Managing organizational change 3rd edition

Organizational Change 3e

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This book is dedicated to our partners: Heather, Bertha, and Steve.

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Organizational Change

An Action-Oriented Toolkit

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Tupper F. Cawsey Wilfrid Laurier University

Gene Deszca Wilfrid Laurier University

Cynthia Ingols Simmons College

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Library of Congress Cataloging-in-Publication Data

Cawsey, T. F.

Organizational change: an action-oriented toolkit / Tupper F. Cawsey, Gene Deszca, Cynthia Ingols. — Third edition.

pages cm

Includes index.

ISBN 978-1-4833-5930-4 (pbk.: alk. paper)

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1. Organizational change. I. Deszca, Gene. II. Ingols, Cynthia. III. Title.

HD58.8.C39 2016

658.4′06—dc23 2015006458

This book is printed on acid-free paper.

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Detailed Contents

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Detailed Contents Preface Acknowledgments Chapter 1: Changing Organizations in Our Complex World

Defining Organizational Change The Orientation of This Book

Environmental Forces Driving Change Today The Implications of Worldwide Trends for Change Management

Four Types of Organizational Change Planned Changes Don’t Always Produce the Intended Results

Organizational Change Roles Change Initiators Change Implementers Change Facilitators Common Challenges for Managerial Roles Change Recipients

The Requirements for Becoming a Successful Change Leader Summary Key Terms End-of-Chapter Exercises

Chapter 2: Frameworks for Leading the Process of Organizational Change: “How” to Lead Organizational Change

Differentiating How to Change From What to Change The Processes of Organizational Change (1) Stage Theory of Change: Lewin

Unfreeze Change Refreeze

(2) Stage Model of Organizational Change: Kotter Kotter’s Eight-Stage Process

(3) Giving Voice to Values: Gentile GVV and Organizational Change

(4) Emotional Transitions Through Change: Duck Duck’s Five-Stage Change Curve

(5) Managing the Change Process: Beckhard and Harris (6) The Change Path Model: Cawsey–Deszca–Ingols Application of the Change Path Model

Awakening: Why Change? Mobilization: Gap Analysis of Hotel Operations Acceleration: Getting From Here to There Institutionalization: Measuring Progress Along the Way and Using Measures to Help Make the Change Stick

Summary

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Key Terms End-of-Chapter Exercises

Chapter 3: Frameworks for Diagnosing Organizations: “What” to Change in an Organization Open Systems Approach to Organizational Analysis (1) Nadler and Tushman’s Congruence Model

History and Environment Strategy The Transformation Process Work The Formal Organization The Informal Organization People Outputs An Example Using Nadler and Tushman’s Congruence Model Evaluating Nadler and Tushman’s Congruence Model

(2) Sterman’s Systems Dynamics Model (3) Quinn’s Competing Values Model (4) Greiner’s Model of Organizational Growth (5) Stacey’s Complexity Theory Summary Key Terms End-of-Chapter Exercises

Chapter 4: Building and Energizing the Need for Change Understanding the Need for Change

Seek Out and Make Sense of External Data Seek Out and Make Sense of the Perspectives of Stakeholders Seek Out and Make Sense of Internal Data Seek Out and Assess Your Personal Concerns and Perspectives

Assessing the Readiness for Change Heightening Awareness of the Need for Change Factors That Block People From Recognizing the Need for Change

Developing a Powerful Vision for Change The Difference Between an Organizational Vision and a Change Vision Examples of Organizational Change Visions

Google’s Implied Vision for Change in Telecommunications Xerox’s Vision for Creating Agile Business Processes IBM—Diversity 3.0 Ronald McDonald House Charities (RMHC) Vision Tata’s Vision for the Nano World Wildlife Fund: Vision for Its Community Action Initiative—Finding Sustainable Ways of Living Vision for the “Survive to 5” Program Change Vision for “Reading Rainbow”

Summary Key Terms A Checklist for Change: Creating the Readiness for Change

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End-of-Chapter Exercises Chapter 5: Navigating Change Through Formal Structures and Systems

Making Sense of Formal Structures and Systems Impact of Uncertainty and Complexity on Formal Structures and Systems Formal Structures and Systems From an Information Perspective

Aligning Systems and Structures With the Environment Structural Changes to Handle Increased Uncertainty Making Formal Structure and System Choices

Using Structures and Systems to Influence the Approval and Implementation of Change Using Formal Structures and Systems to Advance Change Using Systems and Structures to Obtain Formal Approval of a Change Project Using Systems to Enhance the Prospects for Approval Ways to Approach the Approval Process

Aligning Strategically, Starting Small, and “Morphing” Tactics The Interaction of Structures and Systems With Change During Implementation Using Structures and Systems to Facilitate the Acceptance of Change Developing Adaptive Systems and Structures Summary Key Terms Checklist: Change Initiative Approval End-of-Chapter Exercises

Chapter 6: Navigating Organizational Politics and Culture Power Dynamics in Organizations Departmental Power Organizational Culture and Change

How to Analyze a Culture Tips for Change Agents to Assess a Culture

Understanding the Perceptions of Change Identifying the Organizational Dynamics at Play

Summary Key Terms Checklist: Stakeholder Analysis End-of-Chapter Exercises

Chapter 7: Managing Recipients of Change and Influencing Internal Stakeholders Stakeholders Respond Variably to Change Initiatives

Not Everyone Sees Change as Negative Responding to Various Feelings in Stakeholders

Positive Feelings in Stakeholders: Channeling Their Energy Ambivalent Feelings in Stakeholders: They Can Be Useful Negative Reactions to Change by Stakeholders: These Too Can Be Useful

Make the Change of the Psychological Contract Explicit and Transparent Predictable Stages in the Reaction to Change Stakeholders’ Personalities Influence Their Reactions to Change Prior Experience Impacts a Person’s and Organization’s Perspective on Change Coworkers Influence Stakeholders’ Views Feelings About Change Leaders Make a Difference

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Integrity Is One Antidote to Skepticism and Cynicism Avoiding Coercion But Pushing Hard: The Sweet Spot? Creating Consistent Signals From Systems and Processes Steps to Minimize the Negative Effects of Change

Engagement Timeliness Two-Way Communication

Make Continuous Improvement the Norm Encourage People to Be Change Agents and Avoid the Recipient Trap Summary Key Terms Checklist: How to Manage and Minimize Cynicism About Change End-of-Chapter Exercises

Chapter 8: Becoming a Master Change Agent Factors That Influence Change Agent Success

The Interplay of Personal Attributes, Situation, and Vision Change Leaders and Their Essential Characteristics

Developing Into a Change Leader Intention, Education, Self-Discipline, and Experience What Does Reflection Mean?

Developmental Stages of Change Leaders Four Types of Change Leaders Internal Consultants: Specialists in Change External Consultants: Specialized, Paid Change Agents

Provide Subject-Matter Expertise Bring Fresh Perspectives From Ideas That Have Worked Elsewhere Provide Independent, Trustworthy Support Limitations of External Consultants

Change Teams Change From the Middle: Everyone Needs to Be a Change Agent Rules of Thumb for Change Agents Summary Key Terms Checklist: Structuring Work in a Change Team End-of-Chapter Exercises

Chapter 9: Action Planning and Implementation Without a “Do It” Orientation, Things Won’t Happen Prelude to Action: Selecting the Correct Path Plan the Work

Engage Others in Action Planning Ensure Alignment in Your Action Planning

Action Planning Tools 1. To-Do Lists 2. Responsibility Charting 3. Contingency Planning 4. Surveys and Survey Feedback

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5. Project Planning and Critical Path Methods 6. Tools to Assess Forces That Influence Outcomes and Stakeholders 7. Leverage Analysis 8. Operation Management Tools

Working the Plan Ethically and Adaptively Developing a Communication Plan Timing and Focus of Communications Key Principles in Communicating for Change Influence Strategies

Transition Management Summary Key Terms Checklist: Developing an Action Plan End-of-Chapter Exercises

Chapter 10: Measuring Change: Designing Effective Control Systems Selecting and Deploying Measures

Focus on Key Factors Use Measures That Lead to Challenging but Achievable Goals Use Measures and Controls That Are Perceived as Fair and Appropriate Avoid Sending Mixed Signals Ensure Accurate Data Match the Precision of the Measure With the Ability to Measure

Control Systems and Change Management Controls During Design and Early Stages of the Change Project Controls in the Middle of the Change Project Controls Toward the End of the Change Project

Other Measurement Tools Strategy Maps The Balanced Scorecard Risk Exposure Calculator The DICE Model

Summary Key Terms Checklist: Creating a Balanced Scorecard End-of-Chapter Exercises

Chapter 11: Summary Thoughts on Organizational Change Putting the Change Path Model Into Practice Future Organizations and Their Impact Becoming an Organizational Change Agent: Specialists and Generalists Paradoxes in Organizational Change Orienting Yourself to Organizational Change Summary End-of-Chapter Exercises

Case Studies Case Study 1: Building Community at Terra Nova Consulting Case Study 2: Food Banks Canada: Revisiting Strategy 2012

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Case Study 3: “Not an Option to Even Consider:” Contending With the Pressures to Compromise Case Study 4: Diego Curtiz at Highland State University Case Study 5: Ellen Zane—Leading Change at Tufts/NEMC Case Study 6: Ellen Zane at Tufts Medical Center: Spring 2011

Notes Index About the Authors

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Preface

Since the publishing of the second edition of this text, the world has continued to churn in very challenging ways. Uneven and shifting global patterns of growth, sluggish Western economies, continuing fallout from the financial crisis, stubbornly high unemployment levels in much of the world, and heightened global uncertainty in matters related to health, safety, and security define the terrain. Their consequences continue to unfold. The massive credit crisis was followed by unprecedented worldwide government stimulus spending, followed by sovereign debt crises, followed by . . . ??? Wars and insurrections in parts of Africa, the Ukraine, and much of the Middle East; deteriorating international relationships involving major powers; fears of global pandemics (Ebola and MERS); and the rise of ISIS and Boko Haram and their unprecedented inhumanity have shaken all organizations, big or small, public or private. They have also made us, your authors, much more aware of the extreme influence of the external environment on the internal workings of an organization. As we point out in our book, even the smallest of firms have to adapt when banks refuse them normal credit, and even the largest and most successful of firms have to learn how to adapt when disruptive technologies or rapid social and political changes alter their realities.

Our models have always included and often started with events external to the organization. We have always argued that change leaders need to scan their environments and be aware of trends and crises in those environments. The events of the past two years have reinforced our sense of this even more. Managers must be sensitive to what happens around them, know how to make sense of this, and then have the skills and abilities that will allow them to both react effectively to the internal and external challenges and remain constant in their visions and dreams of how to make their organizations and the world a better place to live.

A corollary of this is that organizations need a response capability that is unprecedented, because we’re playing on a global stage of increasing complexity and uncertainty. If you are a bank, you need a capital ratio that would have been unprecedented a few years ago. If you are a major organization, you need to build in flexibility into your structures, policies, and plans. If you are a public sector organization, you need to be sensitive to how capricious granting agencies or funders will be when revenues dry up. In today’s world, organizational resilience and adaptability gain new prominence.

Further, we are faced with a continuing reality that change is endemic. All managers are change managers. All good managers are change leaders. The management job involves creating, anticipating, encouraging, engaging others, and responding positively to change. This has been a theme of this book which continues. Change management is for everyone. Change management emerges from the bottom and middle of the organization as much as from the top. It will be those key leaders who are embedded in the organization who will enable the needed adaptation of the organization to its environment. M iddle managers need to be key change leaders.

In addition to the above, we have used feedback on the second edition to strengthen the pragmatic orientation that we had developed. The major themes of action orientation, analysis tied with doing, the management of a nonlinear world, and the bridging of the “Knowing–Doing” gap continue to be central. At the same time, we have tried to shift to a more user-friendly, action perspective. To make the material more accessible to a diversity of readers, some theoretical material has been altered, some of our models have been clarified and simplified, and some of our language and formatting has been modified.

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As we stated in the preface to the first edition, our motivation for this book was to fill a gap we saw in the marketplace. Our challenge was to develop a book that not only gave prescriptive advice, “how-to-do-it lists,” but one that also provided up-to-date theory without getting sidetracked by academic theoretical complexities. We hope that we have captured the management experience with change so that our manuscript assists all those who must deal with change, not just senior executives or organizational development specialists. Although there is much in this book for the senior executive and organizational development specialist, our intent was to create a book that would be valuable to a broad cross section of the workforce.

Our personal beliefs form the basis for the book. Even as academics, we have a bias for action. We believe that “doing is healthy.” Taking action creates influence and demands responses from others. While we believe in the need for excellent analysis, we know that action itself provides opportunities for feedback and learning that can improve the action. Finally, we have a strong belief in the worth of people. In particular, we believe that one of the greatest sources of improvement is the untapped potential to be found in the people of the organization.

We recognize that this book is not an easy read. It is not meant to be. It is meant as a serious text for those involved in change—that is, all managers! We hope you find it a book that you will want to keep and pull from your shelf in the years ahead, when you need to lead change and you want help thinking it through.

Your authors,

Tupper, Gene, and Cynthia

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Acknowledgments

We would like to acknowledge the many people who have helped to make this book possible. Our students and their reactions to the ideas and materials continue to be a source of inspiration. Cynthia’s Leadership and Organizational Change course, spring 2014, included Mshael Alessa, Daniella Comito, Katrice Krumplys, Jill Peterson, and other students who applied the concepts in this book and made a difference through their change projects at Simmons College.

Managers, executives, and frontline employees that we have known have provided insights, case examples, and applications while keeping us focused on what is useful and relevant. Ellen Zane, former CEO of Tufts Medical Center, Boston, is an inspiring change leader; her turnaround story at Tufts Medical Center appeared in the second edition of this book and is published again in this third edition. Cynthia has also been fortunate to work with and learn from Gretchen Fox, founder and former CEO, FOX Relocation Management Corporation. The story of how she changed her small firm appeared in the second edition of the book and the case continues to be available through Harvard Business Publishing (http://hbr.org/product/fox-relocation- management-corp/an/NA0096-PDF-ENG). Katharine Schmidt, a former student of Gene‘s and the CEO of Food Banks Canada, is another of the inspiring leaders who opened her organization to us and allowed us to learn from their experience, and share it with you in this edition.

Several colleagues have provided guidance and feedback along the way that have helped us test our logic and develop our thinking and writing. Cynthia would like to especially thank Professor Mary Shapiro, a colleague at the School of Management, Simmons College, who read each chapter thoroughly and gave insightful feedback on the manuscript. Dr. Paul Myers, consultant, Boulder, CO, read Chapters 2 and 3 with a fine- tooth comb and gave us astute criticism, allowing us—paradoxically—to both simplify and add complexity to those chapters.

Our research assistants have provided valuable support. John Schappert and Charles Newell assisted with the search for relevant research articles, reports of change initiatives, and websites of interest.

We owe a HUGE THANKS to Paige Tobie. She searched for articles and web-based materials, participated in our conference calls, made sure ideas and changes didn’t get lost, and kept us on track, on time, and working with the right versions of the manuscript. She provided valuable input on drafts of the manuscript from a student/practitioner’s perspective, and then read the entire manuscript one last time, catching problematic areas. She did all these tasks while retaining her sense of humor and remaining a pleasure to work with. Thank you so very much, Paige: You have been a wonderful project manager, researcher, and colleague!

As with the last edition, our partners Heather Cawsey, Bertha Welzel, and Steve Spitz tolerated our moods, our myopia to other things that needed doing, and the early mornings and late nights spent on the manuscript. They helped us work our way through ideas and sections that were problematic, and they kept us smiling and grounded when frustration mounted.

Our editors at Sage have been excellent. They moved the project along and made a difficult process fun (well, most of the time). Thank you, Maggie Stanley, our acquisitions editor, for keeping us on task and on time (or trying to keep us on time . . . ). We appreciate your style of gentle nudges. Nicole Mangona, editorial assistant, was constantly on top of the various parts of the book and helped us push through to the end.

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http://hbr.org/product/fox-relocation-management-corp/an/NA0096-PDF-ENG
Finally, we would like to recognize the reviewers who provided us with valuable feedback on the second edition. Their constructive, positive feedback and their excellent suggestions were valued. We thought carefully about how to incorporate their suggestions into this third edition of the book. Thank you, Jeff Zimmerman, Northern Kentucky University; Lorraine M. Henderson, Nazareth College of Rochester; Ross A. Wirth, Franklin University; Ericka Kimball, Augsburg College; Whitney McIntyre Miller, Northern Kentucky University; Sandra R. Bryant, Tiffin University; John Anthony DiCicco, Curry College; and Paul M. Terry, University of South Florida. In short, our thanks to all who made this book possible.

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Chapter 1 Changing Organizations in Our Complex World

It is not the strongest of the species that survive, nor the most intelligent, but the most responsive to change.

Chapter Overview The chapter defines organizational change as “planned alteration of organizational components to improve the effectiveness of organizations.” The orientation of this book is to assist change managers or potential change leaders to be more effective in their change activities. The social, demographic, technological, political, and economic forces pushing the need for change are outlined. Four types of organizational change are discussed: tuning, adapting, reorienting, and re-creating. Four change roles found in organizations are described: change initiators, change implementers, change facilitators, and change recipients and stakeholders. The terms change leader and change agent are used interchangeably and could mean any of the four roles. The difficulties in creating successful change are highlighted, and then some of the characteristics of successful change leaders are described.

Organizations fill our world. We place our children into day care, seek out support services for our elderly, and consume information and recreational services supplied by other organizations. We work at for-profit or not- for-profit organizations. We rely on organizations to deliver the services we need: food, water, electricity, and sanitation and look to governmental organizations for a variety of services that we hope will keep us safe, secure, well governed, and successful. We depend on health organizations when we are sick. We use religious organizations to help our spiritual lives. We assume that most of our children’s education will be delivered by formal educational organizations. In other words, organizations are everywhere. Organizations are how we get things done. This is not just a human phenomenon—it extends to plants and animals—look at a bee colony, a reef, a lion pride, or an elephant herd and you’ll see organizations at work.

And these organizations are changing—some of them declining and failing, while others successfully adapt or evolve, to meet the shifting realities and demands of their environments. What exactly is organizational change? What do we mean when we talk about it?

Defining Organizational Change When we think of organizational change, we think of major changes: mergers, acquisitions, buyouts, downsizing, restructuring, the launch of new products, and the outsourcing of major organizational activities. We can also think of lesser changes: departmental reorganizations, installations of new technology and incentive systems, shutting particular manufacturing lines, or opening new branches in other parts of the country—fine-tuning changes to improve the efficiency and operations of our organizations.

In this book, when we talk about organizational change, we refer to planned alterations of organizational components to improve the effectiveness of the organization. Organizational components are the organizational mission, vision, values, culture, strategy, goals, structure, processes or systems, technology, and people in an organization. When organizations enhance their effectiveness, they increase their ability to generate

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value for those they serve.*

The reasons for change are often ambiguous. Is the change internally or externally driven? In winter 2014, Tim Hortons (a Canada-based coffee restaurant chain) announced that it was aiming to open 1,000 new stores globally by 2018, joining their network of 3,468 outlets in Canada, 807 in the United States, and 29 in the Persian Gulf. It has also been busy revising its menu to shore up flattening same-store sales, adding Wi-Fi access, undertaking major store remodeling, and making changes to its sustainability and corporate social responsibility initiatives. What is driving these changes? The executives reported that they were undertaking these actions in response to competitive pressures, customer needs, market opportunities, and the desire to align their efforts with their values. For Tim Hortons, the drivers of change are coming from both the internal and external environment. Dunkin’ Donuts, a much larger U.S. chain with similarities to Tim Hortons’ business model and competitive pressures, seems to be pursuing similar adaptive responses.1 It is essential for managers to be sensitive to what is happening inside and outside the organization, and adapt to those changes in the environment.†

Note that, by our definition and focus, organizational change is intentional and planned. Someone in the organization has taken an initiative to alter a significant organizational component. This means a shift in something relatively permanent. Usually, something formal or systemic has to be altered. For example, a new customer relations system may be introduced that captures customer satisfaction and reports it to managers; or a new division is created and people are allocated to that division in response to a new organizational vision.

Simply doing more of the same is not an organizational change. For example, increasing existing sales efforts in response to a competitor’s activities would not be classified as an organizational change. However, the restructuring of a sales force into two groups (key account managers and general account managers) or the modification of service offerings would be, even though these changes could well be in response to a competitor’s activities rather than a more proactive initiative.

Some organizational components, such as structures and systems, are concrete and thus easier to understand when contemplating change. For example, assembly lines can be reordered or have new technologies applied. The change is definable and the end point clear when it is done. Similarly, the alteration of a reward system or job design is concrete and can be documented. The creation of new positions, subunits, or departments is equally obvious. Such organizational changes are tangible and thus may be easier to make happen, because they are easier to understand.

When the change target is more deeply imbedded in the organization and is intangible, the change challenge is magnified. For example, a shift in organizational culture is difficult to engineer. A change leader can plan a change from an authoritarian to a more participative culture, but the initiatives required to bring about the change and the sequencing of those initiatives are trickier to get a hold of than more concrete change initiatives. Simply announcing a new strategy or vision does not mean that anything significant will change since: “You need to get the vision off the walls and into the halls.”2 A more manageable way to think of such a culture change is to identify concrete changes that reinforce the desired culture. If management alters reward systems, shifts decision making downward, and creates participative management committees, then management increases the likelihood that it will create cultural change over time. Sustained behavioral change occurs when people in the organization understand, accept, and act. Through their actions, the new vision or strategy becomes real.3

The target of change needs to be considered carefully. Often, managers choose concrete tangible changes

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because they are easiest to plan for and can be seen. For example, it is relatively easy to focus on pay and give monetary incentives in an attempt to address employee morale. But the root cause of these issues might be managerial styles or processes—much more difficult to recognize and address. In addition, intervening through compensation may have unanticipated consequences and actually worsen the problem. An example of this can be found in the story below.

In this example, if the original analysis had been accepted, turnover rates might have declined since staff may have been persuaded to stay for higher wages. But the agency would be facing monetary issues and would have had a festering morale problem.

Change at a Social Service Agency In a mid-sized social service agency’s family services division, turnover rates climbed to more than 20%, causing serious issues with service delivery and quality of service. The manager of the division argued that staff were leaving because of wages. According to him, children’s aid societies’ wages were higher and staff left to join those organizations. Upon investigation, senior management learned of morale problems arising from the directive, noninclusive management style of the manager. Instead of altering pay rates, which would have caused significant budgetary and equity problems throughout the organization, senior management replaced the manager and moved him to a project role. Within months, turnover rates dropped to less than 10% and the manager decided to leave the agency.4

The Orientation of This Book The focus, then, of this book is on organizational change as a planned activity designed to improve the organization’s effectiveness. Changes that are random (occur simply due to chance) or unplanned are not the types of organizational change that this book will explore, except, insofar, as they serve as the stimulus for planned change initiatives. Similarly, changes that may be planned but do not have a clear link to attempts to improve organizational effectiveness are not considered. That is, changes made solely for personal reasons—for personal gain, for example—fall outside the intended focus of this book.

There is a story of two stonecutters. The first, when asked what he was doing, responded, “I am shaping this stone to fit in that wall.” The second, however, said, “I am helping to build a cathedral.”

The jobs of the two stonecutters might be the same, but their perspectives are dramatically different. The personal outcomes of satisfaction and organizational commitment will likely be much higher for the visionary stonecutter than for the “just doing my job” stonecutter. Finally, the differences in satisfaction and commitment may well lead to different organizational results. After all, if you are building a cathedral, you might be more motivated to stay late, to take extra care, to find ways to improve things, and to help others when help is needed.

In other words, the organizational member who has a broader perspective on the value of his or her contributions and on the task at hand is likely to be a more committed and capable contributor. As a result, we take a perspective that encourages change leaders to take a holistic perspective on the change and to be widely inclusive in letting employees know what changes are needed and are happening.

If employees have no sense of the intended vision and see themselves as “just doing a job,” it is likely that any organizational change will be difficult to understand, be resisted, and cause personal trauma. On the other hand, if employees “get” the vision of the organization and understand the direction and perspective of where

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the organization is going and why, they are more likely to embrace their future role—even if that future means they leave the organization.5

This book is aimed at those who want to be involved in change and wish to take positive action. We encourage readers to escape from passive, negative change recipient positions and to move to more active and healthy roles—those of change initiators, facilitators, and implementers. Readers may be in middle-manager roles or may be students hoping to enter managerial roles. Or they may be leaders of change within an organization or a subunit. The book is also intended for the informal leaders in organizations who are driving change, sometimes in spite of their bosses. They might believe that their bosses “should” be driving the change but don’t see it happening, and so they see it as up to them to make change happen regardless of the action or inaction of their managers.

This book has an action, “how to do it” emphasis. Nothing happens unless we, the people, make it happen. As one wag put it, “The truth is—the cavalry aren’t coming!” There will be no cavalry charging over the hill to save us. It is up to us to make the changes needed. At the same time, this “how-to” orientation is paired with a focus on developing a deep understanding of organizations. Without such an understanding, what needs to be changed, and what the critical success factors are, change efforts will be much more difficult. This twin theme, of knowing both how to do it and what to do, underpins the structure of this book and our approach to change. To paraphrase Zig Ziglar: “It’s not what happens to you that matters. It’s how you respond that makes a difference.”6

Change capability is a core managerial competence. Without skills in change management, individuals cannot operate effectively in today’s fluctuating, shifting organizations.7 Senior management may set the organizational direction, but, in this decentralized organizational world, it is up to managers and employees to shift the organization to accomplish the new goals and objectives. To do this, change-management skills are paramount. In many organizations, those managers are looked to for insights, innovative ideas, and initiatives that will make a positive difference in their firms. Investigate firms such as Google, the Mayo Clinic, Cisco, and others listed among the 100 best to work for here and offshore, and you will find many examples of firms embracing these practices.8 They do so with a realistic appreciation for the fact that change management is often more difficult than we anticipate. We believe, as do Pfeffer and Sutton, that there is a Knowing–Doing gap.9 Knowing the concepts and understanding the theory behind organizational change are not enough. This book is designed to provide practicing and prospective managers with the tools they will need to be effective change agents.

Environmental Forces Driving Change Today

Much change starts with shifts in an organization’s environment. For example, government legislation dealing with employment law pushes new equity concerns through hiring practices. Globalization means that marketing, research and development, production, and other parts of an organization (e.g., customer service’s call centers) can be moved around the world and/or outsourced. International alliances form and reform. These and related factors mean an organization’s competition is often global in nature, rather than local. New technologies allow purchasing to link to production within an integrated supply chain, changing forever supplier–customer relationships. Concerns over global warming, sustainability, and environmental practices give rise to new laws, standards, and shifts in consumer preferences for products and firms that exhibit superior environmental performance. A competitor succeeds in attracting an organization’s largest customer and upsets management’s assumptions about the marketplace. Each of these external happenings will drive and push the

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need for change. These factors are summed up in the acronym PESTE. PESTE factors include political, economic, social, technological, and ecological/environmental factors that describe the environment or context of an organization.

These are not simply private sector realities. Not-for-profits, hospitals, schools, and governments all experience these environmental challenges as the world shrinks and the seeming pace of change accelerates and increases in complexity. Not-for-profits or NGOs (nongovernmental organizations) and various governmental bodies respond to hunger in war-torn Somalia and Syria, public universities and hospitals respond to for-profit competitors. Governments around the world deal with issues related to enhancing their economic competitiveness and attract employment, hopefully in sustainable and socially responsible ways. No one is immune.

Sometimes organizations are caught by surprise by environmental shifts, while other organizations have anticipated and planned for new situations. For example, management may have systems to track the perceived quality and value of its products versus its competition’s. Benchmarking data might show that its quality is beginning to lag behind that of a key competitor or it might be instrumental in identifying product changes that can lead to market advantages. These environmental scanning and early warning systems allow for action before customers are lost or provide paths to new customers and/or new services. Toyota had such systems in place, but management appears to have responded inadequately.

It’s beyond the scope of this book to provide an in-depth treatment of all of the various trends and alterations in the environment. However, we will highlight below some of the important trends to sensitize readers to their environments. As is always the case, organizations find themselves influenced by fundamental forces: changing social, cultural, and demographic patterns; spectacular technological achievements that transform how we do business; concerns about the physical environment and social responsibility that are producing demands for changes in our products and business practices; a global marketplace that sends us competing worldwide and brings competition to our doorsteps; political and legal forces that have the potential to transform the competitive landscape; continued political uncertainty in many countries that has the potential to introduce chaos into world markets; and the aftermath of the economic turmoil that rocked the world economy in 2008, 2009, and 2010.

The Changing Demographic, Social, and Cultural Environment

Age Matters.

The social, cultural, and economic environment will be dramatically altered by demography. Demographic changes in the Western world and parts of Asia mean that aging populations will gray the face of Europe, Canada, China, and Japan.14 The financial warning bells are already being sounded. Even before the huge government deficits of 2009 and beyond that Western nations have been digging themselves out from under, Standard & Poor’s predicted that the average net government debt-to-GDP ratio for industrialized nations will increase from 33% in 2005 to 180% by 2050, due to rising pension and health care costs,15 if changes are not undertaken.

Although the United States will age less quickly, Europe and Japan will face a dependency crisis of senior citizens requiring medical care and pension support. By 2050, the median age in the United States is projected to be 36.2 versus 52.7 in Europe. The United States will keep itself younger through immigration and a birth

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rate that is close to replacement level,16 though even here growth assumptions have come under question as the rate of immigration has declined in the aftermath of the economic slowdown and questions around emigration policies remain highly politicized. Even with this influx, if nothing changes, Standard & Poor’s estimates the U.S. governmental debt-to-GDP ratio will grow to 472% of GDP by 2050, due mainly to pension and health care costs.17 Aging European countries will be around 300–400% of GDP, despite older populations, due to more cost-efficient approaches to these areas. On the high side, Japan is predicted to reach 729%. Europe’s population is projected to peak in 2015 at around 400 million, while the United States passes that number in 2020 and continues to grow thereafter.

Throughout the world, fertility rates are falling and falling fast.18 In 1974, only 24 countries had fertility rates below replacement levels. By 2009, more than 70 countries had rates below 2.1. In some countries, the swings are dramatic. The fertility rate in Iran dropped from 7 in 1984 to 1.9 in 2009, a huge shift.

Source: U.N. Population Division.

Some see a close tie between female education, fertility rates, and economic growth. When economies are poor, the fertility rate is high and there are many young dependents relying on working adults and older siblings for sustenance. When fertility rates drop, there is a bulge of people, meaning the ratio of working adults to dependents increases, leading to an increase in per capita wealth. Mexico and China are examples of this currently. When this bulge ages, dependent, nonworking seniors become a larger percentage of the population, so these advantages tend to disappear over time, as incomes rise and fertility rates fall.19 As discussed above, this has happened and is happening in Europe and Japan. India, Africa, and Mexico are examples of areas with a smaller proportion of dependents (the young and the old) relative to their working populations, and this is something referred to as an economic dividend. However, it is only a dividend if the population has the skills and abilities needed, and there is infrastructure and policies in place to support such employment—something many developing nations are finding very challenging.20

These demographic shifts can take decades to work their way through, and the economic implications for organizations are significant. Imagine 400 to 500 million relatively wealthy Americans and the impact that will have on global economic power, assuming that pension and health care challenges are effectively managed. Consumer spending in emerging economies is expected to more than double from $4 trillion to more than $9

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trillion in the next 10 years.21 Also imagine the impact of a graying Europe and Japan’s declining workforce. Some estimates put the fiscal problems in providing pensions and health care for senior citizens at 250% of national income in Germany and France.22

Pension costs can become a huge competitive disadvantage at the company level as well. At General Motors, there were 2.5 retirees for every active worker in 2002. These so-called “legacy” costs were $900 per vehicle at that time due to pension and health care obligations. These costs rose to $1,800 by 200623 and retired employee–related costs were one of the key reasons that GM sought bankruptcy relief in 2009.

Companies appear to be ill prepared to deal with this aging population.24 Both private and public sector employers are waking up to these pressures and attempting to bring about changes to their pension programs that will be more sustainable, but the journey will not be easy. Public pushback to reductions in pension income and other entitlement programs has been strong, and even relatively modest proposals for shifts to policies such as increasing the age of retirement by a year or two have faced widespread resistance. This is resistance that scares politicians because these are also people who are most likely to vote and who are also feeling vulnerable as they find their savings are insufficient to sustain their lifestyle.25

An aging population also provides new market opportunities—would you have predicted that the average age of a motorcycle purchaser would be over 49? That’s Harley-Davidson’s experience.26

With aging populations, organizations can expect pressures to manage age prejudice more effectively. Subtle discrimination based on age will not be accepted. Innovative solutions will be welcomed by aging members of the workforce and an increasing necessity for employers. See the story below.

Did Toyota or GM Know About the Safety Defects?

Misreading the Environment and Associated Risks On April 5, 2010, the U.S. government’s transportation department stated it would seek $16.4 million from Toyota for not notifying the government about potential accelerator pedal problems. “In taking the step, federal authorities are sending the strongest signal yet that they believe the carmaker deliberately concealed safety information from them.”10

Did Toyota know about these deficiencies and respond by denying they existed and covering up? If so, this is an example of an inappropriate organizational response to environmental stimuli.

The same question could be asked of General Motors concerning ignition switch problems in the Cobalt and other brands. By GM’s admission, they first became aware of this problem in 2001. It was the subject of a technical service bulletin in 2005, but there was no recall until 2014, in the aftermath of multiple deaths and injuries, mounting public scrutiny, and lawsuits. The global recall totaled 2.6 million vehicles by May 2014, there have been humiliating U.S. congressional hearings, Mary Barra (GM’s new CEO) has publically apologized, and GM is seeking immunity from the courts for lawsuits related to periods before its 2009 bankruptcy. To say this has the potential to undermine confidence in GM and its brand would be a gross understatement and points to the danger of failing to act and implement needed changes in a timely manner.11

The Risks of Excessive Push From the External Environment The financial crisis of 2008 occurred because banks failed to comprehend the risks they took with asset-backed securities and other derivatives. Incentive systems drove bankers to take on excessive risks for excessive profits. They denied the evidence presented to them, and when the bubble burst, the results were catastrophic. For example, when warned by his chief risk officer, who proposed shutting down the mortgage business in 2004, the head of Lehman Brothers threatened to fire him! This rush for profits drove many banks. Chuck Prince, the head of Citigroup at the time, just before the credit markets seized up in August 2007, said: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”12

Clearly both bankers misread the ethical and business implications of what was going on inside their firms. Either there was

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collective myopia at work with respect to mounting evidence of excessive risk from very credible sources13 or the rewards and short- term performance pressures were such that they chose not to attend to the warning clouds.

Older Workers Can’t Be Ignored “The day is coming when employers are going to embrace the value of older workers. They don’t have a choice,” writes Kerry Hannon. Demographic and fiscal realities are making the retention of older members of the workforce escalate in importance and give rise to the innovations in working relationships, from full time to flexible work relationships and contract positions. Some employers are realizing the benefits that these employees can bring with them and are recognizing the importance of investing in them before their knowledge walks out the door. Employers that fail to adjust their approach to older employees could find themselves seriously at risk as U.S. labor markets reflect the demographic realities.27

KPMG has publically recognized the benefits, noting that “older workers tend to be more dedicated to staying with the company, a plus for clients who like to build a relationship with a consultant they can count on to be around for years.”28

Diversity Matters

Other demographic issues will provide opportunities and challenges. In the United States, Latinos will play a role in transforming organizations. The numbers of Latinos jumped from 35.3 million during the 1990s, to 50.5 million or 16% of the population in 2010 (up from 13% in 2000), making them the largest ethnic/racial group in the United States. They are also much younger (27 versus the national average age of 37.2), and 63% of its members have been born in the United States. Significantly, the largest growth often is in “hyper- growth” Latino destinations such as Nevada and Georgia,29 some of which have seen an increase of more than 300% in Latino populations since 1980. The immigration component of this growth rate was adversely affected by the U.S. economic downturn and improvements in the Mexican economy, but it is predicted to continue upward due to domestic population growth, plus the impact that a return to economic health will have on immigration. One of the outcomes of hyper-growth in certain urban areas has been an imbalance of Latino males and females. In the non-Latino population, the ratio of males to females is 96:100. In the Latino population, ratios as high as 118:100 are seen in the hyper-growth destinations.30 While the specific implications for businesses are unclear, the general need for response and change is not. Notions of cultural norms (including those around English literacy and dominant language used) and markets could be shattered by such demographic shifts.

There have also been significant demographic shifts in Europe and parts of Asia, as people move from disadvantaged areas (economic, social, and political) in search of greater opportunities, security, and social justice. These trends are likely to continue, and as in the United States, they provide both challenges and opportunities. For countries like France and Austria, they help to moderate the effects of an aging population by providing new entrants to the workforce and new customers for products and services. However, they also represent integration challenges in terms of needed services and there has been a backlash from some groups, who see them as both an economic and social threat. Resistance to immigration reform in the United States, the tightening of emigration rules in Canada, and the rise of anti-immigration political parties in Western Europe are evidence of this.

Our assumptions about families and gender will continue to be challenged in the workplace and marketplace of the future. Diversity, inclusiveness, and equity issues will challenge organizations with unpredictable results. The heated debates that occurred in the United States in 2006 concerning legislation related to illegal or undocumented immigrants, temporary workers, and family unification continue to provoke passionate positions and no resolution as of 2014. In Europe, debate around these topics has given rise to some electoral success by what used to be fringe parties, and isolated examples of violence. Some nations have implemented

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laws around certain religious practices (typically associated with dress and visible symbols in schools and workplaces) that are viewed by many as discriminatory.31 Matters related to same-sex marriage, gender identity, and gender equity continue to be challenging for many organizations, as laws and behavioral norms related to what is acceptable slowly evolve. The front-page coverage devoted to the drafting by the St. Louis Rams of Michael Sam, the first openly gay professional football player, testifies to the attention and emotions these matters can generate.32 In too many parts of the world they represent life and death issues.

In some nations, employment- and human rights–related legislation have gone a long way toward advancing the interests and acceptance of diversity, by providing guidance, rules of conduct, and sanctions for those who fail to comply. However, issues related to race and diversity still need to be attended to by organizations. Participation and career advancement rates and salary level differences continue to attract the attention of politicians, the public, and the courts. Further, they constrain the development of talent in organizations and have adverse consequences on multiple levels—from the ability to attract and retain to performance and attitudinal outcomes that can, in turn, influence the culture and work climate of the firm.33

What happens when this boils over? In 2014 the intense news coverage and disciplining of Donald Sterling, the owner of the Los Angeles Clippers NBA franchise, for racist comments made during a private conversation, point to the extreme distress it caused members of the team and the reputational and brand consequences his behavior had on the franchise and the league itself. Only the swift actions of NBA Commissioner Adam Silver contained the damage, facilitated the sale of the franchise, and clearly signaled what was expected of owners.34

Risks in this area are not just related to the actions of senior management. Social media exposure extends the risks to all levels of the firm, where postings from organizational members can and do go viral with adverse consequences (more will be said about this later). Employees in the United States have certain protections when it comes to discussing working conditions with others online. In the case of fast-food restaurants, this has manifested itself into a very public national campaign to increase the minimum wage from $7.50 to $15.00 per hour. This campaign began on social media and firms are finding they must respond very carefully, in part because of the public’s connection to a workforce where matters of age, gender, race, ethnicity, and economic fairness are very visible.35

When employee postings go over the line on matters of race, gender, diversity, and equity, firms need to act and be seen to be acting quickly and appropriately in order to control damage.36 Being viewed as proactive and progressive in these areas can create advantages for firms in terms of attraction, retention, and the commitment levels of employees and customers. Firms such as TD Bank communicate this commitment very publically and have been recognized as one of the best employers by Diversity Inc., Corporate Knights, and the Human Rights Campaign.37 Multinational corporations, such as IBM, view workforce diversity management as a strategic tool for sustaining and growing the enterprise.38 That doesn’t mean it is easy. Google has sought to increase the diversity of its workforce for several years. In May 2014 it publically recognized its current lack of diversity (30% women, 2% black, and 3% Hispanic), and committed itself to aggressively address this through significant external and internal initiatives geared to attracting more individuals from these groups to technical careers and Google.39 Smaller and medium-size firms (particularly tech start-ups) are increasingly recognizing the importance of this, as they attempt to scale their operations.