••• •••

CHANGE MANAGEMENT

.~,~- ------------,
Learning Objectives
, I

After studying this chapter, you should be able to:

1. define the meaning of change;
2. enumerate the different resistance to change;
3. · discuss the stages in the change process; and
4. enumerate the steps in the transtheoretical model of change.

Chapter Summary
This chapter tackles organizational change. There is a need for organizations to change
in order to survive. The goal of every organization in 'implementing change is survival. Howeve;,
change should not employ drastic measures that will leave the employees in pain.
Change needs commitment. It means more than a change-in process, strategy or structure;
it means the rekindling of commitment, creati_
vity, and .responsibility of every employee in the
organization.
'
prganization~ have vital signs whi~h reveal a great deal ·on their adaptability, strength,
and vigor. '
. The types of resistance to chan~e are: logical,psyc~ological, and sociological. There is the
transtheoretical mode~ of change. This chapter enµmerates the steps.
Best Foot Forwa~d asserts Tikhe ~~ w Comr:ndan,dfments of Change by management guru, pe-
ter F. Drucker. Accordmg to Orue er, 1n a per10 o upheaval, such as the . · gin,
b · · · fi I d . k case we are 11vm
change is the ·norm. To e sure, it 1s P,am_ u an fl~ y, and_above all, it requires a great deal of
very hard work.bBu~ un Iess a~ org~~1zat1ohh se:s t ~t its task is to lead change, that organiza·
tion, whether a usmess, a umversI •.,, or a osp1ta 1wI 11not survive. In a P . d 0 f . 5 rvrol
change, the only organizations t~at survive are those with change leadee::~ rapid rrµc
In Points of View, a case study entitled Unknown Fears high/i hts - . •ng
th st0
group of Hybrid Enterprises as they conteQ1plate on what to do with ih e ry of a tramI d
11
fearful on the arrival of new technology in the office. 1l e employees who seerne
"\"
 Overview of Change
a
There is saying that the only permanent thing in this world is change. Organizations
ha~e to change in order to survive. However, change ·should create neither sorrow nor an-
guish. According to Abrahamson in his article, Cha,:ige Without Pain, in order for companies
to change successfully, they should stop changing alt'the time. What does this mean? Abra-
hamson calls the process tinkering and kludging. Major change initiatives are interspersed
into carefully pla_n ned periodic paces. The approach is called dynamic st ability. In short, the
change is not rampant but it allows change to happen either with minimum fatalities· or
without casualties at all.

The goal of every organ ization in implementing change is to survive. However, change
should not employ drastic measures that will leave the employees in pain. Small change
efforts, which involve modification or restructuring, should be welcomed rather than intro-
duction of new ones.

There are argument s, however, which come from the proponents of change that or-
ganizations should change as quickly as possible to stay ahead of competition and sur-
vival. Of course, the implementation of cha oge is still on a case-to-case basis. Organizations
which have been resistant to change in the past may undergo fast-paced, sometimes drastic
and destructive change t o survive. Other companies which have been responsive to change
must slow down instead.

Change needs commitment. Some companies face the problem on employee commit-
ment. Companies need t he participation and commitment of employees. This is called revi-
talization or transformation. It means more than a change in process, strategy or structure;
it means the rekindling of commitment, creativity, and responsibility of every employee in
the organization. Each employee is involved in the change process. Organizations provide
them the knowledge, the mental disciplines which would sustain them in the "new, revital- -
ized company:'

Organizations have vital signs which reveal a great deal on their adaptability, strength,
and vigor (Pascale, Millemann, and Gioja, 1997). ,
Power. Do employees believe they can affect organizational performance? Or do they
believe they have the power to make things happen? ·
'
Identity. Do individuals identify rath~r narrowly with their professions, working teams
or functional units, or do they identify with the organization as a whole?
Conflict. How do members of the organizatio!') handle conflict? Do they smooth prob-
lems over, or do they confront and resolve them?
Learning. How does the organization learn? How does it deal with new ideas?
Employees should know the company's vision or; where the company is going. On the oth-
er hand, organizations should try to fight and overcome employees' resistance to change.

Reasons for Resistance to Change

a. Fear of the un known
b. Dislike for the approach/method used in implementing change
c. Do not-see t he benefit of change
an o~gan~zation sees that its task is to .lead change, that organization-whether a business,
a univ_ersi~y, or a hospital-w ill not survive. l{l a period of rapid structural change the only
organizations that survive are t he "change leaders:' It is therefore a central 21st-century chal-
lenge for management that its <?rganization becomes a change leader. ,
There is a great deal of talk today about "the innovative organization:' But making an
organization more receptive to innovation-even organizing it for innovation-is not near-
ly enough to transform it into a change leader. It might even be a distraction. For being a
change leader requires t he wi llingness and ability to change what is already being done just
as much as the ability to do new and different things. It requires policies and practices that
make the present create t~e future.
Abandon yesterday. The first step for a change leader is to free up resources that are
committed to maintaining things that no longer contribute to performance and no longer
produce results. Maintai ning yesterday is always difficult and extremely time-consuming.
Maintaining yesterday always commits the institution's scarcest and most valuable resourc-
es-and above all, its ablest people-to nonresults. Yet doing anything differently-let
alone innovating-always creates unexpected difficulties. It demands leadership by people
of high and proven ability. And if those people are committed to maintaining yesterday,
they are simply not avai lable to create tomorrow. •
The first change policy, therefore, has to be organized abandonment. The change lead-
er puts every product, every service, every process, every market, every distribution chan-
nel, every customer, and every end use on trial for its life. And the change leader does so on
a regular schedule. The question it has to ask-and ask seriously-is "If we did not do this
already, would we, knowing what we now know, go into it?" If the answer is no, the reaction
must not be "Let's make another study:'The reaction must be "What do we do now?"

In three cases the right action is always outright abandonment:

1. When you think that the product, service, market, or process "still has a few good
years of life:' It is the dying products, services, markets, or processes that always
demand the greatest care and effort. And we almost always overestimate how
much "life" actually is left. Wsually, they are not dying; they are dead.

2. When t he only argument for keeping a product, service, market, or process is

that "it's fully written off:' To treat assets as being fully written off ha·s its place in
tax accounting, but for management the question should never be "What has its
cost?" The question should be"What will it produce?"
3. When for the sake of maintaining the old and declining product, service, or process,
the new and growing product, service, or process is being stunted or neglected. ·

For every·product, service, market, or process, the change ·I~ader must also ask, "If we were
to go into this now, knowing what we now know, would we go into it in the same way we are .
doing it now?" And that question needs to be asked about the successful products, services,
markets, and processes as regularly-and as seriousiy-as about the unsuccessful products,
services, markets, and processes. It applies with particular force to distributors and distribution
channels, which, in a time of rapid change, tend to change faster than anything else.
In one fairly big company that offers outsourcing services, the first Monday morning of
each month is set aside for an abandonment meeting at every level of management. In the

83
 . . That requires a policy of systematically looking, every 6 to 12 months; for changes
within the areas that called "the windows of opportunity:· (For detailed descriptions, see the
book Innovation and Entrepreneurship. HarperCollins, 1985.) Those windows include:
1. The organization's own unexpected successes and unexpected failures, and the
unexpected successes and unexpected failures of the organization's competitors.
2. Incongruities or dissonance between what is and what"ought"to be, or between
what is and what everybody assumes-especially incongruities in processes iike
"" p roduction or distribution, or incongruities between the efforts of an industry
and the values and expectations of its customers.
3. Process needs, such as a weak link in one of the organization's internal processes.
4. Changes in indust ry and market structures.
5. Changes in demog raphics.

6. Changes in meaning and perception. If, for example, general perception-~hanges

· from seeing the glass as halffull to seeing it as half empty, there are major innova-
tive opportunities.
7. New knowledge.

A change in any one of t hose area~ raises the question "Is this an opportunity for us to
innovate?" Innovation can never be risk-free. But if innovation is based on exploiting what
has already happened, it is far less risky than not exploiting those opportunities.
Avoid innovation traps. Change leaders will be tempted by three innovation traps.
They are so attractive that leaders can expect to fall into one of them-or into all three-
again and again.

1. · When looking for ways to innovate, the first trap to avoid is an opportunity that is
not in tune with the five strategic realities: the
'
collapsir:ig birth. rate; shifts in how
disposable income is spent; new definitions of performance; global competitive-
ness; and the growing incongruence between economic globalization .and po-
litical splinter'ing (see "Strategy: The New Realities"). The misfit opportunity often
looks very tempting-precisely because it looks truly innovative. But even if the
innovation does not result in failure-as it usually does- . it always requires ex-
traordinarily wasteful amounts of effort, money, and time.
2. A second trap is confusing novelty with innovation. The test of an innovation
is that it creates value. A novelty creates amusement only. Yet again and again,
management decides.to innovate for no·other reason than that it is bored doing
the same thing or making the same product day in and day out. The test of an in-
novation- as is also the test of,quality-is not "Do we like it?" It is "Do customers
want it and w ill they pay for it?"

3. The third trap is confusing motion with action. Typically, when a product, service,
or process no longer produces results and should be abandoned or changed rad-
ically, management reorganizes. To be sure, reorganization is often needed. But
it should come after the action-that is, after what must be abandoned has been
faced up to. By itself reorganiza~ion is just motion and no substitute for action.

85
 . There is only one way to avoid those traps or to extricate oneself if one has st umbled
I' th
into em: organize the introduction of change.
I th
Introduce change on a small scale. One cannot do market research on e truly new.
th
Also, no innovation is right the first time. Invariably, problems crop up th at nob~d~ ought 1
of._ Invariably, problems that loomed very large to the innovator turn out to be_tr~vial or non-
ex1stent. It is almost a law of nature that anything that is truly new, whet~er it is a product
~r a service or a technology, finds its major market and its major application not where the
innovator and entrepreneur expected. .,
The best example is an early one. The improvement of the steam en~in~ that James
W?tt designed and patented i'n 1769 is the event that, for most people, signifi_es the ad- '
vent of the Industrial Revolution. Actually, throughout his life Watt saw only one use for the
steam engine: to pump water out of coal mines. That was the use for which he had designed
it. And he sold it only to coal mines. It was his partner, Matthew Boulton, who was the real
I father of the Industrial Revolution. Within 10 or 1s years after Boulton had first sold a steam
I engine t;o a cotton mill, the price of textiles had fallen by 70%. And that created both the first
mass market and the first factory.
Studies, market research, and computer modeling are not a substitute for the test of
reality. Everything improved or new needs first to be tested .on a small scale-t hat is, it
needs a pilot test. ·
And since everything new gets into trouble at some point, it needs· a cham pion. And
that person needs to be somebody the organization respect s. It need not be somebody
, within the organization. A good way _
t o test an ew product or new service is often to find a
customer who really ~ants the innovation and who is willing t o work with the producer on
making it truly successful.
If the pilot test is successful-if it finds the problems nobody anticipated but also finds
the opport unit i.es nobodr anticipated-the ri~k of change is usually quite small. And it is
usually also quite cle~r where to1introduce the change and h9w to introduce it. .
. Budget for change. In most enterprises there is only one budget. In good times expen-
, ditures are increased across ·the board. In bad times expenditures are cut across the board.
That practi~ally guarantees missing out on the future.
,
The chang~ leader requires tw? separate b_udgets. Its first budget should be an operat-
ing budget that shows the expenditures needed to maintain the present b . Th t is
· f II d" . usiness. a
. normally 80% to 90% or so o a expe~ 1tures.
That budget should always be approached with the question "Wh t . h . . ...,
. . 7 ,, A d . a 1s t e mm1mu11•
we need to spend to keep operations going. n m bad times it sho uId , .an d ee d, b ea d-
justed downward .
· And then the change leader should have a separate budget for th f · t
should remain stable througho.u t good times and bad times. It sho ~duture. That budge
more than 10% to 20% of total expenditures. u rarely amount to

e::
Very few of the expenditures for the future will produce results 1 · •
tained at a stable level over· a substanti~I time period. (It is import un ess the budget is main-
there maybe times that are so catastrophic that maintaining those to_ note, however, that
nd
the very survival of the enterprise.) That goes for work on new Prod P itures could threaten
. UctS, new services, and new

/
86
technologies· for the developme t f
t th d ' n ° k ·
mar ets, customers, and distribution channels· and above
11'hor . eh eve 1o_pment of people.The future budget should be approached with the q~estion
W at is t e maximum this activity can absorb to produce optimal results?"

The mo st commo~, bu_t also t~e most damaging practice is to cut back on expendi-
tures for su~ces s, especially in bad times. The argument is always ''This product, service, or
t~chnology is a _s~cc~s~ an~how; it does not need to have more money put into it:' But the
n_ght,~rgu~ent 1s This Is a success ahd therefore should be supported to the maximum pos-
sible. And_it should be supported/especially in bad times, when the competition is likely to
cut spending and therefore is likely to create an opening.

Balance, change, and continuity. Organizations that are change le~ders are designed
for change. But people need continuity. They need to know where they stand. They need to
know the people they work.with. They need to know the values and the rules of the organi-
zation. They do not function well if the environment is not predictable, not understandable,
not known. Continuity is equally needed outside the enterprise. To be able to change rap-
idly, one needs close, long-standing relationships with suppliers and distributors.
Balancing cha nge and continuity requires continual work on information flow. Noth-
ing disrupts continuity and corrupts relationships more than poor or unreliable information ·
(except, perhaps, deliberate misinformation). It has to become routine for any enterprise to
ask at any change, even the most minor one, "Who needs to be informed of this?"
Information is particularly important when a change is _ n ot a mere improvement but
is something totally new. Any enterprise that wants to be successful as a change leader has
to have a firm rule that there are no surprises. Above all, there needs to be consistency in
the fundamentals of the enterprise: its mission, its values, its definition of performance and
results. Precisely beca use change is a constant in the chaqge-leader ~nterprises, their foun-
dations have to be extra strong.
Finally, the balance between change and continuity has to be built into compensation,
recognition, and rewards. We learned long ago that an organization will not innovate unless
in~ovators are properly rewarded; that a bl:J_ siness in whi.ch successful innovators do not
make it into senior management, let alone into top management, will notinnovate. We will
have to learn, similarly, that an organization will have to reward continuity by considering,
for instance, people who deliver continuing improvement to be as valuable to the organiza-
tion and as deserving of recognition and rewards as the genuine innovator.
The more an institution is organized to be a change leader, the more it will need to bal-
ance rapid change and continuity. That balance will be one of the major concerns of tomor-
row's management.
One thing is certain: we face years of profound changes. It is futile to try to ignore
changes and to pretend that tomorrow will be like yesterday, only more so. But to try to antici-
pate the changes is equally unlikely to be successful. The changes are not predictable. The only
policy likely to succeed-although it, too, is highly risky-is to try to make the future.

Strategy: The New Realities

What can strategy-that is, any commitment of present resources to future expecta-
tions-be based on in a period of rapid change and total uncertainty, like the one the world
is facing at the turn of the 21st century? Are there any certainties?

87
 T~ere are indeed five phenomena that can be considered certainties. They ~re, how-
ever. different from anything present strategies consider. Above all, they are not, essentially
eco . Th . . ,
nomtc. ey are pnmanly social and political.
1· The collapsing birth rate. The most important single new certainty-if only because
there is no precedent for it in all of history-is the collapsing birth rate in the devel-
~ped world. Even more important is the age distribution within the population. There
is no precedent for a population structure in which old people past any traditional
retirement age outnumber young people, as is already the case in parts of Europe and
will be in all developed countries well before the middle of the 21st centu l\y. The strat-
egy of all institutions in the developed world will have to be based on the assumption
of a shrinking population, and especially of a shrinking young population.
2. Shifts in how disposable income is spent. While businesses and industries have become
highly conscious of their market standing, practically none of them know the truly
important figure: the share of their customers' disposable income that is spent on their
products or services. And practically no one knows whether that share is going up or
down. Where shares of disposable income are spent is the foundation of all economic
information as well as the most reliable foundation for a business strategy. As a rule,
trends in the distribution of disposable income to a certain product category or service
of
category, once esta blished, generally persist for long periods time. They are usually
im pervious to the business cycle.
For that reason, there are few changes more important to an organization than a
new trend in that distribution. And equally import ant is a 'change within a trend- that
is, a switch from one kind of product or servic~ within a category to an.o ther product or
service within the same category. The four sectors whose share of disposable income
grew during the 20th century were government, health care, education, and leisure.
The changing trends of t hose four·sectors are the first thing a strategy has to consider.
3. New definitions of performance. Two developments-the emergence of an affluent
(though by no means rich) middle class ,of non manual workers.and the extension of
life expectancy-have led to the development of institutions such as pension funds
and mutual funds. Those are now the legal owners of the key property in a ~odern,
developed society: public corporations. And with that shift in ownership, we are see-
ing a shift in.power.
In the United States since the late 1920s, the prevailing theorem, however fuzzy,
held that a business should balance the interests of various stakeholders-custom·
ers, employees, shareholders, and ~o on-w~ich in fact meant that it should not be
accountable to anyone. The emerging American theorem that businesses should be
run exclusively for the short-term interest of the shareholders is not tenable and will
certainly have to be revised.
The future economic secu~ity of ~ore and more people-as more and more peo·
pie can expect to live lon~er-mcreasmgly depends on their income as stock owners.
The emphasis on measuring performance ~ostly _by how much it benefits the share·
holders will therefore not go aw~y. -Immediate gains, whether in earnings or in share
. are, however, not what shareholders
price, h need.
b They need econom·1c returns 20 or 30
1
years hence. We will have to learn ow to a ance short-term results-which is what

88
 _
t he present emphasis on shareholder value amounts to-with the long-range pros-
perity and survival of the enterprise. · ·

Businesses also will have to increasingly satisfy the interests of their knowledge
workers. Performance will have to be defined nonfinancially in order to be meaningful
to knowledge workers and generate commitment from them.
4. Global competitiveness. No institution can hope to survive, let alone succeed, unless it
measures
,.., up to the standards set by the leaders in its field, any place in the world.
,- .~ ne implication: it is no longer possible to base a business on cheap labor. How-
ever, low its wages, a business-except for the smallest, lik~ a neighborhood restau-
rant-is unlikely to survive, let ~lone prosper, unless its workforce rapidly attains the
same level of productivity as the employees of the industry's leaders, wherever they
are located. ·· ·

That is true particularly in manufacturing. In most manufacturing industries in

the developed world, the cost of manual labor is rapidly becoming a smaller and small-
er factor-it is·now down to one-eighth or less of the total cost of making a product.
That means that the economic-development model of the 20th century-the model
first developed by Japan after 1955-no ·Ionger works. Low labor costs no longer give
enough of an advantage to offset low labor productivity.
In all likelihood, we .face a protectionist .wave throughout the world in the next
few decades. For the first reaction to a period of turbulence is to try to build a wall that
shields one's own garden from the cold winds outside. But such walls no longer pro-
tect in_s titutions-and especially businesses-that do not perform up to world stand-
ards. It wiJI only make them more vulnerable.
5. The growing incongruence between economic g/obalizatio_n and political splintering. Busi-
nesses can no longer define their scope in terms of national economies and bounda-
ries. They h·ave to define their scope in terms of industries and services worldwide.
National boundaries are impediments and -cost centers.
But at the same time, political boundaries are not going away. Nothing has
emerged yet to t ake the place of national government and national sovereignty in po-
litical affairs. Even within transnational economic organizations, national politics still
overrule economic rationality.
.
We have in fact three overlapping spheres. There is a true global economy of
money and information. There are regional economi•es in which goods circulate free-
ly and in which impediments to the movement of services and of people are being
cut back, though by no means eliminated. And then, increasingly, there are national
and local realities, which are economic but above all are political. All three spheres are
growing fast. And businesses have to live and perform in all spheres at the same time.
That is the real ity on which a strategy has to be based, but no management in any
place knows yet what that reality actually means.
The first rule for a business in managing the incongruence between economic reality
and political reality is, Do not do anything that does not satisfy economic reality. Closely
related is another don't: Do not expand or grow globally by going into businesses-espe-
cially not by acquisition-unless they fit into the company's overall strategy.
 . Business growth and business expans·ion in different parts of the world insreas-
mgly will not be based on m·ergers and acquisitions or even on starting new, wholly
owned businesses abroad. They will have to be based on alliances, partnerships, joint
~entures, and all kinds of relationships· with organizations located in other political
Jurisdictions. They will, in other words, increasingly be based on structures that are
economic units and not legal-and therefore not political-units.

Guide Questions
1. Comment on the five certainties on change which are mostly social and po-
litical in nature.
2. Describe the innovative organization.
3. What are considered·the new commandments of change? Explain each.
· , ,. _,- , -:,~~:_::,·~: •~:~~:-~c:=
:~~:-~~;'r: : :~~¾
:;;c::w:;:@~:m:11t:rxtMlliilB.: .i 1

, POINTS OF VIEW

CASESTUDY7
Unknown Fears
A computer hands-on training program is being prepared organization-wide by the
Training Department of Hybrid Enterprises. At least 30 percent of the workers are in their
senior years roughly around 50 to 55 years old. · .., · · '

Hybrid Enterprises has a mi,xture of old and young E:mployees, further subdivided int9
young adults, middle-aged group, and senior group. The young group welcomes this oppor-
tunity to further hone their expertise in encoding, spreadsheet preparations, and Powei"Point
present ations. On t he other hand, t here is c) mix reaction among the middle-aged employees.
Some are excited to learn t he new technology. Whereas, the others would still like the old way of
preparing memos; t he senior group does not want to attend the upcoming training program.
The training group has prepared some form of introduction which is related to change.
The introduction would instill the value of being open to change. And this new wave in
computer technology should-be Vi{elcomed. However, there were already speculations that
the program will not be attended by the majority of ~he employees.
It ,has reached the ~raining d~partmen~ that the technology would actually force the
senior group to have their early retirement, since they cannot fully embrace this new way of
doing .things inside the company. :
Th,e mixed reactions prompted the training group to postpone th.e training prografll
for another week. There should be a way on how th_e employees would show up during ~he
program. The training program as a whole would incur quite a considerable cost and thiS
particular program would open the way for more training programs that would specificallY
provide employees to be computer savvy.
The group is confident that eventually all e~_ployees would learn to embrace the new
technology. In fact, the cell phones and other d1g1~al gadgets have been very popular. Yet,
the older group seems fearful of what technology in the company would bring.

90
 The training group would h h.
tendance. ave tot mk of a way on having a one_hundred percent at-

Case Questions
1. Why is there always a resistance to change?
2. What sho\,Jld the training group do? .
3. How would the group convince the middle-aged and senior employees to
attend the training program?

1. How can organizations manage and avoid resistance to change?

2. Can resistance to change really be avoided? Why or why not?
3. Explain the stages in th~ hange process.
4. Explain the difference between the moderate and fast-paced changes that organiza-
1
tions should undergo. '

5. Explain how change affects organizational comp~titiveness and effectiveness.

6. Many organizations in recent years folded up. Has it something to do with compla-
cency? Explain your answer. ·
7. What makes change a fearful reality to many? Explain your points of view.
8. Discuss how your school has adapted to recent changes.
9. If you were an organizational behavior consultant, what would ·you recommend to
your institution regarding the changes that should be done?
10. Make a chart of a 5-year plan on your own personal changes for your own improve-
ment.

Logical resistance is a type of resistance to change which has something to do with

reasoning, rationality, and logic.
Psychological resistance is a type of resistance to change which has something t9 do
with emotions, sentiments, and attitudes.

• Refreezing is the stage where new ideas learned are integrated into actual practice.
Sociological resistance is a type of resistance to change which involves social values.
Unfreezing is the first stage in the change process wherein old practices are taken out
to pave the way for new methods.

91