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CHAPTER 10 TYPES AND FORMS OF ORGANIZATIONAL CHANGE TEACHING OBJECTIVES 1. To define organizational change as the process by which organizations reach their desired goals. (10.1) 2. To examine the various targets of change. (10.1) 3. To discuss both the forces for change and the resistances to change. (10.2) 2. To contrast the revolutionary and evolutionary approaches to change. (10.3) 4. To explain Lewin’s Force Field Theory of Change. (10.4) 5. To explain and apply the basic steps of action research. (10.4) 6. To examine the various components of Organizational Development. (10.5) CHAPTER SUMMARY This chapter examines organizational change, including technological change. Technological change requires that organizations learn how to manage the innovation process. Organizational change is defined as the process by which organizations reach desired goals. Planned organizational change creates value for stakeholders. Several forces for change plus resistances to change are examined. The major forces for change are competitive, economic, political, global, demographic, social, and ethical forces. The major resistances to change at the organizational level are structure, culture, and strategy. Resistances at the functional level are differences in subunit orientation and power and conflict struggles. Resistances at the group level are norms, cohesiveness, and groupthink. Resistances at the individual level are cognitive biases, uncertainty and insecurity, selective perception and retention, and habit. Evolutionary change is distinguished from revolutionary change. Reengineering, downsizing, restructuring, and TQM are discussed as methods for change. Included in this are the use of flexible workers and flexible work teams. Change is also viewed through Lewin’s Force Field Theory of Change. The concepts and steps associated with action research are detailed to show how organizations reach a desired future state. Various concepts associated with organizational development are discussed as a tool to help both the organization and the individuals in the organization maximize their effectiveness and achieve their goals. CHAPTER OUTLINE 10.1 What Is Organizational Change? Organizational change occurs when an organization restructures resources to increase the ability to create value and improve effectiveness. A declining company seeks ways

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to regain customers; a growing organization designs new products. Change is prevalent. In the past 10 years, over 50 percent of all Fortune 500 companies have undergone significant restructuring. Targets of Change Organizational change includes changes in four areas: 1. Human resources are an organization’s most important asset. Q. What changes are made in human resources? A. Changes include: investment in training, socializing employees, changing norms to motivate a diverse workforce, monitoring promotion and reward systems, and changing top management. 2. Functional resources can be transferred to maximize value creation as the environment changes. Thus, key functions grow in importance. Organizations can change structure, culture, and technology to improve the value created by functions. Q. Give examples of structural and technology changes. A. A product team culture increases development time. Technology that uses self-managed work teams increases productivity and quality. 3. Technological capabilities provide new products, change existing ones, and create a core competence. Improving the reliability and quality of goods and services is an important capability. Organizations may need to restructure to achieve the benefits of new technology. 4. Organizational capabilities are imbedded in operations. Organizations use human and functional resources to seize technological opportunities through structure and culture. These four resources are interdependent, so changing one leads to a change in others. Recruiting a team of scientists leads to restructuring a product team. 10.2 Forces for and Resistance to Organizational Change Organizations face both the forces of change and resistances to change. (Fig. 10.1) Forces of change require change or loss of competitive edge. Competitive forces spur change, because an organization must equal or surpass rivals to sustain a competitive advantage in efficiency, quality, innovation, or customer responsiveness. Managing change is crucial when competing for customers.

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Economic, political, and global forces, such as the North American Free Trade Agreement (NAFTA) or other economic unions, are significant forces of change. The European Union (EU) has increased to 20 countries. Production in an EU country eliminates tariffs, so Japan produces cars in England to avoid foreign tariffs. The three distinct economic spheres—North America, Europe, and Asia—expect to have more trade within their arena than across spheres. Low-cost competitors, low-cost inputs, and new technological developments are realities of global competition. Organizations may need structural change to enter foreign markets and adapt to different cultures. Demographic and social forces include an increasingly diverse workforce, changing, hiring and promotion. Many workers want to balance work and leisure. Companies need flexibility in scheduling to meet employee childcare needs. Ethical forces place greater demands on firms for honest, corporate behavior, so some firms have hired ethics officers to report offenses or give ethical advice. Organizations protect whistleblowers and foreign employees. Organizational Insight 10.1: Nike, Reebok, Adidas, and the Sweatshops These companies came under scrutiny because the countries that they outsourced production to paid very low wages and had extremely poor working conditions. Public outcry is a good example of a force that forces an organization to change. Q. What environmental forces caused these companies to change their practices? A. In this case, it was primarily the general public. Transition into the resistances to change section to discuss what may prevent these organizations from changing immediately. Notes________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Resistances to Change can occur at the organizational level, group level, or individual level. Organizational-Level Power and conflict: If change benefits one function at the expense of another, conflict impedes the change process. Powerful divisions, such as IBM’s mainframe division, can sabotage change.

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Differences in functional orientation mean that divisions or functions view problems from various perspectives and seek changes to benefit their own group. If sales fall, R&D wants funding for product development while sales wants to hire more people. Subunit orientations cause coordination problems and slow decision-making. A high level of task interdependence makes change difficult. The greater the interdependence, the more complicated change is. It is more complicated at top levels by affecting the entire organization. Mechanistic Structures are resistant to change by design. People in a mechanistic structure are expected to act a certain way, and are not given the freedom to change. Q. Are mechanistic or organic structures more opposed to change? A. Mechanistic structures are more resistant to change because people behave a certain way and do not adjust their behavior to changing conditions. Not maintaining the ability to act in an organic way results in inertia. Sometimes revolutionary change is needed to adapt the structure. Organizational culture, values and norms, cause predictable behavior. The culture itself may cause resistance to change. Some develop conservative cultures that make employees reluctant to take risks. In addition, if property rights are strong, people will protect their position. Only revolutionary change may be strong enough to change culture. Group-level resistances to change Group norms: When change results in different task and role relationships, informal norms may become invalid, making a new set of norms necessary. People may resist this. Group cohesiveness, attraction to the group, is helpful, but if it is too high, the group may resist change. The group may work to maintain its position even at the expense of other groups. Groupthink occurs when members ignore negative information to achieve harmony. Individual-level resistances to change Uncertainty and insecurity: Resistance to the uncertainty and insecurity of change results in inertia. Selective perception and retention suggests that people perceive information consistent with their views. If change doesn’t benefit them, they do not endorse it. Habit: People prefer familiar tasks and tend to return to original behaviors, making change.

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Lewin’s Force Field Theory of Change shows the opposition between the forces for and against change. When the forces are in balance, a company remains in inertia without change. For change to occur, the forces for change must increase while resistance to change decreases. (Fig. 10.2) Notes________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Managerial Implications Managers must continuously monitor the environment to identify the forces for change. Then, they must analyze how the change will affect the organization, and determine which type of change to pursue. 10.3 Evolutionary and Revolutionary Change in Organizations Change is classified as evolutionary change, gradual and incremental, or revolutionary change, sudden and drastic. Evolutionary change adds small adjustments to strategy and structure to handle environmental changes. Revolutionary change results in new operating methods, goals and structure. Three ways to implement revolutionary change are reengineering, restructuring, and innovation. Evolutionary Change I: Socio-Technical Systems Theory Sociotechnical systems theory contends that managers need a fit between technical systems and social systems or technology and culture. If change occurs, managers must ensure that technology, structure, and culture are matched. Researchers suggest that a team-oriented system promotes values that enhance efficiency and product quality. Total quality management uses sociotechnical systems theory. After World War II, coal mining in Britain changed from small batch to mass production. With small batch, workers needed cooperation and adopted an informal structure. The new technology did not meet productivity forecasts because the new structure abolished the support system and informal relationships that fostered group cohesiveness. Consultants recommended decentralizing authority to the work group. This led to the concept of socio-technical systems theory which argues that managers need to fit or jointly optimize the workings of the technical and social systems. Evolutionary Change II: Total Quality Management Total Quality Management First developed by a number of American consultants, including Demming and Juran, total quality management (TQM) was developed to make flexible work teams more

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efficient. The goal of TQM is continuous improvement to decrease costs, enhance quality, and eliminate waste. (Table 10.2) The implementation of TQM begins with the commitment to quality. Employees aim to improve customer service delivery. Manufacturing aims for fewer defects. Culture must value TQM, and quality circles develop TQM norms in functional areas. TQM empowers employees, letting them design efficient procedures and control quality. Control is attained by mutual adjustment and decentralization. Costs are reduced as workers aim to improve quality, replacing numerical targets with a focus on customer service. Quality circles are groups of workers who meet regularly to discuss how to improve performance. Organizational Insight 10.2: Citibank uses TQM to Increase Customer Loyalty Citibank implemented an organization-wide TQM program designed to address the main customer complaint that was associated with transactions taking too long. By examining the processes, the TQM program reduced the number of handoffs needed to process a loan request by 75%. In addition, the customer response time was reduced from several hours to 30 minutes. Q. Why would managers resist this type of positive organizational change? A. There are many different reasons, but some sources relate to managers having to give up power and decision-making ability, it changes their routine (habit), and is a much larger change than many organizations first anticipate. It needs to become a way of life in an organization as opposed to a quick-fix program. Notes________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Evolutionary Change III: Flexible Workers and Flexible Work Teams In implementing socio-technical systems theory and TQM, many organizations are finding it easier to achieve their goals by using flexible workers and teams. Flexible workers can be transferred between departments and functions as demand changes. Q. What are the advantages of flexible workers? A. Quick response to environmental changes; reduced boredom and increased incentives for quality;

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better understanding by learning one another’s tasks; and combining tasks to increase efficiency and reduce costs. Flexible work teams are groups of employees responsible for completing a stage of production. Groups of assembly line workers are assigned responsibility for one stage of manufacturing, such as producing a car transmission. A flexible work team is self-managed; members jointly assign tasks and transfer from one task to another. To produce cars, different teams assemble different components and deliver those components to the final-product work team. Customer demand determines team activities as each team alters activities to the pull coming from the output side of production. (Fig. 10.3) Organizational Insight 10.3: Flexible Work Teams at Globe Globe Metallurgical Inc., a specialty steel producer, wanted to implement flexible work systems, but the union refused to cooperate. Q. What happened when work teams were introduced at Globe? A. Globe wanted flexible work systems, so the union went on strike. During the strike, 10 managers and 35 employees controlled two of the five furnaces. Productivity increased through cooperation; seven workers, one from each function, operated one furnace. A team leader coordinated the work and schedules. After the strike, Globe needed 120 workers compared to the previous 350 to run five furnaces. Now, employees also participate in profit-sharing. Flexible work teams reduce costs because a quality control function is not necessary; employees control quality during the conversion process. Flexible work teams try to improve efficiency. New ideas begin in quality control circles, meetings to improve productivity. Experienced employees train new members, and everyone is responsible for hiring new workers. A team culture emerges, and managers merely facilitate activities and help develop improved procedures. Organizational Insight 10.4: GM and Toyota Give Plant a New Lease on Life GM closed its Freemont plant in 1981 due to poor productivity and then formed a joint venture with Toyota, New United Motors Manufacturing Inc. (NUMMI), using Japanese management techniques. Q. Describe the teams at NUMMI. A. NUMMI divided workers into 350 flexible work teams, consisting of five to seven members and a team leader. Each worker performs the tasks of others, and jobs are rotated. Workers try to improve on tasks and monitor quality. Teams design jobs, and managers offer support and supervise activities. NUMMI has no layoffs and provides training, plus control over the production line. By 1986 Fremont doubled its previous

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productivity and surpassed any other GM plant. Drug abuse and absenteeism fell sharply. Flexible workers and teams result in reciprocal task interdependence. Research has shown that effective teams increase efficiency and organizational performance with no change in technology. These methods also apply to service organizations. McDonald’s uses a just-in-time inventory system. Notes________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Revolutionary Change I: Reengineering Reengineering, a term popularized by Hammer and Champy, involves rethinking business processes, activities that cross functional boundaries. Processes, not functions, are the focus of attention. Reengineering involves reorganizing a process, such as materials management, to create value. Vertical and horizontal communication and coordination are difficult because purchasing, production control, and distribution have their own hierarchies. Managers focus on business processes, which is any activity that cuts across functional boundaries. Slow production and increased costs lead companies to redesign materials management. (Fig. 10.4) Three areas of responsibility can be integrated into one function with one hierarchy of managers, and this arrangement improves communication and coordination. (Fig. 10.4b) Steps for successful reengineering: organize around outcomes not tasks; have those who use the output of the process perform the process; and decentralize decision-making to the point where the decision is made. Reengineering can improve integration between functions and solve control problems. If a company becomes involved in large, complex activities, it needs a more complex structure. Organizational Insight 10.5: How to Stay on Top in the Greeting Card Business Hallmark discovered that once a new design for a card was printed, it took about 3 years to get the product to the market. Work teams examined the business process, and now the product reaches the market in a matter of months. Q. Are these the result of TQM or reengineering?

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A. The two concepts compliment each other. Hallmark needed to reengineer in order to provide customers with a higher quality product. TQM is a continuous process, so Hallmark should continue to find ways to produce products better, cheaper, and faster. Notes________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ E-Engineering is a term used to refer to companies attempts to use all kinds of information systems to improve performance. Revolutionary Change II: Restructuring Restructuring is a method used to change task and authority relationships to improve organizational effectiveness. The drive to decrease bureaucratic costs results from competitive pressures. Mergers and acquisitions in many industries such as banking have led to downsizing because fewer managers are needed. Other companies have reduced staff to match competitors. The negative effects of downsizing include overworked managers and lost opportunities. Companies that fail to control growth must downsize to remain competitive. Revolutionary Change III: Innovation Innovation is the successful use of skills and resources to create new technologies or new goods and services. 10.4 Managing Change: Action Research Lewin’s Force Field Theory of Change shows the opposition between the forces for and against change. When the forces are in balance, a company remains in inertia without change. For change to occur, the forces for change must increase while resistance to change decreases. (Fig. 10.5) Action research is a strategy for generating and acquiring knowledge that managers can use to define an organization’s desired future state. It consists of the following steps (Fig. 10.6): Diagnoses of the Organization Managers must first recognize the existence of a problem that needs to be solved. This is done by identifying a gap between desired performance and actual performance.

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Determining the Desired Future State After identifying the present state, the next step is to identify where the organization needs to be in the future. Implementing Action Implementation is a 4-step process. First, managers identify possible impediments to change at all levels. The second step is to decide who will be responsible for actually making the changes. External change agents may be used, which are outside consultants who specialize in managing change. Internal change agents are managers from within that are knowledgeable about the situation. The third step is deciding which specific strategy to use to unfreeze, change, and refreeze the organization per Lewin’s model. Top-down change is implemented by managers at a high level in the organization, knowing that the change will reverberate at all organizational levels. Bottom-up change is implemented by employees at low levels and will gradually rise through the organization. Evaluating the Action is the final step in the process. Managers assess the degree to which the changes have accomplished the desired objectives. Institutionalizing Action Research Like TQM, action research must be a habit or a norm for every organizational member in order to be effective. To assist this, members at all levels of the organization must be rewarded for being part of successful change efforts. Managerial Implications Managers must develop criteria to evaluate whether a change is necessary, and carefully design a plan that minimize resistance. 10.5 Organizational Development Organizational Development is a series of techniques and methods that managers can use in their action research program. The goal is to improve organizational effectiveness and to help people reach their potential. OD Techniques to Deal with Resistance to Change The following are tactics that managers can use to deal with resistance to change.

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Education and Communication- One impediment to change is that participants are uncertain about what is going to happen. Providing them information reduces resistance. Participation and Empowerment- These are key elements of most TQM programs. People that are involved in the change and decision-making process are more likely to embrace rather than resist. Organizational Insight 10.7: Competitive Advantage Achieving Change Through Empowering Workgroups This case shows how Clorox empowered workers, creating middle managers that have new responsibilities now that the empowered workgroup is making more decisions. Q. Are these new “non-manager managers” needed now that the work group is making most decisions? A. Empowerment has changed the nature of their jobs, but they have gained new responsibilities. In this case, the manager was able to focus more on the needs of the customers and suppliers. Notes________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Facilitation- People need both training and time off to deal with the stressful effects of major organizational change. Bargaining and Negotiation- Change causes conflict, and bargaining and negotiation are the major instrument used to resolve conflict. Manipulation- Sometimes senior managers need to intervene, as politics shows that powerful managers have considerable ability to resist change. Coercion- When all else fails, some individuals need to be threatened with dire consequences in order to get them to change. OD Techniques to Promote Change Counseling, Sensitivity Training, and Process Consultation- Recognizing that each individual is different also requires them to be treated or managed different. Sometimes counseling will help individuals understand that their own perceptions of a situation may be incorrect.

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Sensitivity training is an intense type of training designed for those who have problems working with other groups. They examine their perceptions of the other group, can be a very intense experience in that innermost thoughts and feelings are brought to light. In process consultation a trained consultant works with a manager on the job to help improve his or her interactions with other organizational members. Team Building and Intergroup Training- These techniques are designed to manage change with or between groups. Team building is similar to process consultation except that it involves the entire group worker together. Intergroup training goes a step further and looks at how different functions or divisions work together. Organizational mirroring is a technique designed to get both interdependent groups to see the perspective of the other side. Appreciating others’ perspectives allows the groups to work together more effectively. Total Organizational Interventions- At the organizational level, organizational confrontation meetings can be used. All managers get together and discuss whether the organization is effectively achieving its goals Notes________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ DISCUSSION QUESTIONS AND ANSWERS 1. How do evolutionary change and revolutionary change differ? Evolutionary change makes incremental changes consistently and uses a bottom-up strategy. Employees suggest improvements. Evolutionary change facilitates learning and response to environmental changes. Revolutionary change takes radical steps with a top-down change strategy. Revolutionary change overcomes inertia. 2. What is a business process, and why is reengineering a popular instrument of change today? A business process is any function that cuts across functional boundaries. Reengineering is popular today because all organizations need to continuously find ways to do things better in order to compete. The starting point is to fundamentally rethink how tasks are completed. 3. Why is restructuring sometimes necessary for reengineering to take place?

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Because by completely rethinking a business process, a more efficient structure often emerges. Many organizations, for example, are using flexible work teams in place of a mechanistic hierarchy. The point is that organizations need to continuously look for more efficient processes, and this often involves restructuring the task relationships. 4. What are the main steps in action research? The steps are detailed in Figure 10.6 5. What is organizational development, and what is its goal? It is a series of techniques that managers can use in their action research programs to increase adaptability. The goal is to improve organizational effectiveness and to help people in organizations reach their potential and achieve their goals. ORGANIZATIONAL THEORY IN ACTION Each small group of students represents one of the big three automakers and plans a change to remain competitive. The plan includes changing from a multidivisional structure to a cross-functional product team structure and implementing a total quality management program. The students should: 1. Discuss the obstacles to change at the divisional, functional, and individual level. 2. Discuss ways to overcome obstacles to change to move the organization to its desired future state. Making the Connection Students will find an example of an organization undergoing a major change. They explain why the organization is making the change and what its change strategy is. The Ethical Dimension Students assess the ethics of reengineering, and the sources of resistance when it will mean the layoff of over 30% of the employees. Analyzing the Organization Students examine the extent to which their organization has been involved in major change efforts. They examine whether the changes are revolutionary, evolutionary, and what types of changes have been occurring. CASE FOR ANALYSIS Sears Changes Again and Again This case details some major structural and market changes that Sears underwent in the early 1990s. This case shows how dynamic the retail market is.

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1. What were the major changes that Sears made over time? The major changes involved altering dramatically the strategy and structure. Martinez sold off unprofitable ventures, including the famous Sears Tower. He also dramatically changed the target market, attempting to sell women’s clothes and market to the “middle-American mom.” When the CEO changed in 2000, the new CEO made more dramatic changes, including emphasizing “hard side” appliances and tools as opposed to clothing. 2. Search for recent articles on Sears that describe the impact of these changes. How effective have its recent change efforts been? Answers will vary. This allows students to see how dynamic the retail environment is. You could also have them examine how the competitors respond to the changes that Sears makes. TEACHING SUGGESTIONS 1. Assign the models in the chapter to individuals or groups to explain to the entire class with examples. 2. To illustrate the importance of cross-functional teams, divide the class into two groups. Group one consists of 10 members who represent various functions. Group two is organized into the following functions: manufacturing, R&D, engineering, and marketing. You are a customer who wants a certain product, like sunglasses. Group one can produce what you want quickly and at a lower cost. They ask you what you want and you describe it. They all cooperate to design and commercialize the product. Group two takes longer. R&D comes up with the idea. Engineering designs sunglasses. Manufacturing complains about the high costs. Engineering redesigns the product and sends it back to manufacturing. Manufacturing produces the product and gives it to marketing. Marketing says this product is not what customers want. 3. As a follow up, ask students how they would manage the above changes. Discuss all techniques through coercion. The point is that students need to match the technique with the situation. For example, coercion can sometimes have really negative effects, but simply providing more information may not be effective. 4. Ask students how they would respond to changes in the structure of the class. Ask a student in the back row to come and sit up front, and watch the reaction. This a good illustration of habit, and how even small changes can make us uncomfortable.