1. Nature of organization change (Connect, Perform)
Read this article about a management change at Twitter, and then answer the questions that
follow.
Management in the News
Twitter, the popular micro-blogging site, has faced serious declines in its stock value. This
decline in stock values has occurred despite the company’s top line growing by 74% and 111%
in the latest quarterly and annual results, respectively. The service is free for users, with revenues
instead generated primarily by ad sales.
Why has Twitter has lost favor with investors? Twitter’s user base of 302 million users is much
smaller than Facebook’s user base of 1.4 billion users. Instagram has experienced rapid growth,
bringing the size of its user base near that of Twitter. Even Snapchat is gaining users at a much
faster pace than Twitter. The rate of change is increasing in that new social networks are
launching every day. Thus, investors are concerned about competitive pressures. In comparison,
while Twitter continues to add new users, its pace of growth is slow. This is due to Twitter’s
inability to make a clear value proposition to new users. Though hundreds of millions more users
have signed up on the Twitter platform, a large number of them have not converted into active
users on the platform.
To combat these challenges, Twitter has initiated changes in its platform features and in its
corporate leadership. Twitter has introduced new features for users, including instant timelines,
logged-out homepages, and enhanced messaging features. Perhaps even more significant is the
change in leadership at the top of the organization. Jack Dorsey, cofounder and chairman of the
board, will replace Dick Costolo as CEO, at least until a more permanent successor is identified.
Source: Trefis Team. (2015, June 12). Twitter announces change in leadership as challenges
continue. Forbes. Retrieved from
http://www.forbes.com/sites/greatspeculations/2015/06/12/twitter-announces-change-inleadership-as-challenges-continue/
The table lists several forces that could incite organization change at Twitter. For each item,
categorize the force as an internal or external force.
Force
Internal
Pessimistic forecasts by industry analysts
???
Externa
l
???
Force
Internal
Regulations affecting the industry, such as “net neutrality” rules
???
Innovation that improves user experience
???
Externa
l
???
???
Twitter’s organizational changes were___________ (a. proactive b. planned c. reactive)
because they came in response to forces inside and outside the organization.
Which of the following are possible reasons Twitter changed the roles of its executive
leadership? Check all that apply.
a. Twitter needed new leadership to better establish a strong value proposition for users.
b. Twitter needed to respond to the concerns of investors.
c. Twitter wanted a more streamlined decision-making process.
d. Twitter’s past leadership wanted to earn revenues from user fees.
How could Twitter maximize its effectiveness?
a. Proactively change to keep up with changes in its environment
b. Change frequently at the top levels of the company, but keep the bottom levels of the
company the same
c. Frequently change its strategies, but rarely change the way employees do their work
d. Minimize the number of changes it makes overall
2. Managing change in organizations (Connect, Perform)
Imagine you are conducting a force-field analysis for a company undergoing change. Categorize
each force listed in the table below as either promoting or resisting change.
Against
Change
Force
For Change
Customer anxiety about functional reliability
???
Feelings of ambiguity toward changes at work
???
???
Concern about the logistics of making the change
???
???
Desire for outcomes associated with change
???
???
???
Read the following case about eBay and PayPal. Then use your knowledge about managing
change in organizations to answer the questions that follow.
Management in the News
In 2001, eBay acquired PayPal, the Internet-payment provider. PayPal was initially conceived as
a way for acquaintances to manage transactions like paying babysitter fees or paying back a
friend for dinner, but the service caught on quickly on eBay, where it freed anonymous buyers
and sellers from the hassles of sending checks or money-order payments. The acquisition
enabled eBay to decrease transaction times and have oversight over functions directly related to
revenue generation.
Then in 2015, eBay’s board of directors decided to separate PayPal from eBay. PayPal and eBay
will function as two separate, individual, publicly traded companies. John Donahoe, president
and CEO of eBay, said that the split will allow PayPal and eBay to “have a sharper focus and
greater flexibility to pursue future success in their respective global commerce and payments
markets.” eBay will make a change in leadership as well. Donahoe has indicated that he will step
down from the role of CEO once the separation is complete.
PayPal exists in an environment that is more competitive than that facing eBay, and the
marketplace for online payment systems is rapidly changing. Apple’s own online payments
system, Apple Pay, will compete with PayPal. It may gain users rapidly because it enables
people to leave their credit cards at home, paying for everything with a wave of their
smartphone. eBay hopes that spinning PayPal off into a separate business will give the company
the focus it needs to stay ahead of this new competitor. Carl Icahn, who owns 2.5% of the online
auction house, ran an attack campaign calling for the separation of the two companies. He
successfully influenced the perceptions of other investors, describing PayPal as a “jewel” whose
value was being “covered up” by eBay. eBay and PayPal are very different businesses, operating
in very different markets, each with their own set of strategic priorities. The spin-off should
allow each business to focus on what is best for them.
Source: Rushton, K. (2014, October 1). The five reasons behind Paypal’s split from eBay. The
Telegraph. Retrieved from
http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/digitalmedia/11134139/The-five-reasons-behind-PayPals-split-from-eBay.html
Which factors neutralized potential forces for or against change in this situation? Check all
that apply.
a. eBay signed a noncompete agreement that it will not develop its own digital payment
system.
b. Icahn owns shares in several unrelated industries.
c. PayPal signed a noncompete agreement stating that it will not develop its own online
marketplace.
d. The identity of the next CEO of eBay is unknown.
Donahoe, eBay's CEO, wants guidance on managing the process of spinning off PayPal.
By deciding to separate the companies, the board has selected what change will be made. Using a
comprehensive approach to change, which step should the board have completed before making
this decision?
a. Evaluate the results of the change.
b. Analyze the variables relevant to the need for change.
c. Establish goals for the change.
Which techniques would you recommend that eBay’s leadership utilize to overcome resistance to
change in this situation? Check all that apply.
a. Leak good news about the company to the press to garner external buzz in support of the
change.
b. Threaten those who do not support the change.
c. Use a force-field analysis to show that the forces for change outweigh those against
change in objective terms.
d. Offer opportunities for employees to have some control over the changes that impact
them, such as whether they remain at eBay or separate with PayPal.
e. Actively avoid conflict and be defensive when questions arise about the change.
3. Areas of change and organization development (Connect, Perform)
Read the scenario below and then, using your knowledge of the areas of organization change
and organization development, answer the questions that follow.
© Shutterstock Images
Management at Work
Compass Automation, a small manufacturer of robotic automation, is shaking up an industry
traditionally dominated by established technology companies. Companies like yours, with longstanding reputations for innovation and excellence, regularly won client business and the best
and brightest employee talent. During the past year, a decline in new contracts has alerted
executives at your company to a potential threat. A competitive analysis showed that Compass
Automation, despite having fewer than 50 employees and fewer than 10 years in the business, is
positioning itself as a lean and nimble innovator in the robotic automation industry. The startup
has won contracts from several industry clients, including Caterpillar and Raytheon. It was
ranked 55 on Inc. magazine’s list of most innovative business models of 2014. What’s more,
Compass Automation is going after new employee talent. It has been the choice of many of the
top MIT graduates in the field. Fortunately, the executive team has realized that this competitive
threat calls for change. A group of managers has been assembled to generate ideas. As an expert
in organization change, you’ve been asked to facilitate the process. The first brainstorming
session resulted in many ideas.
You know that organizational change can involve almost any part of the organization, although
change interventions often fall into three broad categories: 1) organization structure and design,
2) technology and operations, and 3) people. Thus, you want to organize the managers’ ideas into
these categories to determine whether the company might start by focusing on just one category.
Source: Krasny, J. (2014, August 20). The most innovative business models of the 2014 Inc.
5000. Inc. Retrieved from http://www.inc.com/jill-krasny/5-most-innovative-business-modelsinc-500.html
Which of the following types of ideas relate to changes in your company’s organizational
structure and design? Check all that apply.
a. Enterprise resource planning
b. Line-staff structure
c. Authority distribution
d. Work sequences
e. Reporting relationships
f. Culture
Proposed change interventions related to your company’s technology and operations include
which of the following? Check all that apply.
a. Overall design
b. Enterprise resource planning
c. Control systems
d. Work processes
e. Work sequences
f. Human resource management
The other major area of organizational change addresses people, attitudes, and behavior.
Changes to which of the following would relate to this category? Check all that apply.
a. Human resource management
b. Values
c. Expectations
d. Overall design
e. Perceptions
f. Attitudes
Now that you’ve considered the areas in which change can occur, it’s time to make your
recommendations.
On what area of organization change should your company focus?
a. Technology and operations
b. People
c. Organization structure and design
Your CEO is considering using organization development (OD) to promote change in the
organization’s people. Which of the following are OD techniques? Check all that apply.
a. Team building
b. Survey feedback
c. Process consultation
d. Conflict avoidance
4. Innovation (Connect)
Identify the step in the innovation process at which the following actions are most likely to occur.
Actions
Kenji started
selling a
mixtape on
street
corners.
Once it got
play time on
a local radio
station,
thousands of
people
downloaded
it from
online sites.
Within a few
years of their
introduction,
flat screens
were
incorporated
into most
televisions,
Developmen
t
Applicatio
n
Launc
h
Growt
h
Maturit
y
Declin
e
Actions
and the cost
had dropped
dramatically.
A concert
venue books
some of the
most popular
acts in the
country for
the first week
its doors are
open to raise
public
consciousnes
s of the
venue as a
destination.
After a
workflow
redesign, a
single loan
officer
handles a
customer’s
application
throughout
the process,
rather than
Developmen
t
Applicatio
n
Launc
h
Growt
h
Maturit
y
Declin
e
Actions
having each
step
completed by
a different
bank
employee.
Network
television
shows are
losing
viewers and
advertising
dollars as
many people
subscribe to
Internetbased
services.
Musashi
sends a
survey to
customers to
better
understand
their level of
interest in
two features
that may be
Developmen
t
Applicatio
n
Launc
h
Growt
h
Maturit
y
Declin
e
Actions
Developmen
t
Applicatio
n
Launc
h
Growt
h
Maturit
y
Declin
e
added to his
company’s
product.
Apple’s Swift, a programming language for iOS, OS X, tvOS, and watchOS introduced in 2014,
is a _________ (a. product b. process) innovation; on the other hand, when Toyota
implemented just-in-time manufacturing in the 1970s, this was a _________ (a. process b.
product) innovation.
Consider the common impediments to innovation noted in the summary below.
The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail by Clayton
Christensen (Harvard Business School Press 1997), explains the common organizational
impediments to innovation. These include a lack of resources or failure to allocate resources
strategically, inability to act quickly due to bureaucracy, risk aversion, and an inability to
recognize opportunities to innovate. The failure to recognize opportunities could be caused by
the organization’s structure, culture, complacency, and confidence.
Eastman Kodak had been a great innovator in film photography and had grown to be one of the
largest US firms, but the company remained entrenched in film-related products in the 1990s
despite the innovation of digital images. On the Fortune 500 list, it slid from No. 18 in 1990 to
No. 124 in 2000. What were the likely reasons for its failure to innovate? Check all that apply.
A. Complacency
b. Failure to recognize opportunity
c. Lack of financial resources
d. Lack of expertise
Which of the following statements describe an organization’s use of organization structure and
design to promote innovation? Check all that apply.
a. Google has a “20% Time” policy. A fifth of an employee’s time at work can be spent
working on ideas and projects of personal interest.
b. All of Google’s work facilities incorporate snack and beverage stations within 150 feet of
employee work spaces.
c. DreamWorks Animation offers employees fully paid sabbaticals.
d. GradyWhite Boats offers a financial bonus company-wide when revenue goals are met.
5. Organization change and innovation: Holden Outerwear case study(Lead)
The following short video introduces you to change at Holden Outerwear.Watch the video and
use your knowledge of organizational change and innovation to answer the questions that follow.
Transcript
Mikey talks about the difficulty of getting fabric manufacturers to create new fabrics. Mikey
describes the process by saying that when he goes to vendors and asks them for something new,
they say no, and then he tells them how it should be done. For the fabric manufacturers, this is an
example of a change driven by________ (a. technical b. internal c. external d. global)
conditions.
In general, Mikey and Nikki are proactive, making planned changes at Holden Outerwear. Which
of the following actions are consistent with this approach? Check all that apply.
a. Mikey and Nikki actively analyze the environment and try to predict upcoming
opportunities or threats.
b. Mikey and Nikki look for problems in the organization. When they find one, they
determine why the problem exists and what the most appropriate solution would be.
c. Mikey and Nikki see how the environment is changing, and they match their actions to
environmental changes that have already occurred.
d. Mikey and Nikki imagine what should be rather than working with what is.
Which of the following are related to characteristics Mikey must have in order to promote
change at Holden? Check all that apply.
a. Mikey is known for his ability to think outside the box—he always has new ideas.
b. Mikey is always clearly in charge, and nobody is willing to question what he says.
c. Mikey cares about how his employees are treated, and he wants to do the right things for
them.
d. Mikey allows employees to work in only one part of the company. He doesn’t want to
hear their ideas about what should be happening in other departments or divisions.
Chapter 7: Organization Change and
Innovation
7-1The
Nature of Organization
Change
Organization change is any substantive modification to some
part of the organization. Thus, change can involve virtually
any aspect of an organization: work schedules, bases for
departmentalization, span of management, machinery,
organization design, people themselves, and so on. It is
important to keep in mind that any change in an organization
may have effects extending beyond the actual area where the
change is implemented. For example, when General Motors
recently installed a new automated production system at one of
its plants, employees were trained to operate new equipment,
the compensation system was adjusted to reflect new skill
levels, the span of management for supervisors was altered, and
several related jobs were redesigned. Selection criteria for new
employees were also changed, and a new quality control system
was installed. In addition, it is quite common for multiple
organization change activities to be going on simultaneously.
7-1aForces
for Change
Why do organizations find change necessary? The basic reason
is that something relevant to the organization either has
changed or is likely to change in the foreseeable future. The
organization therefore may have little choice but to change as
well. Indeed, a primary reason for the problems that
organizations often face is failure to anticipate or respond
properly to changing circumstances. The forces that compel
change may be external or internal to the organization.
External Forces
External forces for change come from the organization’s general
and task environments. For example, two energy crises, an
aggressive Japanese automobile industry, floating currency
exchange rates, and floating international interest rates—all
manifestations of the international dimension of the general
environment—profoundly influenced U.S. automobile
companies. New rules of production and competition forced
them to dramatically alter the way they do business. In the
political area, new laws, court decisions, and regulations affect
organizations. The technological dimension may yield new
production techniques that the organization needs to explore.
The economic dimension is affected by inflation, the cost of
living, and money supplies. The sociocultural dimension,
reflecting societal values, determines what kinds of products or
services will be accepted in the market.
Because of its proximity to the organization, the task
environment is an even more powerful force for change.
Competitors influence an organization through their price
structures and product lines. When Dell lowers the prices it
charges for computers, Hewlett-Packard may have little choice
but to follow suit. Because customers determine what products
can be sold at what prices, organizations must be concerned
with consumer tastes and preferences. Suppliers affect
organizations by raising or lowering prices or changing product
lines. Regulators can have dramatic effects on an organization.
For example, if OSHA rules that a particular production process
is dangerous to workers, it can force a firm to close a plant until
it meets higher safety standards. Unions can force change when
they have the clout to negotiate for higher wages or if they go on
strike.
Internal Forces
A variety of forces inside the organization may cause change. If
top management revises the organization’s strategy,
organization change is likely to result. A decision by an
electronics company to enter the home computer market or a
decision to increase a ten-year product sales goal by 3 percent
would occasion many organization changes. Other internal
forces for change may be reflections of external forces. As
sociocultural values shift, for example, workers’ attitudes
toward their job may also shift—and workers may demand a
change in working hours or working conditions. In such a case,
even though the force is rooted in the external environment, the
organization must respond directly to the internal pressure it
generates.
7-1bPlanned
Versus Reactive Change
Some change is planned well in advance; other change comes
about as a reaction to unexpected events. Planned change is
designed and implemented in an orderly and timely fashion in
anticipation of future events. Reactive change is a piecemeal
response to circumstances as they develop. Because reactive
change may be hurried, the potential for poorly conceived and
executed change is increased. Planned change is almost always
preferable to reactive change.
Georgia-Pacific, a large forest products business, is an excellent
example of a firm that went through a planned and wellmanaged change process. When A. D. Correll became CEO, he
quickly became alarmed at the firm’s high accident rate—9
serious injuries per 100 employees each year, and 26 deaths
during the most recent 5-year period. Although the forest
products business is inherently dangerous, Correll believed that
the accident rate was far too high and set out on a major change
effort to improve things. He and other top managers developed
a multistage change program intended to educate workers
about safety, improve safety equipment in the plant, and
eliminate a long-standing part of the firm’s culture that made
injuries almost a badge of courage. As a result, Georgia-Pacific
achieved the best safety record in the industry, with relatively
few injuries.
On the other hand, Caterpillar was caught flat-footed by a
worldwide recession in the construction industry, suffered
enormous losses, and took several years to recover. Had
managers at Caterpillar anticipated the need for change earlier,
they might have been able to respond more quickly. The
importance of approaching change from a planned perspective
is reinforced by the frequency of organization change. Most
companies or divisions of large companies implement some
form of moderate change at least every year and one or more
major changes every four to five years. Managers who sit back
and respond only when they have to are likely to spend a lot of
time hastily changing and rechanging things. A more effective
approach is to anticipate forces urging change and plan ahead to
deal with them.
7-2Managing
Change in
Organizations
Animation-Implementing Change
Watch this animation to gain further knowledge of this concept.
Volume 91%
Copyright © Cengage Learning. All Rights Reserved
Organization change is a complex phenomenon. A manager
cannot simply wave a wand and implement a planned change
like magic. Instead, any change must be systematic and logical
to have a realistic opportunity to succeed. To carry this off,
the manager needs to understand the steps of effective change
and how to counter employee resistance to change.
7-2aSteps
in the Change Process
Researchers have over the years developed a number of models
or frameworks outlining steps for change. The Lewin model was
one of the first, although a more comprehensive approach is
usually more useful in today’s complex business environment.
The Lewin Model
Kurt Lewin, a noted organizational theorist, suggested that
every change requires three steps. The first step is
unfreezing—individuals who will be affected by the impending
change must be led to recognize why the change is necessary.
The second step is the implementation of the change itself. The
third step is refreezing, which involves reinforcing and
supporting the change so that it becomes a part of the system.
For example, one of the changes that Caterpillar faced in
response to the recession noted earlier involved a massive
workforce reduction. The first step (unfreezing) was convincing
the United Auto Workers (UAW) to support the reduction
because of its importance to long-term effectiveness. After this
unfreezing was accomplished, 30,000 jobs were eliminated
(implementation). Then it worked to improve its damaged
relationship with its workers (refreezing) by guaranteeing
future pay hikes and promising no more cutbacks. As
interesting as the Lewin model is, it unfortunately lacks
operational specificity. Thus, a more comprehensive perspective
is often needed.
A Comprehensive Approach to Change
The comprehensive approach to change takes a systems view
and delineates a series of specific steps that often leads to
successful change. This expanded model is illustrated in Figure
7.1. The first step is recognizing the need for change. Reactive
change might be triggered by employee complaints, declines in
productivity or turnover, court injunctions, sales slumps, or
labor strikes. Recognition may simply be managers’ awareness
that change in a certain area is inevitable. For example,
managers may be aware of the general frequency of
organizational change undertaken by most organizations and
recognize that their organization should probably follow the
same pattern. The immediate stimulus might be the result of a
forecast indicating new market potential, the accumulation of a
cash surplus for possible investment, or an opportunity to
achieve and capitalize on a major technological breakthrough.
Managers might also initiate change today because indicators
suggest that it will be necessary in the near future.
Figure 7.1Steps in the Change Process
Managers must understand how and why to implement change. A
manager who, when implementing change, follows a logical and orderly
sequence like the one shown here is more likely to succeed than a
manager whose change process is haphazard and poorly conceived.
© Cengage Learning
Second, managers must set goals for the change: to increase
market share, to enter new markets, to restore employee
morale, to settle a strike, and to identify investment
opportunities—all might be goals for change. Third, managers
must diagnose what brought on the need for change. Turnover,
for example, might be caused by low pay, poor working
conditions, poor supervisors, or employee dissatisfaction. Thus,
although turnover may be the immediate stimulus for change,
managers must understand its causes to make the right
changes.
The next step is to select a change technique that will
accomplish the intended goals. If turnover is caused by low pay,
a new reward system may be needed. If the cause is poor
supervision, interpersonal skills training may be called for.
(Various change techniques are summarized later in this
chapter.) After the appropriate technique has been chosen, its
implementation must be planned. Issues to consider include the
costs of the change, its effects on other areas of the organization,
and the degree of employee participation appropriate for the
situation. If the change is implemented as planned, the results
should then be evaluated. If the change was intended to reduce
turnover, managers must check turnover after the change has
been in effect for a while. If turnover is still too high, other
changes may be necessary.
7-2bUnderstanding
Resistance to Change
Another element in the effective management of change is
understanding the resistance that often accompanies change.
Managers need to know why people resist change and what
can be done about their resistance. When Schlumberger first
provided all its managers with smartphones, most people
responded favorably. One manager, however, resisted the
change to the point where he maintained two telephone
numbers, one on his new smartphone (which he left with his
assistant) and his old standard cell phone that he continued to
use. Such resistance is common for a variety of reasons. The
“Leading the Way” feature illustrates resistance to change.
Uncertainty
Perhaps the biggest cause of employee resistance to change is
uncertainty. In the face of impending change, employees may
become anxious and nervous. They may worry about their
ability to meet new job demands, they may think that their job
security is threatened, or they may simply dislike ambiguity.
Nabisco was once the target of an extended and confusing
takeover battle, and during the entire time, employees were
nervous about the impending change. The Wall Street
Journal described them this way: “Many are angry at their
leaders and fearful for their jobs. They are swapping rumors
and spinning scenarios for the ultimate outcome of the battle for
the tobacco and food giant. Headquarters staffers in Atlanta
know so little about what’s happening in New York that some
call their office ‘the mushroom complex,’ where they are kept in
the dark.” More recently, 13,500 British Airways cabin crew
members voted to participate in a strike over a heavily traveled
holiday season. The action against the airlines was spurred by
high levels of uncertainty as British Airways planned to merge
with another airline and proposed cutting 1,700 jobs and
freezing employee wages in the process.
Threatened Self-Interests
Many impending changes threaten the self-interests of some
managers within the organization. A change might diminish
their power or influence within the company, so they fight it.
Managers at Sears once developed a plan calling for a new type
of store. The new stores would be somewhat smaller than a
typical Sears store and would not be located in large shopping
malls. Instead, they would be located in smaller strip centers.
They would carry clothes and other “soft goods,” but not
hardware, appliances, furniture, or automotive products. When
executives in charge of the excluded product lines heard about
the plan, they raised such strong objections that the plan was
cancelled.
Different Perceptions
A third reason that people resist change is due to different
perceptions. A manager may make a decision and recommend a
plan for change on the basis of her own assessment of a
situation. Others in the organization may resist the change
because they do not agree with the manager’s assessment or
perceive the situation differently. Executives at 7-Eleven
battled this problem as they attempted to enact a major
organizational change. The corporation wanted to take its
convenience stores a bit “upscale” and begin selling fancy fresh
foods to go, the newest hardcover novels, some gourmet
products, and higher-quality coffee. But many franchisees
balked because they saw this move as taking the firm away from
its core blue-collar customers.
Feelings of Loss
Many changes involve altering work arrangements in ways that
disrupt existing social networks. Because social relationships
are important, most people resist any change that might
adversely affect those relationships. Other intangibles
threatened by change include power, status, security, familiarity
with existing procedures, and self-confidence.
Leading the Way
Charting a “New” Old Course
Lenovo is a leading Chinese technology products company best known
for the line of ThinkPad personal computers it purchased from IBM. For
years, the company has struggled with balancing traditional Chinese
approaches to management with contemporary management practices
more widely practiced in global businesses. Lenovo’s founder, Liu
Chuanzhi, recently took back control of the firm in an effort to improve
its competitiveness.
Doug Kanter/Bloomberg/Getty Images
Lenovo was started in Beijing by Liu Chuanzhi in 1984. Initially, Lenovo made
computers for other companies. In 1990, the firm launched its own brand of PC
and by 1997 Lenovo was the top-selling PC in its home country. Unfortunately,
however, the company was not successful in gaining market share outside China.
One reason for this was the lack of brand recognition. Another was that Lenovo
simply did not have many top managers with global experience. But that changed
in 2005. When IBM decided to sell its PC operation that year, Lenovo was quick
to jump on the opportunity and bought IBM’s entire PC business for $1.75 billion.
Lenovo was allowed to continue using the IBM name through 2007 but then
started to brand all of its PCs with the Lenovo name. Along with the PC business
itself, Lenovo also got a team of skilled top managers well-versed in global PC
markets. Senior IBM executives were quickly integrated throughout the top
management structure, and one of them, Stephen Ward, was appointed chief
executive officer (CEO) of Lenovo. Liu Chuanzhi, meanwhile, moved into the
background but remained a director—he felt that Lenovo’s best opportunity for
the firm to gain international market share would be under the leadership of a
seasoned global manager like Ward.
But almost from the start, problems began to surface. Ward was extremely
autocratic and believed that Lenovo should function in a highly centralized,
command-and-control fashion. This alienated his new Chinese colleagues who
assumed that their roles were being diminished because they spent less time
with the CEO. Chuanzhi, for instance, had relied on a senior leadership team that
worked together to make decisions, whereas Ward made most of the major
decisions by himself. And at a more general level, the U.S. managers tried to
impose a rigid, centralized, and bureaucratic structure throughout the new
Lenovo. The Chinese, meanwhile, were highly resistant to these efforts, strongly
preferring the more consensus-style structure that they had used previously.
Within a matter of months, things came to a head. Among other changes, Ward
was pushed out and replaced with William Amelio, a senior executive recruited
from Dell Computer’s Asia/Pacific operations. Amelio immediately indicated his
intent to try to move Lenovo back toward the traditional Chinese structure. He
also thought that the firm could benefit from an infusion of additional
perspectives, so he began to aggressively recruit new executives from other hightech firms such as Dell, Motorola, Samsung, and Toshiba. He also softened the
rigid functional structure and tried building more coordination across areas by
creating cross-functional teams. Unfortunately, though, Amelio never carried
through on his plan to change how decisions were made, retaining much of the
decision-making authority himself and continuing the command-and-control
approach that had been Ward’s downfall. Lenovo also began to lose market share
and profits began to drop.
Finally, Chuanzhi decided that he had to take action. He pushed Amelio to resign
and took control of the firm himself. He then quickly restructured the upper
ranks of Lenovo to fall more in line with the traditional Chinese approach.
Chuanzhi formed the eight top managers at Lenovo into a close-knit team and
then brought them together regularly to make decisions and formulate plans.
After decisions and plans were made by consensus, the team continued to work
together to ensure that they were implemented effectively and with buy-in from
others throughout the organization. Today Lenovo is headquartered in Hong
Kong but has major operations in Beijing, Singapore, and Morrisville, North
Carolina. The firm’s products include PCs, workstations, servers, storage devices,
and information technology (IT) services. Lenovo has also entered the mobile
phone business, citing increased convergence between the PC and handheld
wireless technologies. In 2012, Lenovo generated profits of $273 million on
revenues of $21.6 billion and employed more than 27,000 workers. Right now,
it’s still too soon to know if the changes at Lenovo will improve its fortunes or
not. But Chuanzhi believes that his new approach, which he calls a “blend of old
Chinese thinking and modern global thinking,” will soon carry the day.
References: “Lenovo’s Legend Returns,” Time, May 10, 2010, pp. 65–68; “Lenovo: A Company
Without a Country,” Businessweek, January 23, 2010, pp. 49–50; “Lenovo’s Turnaround
Man,” Forbes, May 4, 2010, p. 88; Hoover’s Handbook of World Business 2013, Austin: Hoover’s
Business Press, 2013, pp. 236–237; “IBM Shows Secret to Corporate Longevity,” USA Today,
June 16, 2011, pp. 1B, 3B; Miguel Helft, “Can Lenovo Do It?” Fortune, June 10, 2013, pp. 100–
111.
7-2cOvercoming
Resistance to Change
Of course, a manager should not give up in the face of resistance
to change. Although there are no surefire cures, there are
several techniques that at least have the potential to overcome
resistance.
Participation
Participation is often the most effective technique for
overcoming resistance to change. Employees who participate in
planning and implementing a change are better able to
understand the reasons for the change. Uncertainty is reduced,
and self-interests and social relationships are less threatened.
Having had an opportunity to express their ideas and assume
the perspectives of others, employees are more likely to accept
the change gracefully. A classic study of participation monitored
the introduction of a change in production methods among four
groups in a Virginia pajama factory. The two groups that were
allowed to fully participate in planning and implementing the
change improved significantly in their productivity and
satisfaction, relative to the two groups that did not participate.
3M Company recently attributed several million dollars in cost
savings to employee participation in several organization
change activities.
Education and Communication
Educating employees about the need for and the expected
results of an impending change should reduce their resistance.
If open communication is established and maintained during the
change process, uncertainty can be minimized. Caterpillar used
these methods during many of its cutbacks to reduce resistance.
First, it educated UAW representatives about the need for and
potential value of the planned changes. Then management told
all employees what was happening, when it would happen, and
how it would affect them individually.
Facilitation
Several facilitation procedures are also advisable. For instance,
making only necessary changes, announcing those changes well
in advance, and allowing time for people to adjust to new ways
of doing things can help reduce resistance to change. One
manager at a Prudential regional office spent several months
systematically planning a change in work procedures and job
design. He then became too impatient, coming in over the
weekend with a work crew and rearranging the office layout.
When employees walked in on Monday morning and saw what
he had done, they were hostile, anxious,and resentful. What was
a promising change became a disaster, and the manager had to
scrap the entire plan.
Force-Field Analysis
Although force-field analysis may sound like something out of
a Star Trek movie, it can help overcome resistance to change. In
almost any change situation, forces are acting for and against
the change. To facilitate the change, managers start by listing
each set of forces and then trying to tip the balance so that the
forces facilitating the change outweigh those hindering the
change. It is especially important to try to remove or at least
minimize some of the forces acting against the change. Suppose,
for example, that General Motors (GM) is considering a plant
closing as part of a change. As shown in Figure 7.2, three factors
are reinforcing the change: GM needs to cut costs, it has excess
capacity, and the plant has outmoded production facilities. At
the same time, there is resistance from the UAW, concern for
workers being put out of their jobs, and a feeling that the plant
might be needed again in the future. GM might start by
convincing the UAW that the closing is necessary by presenting
profit-and-loss figures. It could then offer relocation and
retraining to displaced workers. And it might shut down the
plant and put it in “mothballs” so that it can be renovated later.
The three major factors hindering the change are thus
eliminated or reduced in importance.
Figure 7.2Force-Field Analysis for Plant Closing at General
Motors
A force-field analysis can help a manager facilitate change. A manager
who is able to identify forces acting both for and against a change can
see where to focus efforts to remove barriers to change (such as
offering training and relocation to displaced workers). Removing the
forces against the change can at least partially overcome resistance.
7-3Areas
Change
of Organization
We noted earlier that change can involve virtually any part of an
organization. In general, however, most change interventions involve
organization structure and design, technology and operations, or
people. The most common areas of change within each of these broad
categories are listed in Table 7.1. In addition, many organizations have
gone through massive and comprehensive business process change
programs.
Table 7.1
Areas of Organization Change
Organization change can affect any part, area, or component of an organization.
Most change, however, fits into one of three general areas: organization structure
and design, technology and operations, and people.
Organization Structure and
Design
Technology and
Operations
People
Job design
Information technology
Abilities and
skills
Departmentalization
Equipment
Performance
Reporting relationships
Work processes
Perceptions
Authority distribution
Work sequences
Expectations
Coordination mechanisms
Control systems
Attitudes
Organization Structure and
Design
Technology and
Operations
People
Line-staff structure
Enterprise resource
planning
Values
Overall design
Culture
Human resource management
7-3aChanging
Organization Structure and Design
7-3bChanging
Technology and Operations
Organization change might be focused on any of the basic
components of organization structure or on the organization’s
overall design. Thus, the organization might change the way it
designs its jobs or its bases of departmentalization. Likewise, it
might change reporting relationships or the distribution of
authority. For example, we noted in Chapter 6 the trend toward
flatter organizations. Coordination mechanisms and line-andstaff configurations are also subject to change. On a larger scale,
the organization might change its overall design. For example, a
growing business could decide to drop its functional design and
adopt a divisional design. Or it might transform itself into a
matrix. Changes in culture usually involve the structure and
design of the organization as well (recall that we discussed
changing culture back in Chapter 2). Finally, the organization
might change any part of its human resource management
system, such as its selection criteria, its performance appraisal
methods, or its compensation package.
Technology is the conversion process used by an organization
to transform inputs into outputs. Because of the rapid rate of all
technological innovation, technological changes are becoming
increasingly important to many organizations. Table 7.1 lists
several areas where technological change is likely to be
experienced. One important area of change today revolves
around information technology. The adoption and
institutionalization of information technology innovations are
almost constant in most firms. Sun Microsystems, for example,
adopted a very short-range planning cycle to be best prepared
for environmental changes. Another important form of
technological change involves equipment. To keep pace with
competitors, firms periodically find that replacing existing
machinery and equipment with newer models is necessary.
A change in work processes or work activities may be necessary
if new equipment is introduced or new products are
manufactured. In manufacturing industries, the major reason
for changing a work process is to accommodate a change in the
materials used to produce a finished product. Consider a firm
that manufactures battery-operated flashlights. For many years,
flashlights were made of metal, but now most are made of
plastic. A firm might decide to move from metal to plastic
flashlights because of consumer preferences, raw materials’
costs, or other reasons. Whatever the reason, the technology
necessary to make flashlights from plastic differs importantly
from that used to make flashlights from metal. Work process
changes may occur in service organizations as well as in
manufacturing firms. As traditional barbershops and beauty
parlors are replaced by hair salons catering to both sexes, for
example, the hybrid organizations have to develop new
methods for handling appointments and setting prices.
A change in work sequence may or may not accompany a
change in equipment or a change in work processes. Making a
change in work sequence means altering the order or sequence
of the workstations involved in a particular manufacturing
process. For example, a manufacturer might have two parallel
assembly lines producing two similar sets of machine parts. The
lines might converge at one central quality-control unit, where
inspectors verify tolerances. The manager, however, might
decide to change to periodic rather than final inspection. Under
this arrangement, one or more inspections are established
farther up the line.
Work sequence changes can also be made in service
organizations. The processing of insurance claims, for example,
could be changed. The sequence of logging and verifying claims,
requesting checks, getting countersignatures, and mailing
checks could be altered in several ways, such as combining the
first two steps or routing the claims through one person while
another handles checks. Organizational control systems may
also be targets of change. For example, a firm attempting to
improve the quality of its products might develop and
implement a set of more rigorous and comprehensive qualitycontrol procedures.
Finally, many businesses have been working to implement
technological and operations change by installing and using
complex and integrated software systems. Such systems—
called enterprise resource planning (ERP)—link virtually all
facets of the business, making it easier for managers to keep
abreast of related developments. ERPis a large-scale
information system for integrating and synchronizing the many
activities in the extended enterprise. In most cases, these
systems are purchased from external vendors who then tailor
their products to the client’s unique needs and requirements.
Companywide processes—such as materials management,
production planning, order management, and financial
reporting—can all be managed through ERP. In effect, these are
the processes that cut across product lines, departments, and
geographic locations.
Developing the ERP system starts by identifying the key
processes that need critical attention, such as supplier
relationships, material flows, or customer order fulfillment. The
system could result, for instance, in sales processes being
integrated with production planning and then integrating both
of these into the firm’s financial accounting system. For
example, a customer in Rome can place an order that is to be
produced in Ireland, schedule it to be shipped through air cargo
to Rome, and then have it picked up by a truck at the airport and
delivered to the customer’s warehouse by a specified date. All of
these activities are synchronized by activities linkages in one
massive database.
The ERP integrates all activities and information flows that
relate to the firm’s critical processes. It also keeps updated realtime information on their current status, reports recent past
transactions and upcoming planned transactions, and provides
electronic notices that action is required on some items if
planned schedules are to be met. It coordinates internal
operations with activities by outside suppliers and notifies
business partners and customers of current status and
upcoming deliveries and billings. It can integrate financial flows
among the firm, its suppliers, its customers, and commercial
bank deposits for up-to-the-minute status reports that can be
used to create real-time financial reports at a moment’s notice,
rather than in the traditional one-month (or longer) time span
for producing a financial statement. ERP’s multilanguage
capabilities also allow real-time correspondence in various
languages to facilitate international transactions.
7-3cChanging
People, Attitudes, and Behaviors
A third area of organization change has to do with human
resources. For example, an organization might decide to change
the skill level of its workforce. This change mightbe prompted
by changes in technology or by a general desire to upgrade the
quality of the workforce. Thus, training programs and new
selection criteria might be needed. The organization might also
decide to improve its workers’ performance level. In this
instance, a new incentive system or performance-based training
might be in order. Reader’s Digest recently eliminated 17
percent of its employees, reduced retirement benefits, and took
away many of the “perks” (perquisites, or job benefits) that
employees once enjoyed. Part of the reason for the changes was
to instill in the remaining employees a sense of urgency and the
need to adopt a new perspective on how they do their jobs.
Similarly, Saks Fifth Avenue changed its entire top management
team as a way to breathe new life into the luxury retailer.
Perceptions and expectations are also a common focus of
organization change. Workers in an organization might believe
that their wages and benefits are not as high as they should be.
Management, however, might have evidence that shows the firm
is paying a competitive wage and providing a superior benefit
package. The change, then, would be centered on informing and
educating the workforce about the comparative value of its
compensation package. A common way to do this is to publish a
statement that places an actual dollar value on each benefit
provided and compares that amount to what other local
organizations are providing their workers.
Change might also be directed at employee attitudes and values.
In many organizations today, managers are trying to eliminate
adversarial relationships with workers and to adopt a more
collaborative relationship. In many ways, changing attitudes
and values is perhaps the hardest thing to do.
7-3dChanging
Business Processes
Many organizations today have also gone through massive and
comprehensive change programs involving all aspects of
organization design, technology, and people. Although various
descriptions are used, the terms currently in vogue for these
changes are business process change, or reengineering,
which is the radical redesign of all aspects of a business to
achieve major gains in cost, service, or time. ERP, as described
earlier, is a common platform for changing business processes.
However, business process change is a more comprehensive set
of changes that goes beyond software and information systems.
Corning, for example, has undergone major reengineering.
Whereas the 150-year-old business once manufactured
cookware and other durable consumer goods, it has
transformed itself into a high-tech powerhouse making
products such as the ultra-thin screens used in products such as
smartphones and laptops. Similarly, the dramatic overhauls of
Yellow into a sophisticated freight delivery firm and of UPS into
a major international delivery giant all required business
process changes throughout these organizations.
Tough Times, Tough Choices
To Offshore or Not to Offshore
Many businesses today have offshored various operations to foreign
countries. These offshoring initiatives often involve call centers, and
many businesses have found this approach to be very effective. But
others, like 1-800-FLOWERS, have experienced problems with offshoring
and some have even moved operations back to their home country.
ZUMA Press/Alamy
From computer programmers in the Philippines and molecular biologists in
Russia to customer-service agents in India, the practice of offshoring is bringing
workers from around the world into the workforces of U.S. corporations in a
broad range of industries. When U.S. firms “offshore,” they’re hiring foreign firms
and foreign personnel to perform their business functions. In so doing, they’re
not only increasing the diversity of their workforces but also altering the
processes by which they conduct organizational business. At Penske Truck
Leasing, for instance, drivers submit their paper logs for data entry to a facility in
Mexico, which forwards them to Hyderabad, India, where they’re analyzed, and
the results are reported to Penske management back in the United States. How
does a company function with far-flung operations? As in most other decisions,
companies choose operational partners according to the value-creation
capabilities that they bring to the overall process.
Ideally, of course, offshoring should benefit the contractor as well as the
contracting firm. Take, for example, the case of Wisconsin-based PCMC, which
designs and makes paper packaging. PCMC had a problem with its engineering
function: Although it had a large base of potential customers, it often lost them
because its engineering group was too small to create new designs fast enough to
keep pace with customer needs. Nor could the company afford to expand its
engineering department. To solve the problem, PCMC entered into an offshoring
contract with an Indian company that agreed to provide a 160-member staff to
support PCMC’s engineering function. The result? Not only 160 new jobs in India
but more orders and more jobs in Wisconsin as well.
Obviously, offshoring arrangements don’t always work out as well as the one
established by PCMC and its Indian partner. For one thing, language and culture
differences can make communication difficult, especially when it’s conducted by
e-mail or phone. When 1-800-FLOWERS tried to expand its customer-service
operation by outsourcing customer calls to India, the results were disastrous.
Why? When customers call, florists have to do more than merely process orders:
They’re often called upon to offer interior-design tips and relationship
counseling and even to console the grieving. Indian workers could neither fully
understand the psychology of U.S. flower buyers nor communicate the nuances
necessary to serve their needs. After a few weeks, 1-800-FLOWERS terminated
the experiment. “The folks were difficult to understand,” admitted one company
executive. “We were afraid that we would lose sales, and we couldn’t risk that.”
The decision made sense: Typically, it costs six times as much to replace a
customer as to keep one. Fortunately, the company had a plan B—homeshoring,
or hiring in-country contract workers. Homeshoring employees are more
expensive than overseas contractors, but they’re less expensive than full-time
on-site employees. They connect with American customers, and they also
alleviate the concerns that some U.S. consumers have about their private data
being shipped overseas.
References: Michelle Conlin, “Call Centers in the Rec
Room,” Businessweek, www.businessweek.com, accessed on November 15, 2013; Pete
Engardio, “The Future of Outsourcing,” Businessweek, www.businessweek.com, accessed on
November 15, 2013; and Manjeet Kripalani with Brian Grow, “Offshoring: Spreading the
Gospel,” Businessweek, www.businessweek.com, accessed on November 15, 2013.
The Need for Business Process Change
Why are so many organizations finding it necessary to undergo
business process change? We noted in Chapter 1 that all
systems, including organizations, are subject to entropy—a
normal process leading to system decline. An organization is
behaving most typically when it maintains the status quo, does
not change in synch with its environment, and starts consuming
its own resources to survive. In a sense, that is what happened
to Kmart. In the early and mid-1970s, Kmart was in such a highflying growth mode that it passed first J. C. Penney and then
Sears to become the world’s largest retailer. But then the firm’s
managers grew complacent and assumed that the discount
retailer’s prosperity would continue and that they need not
worry about environmental shifts, the growth of Walmart, and
so forth—and entropy set in. The key is to recognize the
beginning of the decline and immediately move toward
changing relevant business processes. Major problems occur
when managers either do not recognize the onset of entropy
until it is well advanced or are complacent in taking steps to
correct it.
Approaches to Business Process Change
Figure 7.3 shows general steps in reengineering. The first step is
setting goals and developing a strategy for the changes. The
organization must know in advance what new business
processes are supposed to accomplish and how those
accomplishments will be achieved. Next, top managers must
begin and direct the reengineering effort. If a CEO simply
announces that business process change is to occur but does
nothing else, the program is unlikely to be successful. But, if the
CEO is constantly involved in the process, underscoring its
importance and taking the lead, business process change stands
a much better chance of success.
Figure 7.3The Reengineering Process
Reengineering is a major redesign of all areas of an organization. To be
successful, reengineering requires a systematic and comprehensive
assessment of the entire organization. Goals, top management support,
and a sense of urgency help the organization re-create itself and blend
both top-down and bottom-up perspectives.
© Cengage Learning
Most experts also agree that successful business process change
is usually accompanied by a sense of urgency. People in the
organization must see the clear and present need for the
changes being implemented and appreciate their importance. In
addition, most successful reengineering efforts start with a new,
clean slate. In other words, rather than assuming that the
existing organization is a starting point and then trying to
modify it, business process change usually starts by asking
questions such as how customers are best served and
competitors best neutralized. New approaches and systems are
then created and imposed in place of existing ones.
Finally, business process change requires a careful blend of topdown and bottom-up involvement. On the one hand, strong
leadership is necessary, but too much involvement by top
management can make the changes seem autocratic. On the
other hand, employee participation is also important, but too
little involvement by leaders can undermine the program’s
importance and create a sense that top managers do not care.
Thus, care must be taken to carefully balance these two
countervailing forces. Our next section explores more fully one
related but distinct approach called organization development
(OD).
7-3eOrganization
Development
We noted in several places the importance of people and
change. Beyond those change interests discussed earlier, a
special area of interest that focuses almost exclusively on
people is OD.
OD Assumptions
OD is concerned with changing attitudes, perceptions,
behaviors, and expectations. More precisely, organization
development is a planned effort that is organization-wide,
managed from the top, and intended to increase organizational
effectiveness and health through planned interventions in the
organization’s process, using behavioral science knowledge.
The theory and practice of OD are based on several very
important assumptions. The first is that employees have a
desire to grow and develop. Another is that employees have a
strong need to be accepted by others within the organization.
Still another critical assumption of OD is that the total
organization and the way it is designed will influence the way
individuals and groups within the organization behave. Thus,
some form of collaboration between managers and their
employees is necessary to
1. take advantage of the skills and abilities of the employees and
2. eliminate aspects of the organization that retard employee
growth, development, and group acceptance.
Because of the intense personal nature of many OD activities,
many large organizations rely on one or more OD consultants
(either full-time employees assigned to this function or outside
experts hired specifically for OD purposes) to implement and
manage their OD program.
OD Techniques
Several kinds of interventions or activities are generally
considered part of OD. Some OD programs may use only one or
a few of these; other programs use several of them at once.
• Diagnostic activities. Just as
a physician examines patients to
diagnose their current condition, an OD diagnosis analyzes the
current condition of an organization. To carry out this diagnosis,
managers use questionnaires, opinion or attitude surveys,
interviews, archival data, and meetings to assess various
characteristics of the organization. The results of this diagnosis
may generate profiles of the organization’s activities, which can
then be used to identify problem areas in need of correction.
• Team building. Team-building activities
are intended to enhance
the effectiveness and satisfaction of individuals who work in
groups or teams and to promote overall group effectiveness.
Given the widespread use of teams today, these activities have
taken on increased importance. An OD consultant might
interview team members to determine how they feel about the
group; then an off-site meeting could be held to discuss the
issues that surfaced and iron out any problem areas or member
concerns. Caterpillar used team building as one method for
changing the working relationships between workers and
supervisors from confrontational to cooperative. One
interesting new approach to team building involves having
executive teams participate in group cooking classes to teach
them the importance of interdependence and coordination.
• Survey feedback. In survey feedback, each employee responds to a
questionnaire intended to measure perceptions and attitudes
(for example, satisfaction and supervisory style). Everyone
involved, including the supervisor, receives the results of the
survey. The aim of this approach is usually to change the
behavior of supervisors by showing them how their
subordinates view them. After the feedback has been provided,
workshops may be conducted to evaluate results and suggest
constructive changes.
• Third-party peacemaking. Another approach to OD is through
third-party peacemaking, which is most often used when
substantial conflict exists within the organization. Third-party
peacemaking can be appropriate on the individual, group, or
organizational level. The third party, usually an OD consultant,
uses a variety of mediation or negotiation techniques to resolve
any problems or conflicts among individuals or groups.
• Process consultation. In process consultation, an OD consultant
observes groups in the organization to develop an
understanding of their communication patterns, decisionmaking and leadership processes, and methods of cooperation
and conflict resolution. The consultant then provides feedback
to the involved parties about the processes he or she has
observed. The goal of this form of intervention is to improve the
observed processes. A leader who is presented with feedback
outlining deficiencies in his or her leadership style, for example,
might be expected to change to overcome them.
• Life and career planning. Life and career planning helps
employees
formulate their personal goals and evaluate strategies for
integrating their goals with the goals of the organization. Such
activities might include specification of training needs and
plotting a career map. General Electric has a reputation for
doing an outstanding job in this area.
• Coaching and counseling. Coaching and counseling provide
nonevaluative feedback to individuals. The purpose is to help
people develop a better sense of how others see them and learn
behaviors that will assist others in achieving their work-related
goals. The focus is not on how the individual is performing
today; instead, it is on how the person can perform better in the
future.
Animation-Organizational Devlopment
Watch this animation to gain further knowledge of this concept.
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Copyright © Cengage Learning. All Rights Reserved
The Effectiveness of OD
Given the diversity of activities encompassed by OD, it is not
surprising that managers have reported mixed results from
various OD interventions. Organizations that actively practice
some form of OD include American Airlines, Texas Instruments,
Procter & Gamble, and BF Goodrich. Goodrich, for example, has
trained 60 persons in OD processes and techniques. These
trained experts have subsequently become internal OD
consultants to assist other managers in applying the techniques.
Many other managers, in contrast, report that they have tried
OD but discarded it.
OD will probably remain an important part of management
theory and practice. Of course, there are no sure things when
dealing with social systems such as organizations, and the
effectiveness of many OD techniques is difficult to evaluate.
Because all organizations are open systems interacting with
their environments, an improvement in an organization after an
OD intervention may be attributable to the intervention, but it
may also be attributable to changes in economic conditions,
luck, or other factors.
7-4Organizational
Innovation
A final element of organization change that we address
is innovation, which is the managed effort of an organization to
develop new products or services or new uses for existing
products or services. Innovation is clearly important because,
without new products or services, any organization will fall
behind its competition.
7-4aThe
Innovation Process
The organizational innovation process consists of developing,
applying, launching, growing, and managing the maturity and
decline of creative ideas. This process is depicted in Figure
7.4.
Figure 7.4The Innovation Process
Organizations actively seek to manage the innovation process. These
steps illustrate the general life cycle that characterizes most innovations.
Of course, as with creativity, the innovation process will suffer if it is
approached too mechanically and rigidly.
© Cengage Learning
Innovation Development
Innovation development involves the evaluation, modification,
and improvement of creative ideas. It can transform a product
or service with only modest potential into a product or service
with significant potential. Parker Brothers, for example, decided
during innovation development not to market an indoor
volleyball game but instead to sell separately the appealing little
foam ball designed for the game. The firm will never know how
well the volleyball game would have sold, but the Nerf ball and
numerous related products generated millions of dollars in
revenues.
Innovation Application
Innovation application is the stage in which an organization
takes a developed idea and uses it in the design, manufacturing,
or delivery of new products, services, or processes. At this point,
the innovation emerges from the laboratory and is transformed
into tangible goods or services. Business incubators and similar
concepts are often used to facilitate innovation application.
Application Launch
Application launch is the stage at which an organization
introduces new products or services to the marketplace. The
important question is not “Does the innovation work?” but “Will
customers want to purchase the innovative product and
service?” History is full of creative ideas that did not generate
enough interest among customers to be successful. Some
notable innovation failures include a portable seat warmer from
Sony, “New” Coke, the revival of the Ford Thunderbird, and the
Flip video recorder. Thus, despite development and application,
new products and services can still fail at the launch phase.
Application Growth
Once an innovation has been successfully launched, it then
enters the stage of application growth. This is a period of high
economic performance for an organization because demand for
the product or service is often greater than supply.
Organizations that fail to anticipate this stage may
unintentionally limit their growth, as Apple did by not
anticipating demand for the first iPhones. At the same time,
overestimating demand for a new product can be just as
detrimental to performance. Unsold products can sit in
warehouses for years.
Innovation Maturity
After a period of growing demand, an innovative product or
service often enters a period of maturity. Innovation maturity is
the stage at which most organizations in an industry have
access to an innovation and are applying it in approximately the
same way. The technological application of an innovation during
this stage of the innovation process can be very sophisticated.
Because most firms have access to the innovation, however, as a
result of either developing the innovation on their own or
copying the innovation from others, it does not provide
competitive advantage to any one of them. The time that elapses
between innovation development and innovation maturity
varies notably depending on the particular product or service.
Whenever an innovation involves the use of complex skills
(such as a complicated manufacturing process or highly
sophisticated teamwork), moving from the growth phase to the
maturity phase will take longer. In addition, if the skills needed
to implement these innovations are rare and difficult to imitate,
then strategic imitation may be delayed, and the organization
may enjoy a period of sustained competitive advantage.
Innovation Decline
Every successful innovation bears its own seeds of decline.
Because an organization does not gain a competitive advantage
from an innovation at maturity, it must encourage its creative
scientists, engineers, and managers to begin looking for
additional innovations. This continued search for competitive
advantage usually leads new products and services to move
from the creative process through innovation maturity, and
finally to innovation decline. Innovation decline is the stage
during which demand for an innovation decreases and
substitute innovations are developed and applied.
7-4bForms
of Innovation
Each creative idea that an organization develops poses a
different challenge for the innovation process. Innovations can
be radical or incremental, technical or managerial, and product
or process innovations.
Radical Versus Incremental Innovations
Radical innovations are new products, services, or
technologies developed by an organization that completely
replace the existing products, services, or technologies in an
industry. Incremental innovations are new products,
services, or processes that modify existing ones. Firms that
implement radical innovations fundamentally shift the nature of
competition and the interaction of firms within their
environments. Firms that implement incremental innovations
alter, but do not fundamentally change, competitive interaction
in an industry.
Over the last several years, organizations have introduced many
radical innovations. For example, compact disc (CD) technology
replaced long-playing vinyl records in the recording industry
and now digital downloading is replacing CDs, DVDs have
replaced videocassettes but are now being supplanted by Bluray DVDs and online downloading, and high-definition
television is replacing regular television technology. Whereas
radical innovations like these tend to be very visible and public,
incremental innovations actually are more numerous. For
instance, each new generation of the iPhone and the iPad
represents relatively minor changes over previous versions.
The original iPhones and iPads were in many ways radical innovations in
that they redefined product categories. Each subsequent generation of
these products, however, such as the iPad Air shown here, are
incremental innovations that take previous versions and introduce
relatively minor improvements and/or new design features.
© iStockphoto.com/Saturated
Technical Versus Managerial Innovations
Technical innovations are changes in the physical appearance
or performance of a product or service or of the physical
processes through which a product or service is manufactured.
Many of the most important innovations over the last 50 years
have been technical. For example, the serial replacement of the
vacuum tube with the transistor, the transistor with the
integrated circuit, and the integrated circuit with the microchip
have greatly enhanced the power, ease of use, and speed of
operation of a wide variety of electronic products. Not all
innovations developed by organizations are technical,
however. Managerial innovations are changes in the
management process by which products and services are
conceived, built, and delivered to customers. They do not
necessarily affect the physical appearance or performance of
products or services directly. In effect, reengineering, as we
discussed earlier, represents a managerial innovation.
Product Versus Process Innovations
Perhaps the two most important types of technical innovations
are product innovations and process innovations. Product
innovations are changes in the physical characteristics or
performance of existing products or services or the creation of
brand-new products or services. Process innovations are
changes in the way products or services are manufactured,
created, or distributed. Whereas managerial innovations
generally affect the broader context of development, process
innovations directly affect manufacturing.
The implementation of robotics is a process innovation. The
effect of product and process innovations on economic return
depends on the stage of the innovation process that a new
product or service occupies. At first, during development,
application, and launch, the physical attributes and capabilities
of an innovation mostly affect organizational performance.
Thus, product innovations are particularly important during
these beginning phases. Later, as an innovation enters the
phases of growth, maturity, and decline, an organization’s
ability to develop process innovations, such as fine-tuning
manufacturing, increasing product quality, and improving
product distribution, becomes important to maintaining
economic return.
Japanese organizations have often excelled at process
innovation. The market for SLR cameras was dominated by
German and other European manufacturers when, in the early
1960s, Japanese organizations such as Canon and Nikon began
making cameras. Some of these early Japanese products were
not very successful, but these companies continued to invest in
their process technology and eventually were able to increase
quality and decrease manufacturing costs. The Japanese
organizations came to dominate the worldwide market for SLR
cameras, and the German companies, because they were not
able to maintain the same pace of process innovation, struggled
to maintain market share and profitability. And as film
technology gave way to digital photography, the same Japanese
firms effectively transitioned to leadership in this market as
well.
7-4cThe
Failure to Innovate
To remain competitive in today’s economy, organizations must
be innovative. And yet many organizations that should be
innovative are not successful at bringing out new products or
services, or they do so only after innovations created by others
are very mature. Organizations may fail to innovate for at least
three reasons.
Lack of Resources
Innovation is expensive in terms of money, time, and energy. If a
firm does not have sufficient money to fund a program of
innovation or does not currently employ the kinds of employees
it needs to be innovative, it may lag behind in innovation. Even
highly innovative organizations cannot become involved in
every new product or service its employees think up. For
example, numerous other commitments in the electronic
instruments and computer industry forestalled HewlettPackard (HP) from investing in Steve Jobs and Steve Wozniak’s
original idea for a personal computer. With infinite resources of
money, time, and technical and managerial expertise, HP might
have entered this market early. Because the firm did not have
this flexibility, however, it had to make some difficult choices
regarding in which innovations to invest.
Failure to Recognize Opportunities
Because firms cannot pursue all innovations, they need to
develop the capability to carefully evaluate innovations and to
select the ones that hold the greatest potential. To obtain a
competitive advantage, an organization must usually make
investment decisions before the innovation process reaches the
mature stage. The earlier the investment, however, the greater
the risk. If organizations are not skilled at recognizing and
evaluating opportunities, they may be overly cautious and fail to
invest in innovations that later turn out to be successful for
other firms.
Resistance to Change
As we discussed earlier, many organizations tend to resist
change. Innovation means giving up old products and old ways
of doing things in favor of new products and new ways of doing
things. These kinds of changes can be personally difficult for
managers and other members of an organization. Thus,
resistance to change can slow the innovation process.
Promoting Innovation in Organizations
A wide variety of ideas for promoting innovation in
organizations has been developed over the years. Three specific
ways for promoting innovation are through the reward system,
through the organizational culture, and through a process
called intrapreneurship.
The Reward System
A firm’s reward system is the means by which it encourages and
discourages certain behaviors by employees. Major components
of the reward system include salaries, bonuses, and perquisites.
Using the reward system to promote innovation is a fairly
mechanical but nevertheless effective management technique.
The idea is to provide financial and nonfinancial rewards to
people and groups who develop innovative ideas. Once the
members of an organization understand that they will be
rewarded for such activities, they are more likely to work
creatively. With this end in mind, Monsanto gives a $50,000
award each year to the scientist or group of scientists who
develop the biggest commercial breakthrough.
It is important for organizations to reward creative behavior,
but it is vital to avoid punishing creativity when it does not
result in highly successful innovations. It is the nature of the
creative and innovative processes that many new-product ideas
will simply not work out in the marketplace. Each process is
fraught with too many uncertainties to generate positive results
every time. An individual may have prepared herself to be
creative, but an insight may not be forthcoming. Or managers
may attempt to apply a developed innovation, only to recognize
that it does not work. Indeed, some organizations operate
according to the assumption that, if all their innovative efforts
succeed, then they are probably not taking enough risks in
research and development. At 3M, nearly 60 percent of the
creative ideas suggested each year do not succeed in the
marketplace.
Managers need to be very careful in responding to innovative
failure. If innovative failure is due to incompetence, systematic
errors, or managerial sloppiness, then a firm should respond
appropriately, for example, by withholding raises or reducing
promotion opportunities. People who act in good faith to
develop an innovation that simply does not work out, however,
should not be punished for failure. If they are, they probably will
not be creative in the future. A punitive reward system will
discourage people from taking risks and therefore reduce the
organization’s ability to obtain competitive advantages.
Organization Culture
As we discussed in Chapter 2, an organization’s culture is the set
of values, beliefs, and symbols that help guide behavior. A
strong, appropriately focused organizational culture can be
used to support innovative activity. A well-managed culture can
communicate a sense that innovation is valued and will be
rewarded and that occasional failure in the pursuit of new ideas
is not only acceptable but even expected. In addition to reward
systems and intrapreneurial activities, firms such as Apple,
Google, LG Electronics, Tata, Amazon, and HP are all known to
have strong, innovation-oriented cultures that value individual
creativity, risk taking, and inventiveness.
Amazon.com is known for its innovative business practices. The firm’s
culture helps promote individual creativity, risk taking, and
inventiveness. This Amazon.comdistribution center, for example, was
developed using new methods devised by Amazon employees.
Bernhard Classen/Alamy
Intrapreneurship in Larger Organizations
In recent years, many large businesses have realized that the
entrepreneurial spirit that propelled their growth becomes
stagnant after they transform themselves from a small but
growing concern into a larger one. To help revitalize this
spirit, some firms today encourage
intrapreneurship. Intrapreneurs are similar to entrepreneurs
except that they develop a new business in the context of a large
organization. There are three intrapreneurial roles in large
organizations. To successfully use intrapreneurship to
encourage creativity and innovation, the organization must find
one or more individuals to perform these roles.
The inventor is the person who actually conceives of and
develops the new idea, product, or service by means of the
creative process. Because the inventor may lack the expertise or
motivation to oversee the transformation of the product or
service from an idea into a marketable entity, however, a second
role comes into play. A product champion is usually a middle
manager who learns about the project and becomes committed
to it. He helps overcome organizational resistance and
convinces others to take the innovation seriously. The product
champion may have only limited understanding of the
technological aspects of the innovation. Nevertheless, product
champions are skilled at knowing how the organization works,
whose support is needed to push the project forward, and
where to go to secure the resources necessary for successful
development. A sponsor is a top-level manager who approves of
and supports a project. This person may fight for the budget
needed to develop an idea, overcome arguments against a
project, and use organizational politics to ensure the project’s
survival. With a sponsor in place, the inventor’s idea has a much
better chance of being successfully developed.
Several firms have embraced intrapreneurship as a way to
encourage creativity and innovation. Colgate-Palmolive has
created a separate unit, Colgate Venture Company, staffed with
intrapreneurs who develop new products. General Foods
developed Culinova as a unit to which employees can take their
ideas for possible development. S.C. Johnson & Son established a
$250,000 fund to support new-product ideas, and Texas
Instruments refuses to approve an innovative project unless it
has an acknowledged inventor, champion, and sponsor.
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