The hr scorecard is used to diagnose

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Chapter 1

Organizational Change Management: An Introduction

"Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes—it

should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the

one we are living in, change is the norm." —Peter Drucker, Management Challenges for the 21st Century

(1999)

Learning Objectives

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

1. Define planned organizational change.

2. Describe the importance and necessity of planned change for organizations.

3. Describe the fields of Organizational Development (OD) and change

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management.

4. Identify the competencies/skills of OD and change management specialists.

5. Describe the external forces of change affecting organizations.

6. State the forces for change and those that balance change with stability

7. Identify the three basic types of organizational change.

8. State the differences between strategic and tactical responses to change, proactive versus reactive.

9. Explain the differences among the following four approaches to change: open systems, contingency alignment, balanced scorecard, and stakeholder approach.

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A company such as Google is internally driving change, but must also must plan for external changes brought on by the market from technology

1.1 Introduction

Three decades ago, courses on change management were not listed in most university and college curricula. Now such courses are commonplace (Worren, Ruddle, & Moore, 1999). This is due in large part to, well, change. The ways in which we think, work and communicate have changed dramatically over the last 30 years. Globalization and technology have made the world smaller and far more interconnected, so what affects one business sector or one part of the world invariably affects everyone. Economic uncertainty in Europe and Asia affects exports here in the United States, and vice versa. An oil spill in the Gulf of Mexico affects the restaurant industry in every corner of the country, from Boston to Seattle. Decades ago, events could be isolated; today change is everywhere and can come at any time. To be effective in such a marketplace, managing change has become essential. Leading and managing organizational change has become a core competency for business professionals. Not only do companies need to manage change to survive, they need to manage change to create a competitive advantage. In order to do so, companies must not only know what types of change to look out for, but also how to implement effective strategies for dealing with it. This chapter will provide a broad overview of types of changes, the forces that induce change, and organizational frameworks for dealing with change.

Broadly speaking, planned organizational change is a process that moves companies from a present state to a desired future state with the goal of enhancing their effectiveness. Ultimately, the goal of planned organizational change is to improve an organization's capabilities, thus enhancing its value to stakeholders and stockholders (Beer, 1980). Organizational leaders who do not—or cannot—use change to their organization's strategic advantage may see change as threatening. Those leaders who work with change specialists to plan, respond to, and even create change, can view change as a competitive advantage if effectively planned and implemented.

A glance at rival Internet companies Google and Facebook is a good place to turn to see the importance of using change as a competitive advantage. Facebook managed to knock other social networking sites out of the market. Friendster, MySpace, and AOL have all been relegated to secondary status in comparison to Facebook. But the larger competitors, such as Google, Microsoft, Apple, and others, are not waiting for their turf to be overtaken, and Google seems to be trying to venture into the social networking domain more aggressively than the rest. In the words of David Rowan, editor of

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companies such as Facebook.Wired magazine, Facebook and Google are ". . . in the ultimate battle for control of the Internet" (Rowan, 2010). He writes that Google hires the world's smartest software engineers and through algorithm‐ based computing power has been able to dominate the desktop‐Internet era for a decade. He specifically states,

. . . Facebook intends to dominate by knowing what we are thinking, doing and intending to spend—wherever we happen to be. As Facebook's founder Mark Zuckerberg sees it, this 'social graph', built around our friends, family and colleagues, will determine how hundreds of millions of us decide on everything from holidays to cosmetic surgeons. (Rowan, 2010).

As Facebook's scope and reach continues to grow without limits, Google's executives are taking notice. Both companies are extending into markets that no one ever anticipated. For example, Google's recent $12.5 billion purchase of Motorola Mobility business puts the search company into mobile phones (Waters, 2011). As this trend unfolds, more companies will, no doubt, build some form of social networking into their technology capabilities and businesses.

Not all companies are as competitive or as successful in responding to and creating change as Google and Facebook have been. Gary Hamel, a leading business strategist, notes the danger in standing pat in an increasingly fluid marketplace: "Somewhere out there is a bullet with your company's name on it. Somewhere out there is a competitor, unborn and unknown, that will render your business model obsolete" (Hamel, 1998a, p. 81). Most organizations acknowledge that they must continuously anticipate, plan, and implement different types of change to be effective and prepared for that bullet. Facebook, Google, Microsoft, Apple, and other highly successful technology companies have all had to (and must continue to) make changes in their leadership, strategy, structures, marketing, sales, and products to maintain competitiveness.

On the other hand, several U.S. firms that were once stable icons have not survived changing competitive environments. For example, great companies such as Polaroid, Digital Equipment Corporation, American Motors, Sperry Rand, and Lipton (Unilever owns and sells the Lipton tea brands), to name only a few, have perished because they could not effectively transform or transition themselves to compete in their changing markets. IBM is another example of a once‐powerful corporate giant that struggled for a time to adjust to shifting market forces in a timely way:

In 1962, there were eight companies in the computer hardware industry: IBM and the seven dwarfs (Burroughs, Sperry, etc.). In 1967 IBM accounted for more than 55 percent of all sales in the sector. . . . IBM earned 80 percent of all net operating profits within the industry in 1967; by 1995 that number was 40 percent. (Hamel, 1998b, p. 161)

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Companies must continually change and reinvent themselves in accordance with market demands. See, for example, how McDonald's is trying to reposition itself with healthier menu options, such as its new Happy Meal with apple slices rather than fries.

As the technology industry evolved during the 1970s and 1980s, and as more competitors entered the field, IBM failed to adjust fast enough and saw its profits plummet. Many labeled the nearly century‐old company a dinosaur, thinking it would eventually go under completely. IBM, however, recouped and continues to be a player in the computer hardware industry; it's simply no longer the only player in town.

Authors of the book Creative Destruction predicted that ". . . by the year 2025, the average length of time a company resides on the S&P 500 will be no more than ten years, compared to twenty years today" (Rao, 2010). In fact, General Electric (GE) is the only surviving company from the top 12 firms in the Dow Jones Index in 1900 (Rao, 2010). It's no coincidence that GE, as we discuss later, has also been a champion at leading and managing organizational change. Other firms such as UPS (United Postal Service), Apple, Intel, AMD (Advanced Micro Devices), McDonalds, Kodak, and Motorola have also planned and implemented highly successful turnarounds to reinvent themselves, not by luck but by strategically planned and managed change leadership. The pace of change is accelerating. Survival alone, as we have seen, is no guarantee of performance (Foster & Kaplan, 2001); in other words, hypercompetition in many industries now requires that companies not only do well, but that they must also innovate to stay ahead.

It is not only the giant corporate firms or famous CEOs (Chief Executive Officers) who must address issues related to change. Universities, hospitals, nonprofits, and small companies across industries must plan for change. It is estimated that 7 out of 10

new employer firms survive just two years, and only about half survive five years. There are 29.6 million small businesses in the United States. Of that number, 627,200 are new businesses from which 595,600 were recently listed as business closures and 43,546 as bankruptcies (SCORE, 2010). A major challenge for small businesses in general is competitiveness (the ability of a business and organization to succeed in meeting the owners' broad business goals to serve customers). In particular, small firms reportedly experience difficulty in gaining access to needed capital and in effectively innovating and marketing (Network Solutions, 2010), two key factors in becoming more competitive.

Not all changes involve entire organizations and their leaders, managers, and employees in dramatic ways. Some divisions, business units, departments, teams, and even individuals may require different types of change, coaching, and improvements to increase effectiveness and to obtain desired results. As

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Management expert William G. Ouchi observes that initial reaction to change is usually negative. In most cases, he says, people simply deny that there is any need for them or their organization to change.

Adapting to Change

we discuss later, different types of change specialists offer particular expertise, experience, and knowledge in diagnosing and addressing issues. While we do focus on large‐scale change here, we also acknowledge and discuss different types, scales, and scopes of organizational change, models, and skills to plan and implement these strategies.

In organizations both large and small, significant changes are usually not easy or linear. In fact, the larger changes tend to be messy, especially if there is not a realistic plan. Because organizational changes involve people, emotions, courage and energy, resistance is natural. Who wants to give up or change jobs and routines they know? A 2008 McKinsey survey of 3,199 executives worldwide found that only one in three transformational organizational change programs succeeds (Aiken & Keller, 2009). Leadership is crucial to executing an effective change program. Effective change projects call for emotionally intelligent and mindful leaders and managers. Such leaders need to be flexible, creative, and good communicators who can work well with people.

Let's now turn our attention to how organizations are developed and how an understanding of two fields of change specialists can help in negotiating and managing changes that will occur both internally and externally.

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1.2 Organizational Development (OD) and Change Management

In this section we discuss and compare the two fields and professions that created the modern principles of planned change: organizational development and change management. The approaches used by specialists in these two fields are essential for achieving planned change in organizations.

Organizational Development

The field of organizational development (OD) is "the practice of changing people and organizations for positive growth" (Richards, n.d.). Beckhard (1969) expands this straightforward definition by adding that "Organizational development is an effort, planned, organization‐wide, and managed from the top, to increase organization effectiveness and health through planned interventions in the organization's processes, using behavioral‐science knowledge" (p. 9). It was the first professional field in management/organizational behavior and development to develop social‐science based strategies and skills to diagnose, plan, and help business leaders implement changes for organizational improvement. Waclawski and Church (2002) noted that OD as a specialized area has been described in different ways, for example: it has been calleda data‐based process supported by survey feedback (Nadler, 1977), a sociotechnical approach that is centered on job tasks and characteristics (Hackman & Oldham, 1980), and as an interpersonal process approach led by group dynamics (Schein, 1969). . . ." The authors continue to note that:

Unlike medicine, accounting, law, police work, national politics, and many other disciplines, professions, and vocational callings that one might choose to pursue, all of which have a clear, consistent, and focused sense of purpose, the field of organization development is somewhat unique in its inherent and fundamental lack of clarity about itself. OD is a field that is both constantly evolving and yet constantly struggling with a dilemma regarding its fundamental nature and unique contribution as a collection of organizational scientists and practitioners. Although OD practitioners have been thinking, writing, and debating about the underlying nature of the field for decades (Church, Hurley, & Burke, 1992; Friedlander, 1976; Greiner, 1980; Weisbord, 1982), the field itself has yet to come to agreement on its basic boundaries or parameters. (Waclawski & Church, 2002, pp. 3, 4)

Pioneers and those active in the OD field pride themselves on the inclusivity and diversity of their profession's values and approaches for dealing with organizational change.

We also note at the outset and, as will be discussed in this text, that OD and change management

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HR professionals in organizations are particularly charged with helping to plan and drive change.

specialists and consultants work closely with organizational officers and professionals in planning, diagnosing, and implementing change. HR (human resource) professionals in organizations are particularly charged with helping to plan and drive change. In large‐scale changes, it is imperative that organizational professionals in all business units (divisions, departments, and other teams) be involved in this process.

Organizational Development Specialists

OD specialists, many of whom are academics and organizational behavior professionals, are a major source of organizational change expertise, theoretical and applied. Organizational development differs in several ways from change management. OD is based on humanistic, egalitarian, and process‐oriented values; in short, OD was originally grounded more in the "people side" of things. Change management, on the other hand, is grounded more in business, finance, strategic and operations management content‐based disciplines. Both fields have expanded to include parts of each, while each still maintains certain subject‐matter expertise as noted here. Leaders and consultants from both fields are important and complementary to organizations planning change. We use the term "specialists" for both OD and change management experts. This term encompasses consultants, practitioners, and others with expertise in these areas. Notice the differences between the two fields and specialists' expertise areas as you continue to read.

OD methods that specialists use have focused mainly on people and the human dimensions of organizations such as culture, climate, leadership, and communication. These areas include methods that involve team building, survey feedback, quality of work life, restructuring work and positions, and job satisfaction (French & Bell, 1978). As the field of OD has evolved, it has incorporated change planning and interventions that also focus on structural, work process and organizational design changes with top level leaders as well as the entire organization.

An example of an OD specialist's work is as follows. The leaders of a midsize firm need help in identifying objective criteria for the outputs of key goals of a major division in the company. The head of the company and the division manager want to hold people accountable for the stated goals, the criteria underlying the goals, and the desired results from the goals. No one at the company has this expertise. An OD consultant is interviewed and hired to identify the criteria of each goal and to articulate the goals to match those criteria. The consultant then meets with the hiring manager to clarify and articulate the desired work and outcomes. A proposal is submitted by the consultant that includes the work to be done, how it will be done, and the anticipated deliverables. This type of project

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requires interviewing, examining goals and documents, and constructing criteria that support the goals. It may turn out that after the consultant successfully completes this project, she may be called back to train teams in that division on how to effectively implement these goals. She may also discover during her work with this division that the goals do not connect well with the overall strategy of the company. When reporting her findings to the hiring manager, she would share this discovery and perhaps extend the contract to address larger related issues in the organization.

OD specialists rely on a variety of theories, concepts, and practical applications that we describe in more detail in the following chapters. For example, specialists use systems theory—that is, organizations are viewed as a total system of interdependent subsystems with individual components that include people, technology, work, and culture, all of which operate together to respond to external environmental changes such as competitors, customers, or government regulations (Katz & Kahn, 1978). Relatedly, OD specialists also conceptualize organizational systems using contingency theory, that is, viewing these organizational dimensions (strategy, structure, people, work, rewards) as parts of a whole that "fit" together. When one of these dimensions is out of sync with the others, issues emerge. When all subsystems function well together and fit with the external environment, the organization has a higher probability of fulfilling its goals (Burke & Bradford, 2005).

OD specialists also use a wide array of skills and tools in their change work: for example, intrapersonal (self‐management and emotional intelligence) skills; interpersonal skills; one‐on‐one coaching and mentoring; group facilitating; interviewing and surveying; collecting, analyzing, diagnosing data and information; problem solving; assessing; program planning and implementing.

OD specialists need to look at an organizational problem in a number of different ways in an effort to accurately diagnose what exactly is wrong, and also to implement the most effective strategy for change. Major approaches that OD specialists may take include the following:

A long‐term change approach that focuses on lasting effects through changes in cultural norms changes including interventions that alter attitudes, behaviors, processes, knowledge, and structures.

A top‐down approach that seeks to gain top management commitment and involvement in order to significantly affect intended changes. While change begins at the top, it is implemented throughout the organization.

A collaborative approach involving professionals who are affected by changes and who support the changes to the organization.

An analytical approach that examines data, diagnoses present problems, and motivates change to resolve issues. Accurate diagnostic skills are a core competency of OD change agents.

A facilitation approach that uses skilled dialogue and discussion, listening, and feedback when assisting professionals to identify weaknesses and strengths of the organization; planning for change; managing the change process; and implementing, coaching, and problem solving during

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the change.

A design approach that helps leaders and managers develop meaningful work climates where organizational members can accomplish their goals and objectives in healthy ways (Cummings & Worley, 2009; Church, Burke, & Van Eynde, 1994).

Organizational Effectiveness from an OD Perspective

From an OD perspective, an effective organization is one that is adaptable and meets both internal and external requirements to thrive. Cummings and Worley (2010) portray an effective organization as one that solves its own problems and focuses attention, resources, and effort on obtaining major goals. OD specialists involve organizational leaders, managers, and members in change activities in order to equip them with the know‐how and capabilities they need to manage their processes. Effective organizations also have satisfied customers and stakeholders and continue to learn and improve their processes after OD specialists leave. Such organizations maintain best practices by improving products and services. Lower costs and increased productivity result from motivated employees. The organization, in turn, is able to attract other employees to perform at higher levels. Effective organizations, then, create a win‐ win‐win situation with external stakeholders (suppliers, vendors, government agencies, the media), customers, and their employees.

Change Management

We have learned that OD emphasizes the people and behavioral dimensions of an organization (i.e., ways to enhance their motivation and productivity, which in turn enhances the organization as a whole) while, at the same time, improves the overall alignment of an organization's systems (i.e., works to ensure the strategy fits with the culture, reward system, and employee satisfaction and effectiveness). Now we focus on a complementary field called change management, which has more recently defined its domain to include both business and behavioral aspects of organizational change. Worren, Ruddle, and Moore (1999) stated, "We observe that the major consulting firms—including those that in the past dealt exclusively with strategy or operations—now have separate divisions or competency groups specializing in change management. . . ." (p. 273). In other words, organizations need help with content expertise in strategy, marketing, production, and finance, as well as behavioral expertise in human communication, motivation, job definition, partnership with customers, and leadership.

Change management encompasses approaches used by business content and behavioral process specialists that assist leaders to move entire organizations, or units, from a present to a desired future state. Whereas OD specialists focus more on process (how leaders, managers, and employees communicate, relate, strategize, sell, and solve problems) and general systems‐oriented interventions (how strategy, culture, structure, accounting and human resource systems work together to meet goals), change management specialists address such areas as:

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competitive business strategy

strategic firm (human resource benefits, budgeting, profit sharing) planning

IT (information technology) and engineering solutions design and development

IT infrastructure support

business process engineering and reengineering

marketing planning

financial analysis, inventory control and analysis, work‐flow analysis and design solutions

project management methods

Part of the role of change management specialists is to help align objectives and practices of the business with the new or desired strategy, structure, and systems. To do this effectively, change specialists must focus on both the content and process; for example, they too must be concerned about how organizational leaders communicate business strategy with IT teams, although this may not be their primary expertise.

More subtle differences between the fields of OD and change management also exist.

For example, Worren, Ruddle, and Moore (1999) state that:

. . . technical experts (e.g., manufacturing engineers) tend to deal with tasks that can (and must) be standardized and controlled so that they can be repeated in a reliable fashion. In contrast, the typical OD practitioner tends to see routines and procedures as things that stifle creativity and foster dissatisfaction. (Worren, Ruddle, & Moore, 1979, p. 279: Adler & Borys, 1996)

Scholars have also noted that, "The most important difference [between OD and change management] is that change management consultants work in teams" (Worren, Ruddle, & Moore, 1999, p. 276). Often these teams are composed of people with skills that complement one another. Members may, for example, come from entirely different segments of a business. One member might come from IT, another from marketing, another from engineering, and another from organizational design.

Change Management Specialists

Change management specialists offer expertise that depends on the nature and the type of programs where change is required. Larger, organization‐wide change programs may demand content changes in different functional areas (e.g., research & development, production, online marketing, and product distribution) that can redefine an entire organization. In such situations, change management specialists might provide detailed corporate strategy content—that is, an overall direction of a company and how its business operations and functions fit together to achieve the goals of the company—along

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Change management specialists often work in teams and must coordinate many facets of an organization to effectively execute a change plan.

with finance and business process expertise—that is, the sequencing of activities to produce a product or service for customers. If an entire IT system is needed, then engineering, IT architecture, programming, and business‐specific skills may be needed. More internal, piecemeal changes that relate to change control programs could require specific tools and processes related to daily operational or project specific changes (Clark, 2007).

Different types of skills are essential to an organization's change requirements. The point here is that more engineering, IT, and functional area content expertise is specifically but not exclusively related to

change management specialists. For example, Japan's Matsushita Electric Company's Saga plant managers decided to reinvent their phone‐producing assembly line by replacing miles of conveyor belts with clusters of software‐controlled robots that would synchronize production without downtime. One robot replaced another that might fail in the highly technical process. Skilled software and technical engineers working with business specialists executed this change. The result? What used to take 2 ½ days now took only 40 minutes. Five hundred phones were produced every eight‐hour shift, compared to half that number before the change (Hall, 2006; also, see Daft, 2010).

Currently, to oversee the entire transformational organizational change process, clients hire teams consisting of OD, change management, IT, and other content specialists. It is not uncommon in large organizations undergoing transformational changes to find different consultants with various skills working on projects. Organizations also hire and develop more "internal consultants" who have both OD and change management expertise.

As change management, like OD, continues to evolve as a field, it encompasses process oriented skills found in OD.

In the field of planned organizational change, one of the few things we know with some certainty is that change programs are rarely successful if they are directed at only one component in isolation from others. A well‐known university president once stated that you cannot lift a blanket by one corner; there must be efforts at several points . . . . Change management promises to be a discipline that will integrate the thought worlds that separate OD from strategy and technology, thus enabling the coordinated efforts necessary to bring about strategic change. (Worren, Ruddle, & Moore, 1999, p. 286)

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1.3 Forces Driving Change in Organizations

Organizational change is generally triggered by external and/or internal forces. Such forces could include special industry events, an unforeseen opportunity for a company to grow, industry trends, or any myriad of pressures generating inside or outside the company. Detecting signs of external change is important since failure to do so could mean missed opportunities and/or impending threats to an organization. For example, during the 1980s Japanese auto manufacturers Honda and Toyota were among the early entrants into the U.S. market with their fuel efficient 4‐cylinder engine cars. U.S. automakers were much later to follow Japan's lead with 4‐cylinder vehicles, even though there was a severe shortage of oil and a gasoline crisis in the United States in the early 1970s, and the years that followed, which caused gas prices to become volatile and many Americans to seek more fuel‐efficient options. Monitoring world events and looking at social trends is essential for organizational survival and success. This was certainly true for Steve Jobs at Apple who saw market potential for portable, inexpensive access to music over handheld devices like the iPod, iPhone, and iPad. Other companies continue to imitate and follow Jobs' lead. Predicting the future and commercial trends is obviously not easy. However, companies and organizations are challenged to do just that, especially in hypercompetitive markets and uncertain environments that continue to evolve at increasingly faster rates. Planned change begins with learning to read, interpret, and respond to trends triggered in external environments.

Macro‐level external sources of change are depicted in Figure 1.1. These include government and political, economic, technological, sociocultural, and natural‐ and human‐related forces. When planning a change, we begin with this broader level of analysis before identifying more specific operational dimensions of change—that is, the particular industry and the niche of the organization in that industry.

Figure 1.1: Macro Forces and Organizational Change