Managing Organizational Change : Reasons and Techniques

Managing Organizational Change : Reasons and Techniques

Organizational change occurs when a company makes a transition from its current state to some desired future state. Managing organizational change is the process of planning and implementing change in organizations in such a way as to minimize employee resistance and cost to the organization while simultaneously maximizing the effectiveness of the change effort.

Today's business environment requires companies to undergo changes almost constantly if they are to remain competitive. Factors such as globalization of markets and rapidly evolving technology force businesses to respond in order to survive. Such changes may be relatively minor—as in the case of installing a new software program—or quite major—as in the case of refocusing an overall marketing strategy, fighting off a hostile takeover, or transforming a company in the face of persistent foreign competition.

Organizational change initiatives often arise out of problems faced by a company. In some cases, however, companies change under the impetus of enlightened leaders who first recognize and then exploit new potentials dormant in the organization or its circumstances. Some observers, more soberly, label this a "performance gap" which able management is inspired to close.

But organizational change is also resisted and—in the opinion of its promoters—fails. The failure may be due to the manner in which change has been visualized, announced, and implemented or because internal resistance to it builds. Employees, in other words, sabotage those changes they view as antithetical to their own interests.

AREAS OF ORGANIZATIONAL CHANGE

Students of organizational change identify areas of change in order to analyze them. Daniel Wischnevsky and Fariborz Daman, for example, writing in Journal of Managerial Issues, single out strategy, structure, and organizational power. Others add technology or the corporate population ("people"). All of these areas, of course, are related; companies often must institute changes in all areas when they attempt to make changes in one. The first area, strategic change, can take place on a large scale—for example, when a company shifts its resources to enter a new line of business—or on a small scale—for example, when a company makes productivity improvements in order to reduce costs. There are three basic stages for a company making a strategic change: 1) realizing that the current strategy is no longer suitable for the company's situation; 2) establishing a vision for the company's future direction; and 3) implementing the change and setting up new systems to support it.

Technological changes are often introduced as components of larger strategic changes, although they sometimes take place on their own. An important aspect of changing technology is determining who in the organization will be threatened by the change. To be successful, a technology change must be incorporated into the company's overall systems, and a management structure must be created to support it. Structural changes can also occur due to strategic changes—as in the case where a company decides to acquire another business and must integrate it—as well as due to operational changes or changes in managerial style. For example, a company that wished to implement more participative decision making might need to change its hierarchical structure.

People changes can become necessary due to other changes, or sometimes companies simply seek to change workers' attitudes and behaviors in order to increase their effectiveness or to stimulate individual or team creative-ness. Almost always people changes are the most difficult and important part of the overall change process. The science of organization development was created to deal with changing people on the job through techniques such as education and training, team building, and career planning.

Nine Reasons Organizations Need To Change

Organizations change for a number of different reasons, so they can either react to these reasons or be ahead of them. These reasons include:

1. Crisis: Obviously September 11 is the most dramatic example of a crisis which caused countless organizations, and even industries such as airlines and travel, to change. The recent financial crisis obviously created many changes in the financial services industry as organizations attempted to survive.
2. Performance Gaps: The organization's goals and objectives are not being met or other organizational needs are not being satisfied. Changes are required to close these gaps.
3. New Technology: Identification of new technology and more efficient and economical methods to perform work.
4. Identification of Opportunities: Opportunities are identified in the market place that the organization needs to pursue in order to increase its competitiveness.
5. Reaction to Internal & External Pressure: Management and employees, particularly those in organized unions often exert pressure for change. External pressures come from many areas, including customers, competition, changing government regulations, shareholders, financial markets, and other factors in the organization's external environment.
6. Mergers & Acquisitions: Mergers and acquisitions create change in a number of areas often negatively impacting employees when two organizations are merged and employees in duel functions are made redundant.
7. Change for the Sake of Change: Often times an organization will appoint a new CEO. In order to prove to the board he is doing something, he will make changes just for their own sake.
8. Sounds Good: Another reason organizations may institute certain changes is that other organizations are doing so (such as the old quality circles and re-engineering fads). It sounds good, so the organization tries it.
9. Planned Abandonment: Changes as a result of abandoning declining products, markets, or subsidiaries and allocating resources to innovation and new opportunities.

What Organizations Can Change

What organizations can change fall into the following broad areas:

1. Mission, Vision, & Strategy: Organizations should continually ask themselves, "What is our business and what should it be?" Answers to these questions can lead to changes in the organization's mission (the purpose of its business), its vision for the future (what the organization should look like), and its competitive strategy.
2. Technology: Organizations can change their technology (for example the way they produce whatever they sell) in order to increase efficiency and lower costs.
3. Human-Behavioral Changes: Training can be provided to managers and employees to provide new knowledge and skills, or people can be replaced or downsized. As result of the recent financial crisis, many organizations downsized creating massive unemployment that continues to this day.
4. Task-Job Design: The way work is performed in the organization can be changed with new procedures and methods for performing work.
5. Organizational Structure: Organizations can change the way they are structured in order to be more responsive to their external environment. Again to be more responsive to the marketplace, this also includes where decisions should be made in the organization (centralized or decentralized).
6. Organizational Culture: Entities can attempt to change their culture, including management and leadership styles, values and beliefs. Of all the things organizations can change, this is by far the most difficult to undertake.

RESISTANCE TO CHANGE

A manager trying to implement a change, no matter how small, should expect to encounter some resistance from within the organization. Resistance to change is normal; people cling to habits and to the status quo. To be sure, managerial actions can minimize or arouse resistance. People must be motivated to shake off old habits. This must take place in stages rather than abruptly so that "managed change" takes on the character of "natural change." In addition to normal inertia, organization change introduces anxieties about the future. If the future after the change comes to be perceived positively, resistance will be less.

Education and communication are therefore key ingredients in minimizing negative reactions. Employees can be informed about both the nature of the change and the logic behind it before it takes place through reports, memos, group presentations, or individual discussions. Another important component of overcoming resistance is inviting employee participation and involvement in both the design and implementation phases of the change effort. Organized forms of facilitation and support can be deployed. Managers can ensure that employees will have the resources to bring the change about; managers can make themselves available to provide explanations and to minimize stress arising in many scores of situations.

Some companies manage to overcome resistance to change through negotiation and rewards. They offer employees concrete incentives to ensure their cooperation. Other companies resort to manipulation, or using subtle tactics such as giving a resistance leader a prominent position in the change effort. A final option is coercion, which involves punishing people who resist or using force to ensure their cooperation. Although this method can be useful when speed is of the essence, it can have lingering negative effects on the company. Of course, no method is appropriate to every situation, and a number of different methods may be combined as needed.

TECHNIQUES FOR MANAGING CHANGE EFFECTIVELY

Managing change effectively requires moving the organization from its current state to a future desired state at minimal cost to the organization. Key steps in that process are:

1. Understanding the current state of the organization. This involves identifying problems the company faces, assigning a level of importance to each one, and assessing the kinds of changes needed to solve the problems.
2. Competently envisioning and laying out the desired future state of the organization. This involves picturing the ideal situation for the company after the change is implemented, conveying this vision clearly to everyone involved in the change effort, and designing a means of transition to the new state. An important part of the transition should be maintaining some sort of stability; some things—such as the company's overall mission or key personnel—should remain constant in the midst of turmoil to help reduce people's anxiety.
3. Implementing the change in an orderly manner. This involves managing the transition effectively. It might be helpful to draw up a plan, allocate resources, and appoint a key person to take charge of the change process. The company's leaders should try to generate enthusiasm for the change by sharing their goals and vision and acting as role models. In some cases, it may be useful to try for small victories first in order to pave the way for later successes.

Change is natural, of course. Proactive management of change to optimize future adaptability is invariably a more creative way of dealing with the dynamisms of industrial transformation than letting them happen willy-nilly. That process will succeed better with the help of the the company's human resources than without.

The following list of 10 guiding principles for change can help executives navigate the treacherous shoals of transformation in a systematic way.

1. Lead with the culture. Lou Gerstner, who as chief executive of IBM led one of the most successful business transformations in history, said the most important lesson he learned from the experience was that “culture is everything.” Businesspeople today understand this. In the Katzenbach Center survey, 84 percent said that the organization’s culture was critical to the success of change management, and 64 percent saw it as more critical than strategy or operating model. Yet change leaders often fail to address culture—in terms of either overcoming cultural resistance or making the most of cultural support. Among respondents whose companies were unable to sustain change over time, a startling 76 percent reported that executives failed to take account of the existing culture when designing the transformation effort.

Skilled change managers make the most of their company’s existing culture.

Why would this be true, given the widespread recognition of culture’s importance? Perhaps it’s because change management designers view their company’s culture as the legacy of a past from which they want to move on. Or they get so focused on structural details—reporting lines, decision rights, and formal processes—that they forget that human beings with strong emotional connections to the culture will be enacting these changes. Or they assume that culture, because it is “soft” and informal, will be malleable enough to adapt without requiring explicit attention.

Yet skilled change managers, conscious of organizational change management best practices, always make the most of their company’s existing culture. Instead of trying to change the culture itself, they draw emotional energy from it. They tap into the way people already think, behave, work, and feel to provide a boost to the change initiative. To use this emotional energy, leaders must look for the elements of the culture that are aligned to the change, bring them to the foreground, and attract the attention of the people who will be affected by the change.

In two healthcare companies undergoing a merger, culture led the post-deal integration. Using a culture-related diagnostic questionnaire, the change management team asked people to describe each company’s operating style—and mapped the responses from the two legacy companies to get a sense of their combined strengths and challenges. It quickly became clear that where one company had a culture attuned to bottom-line results, the other tended to focus on process. Optimally, the new company would need to skillfully use processes to deliver clear results. By first taking the time to recognize and acknowledge each company’s underlying culture, leaders of the merged firm harnessed deeply ingrained strengths to energize the change and avoided the incoherence that could have resulted from a less intentional and sensitive redesign.

2. Start at the top. Although it’s important to engage employees at every level early on, all successful change management initiatives start at the top, with a committed and well-aligned group of executives strongly supported by the CEO. This alignment can’t be taken for granted. Rather, work must be done in advance to ensure that everyone agrees about the case for the change and the particulars for implementing it.

A clinical research firm was committed to tripling its size over the next decade to achieve a more competitive position. Because the company was still pretty much operating as a startup after 25 years, this required a far-reaching organizational redesign. Before starting the design phase, finance leaders gathered at an off-site meeting to begin a rigorous exercise in alignment. The exercise included a leadership team effectiveness survey, which revealed that though these leaders called themselves a team, they didn’t really see themselves that way. Instead, they mostly operated as lone rangers, in characteristic startup style.

Each of the executives in the group made a thoughtful individual presentation about the case for change. Most of them agreed on the general direction the company needed to take to achieve rapid growth. But their descriptions of how to move in that direction—for example, what the first concrete steps should be—were all over the map. They were then tasked to work together to develop a case for change that every one of them could support.

To hammer out these agreements, these top executives had to listen closely to their colleagues and weigh conflicting points of view. The exercise was demanding, but they began to coalesce around a coherent vision for what the company should look like in 10 years. Most importantly, the experience of working together so intensely led the executives, for once, to act as a collaborative and committed team. By the end of the off-site meeting, they found that they were all using the same language to describe what the company needed to do. As one participant noted, the experience had transformed him, which in turn gave him confidence that together they could cascade the plan to other groups at other levels of the hierarchy.

3. Involve every layer. Strategic planners often fail to take into account the extent to which midlevel and frontline people can make or break a change initiative. The path of rolling out change is immeasurably smoother if these people are tapped early for input on issues that will affect their jobs. Frontline people tend to be rich repositories of knowledge about where potential glitches may occur, what technical and logistical issues need to be addressed, and how customers may react to changes. In addition, their full-hearted engagement can smooth the way for complex change initiatives, whereas their resistance will make implementation an ongoing challenge.

Planners who resist early engagement at multiple levels of the hierarchy often do so because they believe that the process will be more efficient if fewer people are involved in planning. But although it may take longer in the beginning, ensuring broad involvement saves untold headaches later on. Not only does more information surface, but people are more invested when they’ve had a hand in developing a plan. One common aphorism in change management is “you have to go slow to go fast.”

IBM recognized the need for such an approach in 2003, when rolling out a new initiative on culture. The leadership team had met intensively to develop clear definitions of the cultural traits the organization would require going forward. They then declared a “values jam,” a website set up for a 72-hour period, where anyone in the company could post comments, responses, suggestions, and concerns. Leaders then made key changes based on the feedback they received and communicated clearly how the input they’d received was being incorporated.

4. Make the rational and emotional case together. Leaders will often make the case for major change on the sole basis of strategic business objectives such as “we will enter new markets” or “we will grow 20 percent a year for the next three years.” Such objectives are fine as far as they go, but they rarely reach people emotionally in a way that ensures genuine commitment to the cause. Human beings respond to calls to action that engage their hearts as well as their minds, making them feel as if they’re part of something consequential.

Hewlett-Packard CEO Meg Whitman and her senior executive team appear to be following this principle in their transformation efforts. They have sought to activate a strong personal connection between HP and its employees, by drawing directly on the company’s cultural history and traditions. For example, through symbolic gestures such as tearing down the fences that surrounded the executive parking lot and moving top executives into cubicles, the company has reinforced the original “HP Way” ethic in which the intrinsic quality of the work is as important as one’s position in the hierarchy. This strategy contrasts with that of Whitman’s immediate predecessors, who had declared it was time for the company to abandon its core identity. In any organization facing a challenging environment, the emotional connection fostered by moves like these is likely to make a major difference.

5. Act your way into new thinking. Many change initiatives seem to assume that people will begin to shift their behaviors once formal elements like directives and incentives have been put in place. People who work together on cross-functional teams will start collaborating because the lines on the chart show they are supposed to do so. Managers will become clear communicators because they have a mandate to deliver a message about the new strategy.

Yet lines on a chart and bold statements of intent have only so much impact. Far more critical to the success of any change initiative is ensuring that people’s daily behaviors reflect the imperative of change. Start by defining a critical few behaviors that will be essential to the success of the initiative. Then conduct everyday business with those behaviors front and center. Senior leaders must visibly model these new behaviors themselves, right from the start, because employees will believe real change is occurring only when they see it happening at the top of the company.

Leaders of a major global manufacturer seeking to escape bankruptcy believed the company had lost touch with customers because of entrenched problems in its culture. Managers operated in an overly layered system without much accountability. They were ponderous, risk averse, insular, and prone to spending time on approvals and office politics. Instead of implementing a dramatic, full-scale turnaround, the change team demanded that leaders adopt three specific behaviors:

• Make major, visible decisions in days instead of weeks or months.
• Spend time with people at the frontline leadership (supervisory) level, asking for their input and engaging them in frank discussions.
• Ensure the middle and lower ranks have direct contact with real-life customers.

Because these behavioral shifts were both limited and clearly spelled out, they were implemented quickly. Leaders were asked to act “as if” the organization did things this way, rather than trying to think their way out of old ways of being. These behaviors accelerated the company’s passage out of bankruptcy, which occurred ahead of schedule.

6. Engage, engage, engage. Leaders often make the mistake of imagining that if they convey a strong message of change at the start of an initiative, people will understand what to do. Nothing could be further from the truth. Powerful and sustained change requires constant communication, not only throughout the rollout but after the major elements of the plan are in place. The more kinds of communication employed, the more effective they are, which is why HP’s tearing down that fence was so important: Symbols reinforce the impact of words.

A global publisher undertook a major initiative to become more digital, putting in place far-reaching structural changes. The top leaders decided to engage people throughout the company at a variety of levels. First, they convened a series of town halls where large groups were given the news and invited to ask how the company-wide shift would affect them. Executives followed this with function-wide meetings where people could learn, for example, about the prospective impact on finance or human resources. The company also offered a version of fireside conversations they called “PIE chats” (PIE stood for performance, innovation, and execution). Finally, an internal trade fair was planned to showcase what various teams were doing to make the company more digital. This multifaceted and ongoing communications effort kept the message alive, giving every employee an understanding of the change and a stake in the outcome.

7. Lead outside the lines. Change has the best chance of cascading through an organization when everyone with authority and influence is involved. In addition to those who hold formal positions of power—the company’s recognized leaders—this group includes people whose power is more informal and is related to their expertise, to the breadth of their network, or to personal qualities that engender trust.

We call these informal leaders “special forces.” They can be found throughout any organization. They might include a well-respected field supervisor, an innovative project manager, or a receptionist who’s been at the firm for 25 years. Companies that succeed at implementing major change identify these people early and find ways to involve them as participants and guides. There are three distinct kinds of informal leaders:

? Pride builders are great at motivating others and inspiring them to take pride in their work. People influenced by them feel good about working for the organization and have a desire to go above and beyond.

? Trusted nodes are go-to people. They are repositories of the organization’s culture. They are the ones approached by people who want to know what’s really happening in the organization—for example, when they’re trying to figure out if those leading a change initiative are actually going to follow through.

? Change or culture ambassadors know, as if by instinct, how to live the change the organization is making. They serve as both exemplars and communicators, spreading the word about why change is important.

Informal leaders must be identified before they can be engaged. The best way to do this in a large organization is to run a network analysis. By mapping out connections and seeing who people talk to, you can complement the formal org chart with one that enables you to lead outside the lines.

8. Leverage formal solutions. Persuading people to change their behavior won’t suffice for transformation unless formal elements—such as structure, reward systems, ways of operating, training, and development—are redesigned to support them. Many companies fall short in this area.

A law firm tried to professionalize its clubby culture, which clients perceived as inwardly focused. The lead partner group recognized that associates needed more formal mentoring and development. The existing system, in which partners who headed the practice groups conducted all the training, had led to uneven results. So the transformation team created a development committee and put out a call for experienced staff members willing to work with new hires. The team was delighted when a strong group of contributors volunteered and put in the time required to design a robust development program and start engaging associates.

After a strong start, however, the effort faltered; people who had been enthusiastic fell away. Debriefing those involved, leadership identified the problem: No formal mechanisms were in place to support or reward this participation. Calculations for bonuses left development work out of the equation, and although senior partners paid lip service to the “wonderful work” the development committee was doing, they seemed to regard its members as internal volunteers. Once they recognized this problem, the firm’s leaders enacted substantial policy changes, starting with a mechanism the compensation committee could use to take into account the contributions made by those who trained others.

9. Leverage informal solutions. Even when the formal elements needed for change are present, the established culture can undermine them if people revert to long-held but unconscious ways of behaving. This is why formal and informal solutions must work together.

A top-tier technology company was trying to inculcate a more customer-centric mind-set after a decade focused on relentlessly cutting costs. Survey diagnostics revealed significant customer dissatisfaction with the quality of the company’s products, which were too often released into the marketplace with significant flaws. A set of new procedures was put in place along with metrics to identify gaps in product development, process quality controls, and cross-teaming at the front lines.

But one of the most powerful solutions was purely cultural and informal—changing the informal motto that governed frontline decision making. The slogan of the cost-cutting era, “Ship by any means,” was replaced by a new aphorism: “If it’s not right, don’t ship it.” Pride builders were enlisted to instill the message that everyone needed to prevent flawed products from going out, even if that meant pulling products apart to check them or slowing down production. By asking people at every level to be responsible for quality—and by celebrating and rewarding improvements—change leaders were able to create an ethic of ownership in the product and vanquish the old ethic: “We just do what we’re told.”

10. Assess and adapt. The Strategy&/Katzenbach Center survey revealed that many organizations involved in transformation efforts fail to measure their success before moving on. Leaders are so eager to claim victory that they don’t take the time to find out what’s working and what’s not, and to adjust their next steps accordingly. This failure to follow through results in inconsistency and deprives the organization of needed information about how to support the process of change throughout its life cycle.

A global consumer products company had made a far-ranging commitment to lowering costs. Leaders designed a robust change template and implemented it widely; the metrics indicated that they were succeeding. But the company wanted to be sure that people understood the ongoing nature of this commitment. So they rolled out a series of pulse surveys and convened focus groups to describe the case for change and the new behaviors required of everyone.

The first round of surveys found that only 60 percent of respondents understood the message. The company then called on informal leaders to play a bigger role in evangelizing for the initiative. They continued to run these surveys and focus groups to measure the result until a more sizable majority of the staff had shown they were prepared.

These 10 guiding principles offer a powerful template for leaders committed to effecting sustained transformational change. The work required can be arduous and exacting. But the need for major change initiatives is only going to become more urgent. It behooves us all to get it right.