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Chapter 10: organizational

change and innovation

Recognising the need for change: Collinss 5
stages of decline
Stage 1, hubris born
of success

Stage 2,
pursuit for more

Stage 3, Denial of
risk and peril

Stage 4, Grasping
for salvation

Stage 5, Capitulation
to irrelevance or

A company develops arrogance and its

employees begin attributing the
companys success to their own
superior qualities
Forget about the underlying factors
that created that success
More of whatever is defined as success,
such as more growth
Companies begin overreaching, making
undisciplined leaps into areas where
they cannot be great, leading them to
ignore their core business
Internal warning signs increase, but
managers explain them away,
discounting negative data, amplifying
positive data, putting a positive spin on
ambiguous data
Difficulties of the previous stage reach
the opint of throwing the company into
sharp decline, the managers begin
making desperate leaps
Eg, trying bold but untested strategies,
looking for a blockbuster product,
trying to put together a game changing
acquisition, and similar attempts at
silver bulleted solutions
The longer an organisaion stays in
stage 4, the more apt it is to slip to
stage 5
The company may be sold, or left to
shrivel to insignificance

Fundamental change: what will

you be called on to deal with?
-Supertrends shaping the future of business:
1) The
Last time, managers think in terms of mass
marketplace is
markets- mass communication, mass behavior
and mass values
NOW, demassification
Customer groups become segmented into
and moving
smaller and more specialized groups
towards more
Respond to more narrowly targeted
commercial messages
2) More
are offering
faster speedto-market
3) Some
may not

Companies offering a broad range of products

or services are now experiencing intense
pressure from competitors offering specialized
solutions- beating them by devising novel
speed-to-market strategies

When successful companies are fonfronted

with a giant technological leap that transforms
their markets, all choices are bad ones
It is very difficult for an existing successful
company to take full advantage of a
technological breakthrough such as
disruptive innovation
A company should set up an entirely separate
organization that can operate much like a

4) China, india
and other
suppliers are
changing the
way we work

5) Knowledge,

Globalisation and outsourcing

China, Mexico, India, Philippines are offering
workers and professionals who are willing to
work twice as hard for half the pay, giving
American businesses substantial savings
Offer enormous gains in efficiency,
productivity, quality and revenues that can be
achieved by fully leveraging offshore talent
Information is rapidly becoming a profitless
commodity, knowledge is becoming the new

information, is
becoming the

competitive advantage
As IT does more of the work formerly done by
humans, even in high-tech areas, may lowlevel employees previously thought of as
knowledge workers are now being recognized
as data workers , who contribute very little
added value to the processing of information
Unlike routine information handling,
knowledge work is analytic, involves problem
solving and abstract reasoning
Drives the future, creates wealth

2 types of change: reactive vs


Responding to unanticipated problems and

putting out fires
Making changes in response to problems or
opportunities as they arise
Or planned change
Involves making carefully thought out changes in
anticipation of possible or expected problems or


The forces for change: outside

and inside the organization
Forces originating outside the organization

Eg diversity of workforce has increased

Eg, expansion into overseas markets

Eg pirated versions of American products

Copycats in China

Shareholders more active in pressing for

organizational change
Customers have also become more demanding, more


Social and

inclined to take their business elsewhere if they do

not get what they want from a given company
The actions of a companys suppliers can create the
need for change
Eg, an audit of apples suppliers in china created
apple to change suppliers or force the supplier to
alter their HR policies
Eg, health related problems (obesity) and associated
costs have prompted organisations to find ways of
helping employees adopt more healthy lifestyles

Forces originating inside the organization


Internal forces affecting organisations may be subtle, eg low

job satisfaction, or constant labour-management conflict
Internal forces may be 2 types: employee problems or
manager behavior

Employee problems

Manager behavior

A gap between employees

needs and desires, and
organisations needs and
Job dissatisfaction is
expressed through high
absenteeism and turnover
Need to: address job design,
reduce employees role
conflicts and deal with work
Excessive conflicts between
managers and employees
Personality conflictemployee transfer needed?
Maybe interpersonal training
is required?
Managers may become
servant leaders, helping
others do their jobs, fixing
problems, giving employees
the tools they need

Areas in which change is often needed:

people, technology, structure and strategy
Changing people

Perceptions: employees may

feel they are underpaid, for
what they do Show them

Changing technology

Changing structure

Changing strategy

that pay and benefits are

Attitudes: Employees may
feel that it is the nature of
things that managers dont
listen to them Need to
change the culture and the
attitudes by using
educational techniques
Performance: It is often a
major challenge to find
incentives to improve
peoples performance
Skills: Altering or improving
skills levels is often an
ongoing challenge, New
forms of technology can
change an organisations
way of doing business
Technology is nt just
computer technology, it is
any machine or process that
enables an organization to
gain a competitive
advantage in changing
materials used to produce a
finished product
Changes in strategy require
changes in structure
Recent trends are toward
flattening the hierarchy
Eliminating several middle
layers of management, using
work teams linked by
electronic networks
Old line Organisations need
to change their strategy

Threat of change: managing

employee fear and resistance
Causes of resistance to change
Resistance to change is an emotiona/behavioral response to real or
imagined threats to an established work routine

Employee characteristics

Consists of his or her

individual differences,
actions and inactions, and
perceptions of change

Change-agent characteristics

Change agent: the individual

who is a catalyst in helping
organisations change-also
consists of his or her
individual differences,
actions and inactions, and
perceptions of change
Such characteristics that
might contribute to
employee resistance to
change: leadership style,
personality, tactfulness,
sense of timing, awareness
of cultural traditions or
group relationships, and the
ability to empathise with the
employees perspective
Resistance to change is
reduced when change
agents and employees have
a trusting relationship
Mistrust encourages
secrecy, dooming change

Change agent-employee

The degree to which

employees fear change

Depends on whether the change is adaptive, innovative, or

radically, innovative

Least threatening: adaptive


Somewhat threatening:
innovative change

Reintroduction of a familiar
This change is lowest in
complexity, cost, and
Introduction of a practice
that is new to the

Very threatening: radically

innovative change

Moderate complexity, cost,

and uncertainty

Introducing a practice that is

new to the industry
Most complex, costly and
uncertain of the levels of
change, it will be felt as
extremely threatening to
managers confidence and
employees job security
May tear at the fabric of the

10 reasons why employees resist change

1) Individual
2) Surprise
and fear of
the unknown
3) Climate of

Depends on how they learnt to handle change

and ambiguity as children

When radially different changes are introduced

without official announcements, office rumous
- Affected employees become fearful
Encourages secrecy
Developing further mistrust
Puts even well conceived changes at risk of
Managers who trust their employees make the
change an open, honest and participative affair
-Employees who trust their managers are more
apt to expend extra effort and take chnaces
with something different
Intimidating changes on the job can cause
employees to doubt their capabilities
Self-doubt erodes self-confidence
Cripples personal growth and development
Admin and technological changes that threaten
to alter power bases or eliminate jobs
Often happens during corporate restructuring
Threatens middle-management jobs
Triggers strong resistance
- People not directly affected by impending
changes may actively resist to protect the
interests of their friends and coworkers
When individuals are transferred, promoted,
reassigned, the change can disrupt existing
cultural and group relationships

4) Fear of
5) Loss of
status or job
6) Peer
7) Disruption
of cultural
traditions or

8) Personality
9) Lack of tact
or poor timing

g reward

- The personalities of change agents can breed

Introducing changes in an insensitive manner
or an awkward time can create employee
Employees more apt to accept changes when
managers explain their value,
Eg, in demonstrating their strategic purpose to
the organization
Employees are likely to resist when they cant
see any positive rewards from proposed
Eg, when one is asked to work longer hours
without additional compensation

Lewins change model: unfreezing, changing

and refreezing

Kurt Lewin
Developed a model with 3 stages1. Unfreezing
2. Changing
3. Refreezing
Explains how to initiate, manage, and stabilize planned

: creating
to change

new ways
of doing


Managers try to instill in employees the motivation

to change
Encourage them to let go of attitudes and
behaviors that are resistant to innovation
Employees need to become dissatisfied with the
old way of doing things
Managers need to reduce the barriers to change
during this stage
Employees need to be given the tools for change:
new information, new perspectives, new models of
Managers should provide benchmarking results,
role models, mentors, experts and training
Convey the idea that change is a continuous
learning process, not a one time event
Benchmarking: A process by which a company
compares its performance with that of highperforming organisations
Employees need to be helped to integrate the
changed attitudes and behavior into their normal

: makes
the new

ways of doing things

Managers: encourage employees to exhibit the
new change, and then, through additional
coaching and modeling, reinforce the employees
in the desired change

6 methods for managing employee resistance to


Education and communication

Participation and involvement
Facilitation and support
Negotiation and rewards
Manipulation and co-optation
Explicit and implicit coercion

Kotters 8 steps for leading organizational


John Kotter: to be successful, organizational change needs to

follow 8 steps to avoid the 8 common errors senior
management usually commits
TABLE 10.2: PAGE 318

Value of Kotters steps: provide specific recommendations

about behaviors that managers need to exhibit to successfully
lead organizational change
Kotters research: it is ineffective to skip steps
Successful organizational change is 70-90% leadership, and
only 10-30% management
Senior managers: advised to lead rather than manage change

Organisational development

Organisational development is a set of techniques for

implementing planned change to make people and
organisations more effective
OD is put in place by a change agent (a consultant with a
background in behavioral sciences who can be a catalyst in
helping organisations deal with old problems in new ways)

What can OD be used for?


Address 3 matters:

1) Managing

2) Revitalising

3) Adapting to

Sometimes, an OD expert in the guise of

an executive coach will be brought in to
help advise an executive on how to
improve relationships, with others in the
IT causes organisations to have to adopt
new behaviors
OD can help by opening communication.,
fostering innovation and dealing with
Mergers and acquisitions are associated
with increased anxiety, stress,
absenteeism, turnover, and decreased
OD experts can help integrate 2 firms with
varying cultures, products and procedures

How OD works


OD managers and consultants follow a medical-like model

Approach the organization as if it were a sick patient
Use diagnosis, intervention and evaluation

OD consultants use some combination of

What is the
: what shall
we do about

how well
has the

questionnaires, surveys, interviews, meetings,

records and direct observation
- Ascertain peoples attitudes and to identify
problem areas
The attempt to correct the diagnosed problems
Done using the services of an OD consultant who
works in conjunction with management teams
Communicating survey results to employees to
engage them in constructive problem solving,
observing employee communication patterns
and teaching them skills to improve them
Help group members learn to function as a team,
stimulate better cohesiveness among several
work groups, improving work technology or
organizational design
Needs objective evaluation to see if it has done
any good
Answers may lie in hard data
Change agent can use questionnaires, surveys,
interviews etc to assess changes in employee

The effectiveness of OD

OD is most apt to be successful under the following


1) Multiple


3) Goals
geared to both
short and long
term results

Goal setting, feedback, recognition and

rewards, training, participation, and
challenging job design have had good
results in improving performance and
Combined interventions work better than
single interventions
OD is more likely to succeed when top
managers give the OD program their
support, and are truly committed to the
change process and the desired goals of
the change program
More likely to succeed when they are
oriented towards achieving short term and
long term results
Managers should not engage in
organizational change for the sake of
Change efforts should produce positive

4) OD is
affected by

OD effectiveness is affected by crosscultural considerations
-An OD intervention that worked in 1
country should not be blindly applied to a
similar situation in another country

Promoting innovation within

the organization

Innovation is the activity of creating new ideas and converting

them into useful applications (specifically, goods and services)
Innovation is different from invention (creating something
Also different from creativity (process of developing something
new or unique)

How does failure impede innovation?


Many dont learn/ not comfortable to learn from failures

Reluctant to experiment, blame others, refuse to recognize
that not all failures are of equal seriousness
Detracts from an organisations aility to learn from its

2 myths about innovation

1) Innovation happens in a
eureka moment
2) Innovation can be

- Most of the time, innovation is

the result of HARD WORK and
- TABLE 10.3, PAGE 324
- Some believe innovation can be
systematized (made a codified
and standardized process that can
be designed to always yield
fruitful results)
- There are often a lot of
challenges associated with
-Success is therefore
- Albeit it is possible to establish
culture and other ocnditions that
increase payoffs

The seeds of innovation:

starting point for
experimentation and
1) Hard work in a
specific direction
2) Hard work with
direction change

3) Curiosity

4) Wealth and Money

5) necessity

6) Combination of

Most innovations come from

dedicated people working diligently
Innovations frequently occur when
people change their approach to
solving a problem
Innovations can begin when people
are curious about something of
interest to them, leads to
experimentation and inventiveness
Innovations frequently occur because
an organization or an individual
Many innovations grow from the
desire to achieve something, or to
complete a task that is needed to
accomplish broader goals
Many innovations result as a
combination of multiple factors

Types of innovation: product or

process, incremental or radical
Product vs process

Incremental vs radical

Product innovation is a
change in the appearance or
the performance of a
product or a service or the
creation of a new one
A process innovation is a
change in the way a product
or service is conceived,
manufactured, or
Incremental innovations: the
creation of products,
services or technologies that
modify existing ones
Radical innovations: the

creation of products,
services, or technologies
that replace existing ones

Celebrating failure: culture and

other factors encouraging

Organisations have to develop ways to make innovation

- 3 ways to do so:
1) The right organizational culture
2) The appropriate resources
3) The correct reward system
1) Culture: is
viewed as a
benefit or a

2) Resources:
do managers
put money
where their
mouths are?

3) Rewards:
reinforced in
ways that

An organizational culture is the social glue,

or system of shared beliefs and values
It binds members together
An organizational culture that doesnt allow
but celebrates failure is vita towards
fostering innovation
If people view experimentation as a
boondoggle, that organization will not
become a superstar in innovation
Innovation doesnt come cheap
Its costs can be measured in all kinds of
ways: dollars, time, energy, focus
R&D scientists are also high costs
There is always competition within an
organization for resources- innovation may,
therefore, be given short shrift because other
concerns seem so urgent
The risk of downgrading innovation in favour
of more immediate concerns is that a
company may miss the next wave the
next big trend
Are R&D people given incentives?
People should also not be punished when
their attempts to innovate dont work out
Else they will not attempt new things in

How you can foster innovation:

4 steps

If you want to prevail as a manager, you need to know how to

make innovation happen within an organization
FIGURE 10.4: PAGE 328

Recognise problems and
opportunities and devise solutions

Change may be needed because you recognize a problem or

recognize an opportunity
Recognise a problem
- Find a better way
- Problems suggest solutions,
such as new business ideas
Recognise an opportunity

May come from employees

who regularly expose
themselves to new ideas
Ideas originating at the
grassroots level of an
organization may be a
particularly fruitful source of

Gain allies by communicating your

Persuade those inside and outside the organization to support

Details youll need to communicate to gain support:

Showing how the product or

service will be made

Showing how potential

customers will be reached

Demonstrating how youll

beat your competitors

Explaining when the

innovation will take place

How to profitably make the

new product or deliver the
new service?
Consider breaking down the
task of what the customer
wants into discrete steps
(job mapping)
Determine the points at
which customers might need
Other companies might be
pursuing the same
Better to focus on a smaller
number of innovations
Timing is important
Need to think about when
employees will be prepared
to make the product and
customers primed to buy it

Overcome employee resistance, and
empower and reward them to achieve

Once managers have been persuaded, need to do the same

with the people reporting to you
Or, overcome their resistance
Need to remove obstacles that limit them in executing the
Hand out periodic rewards- recognitions, celebrations,
bonuses for tasks accomplished
The rewards should not be withheld till the end of the project,
but given out for the successful accomplishment of short term
phases to provide constant encouragement


Execute well

It makes or breaks an organisations attempts at bringing new

products and services to market
Execution requires organisations to effectively manage
people,g roups and organizational processes and systems in
the pursuit of innovation
The innovation process must then be managed