Chapter 10: organizational change and innovation

Recognising the need for change: Collinss 5 stages of decline

Stage 1, hubris born of success A company develops arrogance and its employees begin attributing the companys success to their own superior qualities Forget about the underlying factors that created that success

Stage 2, Undisciplined pursuit for more More of whatever is defined as success, such as more growth Companies begin overreaching, making undisciplined leaps into areas where they cannot be great, leading them to ignore their core business

Stage 3, Denial of risk and peril Internal warning signs increase, but managers explain them away, discounting negative data, amplifying positive data, putting a positive spin on ambiguous data

Stage 4, Grasping for salvation Difficulties of the previous stage reach the opint of throwing the company into sharp decline, the managers begin making desperate leaps Eg, trying bold but untested strategies, looking for a blockbuster product, trying to put together a game changing acquisition, and similar attempts at silver bulleted solutions

Stage 5, Capitulation to irrelevance or death The longer an organisaion stays in stage 4, the more apt it is to slip to stage 5 The company may be sold, or left to shrivel to insignificance

Fundamental change: what will you be called on to deal with? -Supertrends shaping the future of business: 1) The marketplace is becoming more segmented and moving towards more niche products Last time, managers think in terms of mass markets- mass communication, mass behavior and mass values NOW, demassification Customer groups become segmented into smaller and more specialized groups Respond to more narrowly targeted commercial messages

2) More competitors are offering targeted products, requiring faster speed-to-market Companies offering a broad range of products or services are now experiencing intense pressure from competitors offering specialized solutions- beating them by devising novel speed-to-market strategies

3) Some traditional companies may not survive radically innovative change When successful companies are fonfronted with a giant technological leap that transforms their markets, all choices are bad ones It is very difficult for an existing successful company to take full advantage of a technological breakthrough such as digitalization disruptive innovation A company should set up an entirely separate organization that can operate much like a startup

4) China, india and other offshore suppliers are changing the way we work Globalisation and outsourcing China, Mexico, India, Philippines are offering workers and professionals who are willing to work twice as hard for half the pay, giving American businesses substantial savings Offer enormous gains in efficiency, productivity, quality and revenues that can be achieved by fully leveraging offshore talent

5) Knowledge, not information, is becoming the new competitive advantage Information is rapidly becoming a profitless commodity, knowledge is becoming the new competitive advantage As IT does more of the work formerly done by humans, even in high-tech areas, may low-level employees previously thought of as knowledge workers are now being recognized as data workers , who contribute very little added value to the processing of information Unlike routine information handling, knowledge work is analytic, involves problem solving and abstract reasoning Drives the future, creates wealth

2 types of change: reactive vs proactiveReactive Responding to unanticipated problems and opportunities putting out fires Making changes in response to problems or opportunities as they arise

Proactive Or planned change Involves making carefully thought out changes in anticipation of possible or expected problems or opportunities

The forces for change: outside and inside the organization Forces originating outside the organization Demographic characteristics Eg diversity of workforce has increased

Market changes Eg, expansion into overseas markets

Technological advancements Eg pirated versions of American products Copycats in China

Shareholder and customer demands Shareholders more active in pressing for organizational change Customers have also become more demanding, more inclined to take their business elsewhere if they do not get what they want from a given company

Supplier practices The actions of a companys suppliers can create the need for change Eg, an audit of apples suppliers in china created apple to change suppliers or force the supplier to alter their HR policies

Social and political pressures Eg, health related problems (obesity) and associated costs have prompted organisations to find ways of helping employees adopt more healthy lifestyles

Forces originating inside the organization Internal forces affecting organisations may be subtle, eg low job satisfaction, or constant labour-management conflict Internal forces may be 2 types: employee problems or manager behavior

Employee problems A gap between employees needs and desires, and organisations needs and desires Job dissatisfaction is expressed through high absenteeism and turnover Need to: address job design, reduce employees role conflicts and deal with work overload

Manager behavior Excessive conflicts between managers and employees Personality conflict- employee transfer needed? Maybe interpersonal training is required? Managers may become servant leaders, helping others do their jobs, fixing problems, giving employees the tools they need

Areas in which change is often needed: people, technology, structure and strategy

Changing people Perceptions: employees may feel they are underpaid, for what they do Show them that pay and benefits are comparable Attitudes: Employees may feel that it is the nature of things that managers dont listen to them Need to change the culture and the attitudes by using educational techniques Performance: It is often a major challenge to find incentives to improve peoples performance Skills: Altering or improving skills levels is often an ongoing challenge, New forms of technology can change an organisations way of doing business

Changing technology Technology is nt just computer technology, it is any machine or process that enables an organization to gain a competitive advantage in changing materials used to produce a finished product

Changing structure Changes in strategy require changes in structure Recent trends are toward flattening the hierarchy Eliminating several middle layers of management, using work teams linked by electronic networks

Changing strategy Old line Organisations need to change their strategy

Threat of change: managing employee fear and resistance Causes of resistance to change Resistance to change is an emotiona/behavioral response to real or imagined threats to an established work routine

Employee characteristics Consists of his or her individual differences, actions and inactions, and perceptions of change

Change-agent characteristics Change agent: the individual who is a catalyst in helping organisations change-also consists of his or her individual differences, actions and inactions, and perceptions of change Such characteristics that might contribute to employee resistance to change: leadership style, personality, tactfulness, sense of timing, awareness of cultural traditions or group relationships, and the ability to empathise with the employees perspective

Change agent-employee relationship Resistance to change is reduced when change agents and employees have a trusting relationship Mistrust encourages secrecy, dooming change

The degree to which employees fear change

Depends on whether the change is adaptive, innovative, or radically, innovative

Least threatening: adaptive change Reintroduction of a familiar practice This change is lowest in complexity, cost, and uncertainty

Somewhat threatening: innovative change Introduction of a practice that is new to the organization Moderate complexity, cost, and uncertainty

Very threatening: radically innovative change Introducing a practice that is new to the industry Most complex, costly and uncertain of the levels of change, it will be felt as extremely threatening to managers confidence and employees job security May tear at the fabric of the organization

10 reasons why employees resist change

1) Individual predisposition towards change Depends on how they learnt to handle change and ambiguity as children

2) Surprise and fear of the unknown When radially different changes are introduced without official announcements, office rumous spread - Affected employees become fearful

3) Climate of mistrust Encourages secrecy Developing further mistrust Puts even well conceived changes at risk of failure Managers who trust their employees make the change an open, honest and participative affair -Employees who trust their managers are more apt to expend extra effort and take chnaces with something different

4) Fear of failure Intimidating changes on the job can cause employees to doubt their capabilities Self-doubt erodes self-confidence Cripples personal growth and development

5) Loss of status or job security Admin and technological changes that threaten to alter power bases or eliminate jobs Often happens during corporate restructuring Threatens middle-management jobs Triggers strong resistance

6) Peer pressure - People not directly affected by impending changes may actively resist to protect the interests of their friends and coworkers

7) Disruption of cultural traditions or group relationships When individuals are transferred, promoted, reassigned, the change can disrupt existing cultural and group relationships

8) Personality conflicts - The personalities of change agents can breed resistance

9) Lack of tact or poor timing Introducing changes in an insensitive manner or an awkward time can create employee resistance Employees more apt to accept changes when managers explain their value, Eg, in demonstrating their strategic purpose to the organization

10) Nonreinforcing reward systems Employees are likely to resist when they cant see any positive rewards from proposed changes Eg, when one is asked to work longer hours without additional compensation

Lewins change model: unfreezing, changing and refreezing

Kurt Lewin Developed a model with 3 stages- 1. Unfreezing 2. Changing 3. Refreezing Explains how to initiate, manage, and stabilize planned change

1) Unfreezing: creating the motivation to change Managers try to instill in employees the motivation to change Encourage them to let go of attitudes and behaviors that are resistant to innovation Employees need to become dissatisfied with the old way of doing things Managers need to reduce the barriers to change during this stage

2) Changing: learning new ways of doing things Employees need to be given the tools for change: new information, new perspectives, new models of behavior Managers should provide benchmarking results, role models, mentors, experts and training Convey the idea that change is a continuous learning process, not a one time event Benchmarking: A process by which a company compares its performance with that of high-performing organisations

3) Refreezing: makes the new ways normal Employees need to be helped to integrate the changed attitudes and behavior into their normal ways of doing things Managers: encourage employees to exhibit the new change, and then, through additional coaching and modeling, reinforce the employees in the desired change

6 methods for managing employee resistance to change.1. Education and communication2. Participation and involvement3. Facilitation and support4. Negotiation and rewards5. Manipulation and co-optation6. Explicit and implicit coercion

Kotters 8 steps for leading organizational change John Kotter: to be successful, organizational change needs to follow 8 steps to avoid the 8 common errors senior management usually commits TABLE 10.2: PAGE 318

Value of Kotters steps: provide specific recommendations about behaviors that managers need to exhibit to successfully lead organizational change Kotters research: it is ineffective to skip steps Successful organizational change is 70-90% leadership, and only 10-30% management Senior managers: advised to lead rather than manage change

Organisational development

Organisational development is a set of techniques for implementing planned change to make people and organisations more effective OD is put in place by a change agent (a consultant with a background in behavioral sciences who can be a catalyst in helping organisations deal with old problems in new ways) What can OD be used for?

Address 3 matters:

1) Managing conflict Sometimes, an OD expert in the guise of an executive coach will be brought in to help advise an executive on how to improve relationships, with others in the organization

2) Revitalising organisations IT causes organisations to have to adopt new behaviors OD can help by opening communication., fostering innovation and dealing with stress

3) Adapting to mergers Mergers and acquisitions are associated with increased anxiety, stress, absenteeism, turnover, and decreased productivity OD experts can help integrate 2 firms with varying cultures, products and procedures

How OD works OD managers and consultants follow a medical-like model Approach the organization as if it were a sick patient Use diagnosis, intervention and evaluation

1) Diagnosis: What is the problem? OD consultants use some combination of questionnaires, surveys, interviews, meetings, records and direct observation - Ascertain peoples attitudes and to identify problem areas

2) Intervention: what shall we do about it?

The attempt to correct the diagnosed problems Done using the services of an OD consultant who works in conjunction with management teams Communicating survey results to employees to engage them in constructive problem solving, observing employee communication patterns and teaching them skills to improve them Help group members learn to function as a team, stimulate better cohesiveness among several work groups, improving work technology or organizational design

3) Evaluation: how well has the intervention worked? Needs objective evaluation to see if it has done any good Answers may lie in hard data Change agent can use questionnaires, surveys, interviews etc to assess changes in employee attitudes

The effectiveness of OD

OD is most apt to be successful under the following circumstances:

1) Multiple interventions Goal setting, feedback, recognition and rewards, training, participation, and challenging job design have had good results in improving performance and satisfaction Combined interventions work better than single interventions

2) Management support OD is more likely to succeed when top managers give the OD program their support, and are truly committed to the change process and the desired goals of the change program

3) Goals geared to both short and long term results More likely to succeed when they are oriented towards achieving short term and long term results Managers should not engage in organizational change for the sake of change Change efforts should produce positive results

4) OD is affected by culture OD effectiveness is affected by cross-cultural considerations -An OD intervention that worked in 1 country should not be blindly applied to a similar situation in another country

Promoting innovation within the organization Innovation is the activity of creating new ideas and converting them into useful applications (specifically, goods and services) Innovation is different from invention (creating something NEW) Also different from creativity (process of developing something new or unique) How does failure impede innovation?

Many dont learn/ not comfortable to learn from failures Reluctant to experiment, blame others, refuse to recognize that not all failures are of equal seriousness Detracts from an organisations aility to learn from its mistakes 2 myths about innovation

1) Innovation happens in a eureka moment - Most of the time, innovation is the result of HARD WORK and dedication - TABLE 10.3, PAGE 324

2) Innovation can be systematized - Some believe innovation can be systematized (made a codified and standardized process that can be designed to always yield fruitful results) - There are often a lot of challenges associated with innovation -Success is therefore unpredictable - Albeit it is possible to establish culture and other ocnditions that increase payoffs

The seeds of innovation: starting point for experimentation and inventiveness

1) Hard work in a specific direction Most innovations come from dedicated people working diligently

2) Hard work with direction change Innovations frequently occur when people change their approach to solving a problem

3) Curiosity Innovations can begin when people are curious about something of interest to them, leads to experimentation and inventiveness

4) Wealth and Money Innovations frequently occur because an organization or an individual

5) necessity Many innovations grow from the desire to achieve something, or to complete a task that is needed to accomplish broader goals

6) Combination of seeds Many innovations result as a combination of multiple factors

Types of innovation: product or process, incremental or radical Product vs process innovations Product innovation is a change in the appearance or the performance of a product or a service or the creation of a new one A process innovation is a change in the way a product or service is conceived, manufactured, or disseminated

Incremental vs radical innovations Incremental innovations: the creation of products, services or technologies that modify existing ones Radical innovations: the creation of products, services, or technologies that replace existing ones

Celebrating failure: culture and other factors encouraging innovation

Organisations have to develop ways to make innovation happen: 3 ways to do so: 1) The right organizational culture 2) The appropriate resources 3) The correct reward system

1) Culture: is innovation viewed as a benefit or a boondoggle? An organizational culture is the social glue, or system of shared beliefs and values It binds members together An organizational culture that doesnt allow but celebrates failure is vita towards fostering innovation If people view experimentation as a boondoggle, that organization will not become a superstar in innovation

2) Resources: do managers put money where their mouths are? Innovation doesnt come cheap Its costs can be measured in all kinds of ways: dollars, time, energy, focus R&D scientists are also high costs There is always competition within an organization for resources- innovation may, therefore, be given short shrift because other concerns seem so urgent The risk of downgrading innovation in favour of more immediate concerns is that a company may miss the next wave the next big trend

3) Rewards: is experimentation reinforced in ways that matter? Are R&D people given incentives? People should also not be punished when their attempts to innovate dont work out Else they will not attempt new things in future

How you can foster innovation: 4 steps

If you want to prevail as a manager, you need to know how to make innovation happen within an organization FIGURE 10.4: PAGE 328

1) Recognise problems and opportunities and devise solutions Change may be needed because you recognize a problem or recognize an opportunity Recognise a problem Find a better way Problems suggest solutions, such as new business ideas

Recognise an opportunity May come from employees who regularly expose themselves to new ideas Ideas originating at the grassroots level of an organization may be a particularly fruitful source of innovation

2) Gain allies by communicating your vision

Persuade those inside and outside the organization to support you Details youll need to communicate to gain support:

Showing how the product or service will be made How to profitably make the new product or deliver the new service?

Showing how potential customers will be reached Consider breaking down the task of what the customer wants into discrete steps (job mapping) Determine the points at which customers might need help

Demonstrating how youll beat your competitors Other companies might be pursuing the same breakthroughs Better to focus on a smaller number of innovations

Explaining when the innovation will take place Timing is important Need to think about when employees will be prepared to make the product and customers primed to buy it

3) Overcome employee resistance, and empower and reward them to achieve progress

Once managers have been persuaded, need to do the same with the people reporting to you Or, overcome their resistance Need to remove obstacles that limit them in executing the vision Hand out periodic rewards- recognitions, celebrations, bonuses for tasks accomplished The rewards should not be withheld till the end of the project, but given out for the successful accomplishment of short term phases to provide constant encouragement

4) Execute well It makes or breaks an organisations attempts at bringing new products and services to market Execution requires organisations to effectively manage people,g roups and organizational processes and systems in the pursuit of innovation The innovation process must then be managed