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Contemporary Management

Issues Managing Change

tc1@bolton.ac.uk

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Types of Change.Learning Objectives.

To acquaint the learner with the Open Systems view of Organisations.

To identify the significance of internal and external sources of change.

To differentiate between incremental and radical change.

To provide a framework for “types of change”.

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Organisations as Open Systems.

Every organisation must change in order to survive, because organisations are “open systems” and cannot shield themselves from environmental instability.

To what extent can this be achieved?

Could the present recession have been managed against?

What can you possibly comment on about those company’s who did not take risks in the past say 10 years (expanding their business – entering new markets – possibly taking out business loans)

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Organisation as Open System.

ENVIRONMENT

Boundary Production, Maintenance, BoundarySpanning Adaptation, Management. Spanning.

Material

People

Expertise

Information

Financial Resources.

InputsTransformation ProcessOutputs

Products/Services

Source: Daft; 1998:13

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Elements of external environment

Industry sector

Raw Materials sector

HR sector

Market sector.

Technology sector

International sector.

Financial Resources sector

Economic Conditions sector

Government sector

Socio-cultural sector

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Change Vs. Innovation.Organisational change is the adoption of a new idea or behaviour by an organisation.

Organisational innovation is the adoption of a new idea or behaviour that is new to the organisation’s industry, market or environment.

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Need for Change?…occurs when managers are dissatisfied with current performance

or

…they perceive an opportunity to exceed current performance.

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Types of change/Innovation

ProductInnovation

Changes in the products/services offered by the organisation; e.g. new model Toyota, new MBA, etc

ProcessInnovation

Changes in the ways products/servicesAre created and delivered; e.g. manufacturing methods change to produce new or existing products.

PositionInnovation

Changes in the context in which products/services are introduced; e.g. Lucozade.

Paradigm Innovation

Changes in the underlying mental models which frame organisational activity; On line banking; low-cost flights.

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Implementation.Occurs when organisation members actually use the idea.

Resources, human energy and activity are required to bring about change as well as capital in most cases.

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Incremental Vs Radical Change

Incremental Change

•Continuous Progression•Equilibrium•Focused change on part of the organisation•Utilise existing structure and management processes•New(ish) Technology•Meet market expectations with new products/services

Radical Change.

•Discontinuous Progression•Attain New Equilibrium.•Transformation encompassing all the organisation•Generate new structure and management processes•Breakthrough technology•Create new markets with new products/services

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Component Vs System change.

Change can occur at component or systems level, but remember change at (the higher) systems level often has implications for changes lower down (component level).

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Systemic/component Innovation.

System Level

Component Level

New versions of motor cars, TV, aeroplane.

New generations;MP3 and downloads VsMusic on Casette and CDs.

Steam PowerICT revolutionBio-technology

ImprovementsTo components.

New components for existing systems

Advanced materials to improve component performance

Incremental

“doing better what we do”

Radical

“new to the World”“new to the enterprise”

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Strategic Advantage Through Innovation.

Building capability to innovate is only part of the requirements to achieve strategic advantage through innovation.

If innovation is not aligned to the strategy of the organisation (assuming that an appropriate strategy exists) then how it will contribute to the organisation’s well being is questionable. Bessant & Tidd (2007:21-23) offer some insights in the following tables

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Strategic Advantage Through Innovation.

Mechanism Strategic Advantage

e.g.

Novelty in product or service.

Offering something no-one else can

Introducing the first: dishwasher digital camera, on line bank

Novelty in process

Offering it in ways others can’t; faster, cheaper, etc

On line book sales, internet banking.

Complexity Offer something others find difficult to master

Jet Engines

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Strategic Advantage Through Innovation

Mechanism Strategic Advantage e.g.

Legal protection of IPR.

Offer something others can’t do unless they pay a licence/fee

Blockbuster drugs; Zantac, Prozac, Viagra.

Add to or extend range of competitive factors

Move basis of competition; e.g. from price to price & quality, etc.

Japanese car producers; price to quality & price shorter life cycles,

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Strategic Advantage Through Innovation

Mech-anism

Strategic Advantage e.g.

Timing First Mover advantage (market share in new areas).

OR Fast follower advantage;Let someone else make the early mistakes….

Amazon.comYahooApple’s ill fated Newton PDA flopped 5 years before Palm Pilot swept up.

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Strategic Advantage Through Innovation

Mechanism Strategic Advantage e.g.

Re-write the rules

Offer a completely new product or process concept which makes the old way redundant

Typewriter Vs PC.Electric Vs Gas lamps.

Robust/Platform Design

Offer something which provides the platform for other variants…

Boeing 737 (30+ years old).VW Beetle.Intel processors

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Strategic Advantage Through Innovation

Mechanism Strategic Advantage e.g.Transfer across different application contexts.

Recombining established elements for different markets.

Polycarbonate wheels; from rolling luggage to lightweight micro-scooters.

Reconfigure parts of the process

Rethink how bits of the system work together;Building more effective networks, outsourcing; co-ordination of a virtual company

Zara, Bennetton in clothing.Reebok in shoes.

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Exploring Innovation Space.The tables above suggest no shortage

of ways to gain advantage through innovation; the opposite may be true.

Which one(s) do you choose and why?

Bessant & Tidd (2007) suggest strategy as “… a process of exploring the space defined by our four innovation types.

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Exploring Innovation Space.

InnovationProcess

Position

Paradigm

Prod/serv

Rad or Incr?

Rad or Incr?

Rad

or

Incr

?

Rad

or

Incr?

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New Product Success:According to Daft a pattern is

emergent;

Tailor innovations to customer requirements.

Effective utilisation of technology.

Influential ideas champion supports the project.

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Dual Core ApproachAdministrative Core.

Direction of change is top down.Examples of change; Downsizing,Re-structuring, policy alterations.Best Organisation Design; Mechanistic.

Technical Core.

Direction of change; bottom up.Examples of change; Production techniques, work

flows, product ideas.Best organisation design; Organic.

Source: Daft, 1998:303.

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The administrative core

is above the technical core in the hierarchy and its responsibilities include; the structure, control and co-ordination of the organisation.

It is concerned with the environmental sectors of government, finance, economic conditions and human resource issues.

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The technical coreis concerned with transforming raw

materials into organisational services and products and involves the environmental sectors of customers and competition

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Human Resources. These may involve changes

in: employee attitude, behaviours and beliefs, skills, expectations and styles.

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Environment, Structure & Innovation.

Burns and Stalker (1961) discovered the external environment was related to the internal management structure of organisations.

When the external environment was stable, the internal organisation was characterised by the majority of structural variables remaining high, offering a mechanistic organisation. Mechanistic structures facilitate the efficient production of standardised goods and services.

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Mechanistic structuresMay be more appropriate for

organisations that have frequent changes of policies, goals, strategies, control systems, and personnel, e.g. administrative changes are more crucial to government organisations than technical changes.

A top-down mechanistic structure is also considered more appropriate for times of crisis and emergency when power can be re-centralised at the top of the organisation structure.

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Environment, Structure & Innovation.

When the external environment was found to be unstable, dynamic and fast changing, successful organisations tended to much lower levels of each structural variable, or organic organisational forms.

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Organic OrganisationsOrganic organisations are more typically

associated with change and considered to be better at adapting to a shifting set of environmental conditions.

The flexibility of the organic organisation is attributed to its ability to create and introduce new ideas. They encourage a “bottom – up” approach to innovation.

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Structural Variables:

FORMALISATION: The Amount of written documentation in circulation. Regulations, Procedures, Policy Manuals, Job Descriptions, etc.

SPECIALISATION: If extensive, each employee performs only a narrow range of tasks. If limited, each employee performs a wide range of tasks. A.K.A. Division of Labour.

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Structural Variables:STANDARDISATION: The extent to

which work activities are performed in a similar manner. High standardisation at McDonalds, for example.

HIERARCHY OF AUTHORITY: Depicted by the number of vertical layers on an organisation chart.

Related to SPAN OF CONTROL: How many staff report to one supervisor.

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Structural Variables.COMPLEXITY: (VERTICAL, HORIZONTAL,

SPATIAL). Vertical Complexity refers to the number of vertical layers in the hierarchy. Horizontal Complexity refers to the number of job titles or departments existing. Horizontally across the organisation. Spatial Complexity refers to the geographical dispersion/location of the organisation.

CENTRALISATION: Refers to the locus of decision making.

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Structural Variables.PROFESSIONALISM: The level of

formal education and training among employees. Can be the average number of years of education of employees.

PERSONNEL RATIOS: E.g. administrative ratio, professional ratio, indirect: direct labour, etc.

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Contradiction:Organic conditions are not ideal for

implementing and utilising new ideas for stable production.

More recent thinking has tended to regard the initiation and utilisation of change as two distinct processes, i.e. “The Ambidextrous Approach”, where the organisation can behave in an organic way when a new idea is called for and a mechanistic way to implement and use the new idea.

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Techniques for ambidextrous approach.

1.Switching Structures: an organisation shifts to an organic structure when such a structure is needed for the initiation of a new idea viz; 3M where 15% of technical staff’s time is “free”.

2.Innovation departments: Systems

Analysis, R&D, O&M, etc.

3.Venture Teams: Given separate locations and facilities so that they are distracted or interrupted by current organisational procedures, e.g. Dow Jones Chemicals, idea champions, etc.

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Environmental Dynamics

Ansoff and McDonnell (1990) also describe environmental dynamics and suggest 5 stages of declining certainty.

1. Predictable.2.Forecastable by extrapolation.3.Predictable threats and opportunities.4. Partially predictable opportunities.5. Unpredictable surprises.

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1. Predictable.

Repetitive environment.

Market stability.

Challenges repeat themselves.

Organisation can change faster than market requirements.

Future is expected to be same as the past

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2. Forecastable by Extrapolation

Complexity increases but managers can gauge responses to changes from experience.

Forecasts made confidently.

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3. Predictable threats/opportunities

Complexity increases further.

Organisational ability to respond becoming problematic.

Future forecasts still have some credibility.

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4. Partially predictable opportunities.

Uncertainty increases.

Socio political change and

Globalisation contribute to this.

Future becoming only partly predictable.

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5. Unpredictable surprises.

Environment changes exceed organisational ability to respond.

“Turbulent” conditions prevail in environment.

Organisation has to “hang on” and “weather the storm”.

These levels of change can be compared to Stacey’s (1996) types of change.

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Stacey’s Change Scenarios.

1. Closed change.

2. Contained Change.

3. Open-ended change.

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Stacey’s Closed Change.

Organisational history has sequence of agreed events/stages.

Causes/consequences of change can be stated.

Can confidently state how this sequence will continue to affect the organisation’s future.

Normally applies to future of an existing organisation.

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Stacey’s Contained Change.

Can identify only probable events and their causes/consequences.

Impact on future operations is also only a “probable” statement.

Forecasts become difficult except in the short term- where they can be assisted by market research, statistical projections, lifestyle studies.

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Stacey’s Open Ended Change.

Past actions/events continue to impact the organisation.

But causal explanations are not widespread.

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Varieties of Change.Three main types of change

suggested by Grundy (1993)

1. Smooth Incremental Change2. “Bumpy” Incremental Change.3. Discontinuous Change

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Grundy’s Major Types of Change.

Rate

of C

han

ge

Time

Smooth Incremental

Discontinuous

Bumpy/Incremental

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Smooth IncrementalExperienced by organisations operating

at levels 1 and 2 of Ansoff and McDonnell’s levels of declining certainty.

Change that evolves slowly and systematically.

Rare in the 21st Century!

NB Vertical axis represents rate of change not amount of change.

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Bumpy Incremental Change.

Periods of relative calm broken by acceleration in pace of change.

E.g. periodic re-organisation.

Can be viewed as associated with the means by which organisations reach their goals rather than the goals themselves.

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Discontinuous ChangeMarked by rapid shifts in strategy,

structure or culture

Or all three.

Can be caused by technology (e.g. Internet).

More like the higher levels of Ansoff and MacDonnell’s environmental dynamics.

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Tushman et al’s (1988) Convergence & Upheaval

Tushman, Newman and Romanelli talk of Convergence and Upheaval.

Their research points to periods of incremental change or convergence punctuated by discontinuous change.

They suggest converging change falls into two categories; fine-tuning and incremental adaptation.

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Fine Tuning and Incremental Adaptation.

Both have the common aim of maintaining the fit between strategy, structure and process.

Fine Tuning refers to doing better what is already done well.

Incremental adaptation involves small changes in response to small environmental shifts.

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Discontinuous change.May be necessary at points in the

organisation’s life cycle (OLC – covered later) when incremental change will not produce the desired results.

Largely because as organisations grow their ability to change becomes constrained by the key contextual variable of their size. Consequently discontinuous or frame-breaking change may be required.

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Causes of Frame-Breaking Change

Tushman et al (1988) suggest this results from a combination of the following:

Industry discontinuities.- Sharp changes in the P.E.S.T. context including; government de/regulation, substitute technologies, emergence of industry standards, major economic changes, war, pestilence, famine, acts of terror, etc.

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Causes of Frame-Breaking Change

Product life cycle shifts.

Those that follow an emergent product to established market position.

Internal Co dynamics; new management, new style of management,

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Frame-Breaking Change

Usually implemented rapidly and can involve:

Reformation of Co mission.

Altered Power Status to reflect shifts in resource allocation.

Re-organisation to accommodate new strategy/structure/systems/processes.

Revised communication/procedures.New executives????

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Reasons for frame-breaking change

Synergy- requirement for all of the organisation to pull in same direction.

Pockets of resistance – develop more easily when frame-breaking change is implemented slowly.

Pent-up need for change – when constraints are relaxed.

Risk/uncertainty. –become greater the longer the implementation period.

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Defining the Scale of Change:

Dunphy and Stace (1993) offer four scales:

1. Fine Tuning.2. Incremental Adjustment.3. Modular Transformation.4. Corporate Transformation.

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Fine Tuning.Ongoing process to fine tune “fit” between

strategy, structure, people, processes.

Refine policies/procedures.

Create specialists to monitor quality/cost/CRM etc.

Personnel Development- better training, rewards, etc.

Fostering commitment to the organisation.

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Incremental adjustment.

Less than radical but nonetheless distinct modifications. Includes:

Shifting product mix.

Improved process/production technology.

Expanding/retracting sales territory.

Adjustments to organisational structures.

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Modular Transformation.

Major restructure of part of organisation.

Changes in management in affected area.

Work/productivity studies increase/decrease workforce numbers significantly.

Reformed departmental/divisional goal(s)

Significant technological change for affected area(s).

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Corporate Transformation.

Radical shifts in strategy.

Altered power and status.

Major re-organisation of structures, systems, procedures across the entire firm.

Revised interaction patterns.

New executives in key areas.

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Activity.Think about 3 organisations you know.

Evaluate their environmental dynamics using Ansoff and MacDonnell’s framework.

Can you match these to Stacey’s 3 levels of change situations?

For each of the 3 organisations, what are the drawbacks and benefits of both incremental and frame-breaking change?

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Further ReadingDay, G.S. and Shoemaker, J.H. (2005) Scanning the

Periphery, HBR Nov 2005 135-148This article offers a diagnostic to test boundary

spanning abilities.Stacey, R.D. (2000) Strategic Management &

organisational Dynamics, FT Prentice Hall, Harlow.See Chapter 1 The Nature of Strategy &

Organisational Change.Johnson, G. and Scholes, K. (2002) Exploring

Corporate Strategy; Text and Cases, FT Prentice Hall.

See Chapter 1.Introducing Strategy, especially 1.4 Strategic Management in Different Contexts.