’t make it perfect; get it acceptable and move on. Nevertheless, for most analytical purposes, the assumption that an increasing fit is a good objective is appropriate.