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Managing Organizational Change - Lakehead University

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Managing Organizational Change
Chapter 3Why Organizations Change
The Risks Associated With Change
Risks in undertaking changeRisks in NOT undertaking change“Up to 84 percent of U.S. firms are involved in a major organizational change, although many are deemed not successful.”Often shareholders demand changeOrganizational learning perspective assumes that organizations and human systems of all sorts are complex and evolving and therefore cannot be reduced to a single, linear objective of maximizing shareholder value
Complex Role of Managers
“Managers are called upon to stabilize the unstable and destabilize the rigid, adapt to the present and anticipate the future; improve what is and invent what is to be; lead a renaissance while preserving tradition, the possibilities for which are grounded in the belief that progress is possible and that managers can make a difference.”
Environmental Pressures for Change
Pressures to carry out fashionable management changesPressures that are forced or mandated on the organization from outside agenciesBroad changes in geopolitical relationships necessitating changes in organizational operationsPressures associated with declining marketsHypercompetitive business pressuresPressure to maintain corporate reputation and credibility with stakeholders
1. Pressures to carry out fashionable management changes
Mimetic isomorphism– when organizations imitate the structures and practices of other organizations in their field or industry, usually ones that they consider as legitimate or successfulEg. Boeing copying elements from GESuch pressures may lead organizations to adopt fashionable ideas but often with little critical assessment of the need for the change and without having clear information about the performance effects of making the change
2. Mandated Pressures
Eg. Texaco, Coca-Cola, and Denny’s Restaurants being under court order to improve their record on diversity managementLed to major company changes in policies and cultural practices –eg. diversity training, minorities targeted for new hires, etc.Eg. asbestos-related disease fundCoercive-isomorphism– organizations are forced to take on activities similar to those of other organizations because of outside demands placed on them to do soFormal and informal coercive pressures
3. Geopolitical Pressures
May be in the form of immediate crises or longer-term geographic realignmentsEg. cost control through layoffs, escalation of mergers and acquisitionsWorld events –eg. 9/11, Berlin Wall
Global Environmental Forces for Change (Kotter, 1996)
Technological, which requires more globally connected people and faster communication and transportationGreater economic integration of currencies and international capital flowsMaturation and slowdown of domestic markets, leading to greater emphasis on exports and deregulationFall of socialist countries and their reorientation toward capitalist economies
4. Market Decline Pressures
Declining markets for products and services place organizations under pressure to remain relevantEg. Steve Jobs returning to Apple, Verizon Communications choosing to focus on wireless
5.HypercompetitionPressures
Eg. Dell vs. Gateway and Dell vs. HP and LenovoOrganizations are forced to deliver goods and services more quickly, more customized, and more flexibly.Eg. YouTube and Netflix disrupting television
6. Reputation and Credibility Pressures
Eg. Mattel and toy recall, Johnson & Johnson and the Tylenol recallEg. Enron, Tyco,WorldcomscandalsChange is associated with maintaining proper corporate governance mechanisms to ensure a positive corporate reputationOne common change, meant to signal “a new era,” is the symbolic exiting of a high-profile organizational person such as the CEO
Why Organizations May Not Change in the Face of External Environmental Pressures
Organizational Learning vs. Threat-RigidityEnvironment as Objective Entity vs. Environment as Cognitive ConstructionForces for Change vs. Forces for StabilityBridging (Adapting) vs. Buffering (Shielding)
1. Organizational Learning vs. Threat-Rigidity
Organizational learning theorists argue that environmental pressures such as market decline will lead to innovative organizational adaptation and change as managers learn from the problems and try to close the gap between performance and aspirationsThreat-rigidity theorists argue that such pressures will inhibit innovative change as managers’ cognitive and decision-making processes become restricted when confronted with threatening problems
Discontinuous Change
An organization faces discontinuous change – where it faces new, fundamentally different trends in its operating environmentGilbert (2006) points out that “it is not that one set of capabilities suddenly becomes obsolete, to be replaced with another – ratherthe path from one capability to the other is not continuous.”Eg. newspapers to digital content (both exist at the same time)
Paradox
The paradox suggests that companies in this situation need to be able to have frames co-existing within it that focus on both opportunities and threats, one protecting the current business and the other helping to transition the company into new arenas.This can occur through structural differentiation of the company, separating it into different organizational units dominated by different cognitive frames and operationsAt the same time it is up to senior management to be able to strategically integrate these competing frames, ensuring that the company takes appropriate, timely actions across its operations
Trapped By Success
Companies that have a winning business formula may become trapped by this when conditions changeThis view is fueled by their cognitive frames, which become blinkered by success; by routines that become embedded in the organization as correct ways of operating; by relationships to stakeholders that act as shackles and inhibit them from exploring new business ventures; and by shared beliefs that become company dogmas that they are proceeding in the right direction.
2.Environmentas ObjectiveEntityvs.Environmentas Cognitive Construction
Type 1 erroroccurs when the environment is (objectively) stable, but managers perceive it as turbulent and take (unnecessary) actions accordinglyType 2 erroroccurs when managers threaten the survival of their firms by failing to take actions as they perceive their environment as stable when it is (objectively) turbulent
Constructivist View
The outside world is brought into existence through individuals’ perceptions of it – further questions the very status of the terms used in discussion about why organizations change – or don’t take actions to change“Success is based on a series of rapid and anticipatory actions that move industry to the next round of competition”
3. Forces for Change vs. Forces for Stability
Whether environmental pressures will lead to innovative change will be affected by three factors (Mone, et al, (1998)):The extent to which an organization’s mission is institutionalized in stakeholders and the external environment: the less institutionalized it is, the more flexibility the organization will have to respond to innovative change
Factors affecting whether environmental pressures will lead to innovative change – continued(Mone, et al, (1998)):
2. The extent of diffusion of power and resources throughout the organization: the more concentrated the power in the organization, the greater the ability to make decisions and allocate resources to achieve change3. The rationale managers employ to explain decline: the more controllable or stable the causes, the more likely manages are to introduce innovative changes since the causes of decline are perceived to be permanent
4. Bridging (Adapting) vs. Buffering (Shielding)
Bridging strategiesare designed to keep the organization effective by adapting parts of it to changes happening in the outside environmentBuffering strategiesare designed to keep the organization efficient by avoiding change through shielding parts of it from the effects of the environment –eg. using public affairs techniques in order to alter public rules, perceptions, and expectations.
Buffering Strategies
“By the time environmental shock waves reach the stability-sensitive technical core…they are diffused into manageable adjustments and innovations” (Lynn, 2005)
Organizational Pressures for Change
Growth PressuresIntegration and Collaboration PressuresIdentity PressuresNew Broom PressuresPower and Political Pressures
1. Growth Pressures
Change in the form of growthNeed for rules, policies, and procedures once an organization reaches a certain sizeSome managers resist the growth of their organization beyond where they lose personal control of the day-to-day operations – beyond this point they lost job satisfaction
2.Integration and Collaboration Pressures
Some changes are made in order to better integrate the organization or create economies of scale across different business unitsGoal is to have better coordination and collaboration across multiple business units of the company in order to produce a customer-oriented culture
3.Identity Pressures
Employees might lack cultural identity with the organization and its name brandGoal is to enhance the identity and commitment of staff to the organization’s brand as well as to achieve service excellenceEg. the U.S. Mint – seen as a slow, inefficient organization – became more modern, customer-focused
4.New Broom Pressures
When a new CEO arrives it can act as a signal that the old ways are about to changeNot all new broom changes are necessarily the right changes
Advantages New CEOs Have
Likely to be able to create energy for changeUnhampered by adherence to past organizational practices (will not appear inconsistent if they change things)Can focus on problems that may have been known but not able to be named in the past as they were organizational “sacred cows” that could not be brought into questionLikely to be able to tackle customer problems with credibility since they are not associated with previous problems
5. Power and Political Pressures
Competition between CEOs when companies mergeOusting of CEOs by powerful investorsSamPalmisanoabolishing the IBM Executive Management Team when he took over as CEOInternal conflicts within organizations

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Managing Organizational Change - Lakehead University