THE CHALLENGE OF CHANGE
THE SYSTEMS APPROACH: FINDING NEW WAYS TO WORK TOGETHER
The systems approach to managing change views the organization as a unified system composed of interrelated units. This gives managers a way to look at the organization as a whole and as a part of a larger external environment. In an organization engaged in downsizing, managers may use a systems approach to determine how to cut costs.
One approach, the “horizontal corporation,” breaks the company into its key processes and creates teams from different departments to run them. It’s about managing across, rather than up and down.
This suggests that managers can no longer function within the traditional organi-zational chart, but must integrate their department with the goals and strategy of the whole organization. To accomplish this, managers must communicate with other de-partments as well as with employees and customers. By using a systems perspective, a
ISBN: 0-536-63893-4
An Experiential Approach to Organization Development, Seventh Edition, by Donald R. Brown and Don Harvey.
Published by Prentice Hall. Copyright © 2006 by Pearson Education, Inc.
manager can maintain a balance between the needs of various units of the enterprise as well as total system goals and objectives.
Downsizing, alone, does little to change the fundamental way that work gets done in a corporation. To do that takes a different organizational model: the horizontal cor-poration. Some of corporate America’s biggest names, from DuPont to General Elec-tric and Motorola, are already moving toward this idea. In the quest for greater efficiency and productivity, they are beginning to flatten the hierarchical organization charts that have defined corporate life. Some of these changes have been underway for several years, such as total quality management, reengineering, and process redesign. The trend is toward flatter, more adaptive organizations.
The Organization as a System
A system is a set of interrelated parts unified by design to achieve some purpose or goal.
Organizations are systems. Every organization can be viewed as a number of interrelated, interdependent parts, each of which contributes to total organizational functioning and to the achievement of the overall organizational goal.The systems approach is one of the most important concepts in OD because it deals with change and interrelationships in complex organizations.The notion of system interdependency is critical because a change in one part of an organization system has consequences in other parts of the organization.
A system is “an organized unitary whole composed of two or more interdependent parts, components, or subsystems and delineated by identifiable boundaries from its en-vironment.”21The term is used in many different contexts: for example, defense system, weapons system, solar system, and stereo system.
Systems have several basic qualities:
• A system must be designed to accomplish an objective.
• The elements of a system must have an established arrangement.
• Interrelationships must exist among the individual elements of a system.
• The basic ingredients of a process (the flows of information, energy, and materi-als) are more vital than the basic elements of a system.
• An organization’s overall objectives are more important than the objectives of its elements, and thus the narrow objectives of a system are de-emphasized.
The systems approach recognizes and focuses on the effect of managerial functions and the interrelationship between subelements of the organization. Rather than view the organization as a static set of relationships, it views the organization as a set of flows of information, personnel, and material.Time and change become critical aspects.The flow of inputs and outputs is a basic starting point in the description of a system (see Figure 2.2). Three basic elements make up such a system:
Organization
1. Inputs are the resources that are applied to the processing function.
2. Processes are the activities and functions that are performed to produce goods and services.
3. Outputs are the products and services produced by the organization.
A business firm takes such inputs as materials, people, and energy, and converts them into the products or services desired by consumers. The organization receives in-puts from its environment, acts on the inin-puts by transforming them, and returns the transformed elements to the environment as products. The inputs to a hospital include money, equipment, trained staff, information, patients, and physicians; the outputs include new research, well patients, improved medicine, and trained doctors and nurses.
Open Systems
There are two basic types of systems: open and closed.A closed system is one that is self-contained and isolated from its environment. In the strictest sense, closed systems exist only in theory, for all real systems interact with their environment.
The open system is by far the most important type of system, and it will be empha-sized in our treatment of organizations. An open system influences and is influenced by the environment through the process of interdependency, which results in a dynamic (changing) equilibrium. A business organization provides an excellent example of the process of reciprocity and, therefore, of an open system. The open system is in contin-ual interaction with its environment and therefore achieves a steady state of dynamic equilibrium. The system could not survive without the continuous influence of trans-formational outflow. As the open system interacts with its environment, it continually receives information termed feedback from its environment, which helps it adjust. The departments also interact with one another, because they have interacting tasks to per-form. Therefore, the overall efficiency of the system depends upon the level and degree of interaction with other elements.
One of the current trends in OD is a shift toward using a more integrated systems approach to organizational improvement. The systems approach, then, allows managers to anticipate both immediate and far-reaching consequences of organizational changes.
See Our Changing World: Back to Basics at Ford Motor for an example of a situation where a systems analysis approach is useful.
Ford into areas like e-commerce, parts recycling, and repair shops—with bad results. Ford invested tens of millions in new ventures with Microsoft, Yahoo, Qualcomm, and others to market cars on the Web or to bring Internet services into Ford cars.
Ford had fallen into a sorry state of disrepair. Its profits, market share, quality, and morale were spi-raling downward as Nasser tried to turn Ford into something, anything, other than a traditional car company. His willingness to squeeze suppliers, upset dealers, and shed experienced employees in his rush to remake Ford as a consumer company made him a lightning rod.
THE NEW CEO
In 2001, the board appointed William C. Ford Jr., the well-liked great-grandson of founder Henry Ford, to replace Jacques Nasser. Bill Ford shed the ancillary businesses, dubbed his turnaround plan OUR CHANGING WORLD: BACK TO BASICS AT FORD MOTOR22
The Ford Motor Company is no longer a U.S. com-pany with international operations. For many years it has had worldwide production and sales. But now it is depending on its European operations to serve as a model for Ford in North America.
IMPLOSION
As late as 2000 Ford was hailed by Wall Street as the best-managed of the Big Three auto-makers. It earned an adjusted profit of $2,032 per vehicle in North America. By mid-2002, however, Ford was losing $190 per vehicle. As recently as 1998 Ford had reported profits of $21.3 billion, but in 2001 it lost $5.5 billion. “It wasn’t a gradual decline,” CEO Bill Ford says. “It was a massive implosion. “What has happened to them is amazing,” says a top Gen-eral Motors executive. “Nobody saw it coming.”
Most of the problems occurred under Jacques A. Nasser, Ford’s former CEO. Nasser diversified
(continued )
ISBN: 0-536-63893-4
An Experiential Approach to Organization Development, Seventh Edition, by Donald R. Brown and Don Harvey.
Published by Prentice Hall. Copyright © 2006 by Pearson Education, Inc.
“back to basics,” and declared a focus on automo-biles. Ford is already warning that it will take at least three to five years to fix its deep problems. Last year, the auto maker cut 350,000 vehicles from produc-tion by slowing assembly-line speeds, eliminating most overtime, and cutting shifts at several plants and even cutting 35,000 jobs and closing factories.
The CEO said. “You have to lay out your vision.”
THE EUROPEAN MODEL
There is one bright spot for the company: Ford of Europe. The European unit racked up $2.5 billion in losses through the 1990s.To correct the problem, Ford Motor put Nicholas V. Scheele along with his number-two man, David W. Thrusfield, in charge of bringing about change. “It was a broken business,”
says Thrusfield. The two closed three plants and re-duced production capacity by 25 percent. The four big car-assembly plants were overhauled so that they could produce more than one model on the same line.These “flex factories” saved the company hundreds of millions of dollars it otherwise would have had to spend on separate assembly lines.“Ford did it right in Europe,” says J. P. Morgan Securities analyst Himanshu Patel. Thrusfield and Scheele also went to work on the uninspiring lineup of mod-els. More new cars are now rolling out and faster.
Says one Ford official:“The trick is to look at every-thing.”
Scheele is now Ford president and right-hand man to Bill Ford. Europe isn’t just a bright spot for Ford—it’s the model for the entire turnaround ef-fort in North America. “Ford of Europe was the biggest turnaround of any unit in Ford’s history,”
Bill Ford says. “In many ways, it’s the template for what to do here.” Many of the measures imple-mented in Europe are being adopted even before it’s clear whether they are working there.Although this is a gamble, Ford Motor may not have much of a choice, because there is talk on Wall Street of Ford’s demise. If the changes at Ford of Europe stall, then doubts about Ford’s overall strategy will quickly multiply. Bill Ford can learn some lessons from Europe. He just has to make sure they’re the right ones.
QUESTIONS
1. Using a systems approach, identify the vari-ous problems at Ford Motor.
2. Of the four orientations managers have to change (sluggish-thermostat, satisficing, reac-tive, renewing/transformational), which is most apparent at Ford?