Spector 2e Instructors Manual

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INSTRUCTOR’S MANUAL

CHAPTER 1: Organizational Change

Main Teaching Point

Organizations engage in a process of strategic renewal in order to respond to changes in their competitive environment. But in order to make strategic renewal work, leaders must find ways to alter the behavioral patterns of their employees through involvement and participation.

Learning Objectives

1. Identify the role of strategic renewal in propelling change. 2. Focus on the behavioral aspect of organizational change.

3. Analyze the dynamics of motivating employees to alter their behaviors. 4. Differentiate the three faces of change.

5. Understand the source of both employee resistance to and support for change.

Opening Case—Tales of Woe at Concord Bookshop

Theory to practice of case: Effective strategic change requires not only

recognition of the need for change but also a successful implementation process. Case Summary: Concord Bookshop is a 64-year-old independent bookstore in New England with a national reputation for sound bookselling and a local

reputation for customer service and interesting programming. The owners want to hire a new general manager to reconsider policies and programming. Three top managers and five more long-time employees are resigning, and local authors and customers have expressed outrage.

Analyzing the Case

1. From whose point of view is the case told?

The case is told mostly from the perspective of former employees and managers as well as concerned customers.

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Concord is experiencing major competition from national bookstores. President Sannounced that a new general manager will be hired who will examine some of the store’s programs and policies in order to remedy the dire financial situation of the company.

3. Why is Concord doing this?

Profit margins for independent bookstores like Concord have gotten very tight over the past few years, due to extensive competition from Barnes & Noble, Borders and Amazon.com.

4. What behaviors will need to be changed?

Concord will need to find a way to get all of the people involved on board in the change process. Since all of them seem to really care about the survival of the organization, the major issue might be one of communication, involvement and persuasion.

5. How should Concord executives go about creating the change?

This question is key to the entire text. Owners, employees, customers and suppliers all wanted to support the organization’s viability. However, Smith’s approach to change created resistance, conflict and resentment. Organizations need to respond to external changes but they need to do so in a way that also effectively manages internal dynamics.

Lecture Outline

I. Strategic Responsiveness

Theory to practice:

• Strategic responsiveness to a dynamic external environment demands organizational change.

• To implement a renewed strategy, organizational leaders need to engage in a change process.

A. Strategic renewal is a change in an organization’s strategy with the intent of regaining sustainable competitive advantage (company examples in exhibit 1-1, p. 4).

B. Strategic renewal requires organizational change (exhibit 1-2, p. 4). Leaders need to align internal processes, structures and systems with the demands of

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 3 that strategy. New organizational capabilities – employee talents and skills – need to be developed to support the strategic renewal.

II. Strategic Renewal through a New Business Model

Key Learning Points:

• It is possible to gain competitive advantage through the creation of a new business model, but changing your existing model will create specific change challenges.

• Adaptation of a new business model within a corporation will require organizational change.

A. A company’s business model is its approach to generating revenue and profit: the nature and configuration of the linkages between its operations. As environments and technologies change, business models also need to change. E.g., Apple Computer faces the challenge of changing its secretive culture to one that actively involves its customers – a major change in business models.

B. Start-up companies often gain competitive advantages by offering novel business models, e.g. Amazon, Starbucks, YouTube, Dell and Southwest Airlines all revolutionized existing businesses. They could do so more easily because they started from scratch (“greenfield”) and could harmonize internal processes and employee competencies with external demands.

C. Existing companies find it much harder to change business models. IBM, Lufthansa and Nissan provide successful examples, but AT&T and Enron show that failure is also possible (p. 6).

D. Effective business model innovation requires effective organizational change and effective change leaders – people that can guide new linkages, new competencies and new behaviors.

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III. Behavioral Change

• If change interventions are to achieve significant and sustainable impact on performance, they must focus on altering patterns of employee behavior.

• Organizational change seeks to create long-term, sustainable alterations in employee behavior.

• The way employees behave impacts the bottom-line performance of the company.

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 4 A. Effective strategic renewal requires behavioral change that aligns employee actions with company strategy in order to achieve high performance.

B. Behavior is the enactment of roles, responsibilities and relationships by employees within the organization. Behavioral change efforts target the patterns of employee behavior.

C. New behaviors need to be long term, sustainable and adaptive to environmental changes.

D. Organizations depend on their employees for high company performance. Employee motivation – the commitment of employees to high personal and high company performance - and the resulting behaviors - are key to a company’s competitive advantage.

IV. Sources of Behavior

• Behavior comes from both the individual and the organizational context. A. The organizational context affects individual behavior and the way they enact their role and relationships in powerful ways through culture, values, leadership, rules and procedures. The company culture at Google, for example, actively encourages employee learning and risk taking so employees are not afraid to openly admit mistakes. Google’s strategy is one of continuous innovation and making mistakes is seen as part of the learning needed to get there.

V. Employee Participation and Resistance to Change

• Employees do not naturally resist change but they often resist change because of the way change is implemented.

• Try to understand the reasons behind employee resistance to change. • Employee resistance is not just a negative force to be overcome; it also

presents an opportunity to learn.

A. Resistance is overt or covert action to maintain the status quo. Employee responses to change can range from “commitment” on one end to “aggressive resistance” on the other (see exhibit 1-3, p. 10).

1. Commitment to the goals of the organization and the change effort (commitment)

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 5 2. A willing involvement in the called-for new behaviors (involvement) 3. Employees speak out in support of change effort without taking any

explicit actions (support).

4. Employees know about change effort but take no action either for or against (apathy).

5. Employees may voice reservation about change effort or may even threaten to quit (passive resistance).

6. Employees make efforts to impede change or undermine the goals of the organization (active resistance).

7. Employees sabotage and subvert the change effort (aggressive resistance).

B. There are many causes for individual resistance: - people may be satisfied with things the way they are - they may see the change as a threat

- they may feel that the costs of change outweigh the benefits - the change process may be mishandled

- they may believe the change effort will not succeed

C. Often managers see resistance as negative but it may present a positive opportunity to learn.

VI. How Managers Inadvertently Fuel Resistance during Implementation

• Participation in the change process is the best way to build support and overcome resistance to change, but it is no guarantee.

• Employee resistance can help leaders to learn – what are the sources of resistance?

• At some point in the change process, employee resistance must be addressed and overcome.

A. Individual differences may affect employee acceptance of or resistance to change but the major factors are the way the process is managed and the degree to which employees are involved.

B. Going back to the causes listed above, managers may fuel resistance by not including employees in the assessment process, by not showing them the

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C. When employees resist, they give managers a valuable chance to learn about perceptions, concerns and underlying problems. Sometimes, though, resistance simply has to be overcome.

VII. Employee Participation Builds Support for Change

• Imposing change from above can lead to employee resistance. • A participative process can help build support for change efforts. • In a unionized environment, employee participation means inviting the

union into the decision-making process.

• Behavioral change seeks to motivate employees to change their behaviors, not to force, coerce or trick them into changing.

A. In the early stages of change, employee participation in problem definition and solution design builds commitment, psychological ownership and motivation for implementation.

B. Imposed change creates resistance, while participation invites commitment. People don’t resist change, they resist being changed. A contrasting example is provided within the same company, General Motors. 1. Imposed changes at their Lordstown, Ohio Vega plant led to resistance and rebellion.

2. Participatory changes at their Livonia Cadillac plant led to support and improved effectiveness.

C. Sustainable change requires motivation on the part of employees for the change. This cannot be created through manipulation or coercion. The

organizational context must be shaped to encourage and support employees’ desire for individual and company change.

VIII. The Three Faces of Change

Theory into practice:

• Not all change is behavioral.

• Turnaround may be necessary but it is not sufficient to ensure long-term effective change.

• Outsourcing is a change technique with important turnaround and transformational behavior change implications.

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motivation and disrupt essential linkages and relationships.

• Effective strategic renewal efforts combine aspects of turnaround, tools and techniques, and transformational behavioral change.

A. Effective organizational change combines the 3 faces of change: turnaround, tools and techniques, and transformation (exhibit 1.4, p. 18).

B. Turnaround – an attempt to improve the immediate financial position of the organization through cost cutting, layoffs, plant closings, and the like. Turnaround may be very necessary but it is painful and costly in areas of morale and

motivation. Turnaround strategies must be paired with process and behavioral strategies; otherwise, they may result in temporary gain and long-term loss.

C. Tools and Techniques – changes in organizational processes, technologies and interactions. These changes are often central for strategic renewal, but unless they are supported by changes in employee behavior, they will not succeed.

-Outsourcing, the farming out of certain value chain activities to external specialists or strategic allies, is one of these techniques.

-Outsourcing has important turnaround (i.e. cost saving) implications. -Unless it is carefully managed, outsourcing can have negative effects. Companies must make sure that employee behaviors are aligned with the company strategy and customer expectations.

D. Transformation – behavioral change on the part of employees with the goal of enhancing human capabilities, aligned with the company strategy and

structure.

IX. Trigger Events and Change

• Trigger events precipitate the need to alter behavioral patterns of employees.

A. Organizational change is initiated in response to a trigger event – some shift that precipitates the need for a change in company strategy and employee behavior.

B. External trigger events can be increased competition, a change in technology or a shift in consumer demands.

C. Internal trigger events can be new leadership in the company or employee dissent.

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A. Strategic responsiveness to a dynamic environment requires organizational change.

B. Change can be triggered internally or externally.

C. Effective change requires that leaders combine the 3 faces of change: turnaround, technology change, and behavioral change.

D. Change implementation may cause resistance. Employee involvement can reduce resistance and increase motivation.

Additional Suggested Reading

• James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperBusiness, 1994).

• Lynn A. Isabella, “Managing the Challenges of Trigger Events: The Mindsets Governing Adaptation to Change,” Business Horizons 35 (September-October 1992).

• Michael A. Mische, Strategic Renewal: Becoming a High-Performance Organization (New Jersey: Prentice Hall, 2001).

• David A. Nadler and Michael L. Tushman, “Organizational Frame Bending: Principles for Managing Reorientation,” Academy of Management

Executive (1989), pp. 194–204.

• Randall S. Schuler, “Strategic Human Resource Management: Linking the People with the Strategic Needs of the Business,” Organizational

Dynamics 21 (Summer 1992), pp. 18–33.

Chapter Discussion Questions

1. Review Exhibit 1-1. Select one of the companies. Based on the brief statement of their renewed strategy (or research the company for further details), think about how patterns of employee behavior will have to change. Enron—would have to hire employees with high skills in sophisticated financial deals (and also make a legitimate profit!).

GE—high value-added products and services require employees with high knowledge base and customer responsiveness.

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knowledge, more customer responsiveness and higher levels of collaboration across organizational boundaries (Jack Welch called it “boundarylessness”). Marks and Spencer—more focused employees who were willing to alter past supply-chain relationships.

Renault—no more French-centric employees, willing and able to travel, work in other cultures (most notably Asian), probably multi-lingual.

Walgreens—greater risk takers, more innovative thinkers.

Facebook – have a more diverse employee population, attuned to and responsive to different customer populations and their varying needs, interests and skill levels.

2. Explore the challenges that faced Morgan Smith at Concord Bookshop. What explanations can you offer for the high level of employee resistance that emerged from the changes?

It seems that employees, customers and other stakeholders were not at all informed about or involved in the change process, which would trigger all of the causes of resistance. While no employees were laid off, the uncertainty surrounding the announcement, combined with a unilateral decision about changes in leadership, seriously affected people’s sense of the mission and culture of the organization. Employees lost faith and thereby, motivation and connectedness.

3. What are the three approaches to organizational change? In what ways are they different and in what ways do they overlap?

Turnaround emphasizes cost-savings, downsizing, and maximizing return on shareholder investment.

Technology involves redoing processes—often by adding new equipment—to make workers more efficient and productive.

Behavioral change involves motivating employees to alter their behaviors in order to achieve new strategies.

Turnaround tends to be short term while behavioral change tends to be long term. Technology can have an enhanced impact on organizational

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change today. Pick three and discuss how they might necessitate behavioral change on the part of organizational employees.

Globalization requires greater flexibility, adaptability, and ability to work together.

Changing labor markets requires greater attention to attracting and retaining the “right” employee.

Increasing diversity requires greater flexibility, adaptability, and ability to work together.

Increasing salience of stakeholders requires greater attention on growth opportunities, and ability to work efficiently.

Regulation and deregulation requires greater adaptability.

Mergers and acquisitions require the ability to work effectively in different organizational cultures.

Rise of the Internet requires greater flexibility, adaptability, and ability to work together.

5. Why is motivation important to behavioral change? How might leaders approach change differently if they are trying to motivate employees to change rather than force them to change?

Using coercion or manipulation to create behavioral change will work against the long-term interests of change leaders. Coerced or manipulated behaviors are not likely to be long lasting; that is, even if leaders can force employees to change their behaviors, those employees are likely to revert back to their old behavioral patterns over time. Also, coercion and manipulation lead to

compliant behavior, but they drive out creativity—the source of innovation. Finally, using coercion and manipulation would be unethical.

Final Case—Read “Two Stories of Outsourcing” and answer 2 questions.

Introducing the Case

The case illustrates the different faces of change and how they interact through two different stories of change.

The first story is told by John Hearst, an engineer from Auratek,

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 11 a very successful history of quality control through cooperative efforts between groups of engineers in the design, verification and fabrication process. In order to save costs, the company decided to outsource the bulk of the verification process to India, with disastrous results for morale, quality and communication.

The second story is told by Caroline Matthews. She is an engineer working for K-PUB, an electronic publishing company targeting IT professionals with printed and online materials. K-PUB decided to outsource what was called the “translation process” – converting desktop publishing formats into XML – a difficult, often subjective process requiring a lot of quality assurance to ensure acceptable results. Internal efforts to improve the process using software and automation were only partially effective. When K-PUB outsourced the process to India, the process itself took longer but they realized a substantial cost savings. The company hopes to take back the process once it is completely automated. 1. What is the nature of the changes sought by Auratek and K-PUB? Are they turnaround, tools and techniques, transformation or some

combination?

Auratek was turnaround, they were after cost savings only – there were no other problems that necessitated the change. Their process required transformation also but this was severely neglected. K-PUB had a real operational problem involving a need to change tools and techniques as well as a need to contain costs.

2. How do you account for the apparent differences in effectiveness in the use of outsourcing by these two companies?

In the case of Auratek, the company made a very unilateral decision to intervene in an otherwise very effective process and one that had been created through a lot of employee motivation, commitment and involvement. The company was doing well, their product was an industry leader and they were managing quality very well. Making this change had no real benefits to the employees who were not even properly involved. At the same time, they were relying on the few remaining engineers to make the process work – something which was doomed to failure.

In the case of K-PUB, the ongoing nature of the problem was clear and the company remained interested in eventually taking the process back, once the automation efforts were fully implemented. In the meantime, the entire task of translation was outsourced, not requiring additional participation in the work from existing employees.

CHAPTER 2: Theories of Effective Change Implementation

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 12 The teaching point to be made by Chapter 2 is to introduce students to key theories of effective change implementation and change resistance.

• Present the three phases of the planned change theory of Kurt Lewin. • Delineate the key insights to effective implementation offered by the field

of Organizational Development.

• Differentiate between content-driven and process-driven change.

• Explain an approach to change management that emphasizes task requirements and performance results.

• Offer a framework for change implementation that encompasses multiple theories.

Opening Case—Turnaround and Transformation at Duke University Children’s Hospital

Key Learning Point of Case:

The case illustrates an effective change implementation at a university hospital using key concepts in this chapter, such as process-driven change and task alignment.

Analyzing the Case

The case is told from the point of view of Jon Meliones, the chief medical director of the Duke University Children’s Hospital.

2. What is leading the Children’s Hospital to alter their strategy?

Changes in insurance reimbursement for patients have put tremendous pressure on net margins; revenues are declining, and patient and staff satisfaction are “at an all-time low.”

3. What steps has Meliones taken?

(1) Led staff through a shared diagnosis of root causes of financial problems.

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 13 (2) Created cross-functional team with the goal of figuring out how to provide both excellent patient care and excellent financial performance; articulated in strategic renewal motto: “No margin, no mission.”

(3) Piloted change in a single unit: pediatric intensive care. 4. What behaviors will need to be changed?

Need to eliminate “fiefdoms” of people focusing on individual goals and develop a shared commitment to improving margins and serving patients. 5. How did he drive change within the pilot unit?

Roles, responsibilities and relationships within the unit were redesigned to serve the new strategy; balanced scorecard (BSC) was used to reinforce behaviors.

6. How effective was the effort?

The hospital returned to profitability in three years.

Lecture Outline

I. Theories of Change Implementation

To understand effective change implementation requires understanding what levers can be applied - diagnosis, cross-functional teams, measurement systems - and in what sequence.

• Theory into Practice

Effective change involves both content—what is being changed—and process—how the changes are being implemented.

Telling employees why they need to change will not build motivation to change; it is necessary, but not sufficient.

Don’t assume that poor organizational performance will create an urgent need to change within a company.

1. Kurt Lewin’s Field Theory in Social Science

a. Context plays a key role in shaping individual behaviors: B = f(P,E) with B = behavior, P = person and E = environmental context

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members ought to behave.

• Group norms keep old habits in place.

• Social habits only change when there is dissatisfaction with status quo. • To break the “social habits” that support current patterns of behaviors,

effective implementation needs to start with dissatisfaction, disequilibrium, and discomfort.

b. To create change, people must go through 3 phases:

• unfreezing: dissatisfaction or frustration with the way things are • moving: altering patterns of behavior

• refreezing: institutionalizing the new patterns of behavior • See examples on p. 30, exhibit 2-1

c. To create change, focus first on changing group norms, then individual behaviors

To break the “social habits” that support existing patterns of behaviors, start with creating dissatisfaction, disequilibrium and discomfort.

In order to implement change, target group norms first and then focus on individual behaviors.

II. Organization Development and Change Implementation

1. Organization Development is an approach to organizational effectiveness that calls on the fields of behavioral and social sciences to provide guidance to planned change efforts.

• Ten key insights from OD are shown in table 2-2 on page 31: 1. systems perspective

2. alignment perspective 3. participation perspective 4. social capital perspective 5. teamwork perspective

6. multiple stakeholder perspective 7. problem-solving perspective 8. open communications perspective 9. evolution/revolution perspective 10. process facilitation perspective

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a. Open Systems Perspective (OSP): OS isan organism or entity that exists in a constant interactive state with its external environment. An OSP presents a relational view on organizations and stresses the importance of alignment: congruence or compatibility between and among various

elements of a system, including the internal context, the external environment and patterns of employee behavior.

Performance problems often reside in the hand-offs between employees, between tasks, between functions, and between units; these are the problems to be targeted first for change.

b. Multiple Stakeholder Perspective (MSP): Stakeholders are individuals or groups who lay legitimate claim to the performance of the organization. An MSP argues that stakeholders should be seen as citizens of the

organization and their concerns and interests must be addressed. • Theory into Practice

If leaders are successful at aligning the interests of multiple

stakeholders—shareholders, employees, customers, suppliers, the host community and so forth—they can contribute to outstanding performance open communications

c. Open Communications Perspective: Conflict must be approached with an attitude of problem solving, openness and trust. Also, try to create a sense of ownership and inclusion.

Don’t shy away from conflict. As individuals articulate and analyze differences, they can improve organizational effectiveness.

Be sure to create an inclusive change process—one that builds ownership of and commitment to the desired improvements.

III. Process-Driven Change Interventions

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programs—customer relationship management, balanced

scorecard and lean enterprise, for example—are used as the driver and centerpiece of implementation.

• Process-driven change: an approach to change implementation that emphasizes the methods of conceiving, introducing and institutionalizing new behaviors and uses content as a reinforcer rather than a driver of new behaviors.

Content-driven changes are very popular in organizations because they are quick, simple and trendy but they are rarely successful because they do not build motivation for change. Content driven changes:

• Serve as the initial centerpiece for launching and driving transformation throughout the company or unit.

• Are imposed by top management • Do not proceed from shared diagnosis. • Rely on standardized, off-the-shelf solutions. • Are imposed uniformly across the organization • Long list of examples on p. 38, exhibit 2.5 Theory into Practice

• There are no one-size-fits-all solutions to performance problems in your organization.

• Just because top leaders believe in the need for change doesn’t mean that all employees share that conclusion.

• Content-driven change often fails because of inadequate attention to the process of change.

• Repeated failure to implement change effectively can build cynicism in an organization, “inoculating” it against future change efforts.

• Content-driven change is both tangible and measurable—but that doesn’t make it effective.

B. Process-Driven interventions create a collaborative approach to change, using involvement, participation and task alignment.

1. Task alignment is an approach to behavioral change that starts with the identification of the key strategic tasks of an organization or unit and then asks employees to redefine their roles,

responsibilities, and relationships in order to perform those tasks. 2. Task alignment focuses behavioral change on the requirement to

improve the manner in which employees perform the strategic tasks of the organization.

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improving performance and implementing strategy and then seeks appropriate supportive behavioral change.

4. Line managers have far greater ability to diagnose business and performance problems than to engage in psychological or

therapeutic analysis of individuals.

5. By focusing on solving real business problems, task alignment takes advantage of the knowledge and expertise in the

organization.

6. Tangible performance results that accrue from task-aligned change interventions reinforce the efficacy of such efforts, which, in turn, creates momentum for renewed change intervention. Task alignment builds commitment by focusing on real and immediate performance problems and producing tangible results.

7. Task alignment increases not only the motivation of employees to change their behavior but also managers to support organizational change.

Theory into Practice

• Process-driven change seeks to create an organizational climate in which employees will be motivated to adopt new behaviors consistent with the strategic direction of the organization.

• Task alignment combines the insights of organizational development with a bottom-line focus on performance.

• A task-aligned approach to change implementation can help create motivation to adopt new behaviors by focusing on real, immediate business problems and producing tangible results.

C. Building a Theory of Change Implementation

Exhibit 2.6 on page 42 shows the 4 key components to effective change implementation: Lewin’s field theory, OD, process-driven change and task alignment. These create a sequential 4-step process model, supported by 2 key concepts: shared diagnosis and mutual engagement, as shown on page 43.

1. Shared diagnosis is a process that creates widespread agreements about the requirements for change – the dissatisfaction needed for “unfreezing.”

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outcomes and task alignment.

3. Step 2: Organizations can and should offer employees help in enacting new behaviors.

4. Step 3: Shared diagnosis and task alignment should be followed by people alignment.

5. Step 4: New behaviors must be reinforced through establishing systems and structures – the refreezing stage.

6. Mutual engagement at the core is necessary to ensure learning and commitment at every stage. This requires 4 things:

- mutuality: all parties accept the belief that the other party has the capacity and willingness to learn and change

- reciprocity: all parties accept the belief that each side can learn from the other side

- advocacy: willingness and ability of all parties to be open about their own positions and assumptions

- inquiry: willingness and ability to allow others to question and challenge their positions

7. Finally, avoid implementation traps, especially those associated with skipping steps and ignoring key principles, as shown in exhibit 2-9 on p. 48.

Theory into Practice

• Kicking off change implementation with shared diagnosis builds both dissatisfaction with the status quo and a commitment to enact new behaviors.

• Asking employees to enact new behaviors—roles, responsibilities and relationships—can be supported by organizational help in learning new skills.

• Effective change implementation requires new skills and competencies on the part of the organization’s employees.

• Altering formal organizational systems and structures can come at the back end of a change implementation in order to refreeze new patterns of behavior.

• Mutual engagement at every stage of the implementation process helps assure learning and builds commitment.

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integration of key theories of organizational change.

1. How might Blue Cloud general manager Shel Skinner have handled his attempt to introduce more efficient software development differently?

Skinner should have involved his engineers in a process of shared diagnosis and task alignment. Rather than simply superimposing the Agile methodology on the work structure, a systematic process-driven change intervention would have worked more effectively.

2. According to Kurt Lewin, why is it so difficult to motivate employees to alter their patterns of behavior?

Lewin pointed out that people’s behavior exists within an equilibrium of forces that keep it in place. The only way to change that behavior is by creating a disequilibrium – some sense of imbalance or dissatisfaction that generates the motivation to change. Because people respond positively to the social norms in their environment, changing the social context is key to the process of changing behavior.

3. Discuss the various ways in which change theorists have attempted to introduce performance and results into the implementation process.

Most of the approaches have been content-driven and disconnected with the key processes, tasks, structures and relations in the organization. While this is

usually a quick and easy approach, it is also doomed to failure. A process driven approach and in particular one that emphasizes task alignment ensures that the focus in the change process remains on the goals and tasks of the organization. It also ensures a collaborative process that involves people, structures and tasks. 4. What were the sources of resistance at the Concord bookshop in chapter 1? Most of those sources were social in nature and had to do with a satisfaction with the status quo. Involving employees in the diagnostic process would have helped to generate motivation for change.

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(Santa Monica, CA: Goodyear Publishing, 1980).

• Michael Beer, Russell A. Eisenstat, and Bert Spector, The Critical Path to Corporate Renewal (Boston: Harvard Business School Press, 1990). • Michael Beer and Bert Spector, “Human Resource Management: The

Integration of Industrial Relations and Organization Development,” in Kendrith M. Rowland and Gerald R. Ferris, eds., Research in Personnel and Human Resources Management: A Research Annual, Vol. 2

(Greenwich, CT: JAI Press, 1984), pp. 261–297.

• Leon Coetsee, “From Resistance to Commitment,” Public Affairs Quarterly (Summer 1999), pp. 204–222.

• Kurt Lewin, Field Theory in Social Science: Selected Theoretical Papers (New York: Harper and Row, 1951).

Case—The Asda Way of Working (A)

Introducing the Case

Asda is a struggling grocery store chain in need of transformational strategic renewal (Chapter 1). The board imports a new CEO—Archie Norman— and the case follows Norman for the first six months as he hires a new top management team, articulates a new strategy and set of values, and anticipates moving change into the stores.

Key Learning Point

Effective strategic renewal requires change at all organizational levels and a leader who can orchestrate that change.

Assignment Questions for Students:

1. Based on your understanding of the theories of effective change

implementation, how would you evaluate the change leadership of Archie Norman and his top executives during their first six months at Asda?

Remember, this is still early in the process. Still, students can ask: is he off to a good start, a bad start, or somewhere in between? Once you read all three cases in the sequence, you will realize that this has been a remarkable success. However, at this stage, you are likely to get a lively debate. Here are some of the points that may come up.

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order to create the required disequilibrium. Some students will wonder, however, whether he is prematurely negative when he says everything must change.

• He has spent a lot of time in three stores gathering data from store employees about the operation. Some students will wonder if he and his top team are spending too much time on their own coming up with a new strategy.

• Should he have fired the CFO before coming into Asda? Some will say no; it was too quick. Others will say the CFO should be fired for allowing the company to get into this mess.

• He recruited a new team. Some students will note the lack of retail experience the team has (he did keep one manager from the past). • He accomplished a great deal in his first six months: a new

strategy, an articulated set of values, and a diagnosis of the situation. Some will say he hasn’t done enough because nothing has changed in the stores. Others will see this as quite a bit for six months (don’t overlook the closing of non-food operations,

headcount reduction, and a pay freeze!).

2. Based on your understanding of effective change implementation, what specific steps would you recommend be undertaken over the next 18 months?

Shared diagnosis – make sure that everyone is on board as much as possible with the analysis on what is wrong and what is right. This is a key requirement if Asda as a whole is going to move forward. Remember, shared diagnosis is designed to create widespread agreements about the requirements for change – the dissatisfaction needed for “unfreezing.”

Step 1: Moving to redesign requires a focus on strategy, performance outcomes and task alignment; the first key steps in this direction have already been taken through the formulation of the renewal strategy: the statement of corporate strategy, the articulation of company values and the blueprint for the Asda Way of Working.

Step 2: Organizations can and should offer employees help in enacting new behaviors –Norman needs to be very conscious of the kinds of help that corporate and store level managers might need to put this new approach in place. Just announcing it is not enough. It will take a lot of work to get everyone to understand the detailed implications of this at the task alignment level. Step 3: Shared diagnosis and task alignment should be followed by people alignment. These strategies too will need to be worked out.

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 22 Step 4: New behaviors must be reinforced through establishing systems and structures – the refreezing stage. Norman needs to be conscious of the

necessary impact of these changes on rewards systems and other structures. Norman needs to remember the importance of mutual engagement at the core which is necessary to ensure learning and commitment at every stage. The management team’s perception of Norman as “controlling” is potentially problematic. On the other hand, he seems to have embraced principles of mutuality, reciprocity, advocacy and inquiry, as evidenced in his emphasis on empowerment, involvement, meetings and the principle of equality. He needs to be careful to avoid implementation traps, especially those associated with

skipping steps and ignoring key principles, as shown in exhibit 2-9 on p. 48. CHAPTER 3: Organizational Diagnosis

Main Teaching Point

To initiate behavioral change, leaders need to unfreeze “social habits” by creating a sense of dissatisfaction with the status quo. To do that, effective organizational change implementation starts with diagnosis; that is, a dialogue about the need for change in response to how best to achieve strategic renewal and the requirements for effective implementation.

Describe the role of diagnosis in assessing behaviors and values and in creating dissatisfaction with the status quo.

Discuss the use of a systemic framework for guiding diagnosis.

Explore ways to overcome the “climate of silence” that blocks open, candid dialogue.

Provide the key ingredients of a diagnostic intervention.

Define the role played by after-action reviews in creating quick learning and improvement.

Opening Case—Bringing GE’s “Magic” to Home Depot

Key Learning Point of Case:

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Robert Nardelli, newly appointed CEO of Home Depot. (HD) 2. What type of change is Nardelli attempting to implement?

Nardelli implemented a transformational change. Previously, Home Depot used a decentralized, autonomous store structure, balancingthe advantages of size with a culture that promoted responsiveness to local customers. Nardelli is trying to implement a major change, focusing centralization and standardization to accomplish operating efficiencies and discipline. There was also a major increase in part-time employees.

3. What has precipitated the requirement for change (trigger events)? Nardelli was hired to lead Home Depot to a new generation of growth. 4. What was Nardelli’s approach to change?

The case suggests that Nardelli brought a formula with him based on his experience at GE. There was no diagnosis and no participation. In response, many long-term managers left and customer satisfaction declined significantly. 5. Was the change accepted?

No. It seems that managers, employees and customers all rejected the change. There was no involvement of any of the parties in the change process. The results were negative. While there was expansive growth (from $42 billion in revenue in 2000 to $81 billion in 2005), HD stock declined from $37 to $23 while Lowe’s – HD’s main competitor – gained both market share and a 210% increase in stock price. In 2007, Nardelli resigned only to be hired by Chrysler.

6. What did Lowe’s do that was different from Home Depot?

Lowe’s focused on customer satisfaction and relied on full-time employees.

Lecture Outline

I. Effective change starts with actions, but not with solutions. A. That’s the lesson of the HD case!

B. Diagnosis is the process of learning about the dynamics of the

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D. Diagnosis also needs to build consensus around how things need to be changed.

E. The sequential implementation model starts with shared diagnosis to provide the basis for unfreezing.

F. Only when the same diagnosis is shared by many people, can the change process move forward effectively.

G. Diagnosis can occur on the individual, group and organizational levels and create a shared dialogue about how the organization can meet the

demands of its renewed strategy.

Theory into Practice

• Don’t expect formulas—solutions that have worked in the past and are imposed on the current situation—to work for your organization. That approach to change can be overly simple, misleading and dysfunctional.

• The most effective change implementation starts with a diagnosis that is shared by many employees at multiple organizational levels. • Use diagnosis as the preliminary stage in implementing change. II. Requirement for a Systemic Framework

A. Diagnostic framework is a roadmap for analyzing alignments that makes explicit both the key elements of an organization that need to be aligned and the interconnections and interdependencies among those elements.

B. Diagnosis should be guided by a framework. This framework should help the organization understand what needs to be changed, why and how by offering a general model. The framework should lead people to systemic thinking and identifying disjunctions.

C. Example: FBI – after 9/11, focus changed from battling criminals to preventing attacks. This was a whole new model of thinking about the organization.

D. Framework should be complemented by open dialogue about what needs to happen.

E. The framework should be:

1. explicit – all elements and connections should be clear

2. operationally defined – focus on measurable concepts and criteria 3. empirically validated – backed up by knowledge and data

4. acceptable through face validity – must make sense to organizational members

5. generalizable – applicable to different organizations and settings Theory into Practice

• In order to set the stage for effective implementation, diagnosis can do more than target specific elements of the organization; it can focus on the entire organization.

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and shared diagnosis.

III. Starting with Mutual Engagement

A. Dialogue involves a structured, collective discussion among two or more parties without a predetermined outcome.

B. The goal of dialogue is learning. The process of participation in dialogue builds commitment.

• Creating a dialogue offers the opportunity for an open and honest conversation among employees.

IV. Organizational Enablers of Dialogue

A. Dialogue is risky business.

B. Example of Carleton Fiorina at HP: Fiorina set about creating a major change. Executives failed to speak up about her reorganization plan even though they did not fully understand or necessarily agree with the plan. This is an example of organizational silence.

C. Organizational silence is the lack of truthful dialogue in organizations caused by the widespread assumption on the part of employees that candid feedback and the open exchange of ideas will have either no positive impact or negative consequences to the individual, or both. D. Hierarchy creates power distance; this in turn encourages silence and

compliance, and discourages dialogue.

E. Power distance most often exists in vertical relationships but it can also exist horizontally, between functions and departments.

F. Because power distance and power inequities can hinder the open exchange of ideas and information in a dialogue, managers can take these steps to equalize power:

a. Delayering—removing hierarchical barriers that create distance and distort communications.

b. Decentralizing—pushing down decision making to close the gap between decision makers and “doers.”

c. Egalitarianism—removing external “artifacts” of status differentials. d. Third-party facilitation—structuring effective “rules-of-engagement” around feedback and dialogue.

e. Representation—inserting voices from multiple levels, both vertical (managers, shop-floor employees) and horizontal (union and

management, various functions), into dialogue.

f. Teamwork—building shared purpose and mutual responsibility to ensure equal participation and influence by all members in dialogue.

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psychological safety – a belief on the part of employees that the

organizational climate is conducive to taking personal risks, especially in dialogue.

• Don’t confuse passive acceptance with agreement.

• Leaders can ask themselves – has their organization bred a “climate of silence that discourages subordinates from speaking up and discourages bosses from seeking feedback”?

• A large power distance between parties in a dialogue inhibits openness and risk taking while distorting communications.

V. The Consultant Role

A. Consultant refers to any individual possessing a broad range of

diagnostic and developmental skills who contracts with the organization’s leaders to facilitate an intervention.

B. Consultants can come from outside the firm or they can be internal to the company.

Theory into Practice:

• Leaders can call on a consultant to introduce and teach new dialogue skills to organizational employees.

VI. Getting started with organizational diagnosis

A. Diagnosis consists of 4 steps:

1. collecting data on the organization and the environment 2. Entering into a dialogue of discovery

3. Receiving and providing feedback on what has been learned 4. Institutionalizing dialogue and diagnosis

B. Diagnosis should follow 6 principles (see exhibit 3-2, p. 68): 1. Systemic focus 2. Consultant facilitated 3. Client-oriented 4. Data-based 5. Honest conversation 6. Psychological safety VII. Data Collection

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The three forms and their advantages and disadvantages are summarized in exhibit 3-4 on p. 72.

1. Questionnaires are self-administered paper-and-pencil data-collection forms, often stressing areas of behavioral interaction such as

communications, goals and coordination (see example in exhibit 3-3 on p. 70).

They are easy to use, cheap and can cover many people in a short time, but they are not good at generating rich data nor do they create

engagement.

2. Diagnostic interviews are a form of data collection in which a trained diagnostician meets with an employee, or small groups of employees, to solicit information pertaining to the performance of the organization. They generate rich data. Consultants or trained employees can conduct these interviews. Results may be hard to quantify and they lack anonymity. 3. Behavioral observation is a form of data collection in which a trained diagnostician can watch actual behaviors of employees.

Observers can observe from a distance or they can become participant observers. Good observation requires training and is time consuming. Theory into Practice:

• Make sure that diagnosis flows from valid data about the organization.

• The process of collecting data can help build motivation and commitment to altering patterns of behavior.

• Be careful about the overuse of questionnaires in collecting data about organizational effectiveness. They do not create mutual engagement.

• Use diagnostic interviews and behavior observation to collect rich and valid data about how employees behave and how the

organization functions. VIII. Creating a Dialogue of Discovery

A. Discovery is the process of analyzing and making sense of data that has been collected as part of an organizational diagnosis.

B. The first requirement is determining who to engage. Involving a blend of people and functions will help ensure a systemic perspective. It will create what Senge calls an exploration of “complex difficult issues from many points of

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individual.

C. To ensure the systemic nature of the process, use a framework such as was presented earlier in exhibit 2-3 on p. 32.

D. The discovery phase of diagnosis involves a dialogue among employees concerning the validity and meaning of the data that has been collected. Theory into Practice:

• Mutual engagement in the discovery stage will help both to assure the validity of the conclusions and build commitment to corrective action.

IX. Closing the Loop

A. Feedback is the process of receiving information focused on the effectiveness of one’s actions and performance

B. Feedback takes place during the discovery phase. It can also occur later when results are communicated back and employees react to the reports. This allows the feedback loop to become continuous and ongoing.

C. Closing the loop here means making feedback an ongoing process. D. Two mechanisms advance the feedback process:

1. Feedback from top management can occur in face-to-face groups to promote rich and open dialogue

2. The learnings and the change plans should be presented as tentative rather than final, inviting additional dialogue and discovery.

Theory into Practice:

• Mutual engagement can be enhanced when top management feeds back to employees what it has learned from the diagnostic process and uses that feedback as an opportunity to generate more learning.

X. After Action Reviews

A. After Action Review (AAR) is an organized, disciplined approach to shared diagnosis and mutual dialogue in the immediate aftermath of a specific action or event.

B. AARs were originally developed by the U.S. Army as a way to promote learning.

C. Example of Wall and Somerset company – a large corporate contract was fumbled. Using an AAR, they were able to learn what went wrong and develop an action plan to correct it.

D. AARs involve 8 components:

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4. Review is conducted by participants in the event. 5. The review is governed by open-ended questions 6. Review identifies strengths and weaknesses. 7. Review leads to new actions.

8. Lessons of the review become part of future training. Theory into Practice:

• After-action reviews provide an opportunity for a sharply focused and timely mutual engagement that can lead to quick corrections.

XI. Conclusion

If the need for change is urgent, executives may be tempted to rush toward a solution. Because of power distance, organizational silence may appear as agreement and the change effort will fail. On the other hand, mutual engagement in dialogue, diagnosis, feedback and review help to generate data, motivation and commitment. An organization’s ability to do this successfully will depend on its culture – this will be explored in the next chapter.

Key learning point: client-centered consultants can build commitment to learning, motivation to change and competency on the part of employees to implement diagnosis in the future.

Additional Suggested Reading

Chris Argyris, Flawed Advice and the Management Trap: How Managers Can Know When They’re Getting Good Advice and When They’re Not (New York: Oxford University Press, 2000).

Michael Beer and Bert Spector, “Organizational Diagnosis: Its Role in Organizational Learning,” Journal of Counseling and Development 71 (July-August 1993), pp. 642–650.

Peter Burrows, Backfire: Carly Fiorina’s High-Stakes Battle for the Soul of Hewlett-Packard (New York: John Wiley & Sons, 2003).

Edward E. Lawler III, David A. Nadler, and Cortlandt Cammann, Organizational Assessment: Perspectives on the Measurement of Organizational Behavior and the Quality of Work Life (New York: John Wiley & Sons, 1980).

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David A. Nadler, Feedback and Organization Development: Using Data-Based Methods (Reading, MA: Addison-Wesley, 1977).

Richard E. Walton, Interpersonal Peacemaking: Confrontations and Third Party Consultation (Reading, MA: Addison-Wesley, 1969).

Elizabeth Wolfe Morrison and Frances J. Milliken, “Organizational Silence: A Barrier to Change and Development in a Pluralistic World,” Academy of Management Review 25 (October 2000), pp. 706–725.

1. How might Bob Nardelli have structured his early efforts at Home Depot? Pay particular attention to how he might have used the principles of mutual

engagement and shared diagnosis.

He needed to involve upper management and employees at all levels in dialogue and diagnosis. Instead of saying, “Here’s what we’re going to do,” he could have said, “Let’s look at what has been working, what will continue to work and what could/should be changed. Data collection from employees, most probably through diagnostic interviews and also focus groups, could have provided

important insight to guide top executives to figure out how to achieve outstanding performance at HD.

2. What are the potential advantages of relying on a systemic framework for guiding diagnosis? Are there any potential disadvantages?

In order for a framework to be effective, it must meet the criteria listed on p. 62: explicit, operationally defined, empirically validated, have face validity and be generalizable.

The advantages of relying on such a system would be:

- The framework identifies the key components of the organization and suggests relationships and interdependences among those elements.

- Having a common framework for the entire organization facilitates

communication that can help those involved in a diagnosis “to approach their task with a common set of terms and frame of reference.”

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Disadvantages, if there are any, might be:

- The framework is too narrow and doesn’t include all the vital elements.

- Employees may not be able to process the amount of information generated by a framework-guided diagnosis.

When applying the framework, make sure to keep in mind the diagnostic principles listed in exhibit 3-2 on page 68.

3. Why is open dialogue so difficult to achieve in many organizations?

Large power distances within hierarchies create reluctance to engage in open dialogue. Organizational cultures often lead executives to avoid criticism,

disagreement and debate. Finally, there are often simply no mechanisms created that might allow a dialogue to occur.

4. In what specific ways can an executive actively promote a sense of psychological safety among employees to engage them in an honest conversation about performance?

They can take steps to equalize power, as listed in Exhibit 3-1 on page 66. Also, they can hire professionals to help employees learn how to collect data. They can focus on data collections of issues of strategic performance to avoid

personal clashes. They can reward managers for engaging in dialogue. Finally, they can participate in honest dialogue themselves.

5. How might the three forms of data collection be used together in the opening stages of a change process?

Diagnostic interviews are a good way to start the diagnostic process because they allow for open-ended dialogue about performance. At the same time, behavioral observation can focus on work teams to help with behavioral issues. Questionnaires can be used at a later stage to create comparative benchmarks and chart improvement.

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exercise. Divide the class into groups of five or six students. Distribute copies of the 12 potential interventions listed below and ask them to devise an action plan for Finnvold. In doing so, they should be able to suggest what they would do immediately (say, within the first week), what they would do in the longer term, and what—if anything—they would not do at all. Then debrief the groups to look for areas of agreement and disagreement.

Managing Transformation at National Computer Operations Assignment Questions for Students:

a. Prepare an implementation plan for change that would enable Gar Finnvold to create a fully competitive computer service within two years.

b. How could Finnvold conduct an organizational diagnosis that would lead off his implementation? Be specific about how he could ensure mutual engagement. Review the list of possible interventions below as you develop an implementation plan for NCO.

1. Redo the compensation system to tie a larger portion of an individual’s pay to an assessment of that employee’s performance.

2. Evaluate all middle managers to determine whether they possess the requisite skills—redeploy those who don’t elsewhere in the bank.

3. Ask the Chairman to invite bids from external computer operation suppliers to outsource all services now provided by NCO; distribute the specifics of the bids to all NCO employees.

4. Allay fears by assuring employees that no further layoffs will occur.

5. Involve employees in discussions with senior management about what’s wrong with NCO.

6. Have Finnvold and the Management Committee adjourn to an off-site meeting to develop a vision and strategy for NCO.

7. Survey current customers to determine their level of satisfaction with NCO services.

8. Redo the performance appraisal form to include “customer responsiveness” as a criterion for performance evaluation.

9. Urge the Chairman to reconsider allowing National Bank units to outsource computer services.

10. Create a core group of employees from all functions and levels to develop a vision statement for NCO’s future.

11. Introduce a bonus system that ties a portion of employees’ salary to overall performance of NCO.

12. Have Finnvold and the Management Committee conduct an industry analysis to understand the dynamics of the computer service business and marketplace.

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Remember, there are no right or wrong answers. I will provide you with my ideas below—feel free to disagree with me!

1. Redo the compensation system to tie a larger portion of an individual’s pay to an assessment of that employee’s performance.

This is, at best, a longer-term intervention. It is far too early in the change

process to be thinking about redoing the compensation system. I will argue later in the text that compensation should be a lag rather than a lead variable to motivate behavioral change. Plus, emphasizing individual performance may hurt Finnvold’s ability to create collaboration.

2. Evaluate all middle managers to determine whether they possess the requisite skills—redeploy those who don’t elsewhere in the bank.

Although I wouldn’t do this immediately, it will have to be done at some point. After new behaviors have been identified and training has been offered, it may be necessary to move out some employees. This is a topic that will be dealt with more fully in Chapter 6 (Human Resource Development).

3. Ask the Chairman to invite bids from external computer operation suppliers to outsource all services now provided by NCO; distribute the specifics of the bids to all NCO employees.

This idea was suggested by a student in one of my classes, and I like it. It meets Lewin’s requirement to build dissatisfaction with the status quo in order to

motivate change. NCO employees all need to learn how out of line they have become with external competitors because they will have to be facing those competitors soon. So why not do this right away?

4. Allay fears by assuring employees that no further layoffs will occur.

No—don’t do this! Finnvold, of course, cannot really make that promise anyway. Plus, the last thing this organization needs is less performance pressure. Task alignment theory says employees will be motivated to improve performance. 5. Involve employees in discussions with senior management about what’s wrong with NCO.

Great idea! Do this right away. This is the beginning of dialogue and diagnosis. They will probably need an external facilitator to help ease the dialogue.

6. Have Finnvold and the Management Committee adjourn to an off-site meeting to develop a vision and strategy for NCO.

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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 34 They better do this, and do this fast. They might also consider how to involve employees in their discussion. In Chapter 1, we said strategic renewal drives required change. So there has to be agreement on what the renewed strategy is! 7. Survey current customers to determine their level of satisfaction with NCO services.

Sure. Part of diagnosis must be to learn from customers. Some students may argue that this will take too long, but in reality it can be done quite quickly,

especially with lead customers. Other students will ask, “Don’t they already know what their customers think about them?” Maybe, but there’s nothing as powerful (or powerfully motivating) as getting an earful from your best customers.

8. Redo the performance appraisal form to include “customer responsiveness” as a criterion for performance evaluation.

Another one of those ideas that is probably useful, but not now. Chapter 6 talks about how and when to position human resource development interventions. 9. Urge the Chairman to reconsider allowing National Bank units to outsource computer services.

No—the last thing you need to do is eliminate performance pressure from the organization.

10. Create a core group of employees from all functions and levels to develop a vision statement for NCO’s future.

I like this idea as an immediate intervention. Students may complain that it contradicts number 6: isn’t this top management’s job? Well, yes, but why not make the process of envisioning the future more inclusive? Anyway, it raises an interesting discussion of how and when to involve employees in discussions about the organization’s future.

11. Introduce a bonus system that ties a portion of employees’ salary to overall performance of NCO.

As I said earlier, changing the compensation system may have to occur, but it probably should be put off. On the other hand, an organization-level bonus sends a symbolic message: we’re all in this together. This could be an interesting

debate.

12. Have Finnvold and the Management Committee conduct an industry analysis to understand the dynamics of the computer service business and marketplace.