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Personal Experiences: Think of an organizational change that you experienced. Describe how you were impacted by the change. What could the leadership have done to make the transition more successful? Cite one or more change models to support your assertion. Your initial post should be at least 250 words in length. Support your claims with examples from required material and properly cite any references. 4 Shaping and Sustaining Change Ryan McVay/Photodisc/Thinkstock Learning Objectives After reading this chapter, you should be able to do the following: 1. Describe the major reasons why organizational change programs fail and succeed. 2. Evaluate how to recruit and empower employees. 3. Analyze the five pillars of successful, sustainable change. 4. Explain the characteristics of built-to-change organizations that position themselves to successfully sustain change. 5. Examine useful principles and practices in sustaining change. © 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_04_c04_155-206.indd 155 12/15/15 9:44 AM Introduction  Nothing is easier than saying words. Nothing is harder than living them day after day. —Arthur Gordon Pretest Questions 1. True/False: Because speed and efficiency are hallmarks of the American business system, a short–term fix approach to organizational change is often successful. 2. True/False: Recruiting experienced individuals to a company that is planning transformational change is risky because such people tend to resist change. 3. True/False: Knowledge management is a system in which organizations sustain change by making intellectual capital available to employees so they can continuously learn. 4. True/False: Built-to-change organizations prioritize temporary competitive advantage over long-term stability by continuously implementing important changes. 5. True/False: A self-designed organization is one in which stakeholders choose the direction of the company. 6. True/False: A common mistake in implementing change strategy is to reject a “blockbuster” innovation in favor of small, unexciting changes. In Chapter 3 we discussed three companies that underwent significant planned organizational changes. They are summarized here to illustrate two successful overall outcomes (Ford and AlliedSignal/Honeywell) and one unsuccessful change (Avon). Ford After working at Ford for 25 years, Alan Mulally retired as CEO on July 1, 2014—8 years after leading Ford’s transformation. Chair Bill Ford said, “Alan deservedly will be long remembered for engineering one of the most successful business turnarounds in history. Under Alan’s leadership, Ford not only survived the global economic crisis, it emerged as one of the world’s strongest auto companies” (as cited in Media.Ford.com, 2014, para. 4). Mulally’s change strategy, “One Ford,” worked. In 2006 Ford lost $12.7 billion, its worst performance ever. In 2010, however, the company had net income of $6.6 billion, its highest profit in a decade. The stock price was $1.25 a share in 2006 when Mulally came on board; it closed at $17.21 on the day he retired. In 2011 he was awarded stock bonuses worth $56.5 million (Henry, 2011). After careful research, Mulally targeted major problems at Ford as “inefficiencies in production, bad relationships with suppliers, unrealistic delivery dates—and management that deflected blame” (as cited in Henry, 2011, “One World, One Plan,” para. 2). With the One Ford strategy, he reorganized the company’s operations and global managers to focus on the same agenda. Mulally’s overall success factors were that he had a compelling vision for Ford as a mobility company. He focused on technological innovation (for example, MyFord Touch entertainment) © 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_04_c04_155-206.indd 156 12/15/15 9:44 AM Introduction  across vehicles and led product development with partnerships in the consumer electronics industry. This allowed Ford cars and trucks to transform into mobile centers of entertainment and communication that grew in concert with smartphones and social media. Now all major automakers focus on personal technologies to make cars mobile entertainment and information centers (Caldicott, 2014). Mulally promoted accountability and collaboration across leadership structures. He also carved a path for outstanding execution. Ford moved forward with new product vehicle development, redesigning the Taurus, Focus, and Fiesta models. Mulally then streamlined Ford’s products, removing 97 weak auto products and concentrating on 20. This resulted in a simpler, leaner product line that allowed Mulally to focus on and showcase manufacturing, product development, and customer service excellence (Caldicott, 2014). AlliedSignal/Honeywell During Larry Bossidy’s term as CEO, Honeywell emerged from a disastrous merger with AlliedSignal in 1999, when the latter purchased Honeywell for $14.4 billion. Honeywell operated in the controls and aerospace business; AlliedSignal was at the time an aerospace, automotive, and engineering firm. There was a clash of cultures. AlliedSignal was overwhelmed with cost control, which caused it to neglect its long-term investments and strategic planning. By contrast, the original Honeywell was known for being customer-centric and creative, but not for execution. Bossidy was asked to find a successor who could handle the challenge of merging the two warring cultures. In 2002 he took a chance on David Cote, who had worked under Jack Welch at GE. Cote’s first step toward a turnaround was to terminate a long-standing aggressive accounting policy used by AlliedSignal and Honeywell and adopt a conservative approach that put both firms on a more level playing field. Secondly, Cote introduced a new collaborative strategy for dealing with Honeywell’s difficult legacy and litigious approach to solving asbestos lawsuits and environmental liabilities. Honeywell established a trust for the claims, making expenses predictable. Cote also introduced principles of best practices in all businesses to stop the conflicts between the companies. He focused attention on manufacturing practices in particular, sending 70 managers to a Toyota plant to master output production methods. The rewards were described as spectacular. Since 2002 the company’s sales have grown by 72%, while its head count only increased by 21% (Tully, 2012). By keeping fixed costs like labor relatively flat, Cote generated “operating leverage” that magnified brisk revenue growth into outsize earnings. Since 2003 Honeywell has increased sales by 7% each year, and operating profits have grown by 12% (Tully, 2012). Cote also excelled at company acquisitions. Honeywell acquired 70 companies. These moves tripled Honeywell’s profits. In effect, Cote’s collaborative, detailed, and big-picture approach, along with his relentless focus on integration, has made him a change champion at Honeywell and within its industry. Avon Avon Products’ ex-CEO Andrea Jung stepped down in 2011 and was succeeded by Sherilyn McCoy. Several large change efforts had faltered and failed under Jung since 2005 (Martin, 2012), and Avon’s profits had declined every year since 2008. McCoy said in 2012: © 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_04_c04_155-206.indd 157 12/15/15 9:44 AM Introduction   Avon’s products and pricing were “off target.” Technology and service “did not keep pace.” Senior managers were moved so often they couldn’t gain traction. Avon doesn’t need yet another new strategy. We need to focus on the core of Avon’s business: representatives, consumers and our people. The challenge we’re facing didn’t materialize overnight. They developed over years, and our solutions will take time as well. (as cited in Martin, 2012, paras. 23–25) What went wrong with Jung’s transformation efforts? What led to her eventual downfall? Himsel (2014) answered this question by identifying five “traps.” Trap 1: Jung failed to develop the agility to factor global scale and local requirements into decisions. Avon attempted to manage economies of scale and local customization requirements with erratic business moves. First it decentralized the system; then the following year it did the opposite and went back to centralized control. This led to the company being unable to meet customer demands and being perceived as overly reactive. Trap 2: Jung did not align organization culture with strategy. She may have underestimated the power of culture, which can and did undermine even the strongest strategy. She failed to evolve the culture with the strategy. Trap 3: Jung occasionally refused to hold leaders, including herself, accountable for controversial changes and performance-related decisions. When leaders do not send clear, certain, and consistent messages and follow-up actions, employees lose confidence in them. Trap 4: Jung failed to understand the demands of officers and leaders when globally integrating the company. During this transition, Avon needed a CFO who could improve and consolidate its financial systems, create consistent financial controls and processes, and increase margins while decreasing inventory. Instead, the company hired a CFO generalist and “deal maker.” These skills did not match the demands of a company expanding and integrating into emerging markets. Trap 5: Jung failed at due diligence and vigilance in having employees work in “at-risk” global, emerging markets. The result: Avon paid a $135 million settlement with the U.S. Securities Exchange Commission and the U.S. Department of Justice for allegedly bribing Chinese government officials. CEOs and their staff must screen and train new hires to follow corporate values and codes of law and ethics both at home and abroad (Kowitt, 2012). When McCoy took over from Jung in 2011, Avon’s revenue was $10.7 billion. The loss from continuing operations was $38 million. In 2014 revenue was $8.9 billion, and the net loss from continuing operations was $385 million. Avon’s numbers have continued to decrease with McCoy as CEO. Critical-Thinking Questions 1. What went wrong at Avon, according to this brief case scenario? 2. As a student of organizational change, identify a few key concepts you have studied that would have helped diagnose Avon when its sales began to decline. 3. Identify a few actions that Mulally took at Ford that helped turn Ford around at that time. 4. Identify and briefly state your opinion on a strategic action that Cote implemented that helped changed the direction of AlliedSignal and Honeywell at that time. © 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_04_c04_155-206.indd 158 12/15/15 9:44 AM Failing and Succeeding at Change Section 4.1 Introduction: Back to the Future Sustaining major organizational changes—that is, ensuring that planned changes endure—does not involve “one-shot” or quick-fix solutions. Embedding change in organizations requires continuous top-down, bottom-up leadership and process improvements— including supportive and innovative actions throughout the enterprise. The CEO and toplevel team generally define and lead the change, but everyone must be involved in managing, re-creating, and rejuvenating the ongoing renewal processes. The transformational change programs at Ford, AlliedSignal, and Avon required years to plan and complete. Looking back at their successes and problems informs us about the people and processes used to implement change goals and the initiatives undertaken in response to different environments. 4.1 Failing and Succeeding at Change Although some transformational changes may start with a “big bang,” embedding and sustaining them takes time, talent, and effort. Rosabeth Moss Kanter (2002), Harvard professor and change expert, noted that effective change is sustained by “long marches” not “bold strokes.” In order to revitalize and sustain large-scale changes, it is important to know some of the major reasons why changes fail and also what makes them succeed. Why Change Programs Fail There are more than enough reasons why organizational change programs fail. We previously discussed some in this text and have selected some of the more notable ones to discuss here. Understanding and learning from each of these can prevent failure and help facilitate strategies and efforts to sustain change. Fletcher and Taplin (2002) list these reasons why organizational change programs fail: • • • • • • • • Opposition to change Failure to recognize the need for change Superficial recognition of the need for change Failure to systematically implement change Short-term fix approach Structural impediments to change Cultural impediments to change Failure to sustain change Large-scale, planned organizational changes are generally complex processes that require expertise and systematic methods that take the entire enterprise into consideration. Just as important, the people involved in and affected by the change must not be excluded. Failing to communicate with and involve professionals and employees who are affected by such changes often creates opposition and resistance. © 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_04_c04_155-206.indd 159 12/15/15 9:44 AM Failing and Succeeding at Change Section 4.1 Opposition to Change Change programs are often destined to fail because of the top-down imposed nature of the process (Nohria & Beer, 2000). The following scenario is all too common: a CEO or top-level team member gets some new ideas from either talking to friends, witnessing a change in a competitor, attending a seminar, reading current business trends, or following a current management fad. He or she then decides to try something new with a division or the entire company. When change is arbitrarily imposed, poorly explained, and hastily announced from the top, managers and employees can become disillusioned, lose motivation, and become increasingly resentful and resistant to the change. Their work often changes and increases, while resources and attention to quality decreases. Managers in particular are thrown into confusion when they are asked to implement and guide changes that are not adequately explained and for which they have few or no blueprints or models. Also, when managers are given little strategic direction or rationale for implementing change, they typically revert to emphasizing what they know best: operational detail that is activity (not goal) driven (Fletcher & Taplin, 2002). For example, Friendly’s restaurant chain filed for bankruptcy in October 2011 (Reuters, 2011). Although many reasons explain this chain’s failure—including the slumping economy and the chain’s debt and financial situation—the lack of a clear strategic direction was also an issue. One author described Friendly’s in the following way: The restaurant smells like a bus station. Food takes a long time to arrive at the table, no matter how painfully empty the dining room is. The salad looks like it was assembled a few weeks before I ordered it. Only the nostalgia keeps me coming back. (Baab-Muguira, 2011, “Times Have Changed,” para. 3) Restaurants like Friendly’s, which was founded in 1935, must continually differentiate themselves from similar establishments in order to remain competitive in the marketplace. They must be sure that the public knows what makes them unique. In 2009 Friendly’s former CEO, Ned Lidvall, stated that the restaurant’s differentiator was ice cream and that the lines and definitions of brands in the industry were starting to blur (O’Brien, 2009). Friendly’s attempts at competitiveness by emphasizing ice cream and other piecemeal marketing ideas proved unsuccessful. Failure can also occur when the purpose of the change is not shared by the people and is, in turn, separated from the organizational processes required for implementation. When an affiliate of the private equity firm Sun Capital Partners took over Friendly’s restaurant chain and filed for Chapter 11 bankruptcy protection in 2011, 1,260 workers, or more than 12% of that chain’s 10,300 member workforce, were told one evening they would lose their jobs the following day. A spokesperson for Friendly’s at that time AP Images/Charles Krupa Unfavorable economic circumstances, competition, and unsuccessful change to differentiate Friendly’s from other restaurants contributed to restaurant closures and bankruptcy. © 2015 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. wei82650_04_c04_155-206.indd 160 12/15/15 9:44 AM Failing and Succeeding at Change Section 4.1 stated, “We’re not trying to put people out of jobs. We’re trying to ensure the future of the company” (as cited in Hines, 2011). That spokesperson noted that closed locations were unprofitable and that closing those locations would help the company and its parent, Sun Capital, gain control over $296 million in outstanding debt (Hines, 2011). The company survived the painful downsizing and emerged from bankruptcy, then in 2012 hired John Maguire, who helped reinvent the chain (Pohle, 2015). Failure to Recognize the Need for Change In the 1970s and 1980s, CEOs of some of the largest, most innovative world-class U.S.-based international firms were entering a period they did not anticipate, one featuring fierce global competition and new ways of streamlining operations. IBM, Digital Equipment Corporation, Polaroid, and General Motors were still resting on their past successes, because they believed they could continue to dominate their industries with bulky hierarchies, unrealistic overhead costs, and outdated operations. As a result, Digital Equipment Corporation and Polaroid did not survive. Japanese auto and electronics companies entered the scene with the first wave of new and competitively priced products that were made with higher efficiency operational methods. The result was 2 decades of radically induced change for all U.S. industries: total quality management, just in time, reengineering, and the introduction of information technology into the assembly line process. Failing to recognize the need for change is not relegated to the past. In 2014 the Huffington Post published a list titled “9 iconic brands that could soon be dead” (Jacques, 2014) because of failure to adjust to contemporary markets, customers, and business models. These included Quiznos, JCPenney, Zynga, Red Lobster, BlackBerry, the Women’s National Basketball Association, Volvo, Martha Stewart Living magazine, and Abercrombie & Fitch (Jacques, 2014). The inability to recognize the need for change continues to be a major cause of failed change programs. Other causes for failure include changes that are initiated too late to regain competitiveness; are initiated poorly, without proper attention to how change processes should be planned; or are not initiated at all. Superficial Recognition of the Need for Change Some CEOs and organizations move forward with a change without the necessary commitment to allot the resources and harness the energy of the entire enterprise. They believe that targeting a certain division, business unit, department, program, or management practice for change will be enough to solve the problem and generate new opportunities throughout the entire organization. In such instances concern for cost, in terms of time and money, is the prohibitive factor. In other instances such shortsightedness may be due to a top-level individual, team, or dominant coalition’s lack of political or business acumen or some other limitin ...
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