H99 ob11

SDC Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: [email protected] / [email protected]

Organizational Behavior andStructure

Faculty: Dr. Arno Schircks

Session #11 and assignment for FINAL EXAM

Session #11:• Review session #10: Chap. 14 “Work Design”• New: Chap. 16 “Organizational Culture” and chap. 17 “Organizational Change”

Assignment for FINAL EXAM:• Prepare:

• Read chapter 16 +17• Answer Questions Review and Review Part 2• !!! -> During PWT on Thursday afternoon at 13:15 you will get the correct

answers for checking !!! (and not as announced on Wednesday morning during OBS)

• Review all chapters (excl. 6 and 15)• For increasing your chance to get a good Final Exam grade

Please, check your understanding in your LEARNING TEAM !

1

S A V

mailto:[email protected]

Organizational Behavior and Structure - session #11

Organizational Culture

Organizational culture is a relatively new type of organizational analysis that is

borrowed from the field of anthropology. It first was described as an organizational

unit of concern by Pettigrew (1979). In the short time since culture and its relevance

to organizational systems have been matters of academic and professional concern,

many books and articles have been written to define and to describe the nature of

organizational culture. To date, no single, universally accepted definition exists;

however, the term organizational culture generally is accepted as referring to the

shared meanings, beliefs, and understandings held by a particular group or

organization about its problems, practices, and goals (Reichers & Schneider, 1990).

Edgar Schein (1985) contends that the concept of organizational culture often is

misunderstood and is confused with the related concepts of climate, ideology, and

style. For example, culture sometimes is defined in terms of:

♦ Overt organizational behavior;

♦ Organizational ideology and philosophy;

♦ Group and organizational norms;

♦ Espoused organizational values;

♦ Policies, procedures, and rules of socialization; and

♦ Climate.

When considered in conjunction with members' interaction patterns, language, themes

of everyday conversation, and rituals of daily routine, these definitions seem to reflect

elements of organizational culture. But for Reichers and Schneider (1990) as well as

for Schein, culture is less conscious; it exists at a deeper level. These theorists

regard the above definitions as artifactual and resulting from culture. None describe

the "essence of culture" itself. According to Schein, the essence of culture is the

basic assumptions and beliefs that are "invented, discovered, or developed" by all

members of a group as it copes “ with its problems of external adaptation and internal

integration" and which are "taught to new members as the correct way to perceive,

think, and feel in relation to those problems" (1985, p. 9).

Chap. 16 “Organizational Culture” and Chap. 17 “Organizational Change” 2


Morgan (1986) contends that organizational cultures evolve from the social practices

of members of organizations and are, therefore, socially created realities that exist in

the heads and minds of organizational members as well as in the formal rules,

policies, and procedures of organizational structures. For Morgan, culture is an

ongoing process of reality construction, providing a pattern of understanding that

helps members of organizations to interpret events and to give meaning to their

working worlds. Thus, culture is an evolutionary and dynamic process that

incorporates changing values, beliefs, and underlying assumptions regarding:

The nature of the relationship between organization and environment

(whether the organization controls, is controlled by, or coexists with the

environment);

The nature of reality and truth (what is right or wrong in terms of acquisition

and use of information, time perspectives, physical environments, and social

environments);

The nature of human nature (intrinsic nature and basic instincts of human

beings);

The nature of human activity (active, passive, or in-between); and

The nature of human relationships (the proper way for people to relate to one

another).

The above are fundamental assumptions about core and global realities that result in

cultural predispositions that subsequently drive the more "superficial" cultural

manifestations such as overt behavior, norms, espoused values, and the like.



Functions of Organizational Cultures

Schein (1985) believes that organizational cultures initially are created by the

founders of organizations and subsequently are maintained by the founders' chosen

leaders. Founders form organizations based on personal beliefs about how to interact

with the environment and about the natures of reality, people, activities, and

relationships. They make presumptions about what should or should not be, what

works or does not work, and what constitutes appropriate or inappropriate

organizational activity. Founders' goals, assumptions, and visions of reality come to

be shared by others in their organizations, particularly the leaders. Over time, shared

realities evolve into consensually validated organizational cultures that become the

"correct" ways of solving organizational problems related to survival and adaptation to

the external environment and to integration of the internal processes required to

ensure survival and adaptation.

Thus, organizational culture becomes a normative glue (Morgan, 1986) that structures

the milieu and makes it possible for people to derive meaning from their work, to work

comfortably with others, and to focus on key organizational tasks.

Implications

Morgan believes that corporate cultures are mini-societies that manifest distinct

patterns of thought, behavior, and belief. Similarly, Schein (1985) says that

organizational cultures are highly visible and that they facilitate adaptation to the

external environment as well as integration of internal processes. Adaptation and

integration imply differences in environmental conditions and a degree of

organizational-environmental fit. Culture can limit strategic options significantly and,

consequently, can restrict the organization's ability to assess and to adapt to certain

environments-so much so that Weick (1985) has asserted that it is becoming

increasingly difficult to separate strategic change from cultural change.

For Schein, it is clear that organizations must analyze their cultures and manage

within their cultural boundaries. If the fit between culture and environment is

inappropriate, organizations must change their cultures. Yet in order to manage

effectively within boundaries or to change cultures, leaders and managers must learn

to perceive the types of systems with which they are working. Successful leadership

depends on an ability to create or to maintain a shared reality, as cohesive groups



evolve from shared reality and meaning (Morgan, 1986). Shared reality and meaning

will be created or maintained only when leadership and management is symbolically

consistent with some desired direction. In other words, culture cannot be controlled; it

only can be influenced by leadership and managerial behavior.

References

Morgan, G. (1986). Images of organization. Newbury Park, CA: Sage.

Pettigrew, A.M. (1979). On studying organizational culture. Administrative Science Quarterly,

24, 570-581.

Reichers, A.E., & Schneider, B. (1990). Climate and culture: An evolution of constructs. In B.

Schneider (Ed.), Organizational climate and culture. San Francisco: Jossey-Bass.

Schein, E.H. (1985). Organizational culture and leadership. San Francisco: Jossey-Bass.

Weick, K.E. (1985). The significance of corporate culture. In P. Frost, L.F. Moore, M.R. Louis,

C.C.

Lundberg, & J. Martin (Eds.), Organizational culture. Newbury Park, CA: Sage.



WHAT IS ORGANIZATIONAL CULTURE?

♦ 'The dominant values espoused by an organization". (T.Deal & A. Kennedy, 1982)

♦ "The philosophy that guides an organization's policy toward employees and

customers". (R. Pascal & A. Athos, 1981)

♦ 'The way things are done around here". (M. Bower, 1966)

♦ 'The basic assumptions and beliefs that are shared by members of an

organization". (E.Schein, 1985)

central theme : organizational culture refers to a system of shared

meaning.

in every organization, there are patterns of beliefs, symbols, rituals,

myths, and practices that have evolved overtime.

these create common understandings among members as to what the

organization is and how its members should behave.



TYPES OF ORGANIZATION CULTURE

DYNAMIC ENVIRONMENTS STABLE ENVIRONMENTS

“EXTERNAL FIT” CULTURE “INTERNAL FIT” CULTURE


EMPHASIS

EFFICIENCY

LIMITED IND. INITATIVEHIGH IN CONTROLMINIMUM RISK& CONFLICT

CENTRALIZED DECISION-

MAIKING

PRODUCT-ORIENTED ORGANIZATION

EMPHASIS

INNOVATION

INDIVIDUAL INITATIVERISK TAKINGTOLERANCE OF CONFLICT

HIGH HORIZONTAL

COMMUNICATION

MARKET-ORIENTED ORGANIZATION


TYPOLOGY OF ORGANIZATIONAL CULTURE

Characteristics:

Cohesiveness, participation, teamwork, sense of family

Leader:

Mentor, facilitator, parent-figure

Glue:

Loyalty, tradition, interpersonal cohesion

Strategic emphases:

Toward developing human resources, commitment, morale

Characteristics:

Entrepreneurship, creativity, adaptability

Leader:

Entrepreneur, innovator, risk-taker

Glue:

Entrepreneurship, flexibility, risk

Strategic emphases:

Toward innovation, growth, new resources

Characteristics:

Order, rules and regulations

Leader:

Coordinator, organizer, administrator

Glue:

Rules, policies and procedures

Strategic emphases:

Toward stability, predictability, smooth operation

Characteristics:

Competitiveness, goal achievement, environment exchange

Leader:

Decisive, production and achievement oriented

Glue:

Goal orientation, production, competition

Strategic emphases:

Toward competitive advantage and market superiority

Source: Cameron and Freeman (1988)


Organic Processes

Mechanistic Processes

External Positioning

Internal Maintenance

CLAN

HIERACHY MARKET

ADHOCRACY


VALUES IN SOME TRADITIONALORGANIZATIONAL CULTURES

Bigness Obsession: Success is measured by how big or profitable we are. Charge what the market will bear, expand, grow in size.

Departmental View: We measure success by how well this department does. We're the best, let the rest of the organization do as well as it can.

Closed System: We know what is true and best in our field. Outsiders cannot understand it, and thus they cannot really contribute. Reject what was not invented or discovered here.

Individual Competition: As the pyramid still narrows at the top, we are in competition with one another for fewer and fewer positions as our careers progress. Sorry if / step on you from time to time.

Individual Responsibility: I am responsible for my job, you for yours. If / do better than you, I get promoted or rewarded, and you do not.

Different Processes: We use what works for this department. That's the way we have always done it, it works for us.

Within Tolerance: We believe that there is a certain point at which further improvements are not necessary. If it isn't broken, don't fix it.

Short-Term Focus: All we need to do is get through another day, put out the fires, and make a dollar or two. Tomorrow will have to take care of itself.

VALUES IN A TOTAL QUALITYCULTURE

Customer Obsession: We exist to meet customer needs. Success and growth depend on satisfied audiences, constituents, and customers.

System View: We consider the organization as a whole, intentionally suboptimizing parts as necessary so that the whole can be optimal.

Open System: We accept new ideas from outside the field and adapt them as appropriate. We encourage creative/innovative approaches.

Teamwork: We work together, sharing, listening, building on one another's ideas without undue attention to awarding individual credit.

Shared Responsibility: We succeed or fail as a team. Each person has a personal commitment to the success of the organization and the profession or field.

Common Process: We know and use the same language and disciplined process in problem solving, planning, and improvement efforts.

Continuous Improvement: We believe that there is no 'I here," no perfect solution; we are always seeking improvement.

Balanced Focus: Board and staff members balance long-term goals with necessary short-term objectives.

Figure 1. Transformation to Total Quality



JAPAN vs WEST

PROCESS-ORIENTED RESULT-ORIENTED

METHOD Qualitative Quantitative

AIM Improvement of process Outcome/results

PRIMARY

FOCUS

People’s attitude/efforts for

improvement

People’s performance

MANAGEMENT

ROLE

Supportive, stimulative Controlling

SCOPE Longer term-oriented, often

requires behavior change

More direct and short

term-oriented

CRITERIA Discipline

Time management

Skill development

Participation and

Involvement

Morale

Communication

Sales

Costs

Profit



THE JAPANESE FORMULA

1. KEY ELEMENTS OF JAPANESE MANAGEMENT:

1. Groupism (harmony = wa)

2. Homogeneous sociaety (tacit understanding = ishin denshin; informal

contract = naa naa ni yaru)

3. Confucian ethics

4. Education

II. ESSENTIAL ASPECTS OF JAPANESE MANAGEMENT:

1. Lifetime employment

2. Seniority system (nenko)

3. Continuous training and development

4. Emphasis on group work (kacho, jishu kami)

5. Decision-making by consensus (ringi, memawashi)

6. Complex performance evaluation

7. Father leadership (kacho)

8. Benefits for employees

9. Simple and flexible organization

10. Long-term strategies



NISSAN CORPORATE PHILOSOPHY andPRINCIPLES

+ CORPORATE PHILOSOPHY

Our first commitment is to customer satisfaction. Through diligent efforts to develop new customers and expand our customer base we are contributing to the ongoing progress and enrichment of society.

+ CORPORATE PRINCIPLES

1. To create attractive products by capatilizing on the company's innovative and highly reliable technologies, staying in constant touch with the needs of the global market.

2. To be sensitive to customers' needs and offer themmaximum satisfaction based on steadfast sincerity and ceaseless efforts to meet their requirements.

3. To focus on global trends, making the world the stage for our activities, and to nurture a strong company that will grow with the times.

4. To foster the development of an active and vital group of people who are ready and willing at all times to take on the challenge of achieving new goals.

Ref.: Long Range Planning 06/90: The Transformation of Nissan.

(NISSAN) EDHS- 10/92



CULTURAL DIFFERENCES

EAST ASIA USA

Relationship-society with strong network of social ties.

Focus on group as the important part of society.

Outsiders and newcomers are not easily integrated.

Cohesive and strong family ties, even to distant relatives.

Education is investment in wellbeing and prestige of family.

Highly disciplined and motivated workforce/society.

Saving and conserving resources are highly valued.

Protocol, rank, and status are important.

Personal conflicts are to be avoided;“compromising".

Public service is a moral risibility.

Mobile, individualistic society, de-emphasizing strong social ties.

Individual is the important part of society - LIBERTY.

Friendly and open to newcomers.

Nuclear & mobile families; divorce rate at 50%.

Education is investment in personal development and success.

Decline in work ethic and hierarchy; entertainment!

Consumption oriented; throw-away society.

Informality and competence are important.

Conflict is energy and to be managed; "aggressive".

Public service is regarded with mistrust, demand for lower tax burden; 'social evil".

Source: Adapted from Harris/Moran (1 99 1)



TELECOMMUNICATION

IBM and LGE pin hopes on link-Up

Corporate culture clash in South Korea shows potential for success

It took nearly two years just to decide the name. When US computer giant IBM went

into negotiations with South Korean consumer electronics company LG Electronics

(LGE) to form a joint venture, the two were so determined to protect their corporate

identities that they couldn't agree on what to call the firm.

The talks became mired down in the wranglings and broke off after a few months.

Discussions resumed towards the end of 1995 and by October 1996, the two sides

had reached an agreement. The venture, which will market and sell PCs to the

South Korean market, went into operation last November under the name LG IBM

PC Company.

The deal was difficult for both companies. The two have strong corporate cultures,

and rigid procedures to follow in setting up joint ventures. Neither side was used to

bending to a partner's rules. IBM had never before allowed a dilution of its name

accepting that 'LG' would not only joint ‘IBM' in the name of the company but would

precede it must have been a bitter pill to swallow. For its part, LGE had never

accepted a minority stake in a joint venture before. In the agreement, LGE holds a

49% share, with IBM Korea accounting for the remainder.

ALLIANCE A MARRIAGE OF CONVENIENCE

The compromise is a mark of how desperately the two need to work together.

According to market research company Dataquest, LGE's share of South Korea's PC

market fell to 8% last year from 13% in1994. Although it still ranks number four in the

country, it’s well behind the two front runners, Samsung and Trigem – know as

Sambo in South Korea – which hold around 30% and 16% respectively.

IBM, meanwhile, was struggling to hold on to 1% of the South Korean market. Since

IBM Korea began operations in 1967, it has achieved success in most sectors of the

computer market. But the one that continues to elude the firm is the PC sector - and



it's one that IBM doesn't want to miss out on. According to Park Ki Soon, managing

director of marketing operations at LG IBM PC Co, IBM Korea executives studied

potential market growth and found one clear conclusion.

'At least 50% [of the growth] would be in PCs, revenue-wise. With only 1% in the PC

sector, they could never be a big player in the IT industry [in South Korea].'

What LGE needed was a technology boost. It already had a good reputation in most

areas of consumer electronics, but PCs required more commitment in research and

development than LGE could easily swallow. IBM, with its multi-billion-dollar research

and development programs in the US and world-renowned notebook computer

technology, had what LGE needed.

Meanwhile, BM saw that it could not succeed without a local partner. Getting IBM

computers to the shops was a problem. Unlike in the US and Europe, South Korea

has no network of independent distributors. Distributors' links to manufacturers they

were far likelier to push local brands.

'There is no mass distributor [here], like there is in the States,' says i Park. 'All the

channels of distribution belong to the manufacturers. There is a new concept of

channel distribution coming out but it's not very strong yet.'

After-sales service presented similar problems: all of it was done by the manufacturers

and there were no local companies to provide independent customer support for IBM.

In the low margin sector of PCs, maintaining a customer support team is a cost most

firms want to avoid.

IBM was not alone in failing to crack the South Korean market. Compaq, the top PC

supplier by revenue in the Asia Pacific, has only managed a 2% share of the market,

complied with about 20% in other Asian countries. Dell and Packard Bell have also

tried, and failed to gain 1%.

IBM believes LGE can provide the sales and distribution network and customer

service that it needs. Both firms have strong reasons for wanting the partnership to



work but Park admit the clash of cultures between the US multinational and the South

Korean chaebol was so great that it initially brought negotiations to a halt. The

compromise carefully weighs the contribution of one against the other.

The joint venture is subject to US accounting systems, but has royalty-free access to

IBM patents. The CEO of the new company comes from IBM Korea and the chief

financial officer from LGE. The sales head is from IBM Korea and the marketing head

from LGE. IBM supplies the notebooks and servers for the new company's products

and LGE supplies the desktops.

Formed with an initial capital of 24 billion won (about US$27 million), LG IBM PC Co

aims for turnover of US$500 million in its first year and 25% of the market by 2000.

From the outset, IBM and LGE expected a higher market share as a joint venture than

previous combined market share of the two separate entities.

According to Dataquest figures, the two companies' combined market share last year

was around 9%. 'This year, we're shooting for 15 %,'says Park. The new company

says it sold more than 20,000 units in January more than the combined monthly sales

of the two separate entities before the merger.

CORPORATE CULTURE DIFFERENCES

But despite such signs of success, many in South Korea's PC industry say friction

remains between the two very different corporate cultures.

'We are still in the process of adjusting to each other,' says Park. 'All the internal

processes were different ... We are setting up new processes for everything.' The aim

is to create a new identity for the joint venture and not follow the IBM model or that of

LGE. But the process is slow and three months into the operation, staff were still

attending workshops to learn the new culture and new ways of working.

Despite rumours of internal strife, many PC manufacturers are envious of the success

of the merger. The combination of IBM's technology and LGE's highly regarded after-

sales service is powerful, says a Samsung spokesman. But, while agreeing it makes

competition tougher, he expects most of the new company's gains to be at the

expense of smaller local firms.



As much as 25% to 30% of PC sales has been attributed to the 'clones' or 'no brand'

models. Assembled in South Korea, usually with parts from Taiwan, large number, of

'no brand' PCs are produced by small local companies that quickly appear and

disappear.

A combination of factors put several clone-makers out of business at the start of the

year. IPC - one of the few international clone manufacturers - pulled out of South

Korea in January, sending jitters through the market.

As labour unrest in December 1996 and January this year took its toll on South

Korea's economy, local bank loans to the clone-makers froze up. Many went

bankrupt, sources say. LG IBM PC Co, however, could be well placed to take up the

slack.

The success of the venture has not gone unnoticed, and other South Korean chaebol

and US PC giants are expected to follow the move. The most strongly rumoured is a

tie-up between Compaq and Trigem, although neither firm was able to comment.

However, Samsung, which owns a majority take in US PC giant AST Research, is

unlikely to join the fray. A company spokesman says a trend towards alliances could

hurt the PC market in South Korea. By using alliances to supply the best PC

technology, South Korean manufacturers would be neglecting their own expertise.

'The [South] Korean manufacturers don't have any chance to learn about technology

[through these alliances]. They could weaken the whole [South] Korean computer

manufacturing base.'

For now, the South Korean companies are likely to be in the strongest negotiating

position in any East-West alliance. Daniel Sim, PC analyst for the Asia Pacific for

Dataquest, says that if the US multinationals want success in Asia, they have to work

with the local conditions. 'They are trying to penetrate the [South] Korea market, not

the other way round.'



Consumer tastes and tax policies that favour locally made goods have given South

Korea's manufacturers a tight grip on the market. 'It takes a lot of time for Koreans to

change,' says Sim.

Helen Johnstone

Asian Business May 1997



Organizational Change



THE NATURE OF AN EFFECTIVE VISION

EXHIBIT 2The relationship of Vision, Strategies, Plans, and Budgets

LEADERSHIP CREATES

Vision

A sensible and appealing picture of the future

StrategiesA logic for how the vision can be achieved

MANAGEMENT CREATES

PlansSpecific steps and timetables to implement the strategies

BudgetsPlans converted into financial projections and goals

The word vision connotates something grand or mystical, but the direction that guides

successful transformations is often simple and mundane, as in: "It's going to pour, let's

go under that apple tree for shelter and eat some of the fruit for lunch."

A vision can be mundane and simple, at least partially, because in successful

transformations it is only one element in a larger system that also includes strategies,

plans, and budgets (see exhibit 2 above). But although it is only one factor in a large

system, it is an especially important factor. Without vision, strategy making can be a

much more contentious activity and budgeting can dissolve into a mindless exercise

of taking last year's numbers and changing them 5 percent one way or the other.

Even more so, without a good vision, a clever strategy or a logical plan can rarely

inspire the kind of action needed to produce



AN EXAMPLE OF RESISTANCE

Example: An employee may resist the introduction of advanced person computer at his work station, because:

He had never before used the computer's operating system and was apprehensive that he could learn to use it successfully.

He sensed the manager was forcing the computer on him without discussing his feelings on the matter first.

He felt he was doing his job fine and didn't need the new computer.

He was really busy at the present time and didn't want to try something new until the work slackened a bit.

He wasn't sure "Why" the change was being made and wondered if the manager just wanted to "get rid" of him.

COMMUNICATION!



FORCEFIELD ANALYSIS

A technique to identify those forces which assist or obstruct the implementation of change.

User Involvement in Systems Development

Driving Forces Restraining Forces

Users' motivation and interest

'Ownership requirement

Users I right of veto

Proven quality benefits

Radical thinking

Knowledge of store needs

"Jury service" possibility

Budgetary constraints

System knowledge requirement

Store staffing pressures

Understanding of overall strategy

Impact on development timescales

Integration into development team

Method of Operation

1. Describe the planned change in a simple sentence at the top of a flipchart.

2. List the driving forces which support the planned change on the left hand side of the chart.

3. List the restraining forces which may obstruct the planned change on the right hand side of the chart.

4. Determine which of the restraining forces pose the greatest threat to change and highlight them for specific action.

5. Determine which of the driving forces represent the best levers for implementing change and highlight them for specific action.



ORGANIZATIONAL CHANGE

WHAT IS PARADIGM?1. WEBSTER's DICTIONARY: is a pattern, example,

or model.

2. JOEL BARKER (futurist): is a set of rules and regulations that do two things:

⇒ establish boundaries,

⇒ provide rules for success: how to be successful -by solving problems within these boundaries.

3. Professor Coon: PARADIGMS act as filters that screen data coming in to the mind.

4. SOME FINDINGS: (Joel Barker)⇒ When paradigms shift, everyone goes back to

zero zero-rule).⇒ Your past success guarantees nothing.⇒ Your past success may block your vision to the

future!



REQUIREMENTS FOR CHANGE


A CLEAR

SHARED

VISION

PRESSURE

FOR

CHANGE

PRESSURE

FOR

CHANGE

PRESSURE

FOR

CHANGE

ACTIONABLE

FIRST

STEPS

CAPACITY

FOR

CHANGE

A CLEAR

SHARED

VISION

ACTIONABLE

FIRST

STEPS

CAPACITY

FOR

CHANGE

A CLEAR

SHARED

VISION

ACTIONABLE

FIRSTSTEPS

CAPACITY

FOR

CHANGE

BOTTOM OF THE

‘IN BASKET’

HAPHAZARD

EFFORTS, FALSE START

A FAST START THAT FADES

OUT

ANXIETY, FRUSTRATION,

CHAOS

What if one is missing?


Institutionalize Change processIn the early 1990s, once-mighty companies Such as Sears, General Motors, and IBM

found themselves floundering amidst changing market conditions over which they had

lost control. How had these companies fallen into such predicaments? Why hadn't

they reacted to change?

Because they couldn't. These companies were not built or designed for change and

when change occurred they were paralyzed.

Process-centered organizations must build in change processes to be able to react

and react quickly when necessary. Here's how.

The Deep System

The figure below shows the four major features of the process-centered company: its

business processes, its jobs and organizational structure, its management and

measurement systems, and Its values and beliefs.

This four-part structure is the business system that delivers today's products or

services. The same system, however, must also deliver tomorrow’s products or

services. Since those products will probably be different from today's, the system

must change as well.

To create that chance, a process-centered organization needs two systems.- the

surface system everyone see and the deep system.

The deep system doesn't process orders, develop new products, or in any way create

customer value. Instead, it monitors, adjusts, and re-forms the surface system that

creates customer value.


Business Process

Job and Structure

Values and Beliefs

Management and Measurement

Systems


The deep system is a sensor that is always turned on to the surface system to sense

when change is needed. When the alarm goes off, the deep system kicks into gear

and make the necessary changes.

How It Works

An invisible deep system may sound philosophical and abstract. It is not. The deep

system depends on concrete processes perform by real people.

Specifically, the deep system has three primary processes:

Learning. This process identifies, analyzes, and disseminates important information

through out the company so that decisions about change can be made. It looks

beyond obvious information such as customer trend surveys. Major change is always

a surprise, and looking for it in familiar places is a waste of time.

Redesign. Using the information gathered and analyzed, the deep system redesigns

the Surface system to fit the new realities.

Transition. In this process, the old surface system is replaced with the newly

designed system.

While the deep system has its own processes, it is not a separate, self-contained unit.

Everyone in the company, whatever his or her job in the surface system, also works in

the deep system.

For example, the sales rep in the field stays alert to change in customer needs,

understands what formation is important, and knows how and with whom to share that

knowledge.

The deep system thus builds chance processes into the company - preventing

paralysis in the face of change.

L-



ORGANIZATION CHANGE STRATEGY


LEADERSHIP

VISION

CULTURE STRATEGY

TechnologyPeopleStructure and SystemsProduct and Services

InternationalEnvironmentThe market

Competitive wedge


Application in Vietnam:

Vietnam has a open-door economic policy global competition is obvious.

Vietnam is in modernizing and industrializing process must develop high-

tech industry

Vietnam lies in Asian area, a fierce competitive area in the high-tech industry

challenge to Vietnam

Most current Vietnamese, companies in the field have high levels of bureaucracy

slow react

to changing environment.

A big number of companies having too large groups not creativity and

motivation.

In order to close the gap with other countries in this field and to compete in

global market we should:

Peak down levels of bureaucracy into small groups and flat structure to adapt to changing

environment,

Create high activity and motivation

Empower to small groups in order to quickly react to opportunities and threats,

Create a free flow of information throughout company,

Train and retrain their employees to meet new requirement in the field.



CHANGE MANAGEMENT ROAD MAP


MOTIVATING CHANGE

Creating readiness for changeOvercoming resistance to change

CREATING A VISION

MissionValues Outcomes

DEVELOPING POLITICAL SUPPORT

Assessing change agent power

identifying key stakeholders

Influencing stakeholder

MANAGING THE TRASITION

Activity planingCommitment planningmanagement structure

SUSTAINING MOMENTUM

Providing resources for changeBuilding a supp. syst. for change agentsDeveloping new competencies & skillsReinforcing new behaviors

EFFECTIVE CHANGE

MANAGEMENT

Valued conditionsMidpoint goals


Perspectives For Managers

Leverage Points For Continual Change

Paul Strebel IMD Professor of Change Management

Continual change requires focus if it is not to degenerate into change overload on the

front-line. In their attempt to keep up with a rapidly changing environment, many

companies have burdened themselves with too many uncoordinated change

initiatives. One privatized English company had ten different consulting firms advising

it at one time. Another client had as many as sixty different major change initiatives

going at once. Even in a large company, that many consultants, or simultaneous

change efforts, are doomed to fritter away commitment in conflicting priorities. Front-

line confusion is the inevitable result, unless the initiatives are part of a clearly

understood change focus.

This focus has to incorporate multiple change efforts, while keeping pace with the

rapidly changing business environment. To do so, the focus has to shift with the

critical pressure point, or opportunity, imposed by the evolving relationship between

the company and its business environment. Companies that are successful at

continual change periodically refocus their change effort around successive priorities

that provide the greatest leverage for value creation. The success of continual

change requires leadership at the top to periodically select the next critical leverage

point with the greatest potential for overall value creation.

Top management cannot escape its strategic responsibility by hiding behind a smoke-

screen of organizational design and cultural nurturing, assuming that those on the

front-line who are closest to the action, always can best find the way forward for the

organization as a whole. Nor is it enough to create a so-called learning organization

and hope that it will grope its way into the future through bottom-up initiatives alone.

This approach, which is the current darling of management gurus, exposes the

company to the hazards of random Darwinian selection as the business environment

inevitably shifts in particular directions at a pace that the bottom-up organization

cannot adapt to. The financial services industry, which perhaps has gone the furthest



towards a hands-off top management approach, ha I s provided a continuing series of

dramatic stories about what happens to heavily bottom-up organizations when the

environment shifts.

To identify the next critical leverage point for continual change, management has to

truly understand the nature of its business and how it fits into the evolving

environment. This requires a sense for interactions and feedback effects, how a

potential leverage point could unlock a new wave of value creation throughout the

organization. A simple business model, based on Goldratt's theory of constraints, can

facilitate this understanding and focus the search for leverage points (see figure

below).

The model depicts the basic process links between the different classes of tangible

and intangible assets that a company deploys to create value, together with the

stakeholder relationships that complement those processes. The model provides a

framework that management can use as a starting point, to work out the details of

how its business works and interacts with its environment. The details, of course,

depend on the nature of the company and its industry.

Companies have more or less cash that is available f6r investment via a-financing

process (dependent on their performance and standing in the financial markets),

which is used to develop core competencies with a people development process

(including learning partners). An innovation process (complemented by alliances with

innovation partners) converts the core competencies into a product/service portfolio,

which in turn is translated into market demand through a marketing process

(dependent on relationships with customers). To satisfy the demand, an order

fulfillment process is deployed (with external partners to form a complete value chain),

to deliver the offering and generate cash for further investments.

At any moment in time, the company is subject to bottlenecks in its processes,

constraints on its relationships with its stakeholders and the opportunity cost of

unexploited assets, and new opportunities. The next critical leverage point for

refocusing the change effort is that bottleneck, constraint, or unexploited

asset/opportunity, that is most limiting the company's value creating potential. By



refocusing change around this leverage point, top management can unleash a wave

of additional value creation, as the effect of removing the limitation cascades through

the value creation cycle. (The same can be done at the divisional, or business unit

levels, subject to the guidelines of the corporate change focus.) Once the change

effort has removed the limitation, anew bottleneck, constraint, or unexploited

asset/opportunity emerges, thereby becoming the next leverage point for change.

Process Web & Value Creation Cycle

In the corporate growth phase, for example, financial and then employee constraints

often dominate, whereas in the mature phase, process bottlenecks become critical.

Similarly, on the industry level, when competitive offerings are converging and

margins are under pressure, stakeholder constraints often become paramount as they

begin to compete for the shrinking pie. Whereas when the industry is shifting and

offerings are diverging, it is emerging opportunities that provide the greatest leverage.


Innovation processMarketing

process

Order Fulfillment process

People Development process

Finance process

Customers

Value chain partners

Shareholders & Bankers

Employees

Learning partners

Innovation partners

Market Image & Demand

Net Cash Available

Investments

Core Competencies

Product /Service Portfolio


"In the corporate growth phase, for example, financial and then employee

constraints often dominate, whereas in the mature phase, process bottlenecks

become critical."

To illustrate how this works in practice, let us look at how Harley Davidson has

managed continual change over the last two decades. In the mid-seventies Harley,

had sunk to the point where more than half the machines coming off the production

line had missing parts and had to be fixed before being shipped; its market share had

fallen from 7 5 9o' to 2 5 9o, the company was in a financial crisis. As in most crises,

the initial leverage point for change was clear, but more management insight was

needed to select subsequent focal points for the change effort.

Loosening stakeholder constraints

The first place to look for a critical leverage point is in the relationships with

stakeholders. Many companies today have key performance indicators that capture

the state of their stakeholder relationships, especially on the financial, customer, and

employee fronts. To get the full support of its stakeholders, the company has to offer

them a better deal than they can get elsewhere. When stakeholders are dissatisfied,

they begin withdrawing their support. This shows up immediately in a falling share

price, or declining market share, less employee commitment, less reliable partners,

and so on. When a severe deterioration in performance occurs, as in the case of

Harley Davidson, the critical leverage point is easy to see. It is the one that is most

essential for the survival of the company.

When Vaughn Beals took charge of Harley in 1975, the critical leverage points for

change were the financing constraint imposed by the banks and the disaster in the

marketplace. To keep the company in business, he had to secure the support of the

banks first with a convincing turnaround plan and then halt the decline in market

share. After securing the financing lifeline, Beals set up an ad hoc quality control

effort to repair the bikes before shipping them to the dealers. However, since this

program cost soon accounted for 25 ,percent of the final retail price of 4000 dollars,

the senior managers decided at a strategy retreat that, if they were to catch up with

the Japanese, cost reduction had to be the number one priority.



"Harley had to focus its change effort on something with more immediate pay-

off in terms of value creation."

But this wasn't the critical leverage point at that time. On reflection, Beals and his

team realized that catching up would take years. Harley had to focus its change effort

on something with more immediate pay-off in terms of value creation. They decided

to draw on the Harley Davidson image of the macho biker's bike, as the next leverage

point, to loosen the constraint imposed by declining market share. He called on

William G. Davidson, grandson of one of the founders and styling vice-president, to

exploit the product image to the full. Davidson used rapid cosmetic innovation to

design the Super Glide, a factory-built custom bike that looked like the garage

creations put together by do-it-yourself Harley fanatics. Together with other models,

like the Low Rider and Wide Glide, they recovered the support of customers, and

stemmed the loss in market share.

Removing process bottlenecks

The second place to look for a critical leverage point is in the processes that link up

the value creation cycle. Identifying the critical process bottleneck is either a matter of

focusing on that process giving the most problems in the value creation cycle (very

often the process limiting the speed of the cycle), or a matter of comparing with what

other companies are capable of doing (benchmarking against other companies).

Once a particular bottleneck has been removed, the cycle can be accelerated until a

new bottleneck appears.

At Harley Davidson, the slow, indeed negative rate of cost and quality improvement

was crying out for action. Without a positive change here, the cash flow would not be

available to do anything else. Improving the order fulfillment process had to be the

next leverage point. After visiting Honda's plant in Marysville, Ohio, Beals and his

team went for a Japanese approach to lean management, just-in-time inventory

control, and quality improvement. People on the shop floor resisted. Months were

spent meeting employees from all departments to explain how it would work and get



their input. This intense involvement turned out to be key to their commitment. After

its introduction, the new system quickly produced results.

Once the order fulfillment process was capable of turning out quality bikes at a

competitive speed and cost, the weak demand for bikes soon became the next factor

limiting further improvement in Harley's value creation cycle. The management team

turned the change spotlight onto the marketing process, the next critical leverage

point. Among several marketing initiatives, a series of TV commercials introduced

Super Ride, a demonstration program inviting bikers to try out a new Harley at any of

the 600 plus dealers. As potential buyers became more and more convinced that

Harley had solved its quality problems, the Super Ride program turned out to be so

successful that Harley started taking a fleet of demo bikes to all motorcycle rallies.

Yet, as sales picked up, top management did not rest on its laurels. They began

casting about for the next leverage point.

Exploiting existing assets

Critical opportunities are often latent in the assets embedded in the different stages of

the value creation cycle, which suddenly become more valuable as the business and

its environment evolve. Those assets with new potential might be among existing .

investments, or core competencies, or in the quality of the products, or in the brand

image and market loyalty, or the cash available to capitalize on new opportunities as

the industry shifts.

"Critical opportunities are often latent in the assets embedded in the

different stages of the value creation cycle."

According to a member of Beals' team, when they compared Harley to their

competitors, they realized that their strongest competitive advantage was the Harley

brand image. Exploiting this image to the full was the next leverage point they

selected. They boosted the dealers and formed the Harlev Owners Group (HOG).

The club sponsors biker events, that include managers and their wives, all over the

world where there are Harley owners, giving them the opportunity to celebrate the use

of their bikes and socialize together at big jamborees. Harley was not only selling



bikes, ' it was now selling the American biking experience. Exploiting this American

cultural factor was a unique Harley advantage, which the foreign competitors could

not easily duplicate. Indeed, Honda failed in its first attempt to create its own version

of HOG.

In 1983, Harley was profitable again. Its market share started to climb; by the end of

the decade it had recaptured 50 percent of the super-heavyweight bike market and

the share price had tripled. However, success began to undermine the commitment

to value creation. In the words of one senior executive. there were increasing signs of

"complacency, arrogance, and greed."

Creating new opportunities

The ultimate challenge in the management of continual change is to take charge of

events and become proactive, by focusing selectively on those parts of the value

creation cycle that will permit the company to outpace the competition and lead the

industry. This is where bottom-up learning to develop new core competencies, or the

development of strategic options in the form of new products/services, or new market

alternatives, or large scale commitment to new investments, may be critical. The right

choice requires a well honedforesight about the evolutionary trajectory of the industry,

in addition to a deep understanding of the company's value creation cycle.

When Harley's performance began to slip in the early nineties, management believed

that greater employee commitment was the stakeholder leverage point that would

reverse the slippage. They turned- to the unions to help put in place a self-sustaining

people development process. This top down approach backfired, however, by

alienating the workers on the shop floor. It was then that management started

promoting bottom-up learning, as the next leverage point, involving everyone

throughout the company in working and innovation circles. The new development

process linked individual plans, commitments and results, to work unit, divisional and

corporate objectives. As the nineties draw to a close, everyone at Harley is

responsible for their own individual performance and career development plan. The

new learning process for developing and deploying competence has begun to



generate impressive gains in productivity, as well as new marketing opportunities,

such as the licensing of Harley accessories and the Harley designer stores.

Leverage points don't come in a neat sequence

The Harley story might suggest that the leverage points for change come in a neat

sequence, like the one described above. Yet, every business has its particular value

creation cycle and every industry its own evolutionary trajectory. In the end, there is

no substitute for a management that understands the nature of value creation in both

its company and industry deeply enough, to identify the next leverage point for

change.

IMD is generally regarded as the business school in the vanguard of executive

education; It’s global outlook is Particularly relevant to companies and organizations

operating internationally. The school has a unique range of progra,7@s for upper-

middle management up to and including board-level. For more information bout our

programs, please contact the editor at the address below:

IDM

International Institute for Management Development

P.O. Box 915, CH-1001 Lausanne Switzerland


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