Unit 6 Lecture
Unit Learning Outcomes
ULO 1. Describe the characteristics of transformational change
ULO 2. Explain the logic and process of developing built-to-change organizations
ULO 3. Describe and apply organization development (OD) interventions to network formation
and trans-organizational development
Chapter 18 presents interventions aimed at transforming organizations. It describes activities directed at changing the basic character of the organization. These interventions go beyond improving the organization incrementally, focusing instead on changing the way it views itself and its environment. They bring about important alignments between the organization and its competitive environment and among the organization’s strategy, design elements, and culture. Characteristics of Transformational Change
Organization transformation implies radical changes in how members perceive, think, and behave at work. These changes go far beyond making the existing organization better or fine-tuning the status quo. They are concerned with fundamentally altering the organizational assumptions about its functioning and how it relates to the environment. Changing these assumptions entails significant shifts in corporate philosophy and values and in the numerous structures and organizational arrangements that shape members’ behaviors.
Change Is Triggered by Environmental and Internal Disruptions
Researchers suggest that large-scale change occurs in response to at least three kinds of disruption.
• Industry discontinuities are sharp changes in legal, political, economic, and technological conditions that shift the basis for competition within an industry.
• Product life cycle shifts are changes in product life cycles that require different business strategies or business models.
• Internal company dynamics are changes in size, corporate portfolio strategy, or executive turnover.
Change Is Initiated by Senior Executives and Line Managers
There are four key roles for executive leadership during transformational change.
• Envisioning means that executives must articulate a clear, credible, compelling, and consistent vision of the new strategic orientation.
• Energizing means that executives must demonstrate personal excitement for the changes and model the behaviors that are expected of others.
• Enabling is the leadership behavior that contributes to large-scale change is communication that helps people make sense of transformation.
• Engaging means that executives must set new standards for performance and hold people accountable to those new standards.
Change Involves Multiple Stakeholders The creation of a stakeholder map facilitates transformational change.
Change Is Systemic and Revolutionary Transformational change involves reshaping the organization’s strategy and design elements to affect culture and performance. These changes can be characterized as systemic and revolutionary because the focus is on the realignment of the entire organization in a relatively short period of time.
Change Involves Significant Learning and a New Paradigm Organizations undertaking organizational change are involved in second order or gamma types of change. Gamma change involves discontinuous shifts in mental or organizational frameworks.
Organization design outlines the organizations structure, work design, human resources practices, and management and information systems to guide member’s behaviors in a strategic direction. This intervention typically occurs in response to a major change in the organization’s strategy that requires fundamentally new ways for the organization to function and members to behave. It involves many of the organizational features discussed in previous chapters.
Figure 18.1 presents a systems model which include the design components of business strategy, structure, work design, human resource practices, and management processes.
Basic Design Alternatives
Table 18.1 shows how these design components can be configured into two radically different organization designs: mechanistic and organic. Mechanistic designs support efficiency and control while organic designs promote innovation and change.
Worldwide Organization Design Alternatives Figure 18.2 shows that manager need to assess the degree to which there is a need for global integration or a need for local responsiveness. Organizations may take on a international orientation, global orientation, multinational orientation, or transnational orientation depending upon the mix of global integration and local responsiveness needed. Table 18.2 explains how business strategy, structure, management processes, and human resources vary for each of these strategic orientations. 1. The International Design
2. The Global Design
3. The Multinational Design
4. The Transnational Design
Organization design interventions generally follow these three steps.
• Diagnosing the current design
• Designing the organization
• Implementing the design Integrated Strategic Change
Illustrated strategic change (ISC) is an OD intervention that extends traditional OD processes into the content-oriented discipline of strategic management and describes how to conduct a systemic and revolutionary change program. Key Features
There are three key features of ISC.
• The relevant unit of analysis is the organization’s strategic orientation.
• Creating a strategic plan, gaining commitment and support for it, planning its implementation, and executing it are treated as one integrated process.
• Individuals and groups throughout the organization are integrated into the analysis, planning, and implementation process to create a more achievable plan, to maintain the firm’s strategic focus, to direct attention, to improve coordination and integration, and to create higher levels of shared ownership and commitment.
Implementing the ISC Process
The ISC process is applied in four phases: (1) performing a strategic analysis, (2) exercising strategic choice, (3) designing a strategic change plan, and (4) implementing the plan. This process is illustrated in Figure 18.3.
• Performing the strategic analysis is the first step. This begins with assessing organizational readiness for change. The second stage is to understand the current strategy and organization design.
• Exercising strategic choice is the second step. This step determines the what of strategic change—the content. The desired strategy defines the ideal breadth of products or services to be offered and the markets to be served.
• Designing the strategic plan is the next step. It represents the process or the how.
• Implementing the plan is the final step.
Culture is defined as the pattern of artifacts, norms, values, and basic assumptions about how to solve problems that works well enough to be taught to others. Culture is a process of social learning; it is the outcome of prior choices about and experiences with strategy and organization design. It is also a foundation for change that can either facilitate or hinder organization transformation. Students should come away from this section with an appreciation for the complexity and deep-seated nature of organizational culture.
Defining and Diagnosing Organization Culture
The elements of culture are shown in Figure 18.4 and listed below.
1. Artifacts Artifacts are the visible symbols of the deeper levels of culture. They include behaviors, clothing, and language.
2. Norms and Values They guide how members should behave in particular situations. Figure 18.5 illustrates the competing values approach to culture. This can be useful for assessing value dilemmas. A value dilemma consists of contradictory values placed at opposite ends of a continuum. The two value dilemmas are (1) internal focus and integration versus external focus and differentiation, and (2) flexibility and discretion versus stability and control. Organization culture can be categorized into one of four quadrants in the figure: clan culture, adhocracy culture, hierarchical culture, and market culture.
3. Deep Assumptions of Culture One OD method for understanding deep assumptions of culture involves an
iterative interviewing process involving both outsiders and insiders. Another
method is a cultural workshop.
Implementing the Culture Change Process
The practical advice for bringing about culture change says to:
• Formulate a clear strategic vision
• Display top-management commitment
• Model culture change at the highest levels
• Modify the organization to support organizational change
• Select and socialize newcomers and terminate deviants
Application 18.4: Culture Change at IBM This application presents an example of culture change at IBM. The example illustrates how important cultural principles are used to shape behavior during a period of organizational growth and how culture can be used to facilitate merger and acquisition integration processes.
Chapter 19 describes interventions that enable organizations to change themselves continually. The focus is on learning, changing, and adapting. Dynamic Strategy Making
Dynamic strategy making represents a new type of OD intervention that combines OD’s traditional human process focus on relationships among organization members with strategic management’s customary emphasis on strategy and organization design to help organizations manage strategic change. Similar to integrated strategic change (ISC from Chapter 18), dynamic strategy making is a deliberate, coordinated process that leads to continuous realignments between an organization and its environment. Dynamic strategy making creates a continuous strategic change process intended to improve performance and effectiveness over time.
Greiner and Cummings developed a dynamic strategy-making process and proposed several criteria for effective strategic change process.
• Speed over delay
• Breadth over narrowness
• Flexibility over rigidity
• Empowerment over autocracy
• Simplicity over complexity
• Unity over fragmentation
Conceptual Framework Figure 19.1 broadly outlines the framework for a dynamic strategy system. 1. Statement of Strategic Direction
A written statement of strategic direction is the primary outcome from the situational assessment. The statement includes four elements: (1) the competitive logic that describes the organization’s market position and customer tiebreakers, or the business model for gaining competitive advantage; (2) the financial and rallying goals that will direct and motivate members’ behavior; (3) the organization design that will structure and link members to work activities, each other, and company values; and (4) the action plan that includes strategic initiatives and specific steps for implementing the strategic system.
2. Strategic Process The second part of the system shown in Figure 19.1 is the strategic process which has to do with the who and how of developing the statement and implementing it.
There are several steps in the construction process for strategic direction.
• Choose relevant stakeholders
• Hold the first retreat
• Engage stakeholders between the first and second retreats
• Hold the second retreat
• Implement actions
Self-designing organizations have the built-in capacity to transform themselves to achieve high performance in today’s competitive and changing environment. The primary teaching issue is that organization transformation requires that organization members be involved in their own change effort.
The Demands of Turbulent Environments
In turbulent environments, change is constant and the direction of change is unclear. It involves altering most features of the organization and achieving a fit among them and the firm’s strategy.
The self-design intervention focuses on all features of the organization and designs them to support the strategy. Figure 19.2 outlines the self-design approach. A design team guides the intervention. The process is described in five stages but in practice, the stages merge and interact iteratively over time. The stages are as follows.
• Clarify the strategy
• Lay the foundation
• Create design criteria
• Design the strategy
• Implement and assess Learning Organizations
The second organizational transformation intervention is aimed at helping organizations develop and use knowledge to change and improve themselves continually. It includes two interrelated change processes: organization learning (OL) which enhances an organization’s capability to acquire and develop new knowledge, and knowledge management (KM) which focuses on how that knowledge can be organized and used to improve performance.
Organization learning (OL) interventions emphasize the organizational structures and social processes that enable employees and teams to learn and to share knowledge. Knowledge management (KM) interventions, on the other hand, focus on the tools and techniques that enable organizations to collect, organize, and translate information into useful knowledge. Figure 19.3 provides an integrative framework for understanding OL and knowledge management interventions, summarizing the elements of these change processes, and showing how they combine to affect organization performance.
Organization Learning Interventions
OL interventions consist of change programs designed to alter organization design features and OL processes.
1. Learning Organizations
The designs of most traditional organizations are ineffective at learning and may even intensify errors. It is referred to as Model 1 learning and it includes structures and management processes as well as values and norms that emphasize unilateral control of environments and tasks, and protection of oneself and others from information that may be hurtful. A more effective approach to learning is called Model II learning and it is based on values
promoting valid information, free and informed choice, internal commitment, and ownership to courses of action, and continuous improvement of learning processes. The four qualities of the learning organization are as follows.
• Structure. Organization structures emphasize teamwork, fewer layers, strong lateral relations, and networking across organizational boundaries both internal and external to the firm.
• Work design. Learning organizations tend to favor enriched jobs and self- managed teams.
• Human resources practices. HR practices favor and reinforce the development of employees.
• Management processes. The information systems provide infrastructure for OL.
2. Organization Learning Processes Figure 19.3 suggests that OL processes consist of four interrelated activities: discovery, invention, production, and generalization. Learning starts with discovery when errors or gaps between desired and actual conditions are detected. Invention is aimed at devising solutions to close the gap and creating appropriate solutions to reduce it. Production processes involve implementing solutions, and extending the knowledge to other relevant situations. Generalization includes drawing conclusions about the effects of the solutions and extending that knowledge to other relevant situations. Organizations can apply the learning processes described above to three types of learning: (1) single-loop learning or adaptive learning, (2) double- loop learning or generative learning, and (3) deuteron-learning. OL interventions help organization members change from Model 1 to Model II learning. There are four overlapping learning activities.
• Discover theories in use (mental models) and their consequences
• Invent and produce more effective theories in use
• Attend to the knowledge management practices that support learning
• Continuously monitor and improve the learning process Built-to-Change Organizations
One of the newest continuous change interventions involves intentionally designing an entire organization for change and not stability. The built-to-change (B2C) approach to designing organizations is based on the fact that most organizations are designed for stability and dependable operations.
Table 19.1 shows the B2C intervention and the design guidelines and challenges. 1. From Strategy to Strategizing
B2C organizations move from static to dynamic views of strategy
2. From Design to Designing B2C organizations focus on effectiveness over efficiency.
This intervention is mainly for organizations having problems adapting to complex and rapidly changing environments. The following three initiatives can help the transition to a B2C organization.
• Reframe culture as a facilitator of change
• Redefine organization design components for flexibility
• Build an orchestration capability
The focus of this Chapter 20 is OD interventions that move beyond the single organization to
include merging, allying, or networking with other organizations. Groups of organizations that
have joined together for a common purpose are called trans-organizational systems (TSs).
Increasingly, organizations are linking with other organizations to achieve their
objectives. Trans-organizational strategies allow organizations to perform tasks that are
too costly or complicated for single organizations to perform.
Mergers and Acquisitions
M&As involve the combination of two organizations. The term merger refers to the integration of two previously independent organizations into a completely new organization; acquisition involves the purchase of one organization by another for integration into the acquiring organization. M&A interventions typically are preceded by an examination of the organization’s strategy. Application Stages
Table 20.1 shows the three major phases of mergers and acquisitions: (1) pre- combination, (2) legal combination, and (3) operational combination.
1. Pre-combination Phase This first phase consists of planning activities designed to ensure the success of the combined organization. Pre-combination activities include the following.
• Search for and select candidate
• Create an M&A team
• Establish the business case
• Perform a due diligence assessment
• Develop merger integration plans
2. Legal Combination Phase This phase of the M&A process involves the legal and financial aspects of the transaction. The two organizations settle on the terms of the deal, register the transaction with and gain approval from appropriate regulatory agencies, communicate with and gain approval from shareholders, and file appropriate legal documents.
3. Operational Combination Phase This final phase involves implementing the merger integration plan. M&A implementation involves three kinds of activities.
• Day 1 activities
• Operational and technical integration activities
• Cultural integration activities
Application 20.1: Planning the United-Continental Merger This application describes the key issues that United and Continental faced in their merger. It clearly demonstrates the importance of human issues in mergers and the role that OD can play in the process.
Strategic Alliance Interventions
The term strategic alliance generally refers to any collaborative effort between two or more organizations, including licensing agreements, franchises, long-term contracts, and joint ventures. This section discusses collaborative strategies where two or more organizations agree to work together to achieve their objectives. This represents a fundamental shift in strategic orientation because the strategies, goals, structures, and processes of two or more organizations become interdependent and must be coordinated and aligned. Alliances are a formal agreement between two organizations to pursue a set of private and common goals through the sharing of resources, including intellectual property, people, capital, technology, capabilities, or physical assets. The term alliance generally refers to any collaborative effort between two organizations, including licensing agreements, franchises, long-term contracts, and joint ventures. Make sure the students understand the importance of trust in alliances. How can OD practitioners help two organizations build trust between them?
The development of effective strategic alliances generally follows a process of strategy formulation, partner selection, alliance structuring and start-up, and alliance operation and adjustment.
• Alliance strategy formulation. The first step in developing strategic alliances is to clarify the business strategy and understand why an alliance is an appropriate method to implement it.
• Partner selection. This step involves developing screening criteria, agreeing on candidates, establishing initial contacts, and formulating a letter of intent.
• Alliance structuring and start-up. Here the focus shifts on how to structure the partnership and build and leverage trust in the relationship.
• Alliance operation and adjustment. Once the strategic alliance is functioning, the full range of OD interventions described in this text can be applied.
Networks involve three or more organizations that have joined together for a common purpose. Their use is increasing rapidly in today’s highly competitive, global environment. Managing the development of multi-organization networks involves two
types of change: (1) creating the initial network and (2) managing change within an established network.
Creating the Network
Network development is also called trans-organizational development and its four phases are shown in Figure 20.1.
• Identification stage. This initial stage of network development involves identifying existing and potential member organizations best suited to achieving their collective objectives.
• Convention stage. This stage is concerned with bringing them together to assess whether formalizing the network is desirable and feasible.
• Organization stage. Members organize themselves for task performance.
• Evaluation stage. The final stage of creating a network involves assessing how the network is performing.
Managing Network Change
Change within existing networks must account for the relationships among
member organizations as a whole system. The multiple and complex
relationships involved in networks produce emergent phenomenon that cannot
be fully explained by simply knowing the parts. Each organization in the network
has goals that are partly related to the good of the network and partly focused on
self-interest. How the network reacts over time is even more difficult to capture
and is part of the emerging science of complexity. Depending on the professor’s
preferences and interests, this section represents a real opportunity to describe
and discuss the topics of networks, chaos and complexity theories, non-linear
systems dynamics, and other similar “new sciences.”
Change in a network requires an unfreezing process where the system becomes
unstable. Movement is described by the metaphor of a tipping point where
changes occur rapidly. Finally, refreezing occurs. To make this happen the
following steps are necessary.
• Create instability in the network. This happens by changing the pattern of communication among members.
• Manage the tipping point. At this point, make choices about what to do. The following guidelines facilitate network change. o The law of the few. A new idea, practice, or other change spreads
because of a relatively few but important roles in the network. Connectors are individuals who occupy central positions in the network and are able to tap into many different network audiences. Mavens are information sinks. Salespeople are champions of change and are able to influence others.
o Stickiness. For a new idea or practice to take hold, the message must be memorable.
o The power of context. A message must be meaningful and relevant to network members.
• Rely on self-organization. The network establishes order on how it functions.