CHAPTER 10 TYPES AND FORMS OF ORGANIZATIONAL CHANGE
TEACHING OBJECTIVES
1. To define organizational change as the process by which organizations reach their desired goals. (10.1)
2. To examine the various targets of change. (10.1)
3. To discuss both the forces for change and the resistances to change. (10.2)
2. To contrast the revolutionary and evolutionary approaches to change. (10.3)
4. To explain Lewin’s force field theory of change. (10.4)
5. To explain and apply the basic steps of action research. (10.4)
6. To examine the various components of organizational development. (10.5)
CHAPTER SUMMARY
This chapter examines organizational change, including technological change. Technological change requires that organizations learn how to manage the innovation process. Organizational change is defined as the process by which organizations reach desired goals. Planned organizational change creates value for stakeholders.
Several forces for change plus resistances to change are examined. The major forces for change are competitive, economic, political, global, demographic, social, and ethical forces. The major resistances to change at the organizational level are structure, culture, and strategy. Resistances at the functional level are differences in subunit orientation and power and conflict struggles. Resistances at the group level are norms, cohesiveness, and groupthink. Resistances at the individual level are cognitive biases, uncertainty and insecurity, selective perception and retention, and habit.
Evolutionary change is distinguished from revolutionary change. Reengineering, downsizing, restructuring, and TQM are discussed as methods for change. Included in this are the use of flexible workers and flexible work teams.
Change is also viewed through Lewin’s force field theory of change. The concepts and steps associated with action research are detailed to show how organizations reach a desired future state.
Various concepts associated with organizational development are discussed as a tool to help both the organization and the individuals in the organization maximize their effectiveness and achieve their goals.
CHAPTER OUTLINE
10.1 What Is Organizational Change?
Organizational change occurs when an organization restructures resources to increase the ability to create value and improve effectiveness. A declining company seeks ways to regain customers; a growing organization designs new products. Change is prevalent. In the past 10 years, over half of all Fortune 500 companies have undergone significant restructuring.
Targets of Change
Organizational change includes changes in four areas:
1. Human resources are an organization’s most important asset.
Q. What changes are made in human resources?
A. Changes include: investment in training, socializing employees, changing norms to motivate a diverse workforce, monitoring promotion and reward systems, and changing top management.
2. Functional resources can be transferred to maximize value creation as the environment changes. Thus, key functions grow in importance. Organizations can change structure, culture, and technology to improve the value created by functions.
Q. Give examples of structural and technology changes.
A. A product team culture increases development time. Technology that uses self-managed work teams increases productivity and quality.
3. Technological capabilities provide new products, change existing ones, and create a core competence. Improving the reliability and quality of goods and services is an important capability. Organizations may need to restructure to achieve the benefits of new technology.
4. Organizational capabilities are imbedded in operations. Organizations use human and functional resources to seize technological opportunities through structure and culture.
These four resources are interdependent, so changing one leads to a change in others. Recruiting a team of scientists leads to restructuring a product team.
10.2 Forces for and Resistance to Organizational Change
Organizations face both the forces of change and resistances to change. (Fig. 10.1)
Forces of change require change or loss of competitive edge.
Competitive forces spur change, because an organization must equal or surpass rivals to sustain a competitive advantage in efficiency, quality, innovation, or customer responsiveness. Managing change is crucial when competing for customers.
Economic, political, and global forces, such as the North American Free Trade Agreement (NAFTA) or other economic unions, are significant forces of change. The European Union (EU) has increased to 20 countries. Production in an EU country eliminates tariffs, so Japan produces cars in England to avoid foreign tariffs. The three distinct economic spheres—North America, Europe, and Asia—expect to have more trade within their arena than across spheres.
Low-cost competitors, low-cost inputs, and new technological developments are realities of global competition. Organizations may need structural change to enter foreign markets and adapt to different cultures.
Demographic and social forces include an increasingly diverse workforce, changing, hiring and promotion. Many workers want to balance work and leisure. Companies need flexibility in scheduling to meet employee childcare needs.
Ethical forces place greater demands on firms for honest, corporate behavior, so some firms have hired ethics officers to report offenses or give ethical advice. Organizations protect whistleblowers and foreign employees.
Organizational Insight 10.1: Nike, Reebok, Adidas, and the Sweatshops
These companies, and the clothing industry in general, came under scrutiny because the countries that they outsourced production to paid very low wages and had extremely poor working conditions. Public outcry is a good example of a force that forces an organization to change.
Q. What environmental forces caused these companies to change their practices?
A. In this case, it was primarily the general public.
Transition into the “resistances to change” section to discuss what may prevent these organizations from changing immediately.
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Resistances to Change can occur at the organizational level, group level, or individual level.
Organizational Level
Power and conflict: If change benefits one function at the expense of another, conflict impedes the change process. Powerful divisions, such as IBM’s mainframe division, can sabotage change.
Differences in functional orientation mean that divisions or functions view problems from various perspectives and seek changes to benefit their own group. If sales fall, R&D wants funding for product development while sales wants to hire more people. Subunit orientations cause coordination problems and slow decision making. A high level of task interdependence makes change difficult. The greater the interdependence, the more complicated change is. It is more complicated at top levels by affecting the entire organization.
Mechanistic Structures are resistant to change by design. People in a mechanistic structure are expected to act a certain way, and are not given the freedom to change.
Q. Are mechanistic or organic structures more opposed to change?
A. Mechanistic structures are more resistant to change because people behave a certain way and do not adjust their behavior to changing conditions. Not maintaining the ability to act in an organic way results in inertia. Sometimes revolutionary change is needed to adapt the structure.
Organizational culture, values and norms, cause predictable behavior. The culture itself may cause resistance to change. Some develop conservative cultures that make employees reluctant to take risks. In addition, if property rights are strong, people will protect their position. Only revolutionary change may be strong enough to change culture.
Group-Level Resistances to Change
Group norms: When change results in different task and role relationships, informal norms may become invalid, making a new set of norms necessary. People may resist this.
Group cohesiveness, attraction to the group, is helpful, but if it is too high, the group may resist change. The group may work to maintain its position even at the expense of other groups.
Groupthink occurs when members ignore negative information to achieve harmony.
Organizational Insight 10.2: InBev Launches a Takeover Attempt for Anheuser-Busch
This insight illustrated how Anheuser Busch had become too cautious and prudent to the point that profits were being impacted. They didn’t realize this until a takeover attempt revealed how complacent top management had been.
Discuss what other types of events trigger organizations to change, such as losing key employees, key customers, etc. There is always a “trigger” for change. You might frame this discussion around Lewin’s theory.
Individual-Level Resistances to Change
Uncertainty and insecurity: Resistance to the uncertainty and insecurity of change results in inertia.
Selective perception and retention suggests that people perceive information consistent with their views. If change doesn’t benefit them, they do not endorse it.
Habit: People prefer familiar tasks and tend to return to original behaviors, making change.
Lewin’s Force Field Theory of Change shows the opposition between the forces for and against change. When the forces are in balance, a company remains in inertia without change. For change to occur, the forces for change must increase while resistance to change decreases. (Fig. 10.2)
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Managerial Implications
Managers must continuously monitor the environment to identify the forces for change. Then, they must analyze how the change will affect the organization, and determine which type of change to pursue.
10.3 Evolutionary and Revolutionary Change in Organizations
Change is classified as evolutionary change, gradual and incremental, or revolutionary change, sudden and drastic. Evolutionary change adds small adjustments to strategy and structure to handle environmental changes. Revolutionary change results in new operating methods, goals, and structure. Three ways to implement revolutionary change are reengineering, restructuring, and innovation.
Evolutionary Change I: Socio-Technical Systems Theory
Socio-technical systems theory contends that managers need a fit between technical systems and social systems or technology and culture. If change occurs, managers must ensure that technology, structure, and culture are matched. Researchers suggest that a team-oriented system promotes values that enhance efficiency and product quality. Total quality management uses sociotechnical systems theory.
After World War II, coal mining in Britain changed from small batch to mass production. With small batch, workers needed cooperation and adopted an informal structure. The new technology did not meet productivity forecasts because the new structure abolished the support system and informal relationships that fostered group cohesiveness. Consultants recommended decentralizing authority to the work group.
This led to the concept of socio-technical systems theory, which argues that managers need to fit or jointly optimize the workings of the technical and social systems.
Evolutionary Change II: Total Quality Management
Total Quality Management
First developed by a number of American consultants, including Demming and Juran, total quality management (TQM) was developed to make flexible work teams more efficient. The goal of TQM is continuous improvement to decrease costs, enhance quality, and eliminate waste. (Table 10.2)
The implementation of TQM begins with the commitment to quality. Employees aim to improve customer service delivery. Manufacturing aims for fewer defects. Culture must value TQM, and quality circles develop TQM norms in functional areas.
TQM empowers employees, letting them design efficient procedures and control quality. Control is attained by mutual adjustment and decentralization. Costs are reduced as workers aim to improve quality, replacing numerical targets with a focus on customer service.
Quality circles are groups of workers who meet regularly to discuss how to improve performance.
Organizational Insight 10.3: United Technologies Uses TQM
United Technologies implemented a TQM program designed to address a problem in its Otis Elevator decision. By examining the processes, the TQM program led to at total redesign of the elevator. This success prompted David to use these techniques across all its diverse businesses.
Q. Why would managers resist this type of positive organizational change?
A. There are many different reasons, but some sources relate to managers having to give up power and decision-making ability, it changes their routine (habit), and is a much larger change than many organizations first anticipate. It needs to become a way of life in an organization as opposed to a quick-fix program.
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Evolutionary Change III: Flexible Workers and Flexible Work Teams
In implementing socio-technical systems theory and TQM, many organizations are finding it easier to achieve their goals by using flexible workers and teams.
Flexible workers can be transferred between departments and functions as demand changes.
Q. What are the advantages of flexible workers?
A. Quick response to environmental changes; reduced boredom and increased incentives for quality;
better understanding by learning one another’s tasks; and combining tasks to increase efficiency and reduce costs.
Flexible work teams are groups of employees responsible for completing a stage of production. Groups of assembly line workers are assigned responsibility for one stage of manufacturing, such as producing a car transmission. A flexible work team is self-managed; members jointly assign tasks and transfer from one task to another.
To produce cars, different teams assemble different components and deliver those components to the final-product work team. Customer demand determines team activities as each team alters activities to the pull coming from the output side of production. (Fig. 10.3)
Organizational Insight 10.4: Flexible Work Teams at Globe
Globe Metallurgical Inc., a specialty steel producer, wanted to implement flexible work systems, but the union refused to cooperate.
Q. What happened when work teams were introduced at Globe?
A. Globe wanted flexible work systems, so the union went on strike. During the strike, 10 managers and 35 employees controlled two of the five furnaces. Productivity increased through cooperation; seven workers, one from each function, operated one furnace. A team leader coordinated the work and schedules. After the strike, Globe needed 120 workers compared to the previous 350 to run five furnaces. Now, employees also participate in profit-sharing.
Flexible work teams reduce costs because a quality control function is not necessary; employees control quality during the conversion process.
Flexible work teams try to improve efficiency. New ideas begin in quality control circles, meetings to improve productivity. Experienced employees train new members, and everyone is responsible for hiring new workers. A team culture emerges, and managers merely facilitate activities and help develop improved procedures.
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Developments in Revolutionary Change Reengineering
Reengineering, a term popularized by Hammer and Champy, involves rethinking business processes, activities that cross functional boundaries. Processes, not functions, are the focus of attention. Reengineering involves reorganizing a process, such as materials management, to create value. Vertical and horizontal communication and coordination are difficult because purchasing, production control, and distribution have their own hierarchies.
Managers focus on business processes, which is any activity that cuts across functional boundaries.