Implementing Organizational Change 3rd Edition
Implementing Organizational Change 3rd Edition
Implementing
Organizational Change
THEORY INTO PRACTICE
Bert Spector
Northeastern University
Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook
appear on the appropriate page within text.
Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other
countries. Screen shots and icons reprinted with permission from the Microsoft Corporation. This book is not
sponsored or endorsed by or affiliated with the Microsoft Corporation.
Copyright © 2013, 2010, 2007 by Pearson Education, Inc., publishing as Prentice Hall All rights reserved.
Manufactured in the United States of America. This publication is protected by Copyright, and permission should
be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission
in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s)
to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department,
One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201‐236‐3290.
Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks.
Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations
have been printed in initial caps or all caps.
Spector, Bert.
Implementing organizational change : theory into practice / Bert Spector. — 3rd ed.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-13-272984-0
1. Organizational change. 2. Organizational behavior. 3. Personnel management. I. Title.
HD58.8.S667 2013
658.4'06 — dc23
2011043785
10 9 8 7 6 5 4 3 2 1
Preface v
Chapter 1 Organizational Change 1
Introductory Case: Organizational Change at Nokia 2
Strategic Responsiveness 3
The Three Faces of Change 5
Transformational Change 7
Employee Participation and Resistance to Change 10
Trigger Events and Change 14
Going Global and the Requirement for Organizational Change 14
Conclusion 15 • Discussion Questions 16 • Case Discussion: The
ASDA Way of Working 16 • Endnotes 21
• To respond to criticism of its global labor practices, Nike commits itself to sustainable
business and innovation.
• To overcome its image as a cookie cutter chain and help to recover from a recession,
Macy’s pushes decision making down into its regional operations.
• To improve the efficiency of software development, a small company adopts Agile, a
new approach based on multiple releases in short time frames.
From multinational colossuses to small businesses, employees at all levels seek to respond
to the competitive dynamics that impact their organization’s performance.
Volatile swings in national and international economies, new competitive environments,
shifting customer expectations, increasing pressure from financial markets, emerging govern-
mental regulation and deregulation, not to mention dramatic and unexpected geopolitical dy-
namics, all demand responsiveness from today’s organizations. Renewed strategies, designed
to achieve and maintain a strong competitive position, demand that organizations abandon
the status quo. Instead of being an occasional event, organizational change is now a way of life.
Implementing organizational change has, as a result, emerged as a core competency for
corporate executives. In fact, any leader today will discover just how vital leading change is.
If you’re not leading change, as the saying goes, you’re not leading.
Knowing that change is vital, however, and successfully navigating an organization
through a change effort are quite different matters. Despite good intentions, enthusiastic sup-
port, and the availability of resources, change efforts often fall short of the expectations and
promises of their champions. Frequently, the flaw can be found in the misconceptualization of
the implementation process. How change is conceived and how it is implemented—that is
where the barriers usually reside.
THEORETICAL ORIENTATION
The purpose of Implementing Organizational Change—Theory into Practice is to understand
and analyze effective change implementation. In order to achieve that objective, Implementing
Organizational Change focuses on change that can be understood as strategically aligned altera-
tions in patterns of employee behavior. While recognizing the multiplicity of change efforts that
span the corporate landscape, the two core concepts of that definition allow us to pay special
attention to change that is strategic and behavioral. That definition shapes the core perspec-
tives of the book, which examines change that is strategic, purposeful, and behavioral. Let’s look
briefly at each one:
1. Strategic—the goal of change management is to help an organization support strategic
renewal in order to achieve and maintain outstanding performance in the face of a dy-
namic environment. A strategic perspective focuses on aligning behaviors with renewed
strategy and the requirements of outstanding performance.
2. Purposeful—change can occur to an organization or by an organization, most often some
combination of the two. A purposeful perspective focuses on explicit interventions into
the organization that are designed to respond to a dynamic competitive environment.
3. Behavioral—although change can occur in many forms, it is the alteration in employee
behaviors—how employees conduct themselves at work—that allows organizations to
implement their new strategies and achieve outstanding performance. A behavioral per-
spective focuses on the process of motivating employees at all levels of the organization
to alter their patterns of behavior in ways that are sustainable, adaptive to shifts in the
external environment, and will contribute to outstanding performance.
Preface vii
Organizational development (OD) Views organizations as open systems; sees alignment and
responsiveness as necessary components of outstanding performance;
emphasizes potential for collaborative effort, individual contribution,
and growth.
Strategic renewal Dynamic competitive environments often require new directions
supported by new systems, structures, and processes.
Strategic human resource Emphasizes the requirement to align human resource policies and
management (SHRM) practices—both individually and systemically—with the strategic goals
of the organization and the requirements of outstanding performance.
Leadership Focuses on the behavior of leaders at all levels of the organization who
mobilize adaptive behavior among employees and orchestrate effective
change interventions.
Others Sustainability, organizational learning, conflict management, ethics,
communications, information systems, supply chain management, and
organizational innovation.
BOOK ORGANIZATION
In order to present theories and practice of change, Implementing Organizational Change is
divided into three sections:
• Section 1—“Theories of Effective Change Implementation” (Chapters 1 and 2) analyzes
the forces leading to strategic renewal and organizational change, as well as the theories
that form the basis for effective implementation. The section concludes with a theory of
effective change implementation that combines the insights of previous works.
• Section 2—“Implementing Change” (Chapters 3–6) guides the reader through the theory
and practice of specific methods and approaches to implementing organizational
change.
• Section 3—“A Broader View” (Chapters 7 and 8) steps back from the specifics of change
implementation to examine two larger organizational issues: the role of leadership and
the change involved in “going green.”
TEXT FEATURES
Because Implementing Organizational Change is intended for both practitioners and stu-
dents of change management, the text includes a multiplicity of learning features.
• All chapters open with a bulleted list of key learning objectives. In addition, “Theory
into Practice” highlights the applied, practical applications of the theories being pre-
sented.
• A short opening case study illustrates the core concepts and challenges analyzed in the
chapter. These real‐world examples of change implementation are referred to through-
out the chapter to emphasize learning points.
• Key vocabulary items are highlighted in the text in order to help the reader develop a
vocabulary of change.
• Each chapter includes a conclusion summarizing key points of the chapter and intro-
duces key theme of the following chapter.
• Discussion questions guide readers back through key points of the chapter.
• Finally, a longer concluding case (written by the author exclusively for the text) can be
used to apply and debate key points of each chapter.
The goal of each chapter is to integrate the various learning features with a presentation
and analysis of influential and important theories, as well as examples of organizational
change efforts. Organizations ranging from large multinationals such as Hewlett‐Packard,
Nissan Motors, Nike, and Cisco to nontraditional organizations such as the Rolling Stones
and the nongovernmental organization CARE will help the reader apply change theories to
real‐world experiences.
CHAPTER
1 Organizational Change
W hen we talk about organizational change, we mean many different things. Calling on
new technologies to improve services requires organizational change. So does offering
new products in new markets. When a bank seeks greater control over employees who are
making investment decisions, an athletic shoe company seeks to “go green,” or a hospital
decides to improve quality while simultaneously cutting costs, these, too, are examples of
businesses that will need to engage in organizational change.
In order to understand and analyze the dynamics of change, and particularly the
requirements of effective change implementation, it is important to sort out and distinguish
the various approaches an organization can take. This chapter will explore multiple paths to
change. In particular, this chapter will:
• Identify the role of strategic renewal in propelling change
• Focus on the behavioral aspect of organizational change
• Analyze the dynamics of motivating employees to alter their behaviors
• Differentiate the three faces of change: turnaround, tools and techniques, and
transformation
• Understand the source of both employee resistance to and support for change
• Appreciate the importance of trigger events in initiating change efforts
• Examine the role that “going global” plays in triggering organizational change
We will start by looking at an attempt by a newly appointed chief executive officer (CEO)
to revitalize the fortunes of a global leader in cell phones. As you read this introductory case,
ask yourself:
• Why was Nokia eliminating jobs even though it was performing well?
• What triggered Nokia’s decision to hire an outsider—an American—as CEO in 2010?
• What organizational changes will Stephen Elop need to make in order to revitalize Nokia
in the United States?
1
2 Chapter 1
the smartphone market fell dramatically. And its stock price tumbled, even
after stock markets began to recover from the recession.
Many observers, both inside the company and outside, said that Nokia had
become a victim of its own success, complacent and reluctant to rock the boat. In
2010, the Nokia board recruited Stephen Elop from Microsoft to transform the
global giant.
Elop publicly admitted that Nokia had grown complacent and removed
from customers. “It was management by committee,” said one executive describ-
ing the company’s approach to innovation. “Ideas fell victim to fighting among
managers with competing agendas, or were rejected as too costly, risky, or insig-
nificant for a global market leader.” Elop vowed to focus on the internal barriers
that existed to new product development. “Nokia has been characterized as an
organization where it’s too hard to get things done,” he admitted. “But the board
has vested in me the mandate to lead Nokia through this change.” In particular,
Elop said his first priority was to stem the loss of U.S. market share.
Not all news was bad. Nokia still remained the global leader in the basic
phone market. In one of his first moves as new CEO, Elop announced job cuts.
“The cuts were intended,” he said to streamline software development for
Nokia’s smartphones by improving “agility and responsiveness” in the software
development and Web services units.
STRATEGIC RESPONSIVENESS
Building a
Stephen Elop was just one of many business leaders facing the challenge of orga- Vocabulary of
nizational change. Recognizing the need to change is important, of course. But Change
it’s just a first step. Next comes change implementation—the actions taken by Change
organizational leaders in order to support strategic renewal and achieve out- implementation
standing performance. Successful implementation is required to translate that actions taken by
organizational
recognition into an effective strategic response. Poor implementation can under- leaders in order to
mine the best intentions of organizational leaders. support strategic
We live in a period of rapid and dramatic change: significant alterations in renewal and
customer expectations and demands, new technologies, competitors with inno- maintain outstanding
vative business models, shifts in workforce demographics and values, and new performance in a
dynamic
societal demands and constraints. Even the most successful organizations cannot environment.
stand still. They need to respond to external dynamics in order to create and
maintain outstanding performance.
Building a
Vocabulary of
THEORY INTO PRACTICE Change
Strategic renewal a
Successful organizations cannot remain static if they hope to continue that change in an
organization’s
success; they must change in order to keep up with a changing world. strategy involving
some combination of
new products/
In response to those dynamics, organizational leaders often decide to services, new
engage in a process of strategic renewal. Strategic renewal involves some combi- markets, and a new
nation of a new product or service, a new market, and a new business model for business model.
4 Chapter 1
EXHIBIT 1-1
Strategic
Responsiveness in Company Altered Strategy
Sample Companies. IBM Move from product to service/consulting company
Netflix Move from providing DVDs through the mail to providing streaming,
in‐demand entertainment
Renault Move from French‐based to internationally focused automobile company
Pandora Move from selling through third‐parties to selling directly to end users
Facebook Move from restricted, college campus‐only social network to become a
“universal utility” open to everyone
Organizational Change 5
This was turnaround by adding rather than subtracting. Disney saw these invest-
ments in assets as a way of ensuring continued performance of the company.
EXHIBIT 1-2
Popular Change
Tools and
Tool Key Points Company Examples
Techniques. Total quality Align operational processes with the Globe Metallurgical, Inc.
management requirement for customer‐defined quality Motorola
and continuous improvement. Westinghouse
Agile A process for product development, mainly GKN Aerospace
development software, based on collaborative cross‐ PNC Financial
functional team effort. Acxiom
Balanced Use of a measurement system that balances VW of Brazil
scorecard financial objectives alongside internal Ricoh
business process, customer satisfaction, and Weichert Relocation
employee learning and growth.
Value‐chain Capture value by linking and coordinating ComputerWorld
integration the primary activities—inbound logistics, IBM Electronics
production, outbound logistics, marketing, Microsoft
and sales—of the organization.
Lean Eliminate activities that do not add value Sealy
from the perspective of the customer. Toyota
Conmed
Considered Ecological impact is considered at Nike
design beginning of new product design process Hewlett‐Packard
rather than as an afterthought Ford
Organizational Change 7
EXHIBIT 1-3
Three Faces
Type Target Rationale of Change.
Turnaround Assets Improve short‐term bottom‐line performance
Tools and techniques Processes Increase internal efficiencies
Transformation Behaviors Enhance human capabilities
TRANSFORMATIONAL CHANGE
THEORY INTO PRACTICE
It’s easy to think of examples of how organizations might wish to alter the
behaviors of employees:
Just how does that happen? How is it that of the way employees conduct
themselves at work impacts a company’s bottom‐line performance? The key to
Building a
Vocabulary of
understanding the relationship of behaviors and performance can be found in
Change the idea of motivation.
Motivation the Motivation refers to the degree to which employees are committed to the
degree to which achievement of outstanding performance both for themselves and for their com-
employees are pany. Employee motivation pays off in bottom‐line performance. High motiva-
committed to the
achievement of
tion creates in employees the capability and willingness to work together to
outstanding solve problems. Quality improves, customer responsiveness increases, and
performance both adaptation to shifts in the competitive environment occurs.
for themselves and
for their company. THEORY INTO PRACTICE
Sources of Behavior
Effective change implementation needs to start with an appreciation of the
sources of an individual employee’s behavior. If the goal of organizational
change is to alter employee behaviors, after all, it is useful to understand why an
employee behaves as he or she does.
Organizational Change 9
Behavior comes from both the individual and the organizational context in
which the individual works. Building a
Vocabulary of
Change
Organizational context—the setting and circumstances in which employees Organizational context
work—exerts a powerful impact on behavior. Companies as diverse as the setting and
Apple, General Electric, and Google endeavor to promote an organizational con- circumstances in
which employees
text that shapes individual behavior. They call upon organizational culture and work.
values, the behaviors of leaders, as well as rules and procedures to define a con-
text that shapes employee conduct.
It’s worth remembering that organizational context can produce negative as
well as positive results. It was a context of huge rewards for risk‐taking and win‐
at‐all‐costs that led to the collapse of the financial services industry that triggered
the global recession in 2008. We need to appreciate the power of organizational con-
text to shape behaviors by examining a specific example of an employee mistake.
Sheryl Sandberg, an advertising manager at Google, made a mistake that
cost the company millions of dollars. “Bad decision,” she admitted, “moved too
quickly, no controls in place, wasted some money.”9 Sandberg quickly informed
Google cofounder Larry Page.
Employees make mistakes, even occasionally big ones such as Sandberg’s.
Leaders have an important opportunity to shape organizational context by the
manner in which they respond to those errors. Quick and harsh repercussions—
firing, for example, or demotion—will have one kind of impact on the organiza-
tional context in which employees work. That response may be justified and
reasonable, but it may also work to stifle future risk‐taking behaviors. Or perhaps
employees will be less willing to admit mistakes, slowing down an organization’s
response time.
The boss may also respond in a less harsh and punishing manner. Listen to
the reaction of Google cofounder Larry Page, to Sandberg’s admission:
I’m so glad you made this mistake, because I want to run a company
where we are moving too quickly and doing too much, not being too
cautious and doing too little. If we don’t have any of these mistakes,
we’re not taking enough risk.
The point is not that Page’s response is the only “correct” or reasonable
response to the admission of a mistake. Leaders have to determine what type of
10 Chapter 1
organizational context they seek to create. That context will need to be aligned
with the company’s strategy and purpose.
Page and Google cofounder Sergey Brin believed that mistakes could pro-
vide fuel for improvements, even innovation. “We’re willing to tolerate ambigu-
ity and chaos,” said senior vice president Shona Brown, “because that’s where
the room is for innovation.” Google’s leaders wanted a context that tolerated risk
in order to generate innovation.
Employees do not naturally resist change, but they often resist change because
of the way change is implemented.
EXHIBIT 1-4
Continuum of
Individual Response Commitment Involves a strong emotional attachment to the goals of
to Change. the organization and the aims of the change effort
Involvement Involves a willingness to participate in the behaviors, being
called for by the change effort
Based on Leon Support Involves speaking on behalf of the change effort without
Coetsee, “From taking any other explicit actions to promote the effort
Resistance to Apathy Represents a neutral zone in which individuals know
Commitment”; about the change effort and engage in no behavior either
Public Affairs to support or oppose it
Quarterly (Summer Passive resistance A mild form of opposition that involves a willingness to
1999), pp. 204–222. voice reservation or even threatening to resign if the
change goes through
Active resistance Involves behaviors that block or impede change, usually
by behaving in ways that contradict the goals of the
change effort
Aggressive resistance Involves purposeful sabotage and subversion of the
change effort
Organizational Change 11
Most attention to employee resistance has focused on how to avoid or, failing
that, overcome it; which is to say, how to get employees “on board” change efforts.
Managers can see employee resistance in negative terms: it is a “bad thing” that
represents an irrational response to a dynamic competitive environment. In this
way, employee resistance can be dismissed as invalid or disobedient.11 Resistance
to change, in this view, is a force to be overcome.
There is another way of thinking about resistance to change, however; one
that may actually improve the effectiveness of implementation.
Managers do not set out to create resistance, of course, but do just the opp-
osite. They believe that the proposed changes are being made for the good of the
company and that employees will accept the need for change. Still, the manner in
12 Chapter 1
which change is implemented can have that effect. Here’s a checklist of employee
resistance and possible sources of that resistance:13
• Employees resist because they remain satisfied with the status quo. Perhaps
management has not included employees in the diagnosis and learning
process.
• Employees resist because they view change as a personal threat. Perhaps
management has not offered employees the opportunity to acquire the new
skills that will be required in the renewed organization.
• Employees resist because they see the cost of change outweighing the ben-
efits. Perhaps management has not articulated the goals of the change
adequately to allow a true assessment of the costs and benefits.
• Employees resist because they believe that management is mishandling
the process. Perhaps employees have not been given a voice in the process
itself.
• Employees resist because they believe that the change effort is not likely to
succeed. Perhaps management needs to articulate why this change pro-
cess is more likely to be effective than past efforts.
By looking at that checklist, we can see how often employee resistance can
be understood in part as a natural and expected outcome of implementation.
Participation in the change process is the best way to build support and over-
come resistance to change; but remember—it is no guarantee.
being a barrier to overcome? We will address that question in Chapter 2. For now,
let us understand employee resistance as a form of expression that is not always a
bad thing and that needs to be considered and understood by change leaders.
There comes a point in the change process where employee resistance will
need to be addressed and overcome.
• They may seek nondomestic suppliers for needed raw materials. For exam-
ple, a food processor in Russia seeks wheat supplies in the United States.
• They may seek strategic alliances with related companies in other coun-
tries. For example, a French‐based car manufacturer enters into an alliance
with a large Japanese company.
• They may seek to locate research and development activities in multiple
nations as a way of better understanding the needs of nondomestic custom-
ers. For example, a Brazilian‐based jet manufacturer opens a market
research office in the United States.
These are among the numerous variations on what it might mean for an
organization to “go global.” As varied as the opportunities are, what they all
have in common is this: going global will require organizational change.
”Going global” takes many forms, and they all require organizational change. Building a
Vocabulary of
Change
Psychic distance
Anytime an organization embraces multiple national cultures, it adds a differences in
degree of sociocultural diversity and uncertainty. This complexity is the result of culture, language,
what is known as psychic distance.17 Differences exist not only in culture, but and the political–
also in language, and the political–economic–legal infrastructure of countries. In economic–legal
later chapters, we will discuss the specific implications for organizational change infrastructure of
countries that add to
when multiple countries are involved. The point now is that organizations will the complexity of
need to develop new structures, new ways of thinking, and new ways of behav- managing across
ing if they are going to be successful operating in a global arena. national borders.
Conclusion
Strategic responsiveness to a dynamic environ- change leaders. By allowing employees to
ment requires organizational change. Change, participate in the formulation of change plans,
however, is not a singular concept. The three however, leaders will increase employee owner-
faces of change suggest that change leaders face ship over and support for those efforts.
options. Turnaround addresses the need to Trigger events—either discontinuities in
improve the balance sheet. Tools and techniques a firm’s competitive environment, new leader-
focus on improved processes. By themselves, ship, or a combination of the two—precipitate
however, neither will achieve the full, intended the requirement for strategic renewal and
impact of strategic renewal. Effective change organizational change. One of the most common
will also require attention to employee behav- trigger events is when organizations go global,
iors—patterns of action and interaction—no less dealing with people and organizations in multi-
than financial and technological effectiveness. ple cultures.
Not all employees will greet change efforts Recognizing the requirement for change
with equal enthusiasm. Employee resistance and being able to manage change effectively are,
arises from a number of sources, some internal of course, two different matters. Chapter 2 will
to individual employees and others externally examine the theoretical underpinnings of effec-
located in the implementation processes of tive change implementation.
16 Chapter 1
Discussion Questions
1. Review Exhibit 1‐1. Select one of the companies. 4. Identify the main external forces triggering the
Based on the brief statement of its renewed strat- requirement for organizational change. Pick any
egy (or research the company for further details), three and discuss how they might necessitate
think about how patterns of employee behavior behavioral change on the part of organizational
will have to change. employees.
2. Explore the challenges facing Stephen Elop at 5. Why is motivation important to behavioral
Nokia. What can he do to revitalize the company change? How might leaders approach change dif-
in the U.S. smartphone market? ferently if they are trying to motivate employees
3. What are the three approaches to organizational to change rather than forcing employees to
change? In what ways are they different, and in change?
what ways do they overlap?
Case Discussion
Read “The ASDA Way of Working” and prepare answers to the following questions:
1. What are the types of changes that Archie Norman needs to undertake at ASDA?
2. Referring to Exhibit 1‐3, what faces of change does ASDA need to engage?
3. What actions can Norman and his top management team take to build employee motivation to engage in
change?
Company Background
With 65,000 employees in 205 ASDA stores and another 2,000 at corporate head-
quarters, ASDA was the fourth largest grocery store chain in the United
Kingdom. ASDA enjoyed annual sales of $6 billion† and claimed 8 percent of the
supermarket business, ranking fourth in market share.
Starting in the late 1960s, ASDA pioneered the concept of large super-
markets located outside of downtown areas with expansive parking lots and
low prices. Flourishing particularly in working‐class areas, ASDA became
†
All figures are given in equivalent U.S. dollars.
Organizational Change 17
I told the stockholders and the market analysts, that I had a three‐year plan
that ASDA should be returned to profitability and growth within that time
frame. The stockholders agreed to let me make short‐term sacrifices for
long‐term profitability.
In the first six months of Norman’s tenure, all of the top management team
took up residence in a local hotel. They were often joined by Chrispin Tweddle, a
consultant hired by Norman with considerable retail experience. During the day,
‡
Before walking in the door on his first day, Norman had decided to fire the current CFO and had
already reached an agreement with Phil Cox to join the company.
Organizational Change 19
Cox focused on ASDA’s financial crisis,§ while Norman toured the stores, talking
to employees at all levels and taking copious notes. Then, the team would sit up
together until past midnight talking about a vision for a new ASDA.
Every discussion was based on the shared assumption that the total organi-
zation was dysfunctional. Said Norman:
In particular, the team believed that they needed to address ASDA’s stove-
piped functional culture, which made companywide collaboration a virtual
impossibility. Observed Norman:
The whole place was dysfunctional. The top management never met
together except once a month at a board meeting. They never talked from
week to week. And the whole organization ran down these functional
pipelines.
Renewal
The process of change, which the top team came to refer to as “renewal,” would
occur within the 205 stores. But the team provided guidance to the renewal
process in three forms: a statement of corporate strategy, an articulation of
company values, and a blueprint for what came to be known as the ASDA Way
of Working.
Strategic Renewal
Norman called on consultants from McKinsey to help him and his team formu-
late a new strategic position. Their deliberations started with gaining a thorough
understanding of the grocery industry and ASDA’s position in it. They then form-
ulated a strategy statement: “We will supply the weekly shopping needs of
ordinary working families.”
Culture Change
The team realized early on that they would have to do more than change the old
ASDA culture; they would have to shatter it and then rebuild it from the ground‐
up. To set the parameters for that new culture, they drew up a statement of com-
pany values, plus a set of operational concepts that became known as the ASDA
Way of Working. Store‐based renewal would flow from a few key concepts:
greater autonomy to store management in making operational decisions and,
within the stores, self‐managed autonomous teams focusing on particular prod-
uct lines such as produce, bakery goods, and so forth.
§
A number of steps were taken to raise money. Nonfood operations were either sold off or, failing that,
shut down; head count at corporate headquarters was reduced by 30 percent; in-store middle-manager
positions were cut by 10 percent; and an 18-month pay freeze was initiated for all employees.
20 Chapter 1
In a speech laying out the ASDA Way of Working to store managers, Norman
said, “I see a day when our stores consist of clusters of businesses, each with their
own profit‐and‐loss responsibilities.” A store manager, who had been with ASDA
in the pre‐Norman era, reflected on the message he heard concerning the ASDA
Way of Working: “What they told me was to involve everybody in everything. As
long as you’re doing that, you’re going to get the best out of people.”
This sense of empowerment and responsiveness “will be a unique source
of advantage,” insisted Norman, “against the militarized and straight‐jacketed
competition.”
risk‐averse behavior, and stifling innovation. Plus, there was hardly a large
queue of talented managers seeking employment at ASDA.
Finally, Norman wondered about his own role in the renewal effort. Already
his colleagues on the top management team had reached consensus on his per-
sonal management style, and “controlling” was the most frequently applied
label. Among the evaluations offered:
• He must have learned the lesson as a young boy that if you want to do any-
thing right, you have to do it yourself.
• In truth, and I’m sure Archie would admit this, his preferred style is a
controlling style. The issue of devolving power does not sit comfortably
with him.
• The only thing you will never hear Archie say is, “I think you’re wrong, but
do it anyway.”
Norman offered the following self‐assessment:
I do believe I give people the right to argue and challenge. But I still make
decisions, and I don’t want to delude people into thinking I don’t. I simply
won’t tolerate any deviation around basic values and strategy.
Endnotes
1. Information for this case comes from Kevin J. 2. The rise of Nokia as a world leader in cellphones
O’Brien, “Nokia Dominates, but Rivals Insist is analyzed in Yves Doz, José Santos, and Peter
that Could Change,” New York Times (Feb. 13, Williamson, From Global to Metanational: How
2008); Kevin J. O’Brien, “Nokia Plans to Slash Companies Win in the Knowledge Economy
1,700 Jobs amid Sluggish Sales of Cellphones,” (Boston, MA: Harvard Business School Publishing,
New York Times (Mar. 18, 2009); Kevin J. O’Brien, 2001).
“Nokia Tries to Undo Blunders in US,” New 3. D. A. Nadler, Discontinuous Change: Leading
York Times (Oct. 19, 2009); Nelson D. Schwartz, Organizational Transformation (San Francisco, CA:
“Can Nokia Recapture Its Glory Days?” New Jossey‐Bass, 1995).
York Times (Dec. 13, 2009); “The Curse of the 4. Quoted in Tom Arango, “A Hot Social Net-
Alien Boss,” The Economist (Aug. 7, 2010); Kevin working Site Cools as Facebook Flourishes,”
J. O’Brien, “Nokia Seeks to Reconnect with the New York Times (Jan. 12, 2011), p. A1.
US Market,” New York Times (Aug. 15, 2010); 5. M. Hughes, “The Tools and Techniques of
Kevin J. O’Brien, “Nokia Executive to Leave; Change Management,” Journal of Change
Hints of Chairman’s Exit,” New York Times Management 7 (Mar. 2007), pp. 37–49.
(Sept. 13, 2010); Kevin J. O’Brien, “Nokia’s New 6. D. Ulrich and D. Lake, Organizational Capacity:
Chief Faces Culture of Complacency,” New York Competing from the Inside Out (New York: Wiley,
Times (Sept. 26, 2010); and Kevin J. O’Brien, 1990); J. Arthur, “The Link Between Business
“Nokia to Cut Jobs as It Tries to Catch Up to Strategy and Industrial Relations Systems in
Rivals,” New York Times (Oct. 21, 2010). American Steel Minimills,” Industrial and Labor
22 Chapter 1
17. J. Johanson and J. E. Vahlne, “The Interna- Studies, 33 (2002), 515–532; C. M. P. Sousa and F.
tionalization Process of the Firm – A Model of Bradley, “Cultural Distance and Psychic
Knowledge Development and Increasing Distance: Two Peas in a Pod?” Journal of
Foreign Market Commitments,” Journal of International Marketing, 14 (2006), 49–70.
International Business Studies, 8 (1977), 22–32; 18. The case is based on research conducted for
J. Evans and F. T. Mavondo, “Psychic Distance Bert Spector, Taking Charge and Letting Go: A
and Organizational Performance: An Empirical Breakthrough Strategy for Creating and
Examination of International Retailing Managing the Horizontal Company (New York:
Operations,” Journal of International Business Free Press, 1995).
CHAPTER
24
Theories of Effective Change Implementation 25
Jon Meliones, the hospital’s chief medical director, realized that he and fel-
low hospital executives faced a particular challenge. “No matter how effective
the chief executive officer (CEO) and chief operating officer (COO) are,” he
observed, “they can control only a portion of the components that drive the orga-
nization’s financial performance.” Physicians determined length of stay, drug
prescriptions, and tests, while accepting referrals that helped determine reve-
nues. Nurses drove quality. Any effective change would require a united effort
among administrators and clinicians.
Meliones led his staff through a diagnosis of the root causes of the hospi-
tal’s financial crisis. They found a particularly troubling pattern of behavior.
“The problem was that our hospital was a collection of fiefdoms,” said Meliones.
“Each group, from accountants to administrators to clinicians, was focusing on
its own individual goal rather than on the organization as a whole.” Creating a
shared sense of responsibility for the hospital’s performance and realigning pat-
terns of behavior would be required.
A team consisting of Meliones, the chief nurse executive, and nurse manag-
ers agreed upon an approach that emphasized the interdependence between
financial performance and excellence of health care. “We want patients to be
happy … and for them to have the best care,” the team concluded. They also
adopted a motto for their planned strategic renewal: “No margin, no mission.”
Excellent patient care and excellent financial performance would be the twin
hallmarks of the hospital’s strategic renewal.
Implementation next moved to a single unit: pediatric intensive care.
Meliones and his team worked to operationalize new behaviors through a rede-
sign of roles, responsibilities, and relationships. With the participation of doc-
tors, nurses, the medical staff, and even accountants, the team redesigned how
*
Under capitated reimbursement, insurance companies reimburse providers at a fixed amount, typi-
cally based on some calculation of the average cost of a procedure.
26 Chapter 2
all members of the unit would undertake their responsibilities. The unit called
on a popular measurement tool, the balanced scorecard that looks not just at
financial outcomes but also customer perceptions, internal business processes,
and the ability of an organization to learn and grow, to help reinforce desired
new behaviors.2 Meliones and his leadership team returned the hospital to prof-
itability in three years.
It may be hard to think that a social scientist working over 60 years ago
could have anything relevant and important to say about today’s organizations.
But Lewin offered two insights that, to this day, shape our understanding of how
to alter patterns of behavior.
First, he highlighted the important, even decisive role that context plays in
shaping individual behaviors. And second, he argued that the only way to moti-
vate an individual to change her pattern of behavior is to create a sense of dis-
equilibrium or dissatisfaction with the status quo within that individual. To fully
appreciate Lewin’s contribution, it is worth spending some time looking at each
of these ideas.
value associated with the existing social arrangements continues to exert a pow-
erful force on the individual, “keeping the individual in line with the standards
of the group.”4 The old habits have not been broken; the positive value associ-
ated with past behaviors still exerts powerful pressure; so individual behavior
returns to the status quo.
Telling employees why they need to change will not build motivation to
change; it is necessary, but not sufficient.
The next important question, therefore, is how to exert a force that will alter
not just the individual but also the social context of that individual.
Potential change leaders are often stumped by the same situation that
greeted Ghosn when he first arrived at Nissan: why, in the face of such appar-
ently obvious distress, do employees remain attached to the status quo? Lewin
had an explanation for that.
Group membership often confers a positive sense of belonging to members;
they like being part of the group, accept the group’s norms, and are pleased with
what the group has been able to accomplish in the past. And the more they assign
positive value to group membership and group norms, the greater the resistance
will be on the part of individual group members to alter those norms.
Group membership creates a kind of inertia, or at least reluctance, to change
what it is about that group that seems so positive. That is the phenomenon we
often refer to as “complacency.” The task of motivating individuals to alter their
Theories of Effective Change Implementation 29
established behaviors, then, is a complex one. That is the challenge for leaders
seeking change.
The act of announcing the need for change, of proclaiming new goals, of
presenting a rational argument for how the changes will improve performance
simply will not motivate behavioral change. What is needed, Lewin argued, is a
kind of deliberate “emotional stir‐up,” a powerful intervention designed to
“open the shell of complacency” and “unfreeze” the existent equilibrium.
To break the “social habits” that support existing patterns of behaviors, start
with creating dissatisfaction, disequilibrium, and discomfort.
Building a
Vocabulary of
To be effective, then, a change leader’s initial task is to create what Lewin Change
called unfreezing. Look at the approach taken by Jon Meliones at the Children’s Unfreezing the first
Hospital. Rather than lecturing employees on why they needed to change, he stage in Lewin’s
involved them in a diagnostic process, allowing them to learn—just as he had— change model in
which group
the financial situation of the hospital and to shape the appropriate response. members become
Imagine if Meliones had, instead, given a talk about the dire need for dissatisfied with the
change, supplemented with elaborate PowerPoints. Then, he would have told status quo.
employees how they needed to alter their behaviors, and work together in differ-
ent ways: doctors, nurses, medical technicians, even accountants pulling together
to ensure outstanding performance. He would have then explained why he felt
the balanced scorecard was an excellent tool for measuring their progress and
reinforcing their new behaviors. Had he approached change implementation
Building a
that way, he may well have faced a great deal of initial resistance, making the Vocabulary of
unfreezing stage extremely difficult to implement. Change
The second stage of Lewin’s model involves moving, wherein members of Moving the second
the group move from one set of behaviors to another. Those new behaviors, in stage in Lewin’s
Lewin’s view, must become permanent, for at least a desired period of time. It is change model in
which group
the refreezing stage where a newly created equilibrium “is made relatively members alter their
secure against change.”6 Refreezing is the stage where structures and systems patterns of behavior.
align with and reinforce new behaviors. This is the stage at which measurement Building a
tools like the balanced scorecard—there are many others that we will discuss in Vocabulary of
Chapter 6—can be called upon to reinforce new behaviors. Change
Refreezing the final
LEWIN’S CONTRIBUTION TO CHANGE IMPLEMENTATION Lewin is best known for stage in Lewin’s
his three stages of change implementation: unfreezing, moving, and refreezing change model in
which group
(summarized in Exhibit 2‐1). Equally important is Lewin’s recognition that the
members
most effective way to manage behavioral change among individual members of institutionalize the
a group is to work first on changing the group’s norms, then focus on individual new patterns of
behaviors. If “one succeeds in changing group standards, this same force field behavior into a new
will tend to facilitate changing the individual and will tend to stabilize the indi- status quo.
vidual conduct on the new group level.”7 Context exerts a powerful shaping
force on individual behaviors.
Lewin urged a kind of implementation sequence. To create sustainable
behavioral change, organizational leaders need to work both at the individual
30 Chapter 2
EXHIBIT 2-1
Implementation
State 1: Unfreezing Stage 2: Moving Stage 3: Refreezing
Implications of
Lewin’s Change Create dissatisfaction with Redesign organizational Align pay/reward systems
Model. the status quo roles, responsibilities, and
relationships
and contextual levels. There is a far greater leverage to be gained, however, from
first working at the contextual level.
The positive social values created by the new equilibrium will motivate
individuals to adapt to the new norms. If, instead, leaders first focus on the indi-
vidual level, they risk undermining their best intentions. No matter how much
impact they have on changing the expectations and behaviors of individuals,
those new expectations and behaviors will not endure as long as the old equilib-
rium continues to exert a powerful and attractive force.
In order to implement change, target group norms first and then focus on
individual behaviors.
EXHIBIT 2-2
Ten Defining
Perspective Underlying Assumptions
Perspectives of
1. Systems Outstanding performance depends on interactions between and Organizational
perspective among the multiple elements of organization; between the Development.
people, processes, structure, and values of the organization; and
between the organization and its external environment.
2. Alignment The effectiveness of organizations will be determined by a state
perceptive of congruence between people, process, structure, values, and
environment.
3. Participation People will become more committed to implementing solutions if
perspective they have been involved in the problem‐solving process.
4. Social capital To achieve outstanding performance, organizational leaders seek
perspective to create a network of interdependent relationships that provides
the basis for trust, cooperation, and collective action.
5. Teamwork Accepting shared purpose and responsibility for interdependent
perspective tasks enhances coordination, commitment, and creativity and
supports outstanding performance.
6. Multiple Outstanding performance requires that organizational leaders
stakeholder balance the expectations of multiple stakeholders: shareholders,
perspective employees, customers, suppliers, host community, labor unions,
trade associations, governments, etc.
7. Problem‐solving Conflicts over task issues can increase the quality of decisions if
perspective they occur in an environment of collaboration and trust.
8. Open Open and candid communication, especially upward in the
communications hierarchy, creates the opportunity for learning and development
perspective while building trust and collaboration.
9. Evolution/ Organizations must develop competencies to engage in both
revolution incremental (evolutionary) and fundamental (revolutionary)
perspective change.
10. Process Individuals who reside outside of the organizational hierarchy can
facilitation become both facilitators and teachers of effective implementation
perspective processes in partnership with organizational members.
32 Chapter 2
Building a ORGANIZATIONS ARE OPEN SYSTEMS OD sees the organization as an open sys-
Vocabulary of tem: a unit that exists in constant interaction with its external environment and
Change
between its own internal elements. Effectiveness in an open system arises not
Open system an
organism or entity just out of the actions of employees but also out of interactions that occur at mul-
that exists in a tiple levels:
constant interactive
state with its • Between the personalities and activities of various employees
external • Between employees and the requirements of their tasks
environment. • Between the tasks and the culture of the organization
• Between the culture and the strategy of the organization
• Between the strategy of the organization and its external environment
Organizational effectiveness is best achieved when a state of fit or congru-
ence exists between various elements of the open system (see Exhibit 2‐3).
EXHIBIT 2-3
A Congruence
Model of External Environment
Effectiveness. Internal Context • Customer, employee,
• Organizational and investor expectations
purpose • Social/cultural forces
• Strategy • Technological changes
• Business model • Labor market shifts
• Organizational design • Government regulation
• World events
Organizational
Effectiveness
DEAL WITH CONFLICT THROUGH PROBLEM SOLVING, OPENNESS, AND TRUST Don’t
argue. Go along. Don’t stir the pot. Get on board. Be a team player. All of these expres-
sions, and others you have surely heard, represent a particular view about con-
flict and its role in organizational life. Conflict is disruptive and dysfunction.
Avoid it or soothe over it.
OD takes a fundamentally different view; it is that conflict, when managed
properly, can improve effectiveness, increase innovation, and enhance adaptive-
ness. Not all conflict is desirable; interpersonal conflict based on personalities
can be harmful. But conflict about how best to perform tasks can have a positive
value on an organization.
Conflict can, for example, improve innovation by highlighting a diversity
of viewpoints. Additionally, conflict can encourage individuals to articulate their
personal points of view and assumptions while considering the viewpoints and
assumptions of others. The potential benefits, therefore, involve both an
enhanced grounding in reality and an increased opportunity for creativity.10
34 Chapter 2
Don’t shy away from conflict. As individuals articulate and analyze differ-
ences, they can improve organizational effectiveness.
EXHIBIT 2-4
• Serve as the initial centerpiece for launching and driving transformation throughout Characteristics of
the company or unit. Content‐Driven
• Are imposed by top management. Change Programs.
• Do not proceed from shared diagnosis.
• Rely on standardized, off‐the‐shelf solutions.
• Are imposed uniformly across the organization.
36 Chapter 2
Just because top leaders believe in the need for change doesn’t mean that all
employees share that belief.
actions that can be put into place quickly. Faced with competitive crisis, top man-
agers want to make change quickly. Pressures for quarterly earnings coupled with
impatience and high task orientation lead managers to seek a lever that will dem-
onstrate forward movement. Although simplistic and often ineffective, change
programs are highly visible and provide tangible evidence of concerted effort.
Building a
Vocabulary of Task Alignment as a Driver of Behavioral Change
Change
Task alignment an Task alignment offers an approach to change intended to sharpen the connec-
approach to tions between Lewin’s requirement to alter the context and create a disequilib-
behavioral change rium, OD‐based interventions, process‐driven change, and strategic renewal.
that starts with the
identification of the
Effective change implementation efforts display a common thread: management
key strategic tasks of focused on the business’ central competitive challenges as the means for moti-
an organization or vating change and developing new behaviors and skills.16
unit and then asks Task alignment takes as a starting point for change, the work that needs to
employees to be undertaken in order for a unit to achieve its strategic goals and sustained out-
redefine their roles,
responsibilities, and
standing performance. That was precisely the point at which Jon Meliones
relationships in started his shared diagnosis at Children’s Hospital. He did not ask, “How can we
order to perform work together better?” Instead, he asked, “How can we achieve excellent patient
those tasks. care and excellent financial performance?”
In a dynamic environment, strategic renewal typically requires new behav-
iors in order to perform those tasks. Task alignment embeds the insights of OD in
a drive to produce outstanding performance. Employees redefine their roles,
responsibilities, and relationships in order to perform those tasks.
EXHIBIT 2-5
Key Theoretical
Theoretical Main Theoretical Help Explain How
Approaches to
Approach Contribution to Implement Change
Change
Implementation. Lewin’s Field Begin behavioral change by • Build a pervasive sense of
Theory in Social focusing on context and dissatisfaction with the status
Science unfreezing existing social quo on the part of employees
habits • Offer operational models for
what new behavioral patterns
will be
• Reinforce new behavior with
alterations to systems and
structures
Organizational Organizations are dynamic, • Target entire organizational
development open systems system for change
• Create a climate of open
discussion and upward
feedback concerning the
efficacy of change
implementation
• Call on process consultants to
facilitate interventions
Process‐driven Focus on organically developed • Do not use externally
change and implemented efforts to developed program as driver
improve organizational of change
performance • Focus on the unique
requirements of each
organization and unit
• Build support for change while
implementing it
Task alignment Link desired new behaviors to • Analyze and identify key
requirements of performing performance indicators and
key tasks of the organization behavioral implications
required for outstanding
performance
• Attach requirements for new
behavioral to new strategic
objectives of organization
• Build line‐management
support for change effort
Theories of Effective Change Implementation 41
becomes: how can multiple theories of change be integrated into a common Building a
approach to effective change implementation? Vocabulary of
Change
The change implementation model presented in Exhibit 2‐6 provides just shared diagnosis: a
such an integrated roadmap.20 By melding theory and practice, the model sug- widely held and
gests both what tools can be applied and the most effective sequence for that understood view of
application. It suggests that once strategic renewal triggers a new requirement the barriers to
for transformation, effective implementation will start with shared diagnosis: a strategic
implementation and
widely held and understood view of the barriers to strategic implementation outstanding
and outstanding performance. performance.
EXHIBIT 2-6
Step 1: Redesign Step 2: Help A Sequential Model
Designing new strategically • Training of Effective Change
aligned behaviors • Mentoring Implementation.
ign
• Roles
R edes Ste • Coaching
• Responsibilities
p 1: p 2:
• Relationships te
S
H
elp
Shared Mutual
Diagnosis Engagement
an ople
Ch : Pe
ge
3
ep
Step 3: People
Step 4: Systems
St
Change
and Structures St
an ep 4:
• Assessment
• Reporting relationships
• Compensation
d S Syste m s • Promotion
tr u c t • Replacement
• Information u re s
• Recruitment
• Measurement and control
42 Chapter 2
Kicking off change implementation with shared diagnosis builds both dissat-
isfaction with the status quo and a commitment to enact new behaviors.
Moving to Redesign
Building a
Vocabulary of Once diagnosis generates dissatisfaction with the status quo, employees can par-
Change ticipate in redesigning behavioral patterns to support strategic renewal and out-
Redesign an standing performance. As part of that redesign effort, employees seek answers
alteration in to these questions:
employee roles,
responsibilities, and • What can employees do to contribute to the achievement of the company’s
relationships. strategy (roles)?
• What are the performance outcomes employees strive to achieve (responsi-
bilities)?
• With whom must employees work in order to meet the expected outcomes,
and what is the nature of those interactions (relationships)?
Redesigning roles, responsibilities, and relationships through shared diag-
nosis serves to align behavioral patterns with the competitive realities facing the
organization; with the values, goals, purpose, and principles of the organization;
and with the requirements of outstanding performance. Additionally, the partici-
pation of employees in the redesign process builds their commitment to imple-
mentation.
For Meliones and his team at Children’s Hospital, the diagnostic phase pro-
duced a new understanding of how roles, responsibilities, and relationships
should be enacted to support outstanding performance. Meliones explains:
Help
At the Children’s Hospital, Jon Meliones asked employees who were used to
working as individuals to join in a collaborative team effort. Not only that, but he
was asking doctors and nurses to become familiar with the financial situation of
the hospital, and accountants to develop an appreciation of excellent health care
practices. It is typical, in fact, for change efforts to ask employees to develop new
skills to match the required new behaviors.
It is in the help stage of change that organizations can offer employees
assistance with enacting those new behaviors. Employees being asked, often
for the first time, to work on a team will need to learn the skills of teamwork.
Sales people being asked to demonstrate new products will need to learn
the skills associated with that new functionality. Shop floor supervisors being
asked to work as facilitators with work teams will have to learn a new set of
skills.
In Chapter 5, we will look at specific tools for providing that help. The
point to make for now is that training can be used most effectively in a change
process when it follows a participative process of redesigning roles, responsibili-
ties, and relationships. The commitment to enact new behavior drives a desire to
learn the skills required of that behavior.
People Change
After a shared diagnostic process produces a shared understanding of the renewed
Building a
strategy and a commitment to change, and after employees engage in a process of Vocabulary of
redesigning roles, responsibilities, and relationships, implementation calls upon Change
people change: the process of matching the attributes of employees—their skills, People change the
motivation, attitudes, and behaviors—with the strategic requirements of the process of matching
the attributes of
organization.
employees with
The process is designed, to borrow a phrase from Jim Collins’ book, Good to the strategic
Great, to get the right people with the right competencies on the bus and the requirements of the
wrong people off the bus.22 organization.
The specific interventions that can be called upon in this stage of imple-
mentation include:
• Assessment of employees—which can now reflect the new set of required
competencies
44 Chapter 2
Altering formal organizational systems and structures can come at the back
Building a
Vocabulary of end of a change implementation in order to institutionalize new patterns of
Change behavior.
Mutual engagement
the process of
building a
Mutual Engagement at the Core
participatory
dialogue among At the center of the model and accompanying every stage is a process of mutual
employees at all
engagement.24 Participation in decision making, as we noted in Chapter 1, helps
organizational levels
to the requirements build commitment to the outcomes of that decision‐making process. The cycle of
of and process for change implementation, then, needs to create opportunities for dialogue, discus-
achieving change. sion, communication, and participation as a way of building commitment to the
Theories of Effective Change Implementation 45
changes. Those opportunities are what can be called mutual engagement. Mutual
engagement rests on the assumption that multiple stakeholders—particularly
the employees at all organizational levels whose behaviors have to change—will
need to be committed to the change.
Beyond building commitment, mutual engagement provides another asset
indispensable to effective change implementation. In all organizations, vital
knowledge about the current state of the company’s operations, shifting expecta-
tions of customers, required interface with suppliers, and emerging technologi-
cal trends and developments in the industry are embedded deeply in and widely
across the firm. Employees have a unique perspective on how well the organiza-
tion is meeting its strategic goals and living up to its espoused values. Mutual
engagement ensures that such critical knowledge is constantly considered in the
change process.
EXHIBIT 2-7
Change
Trap For Example Why It Is a Trap
Implementation
Traps. Starting at Step 4 Imposing new system or Will be experienced as
structure (e.g., global “change from above”; likely
matrix, balanced scorecard to be poorly understood and
measurement system) resisted.
Starting at Step 2 Driving change with Because employees work in
training program an unchanged organizational
context, their learning is
likely to be short‐lived and
will fade out.
Starting at Step 3 Recruiting new employees, Easy to make mistakes due
removing and replacing, to lack of understanding
and replacing individuals concerning what is required
seen to be resisters to and who can adapt to new
change demands; can be viewed by
employees as arbitrary, thus
diminishing trust and
commitment.
Starting implementation Redesigning work (e.g., New designs will be seen as
without shared diagnosis creating cross‐functional unconnected to strategic
teams) reality and performance
demands of organization;
can lead to compliance or
resistance on the part of line
managers.
Ignoring mutual Driving change through Leadership may be out of
engagement top management touch with realities of
organization while employees
may not understand strategic
imperatives.
Conclusion
The sequential model of effective change imple- effective implementation. For an understanding
mentation represents an integration of the key of how that diagnostic stage can be the most
insights offered by previous theorists of organiza- helpful in propelling change implementation,
tional change. The diagnosis stage, as the model we can turn to an analysis of organizational
suggests, becomes the opening intervention in diagnosis.
Discussion Questions
1. According to Kurt Lewin, why is it so difficult to 2. Discuss the various ways in which change theo-
motivate employees to alter their patterns of rists have attempted to introduce performance
behavior? and results into the implementation process.
Theories of Effective Change Implementation 47
Case Discussion
Read “Blue Cloud Gets Agile,” and prepare answers to 3. What behavioral changes, if any, does Agile
the following questions: require of employees?
1. What was the trigger event that led Shel Skinner 4. How do you account for such widely varied
to adopt Agile? responses to Agile among Blue Cloud employees?
2. What is your evaluation of the change implemen- 5. What should Skinner do now?
tation steps followed by Skinner?
10. Simplicity—the art of maximizing the amount of work not done—is essential.
11. The best architectures, requirements, and designs emerge from self‐
organizing teams.
12. At regular intervals, the team reflects on how to become more effective,
then tunes and adjusts its behavior accordingly.
“These principles spoke to me on a very fundamental level,” said Skinner. “These
folks were saying out loud for what I’d been thinking most of my career.”
Blue Cloud’s traditional developmental cycle emphasized a deliberate
sequence of development, with verification (testing and debugging) often occur-
ring after a year’s worth of work. “Why waste a year to find out whether our
product is working,” Skinner wondered. No more alpha and beta testing of new
software: “Our new motto around here is, ‘Release early, release often!’ ”
What appealed to Skinner was Agile’s emphasis on teamwork, collabora-
tion, and monthly releases. Cross‐functional development teams held a daily
“scrum” to ensure that all members were fully onboard with the progress and
that all questions and concerns were raised in a timely manner. Skinner provided
a description of the Scrum:25
Endnotes
1. Information in this case is based on Jon N. Management Review 38 (Winter 1997), pp. 11–21;
Meliones, Richard Ballard, Richard Liekweg, Alexander Styhre, “Non‐linear Change in
and William Burton, “No Mission No Margin: Organizations: Organization Change
It’s That Simple,” Journal of Health Care Finance Management Informed by Complexity Theory,”
27 (Spring 2001); Jon Meliones, “Saving Money, Leadership and Organization Development Journal
Saving Lives,” Harvard Business Review (Nov.– 23 (2002), pp. 343–351.
Dec. 2000); and ITWeek.com (Jan. 1, 2001). 9. Based, in part, on Michael Beer and Bert
2. Robert S. Kaplan and David P. Norton, “Trans‐ Spector, “Human Resource Management: The
forming the Balanced Scorecard from Integration of Industrial Relations and
Performance Measurement to Strategic Organization Development,” in Kendrith M.
Management: Part I,” Accounting Horizons 15 Rowland and Gerald R. Ferris, eds., Research in
(Mar. 2001), p. 87; Robert S. Kaplan and David Personnel and Human Resources Management: A
P. Norton, “Using the Balanced Scorecard as a Research Annual, Vol. 2 (Greenwich, CT: JAI
Strategic Management System,” Harvard Press, 1984), pp. 261–297.
Business Review (Jan.–Feb. 1996), p. 3; Robert S. 10. That perspective on conflict is fully explored in
Kaplan and David P. Norton, Integrating Richard E. Walton, Interpersonal Peacemaking:
Shareholder Value and Activity‐Based Costing with Confrontations and Third‐Party Consultation
the Balanced Scorecard In Context (Boston, MA: (Reading, MA: Addison‐Wesley, 1969).
Harvard Business School Publishing, 2001), p. 4. 11. Kenneth W. Thomas, “Conflict and Conflict
3. These essays and others are collected in Kurt Management,” in Marvin D. Dunnette, ed.,
Lewin, Field Theory in Social Science: Selected Handbook of Industrial and Organizational
Theoretical Papers (New York: Harper & Row, Psychology (Chicago, IL: Rand McNally, 1976),
1951). pp. 889–935.
4. Ibid., p. 226. 12. Michael Beer and Bert Spector, “Organizational
5. Emily Thornton, “A New Order at Nissan,” Diagnosis: Its Role in Organizational Learning,”
Business Week (Oct. 11, 1999), p. 54. Journal of Counselling and Development 71 (1993),
6. Lewin, Field Theory in Social Science, p. 229. pp. 642–650.
7. Ibid, p. 231. 13. On the importance of process‐driven change, see
8. Critiques of Lewin’s theories can be found in Beer, Eisenstat, and Spector, The Critical Path to
Ralph Stacey, “Management and the Science of Corporate Renewal; Richard P. Rumselt, “How
Complexity: If Organizational Life Is Non‐linear, Much Does Industry Matter?” Strategic
Can Business Strategies Prevail?” Research and Management Journal 12 (1991), pp. 167–185; Robert
Technology Management 39 (1996), pp. 2–5; Wanda Macintosh and Donald MacLean, “Conditioned
J. Orlikowski and Debra Hofman, “An Emergence: A Dissipative Structures Approach to
Improvisational Model for Change Management: Transformation,” Strategic Management Journal 20
The Case of Groupware Technologies,” Sloan (1999), pp. 297–316; Richard H. Axelrod, Changing
50 Chapter 2
the Way We Change Organizations (San Francisco: 20. The framework presented here builds on one
Berrett‐Koehler, 2000); L.C. Harris and E. presented earlier, in Beer, Eisenstat, and
Ogbonna, “The Unintended Consequences of Spector, The Critical Path to Corporate Renewal.
Culture Interventions: A Study of Unexpected 21. Meliones, Saving Money, Saving Lives, pp. 59–60.
Outcomes,” British Journal of Management 12 22. James C. Collins, Good to Great: Why Some
(2002), pp. 31–49. Companies Make the Leap and Others Don’t (New
14. Bert Spector, “From Bogged Down to Fired Up: York: Harper Business, 2001).
Inspiring Organizational Change,” Sloan 23. Meliones is quoted in ITWeek.com (Jan. 1, 2001),
Management Review 30 (Summer 1989), pp. p. 1.
29–34. 24. The concept of mutual engagement is devel-
15. Beer, Eisenstat, and Spector, The Critical Path to oped in José Santos, Bert Spector, and Ludo
Corporate Renewal, p. 40. van‐der‐Hayden, “Toward a Theory of
16. Ibid., pp. 45–46. Corporate Business Model Innovation,”
17. This case is detailed in Beer, Eisenstat, and Northeastern University College of Business
Spector, The Critical Path to Corporate Renewal. Administration Working Paper, (2008).
18. Ibid., p. 52. 25. See http://www.mariosalexandrou.com/methodolo-
19. Robert H. Schaffer and Harvey A. Thomson, gies/scrum.asp.
“Successful Change Programs Begin with
Results,” Harvard Business Review (Jan.–Feb.
1992), p. 83.
CHAPTER
51
52 Chapter 3
and electric. What she had in mind was clear. She would reorganize HP in order
to centralize decision making, revitalize the sales force, trim costs, and energize
employees.
Based on her previous experience at Lucent, Fiorina had a clear idea of how
she would achieve her goals, which she revealed at her first strategic meeting
just a month after her arrival. To reverse the company’s “sacred” emphasis on
decentralization, she proposed a simpler, more centralized structure: two “back‐
end” divisions (each back‐end division included design, manufacturing, and
distribution—one for printers, the other for computers) and two “front‐end”
marketing and sales operations—one for consumers and the other for corporate
customers. The company would also begin to focus on far fewer products. “This
is a company that can do anything,” she told executives, “it is not a company
that can do everything.” Finally, the culture would change dramatically and
immediately to emphasize performance. “Let me make something very clear,”
Fiorina told executives. “You will make your numbers. There will be no excuses.
And if you can’t make your numbers, I will find someone who will.”
Fiorina asked for the support of HP’s top executives on her centralization
and reorganization plan, and she got it. That is not to say, however, that they all
agreed with her. “I don’t know anyone who was in favor of it [her back‐end/
front‐end reorganization plan] other than Carly,” said one. “She came in with a
recipe,” said another, “and come hell or high water, she was going to use it.”
Carolyn Ticknor, head of laser printing, recalled, “I was a deer caught in the
headlights when she [Fiorina] described the front and back end.”
Six years after the announcement of the reorganization plan, the company’s
board demanded Fiorina’s resignation. The board again looked outside of HP for
a replacement; this time selecting Mark Hurd of NCR. When reporters asked
Hurd about his plans to revitalize the company, he responded that it was too
soon to tell. “We’ll look at the entire enterprise,” he said. “I can’t give you any
guarantees on anything,” he added.2
The desire for quick solutions can lead executives to overlook the critical ele-
ments of learning and commitment that can be built through mutual engagement
and shared diagnosis. The dynamics of every organization are unique. Additionally,
an organization’s external competitive forces are likely to be in a state of flux.
Therefore, applying a recipe—what worked somewhere else in the past will work
here now—can be overly simple, misleading, and even dysfunctional.
Lucent’s best practices may not have been applicable to HP. The act of
imposing those practices is likely to evoke resistance. Lack of mutual engage-
ment—of holding an honest conversation among employees about what needed
to change, why, and how—leads to low levels of employee commitment.
Diagnosis is meant to create learning about the real, current, and unique
dynamics impacting the organization’s performance. When combined with
mutual engagement, it is designed to create deep and wide commitment to the
desired outcome.
Don’t expect formulas—solutions that have worked in the past and are
imposed on the current situation—to work for your organization.
Building a
Vocabulary of
At its most fundamental level, diagnosis is about learning: learning what Change
needs to be changed and why. Learning is the process by which individuals Learning the process
receive data from the external environment, analyze that data, and adjust their by which individuals
thinking and behaviors accordingly. The notion of shared diagnosis goes one step receive data from
the external
further. For effective change implementation to occur, many employees at mul- environment,
tiple hierarchical levels and in varied units need to change in the same direction. analyze that data,
A diagnostic process engaged in by an individual, no matter how insightful, and adjust their
highly placed, or influential that individual may be, will not lead to coordinated thinking and
change. It is only when the same diagnosis is shared by multiple individuals that behaviors based on
that analysis.
change implementation can move forward effectively.
Altered and renewed strategies, new business models, and shifting exter-
nal realities typically call for new skills, competencies, and patterns of behavior.
The sequential implementation model depicted in Exhibit 2‐6 starts with diagno-
sis in order to identify both the current state of skills, competencies, and behaviors
and the requirements for future outstanding performance. Mutual engagement
by employees generates awareness of the gap between the status quo and the
desired future state. That awareness, in turn, provides the source of dissatisfac-
tion and the drive for change.
Recall from Chapter 2 Lewin’s warning that “lectures” about the status
quo—speeches on the need for change or PowerPoint presentations on the
54 Chapter 3
In order to set the stage for effective implementation, diagnosis can do more than
target-specific elements of the organization; it can focus on the entire organization.
Take the Federal Bureau of Investigation (FBI). The FBI built its reputation
by battling crime and arresting criminals. The mission of the FBI—“G‐men bat-
tling notorious criminals”—created a context and a set of structures and policies
that gave absolute primacy to criminal investigations and special agents in the
field. A highly decentralized structure allowed agents to focus their attentions
locally. Additionally, the FBI preferred internally generated data, often distrust-
ing and rejecting information supplied by external agencies and sources.
The attacks of 9/11 on New York and Washington triggered a change in the
strategy of the FBI. Gathering information and preventing an attack—that was the
new strategic task. Recognizing that the new mission would require altered pat-
terns of thinking and behaving, FBI Director Robert Mueller took steps to trans-
form the bureau.
When organizations such as the FBI attempt to undergo strategic renewal,
leaders can call on a diagnostic framework to focus attention on the multiple ele-
ments that contribute to success. But an effective framework can do more; it can
delineate and help make explicit the interactions and interconnects among the
elements. If employee behaviors do not reflect strategy—let’s say, in the case of
the FBI, field agents concentrating most of their efforts on low‐priority national
threats, or, in other cases, salespeople spending most of their time selling prod-
ucts that are no longer core to the company’s strategy, or functional employees
continuing to work mainly within their functions rather than across functions
when the company’s strategy calls for rapid new product development—a
framework can drive employees into analyzing the linkages that have created
those misalignments.
Competitors
STEP* Environment
Strategy
Organization
Structure
Systems
- Evaluation
- Reward
- Selection and development
- Budget and control
Task/Work Culture
People
Systems
†
This organizational design framework and analytic model has been adapted from a number of writ-
ers on the contingency theory of organizations: James D. Thompson, Organizations in Action (New
York: McGraw‐Hill, 1967); Paul R. Lawrence and J. W. Lorsch, Organization and Environment
(Homewood, IL: Richard D. Irwin, 1969); Jay R. Galbraith, Designing Complex Organizations (Reading,
MA: Addison‐Wesley, 1973); Jay W. Lorsch and John J. Morse, Organizations and Their Members: A
Contingency Approach (New York: Harper & Row, 1974); Jay R. Galbraith, Organization Design
(Reading, MA: Addison‐Wesley, 1977); Jay W. Lorsch, “Organization Design: A Situational
Perspective,” Organizational Dynamics, 5 (1977) American Management Association, 1977; Jay R.
Galbraith and Daniel A. Nathanson, Strategy Implementation: The Role of Structure and Process (St. Paul,
MN: West, 1978); John P. Kotter, Leonard A. Schlesinger, and Vijay Sathe, “Organization Design
Tools,” Organization: Text, Cases and Readings on the Management of Organizational Design and Change
(Homewood, IL: Richard D. Irwin, 1979). See also H. W. Lane, “Systems, Values and Action: An
Analytic Framework for Intercultural Management Research,” Management International Review 20,
no. 3 (1980), pp. 61–70.
Mutual Engagement and Shared Diagnosis 57
Creating a dialogue offers the opportunity for an open and honest conversa-
tion among employees.
• Informal attire and forms of address (calling everyone by his first name, for
example), and an end to opulent executive offices removes obvious exter-
nal signs of status.
These symbolic actions will mean very little if they are seen by employees
as empty gestures or even as contradictions to an otherwise hierarchical, highly
differentiated power structure. If, on the other hand, they are experienced as
manifestations of a deeply embedded egalitarian culture, they can help reduce
perceived power differentials and enable open dialogue.
Third‐party facilitation can also be a powerful antidote to power differen-
tials. In a structured dialogue where multiple hierarchical levels are involved,
facilitators can suggest—and even enforce—communication rules meant to
establish openness and trust. Third‐party facilitators can create “situational”
power equity.8
Most power equalization steps focus on power differences based on hierar-
chical position. Power distance can also exist horizontally. Horizontal power dis-
tance involves units that, in essence, compete for power within the organization.
This will lead to power distances that can develop over time between functional
units within an organization. “Engineering is king.” “Marketing is everything.”
“We’re completely numbers driven.” All of these slogans are expressions of pre-
cisely this type of inequity among functions.
Horizontal power distance can be harmful to open dialogue. Communication
can be filtered and ideas dismissed. A powerful research and development func-
tion can make it difficult for sales and marketing people to inject the customer
perspective into the dialogue about product design decisions. An overly domi-
nant finance function might block the voice of employers and customers. An iso-
lated but influential research and development department might offer new
products that business units feel are unattractive to their local markets.
A well‐balanced top management team with shared purpose will help
maintain mutual engagement, ensuring that all voices are respected and influen-
tial. In that circumstance, the voices of multiple functions and units are more
likely to come through unfiltered in a diagnosis concerning barriers to outstand-
ing performance.
Building a
Steps to equalize power help set the organizational context for dialogue. Vocabulary of
Organizations seeking to encourage mutual engagement will also need to Change
create psychological safety—a belief on the part of employees that the organi- Psychological safety a
zational climate is conducive for taking personal risks, especially around dia- belief on the part of
logue. Leaders can look at all the elements that create or undermine trust employees that the
organizational
between and among stakeholders. Creating a psychological safety zone in climate is conducive
which all employees feel safe from threat and reprisal for both advocating and to taking personal
inquiring will help nurture a context in which mutual engagement can and risks, especially
will continue. Ultimately, in a change implementation process, leaders can around dialogue.
help banish the barrier of silence by committing themselves to the desirability,
even the necessity of entering into a dialogue with employees. Instead of
announcing solutions, leaders can create a process of mutual engagement and
learning, thus inviting employees at all levels to cross barriers of silence and
participate in a dialogue.
60 Chapter 3
EXHIBIT 3-2
Power Equalization
Steps Lead to
Steps.
Delayering Removing hierarchical barriers that create distance and distort
communications
Decentralizing Pushing down decision making to close gap between decision
makers and “doers”
Egalitarianism Removing “artifacts” of status differentials
Third‐party Structuring effective “rules‐of‐engagement” around feedback
facilitation and dialogue
Representation Inserting voice from multiple levels, both vertical (managers,
shop floor employees, etc.) and horizontal (union and
management, various functions, etc.) into dialogue
Teamwork Building shared purpose and mutual responsibility to ensure
equal participation and influence by all members in dialogue
Employees can learn these skills. In fact, one of the goals of change can be to
Building a
Vocabulary of
develop such skills and competencies among employees. But because diagnosis
Change calls for new roles and skills that have yet to be developed, it often proceeds with
Consultant an the help of a consultant. A consultant is an individual possessing a broad range
individual of diagnostic and developmental skills who facilitates a change intervention.
possessing a broad Consultants may arrive from outside the organization: professional consul-
range of diagnostic
and developmental
tants or academics with a specialization in organizational change and develop-
skills who contracts ment. They may also come from within the firm: specially trained employees,
with the often within the company’s human resource or organization development staff.
organization’s Whether internal or external, the task of the consultant is the same: to facilitate
leaders to facilitate diagnosis and dialogue and to do so in a way that allows employees to develop
an intervention.
those skills themselves.9
Mutual Engagement and Shared Diagnosis 61
Data Collection
Effective diagnosis is data driven, that is, infused with and informed by valid
information concerning the factors that impact the performance of the organiza-
tion and its ability to implement its renewed strategy. A diagnostic framework
will point to the target areas for data collection.
Make sure that diagnosis flows from valid data about the organization.
Data are more than a collection of cold, hard facts. Data amassed through
the diagnostic process can have a powerful impact on the ensuing change by
motivating employees to alter their behavior in ways that will support strategic
EXHIBIT 3-3
Principles for
Systemic focus Targets the entire organization and is guided by a framework
Organizational
that focuses on interactions
Diagnosis.
Consultant Specially trained individual(s) bring external perspective and
facilitated required skills
Participative Employees participate in all stages as full partners in order to
build commitment and competency
Data-based Participants agree on the validity and strategic importance of
data collected about performance
Honest Employees engage the requirements of shared dialogue:
conversation mutuality, reciprocity, advocacy, and inquiry
Psychological Active steps taken to overcome climate of organizational
safety silence
62 Chapter 3
renewal. The motivational impact of data occurs as feelings are aroused and
forces unleashed that bring about behavioral change. The act of collecting data
potentially becomes a key way of mobilizing the considerable energy needed to
abandon the status quo.
So the challenge of data collection becomes twofold:
1. To collect data on the key elements impacting an organization’s capacity to
support the new strategy and to achieve and maintain outstanding perfor-
mance; and,
2. To do so in a way most likely to build motivation and commitment on the
part of employees.
There are three basic forms of data collection: questionnaires, interviews,
and observation. Each holds strengths and weaknesses, especially in light of that
dual requirement.
The process of collecting data can help build motivation and commitment to
altering patterns of behavior.
Building a
Vocabulary of
Change QUESTIONNAIRES The most popular form of collecting data involves written
Questionnaires self‐ questionnaires. Questionnaires are self‐administered paper‐and‐pencil or com-
administered puter‐based data‐collection forms. Questionnaires often stress areas of behav-
paper‐and‐pencil
ioral interaction such as communications, goals, and coordination. Employees
data‐collection
forms, often may be asked, for instance, to rate the clarity of the organization’s strategy, the
stressing areas of quality of information that is shared, or the nature of supervision. Although
behavioral questionnaires can be developed internally, they are more typically packaged by
interaction such as an external consulting firm or an academic center. Exhibit 3‐4 presents a sample
communications,
from one such questionnaire developed by Robert C. Preziosi.10
goals, and
coordination. Questionnaires have some tangible advantages as a source of data. They
can be administered to a large number of employees and results compiled in a
short time period. Because they are administered and returned anonymously,
questionnaires can help overcome the climate of silence by allowing employees a
greater sense of freedom and protection. They can provide a valuable benchmark
for the organization to measure itself against. When administered to multiple
units, they can offer comparisons and highlight units in the organization where
results are especially positive or negative. When administered to the same unit
over time, they can track progress or regression.
There is, however, a downside to the use of questionnaires in a change pro-
cess. The preconceived categories represented in the questionnaires may mea-
sure theoretical constructs that are relevant to the developer of the questions, but
they may not necessarily speak to the true needs of the organization.
Questionnaires, write Jack Fordyce and Raymond Weil, “do not create the kind
of personal involvement and dialogue that is so valuable in changing hearts and
minds. The information generated by questionnaires tends to be canned, anony-
mous, ambiguous, and detached—i.e., cool data rather than hot.”11 Because of
Mutual Engagement and Shared Diagnosis 63
EXHIBIT 3-4
A sampling of 10 questions is reproduced. The complete questionnaire along with an Organizational
analysis by its author can be viewed at: http://www.g-rap.org/docs/icb/preziosi-organ_ Diagnostic
diagnosis_questionnaire_odq.pdf Questionnaire.
From time to time, organizations consider it important to analyze themselves.
It is necessary to find out from people who work in the organization what they think.
This questionnaire will help the organization that you work for analyze itself.
Directions: DO NOT put your name anywhere on this questionnaire. Please answer
all questions. For each of the statements, circle only one number to indicate your
thinking.
that lack of personal involvement and deep sentiment, managers may be more
likely to respond with token reaction rather than significant response.
Mutual engagement in the discovery stage will help both to assure the valid-
ity of the conclusions and build commitment to corrective actions.
When employees themselves have been involved in the data collection pro-
cess, they can deliver their data directly to the responsible individuals. The con-
sultant can facilitate that exchange by setting ground rules for productive and
open dialogue. The leadership group hearing the feedback, for example, can be
allowed to ask clarifying questions but be stopped by the consultant if their
responses represent defensiveness or denial.17
Mutual engagement in discovery is critical to determining the effectiveness
of the change process. To ensure the systemic nature of the discovery process—
that is, a focus on how the multiple elements of the organization do or do not
align—the consultant can use a diagnostic framework. A discovery process
guided by a systemic diagnostic framework will channel energy, in Michael
Harrison and Arie Shirom’s words, “toward decisions and actions likely to pro-
vide the broadest organizational benefits.”18 By creating disequilibrium with the
status quo, discovery provides a vital staging for the upcoming change process.
Conclusion
If the need for change is urgent, executives may Creating a dialogue within the organiza-
be tempted to rush toward a “solution.” That tion is hampered by many organizational fac-
instinct, while understandable, is likely to harm tors. Power distance encourages participants
the effectiveness of the change implementation to filter information rather than to be com-
process. Mutual engagement in dialogue and pletely open. Organizational silence discour-
diagnosis helps generate vital data. The process ages honesty and must be overcome by
can also create commitment to learning and organizational leaders. Only by creating a
motivation to change on the part of participants, sense of psychological safety will employees
while building diagnostic competencies into the willingly engage in a candid exchange of infor-
organization. mation and insight concerning the perfor-
In order to target the performance of the mance of the organization.
entire organization and its ability to implement Once dialogue and diagnosis have been
a renewed strategy, diagnosis can be shaped engaged, implementation can proceed. Dialogue
and guided by a systemic framework. With the and diagnosis likely will target patterns of
facilitation of a consultant, employees can behavior, asking if employees at all levels of the
engage in data collection and a dialogue of dis- organization are enacting their roles and respon-
covery concerning those elements and their fit sibilities in a way that is aligned with the
with each other, with the strategy, and with the demands of the strategy and the requirements
external environment. of outstanding performance. The ability of an
70 Chapter 3
organization to create and sustain a climate of the values of that organization’s managers.
openness and honest conversation depends a Chapter 4 will focus explicitly on an under-
great deal on the culture of the organization and standing of values and culture.
Discussion Questions
1. How might Carly Fiorina have planned her early 4. In what specific ways can an executive actively
efforts at Hewlett‐Packard? Pay particular atten- promote a sense of psychological safety among
tion to how she might have used the principles of employees to engage them in an honest conversa-
mutual engagement and shared diagnosis. tion about performance?
2. What are the potential advantages of relying on a 5. How might the three forms of data collection be used
systemic framework for guiding diagnosis? Are together in the opening stages of a change process?
there any potential disadvantages? 6. How can an organization make sure that diagno-
3. Why is open dialogue so difficult to achieve in sis becomes a regular and ongoing element of the
many organizations? way it does business?
Case Discussion
Read “Managing Transformation at National Computer 2. How could Finnvold conduct an organizational
Operations” and prepare answers to the following questions: diagnosis that would lead off his implementa-
1. Prepare an implementation plan for change that tion? Be specific about how he could ensure
would enable Gar Finnvold to create a fully com- mutual engagement.
petitive computer service within two years.
G. Finnvold
Managing Director
NCO Operations
Listen to how Peter Kapok, a longtime NCO manager, described what his orga-
nization was like in the 1990s: “We weren’t client oriented. We very much told
our clients what they could and couldn’t have. We came to work for ourselves
and did pretty much what we wanted. We simply didn’t consider ourselves
working for a client.” The notion that customers might define the ultimate value
of their services was alien to NCO.
Henri Vieuxtemps, who entered the computer operations in 1988, recalled
his amazement at how little the operation resembled a true business. “What sur-
prised me,” he said, “was that money was no object. Service was not a major
consideration.” What might be called the arrogance of technology permeated
NCO’s approach to the business. “We spent money on technology that really
didn’t matter,” continues Vieuxtemps, “not to the customer anyway. It was just
something that appealed to us. In fact, we didn’t think of internal clients as cus-
tomers at all. They were just other departments in the bank.”
72 Chapter 3
Vieuxtemps may have believed that the culture of NCO was fundamentally
flawed, but to many of his fellow managers, things were going quite nicely.
National Bank, after all, had eliminated the need for NCO to respond to market
forces. Think of the situation in which NCO found itself: Guaranteed customers
who would always cover the costs that the computer operation passed along,
assured profitability.
It’s little wonder that for most of NCO’s managers, effectiveness was not mea-
sured by organizational performance or client satisfaction. Their focus turned
inward instead. How can I build up my functional domain? Enhance my personal career?
“We were an organization of little empire builders,” Kapok observed. “The
more people you had working for you, the more likely you were to get promoted.
There were few performance measures, and almost no coordination of our
efforts.” The functional silos of the organization were so powerful, said Kapok,
that NCO’s own staff “didn’t quite consider ourselves working for the same
operation. If someone from one unit went to someone from another to ask for
help, they were considered a nuisance. We certainly never considered the impact
of any of this on our costs.”
NCO’s high spending, “customer—what customer?” attitude could only
lead to resentment on the part of client operations within the bank. That resent-
ment finally boiled over into open rebellion. The bank’s new chairman hired a
consulting firm to evaluate internal computer operations. The findings were as
disturbing as they were predictable. “They confirmed our worst fears,” recalled
an NCO manager. “We were moribund.”
Until the consulting report provided irrefutable evidence to the contrary,
computer operations managers felt they did an excellent job of providing these
services to the bank. “If you had asked us how we were doing,” admitted Gar
Finnvold, “we would have said, ‘We meet our customer service levels most of
the time. We are improving our unit costs year‐on‐year. And of course we’re add-
ing value.’ ” It was only later that Finnvold came to recognize that customers
held a view of NCO’s effectiveness that stood in diametric opposition to the
opinion of NCO’s managers. “Our customers were saying, ‘You’re too expensive.
Your damn system is always breaking down. And what added value?’ ”
At the time of the consulting report, computer operations were billing
approximately $240* million annually (within an overall annual information
technology expenditure of $1.5 billion), almost entirely to internal bank custom-
ers. Although NCO offered myriad services, including processing, project man-
agement, and technical support and consultancy, they pointed with pride to two
distinct competencies. The first was facilities management. “NCO can take the
responsibility for all or part of a company’s Information Technology require-
ment,” announced their official literature, “which can include every aspect from
providing the workforce and premises to the systems and services.” The second
vital core competency was disaster recovery. “NCO provides planning and
backup facilities for unforeseen crises or disasters such as fire and flood. Planning
and backup facilities can be provided either separately or together and can be
offered in either a ‘hot start’ or ‘cold start’ environment.”
*
Figures given in equivalent U.S. dollars.
Mutual Engagement and Shared Diagnosis 73
The Challenge
The bank’s new chairman quickly recognized that NCO customers and managers
held completely different views of value. He knew that his first task was to force
NCO managers to adopt the customer perspective. The way to do that, he rea-
soned, was to inject market forces into NCO’s protected, monopoly‐like world.
Using the consulting report as a driver, he first designated NCO as a profit
center. He made clear that NCO would be expected to pare costs severely. Within
a year, NCO dramatically downsized its workforce from 1,500 to 1,000. The chair-
man then called on Gar Finnvold to oversee more sweeping change, change that
would be governed by two new ground rules:
1. NCO could actively and aggressively market its services to external cus-
tomers.
2. In two years, all of the bank’s internal units would be allowed to purchase
computer services from outside vendors.
NCO, in other words, would have to become fully competitive in order to
survive.
Finnvold said he welcomed the challenge, particularly the notion of becom-
ing a true market competitor. “I had this gut feel that we should try to sell exter-
nal from day one,” he said. “If we didn’t, we’d never learn the lesson of what
being commercial is all about. It was the way out of our cocooned environment.”
He believed that there were external customers waiting to snatch up NCO’s ser-
vices. The facilities management business was expected to grow 50 percent annu-
ally worldwide. NCO planned on being part of that growth. “We thought we
really had things to sell and that we were the best,” said Finnvold.
Endnotes
1. Information on Hewlett‐Packard is from Peter Journal of Counseling and Development 71 (July–
Burrows, Backfire: Carly Fiorina’s High‐Stakes August 1993), pp. 642–650.
Battle for the Soul of Hewlett‐Packard (New York: 4. See, for example, Paul E. Lawrence and Jay
Wiley, 2003) and George Anders, Perfect Enough: Lorsch, Developing Organizations: Diagnosis and
Carly Fiorina and the Reinvention of Hewlett‐ Action (Reading, MA: Addison‐Wesley, 1969);
Packard (New York: Penguin Putnam, 2003). Jay R. Galbraith, Designing Complex Organizations
2. Hurd quoted in Laurie J. Flynn, “Hewlett Chief (Reading, MA: Addison‐Wesley, 1973); David A.
Has No Plans but Says All Is on the Exhibit,” Nadler and Michael L. Tushman, “A Diagnostic
New York Times, March 31, 2005, p. C11. In 2010, Model for Organizational Behavior,” in Edward
Hurd himself was asked to resign as the result E. Lawler and Lyman W. Porter, eds., Perspectives
of a sexual harassment probe. The board soon on Behavior in Organizations (New York: McGraw‐
hired Leo Apotheke to replace Hurd. Apotheke Hill, 1977); Michael B. McCaskey, “A Framework
had been CEO of SAP until he was asked to for Analyzing Work Groups,” in Leonard A.
resign by the German software giant’s board. Schlesinger, Robert G. Eccles, and John J.
3. Many of the concepts in this chapter are based on Gabarro, eds., Managing Behavior in Organizations:
Michael Beer and Bert Spector, “Organizational Text, Cases, Readings (New York: McGraw‐Hill,
Diagnosis: Its Role in Organizational Learning,” 1983), pp. 4–24.
74 Chapter 3
5. David A. Nadler, “Role of Models in Organi- A. Adler and Peter Adler, “Observation
zational Assessment,” in Edward E. Lawler III, Techniques,” in Norman Denzin and Yvonna S.
David A. Nadler, and Cortlandt Cammann, Lincoln, eds., Handbook of Qualitative Research
eds., Organizational Assessment: Perspectives on (Newbury Park, CA: Sage, 1994), pp. 377–392;
the Measurement of Organizational Behavior and James P. Spradley, Participant Observation (New
the Quality of Work Life (New York: Wiley, 1980), York: Holt, 1997).
pp. 125–126. 16. David A. Nadler, Feedback and Organization
6. Elizabeth Wolfe Morrison and Frances J. Milliken, Development: Using Data‐Based Methods
“Organizational Silence: A Barrier to Change (Reading, MA: Addison‐Wesley, 1977).
and Development in a Pluralistic World,” 17. Beer and Spector, “Organizational Diagnosis.”
Academy of Management Review 25 (October 2000), 18. Michael I. Harrison and Arie Shirom,
pp. 706–725; James R. Detert, Ethan R. Burris, Organizational Diagnosis and Assessment:
and David A. Harrison, “Debunking Four Myths Bridging Theory and Practice (Thousand Oaks,
about Employee Silence,” Harvard Business CA: Sage, 1999), p. 25.
Review (June 2010), p. 26. 19. Beer and Spector, “Organizational Diagnosis,”
7. Moskal, “Is Industry Ready for Adult p. 648.
Relations?” 20. See also Nadler, Feedback and Organization
8. Richard E. Walton, Interpersonal Peacemaking; Development.
Confrontations and Third‐party Consultation 21. The material on after‐action reviews comes from
(Reading, MA: Addision‐Wesley, 1969). Department of Army, A Leader’s Guide to After‐
9. Beer and Spector, “Organizational Diagnosis.” Action Reviews . (Training Circular 25‐20)
10. In a previous edition of the text, the source of (Washington, D.C.: Headquarters, Department
this questionnaire was misidentified. Thanks to of Army, September 1993); Lloyd Baird, John C.
Professor Preziosi for calling our attention to Henderson, and Stephanie Watts, “Learning
the error and allowing us to use the properly from Action: An Analysis of the Center for Army
attributed questionnaire. Lessons Learned (CALL),” Human Resource
11. Jack K. Fordyce and Raymond Weil, “Methods Management 36 (Winter 1997), pp. 385–395; Paul
for Finding Out What Is Going On,” in Wendell Wright, “Learn as You Go Through the After
L. French, Cecil H. Bell, Jr., and Robert A. Action Review,” Knowledge Management Review
Zawacki, eds., Organization Development: (March–April 1998), pp. 4–6; Lloyd Baird, Phil
Theory, Practice, and Research (Dallas, TX: Holland, and Sandra Deacon, “Imbedding More
Business Publications, Inc., 1978), p. 121. Learning into the Performance Fast Enough to
12. Andrew O. Manzini, Organizational Diagnosis: Make a Difference,” Organizational Dynamics
A Practical Approach to Company Problem Solving (Spring 1999), pp. 19–32; Marilyn J. Darling and
and Growth (New York: AMACOM, 1988), p. 39. Charles S. Parry, “After‐Action Reviews: Linking
13. Beer and Spector, “Organizational Diagnosis.” Reflection and Planning in a Learning Practice,”
14. E. E. Lawler, D. A. Naddler, C. Cammann, Reflections 3 (2001), pp. 64–72.
Organizational Assessment, pp. 337–343. 22. A Leader’s Guide to After‐Action Reviews, p. 1.
15. See, for example, Severyn Bruyn, The Human 23. Based on Wright, “Learn as You Go,” p. 4.
Perspective in Sociology: The Methodology of 24. All names are disguised. This case is based on
Participant Observation (Englewood Cliffs, NJ: the research conducted for Bert Spector, Taking
Prentice‐Hall, 1966); Robert Bogdan, Participant Charge and Letting Go: A Breakthrough Strategy
Observation in Organizational Settings (Syracuse, for Creating and Managing the Horizontal
NY: Syracuse University Press, 1972); Patricia Company (New York: Free Press, 1995).
CHAPTER
4 Organizational Redesign
D iagnosis exposes the current realities of organizational life, with particular attention to the
fit between patterns of employee behavior and the strategic requirements of the firm, to
discussion and analysis. Combined with mutual engagement, diagnosis provides both the
motivation for and target of change. Now, employees can engage in a process of organizational
redesign to help shape required new behaviors. Redesign provides a sense of direction for
the change effort.
This chapter will analyze the complexities of design choices made to support change
implementation. In particular, this chapter will:
• Define organizational design and differentiate between formal and informal design
elements
• Explore the main challenges posed by organizational redesign
• Appreciate the special design challenges faced by multinational companies
• Analyze the requirements for building collaboration in an organization
• Discuss the dynamics of changing the design of an organization in order to impact
patterns of behavior
First, we will look at the design challenges faced by the CEO of one of the world’s oldest
and largest humanitarian organizations. As you read this introductory case, ask yourself:
• Why was the original, decentralized design of CARE less effective in addressing 21st
century issues than it had been in CARE’s earlier years?
• What do you think the challenge will be in promoting collaboration across national units
of CARE?
• What steps might Dr. Helene Gayle take to promote the improvements she hopes for?
75
76 Chapter 4
Dr. Gayle believed, however, that CARE was better designed to serve its
past mission than its future opportunities.
The organization Dr. Gayle found when she became CEO was designed in
a way that maximized the autonomy of country offices: France, Germany, Italy,
and so forth. “The country officers raised most of their own funds and were used
to being on their own,” she explained, “having a lot of autonomy, and not think-
ing about the greater whole.”2 The managers in the organization were “comfort-
able” with that highly decentralized design, but Gayle believed the approach
undermined CARE’s effectiveness. Now, the organization had to learn how to
collaborate across national borders. “To do that,” she said, “we had to ask, ‘How
do we make the whole greater than the sum of its parts?’” The organizational
change would require both improved information sharing across country units
and more rigorous measurement of results to evaluate effectiveness.
One of CARE’s first efforts at cross-country collaboration involved a project
called Access Africa. That microfinance program (making small loans to encour-
age entrepreneurial efforts in poverty regions) was a 10-year investment commit-
ment targeting 39 sub-Saharan African countries with a combined population of
150 million. “In 10 years,” Gayle noted, “we’d like to be able to look back and say,
‘Wow, this is very different than if we had continued to function as separate coun-
Building a try units.’” Still, she could not deny the challenge of implementing this change.
Vocabulary of
Change
Organization design ORGANIZATIONAL REDESIGN
the arrangements,
both formal and In order to address the challenges of global poverty, Dr. Helene Gayle needed to
informal, that an encourage collaboration among formerly independent national units of CARE.
organization calls
upon in order to
To achieve that goal, she addressed organizational design. Organization design
shape employee refers to the arrangements, both formal and informal, that an organization calls
behavior. upon to help shape employee behavior (see Exhibit 4-1).
Organizational Redesign 77
EXHIBIT 4-1
Design Elements.
Formal • Compensation and measurement
• Reporting structures
That distinction between informal and formal designs can, at times, be con-
fusing. Job design is informal, although job descriptions are formal. Expecting
individuals to work collaboratively is informal, although paying them based on
joint outcomes is formal.
To appreciate the distinction between formal and informal design elements,
we can return to the case of ASDA from Chapter 1. Facing bankruptcy as the
result of poor strategic decisions made by its leadership team, the chain’s board
brought in a new CEO with the goal of revitalization. The CEO and his top team
elected to place their hopes for the revival of the chain in the hands of the 205
store managers, those responsible for making sure that the stores met the expec-
tations of their customers while increasing revenues.
In the earliest stages of ASDA’s transformation, store managers were asked
to spend more of their time and energies looking outside of the store—at their
customers and competitors—rather than inside. Stop being supervisors and start
being strategic leaders; that was the direction provided by the company. In order to
succeed, they would have to push more and more responsibility down to the
individual department managers.
78 Chapter 4
Piloting Redesign
Design choices represent an attempt by organizational leaders to address the chal-
lenges inherent in managing in dynamic environments. Shifting customer expecta-
tions, disruptive technologies, new competitors, and renewed strategies provide the
impetus for redesign. If all those elements remained the same, then the design that
worked effectively in the past would continue to prove useful in the future.
However, a truly static environment does not really exist. New competitors
enter and exit the marketplace. New technologies replace existing processes.
Customer expectations shift. Companies age; they expand and contract.
Building a
Vocabulary of
Strategies change. No design solution, no matter how useful it may be at any one
Change time, is impervious to the need for change.
Organizational Changing an organization’s design, a process known as organizational
redesign the process redesign, presents its own set of implementation challenges. Optimally, redesign
of changing an occurs in a systemic and strategic way: aligning multiple design elements with
organization’s
informal design in
the renewed strategy of the firm. Often, however, organizational leaders embark
response to shifting upon redesign in a much more haphazard, piecemeal manner.
dynamics in the
organization’s
environment. THEORY INTO PRACTICE
In selecting change pilots, select units where the change is most likely to be
successful.
needed to share knowledge and coordinate their efforts across the regional mar-
kets. Customer service, in his view, was not a regional challenge; it was national.
Here is where past design decisions—especially the heavy emphasis on
regional autonomy—provided a barrier. Regional autonomy offered flexibility in
response to local customers. At the same time, it hampered coordinated national
consulting support. SAP’s consultants from different regions failed to share
experiences and learning with each other. Consultants responded to the same
customer issues in the Northeast and Southwest, for instance, without communi-
cating with each other or sharing knowledge. It was like reinventing the wheel
when a customer problem arose in, say, St. Louis. Even though the same problem
had been dealt with effectively in Phoenix, that experience had remained local.
The St. Louis folks had to address the problem as if they, and the company, had
no experience with it.
In order to encourage sharing, Coote focused on his existing group of pro-
fessional consultants. After collecting performance data from the regions and
setting goals for the upcoming year, he worked with his newly hired national
manager of professional consulting to redefine responsibilities while defining
nationally agreed-upon consulting roles. SAP also involved consultants at an
early stage of all new product development and implementation plans.
SAP America made a strategic choice early in its U.S. operation: to empha-
size regional autonomy as a way of spurring rapid growth. The idea—an idea
that, the evidence indicates, was perfectly valid—allowed regional managers to
Building a
focus their resources and shape their responsiveness to match the particular Vocabulary of
needs of their regional customer base. Change
To pursue that strategy, SAP created a design high in differentiation, which Differentiation the
refers to the degree to which different functions, departments, and units in an degree to which
organization are allowed to develop their own approaches in response to their different functions,
departments, and
particular goals and unique competitive environments. units in an
organization are
allowed to develop
THEORY INTO PRACTICE
their own
approaches in
Use high differentiation to enable different functions, departments, and units response to their
in an organization to develop their own responses to their particular goals particular goals and
and unique competitive environments. unique competitive
environments.
Paul Lawrence and Jay Lorsch’s classic study, Organization and Environment
(1967), defined the dynamics and challenges of differentiation and integration.8
Highly differentiated designs, they found, become reinforced not just in terms of
distinctive processes and procedures, but also in terms of cognitive and emo-
tional orientation of employees. Comparing one highly differentiated unit to
another, they found that individuals within those units not only worked differ-
ently but also thought and behaved differently. Individuals who work in functions
such as manufacturing, engineering, marketing, and finance, for instance, think
differently about how to approach problems and evaluate potential solutions.
These differences should be embraced rather than avoided; they are part of what
helps an organization think and act in a creative way.
82 Chapter 4
EXHIBIT 4-2
Dimensions of
Goals A sales function may have the goal of increasing revenues,
Differentiation.
while a manufacturing function may have the goal of
reducing costs.
Time orientation A research department will likely have a long-term
orientation toward research and development, while a sales
function will want new products that it can sell by the end of
the quarter.
Interpersonal style Research scientists might believe that they can maximize
creativity and contribution by focusing all their individual
attention on their task, while manufacturing managers might
desire to create rich interpersonal relationships among key
individuals to maximize quality.
Formality An assembly operation is more likely to be governed by
tight rules and strict procedures, while a research and
development laboratory would find such rules stifling to
creativity.
Because of the particular and differing nature of the tasks, each unit devel-
ops its own way of working, of thinking, and of behaving. Exhibit 4-2 presents
the four distinct dimensions of differentiation. In complex organizations, differ-
entiation relates not just to functional distinctions but also to product and/or
geographic divisions. We saw that in SAP America, where consultants within
each region developed their own patterns of thinking and behaving in response
to local customers.
Differentiation is necessary, even helpful. It does raise its own challenges,
however. After all, the differentiated parts must also work together if the overall
organization is to perform at an exceptional level. Here’s one example. With
Christmas orders poured into a large retail toy business over the Internet, the
traditional functions of logistics, warehousing, and distribution strained to the
breaking point, causing a near disaster in customer relations. The manager of
the e-business unit was stunned that the rest of the organization was surprised.
“They acted as if they weren’t expecting a Christmas surge,” complained the
e-business managers, while “they”—the managers of the more traditional func-
tions—retorted, “It would have been helpful if they would have kept us in the
Building a
Vocabulary of
loop.”9 High levels of differentiation had not been matched with requisite inte-
Change gration.
Integration the Integration refers to the required level of coordination across differenti-
required level of ated functions, units, and divisions. Collaboration among differentiated units
coordination across must occur, conflicts must be resolved, and unity of effort must be achieved.
differentiated
functions, units, and
Within business units, differentiated functions can, and often do, fail to
divisions. achieve the required level of integration. The same is true for multiple divi-
sions in large corporations where poor coordination across business can
hamper efficiencies.
Organizational Redesign 83
Low High
SAP America’s
Low consulting service
was operating here
Differentiation
EXHIBIT 4-3 The Challenge of Differentiation and Integration.
controls rely on a number of design features: fixed job descriptions with strict
individual accountability; close, watchful supervision; a heavy emphasis on
rules, procedures, and hierarchically based differences of status and authority;
pay incentives tightly linked to performance; and information distributed on a
strict “need-to-know” basis.10
Traditional controls are especially congruent with a business strategy that
emphasizes predictability and standardization. Explicit rules and procedures
will be useful when shaping consistent behaviors among employees. Fast-food
chain McDonald’s has achieved great success by proscribing in careful detail vir-
tually every movement and action of its behind-the-counter employees. Stephen
Robbins notes that United Parcel Service (UPS) drivers also follow strictly delin-
eated procedures: “It’s also no accident that all UPS drivers walk to a customer’s
door at the brisk pace of 3 feet per second and knock first lest seconds be lost
searching for the doorbell.”11 When the core tasks of an organization are largely
routine and repetitive, traditional control designs may be more than adequate
for the task.
Building a
Traditional controls, on the other hand, may hamper an organization’s abil-
Vocabulary of ity to achieve high degrees of flexibility and creativity. But organizations seeking
Change to enhance creativity and flexibility among employees cannot ignore controls.
Organic controls an Instead, they can call on organic controls: controls that rely less on specific rules
approach to shaping and procedures and more on shared values, clarity of organizational strategy, a
employee behavior
that emphasizes
common understanding about risks to be avoided, attention to performance out-
shared values, a comes, and expectations of interactive and open dialogue.
common
understanding of
strategy, loosely
THEORY INTO PRACTICE
defined roles and
responsibilities, and Traditional controls can create predictability and standardization but can
overall undermine creativity, flexibility, and collaboration.
organizational
performance.
Sun Hydraulics is a Florida-based company that designs and manufactures
screw-in hydraulic cartridge valves and manifolds for industrial and mobile
markets. This may seem like an industry that would lend itself to traditional
controls: lots of rules and procedures. Instead, since its founding in 1970, Sun has
leaned heavily on organic controls. “Our workplace is as distinctive as our prod-
ucts,” the company proclaims on its web page, “and provides just as many
advantages. We have no job titles, no hierarchy, no formal job descriptions, orga-
nizational charts or departments. We have open offices, promoting open com-
munication. Each member of our technologically skilled, cross-trained workforce
is trusted to take the initiative and invent new ways to serve you better.”12
Sun’s reliance on organic rather than traditional controls provides it with
both “a motivated work force” and a company “always on the lookout for emerg-
ing market needs and creating innovative ways to fill them.”13
Companies that use organic controls expect employee behaviors to be
shaped by company strategy and objectives as well as widely shared perfor-
mance information. And it is not just small, hi-tech companies. A number of
companies in a wide range of industries—Google, Southwest Airlines,
Nordstrom, United Services Automotive Association, W.L. Gore, and Sun
Organizational Redesign 85
Organic controls, which are intended to increase employee flexibility and cre-
ativity, rely on shared values and clarity about overall strategy and perfor-
mance expectations.
BUILDING COMMITMENT
Design choices represent attempts by organizational leaders to align employee
behavior with renewed strategies and shifting realities. Helene Gayle needed to
design high levels of collaboration across national organizations in order to
address CARE’s ambitious Access Africa project. Gayle, like all organizational
leaders, seeks to increase effort, energy, creativity, and persistence among
Building a
employees. That level of commitment to the achievement of organizational goals Vocabulary of
is also determined, in large part, by informal design. Change
High employee commitment exists when employees sense a strong over- Employee commitment
lap between individual goals and the shared goals of the organization. Highly the internalized
desire of employees
committed employees find a sense of purpose within their organization’s mis-
to expend energy
sion and actively seek out opportunities to fulfill that mission.20 and discretionary
Organizations able to achieve high commitment can gain a great many per- effort on behalf of
formance advantages: the goals of the
organization.
• Highly committed employees are more likely to communicate with each
other and to act in a collaborative manner.
• Productivity, quality, and creativity are all positively associated with high
commitment.
88 Chapter 4
EXHIBIT 4-4
Informal Design
Clarity of Employees at all levels and in all units are provided with an Elements for
organizational goals understanding of the goals and values of the organization as Building High
well as its strategic choices. Commitment.
Influence A variety of formal (elected board of representatives) and
mechanisms informal (open doors and accessible managers) mechanisms
enable wide participation in the dialogue and decision
making of the organization.
Teamwork Teams designated to perform interdependent tasks.
Shared information Employees kept informed about how the organization is
performing, including the dissemination of data such as
financial performance, costs, profitability, information on
competitors, and feedback from customers.
Organic controls Control exerted through peer pressure, organizational
culture, and expectations of outstanding performance
reinforced through performance feedback.
Individual Employees provided an opportunity through a combination of
developmental mechanisms—job mobility, task variety, facilitative supervision,
opportunities and formal training—to develop competencies consistent
with their own needs and those of the organization.
EXHIBIT 4-5
Using Job
Job Dimension Description Enrichment Action
Enrichment to
Increase Skill variety The degree to which job requires Enlarging task requirements
Commitment. a variety of different activities in to involve multiple and
carrying out the work, involving varied skills.
the use of a number of different
skills and talents
Task identity The degree to which the job Combining individuals into
requires completion of a “whole” a team with shared
and identifiable piece of work; responsibility for the final
that is, doing job from beginning product.
to end with a tangible outcome.
Task significance The degree to which the Communicating regularly
performance of the task has a and clearly how individual
substantial impact on outcomes and group effort
that are deemed to be important contributes to overall
to employees, to the organization, performance of the
and/or to society as a whole. company.
Autonomy The degree to which the job Allowing individuals or
provides substantial discretion to groups to schedule work
the individual in scheduling work and assign specific tasks
and determining procedures for consistent with achieving
carrying it out. performance goal.
Feedback The degree to which carrying out Communicating frequently
work activities required by the job concerning progress toward
results in the individual acquiring work goals.
direct and clear information about
the effectiveness of his or her
performance.
skills required of that worker in the performance of his job could be enlarged.
A machine worker, for instance, might be asked to meet with suppliers or
customers. By adding some measure of discretion to that employee’s
scheduling—say, providing that employee with a monthly production schedule
but allowing the individual to make decisions concerning daily and weekly pro-
duction schedules—managers could also enhance autonomy.
Providing regular information about the quality of work and the progress
being made toward achieving the goal adds greater feedback. Communicating
regularly to that employee about how her effort contributes both to the overall
product or service being offered by the company and how that product or ser-
vice helps advance the strategic purpose of the business enhances task identity
and significance. The job characteristics model offered a systematic way of rede-
signing jobs in order to build employee commitment and achieve outstanding
performance for the organization.
Organizational Redesign 91
BUILDING COLLABORATION
As we saw in the opening case of this chapter, Dr. Helene Gayle sought to build
collaboration at CARE so as to “make the whole greater than the sum of its
parts.” In his study of collaboration in business organizations, Morten T. Hansen
notes how collaboration helped Apple leverage its capabilities to overcome Sony
and gain dominance in the MP3 portable music players market.23
Sony had all but invented the portable music market with its Walkman, a
devise originally built to meet Sony Chairman Akio Morita’s passion for opera.
Introduced to the public in 1979, the Walkman allowed the listener to play audio-
tapes (and later, CDs) using headphones. The devices were portable and easy to
use. They held only one tape or CD at a time, of course, and required the owner
to purchase the music independently of the listening device, with Sony captur-
ing none of that revenue (except for music on the record labels owned by Sony).
In the late 1990s, several companies launched commercial versions of MP3
players with their own hard drives, eliminating the need to purchase separate
tapes or CDs. Now, for the first time, music could be loaded directly on the lis-
tening devise. The MP3 market remained relatively unsettled until 2001, when
Apple launched its revolutionary iPod. Coupled with iTunes, Apple quickly
dominated not just the device market but also music sales and distribution,
thereby capturing a much larger portion of the total revenues.
As revolutionary as it might have seemed, the iPod itself contained very
little in the way of innovative technology. What made the iPod remarkable was
not its components. Rather, the iPod represented a “design triumph.”24 And that
triumph came about because of collaboration. What was especially vital was that
Apple promoted a seamless interaction between its hardware and software units,
as well as between its iTunes and industrial design units. After all, one of the fac-
Building a
tors that made the iPod so attractive was the ease of interacting with iTunes as a Vocabulary of
way of purchasing and downloading music from the Internet onto the player. Change
Collaboration involves willing cooperation among individuals and Collaboration a
groups with a common goal. Helene Gayle’s notion that CARE needed collabo- process of willing
cooperation among
ration across national units to make the whole greater than the sum of its parts
individuals and
lies behind an organization’s desire to promote collaboration. It was collabora- groups with a
tion among hardware and software units in particular that helped Apple common goal.
triumph in the portable music business. But why couldn’t Sony respond effec-
tively to Apple? It was, says Hansen, the inability of the company to collaborate
effectively.
Although still committed to its Walkman portable music player, Sony
mounted a response to the iPod in 2003. Under the guidance of Howard Stringer
and Phillip Wiser, head of Sony’s U.S. operations and chief technology officer for
Sony U.S., respectively, Sony attempted to take advantage of its considerable
assets.25 In terms of overall revenue, Sony was 10 times bigger than Apple. All
the pieces seemed to be in place. The Walkman division could develop its own
hard drive machine. In addition, Sony’s various business units—VAIO personal
computers, Sony Music, and Sony Electronics—could pull together to produce
an iPod rival “in nine months” promised Wiser. Even the name of the product,
the Connect, suggested Stringer and Wiser’s faith that collaboration across
Sony’s business units could help the company respond to Apple.
92 Chapter 4
In nine months, the Connect was launched, but it was a commercial flop.
Stringer blamed the failure on the inability of the various Sony units to collabo-
rate. “It’s impossible to communicate with everyone,” Stringer said, “when you
have so many silos.” Listen to this description provided by Morten Hansen:
Each division had its own ideas about what to do. The PC and the
Walkman groups introduced their own competing music players, and
three other groups— Sony Music in Japan, Sony Music in the United
States, and Sony Electronics in the United States—had their own
music portals or download services. Stringer, who had no authority
over Japanese operations, complained, to no avail, that the Connect
software being developed in Japan was hard to use. Whereas the U.S.
team wanted a hard disk for the music player, the Japanese team went
with the arcane MiniDisc. And whereas the U.S. group pushed for
using the MP3 format—the de facto U.S. standard—the Japanese PC
division chose a proprietary standard called ATRAC.26
In 2007, Sony announced its intention to withdraw the Connect from the
market. And in 2010, nine years after the introduction of the iPod, Sony discon-
tinued Japanese manufacture of its once iconic Walkman.
Building a
Vocabulary of There are, as the iPod story suggests, compelling reasons for a business to
Change build collaboration and integration across divisions. To promote collaboration,
Team an companies frequently turn to teams. Teams, which are interdependent groups with
interdependent shared responsibility for an outcome, come in many forms: product development
group of individuals
teams, project management teams, customer service teams, and process innovation
with shared
responsibility for an teams. A summary of the main team prototypes is presented in Exhibit 4-6.
outcome.
EXHIBIT 4-6
Team Types. Work team By sharing responsibilities, developing multiple skills, and
performing varied tasks, motivation and quality are enhanced.
Product Through concurrent rather than sequential development
development activities, speed to market and innovation are enhanced while
team costs associated with rework are diminished.
Problem-solving By bringing together individuals from multiple functions, problem
team associated with handoffs and cross-functional interactions can be
creatively addressed.
Project The multiple functions and tasks of the value chain are linked
management in order to enhance quality, coordination, and customer
team responsiveness.
Organizational Redesign 93
Cross-Functional Teams
Traditional organizations are often made up of a collection of freestanding func-
tional silos. Activities such as market research, design, engineering, manufactur-
ing, quality checking, distribution, and sales all take place within discrete
Building a
domains. Although those functional units provide required differentiation, orga- Vocabulary of
nizations also need to achieve integration across functions in order to be effective. Change
Cross-functional teams, which are teams that span multiple organizational Cross-functional teams
functions, provide a way of achieving that integration. Cross-functional teams teams made up of
representatives from
address the difficulty of highly differentiated functions have in pulling together
multiple
into seamless, well-integrated processes. By creating cross-functional teams, organization
organizations seek to eliminate handoff problems that produce waste, high cost, functions typically
quality problems, and sluggish response time. The teams are intended to create a intended to achieve
seamless, interconnected web of activities.27 required
coordination along a
chain of interrelated
THEORY INTO PRACTICE activities and
processes.
Use cross-functional teams to help create seamless, well-integrated processes.
Creating Teamwork
The first requirement of effective teamwork is that team members transcend the
individual or functional agendas each member brings to the effort and create a
shared purpose. Team members agree both on what their goal is and why that goal
is important.
Creating shared purpose can be a slow and difficult process. Individuals
who have spent much of their professional lives within a function or unit adopt,
often unconsciously, a particular lens through which they view all organiza-
tional problems. When they become members of a cross-functional team, their
agenda—at least initially—is to optimize the interests of their own function or
unit, often at the cost of others. Effective teamwork starts with the need to create
a central purpose focused on companywide goals and equally accepted by all
members.
Don’t just place employees on teams and expect the performance benefits of
teamwork; organizations need to create the context required for teamwork.
When members of a team feel equally responsible for the outcome of their
efforts, teamwork is enhanced.
At least in the early stages of change, organizations need to make sure teams
are buffered from traditional hierarchical power and are allowed to work
across functions.
Effective teamwork also requires that team members possess a set of behav-
ioral competencies, including critical thinking, brainstorming, problem solving,
nondefensive communications, process facilitation, and conflict management.
Many employees lack those skills. They have, after all, spent the better part of
their lives learning how to work, think, and act as individuals. If an organization
intends on enabling teams to operate effectively, then they have to provide indi-
viduals with the required competencies of teamwork.
Not surprisingly, as companies evolve toward reliance on teamwork, they
increasingly require training for these required skills. Much of that training
focuses on providing employees with multiple skills to enable them to under-
stand all parts of the organization so they can operate more effectively in a cross-
functional environment.28 Training in specific teamwork skills also becomes
vital. One of the most striking findings of a recent international study of high-
performing companies (rated by profits, productivity, and quality of output) was
that 100 percent of the high performers had trained their employees in problem-
solving techniques compared to less than 20 percent of the low performers.29
Ultimately, no matter how successful an organization might be in creating
teams, the success of teamwork depends on a culture and a context within the
larger organization that supports coordinated efforts: recruiting and developing
individuals with teamwork competencies; holding team members jointly account-
able for joint efforts; removing barriers to effective cross-functional coordination.
All of these actions help create a context in which teams—and, more impor-
tantly, teamwork—are simply part of the way of operating. Most important of all,
teamwork in the operations of the organization relies on teamwork at the top of
the organization.
Teams succeed or fail in organizations based not just on the efforts of team
members but on the overall design and context of the organization, which
must support and reinforce joint efforts.
Organizational Redesign 95
Conclusion
Organizational design refers to the ways an orga- also encompasses how an organization seeks to
nization defines roles that employees enact and build employee commitment and coordination.
relationships among employees both within their Both elements of design—formal and
own functions, units, and divisions as well as informal—need to be addressed in a change
across those boundaries. No matter how well implementation process. It is useful, however,
designed an organization may be at any one to separate the two sequentially: addressing
time, a dynamic competitive environment is informal design challenges first and formal
likely to demand that the design be reconsidered. design challenges later. Effective change imple-
Poor coordination, high levels of dysfunc- mentation requires experimentation and learn-
tional conflict, slow decision making, and low ing. No leader knows precisely what solutions
responsiveness to shifts in the external environ- will be needed. Even if she did, the impositions
ment are all symptomatic of an organization of solutions from above would engender resis-
whose design has outlived its functionality. tance.
When a diagnostic intervention reveals that When design changes are informal,
these types of issues hinder the implementation employees at multiple levels and from numer-
of an organization’s strategy or the achievement ous units and divisions can try things out. Ideas
of outstanding performance, leaders will need on how to approach the challenges posed of dif-
to consider addressing the redesign challenge as ferentiation and integration, the tension between
the next sequential step in the change process. control and creativity, and the allocation of deci-
That does not mean, however, that all sion-making rights can be tested: maintained if
design issues need to be addressed at an early they succeed, discarded otherwise. As experi-
stage of change implementation. Organizational mentation and learning unfold, employees can
design has two interrelated but separate compo- seek to “refreeze” (Lewin’s term—see Chapter 2)
nents. Formal aspects of design relate mainly to desired behaviors by calling on more formal
reporting relationships as depicted on the “offi- design mechanisms.
cial” organization chart and systems such as The next step in the change implementa-
pay and performance measurement. Informal tion process involves addressing an organiza-
elements of design relate to how an organiza- tion’s human resource policies and practices,
tion meets the challenges of differentiation and both as a way of helping to develop required
integration, of controls and creativity, and of new behaviors and of reinforcing those behav-
decision-making allocation. Informal design iors among the organization’s employees.
Discussion Questions
1. Why do organizations find it so difficult to against commitment and the potential benefits to
address the requirements of differentiation and be achieved through high commitment.
integration simultaneously? 4. Some people have argued that there is far too
2. What are the advantages and disadvantages of much emphasis on “teamwork” in today’s busi-
allowing for high levels of autonomy within divi- ness world and that the danger is that individual
sions of multidivisional organizations? What are creativity and initiative is being sacrificed. Do
some effective means of coordinating efforts you agree or disagree? Explain.
among divisions? 5. The chapter argues that change efforts should
3. Why is it so difficult to achieve high levels of address informal design before addressing formal
employee commitment within today’s business design. Do you agree with that theory? Explain
organizations? List the factors that are working your thinking.
96 Chapter 4
Case Discussion
Read “Transferring Innovation across National Borders” Europe and Japan to adopt the new product?
and prepare answers to the following questions: Explain your prediction.
1. What triggered the new product strategy at 3. What changes might MB make in its design in
Minnesota Biolabs (MB)? order to better promote the transfer of new prod-
2. What prediction would you make for the success ucts across national borders?
of getting the country general managers in
Minnesota Biolabs
Traditionally, tests for sepsis infection were performed on live animals—rabbits,
for the most part—lead to the animal’s death. Minnesota Biolabs (MB) was one
of the companies that supplied rabbits to the producers of injectable devices.
Headquartered in suburban Minneapolis, MB served customers—mainly phar-
maceuticals but also university and private laboratories—in over 20 countries.
Europe was divided into three MB national units, MB-France, MB-Germany, and
MB-United Kingdom. A fourth country unit, MB-Japan, served Asian markets.
Each of those four units—France, Germany, the United Kingdom, and
Japan—was managed by a country general manager. That general manager was
typically left alone to operate his or her unit autonomously. Corporate headquar-
ters set annual growth goals for the units and measured their profit and loss. As
long as the units performed according to those goals, the managers were paid a
bonus and mostly left alone. Strategies, product decisions, and acquisitions were
determined by corporate executives in the States and communicated to these
country managers.
MB’s CEO frequently said that he liked this approach to management
because it delineated clear lines of authority and responsibility. Country manag-
ers also preferred this autonomy. They were allowed, they believed, to decide on
local strategies that best served their customers while maintaining good relation-
ships with the national regulatory agencies to which they needed to respond.
MB’s exceptional history of sustained, profitable growth reinforced the belief of
managers that this was a well-designed organization.
Organizational Redesign 97
Endnotes
1. Quoted on the CARE website: CARE.org © A. Garvin, SAP America (Boston, MA: Harvard
Cooperative for Assistance and Relief Business School Publishing, 1996).
Everywhere, Inc. (CARE). 8. Paul R. Lawrence and Jay W. Lorsch, Organi-
2. Quoted in Rasika Welankiwar, “Conversation,” zation and Environment: Managing Differentiation
Harvard Business Review (Apr. 2009), p. 22. and Integration (Boston, MA: Harvard Graduate
3. Michael Beer, Russell A. Eisenstat, and Bert School of Business Administration Division of
Spector, The Critical Path to Corporate Renewal Research, 1967).
(Boston, MA: Harvard Business School Press, 9. These quotes come from a consulting engage-
1990). ment by the author.
4. Michael Goold and Andrew Campbell, “Do 10. Richard E. Walton, “From Control to Com-
You Have a Well-Designed Organization?” mitment in the Workplace,” Harvard Business
Harvard Business Review (Mar. 2002), p. 5. Review (Mar.–Apr. 1985), pp. 5–12.
5. Ibid. 11. Stephen P. Robbins, Essentials of Organizational
6. Danny Miller has documented the tendency of Behavior (Upper Saddle River, NJ: Prentice-Hall,
once-successful companies to avoid design 2005), p. A-3.
change. See The Icarus Paradox: How Exceptional 12. www. sunhydraulics.com.
Companies Bring About Their Own Downfall 13. Ibid.
(New York: Harper Business, 1990). 14. Nitin Nohria, Note on Organization Structure
7. Information on SAP America is from “ASAP’s a (Boston, MA: Harvard Case Services, 1991), p. 2.
Wrap,” Managing Automation (February 1998); 15. Ibid., p. 3.
Colleen Frye, “SAP Soothes Implementation 16. McDermott is quoted in Thomas Teal, “Service
Worries,” Software Magazine (1997); and David Comes First: An Interview with USAA’s Robert
98 Chapter 4
F. McDermott,” Harvard Business Review 24. Erik Sherman, “Inside the Apple iPod Design
(Sept.–Oct. 1991), p. 119. Triumph,” Electronics Design Chain, accessed
17. Jay W. Lorsch, Note on Organization Design Oct. 27, 2010.
(Boston, MA: Harvard Business School 25. This account from Hansen, Collaboration, is based
Publishing, 1975), p. 15. in large measure on the Wall Street Journal report-
18. Nicola Clark, “Turnaround Effort Is Challenging ing of Phred Dvorak. See particularly “Out of
at Airbus, a Stew of European Cultures,” New Tune: At Sony, Rivalries were Encouraged, Then
York Times (May 18, 2007), p. C1. Came the iPod” (June 29, 2005), p. A1.
19. Jay W. Lorsch and Stephen A. Allen III, 26. Hansen, Collaboration, p. 8.
Managing Diversity and Interdependence: An 27. The notion that coordination across functions,
Organizational Study of Multidivisional Firms units, and divisions lies at the core of organiza-
(Boston, MA: Harvard University Graduate tional effectiveness has received a great deal of
School of Business Administration Division of attention in recent years. See, for instance,
Research, 1973), pp. 53–79. Edwad E. Lawler, III, “Substitutes for Hierarchy,”
20. Daniel Goleman, Working with Emotional Intelligence Organizational Dynamics 17 (1988), pp. 5–15;
(New York: Bantam Books, 1998), p. 118. Christopher A. Bartlett and Sumantra Gloshal,
21. Robert M. Marsh and Hiroshi Mannari, Managing Across Borders: The Transnational
“Organizational Commitment and Turnover: A Solution (Boston, MA: Harvard Business School
Prediction Study,” Administrative Science Press, 1989); D. Keith Denton, Horizontal
Quarterly 22 (Mar. 1977), pp. 57–72; Walton, Management: Beyond Total Customer Satisfaction
“From Control to Commitment in the (New York: Lexington Books. 1991); John A.
Workplace”; Gary J. Blau and Kimberly B. Boal, Byrne, “The Horizontal Corporation,” Business
“Conceptualizing How Job Involvement and Week (Dec. 20, 1993), pp. 76–81; Jay R. Galbraith,
Organizational Commitment Affect Turnover Competing with Flexible Lateral Organizations
and Absenteeism,” Academy of Management (Reading, MA: Addison-Wesley, 1994).
Review 12 (1987), pp. 288–300; Stephen L. Fink, 28. David Nadler, “Ten Years After: Learning
High Commitment Workplaces (New York: About Total Quality Management.” A paper
Quorum Books, 1992); Mark A. Huselid, “The delivered at the Total Quality Management
Impact of Human Resource Management conference sponsored by the Management
Practices on Turnover, Productivity, and Centre Europe, Brussels, Oct. 1993.
Corporate Financial Performance,” Academy of 29. International Quality Study, Best Practices Report:
Management Journal 38 (1995), pp. 635–661; An Analysis of Management Practices That Impact
Julian Gould-Williams, “The Effects of ‘High Performance (Cleveland, OH: American Quality
Commitment’ HRM Practices on Employee Foundation and Ernst & Young, 1992).
Attitude: The Views of Public Sector Workers,” 30. This case study is adopted from the research
Public Administration 82 (2004), pp. 63–81. conducted by the author and his colleagues
22. J. Richard Hackman and Greg R. Oldham, Work under a grant from the National Science
Redesign (Reading, MA: Addison-Wesley, 1980). Foundation. See Bert Spector, Henry W. Lane,
23. Morten T. Hansen, Collaboration: How Leaders and Dennis Shaughnessy, “Developing
Avoid Traps, Create Unity, and Reap Big Results Innovation Transfer Capacity in a Cross-
(Boston, MA: Harvard Business School Press, National Firm,” Journal of Applied Behavioral
2009). Science 45 (June 2009), pp. 261–279.
CHAPTER
5 People Alignment
99
100 Chapter 5
“blue shirts”: greeting and making eye contact with women shoppers, asking her
about her favorite movies, demonstrating those movies on systems. But simply
identifying helpful new behaviors would be insufficient. Gilbert felt that for Best
Buy to take full advantage of this under served market, the company would
have to place more women employees on the store floors and more women in
executive positions.
Blue shirts had typically been recruited from the electronics departments of
rival chains such as Wal‐Mart and Target. Now, Gilbert began looking at a broader
spectrum of retail outlets including Victoria’s Secret (women’s lingerie) and
Origins (make‐up). “We’re working with the Girl Scouts, with private female col-
leges, and others to recruit amazing women so we can delight our women custom-
ers,” said Gilbert. The goal was for 50 percent of Best Buy’s workforce to be women,
with a disproportionate number working in the home theater departments.
Gilbert’s 50 percent goal applied to more than just the Blue Shirts. Aiming
to change the role of women in the entire organization, she focused on the man-
agement and executive level as well. She created and led “WoLF” packs, for
Women’s Leadership Forum. Women from all levels of the organization came
together to share ideas and generate innovations designed to expand the cus-
tomer base. The WoLF packs also made it easier for Best Buy to recruit and retain
women employees. When Gilbert left Best Buy in 2009 to promote WoLF pacts in
other organizations (through a private consulting firm, WOLF Means Business),
Best Buy had grown its women’s influenced purchases by 30 percent.
EXHIBIT 5-1
Make/Buy Options Option Steps Advantages Disadvantages
for Changing
Human Resources. Make Training Takes advantage of May be slow. Not all
Altered incentives existing knowledge/ current employees
skill base willing or able
Buy Recruitment Can quickly add May undercut morale/
selection required knowledge/ commitment of existing
skills employees
HELP
When organizations seek to redefine their strategy—Best Buy altering its product—
market mix, for instance—they face the requirement of developing new compe-
tencies among their employees. Thus, once the required new behaviors and their
supporting competencies are defined in Step 1, effective change implementation
seeks to help employees gain the new competencies and skills. That is why train-
ing and development provides the key intervention in Step 2.
Training
Quite a lot of training occurs in organizations. U.S. companies alone spend more
than $60 billion a year on training, plus another $180 billion on informal day‐to‐
day instruction. Not all of that training, of course, is designed to be a part of stra-
tegic renewal and change. Training is often called upon to teach basic literacy,
update technical skills, as well as to develop management skills in individuals
People Alignment 103
EXHIBIT 5-2
The Two
This component: Focuses on: By:
Components of
Knowledge Developing understanding Classrooms, lectures, Training for Change.
development within employees of new strategy discussion groups,
and requirements for change etc.
Skill development Developing capability within Role‐playing,
employees to enact required new experimentation,
behaviors real‐time feedback,
etc.
Feedback
One of the most important opportunities for developing new competencies and
skills among existing employees arises from a simple but powerful mechanism:
feedback. The challenge in using feedback in order to develop new competencies
is twofold:
1. To make sure that the feedback is offered in a way to maximize its impact
on behaviors.
2. To make sure that the feedback moves employees toward new behaviors
rather than reinforcing old behaviors.
People Alignment 105
Organizations can, under the right circumstances, use the traditional tools of
performance feedback and appraisal to help support change implementation.
In a change implementation process, expectations and definitions of out-
standing performance are in flux. It becomes valuable, then, for employees to
evaluate the performance of employees for four reasons:
1. It allows an assessment of the current state of the firm’s human asset.
2. It helps identify the gap between what skills and organization currently
possess and what gaps need to be filled.
3. It identifies poor performers and potential future leaders.
4. It identifies needed development and training efforts.
From the data generated by the performance evaluation process, organizations
can construct developmental tools—training, career pathing, mentoring, etc.—as
well as guide future recruitment and selection.
Individual employees also gain value from performance feedback. An as-
sessment of their effectiveness can offer employees invaluable answers to a num-
ber of questions:
• How is my effort being perceived and received by the organization?
• What is my future with the company?
• What gaps do I need to address between my efforts and the organization’s
expectations?
• What set of experiences do I need to construct for myself in order to ad-
vance my own aspirations?
The desired goal of the process is alignment between the future needs of the or-
ganization and the desires and motivations of employees.
Much of the feedback on performance occurs informally. Informal feedback
can occur in both obvious and obscure ways. Regular, real‐time feedback discus-
sions between superiors and subordinates or among peers can occur spontane-
ously and/or as part of the culture of the organization which creates expectations
Building a
that evaluation and performance dialogue will occur regularly and routinely. Vocabulary of
Organizations typically seek to supplement such informal feedback with a Change
more formal approach to evaluation: the performance appraisal. Although firms Performance appraisal
implement performance appraisals quite differently, there are some generaliza- a formal, regularly
tions that can be made. Performance appraisals tend to: scheduled
mechanism designed
• Be regularly scheduled events, occurring annually, semi annually, or even to provide
quarterly employees with
performance
• Be individual, one‐on‐one sessions between a supervisor and a subordinate feedback, typically
• Be guided by a form designed by the organization’s human resource de- resulting in a
partment performance rating.
• Involve some sort of grading system, covering both specific performance
elements and an overall evaluation of effectiveness
• Be designed for both administrative purposes—documentation of poor
performance, distribution of performance‐based rewards, etc.—and devel-
opmental purposes
Formal evaluation such as performance appraisal often fail to enhance desired
behavior. Extensive research has demonstrated that both appraisers and appraisees
106 Chapter 5
are highly dissatisfied with their performance appraisal experience.4 Appraisers fear
that, except in the case of a “superior” performance rating, they will be doing more
harm than good, leaving the employee demoralized, demotivated, even alienated.
Apparently, those fears are justified. Managers often report that subordi-
nate performance actually deteriorates as a result of conducting a performance
appraisal, and indicate that the only reason they conduct such interviews is to
comply with company mandates. Employees report greater uncertainty after the
performance appraisal than before. Most likely, that confusion results from a
mismatch between the informal feedback described earlier and the formal feed-
back offered as part of the performance appraisal.
When performance appraisals become exercises in compliance, as they ap-
parently do with great regularity, they are unlikely to generate commitment on
the part of employees to increased effectiveness.
Employee commitment is also impacted by issues of validity and accuracy.
Is the performance appraisal actually assessing what it claims to be assessing,
and is it doing so accurately? Employees often leave an interview doubting
whether either validity or accuracy has been achieved. Empirical evidence sug-
gests that their suspicion is well founded. Supervisory ratings are regularly and
significantly distorted by subjectivity, personal bias, deliberate distortion, and
unintended but common rating errors.5
To increase employees’ perceptions that the feedback they are receiving
from the appraisal process is valid—and thus increasing their commitment to
Building a
Vocabulary of
enhancing their own high performance behaviors—organizations have tried a
Change number of innovations.
360° feedback One—the 360° feedback—attempts to expand the data and bring multiple
performance points of view into the effectiveness appraisal process. Peers, subordinates, and
feedback gathered even customers are invited to contribute data on an employee’s effectiveness re-
from peers,
subordinates,
lating to both dimensions: task performance and behavioral patterns consistent
supervisors, and with the organization’s culture.
customers. Approximately 90 percent of Fortune 500 companies use some form of 360°
feedback for purposes of employment evaluation, development of needed com-
petencies, or both.6 The effectiveness of 360° feedback will be enhanced if the
organization’s culture emphasizes openness and learning, deemphasizes strict
power distinctions based on hierarchy, and places a high value on customer
responsiveness.
Another innovation relies heavily on self‐appraisal, where the appraisal dis-
cussion is based on the subordinate’s view of himself or herself. When employ-
ees perceive themselves to be active participants in the appraisal process, they
are more likely to alter their behavior in ways desired by the organization.7 Both
self‐appraisal and 360° performance appraisals represent attempts by organiza-
tions to increase employee acceptance of the feedback, thus leading to improved
behavior and performance.
Self‐appraisal and data from multiple sources can help increase the validity
and effectiveness of performance feedback.
People Alignment 107
EXHIBIT 5-3
Practices for
Developing Structural and Delayering, increased span of control, matrix, or horizontal
Executives Capable design changes structures—all of these work to develop generalists far
of Adaptation and earlier in their careers and place a greater premium on
Leading Change. interpersonal competencies.
Explicit international Assigning managers to work in a non native culture for a
movement significant period of time develops cross-cultural
awareness and skills that can be vital in a culturally diverse
environment.
Career mazes Explicit lateral movements replace rapid upward functional
mobility with a far broader set of experiences. Functional
blinders are removed, general management skills are
enhanced, and commitment to the organization as a
whole is enlarged.
Slower velocity So-called fast-track managers often fail to stay in one
to allow greater position long enough to deal with the consequences of
learning their actions (and the reactions of employees).
Learning about and dealing with the consequence of
actions requires greater length of tenure in a position.
non‐fast‐trackers have been held back less by their lack of potential than by con-
textual constraints imposed by the organization. Second, fast‐trackers may be
individuals who possess skills more associated with past successes than the
future demands of change.11
PEOPLE CHANGE
In his study of companies that moved from “good” to “great”—companies such
as Walgreens and Kimberly‐Clark—Jim Collins noted that these successful trans-
formations were built on getting “the right people on the bus”—that is, attract-
ing, selecting, and retaining individuals whose skills and behavioral patterns
People Alignment 109
People alignment––getting the right people on the bus and the wrong people
off the bus—is a key to effective change implementation.
attracted to and selected by the organization in an earlier phase are not necessar-
ily the right employees for the newly defined strategies and goals of the chang-
ing organization. In redefining the personality of their organizations, change
leaders are, in essence, overturning the sense of personal alignment that existed
in the past. They are changing what they are looking for in the “right” employee.
But what, exactly, is meant by the right employee? It is useful to introduce
the concept of fit. The right employee means an employee who fits certain needs
or requirements. Even that explanation does not tell us enough, because the
question still remains: what needs or requirements? The requirements may be
technical, behavioral, attitudinal, or some combination of all the three.
CRITERIA FOR SELECTION To help clarify the choices an organization faces in the
selection process, it is useful to approach fit in two ways. The first involves fit
Building a
Vocabulary of with a specific job, and the second involves fit with the larger organizational cul-
Change ture and values.
Person‐task fit Person‐task fit is the most common approach taken to hiring employees.
screening and The organization has specific tasks that need to be done, so it hires individuals
selecting individual
with the skills required of those tasks. Need an electrical engineer? Hire the most
employees based on
their ability to skilled electrical engineer available (keeping costs in mind, of course).
perform certain tasks To help ensure that the organization hires people with the requisite skills,
and fulfill specific human resource specialists work in a structured way to define the key knowl-
jobs. edge, skills, and abilities required in the performance of core organizational
tasks. Individuals are sought, and often tested, to determine their competency
levels to perform. The best‐qualified individuals are then selected to fill the orga-
Building a
Vocabulary of
nization’s job vacancies.
Change The second approach to selection involves what can be thought of as
Person‐organization fit person‐organization fit. Unlike the person‐task approach, person‐organization
screening and fit looks beyond the specific skill demands of a task, focusing instead of the val-
selecting employees ues of an individual. Now, the organization asks: how do the values of potential
based on congruence
between patterns of
hires fit with the values we are trying to promote?
organizational Person‐organization fit looks beyond specific jobs to the desired future
values and patterns state of the organization. What are the mind‐set, the personality, and the compe-
of individual values. tencies that the organization seeks through its change? What newly defined
roles, responsibilities, and relationships are sought? Most importantly at this
stage, what new competencies—both technical how‐to competencies and inter-
personal (creative problem solving, decision making, collaboration, communica-
tion, and so on) competencies—are required of this desired future state?
Talent is important but fit with where the organization is headed is vital.
Determining who fits with the organization is a complex, even tricky busi-
ness. Supervisors often make decisions about which employees fit or do not fit,
implicitly, perhaps even subconsciously, based on the goal of reproducing them-
selves. Instead of asking whether the employee behaves in ways consistent with
People Alignment 111
the values and culture of the organization, the supervisor may ask whether the
employee thinks and acts like the evaluating supervisor.
When supervisors seek—consciously or otherwise—to clone themselves,
the effect can be damaging both to employees and to the organization. Employees
may rightly wonder just how valid supervisory decisions are. Additionally, if
organizations become homogeneous, they are in danger of weakening both di-
versity and creativity.15
That approach can be particularly harmful in periods of change. The super-
visors’ past successes may be the result of behaviors that no longer fit with the
desired future state of the company. Additionally, the reproduction phenomenon
risks eliminating diversity and promoting conformity within the organization.
When change efforts are designed to enhance creativity and innovation, actions
that drive out diversity, however inadvertently, will be detrimental. Finally,
employees themselves may experience replacement less as a valid measure of
ability to adopt new behaviors and more as a self‐serving device that enhances
supervisors’ views of themselves.
An explicit and shared understanding of the new behaviors required of
strategic renewal and outstanding performance can help to overcome the dan-
gers of selective perception and reproduction. That understanding is developed
in the diagnostic and redesign phase of transformation. Once the requirements
have been made explicit, managers are better able to make valid assumptions
about whether individuals are displaying the required behaviors. Simultaneously,
employees are more likely to accept the validity of those decisions.
both the cost and time associated with training and minimize the difficulties—
both emotional and financial—associated with removal and replacement.
Selecting the “right” employees—that is, employees who possess the values
and competencies required of the change—will reduce time, cost, and other
revenues required in later developmental interventions.
Building a
Vocabulary of
Change
Standardized tests
SELECTION TECHNIQUES Companies can use any number of techniques to screen
self‐administered for the “right” employee, starting with standardized tests which are typically
and quantifiable self‐administered and quantifiable. These tests assess any number of attributes,
tests used as part of ranging from general intelligence and mental ability to mechanical aptitude and
a screening, technical and industry‐based knowledge.
selection, or
assessment process.
When strategic renewal requires an alteration in the culture of the company,
the most obvious standardized instruments to call upon involve personality and
psychological tests. These tests offer insight into whether an individual is open
or defensive, extroverted or introverted, individualistic or team‐oriented, easy-
going or reserved, suspicious or trusting, and so forth.
Using standardized tests in the screening process offers some obvious ad-
vantages to a company in transition. The tests are relatively easy to administer
and score. Quantifiable results are simple to compare. Most importantly, there is
validity to the tests as predictors of on‐the‐job success as long as multiple tests
are used in combination.
Standardized tests are not without flaws. Opportunity for abuse and mis-
use of data are significant. Additionally, their use tends to produce a less diverse
workforce in terms of race.17 Differences in early cultural experiences and unfa-
miliarity with test‐taking techniques on the part of applicants, especially when
combined with unintended biases in the formulation of test questions, can pro-
Building a duce undesired outcomes.18 Minority job seekers often express deep suspicion of
Vocabulary of these tests and their use. Organizations desirous of seeking greater diversity
Change
Behaviorally anchored
within their workforce may find standardized tests working against that goal.
interviews potential There are alternatives to standardized tests. Behaviorally anchored inter-
hires are asked to views ask potential hires to recount specific examples from their past experience
recount specific to illustrate how they have responded to challenges and opportunities:
examples from their
past experience to • Give me an example of a work‐related problem that you had to deal with,
illustrate how they and how you responded.
have responded to • Talk about a recent group experience you had at work and the role that you
challenges and
opportunities.
played.
When a group of employees participates in the interview, each asking questions
and rating responses, the validity of the assessment increases. The goal is to in-
crease the likelihood of achieving fit between new hires and the behavioral goals
of the change without driving out diversity. Exhibit 5‐4 offers examples of behav-
iorally anchored interview questions.
People Alignment 113
EXHIBIT 5-4
Behaviorally
• Describe a time when you were placed on an ineffective work team and how you dealt
Anchored Interview
with it. Questions.
• Tell me about a specific employee with whom you had difficulty managing and how
you dealt with it.
• Describe how you handled going into a new work situation.
• Describe how you went about learning what was going on in a unit to which you
were just moved.
• Tell me about a change process you were involved in and what role you played.
• Tell me about the best performing team you ever worked on and what your contri-
bution was.
A selection process keen on exploring fit between a potential hire and the Building a
Vocabulary of
new behavioral demands might go beyond asking potential hires to recount past Change
actions. A technique known as behavioral simulation asks applicants to demon- Behavioral simulation
strate behaviors. An illustration of behavioral simulation in screening occurred at potential hires are
Cummins Engine Company’s Jamestown, New York, plant. asked to
Collaboration and teamwork were among the core values of plant manage- demonstrate
behaviors, usually in
ment as they sought to create high employee commitment. As the diesel‐engine a structured role‐
plant grew beyond its original start‐up levels, the management team realized play exercise with
that they would have to pay close attention to person‐organization fit in the re- external observers.
cruitment and selection process. The plant’s high wage structure assured an
abundant supply of applicants, but not just any employee would do. The man-
agement team focused the selection process on behaviors that matched the
plant’s culture and values.
Human resource specialists performed the initial screening. Soon, shop floor
workers—team members in the parlance of the plant—entered the process. Teams
did their own hiring in order to ensure fit with their particular orientation and set
of expectations. In addition to conducting interviews, team members observed
applicants in role‐play situations—typically, team exercises (see Exhibit 5‐5 for a
EXHIBIT 5-5
Components
A group of individuals are assigned a complex problem to solve.
of Behavioral
• Solving the problem requires multiple skills. Stimulation.
• The problem’s solution is such that effective performance can be rated
objectively.
Individuals are placed in teams and asked to solve the problem jointly.
• A facilitator is on hand to offer behavioral observations.
• The joint problem‐solving phase may be videotaped to allow participants to
observe their behaviors.
A trained facilitator leads the team through a discussion of behaviors.
The solutions of the teams are measured, providing an effectiveness metric for each group.
Team members engage in a further discussion of behaviors based on their performance.
114 Chapter 5
EXHIBIT 5-6
Techniques
Mechanism Description Strengths Weaknesses
for Person-
Organization Paper‐and‐ Standardized, • Easy to administer • Produce
Fit Screening. pencil tests quantifiable, and score homogeneous
self‐administered • Inexpensive to use workforce
instruments on large scales • May be
• Simple to compare resisted/
• Valid job success resented by
predictors when applicants
used in combination
with other
mechanisms
Behaviorally Applicants • Can focus on • Deal with
anchored recount specific specific behaviors recounted
interviews examples of past • Valid supplement rather than
experiences to other screening actual
mechanisms behaviors
• Validity increases • Can be slow
when multiple and expensive
interviewers score to administer
results
Behavioral Applicants • Focus on actual • Can be slow
simulation engage in rather than and expensive
role‐playing recounted behaviors to administer
exercise while
observed by
screeners
them to be dirt bags,” Chouinard observed, “it’s easier to teach dirt bags to do
business.”20
Learning business skills, Chouinard insisted, is far easier than learning
how to be a true dirt bag. Hiring individuals with the desired personality traits
and behavioral competencies and then teaching required skills (rather than hir-
ing for skills and attempting to teach personality and behavior) is far more likely
to be successful.
Chapter 1), removal and replacement became a vital part of the effort. A cross‐
functional renewal team started ASDA’s store‐based change by designing a new
set of roles and responsibilities for store employees at all levels. Team members
realized that the targeted new behaviors would require store managers who
were both willing and able to support the desired new culture.
After selecting three stores to pilot the “new” ASDA—a store culture fo-
cused on value, offering customer responsiveness, with high levels of autonomy
for individual department managers and strategic planning on behalf of store
managers—the renewal team called on the corporate human resources depart-
ment to evaluate current managers. In the terms Collins used, the team wanted
to make sure they had “the right people on the bus” within the targeted stores.
That review revealed that much of the challenge of change would focus on get-
ting “the wrong people off the bus.”
A sense of urgency required that the early change build on a store manage-
ment team that displayed the potential for being able to make the required
changes. Within the first three stores, about 40 percent of the existing managers
were removed and replaced. Some were fired, others moved to other stores not
immediately targeted for change. The renewal team brought in managers to the
selected pilot stores who had been identified by the human resources staff as
more likely to be effective in the new environment.
Removal and replacement does not necessarily involve firing individu-
als. When the general manager of Rubbermaid’s Commercial Products divi-
sion decided to redesign his operation around cross‐functional business teams,
it became clear that many employees were uncomfortable with the new
approach. The vice president of marketing used a sports analogy to character-
ize the differences among employees in their reactions to the requirement for
teamwork:
When we first formed the business teams, we had a lot of tennis play-
ers and golfers on the team, not team players. They had good func-
tional expertise, but because they weren’t team players we were
getting into trouble. They didn’t try to understand how and what
they were doing on their piece of the product was affecting other
functions.21
When we have seen teams fail, the majority of the time, it was not due
to lack of technical expertise. It was because there was a person on the
team who was not a team player. We, as an operating team, have to
recognize this, and insure that non–team players are relocated from
the business team to another position which best complements their
personality.22
People Alignment 117
Individuals who could not make the change were replaced and then carefully
located in positions where their behaviors would not block or slow down the
sought‐after change to a team‐based operation.
There will be situations in which replacement and removal is not an im-
mediate option to change leaders. Collins described the change at a medical
school where the institution of tenure—essentially, guaranteed employment
for professors—constrained the actions of the school’s academic director.
Because he could not remove tenured professors, the director of academic
medicine waited for openings to hire “the right people.” By doing so, he creat-
ed “an environment where the wrong people felt increasingly uncomfortable
and eventually retired or decided to go elsewhere.”23 When leaders are clear
about the behavioral implications of the desired new strategy, and employees
are clear that behavioral change is required, individuals may elect to remove
themselves.
avenues are available to employees who believe that they have been treated by
people change decisions such as evaluation, promotion, or even firing?
Union contracts typically offer grievance and appeal avenues with union
officials advocating for members. In nonunion settings, employers may provide
their own grievance and appeal mechanisms—panels of managers and employ-
ees; trained fact finders, mediators, or arbitrators—that can either make sugges-
tions or overturn decisions if they find an employee has been treated unfairly.
Conclusion
Transformational change demands new behav- In the redesign stage (Step 1), employees
iors from employees. Patterns of behavior that create a behavioral model for how the business
have sustained a company in the past will need will respond to those shifts in order to achieve
to be altered in response to the dynamics of the and maintain outstanding performance. At this
competitive environment. The diagnostic stage stage, leaders face a new challenge. Employees
of change has surfaced a misfit between cur- who have succeeded in the past may not pos-
rent behaviors and competitive realities. Global sess the skills required to excel in the future.
customers, for example, may be expecting Companies may do an assessment to analyze
greater coordination between a company’s var- “old” and “new” patterns of behavior and iden-
ious units, local customers may be expecting tify the gap that exists within their current
greater employee responsiveness to their spe- human resource.
cific and special needs, and increasing compe- Now is the time in the change implemen-
tition may be demanding faster innovation and tation process for leaders to turn their attention
greater speed to market with new products to people alignment. Organizations first seek to
and offerings. help (Step 2) employees acquire the necessary
People Alignment 119
Discussion Questions
1. What are the important differences between Step 2 4. The author sees removal and replacement as a
(Help) and Step 3 (People Change)? key element of aligning people with the require-
2. What are the main differences between hiring for ment of a new strategy. Do you agree or disagree?
task and hiring for organizational fit? When is Why?
each one most appropriate?
3. What specific recommendations would you make to
an organization seeking to avoid training fade‐out?
Case Discussion
Read “‘Employee First, Customer Second’: Vineet Nayar 2. Do you see potential problems implementing
Transforms HCL Technologies,” and prepare answers to Nayar ’s people alignment initiatives within
the following questions: India?
1. Explain how—or if—Vineet Nayar’s new strategy 3. Are Nayar’s ideas about people alignment trans-
for the company and his approach to people ferable to other industries and other countries?
alignment reinforce each other.
Strategic Renewal
Strategic renewal at HCL would involve, Nayar announced, a movement away
from “small time engagements” and toward high value‐added integrated service
consulting and outsourcing. In order to turn that vision into reality, Nayar would
oversee transformational change at his $1.5 billion, 46,600‐employee company.
(HCL had operations in 11 countries including the United States, France, Germany,
China, and Japan, with 96 percent of its employees worldwide being Indians.)
His first strategic goal was to pay a great deal more attention to internal
operating efficiencies than HCL had in the past, while simultaneously emphasiz-
ing innovative offerings. Nayar would, he promised, “put our house in order by
rejuvenating employees and improving operating efficiencies.”
From his past management experience, Nayar (who had spent seven years
as an HCL engineer before taking the assignment of running an internally devel-
oped start‐up company) had come to believe that employees rather than leaders
would be the source of improvement and innovation.
India’s traditional hierarchical culture led executives to take a “dictatorial”
approach to management. Studies of national culture have found that India ranks
high on two dimensions: power distance and long‐term orientation. High‐power
distance suggests greater acceptance of hierarchical authority and a greater capacity
to follow than lead. A high score on the long‐term orientation index suggests a pref-
erence for thrift, perseverance, and predictability. If HCL was to compete success-
fully against larger Indian competitors such as Infosys, Nayar wanted to “invert the
pyramid,” he said, explaining his meaning in blunt terms. For most companies, “it’s
the employee who sucks up to the boss.” Nayar’s goal for HCL was to create a cul-
ture where “as much as possible, [we] get the manager to suck up to the employee.”
Rejuvenating Employees
Three months after assuming the president’s position, Nayar announced two
initiatives designed to rejuvenate employees and unleash their creative poten-
tial. Both initiatives, he also admitted, were intended to be “shocks” to the sys-
tem and signal a shaking up of the old culture.
Further Challenges
By 2007, Nayar could point to some impressive improvements. Under his leader-
ship, HCL has achieved the highest level of organic growth—defined as growth
achieved through internal development rather than by acquisitions and
122 Chapter 5
Endnotes
1. I first became aware of this story from reading Human Resource Management (Homewood, IL:
Ronald Heifetz, Alexander Grashow, and Irwin, 1991); Donald J. Campbell, Kathleen M.
Marty Linsky, “Leadership in a (Permanent) Campbell, and Ho‐Beng Chia, “Merit Pay,
Crisis,” Harvard Business Review (July—Aug. Performance Appraisal, and Individual
2009), pp. 62–69. Additional material comes Motivation: An Analysis and Alternative,”
from “Best Buy Gets in Touch with its Feminine Human Resource Management 37 (Summer 1998),
Side,” USA Today (Dec. 20, 2006); Jackie Crosby, pp. 131–146.
“Women’s Warrior at Best Buy,” Star Tribune 6. Tracy Maylett and Juan Riboldi, “Using 360°
(Dec. 18, 2007); Bala Chakravarthy and Peter Feedback to Predict Performance,” Training and
Lorrange, “Continuous Renewal and How Best Development (Sept. 2007), pp. 48–52.
Buy Did It,” Strategy and Leadership 35 (2007), 7. M. M. Greller, “Subordinate Participation and
pp. 4–11. Reactions to the Appraisal Interview,” Journal
2. George Bohlander and Kathy McCarty, “How of Applied Psychology 6 (1975), pp. 544–549;
to Get the Most from Team Training,” National R. J. Burke, W. Weitzel, and T. Weir,
Productivity Review (Autumn 1996), pp. 25–35. “Characteristics of Effective Employee
3. Raymond A. Noe, Employee Training and Performance Review and Development
Development (Boston, MA: McGraw‐Hill Irwin, Interviews: Replication and Extension,”
2002), pp. 150–175. These conclusions were Personnel Psychology 31 (1978), pp. 903–919;
confirmed empirically in Dian L. Seyler, Charles C. Manz and Henry P. Sims, Jr., “Self‐
Elwood F. Holton III, Reid A. Bates, Michael F. Management as a Substitute for Leadership: A
Burnett, and Manuel A. S. Carvalho, “Factors Social Learning Perspective,” Academy of
Affecting Motivation to Transfer Training,” Management Review (1980), pp. 361–367; R. L.
International Journal of Training and Development Dipboye and R. de Pontbriand, “Correlates of
2 (1998), pp. 2–16. Employee Reactions to Performance Appraisal
4. This research is reviewed in Herbert M. Meyer, and Appraisal Systems,” Journal of Applied
“A Solution to the Performance Appraisal Psychology (1981), pp. 248–251; J. M. Ivancevich
Feedback Enigma,” Academy of Management and J. T. McMahon, “The Effects of Goal
Executive 5 (1991), pp. 68–76. Setting, External Feedback, and Self‐Generated
5. Gary P. Latham and Kenneth N. Wexley, Feedback on Outcome Variables: A Field
Increasing Productivity Through Performance Experiment,” Academy of Management Journal
Appraisal (Reading, MA: Addison‐Wesley, (1982), pp. 359–372; D. M. Herold, R. C. Liden,
1981); David B. Balkin and Luis Gomez‐Mejia, and M. L. Leatherwood, “Using Multiple
New Perspectives on Compensation (Englewood Attributes to Assess Sources of Performance
Cliffs, NJ: PrenticeHall, 1987); C. Longenecker, Feedback,” Academy of Management Journal
H. Sims, and D. Gioia, “Behind the Mask: The (1987), pp. 826–835.
Politics of Employee Appraisal,” Academy of 8. Richard E. Boyatzis, The Competent Manager: A
Management Executive 1 (1987), pp. 183–191; Model for Effective Performance (New York:
George T. Milkovich and John W. Bourdeau, Wiley, 1992); Richard E. Boyatzis, Scott S.
People Alignment 123
Psychology 74 (June 1998), pp. 1493–1503; Kees Employees Ready for a Challenge,” Business
Van Den Bos, “Assimilation and Contrast in India Intelligence (June 21, 2006), p. 8; Linda A.
Organizational Justice: The Role of Primed Hill, Farun Khanna, and Emily A. Stecker, HCL
Mindsets in the Psychology of the Fair Process Technologies (A‐B) Abridged (Boston, MA:
Effect,” Organizational Behavior and Human Harvard Business School Publishing, 2007);
Decision Processes 89 (Sept. 2002), pp. 866–881; “Hungry Tiger, Dancing Elephant,” The
W. Chan Kim and Renée Mauborgne, “Fair Economist (Apr. 7, 2007), pp. 67–69; “Vineet
Process: Managing in the Knowledge Nayar’s Inverted Pyramid,” CNN Money (July
Economy,” Harvard Business Review 81 (Jan. 12, 2007); “How Vineet Nayar Transformed HCL
2003), pp. 127–136; Kwok Leung, Kwok‐Kit Tech,” Rediff India Abroad: India as It Happens
Tong, and Lind E. Allan, “Realpolitik Versus (Nov. 7, 2007); Jena McGregor, “The Employee Is
Fair Process: Moderating Effects of Group Always Right,” Business Week (Nov. 19, 2007),
Identification on Acceptance of Political pp. 80–82; Peter Cappelli, Harbir Singh, Jitendra
Decisions,” Journal of Personality and Social V. Singh, and Michael Useem, “Leadership
Psychology 92 (Mar. 2007), pp. 476–489. Lessons from India,” Harvard Business Review
25. Kim and Mauborgne, “Fair Process,” p. 132. 88 (Mar. 2010), pp. 90–97; Vineet Nayar, “A
26. Ibid., p. 127. Maverick CEO Explains How He Persuaded His
27. This case is based on information from the fol- Team to Leap into the Future,” Harvard Business
lowing sources: www.hcltech.com; “Wanted: Review 88 (June 2010), pp. 110–113.
CHAPTER
125
126 Chapter 6
Before doing so, we will examine an attempt by a large national retail chain
to restructure in order to revive their market during a recession. As you read this
short case, ask yourself:
• How would you evaluate Macy’s response to the recession?
• Is it really feasible to do both turnaround (layoffs) and transformation
(restructuring) simultaneously?
• What and whose behaviors is Macy’s attempting to change?
*So, Macy’s is the name of both the corporate umbrella and its largest single business unit. This case
focuses on the Macy’s business unit.
†
Economies of scale allow an organization to become more efficient by increasing the number of
times it performs a single activity, while economies of scope allow a company to gain efficiencies by
performing more than one activity with spare capacity.
Reinforcing New Behaviors 127
Organization structure is more than just boxes and lines; it is a way to focus
the activities of employees.
As organizations move beyond the small, start‐up stage, they are likely to
adopt a simple functional structure: people with similar skills performing
related activities are placed in functional departments.
EXHIBIT 6-1
Chief Functional
Executive Organizational
Officer Chart.
President
Chief
Business Brand
Financial Sales Engineering Surfing Production
Development Marketing
Officer
Organizational change efforts may seek to deal with the challenges raised
by a functional structure. The particular challenge is to enhance marketplace
responsiveness. One of the most common ways of achieving that focus is to
adopt a divisional structure.
Building a
FOCUS ON MARKETPLACE RESPONSIVENESS As organizations grow in both size
Vocabulary of
Change and complexity, they often seek greater external focus. Most typically, they turn
Divisional structure a to a divisional structure as a way of reinforcing behaviors that respond to the
formal design choice marketplace.
that groups people All activities associated with a particular product or families of products
together in units
are brought together in a divisional unit. A general manager, often a senior vice
based on common
products, services, or president, divisional president, or managing director, sits atop each unit. That
customers. structure is depicted in Exhibit 6‐2 for a prototypical software developer.
Reinforcing New Behaviors 131
EXHIBIT 6-2
Chief Divisional
Executive Organization Chart.
Officer
President
Chief
Enterprise Commerce Financial
Financial Publishing Retail
Products Products Services
Officer
Building a DUAL FOCUS Leaders opt for a functional structure in order to emphasize effi-
Vocabulary of
Change
ciencies and depth of technical know‐how and experience. A shift to divisional
Matrix structure a structures helps reinforce external focus on the marketplace. However, many
formal design choice organizations cannot make an either/or choice between internal and external
that groups people focus. As the external environment becomes increasingly complex, organization-
by both function and al leaders need to consider increasing the complexity of their internal structures.
product or product
and geographical
One choice available to organizations is the matrix structure. Exhibit 6‐3
region. depicts one type of matrix structure. In that organization, both divisional and
functional structures exist in an overlapping fashion, allowing for dual focus.
EXHIBIT 6-3
Matrix Chief Executive
Organizational Officer
Chart.
Marketing
R&D
Production
Procurement
Finance
Reinforcing New Behaviors 133
The requirement for dual focus might also arise from geographic demands.
ABB built a geographic matrix through three regional groupings—Europe/
Middle East/Africa, the Americas, and Asia—while simultaneously seeking seg-
ment focus through power, transmission and distribution, and industry and
building systems divisions. Strategic focus again lies at the heart of the organiza-
tion’s challenge. While functional and product divisions prioritize their focus,
matrix structures seek dual focus, attempting to move both quickly and efficiently.
The most striking—and for many people the most troubling—feature of the
matrix is the lack of a single reporting relationship. Consider the matrix structure
depicted in Exhibit 6‐3. Assume you are a market analyst housed in product line
C. Who is your boss: the manager of product line C or the head of marketing? The
answer, of course, is: both. In order to achieve the desired complexity of focus,
you will be reporting to and expected to be responsive to both simultaneously.
The notion of dual reporting relationships violates one of people’s most
deeply held assumptions about the desirability of a clear and unified chain of
command in organizations. By breaking that clear chain of command, matrix
structures require employees to deal with competing, even conflicting directions
from multiple bosses. Ambiguity, tension, even conflict—these are all likely out-
comes of a matrix. That likelihood undoubtedly accounts for the high failure
rate—perhaps as high as 70 percent—reported by organizations who have
attempted to implement a matrix.5
Despite their obvious complexities and ambiguities, when matrix organiza-
tions reflect the complexities and ambiguities in their external environment, they can
enable greater responsiveness. Because most organizations “have to do business
with multiple customers, multiple partners, multiple suppliers, and compete against
multiple rivals can multiple areas of the world,” writes Jay Galbraith, they will need
a structure that allows them to deal with multiple constituencies.6 In order to respond
to multiple constituencies, IBM currently maintains not two but three overlapping
structures: products (hardware, software, and business solutions), customer groups
(large corporations, governments, health care facilities, etc.), and geographic regions.
Building a FOCUS ON THE SUPPLY CHAIN The advent of sophisticated information technol-
Vocabulary of ogy and the geographic dispersion of technological excellence and knowledge
Change
Supply Chain
have encouraged organizations to focus on their supply chain. Organizations
activities called upon develop competitive advantage and create shareholder wealth through an inter-
by the organization dependent sequence of activities known as the supply chain.
to produce and The supply chain can be defined as “the separate activities, functions, and
delivery products business processes that are performed in designing, producing, marketing, deliv-
and services to the
custormer.
ering, and supporting a product or service.” 7 Horizontally linked structures
focus employees on the interrelated activities of the supply chain.
Horizontally linked structures usually supplement rather than replace
Building a existing functional or product structure in an organization. Dell Computers, a
Vocabulary of pioneer in supply chain linkages, relies on what founder Michael Dell calls “vir-
Change
tual integration.” Dell focuses its attention on “how we can coordinate our
Horizontally linked
structure a formal activities to create the most value for customers.”8 Companies as varied as Zara,
design choice that Wal‐Mart, Southwest Airlines, and Shouldice Hospital call upon horizontally
groups people along linked structures to coordinate supply chain activities in order to provide cus-
the supply chain tomers with a unique experience and their companies with a unique competi-
activities and
tive advantage.
processes that
produce, market, Zara, a fashion chain owned by Spain‐based Inditex (which also owns and
deliver, and service operates Pull & Bear, Massimo, and Dutti, among other retail formats), has suc-
the firm’s offerings. ceeded by organizing activities around its supply chain. Starting with a clearly
stated strategy—a focus on the ever‐changing tastes of trendy young shoppers—
Zara created raw material and design teams that could deliver their newly
designed products into Zara retail stores within 3 to 15 days.9 An organization
chart for Zara is presented in Exhibit 6‐4.
More traditionally structured apparel companies, where activities in the
supply chain are separate and unlinked, often take up to a year to move from
design to sale. Given the dynamic tastes of the rather fickle consumer base for
fashion, slowness often leads to unused inventory, price‐slashing sales, and waste.
EXHIBIT 6-4
Horizontally Linked Chief Executive
Structure at Zara.
Ware- Cutting
Designing Packaging
housing & Sewing
Value-Chain Team
Value-Chain Team
Value-Chain Team
Reinforcing New Behaviors 135
popular over the past two decades. As a percentage of total payroll costs, bonus-
es rose from 4 percent in 1991 to 9 percent in 2000.11
Most organizations select a mix of performance pay in order to shape
employee behavior. GE, for example, calls for a blend of different bonuses to
motivate executives, as indicated in the following company statement:
• Salary and Bonus—We pay salaries that are designed to attract and retain su-
perior leaders, and we pay annual bonuses to reward exceptional performance.
• Stock Options and Stock Appreciation Rights—We award these to provide
incentives for superior long‐term performance and to retain top executives
because the awards are fortified if the executive leaves before they become
fully exercisable five years after grant.
• Restricted Stock Units (RSUs)—We grant RSUs to more closely align execu-
tives’ interests with investors’ long‐term interests, to retain top executives
because the awards are paid out only to executives who remain with the
company for extended periods.
• Long‐Term Performance Awards—We use these to provide a strong incentive
for achieving specific performance measurements over multiyear periods.12
Organizations seek a mix of rewards in order to help ensure alignment
between employee behaviors and their strategic goals.
One question to be raised in introducing or redesigning a pay‐for‐perfor-
mance plan relates to level of aggregation: at what level of outcome should a
pay‐for‐performance incentive be targeted—the individual, the group or team,
or the organization? Pay for individual performance dominates the design of
compensation in the United States. Exhibit 6‐5 summarizes the various forms of
individual pay‐for‐performance plans.
EXHIBIT 6-5
Forms of Individual
Piece rate Employee earns all or part of a wage based on number of units Pay‐for‐Performance
produced Plans.
Commission Salesperson earns all or part of a wage based on number of
units sold
Merit pay Employee earns raise to base wage based on performance
evaluation
Bonus Employee earns extra payment based on performance
140 Chapter 6
EXHIBIT 6-6
Factors That May
Performance appraisals are inherently subjective, with supervisors evaluating Undermine
subordinates according to their own preconceived biases Effectiveness of
Emphasize individual rather than group goals that may lead to dysfunction conflict in Individual Pay-for-
Performance Plans.
the organization
Based on Luis
Encourage a short‐term orientation (the performance period being evaluated) at the
R. Gomez‐Mejia,
expense of long‐term goals
David B. Balkin, and
Merit pay raises become an annuity on which employees continue to draw regardless Robert L. Cardy,
of future performance Managing Human
Resources
The often lengthy time lag between actual performance and reward undermines (Englewood Cliffs,
perceived connection between the two NJ: Prentice‐Hall,
1995), p. 404 and
Many jobs cannot be individually isolated and precisely measured without taking into Edward E. Lawler
account complex interdependencies III, “Pay Strategy:
New Thinking for
Pay differentials between performance levels tend to be relatively small and therefore
the New
of questionable behavioral value
Millennium,”
Actual payout of program often determined by organizational factors beyond the Compensation and
control of individual employees and only indirectly related to actual performance Benefits Review 32
(January–February
2000), pp. 7–12.
Stock options are intended to tie the total compensation package of indi-
viduals to the performance of their organization.19 The goal, as articulated by the
board of directors of eBay, is to “align the interests of directors and executives
142 Chapter 6
with the interests of stockholders.”20 Favorable tax laws have made these plans
more popular in the United States than elsewhere, although a number of multina-
tional firms—PepsiCo, Bristol‐Myers Squibb, DuPont, and Merck among them—
have offered stock options to virtually all of their employees worldwide.21
The actual effectiveness of these various organization‐level performance
bonuses is unclear. Some sort of incentive tied to organization‐level performance
is a frequent characteristic of high‐performance companies.22 What is less certain
is whether the organization‐level performance bonus results in or from outstand-
ing performance. The cause‐and‐effect relationship between specific behaviors
and organizational outcomes may be far too vague, especially in large organiza-
tions, to create a powerful incentive on the part of individual employees.
Undoubtedly, the degree to which organization‐wide bonuses are accom-
panied by communication and feedback on firm performance, as well as the
empowerment of employees to impact performance, will enhance the plan’s
motivational impact. Tying all employees’ pay packages in some significant way
to the same organizational‐level outcomes may help in both a symbolic and real
way to communicate a mutuality of interests and concerns.
Building a
Vocabulary of Intrinsic and Extrinsic Rewards
Change
Extrinsic reward Incentive pay, regardless of the specific design, is an extrinsic reward: a reward
rewards (pay, external to the individual and provided by the organization. Money is the most
promotion, praise,
obvious and prevalent example of an extrinsic reward. Motivational theory tells
and so forth)
provided by the us that extrinsic rewards, although powerful, may not be terribly effective in
organization to driving long‐term behavioral change.
employees.
particular, can actually dampen internal motivation.24 Employees may, and often
do, find themselves behaving in a certain way because of the money attached to
the behavior rather than an internalized desire to undertake the behavior. And
the more attractive the reward is to that employee, the more likely it is to drive
out internal motivation.
Not all extrinsic rewards work against internal motivation and creativity.
Praise, which is an extrinsic reward, can enhance motivation by helping indi-
viduals feel competent and self‐determining. Even pay can be used in ways that
do not drive out motivation: when pay is used to attract individuals to an organi-
zation, it does not have a negative impact on motivation.
Rewards such as bonuses that are not tied a priori to specific outcomes but
are presented after the fact in recognition of particularly creative effort are likely
to lead to higher creativity in the future. The creativity benefit of such after‐the‐
fact bonuses is enhanced when those bonuses are coupled with constructive
feedback and tied to creative outcomes rather than any particular or specific
methodology for achieving those outcomes.25 Even so, intrinsic rewards are the
primary factors contributing to creativity; extrinsic rewards more typically
encourage routine behavior.
The second option for introducing new technology is one that applies tech-
nology in such a way that supports transformed behaviors and alters the required
skills. Some executives resist the transforming strategy for fear of losing control
and disrupting required discipline. “There has been a fear of letting it out of our
hands,” said one corporate vice president in reflecting a widespread resistance to
the use of IT to share performance data up and down the company. “That is why
information is so carefully guarded … Traditionally, we have thought that such
data can only be managed by certain people with certain accountabilities and, I
hesitate to say, endowed with certain skills or capabilities.”30 But other leaders,
including the chief of staff of the U.S. Army, see the transforming strategy as a
way of supporting the end of “business as usual” and the institutionalization of
new behaviors.
Conclusion
Leaders find interventions designed to alter the both at IBM.) Any change, when imposed from
hardwiring of their organization—structures, above, risks energizing resistance from the very
systems, and technologies—especially appeal- employees whose behavior needs to change.
ing. That appeal flows from the well‐reasoned The impact of incentive and technology
theory that structure and systems impact changes coming too early in the implementation
behavior. Because behavior must be altered as process runs an even greater risk. Leaders run
part of the change effort, the thinking goes, why the risk not just of failing to alter long‐term
not call upon new structures and systems early patterns of behavior but of altering patterns of
in the implementation effort to drive that behavior in an unintended, even unwelcome
change? way. That risk is enhanced when implementa-
Time and time again, such interventions tion starts from an inadequate and noninclusive
end up in disappointment. Instead of encourag- diagnosis or from inadequate training to ensure
ing new behaviors, structural change can provoke employees are capable of exercising the new
resistance, even sabotage. (Lou Gerstner ran into behaviors.
Reinforcing New Behaviors 147
When formal structures are changed in Desired patterns of new behavior are now rec-
Step 4 of the implementation process, they are ognized and supported, and become built into
experienced as reinforcers of new behaviors. the new hardwiring of the organization.
Discussion Questions
1. In comparing the efforts at Macy’s and IBM, how organization change? Can you think of examples
do you explain the differences in the way manag- when it would be useful to create new incentives
ers reacted to the organizational changes? early in a transformation process?
2. It has been said that, given the growing complex- 4. Can you think of examples from your own expe-
ity and dynamism of the world of business, all rience—at work or in the classroom—where the
organizations will have to adopt some type of a manner in which your performance was being
matrix structure. Do you agree or disagree with measured and rewarded worked against the goals
that argument? Explain. you were trying to achieve?
3. What is it about incentive systems that makes them
so attractive to leaders attempting to implement
Case Discussion
Read “Making the Problem Worse,” and prepare answers General Hospital solve the problem of medication
to the following questions: mistakes?
1. What went wrong? How can you explain how the 3. How might you have gone about solving the
technology actually led to more rather than fewer problem at Springfield General? To what extent, if
mistakes? any, would new technology have been helpful?
2. What theories of change implementation would
have helped the administrators at the Springfield
Springfield General
The chief administrators at the Springfield General Hospital (a disguised name),
a large urban teaching hospital, were determined to use technology to solve a
nagging and disturbing problem: medication mistakes.32
The Problem Prescribing errors, confusion over drugs with similar names,
inadequate attention to the synergistic effects of multiple drugs and patient
148 Chapter 6
allergies—those and other related errors that are lumped together under the
label “adverse drug event”—kill or harm more than 770,000 patients annually
in U.S. hospitals. In added health care costs alone, adverse drug events add sev-
eral hundred billion dollars a year. And the most common type of error—the
simplest to understand and, seemingly, to correct—is “handwriting identifica-
tion”: poor or illegible handwriting by the prescribing physician.
The Solution Administrators at Springfield General called upon a comput-
erized physician order entry (CPOE) system to solve the problem. CPOE worked
to ensure safety and accuracy by the following steps:
• All physician prescriptions for medicine and treatment would be entered
into the hospital’s IT network.
• Those computer entries would be available to all hospital staff, including
both treatment and pharmacy staff.
• The system would catch all prescription errors: incorrect dosages, duplicate
requisitions, patient allergies, and even adverse impact statements of mul-
tiple medications being prescribed to a patient.
• The system would also display the patient’s complete medical history as
well as the latest clinical guidelines for treatment.
Ample evidence existed that CPOE can and has been used to reduce both
errors and costs.
The Results Surprisingly, the results at Springfield General were stunningly
disappointing. Not only did the CPOE system not eliminate errors, it actually
increased adverse drug events.
A subsequent study identified a number of problems:
• Incorrect Dosage Information—“House staff often rely on CPOE displays
to determine minimal effective or usual doses. The dosages listed in the
CPOE display, however, are based on the pharmacy’s warehousing and
purchasing decisions, not clinical guidelines. For example, if usual dosages
are 20 or 30 mg, the pharmacy might stock only 10‐mg doses, so 10‐mg
units are displayed on the CPOE screen. Consequently, some house staff
order 10‐mg doses as the usual or ‘minimally effective’ dose.”
• Discontinuation Failures—“Ordering new or modifying existing medica-
tions is usually a separate process from canceling (discontinuing) an exist-
ing medication … medication‐canceling ambiguities are exacerbated by the
computer interface and multiple‐screen displays of medications … viewing
one patient’s medications may require 20 screens.”
• Patient Confusion—“It is easy to select the wrong patient file because
names and drugs are close together, the font is small, and, most critical
here, patients’ names do not appear on all screens. Different CPOE com-
puter screens offer differing colors and typefaces for the same information,
enhancing misinterpretation as physicians switch among screens. Patients’
names are grouped alphabetically rather than by house staff teams or
rooms. Thus, similar names (combined with small fonts, hectic worksta-
tions, and interruptions) are easily confused.”
How could this have happened?
Reinforcing New Behaviors 149
Endnotes
1. Janis L. Gogan and Lynda M. Applegate, Open and Benefits Review 30 (July–Aug. 1998),
Market, Inc.: Managing In a Turbulent Environment pp. 72–73.
(Boston, MA: Harvard Business School 15. Compensation and Benefits Review 29 (Mar.–Apr.
Publishing, 1996). 1997), p. 7; Compensation and Benefits Review 29
2. Ibid., p. 13. (Nov.–Dec. 1997), p. 18. The Hewitt Associates
3. Quoted from Raymond E. Miles and Charles C. survey results are reported in Kenan S. Abosch,
Snow, Fit, Failure, and the Hall of Fame: How “Variable Pay: Do We Have the Basics in
Companies Succeed and Fail (New York: Free Press, Place?” Compensation and Benefits Review 30
1994), p. 14. (July–Aug. 1998), pp. 12–22. A comparison of
4. Paul R. Lawrence and Jay W. Lorsch, Organization executive attitudes toward bonuses in the
and Environment: Managing Differentiation and United States, France, and the Netherlands can
Integration (Boston, MA: Harvard Graduate be found in Johannes M. Pennings, “Executive
School of Business Administration Division of R e w a rd S y s t e m s : A C ro s s ‐ N a t i o n a l
Research, 1967). Comparison,” Journal of Management Studies 30
5. Jay R. Galbraith, Competing with Flexible Lateral (Mar. 1993), pp. 261–273.
Organizations (Reading, MA: Addison‐Wesley, 16. Compensation and Benefits Review 29 (Nov.– Dec.
1994), pp. 101–102. 1997), p. 18.
6. Ibid., p. 13. 17. This was the conclusion of a study of cross‐
7. Arthur A. Thompson, Jr., and A. J. Strickland III, functional process teams in the U.S. electronics
Strategic Management: Concepts and Cases, 13th manufacturing industry. See Ann Majchrzak
edn (Boston, MA: McGraw‐Hill Irwin, 2003), and Qianwei Wang, “Breaking the Functional
p. 129. Mind‐Set in Functional Organizations,” Harvard
8. Dell is quoted in Joan Magretta, “The Power of Business Review (Sept.–Oct. 1996), pp. 93–99.
Virtual Integration: An Interview with Dell 18. The percentage and amount differed based on
Computer’s Michael Dell,” Harvard Business hierarchical level.
Review (Mar.–Apr. 1998), p. 75. 19. For a good summary of the many stock option
9. Ludo Van der Heyden, Marks & Spencer and plans available, see David G. Strege, “Employee
Zara: Process Competition in the Textile Apparel Strategies for Stock Based Compensation,”
Industry (France: INSEAD, 2002). Compensation and Benefits Review 31 (Nov.–Dec.
10. Based on Louis V. Gerstner, Jr., Who Says 1999), pp. 41–54.
Elephants Can’t Dance? Inside IBM’s Historic 20. “Stock Ownership Guidelines for Directors and
Turnaround (New York: Harper Business, 2002), Executive Officers,” eBay Investor Relations.
pp. 86–87. 21. Calvin Reynolds, “Global Compensation and
11. Michelle Conlin and Peter Coy, “The Wild Benefits in Transition,” Compensation and
New Work Force,” Business Week (Dec. 6, 1999), Benefits Review 32 (Jan.–Feb. 2000), p. 29.
pp. 39–41. 22. Jeffrey Pfeffer, The Human Equation: Building
12. Quoted in V. G. Narayanan and Lisa Brem, Profits by Putting People First (Boston, MA:
Executive Compensation at General Electric Harvard Business School Press, 1998),
(Boston, MA: Harvard Business School pp. 80–85.
Publishing, 2004), p. 8. 23. Edward L. Deci, “The Hidden Costs of
13. Thomas B. Wilson, Innovative Reward Systems Rewards,” Organizational Dynamics 4 (Winter
for the Changing Workplace (New York: McGraw‐ 1976), p. 62.
Hill, 1993), p. 49. 24. Edward L. Deci, “Effects of Externally
14. Peter V. LeBlanc and Paul W. Mulvey, Mediated Rewards on Intrinsic Motivation,”
“How American Workers See the Rewards of Journal of Personality and Social Psychology 18
Work,” Compensation and Benefits Review (1971), pp. 105–115, and “Intrinsic Motivation,
30 (Jan.–Feb. 1998), pp. 24–28; Jamie Hale Extrinsic Reinforcement, and Equity,” Journal
and George Bailey, “Seven Dimensions of Personality and Social Psychology 22 (1972),
of Successful Reward Plans,” Compensation pp. 113–120.
150 Chapter 6
25. Teresa M. Amabile, Creativity in Context 28. Richard E. Walton, “Social Choice in the
(Boulder, CO: Westview Press, 1996). Development of Advanced Information
26. This is a conclusion based on equity theory. See Technology,” Human Relations 35 (1982), pp.
George C. Homans, The Human Group (New 1073–1083.
York: Harcourt, Brace, 1950); Leonard R. Sayles, 29. Shoshona Zuboff, In the Age of the Smart
Behavior of Industrial Work Groups: Prediction and Machine: The Future of Work and Power (New
Control (New York: Wiley, 1958); Elliott Jacques, York: Basic Books, 1984).
Equitable Payment (New York: Wiley, 1961); 30. Quoted in Zuboff, In the Age of the Smart
George C. Homans, Social Behavior: Its Elementary Machine, p. 239.
Forms (New York: Harcourt, Brace, 1961); 31. Denise Grady, “Hospitals Make No Headway
J. Stacy Adams, “Toward an Understanding of in Curbing Errors, Study Shows,” New York
Inequity,” Journal of Abnormal and Social Times (Nov. 25, 2010), p. A1.
Psychology 67 (1963), pp. 422–436; J. Stacy 32. This case study is based on research published
Adams, “Inequity in Social Exchange,” in in Ross Koppel, Joshua P. Metlay, Abigail
Leonard Berkowitz, ed., Advances in Experimental Cohen, Brian Abaluck, A. Russell Localio,
Social Psychology, Vol. 2 (New York: Academic Stephen E. Kimmel, and Brian L. Storm, “Role
Press, 1965). of Computerized Physician Order Entry
27. Tom Ehrendfeld, Maggie Coil, Donald Berwick, Systems in Facilitating Medication Errors,”
Tom Nyberg, and Michael Beer, “The Case of Journal of the American Medical Association 293
the Unpopular Pay Plan,” Harvard Business (2005), pp. 1197–1203. The hospital is not iden-
Review 70 (Jan.–Feb. 1992), p. 22. tified in the article.
CHAPTER
7 Leading Change
At every stage of transformational change, from initial diagnosis to formal design changes,
leaders intervene to oversee and orchestrate implementation. This reliance on the effective
orchestration by leaders in a change process applies not just to top executives but also to
leaders throughout the organization. Implementation depends not just on oversight and
orchestration by individual leaders. Effective change demands the coordinated efforts of
multiple leaders.
Although the role of leaders in implementation underlies much of what has been
addressed earlier, this chapter will offer more focused attention on that leadership role. In
particular, the chapter will:
• Define effective leadership
• Explore the difficulty of enacting effective leadership
• Delineate the tasks associated with leading change
• Analyze the requirements for developing future leaders in an organization
First, we will examine the efforts of the chief executive officer (CEO) of Cisco Systems to
promote collaboration across the organization. As you read this introductory case, ask
yourself:
• What triggered the demand for collaboration at Cisco?
• What steps has John Chambers taken to promote and sustain collaboration?
• Can a CEO be successful in promoting collaboration if, like Chambers, he or she demands
that executives collaborate and then removes those who cannot and will not make the
change?
151
152 Chapter 7
UNDERSTANDING LEADERSHIP
Building a Cisco CEO, John Chambers was committed to building collaboration as a way of
Vocabulary of keeping his company agile and responsive to a rapidly shifting competitive and
Change technological environment. In demanding collaboration within his top team,
Leadership actions aligning rewards with desired new behaviors, and removing and replacing those
that mobilize
adaptive behavior
who could not or would not make the transition, he was exercising leadership.
within an Leadership can be understood as a set of activities or behaviors that mobilize
organization. adaptive behavior on the part of members of the organization.2
Leading Change 153
Second, the term mobilize implies that the mechanism used to help shape
behavior will be internalized motivation. Leader actions that result in compliant
reactions on the part of employees—following orders and adhering to rules in
order to achieve extrinsic rewards and/or to avoid negative consequences—fail
that definition of effectiveness. Mobilizing employees involves creating an inter-
nalized commitment to achieving the new goals of the organization. Leadership
behavior that creates dependency or alienation on the part of employees under-
mines mobilization; by definition, then, it is ineffective.3
Building a
The third aspect of effective leadership—mobilizing adaptive behavior— Vocabulary of
suggests that not all behaviors resulting from the actions of leaders are equally Change
desirable. The distinction is between leadership and the exercise of power. Formal leader a
Formal leaders may exert a powerful influence over followers without exercis- designated
ing effective leadership. Powerful individuals can induce followers to take individual who is
granted authority,
actions that may be harmful to the organization (for example, Richard Fudd at usually based on
Lehman Brothers) and, ultimately, to themselves. As powerful and influential as hierarchical position,
these individuals are, they are not exercising effective leadership. Leadership is in an organization.
154 Chapter 7
effective when employee behavior is shaped in a way that supports the long‐
term best interests of employees and the organization.4
EXHIBIT 7-1
Core Tasks of
Change Leadership. Develop and articulate clear and consistent sense of purpose and direction for the
organization
Establish demanding performance expectations
Enable upward communication
Forge an emotional bond between employees and the organization
Develop future change leaders
Leading Change 155
EXHIBIT 7-2
Shared Purpose
Supports Common sense of direction and goals allows employees at Helps Change
decentralized multiple levels to make decisions that further overall purpose Implementation.
decision making of organization
Supports enhanced Employees at all levels understand purpose and goals and can
autonomy respond quickly and effectively to dynamic environment
Supports Employees working toward a common goal better able to
coordination coordinate their efforts
156 Chapter 7
Building a Jack Welch talked about stretch goals as a way of keeping employees
Vocabulary of focused on outstanding performance during a transformation. During his tenure
Change
Stretch goals clearly
as head of General Electric (GE), Welch’s emphasis was largely on financial goals.
articulated and Welch’s successor, Jeff Immelt, refocused expectations to emphasize innovation
challenging and customer responsiveness as GE’s new stretch targets.
performance Establishing demanding performance goals supports change by focusing
expectations. employee motivation and commitment on the goal of achieving outstanding
performance.10 It is that interconnection between achieving outstanding perfor-
mance and employee commitment to change that makes this a core task of change
leadership. It is the conviction that, given high performance goals—coupled with
the requisite levels of autonomy and resources—employees will adopt the behav-
iors required to meet those goals.
way that not enabling upward communication can lead to difficulties during a
change process.
ASDA’s leaders formulated a new strategy for the chain, previously known
as a discount store for working‐class customers. They would move upmarket to
capture highly profitable wealthy shoppers. As they directed that new strategy
from above, however, store managers experienced a troubling reality: Old, loyal
customers were discarded without being replenished from this new, desired
niche. Upper management failed to create mechanisms to allow store managers
to communicate upwardly that the chain’s strategy was seriously flawed. Top
management never learned—at least until the company faced bankruptcy—that
their new strategy was not working.
To help ensure that knowledge lodged at lower hierarchical levels is cap-
tured, discussed, and acted upon, leaders can enable upward communication by
three steps:
1. Top executives can acknowledge, both to themselves and to the organiza-
tion, that they do not know everything that needs to be known about the organi-
zation and its competitive environment. That acknowledgment needs to include
the explicit recognition that they need to learn from lower‐level employees.
2. Executives can create channels for information to flow upward in an
uncluttered and unfiltered way. These channels often take the form of direct
contact and communication between upper management and lower‐level
employees. Taken by themselves, such tactics—management‐by‐walking‐
around, internal comment, and suggestion cards, “graffiti walls” where employ-
ees’ comments are posted—may seem superficial and programmatic. They can
and do become real when upper management seriously seeks and values such
input.
3. Executives can also push decision‐making authority down to lower levels,
allowing employees to exert authority and take responsibility for the organiza-
tional–environmental interface.
For change implementation to stay on track, knowledge of whether inter-
ventions are working must be communicated upward and shared in a timely
and candid way with top management.
Effective leaders take specific steps to ensure that communications move both
upward and downward.
158 Chapter 7
aim of change, but there needs to be more. Emotional bonds are much more than
niceties of a pleasant business environment; they support outstanding perfor-
mance and create a work context open to change.
Failure to address the requirement for effective leadership can prove disas-
trous. Paul Lawrence and Davis Dyer documented how the U.S. steel industry
suffered from inadequate development of leaders.19 Whether it was U.S. Steel,
Bethlehem Steel, or the other companies that dominated the industry for decades,
leadership development followed a common pattern. Future executives typically
entered their organizations at a low level, worked their way up through a single
function, then assumed top positions without the requisite skills to exercise effec-
tive leadership. Inadequate, poorly developed leadership drained the capacity of
those companies to respond to the tide of global competition in the 1980s and
1990s. Nonadaptiveness in an organization or even an industry can be traced in
no small part to the manner in which leaders are developed.
EXHIBIT 7-3
Organizational
Barriers to Effective Practice Barrier
Leadership Rapid upward Prevents individuals from having to live with
Development.
mobility consequences of their actions and learning from their
Based on John P. successes and failures.
Kotter, The
Leadership Factor Movement within Individuals never gain knowledge of total organization,
(New York: Free a single function particularly of how subunits fit together.
Press, 1988). Short‐term performance Individuals get better at tactical and operational
pressures management than at long‐term strategic and visionary
leadership.
Recruitment for specific Internal employee pool is thin on individuals with real
technical skills leadership potential.
Rapid upward movement of personnel through the hierarchy can work to hurt
an organization’s ability to develop effective leadership.
In order to learn how to lead change effectively, John Kotter suggests future
leaders experience a number of situations:
• Work through coalitions rather than relying on hierarchical authority.
• Formulate visions and strategies rather than planning and managing
budgets.
• Communicate purpose and build commitment rather than issuing reports
and creating policies.
• Think in long‐term time horizons rather than immediate results.
• Work with an organization’s culture and not its formal structures.20
Approaching leadership development in a strategic manner while under-
standing that effective leaders can be “made” through experience, feedback,
assessment, and training will provide a source of future leadership and support
change.
Leading Change 161
The management style of the chief executive can also influence the behaviors
of other organizational leaders. The key variable here is the degree to which the
chief executive insists on a tight hold over the reins of decision making. Shared
leadership requires decentralized decision making. In a highly centralized situa-
tion, the chief executive controls the decision making, while other top executives
engage in what is essentially political behavior aimed at preserving one’s own
position, turf, and power. Responsiveness to a highly dynamic environment
requires that multiple leaders be involved in decision making, particularly around
the question of how the organization’s purpose and strategy are to be implemented.
Finally, top managers often have a difficult time engaging in disagreement
and debate among gthemselves over important strategic issues.21 Executives often
carry with them an assumption concerning disagreement and debate that also
works against the desire to enhance employee influence. That view can be stated
quite simply: Consensus is good, argument is bad. In what has been labeled the
“unity view” of organizations,22 managers often believe that diversity of opinions,
debate, and conflict are best avoided.
It was not until he aligned his actions with his goals and allowed real decision
making on the part of his top executives that he was able to shape a real problem‐
solving team.
Leading Change 163
Conclusion
It is often said in organizations that if you are the organization enhances the internalized
not leading change, you are not leading. That motivation so critical in a change effort, which,
expression captures the central role of leader- in turn, helps energize learning and adaptation.
ship to a change effort. Developing future leaders and creating effective
The intervention of leaders is critical in teamwork at the top will greatly enhance an
determining the effectiveness of an organization’s organization’s ability to adapt, change, and
change implementation. In order to mobilize maintain outstanding performance.
adaptive behavior on the part of organizational Just as a leader cannot run an organiza-
members, leaders engage in six core tasks, start- tion on her own, no individual leader can
ing with the articulation of a sense of purpose and change an organization. Effective change lead-
direction for the organization coupled with ership requires collaborative partnership
demanding performance goals. Employees can among those individuals who hold positions of
then adapt to changing circumstances by finding formal authority and employees at other orga-
new and innovative ways of meeting the perfor- nizational levels who can participate in the pro-
mance expectations while aligned with the com- cess of leading change. Entering into such a
pany’s purpose and direction. partnership involves formal leaders ceding
Communication channels, especially their unilateral control and allowing for a kind
upward communication, support new behav- of shared authority in which multiple parties
iors and help ensure that leaders will learn from participate. The goal, of course, is to enhance
employees at all levels about the effectiveness of the likelihood that change will produce results
their efforts. Building employee commitment to that benefit the organization as a whole.
Discussion Questions
1. What leadership steps did John Chambers take to 4. Why is a strong emotional bond with the com-
ensure that Cisco remained flexible and adaptive? pany especially important in times of change?
2. It is said that if you are not leading change, you What specific steps can leaders take to create such
are not leading. Do you agree or disagree with a bond?
that statement? Explain. 5. Do you agree that traditional approaches to lead-
3. Why is upward communication so difficult to ership development can hurt a company’s effort
achieve in organizations? Explain the barriers to develop effective change leaders? Explain.
that exist and how leaders might overcome them.
Case Discussion
Read “Leading Change—Carlos Ghosn at Renault and 3. What are the beliefs and values of Ghosn con-
Nissan,” and prepare answers to the following questions: cerning leadership and change? Show how those
1. What are the strengths and weaknesses of Carlos beliefs and values have been enacted at his vari-
Ghosn’s approach to change leadership at Nissan? ous leadership positions.
To what extent has he succeeded in mobilizing 4. Has Ghosn “walked the talk” on his leadership
adaptive behavior on the part of employees? style, that is, aligned his actions with his words?
2. Using the core tasks of leadership (Exhibit 8‐1),
evaluate Ghosn’s change leadership at Nissan.
164 Chapter 7
the United States from the popular Datsun to the completely unfamiliar Nissan.
Additionally, they allowed their popular Z car to drift and decline with little infu-
sion of innovative technology. Less obvious but even more troubling was Nissan’s
inability to find flexibility in its relationship with suppliers. Their cost of parts
ranged from 15 percent to 20 percent above domestic competitors. Aggressive
competition from Honda in the United States forced Nissan to take a $1,000 dis-
count on their cars.
Sales declined, but costs did not. Despite several announced restructuring
plans, Nissan executives achieved little real improvement. “Powerful trade
unions, a societal taboo against layoffs and institutional inertia stalled any real
changes.” After the company borrowed money from the government‐owned
Japan Development Bank to stay afloat, executives decided to court potential
partners. Talks with both DaimlerChrysler and Ford proved fruitless. France‐
based Renault agreed to an alliance. As a precondition of the alliance, Nissan
executives agreed that Renault’s second‐in‐command, Carlos Ghosn, would
come to Japan as COO under CEO Yoshikazu Hanawa. The agreement was
announced on April 15, 1999—and the Ghosn era at Nissan began.
Carlos Ghosn
Ghosn was born in Brazil in 1952 to a French mother and Lebanese father. He
moved to Lebanon at the age of six to attend a French Jesuit school. He received
his college education in Paris, first at the Ecole Polytechnique and then at the
Ecole des Mines de Paris. Representatives from Michelin, a privately held French
tire company, approached Ghosn in March 1978 while he was still a student.
They were looking for French‐educated engineers who could speak Portuguese
(Ghosn’s first language) to help them build a market in Brazil. Ghosn accepted
their offer and worked his way through several manufacturing positions in
France, South America, and the United States before joining Renault.
Ghosn at Renault
In October 1996, Ghosn joined Renault when CEO Louis Schweitzer offered him
the number two position (with potential succession to the top position). Ghosn
had already developed a philosophy of change leadership at Michelin based on
three premises:
• Assume nothing (find answers within the company).
• Work fast.
• Earn trust and respect with strong results.
At Renault, his formal assignment was to run engineering, manufacturing,
and purchasing. However, Ghosn’s main responsibility was to cut costs.
Renault Ghosn’s early analysis of Renault’s problems led him to conclude that
the company culture emphasized narrow, functionally based thinking at the
expense of a larger strategic view:
Businesses have always tried to reduce costs … I don’t see how one can
manage a business without keeping one eye glued to expenses. It’s a fantasy
to think otherwise. … There have been very few successful extravagant cap-
tains of industry.
losses of $250 million for the year. The company had posted losses seven out of
the previous eight years. Their domestic market share had sunk from 34 percent
in 1974 to under 19 percent in 1999, their global market share from 7 percent to
under 5 percent.
Ghosn at Nissan
Upon his arrival in Japan, Ghosn announced that his goal was not to advance the
interests of Renault but rather “to do everything in my power to bring Nissan
back to profitability at the earliest date possible and revive it as a highly attrac-
tive company.” He realized the delicate position in which he found himself:
The challenge, he said, was to save the business without losing the company.
While he was not the first Westerner to take the reins of a Japanese auto
company (an American had led Mazda after Ford purchased the company), the
local press still wondered how a Westerner would fit in and be able to adjust.
Ghosn held no such concerns:
Top management is highly visible. What we think, what we say, and what
we do must be the same. We have to be impeccable in ensuring that our
words correspond to our actions. If there are discrepancies between what
we profess and how we behave, that will spell disaster. Included in this is
our accountability. We must be committed to the responsibilities we’ve
agreed to. When we don’t deliver, we have to face the consequences. The
Japanese culture is a very proud culture. Our workers and managers want
to succeed. For that matter, so do the unions inside Nissan. They want to be
proud of their company and their management. They need management to
manage. And good management involves accountability.
Leaders, in his view, must do what they say and say what they do.
Early Diagnosis
Between April and late June 1999, Ghosn toured Nissan plants, subsidiaries, and
dealerships in Japan, the United States, Europe, and Taiwan. He had learned
from his experience at Michelin to start change without any preconceived ideas:
Performance numbers told him a great deal about Nissan but not the under-
lying causes of their problems. “You have to go out in the field to see what’s going
on.” Ghosn engaged in a process he called “deep listening,” speaking to over
5,000 people:
I asked people what they thought was going right, what they thought was
going wrong, and what they would suggest to make things better. I was
trying to arrive at an analysis that wouldn’t be static but would identify
what we could do to improve the company’s performance. It was a period
of intensive, active listening. I took notes. I accumulated documents that
contained very precise assessments of the different situations we had to
deal with, and I drew up my own personal summaries of what I learned. In
the course of those three months, I must have met more than a thousand
people.
Ghosn’s diagnostic tour built a good deal of hope and high expectations.
Almost immediately, Ghosn announced three changes based on decisions
he had arrived at on his own:
1. The “official language” of Nissan would become English and all top mana-
gement meetings would be held in English. Executives who did not learn
English immediately would have to leave the company.
Leading Change 169
Ghosn was enacting what he considered to be his primary role: “The only
power that a CEO has is to motivate. The rest is nonsense.”
Cross‐Functional Teams
To enrich his diagnosis and specify action plans, Ghosn returned to cross‐
functional teams:
collect data. In total, the effort involved about 500 people. Ghosn gave the teams
three months to review the company’s operations and make recommendations.
Only three explicit rules governed the activities of the teams. First: “Nothing
is off limits to discuss and explore. Teams are not to be hindered by traditions or
avoid sensitive corporate issues.” Second: “Teams had no decision‐making
power. That was left in the hands of the executive committee.” And third: “Only
one issue is non negotiable: the return to profit.”
Ghosn was tough and demanding on team members. When the purchasing
team, for example, came back with a plan to reduce costs by 10 percent over
three years, Ghosn’s response devastated them. “Ghosn rejected our recommen-
dations outright,” recalled a team member. “He told us they were not aggressive
enough. He told us to come back with recommendations that will yield 20 per-
cent savings over the next three years.” Far from being discouraged, the group
went back to work. After what was recalled as “a wrenching two weeks of hard
work and tough negotiations,” the group met Ghosn’s expectations with recom-
mendations that, in retrospect, seemed obvious.
“Mr. Ghosn is always challenging us to make higher commitments and tar-
gets,” said an executive. “We [constantly] talk about challenge and stretch.” Added
another executive, “I have never worked for anyone who is so demanding.”
or I’ll quit … this struck a chord. [Fellow] executive committee members were
obviously surprised when they heard of my remark.”
The NRP contained several significant departures from traditional
Japanese approaches to management. Nissan’s relationship with suppliers, for
example, represented the keiretsu system that linked large manufacturers, like
Nissan, to its suppliers often through cross held stock. “The keiretsu was like a
big family,” noted a reporter. “In the 1980s it was considered one of the key
components of the success of Japanese manufacturing, as the cozy relation-
ships ensured that manufacturers were delivered high quality parts, manufac-
tured to specification, as they were needed.” With suppliers now placing
Nissan at a considerable cost disadvantage, Ghosn targeted the system. The
number of suppliers would be cut in half, and they would be expected to cut
costs by 20 percent by 2003.
Additionally, all purchasing would be centralized. Said Ghosn, “Purchasing
represents 60 percent of our total costs, or a minimum of 58 percent of our net
sales. Today, Nissan buys parts and materials on a regional basis, or even in cer-
tain areas on a country basis. This will stop immediately.” From that point
onward, purchasing would be centralized and globalized.
Traditional human resource policies would also be changed. Said Ghosn:
Like other Japanese companies, Nissan paid and promoted its employees
based on their tenure and age. The longer employees stuck around, the
more power and money they received, regardless of their actual perfor-
mance. Inevitably, that practice bred a certain degree of complacency, which
undermined Nissan’s competitiveness.
The revival plan sent shock waves not just through the company but
through the entire nation. Japan’s stock market reacted by dropping Nissan’s
price a full 20 percent. Ghosn was not alarmed:
Once again, Nissan made good on its promises. “The story of Nissan’s
revival is now complete.”
Moving Up
In April 2005, Ghosn officially returned to France to run Renault, announcing
that he would continue to oversee Nissan. “I won’t be a part‐timer, but one CEO
with two hats.” Forty percent of his time, he said, would be spent in Japan (with
Toshiyuku Shiga serving as Nissan COO), 40 percent in France, and the rest glob-
ally. In fact, Ghosn played a third role as well. The alliance board of directors—
the body designated to oversee the strategy of the alliance as well as any and all
activities undertaken jointly by Renault and Nissan*—had been headed jointly
by the CEOs of Renault and Nissan, as well as five senior executives from each.
With Ghosn now serving in both CEO roles, he became, in essence, the chairman
of the joint board.
“It is very flattering,” said Ghosn of his emergence as a kind of global
superstar, “but at the same time you know that you are as good as your last quar-
ter results or your last six‐month results or your last year results. I know very
well the rules. As long as you perform, you are good. Your management is as
good as your performance.”
*Joint activities included shared purchasing, shared research on fuel cell technology, shared factories
in Mexico and Brazil, and shared car platforms.
Leading Change 173
Endnotes
1. John Chambers quoted in “The HBR Interview: (Feb. 1996), pp. 122–149; Jon R. Katzenbach and
John Chambers,” Harvard Business Review (Nov. Jason A. Santamaria, “Firing Up the Front
2008), p. 77. Information used for this case Line,” Harvard Business Review (May–June
comes from that interview, as well as Matt 1999), pp. 107–117.
Richtel, “A Cheerleader for a Company in a 13. Information on Southwest Airlines is from Jody
Midlife Funk,” New York Times (June 23, 2002), Hoffier, The Southwest Airlines Way (New York:
and Adam Bryant, “In a Near‐Death Experience, McGraw‐Hill, 2003), and James L. Heskett,
a Corporate Rite of Passage,” New York Times Southwest Airlines 2002: An Industry Under Siege
(Aug. 2, 2009). (Boston, MA: Harvard Business School Publish-
2. This definition of leadership as mobilizing ing, 2003).
adaptive behavior is offered by Ronald A. 14. Paul R. Lawrence and Nitin Nohria, Driven:
Heifetz, Leadership Without Easy Answers How Human Nature Shapes Organizations (San
(Cambridge, MA: Belknap Press, 1994). Francisco, CA: Jossey‐Bass, 2001).
3. Ibid., p. 20. 15. Quoted in Beer, Eisenstat, and Spector, The
4. John P. Kotter, The Leadership Factor (New York: Critical Path to Corporate Renewal, p. 85.
Free Press, 1988), p. 17. 16. James C. Collins and Jerry I. Porras, Built to
5. See Bert Spector, “From Bogged Down to Fired Last: Successful Habits of Visionary Companies
Up: Inspiring Organizational Change,” Sloan (New York: Harper Business, 1994).
Management Review 30 (Summer 1989), pp. 17. Ron Morris, “Great Leaders Are Born; Great
29–34. Managers Are Made,” Techyvent Pittsburg,
6. Jacques Steinberg, “They Know All the Stupid (Nov. 7, 2005).
Sitcom Writer Tricks,” New York Times (Sept. 11, 18. John Baldoni quoted at www.johnbaldoni.com.
2005), sec. 2, p. 90. 19. Paul R. Lawrence and Davis Dyer, Renewing
7. Christopher A. Bartlett and Sumantra Ghoshal, American Industry (New York: Free Press, 1983).
“Changing the Role of Top Management: 20. John Kotter, Leading Change (Boston, MA:
Beyond Strategy to Purpose,” Harvard Business Harvard Business School Press, 1996).
Review (Nov.–Dec. 1994), p. 82. 21. See Kathleen M. Eisenhardt, Jean L. Kahwajy,
8. Jim Collins, Good to Great: Why Some Companies and L. J. Bourgeois III, “How Top Management
Make the Leap . . . and Others Don’t (New York: Teams Can Have a Good Fight,” Harvard
Harper Business, 2001), p. 30. Emphasis in the Business Review (July–Aug. 1997), pp. 77–86.
original. 22. Gibson Burrell and Gareth Morgan, Sociological
9. See Michael Beer, Russell A. Eisenstat, and Bert Paradigms and Organizational Analysis (London:
Spector, The Critical Path to Corporate Renewal Heinemann, 1979).
(Boston, MA: Harvard Business School Press, 23. Victoria Emerson, “An Interview with Carlos
1990). Ghosn,” Journal of World Business 36 (Spring
10. Edwin A. Locke and Gary P. Latham, Goal 2001), p. 9.
Setting: A Motivational Technique That Works! 24. Ralph Stayer, “How I Learned to Let My
(Englewood Cliffs, NJ: Prentice‐Hall, 1984). Workers Lead,” Harvard Business Review (Nov.–
11. Dvora Yanow, “Translating Local Knowledge at Dec. 1990), p. 66.
Organizational Peripheries,” British Journal of 25. This case is based on the following publica-
Management 15 (2004), pp. 9–25. tions: Michael A. Cusumano, The Japanese
12. Roderick D. Iverson and Parimal Roy, “A Casual Automobile Industry: Technology and Management
Model of Behavioral Commitment: Evidence at Nissan and Toyota (Cambridge, MA: Council
from a Study of Australian Blue‐Collar on East Asian Studies, 1985); Emily Thornton,
Employees,” Journal of Management 20 (1994), “Remaking Nissan,” Business Week, (Nov. 15,
pp. 15–41; Roderick D. Iverson, “Employee 1999), p. 70; Stephane Farhi, “Ghosn Sees Fast
Acceptance of Organizational Change: The Role Start at Nissan,” Automotive News 73 (Apr. 5,
of Organizational Commitment,” International 1999), p. 1; S. Strom, “In a Change, Nissan
Journal of Human Resource Management 7 Opens Annual Meeting to Press,” New York
174 Chapter 7
Times (June 26, 1999), p. C2; Chester Dawson, (New York: HarperCollins, 2003); Brian
“The Zen of Nissan,” Business Week, (July 22, Bremmer, “Nissan’s Boss,” Business Week (Oct.
2002), p. 142; Carlos Ghosn, “Saving the 4, 2004), p. 50; Carlos Ghosn and Philippe Ries,
Business Without Losing the Company,” Shift: Inside Nissan’s Historical Revival (New
Harvard Business Review (Jan. 2002), Michael York: Currency, 2005); “Nissan Reports Record
Yoshino and Masako Egawa, Nissan Motor Co., Results for FY04,” Japan’s Corporate News (May
Ltd., 2002 (Boston, MA: Harvard Business 25, 2005), p. 1 ( www.japancorp.net/Article.
School Publishing, 2002); Michael Yoshino and Asp?Art ID=9931) James Brooke, “Nissan’s Mr.
Perry L. Fagan, The Renault‐Nissan Alliance Fix‐It Is the Talk of Detroit,” New York Times
(Boston, MA: Harvard Business School (Nov. 19, 2005), p. C4; Laurence Frost,
Publishing, 2002); David Furlonger, “Back from “Renault’s Chief Losing Support as Share Price
the Brink of Failure,” Financial Mail (June 28, Drops,” International Herald Tribune (Sept. 8–9,
2002), p. 102; Carlos Ghosn, speech at INSEAD 2007), p. 13.
Global Leader Series, September 24, 2002; Tim 26. For background on Nissan, see Michael A.
Larimer, “Japan, Nissan and the Ghosn Cusumano, The Japanese Automobile Industry:
Revolution,” Chazen Web Journal of International Technology and Management at Nissan and Toyota
Business (Spring 2003), p. 5; David Magee, (Cambridge, MA: Council on East Asian
Turnaround: How Carlos Ghosn Rescued Nissan Studies, 1985).
CHAPTER
8 Going Green
In recent years, there has been a virtual stampede of executives proclaiming their desire to
“go green”; that is, to reduce or eliminate the negative impact of their business activities on
society and the planet. For some, this proclamation amounts to little more than a public
relations gimmick. Others, though, are genuinely committed to meeting the needs of their
shareholders, customers, employees, host communities, and even the larger global
community. These executives are looking at the processes their companies use to develop,
manufacture, distribute, and perhaps even recycle their own products. They are seeking to
develop products and services in ways that are compatible with what is being called
“sustainability.” For these businesses, there are many technical questions: how to reduce
waste, produce more efficiently, and so forth. They also face another, perhaps less obvious
challenge. Going green is about more than new tools and techniques; it also involves
organizational transformation.
We are not focusing here on companies founded on positive values concerning the social
responsibility of business and the need to be a steward of a just and healthy planet. Patagonia,
Ben & Jerry’s, Newman’s Own, and the Body Shop are examples of companies in which the
founders embedded values of social responsibility into the company’s culture. These types of
companies, however, are not the focus of this chapter.
Instead, the chapter looks at companies that were founded on a different set of
assumptions and values. These companies viewed regulations concerning the environment
and the treatment of employees from a compliance perspective. Rules were to be either
followed, or occasionally even circumvented.
When a company with one strategy and set of values decides to “go green,” it will need
to engage in a change effort.* And it is a change that is transformational in nature. The chapter
will focus on the organizational transformation involved in going green. In particular, the
chapter will:
• Present the key concepts of sustainability and the triple bottom line
• Examine going green as an organizational transformation
*In this chapter, “going green” and “sustainability” will be used interchangeably.
175
176 Chapter 8
• Articulate the steps that are part of that particular transformation process
• Delineate the role of leadership in creating and maintaining a green culture
within an organization
Before doing so, we will examine an attempt by a large athletic shoe
company to go green. As you read this introductory case, ask yourself:
• What was the trigger event for Nike?
• What steps did Nike take to transform itself?
• How successful has Nike been in its effort to go green?
†
Newsweek looks at environmental impact, green corporate policies, and the company’s reputation
among corporate social responsibility experts.
Going Green 177
suppliers on one end of the supply chain and manufacturers on the other‡) were
earnest but perfunctory. The company’s small Corporate Social Responsibility
(CSR) function had little clout with line managers. The whole effort was seen as
somewhat peripheral to the business of designing and selling athletic shoes
around the world.
That approach began to change in 2002. Said Winslow, “We started to create
an overarching strategy of what it meant to be a more sustainable company.” All
goals were now translated into dollars and cents impact. In 2009, the CSR depart-
ment became the Sustainable Business and Innovation (SBI) department. That
name change embedded the sustainability effort more explicitly in the compa-
ny’s drive for innovative products. In a company statement, Nike said,
“Sustainable Business and Innovation is an integral part of how we can use the
power of our brand, the energy and passion of our people, and the scale of our
business to create meaningful change.” The company announced its Considered
Design process for new product development, requiring that issues such as recy-
cling and waste not be after‐thoughts to product design. Rather, they were to be
taken into consideration at the very earliest stages of new product development.
The move from CSR to Sustainable Business and Innovation was more than
just a name change. The vice president of SBI was placed on Nike’s strategic
leadership team in order to participate in decision making concerning mid‐ and
long‐term plans. The department’s staff was housed within product and
geographic groups, reporting matrix‐style to both line managers and the vice
president.
Other organizational changes intended to fuel Nike’s sustainability effort
included:
• The creation of internal audit teams to track labor practices and waste in
facilities around the world.
• Active lobbying by company representatives to influence labor standards
and regulations in the countries where manufacturing activities were oc-
curring.
• Changing the incentive offered to supply chain partners away from cost
savings, placing heavier emphasis on local labor conditions.
• Reengineering inventory control systems in order to avoid last minute
rushes which encouraged supply chain partners to circumvent Nike’s sus-
tainability standards.
Products began to emerge that were designed at the outset—the Trash Talker, for
instance, made entirely with recycled materials (trash)—to be eco‐friendly. The
company opened shoe recycling centers, using the material not only for its own
shoes but also to be donated to schools and communities for use in building
tracks.
To be sure, Nike possessed some advantages in its change to green. For one,
the founder and chairman remained committed and actively involved. Then too,
Nike’s customer base tended to be young, active, and affluent: aware of social
‡
Nike outsourced all manufacturing and assembly; the company mainly performed design and
marketing.
178 Chapter 8
issues and willing to pay for green products. Celebrity product sponsors, most
notably Michael Jordan, were excited to have their names associated with sus-
tainability efforts. And Nike’s “Just Do It” corporate slogan captured a company
commitment to remaining a market leader.
Building a The issue of business organizations going green is one that is mired in sig-
Vocabulary of nificant controversy. To start with, what is the proper role of business in our
Change society? Do businesses have a stewardship role over the planet or should the
Compliance actions of
an organization
focus of corporate activity be solely on enhancing profitability? Some of the key
designed to meet points of that debate, which has been going on for decades, are summarized in
requirements Exhibit 8‐1. Even when businesses accept a degree of responsibility, questions
imposed by law. can be raised such as: what is the nature of that responsibility, and how should
it best be enacted?
EXHIBIT 8-1
Is This a Proper
It may surprise you to know that debates about the social obligations of businesses go
Role for Business?
back decades. The first dean of the Harvard Business School, Wallace Donham, insisted
that business executives had a responsibility not just to their enterprise but to the
society in which their businesses operated. In a 1927 speech, he argued that the
“development, strengthening, and multiplication of socially‐minded” executives was
“the central problem of business.” In the aftermath of World War II, Harvard
readjusted its curriculum in order to help business students develop “an integrated
social and economic philosophy.”3
There have been equally spirited augments against the notion that business
has a larger social and environmental responsibility. Harvard Business School professor
Theodore Levitt suggested that the dubious notion of a larger responsibility for business
detracted attention from the main job of corporations. “The business of business is
profits”; anything else was a dilution of effort. American business leaders would stand
“a much better chance of surviving if there is no nonsense about its goals—that is, if
long‐run profit maximization is the one dominant objective in practice as well as
theory.” Nobel Prize winning economist Milton Freedman added his voice in a famous
1970 article titled, “The Social Responsibility of Business Is to Increase Profits.”4
Going Green 179
Although the debate has been ongoing for years, the most recent pressure
for businesses to look at their impact on the environment can be traced to 1984,
when an India‐based subsidiary of Union Carbide experienced an environ-
mental, social, and economic disaster. A chemical leak from its plant in Bhopal
resulted in thousands of deaths and the devastation of the community. What
was widely considered to be the worst industrial catastrophe in history sparked
a succession of international organizations—led by the United Nations—to
look at an appropriate balance between the economic requirement for develop-
ment and growth, societal needs for human dignity and rights, and environ-
mental needs for sustainability.5 Very quickly, the role of business institutions
attracted attention both as contributors to the “problem” (placing financial
returns above concerns for people and the planet) and for their potential to
lead the way to a solution.
The Bhopal chemical leak of 1984 proved to be a major trigger event in look-
ing at the social and ecological responsibilities of companies.
Although there is a great deal of controversy about the triple bottom line, it is
an important step toward aligning business with sustainability concerns.
180 Chapter 8
Government regulations are the main motivation for going green in the
United States; in Europe, the major factor is customer preferences.
Simon Zadek has suggested that organizations travel through five stages of
responsiveness to issues of sustainability:12
• Defensive stage: company denies claims that they are responsibility for
negative outcomes.
• Compliance stage: company accepts responsibility and costs of following
rules and legislation as “the cost of doing business.”
• Managerial stage: company integrates sustainability objectives into the
management goals at multiple levels of the organization.
Going Green 181
EXHIBIT 8-2
Performance
Advantage Gained: By: Advantages of
Lowered cost of operating Elimination of waste Going Green.
In addition to cost savings and image building, going green offers “an incred-
ible fountainhead for innovation.”
Costs are down, so it’s saving money. Products are better, which
means the top line is better. People are motivated and galvanized,
which means employees’ morale and engagement is up. And the
goodwill of the marketplace is astonishing. I don’t know what else
provides this kind of business case: costs are down, products are bet-
ter, people are motivated, and customers are receptive—and we’re
winning market share.17
“Any notion that companies need to make a tradeoff between financial and
environmental performance was simply a false choice,” insisted Anderson. There
is no trade-off.
Ultimately, the leadership of the organization will need to bear the responsibility
for setting a green culture in which sustainability becomes interwoven into the
fabric of the organization.
territory. In that regard, going green starts when top leadership offers a vision
about what is meant by going green:
Early diagnostic efforts will need to include not just the company itself, but
also its supply chain partners.
Supply chain partners are the companies that provide services, goods, or
raw materials that are needed to design, produce, market, deliver, and support a
company’s offer. In the case of McDonald’s, for instance, supply chain partners
provide meat, buns, potatoes, and other key ingredients of the product. In order
to promote sustainability across its supply chain, McDonald’s created the Supply
Chain Working Group in 2006.28 The mission was to create a sustainable supply
186 Chapter 8
chain “that profitably yields high quality, safe products without supply interrup-
tion while creating a net benefit for employees, their communities, biodiversity,
and the environment.”29 The group developed a set of social/economic, environ-
mental, and animal welfare guidelines intended to drive the effort.
Once the diagnosis identifies areas of opportunity, the organization can
address its own systems, altering informal design first before moving to formal
design.
Informal design changes associated with going green start with building high
levels of collaboration.
of the most important innovations come not from top executives but from front‐
line employees. Bloomberg’s BGreen initiative—an effort started in 2007 to
reduce the company’s carbon blueprint—grew out of an employee suggestion.32
Interface’s Ray Anderson acknowledged that the very basis of his company’s
green mission has been empowered employees. Mission Zero, he said, “empow-
ered our people to dare to risk, working in teams, and challenging everything
that we were doing. In other words, challenge the status quo.33
EXHIBIT 8-3
Financial
Balanced Scorecard.
“To succeed
Objectives
Initiatives
Measures
financially, how
Targets
should we
appear to our
shareholders?”
Objectives
Initiatives
Initiatives
Measures
“To satisfy our
Measures
vision, how Vision
Targets
Targets
should we shareholders
appear to our and and customers,
customers?” Strategy what business
processes must
we excel at?”
Learning and
Growth
Objectives
Initiatives
“To achieve our
Measures
Targets
vision, how will
we sustain our
ability to
change and
improve?”
Source: http://www.balancedscorecard.org/basics/bsc1.html
3. Learning and Growth—To achieve our vision, how will we sustain our
ability to change and improve?36
By focusing on multiple outcomes—customers, internal processes, and learning—
the BSC can help managers escape the exclusive focus on a single outcome—
mostly financial—and help ensure that their change interventions are having the
intended results on the other key activities of their firm.
At the core of the BSC lies a clearly stated and widely understood vision
and strategy for the organization. The vision and strategy determined in the
earlier phases of change can now be used to drive all performance measures,
financial measures included. Each perspective can be evaluated only in terms of
objectives, measures, targets, and initiatives when that vision and strategy are
clear and widely shared.
Going Green 189
EXHIBIT 8-4
Examples of
Environmental Sustainability
Interface 2004
Cumulative avoided costs from waste elimination activities since 1995 Measures of
Sustainability.39
Decrease in total energy consumption required to manufacture carpet since 1996 per m 2
Percentage of total energy consumption from renewable sources
Social Sustainability
Employee volunteer hours in community activities
Percentage of women in management positions
Source: Wendy Stubbs and Chris Cocklin, “An Ecological Modernist Interpretation of Sustainability:
The Case of Interface, Inc.,” Business Strategy and the Environment 17 (2008), p. 519.
190 Chapter 8
Organizational culture can help embed a green mindset and shape employee
behaviors.
EXHIBIT 8-5
An Evolving
Culture of Compliance Culture of Commitment Sustainability
Culture.43
Ambition level No ambition for Sustainability fully integrated and
sustainability but embedded into every aspect of
awareness of need to organization aimed at contributing to
comply quality and continuation of all societies
Motivation Take on sustainability Belief that everyone in the
merely in order to improve organization has a universal
reputation firm responsibility to both current and
future generations
Criteria for How will it affect my How will it affect the overall well‐
decision making personal reputation and being of the planet?
that of the firm?
examine four sets of behaviors that Edgar Schein says help create and embed
culture in an organization.44
1. Leaders make choices about what to pay attention to, what to measure, control,
and reward. What sustainability outcomes will the company measure and re-
ward? If all the significant rewards flow to economic outcomes, it will be impos-
sible to maintain a green culture.
2. Leaders react to critical incidents and crises. Whether it is Phil Knight
responding to the drubbing Nike took in the press in the early 1990s or Ray
Anderson responding to a speaking engagement just after reading Paul
Hawken’s book, the reaction of the leaders set the pace and direction for the
company.
3. Leaders call upon the “observed criteria” to allocate scarce resources.45 A
CEO who extols the virtue of going green but slices budgets in order to meet
short‐term financial goals sends a signal about what the company values. The
same can be said of a managing director who refuses to cut training budgets dur-
ing a downturn emphasizes the extent to which the company values human
resources. Making tough choices about resource allocation helps shape the val-
ues and resulting culture of an organization.
4. Leaders choose to emphasize certain criteria in their recruitment, selection,
and promotion of employees and future leaders. Going green requires new skill sets,
both technical and interpersonal, that can be considered in hiring and promoting
employees.
Top executives are the most visible embodiment of their organization’s culture.
Their behaviors are apparent to both external stakeholders—customers,
suppliers, labor markets, and the host community—and to employees. What
leaders say matters; what leaders do matters even more. Key choices and deci-
sions, more than speeches and documents posted on walls, embed values and
spread culture.
192 Chapter 8
Conclusion
Organizations often approach the challenge of distribution, and recycling more effective and
going green from a technological perspective. less wasteful. But a full commitment to going
There is certainly merit to employing innovative green requires a broader perspective. Leaders
technology to make processes of production, set a vision and mold the culture. The sequential
Going Green 193
steps of effective transformation lead the orga- across boundaries to include supply chain part-
nization through diagnoses, redesign, and new ners and external interest groups. By treating
informal and formal systems. Human resources the challenge of going green as a transforma-
will be impacted in terms of the skills required to tional challenge, organizations will be better
make green efforts effective. Finally, collaboration positioned to meet the goals of the triple bottom
will be vital—both within the organization and line.
Discussion Questions
1. Where do you stand on the various debates and agree? How does sustainability support inno-
controversies surrounding going green? Is pro- vation?
tecting the plant a business responsibility or does 3. The chapter argues that collaboration is the main
it distract from their main purpose? Can every behavioral change that needs to accompany going
organizations really have a triple bottom line or green. Do you agree? Explain.
will financial performance always outweigh other 4. Are excellent green leaders the same as excellent
outcomes? leaders or are important additional skills
2. It is said that going green is now the main needed?
source of innovation within companies. Do you
Case Discussion
Read “Changing to Green at an Oil Company (?)” and 2. How would you evaluate Petrobras’ sustainabil-
prepare answers to the following questions: ity effort? What have they done well and or not so
1. What triggered Gabrielli’s commitment to going well in the transformation?
green at Petrobras? 3. Do you agree with Gabrielli’s assessment of the
success of green policies at Petrobras? Explain.
A State Company
Petrobras was founded by the government in 1953 under the nationalist slogan,
“The petroleum is ours!” Petrobras held a monopoly until 1997, when the
194 Chapter 8
Gabrielli Acts
In pursuit of his goal, Gabrielli took a number of steps:
• Increasing the budget of the company’s health, safety, and environment
programs
• Using the enormous market clout of Petrobras (which was the largest com-
pany in Latin America) to demand that all of its suppliers comply with best
standards for environmental management
• Personally touring sites to check compliance with company standards
• Moving Petrobras’ new refineries away from gasoline and toward biofuels
• Joining the Dow Jones Sustainability Index in order to invite external mon-
itoring of and reporting on Petrobras’ efforts
• Endorsing (and sitting on the board of) the United Nations Global Compact
• Personally blogging and tweeting in order to make the case for Petrobras’
efforts directly to the public.
As evidence that these activities were changing the culture and operations of
Petrobras, Gabrielli pointed to two facts:
• The company had gone eight years without a “major” environmental
accident.
• The private consulting firm, Management and Excellence, ranked Petrobras
as number one among the world’s oil and gas companies for promoting
sustainability.
Petrobras’ 5‐Year Strategic Plan, announced in 2010, called for additional
investment in refining capacity. The company’s goal was to make Brazil fuel
independent by 2014. That independence, it was hoped, would be supplied by
Petrobras’ 2008 discovery of a major oil reserve coming from a vast deep water
off‐shore region known as the subsalt. Later that same year, however, the Gulf of
Mexico oil spill—a British Petroleum rig exploded, killing 11 workers and pour-
ing nearly 185 million gallons of oil into the Gulf—raised questions about the
viability and the costs of future deep water drilling.
Going Green 195
Endnotes
1. Information on Nike is from Jeffrey Ballinger, Profits,” New York Times Magazine (Sept. 13,
“The New Free‐Trade Heel,” Harper's Magazine 1970).
(Aug. 1992), pp. 46–47; Simon Zadek, “The 5. This history is traced in John Elkington.
Path to Corporate Responsibility,” Harvard “Towards the Sustainable Corpporation: Win‐
Business Review (Dec. 2004), pp. 125–132; Win‐Win Business Strategiues for Siustanable
Stanley Holmes, “Nike Goes for the Green,” Development,” California Management Review
Business Week (Sept. 25, 2006); Reena Jana and 36 (Winter 1994), pp. 90–100. Elkington is either
Burt Helm, “Nike Goes Green, Very Quietly,” the original source of the term “triple bottom
Business Week (June 22, 2009), p. 56; Maurice line” or certainly the popularizer of the con-
Berns, Andrew Townend, Zayna Khayat, Balu cept. See Elkington, Cannibals with Forks: The
Balagopal, Martin Reeves, Michael Hopkins, Triple Bottom Line of 21st Century Business
and Nina Kruchwitz, The Business of (London: Capstone, 1997).
Sustainability: Imperatives, Advantages, and 6. Paul Hawken, The Ecology of Commerce (New
Actions (New York: Boston Consulting Group, York: Harper Business, 1993), p. 3.
2009); Marc J. Epstein, Adriana Rejc Buhovac, 7. Some scientists argue that the Triple Bottom
and Kristi Yuthas, “Why Nike Kicks Butt in Line is inherently delusional and nonsustain-
Sustainability,” Organizational Dynamics 39 able in that it assumes that growth and ecologi-
(2010), pp. 353–356. The Newsweek rankings can cal concerns can be reconciled. Robinson’s
be found at newsweek.com/feature/2010/ “Squaring the Circle” has an excellent, brief
green‐rankings. overview of this and other definitional debates.
2. Susan Albers Mohrman and Christopher G. 8. See Andrew Manikas and Michael Godfrey,
Worley, “The Organizational Sustainability “Enabling Triple Bottom Line Compliance via
Journey: Introduction to the Special Issue,” Principle‐Agent Incentive Mechanisms,” Global
Organizational Dynamics 39 (2009), p. 289. Journal of Business Research 5 (2011), pp. 105–114.
3. Wallace B. Donham, “The Emerging Profession I have written elsewhere about the extent to
of Business,” Harvard Business Review 5 (July which the definition of a “good” and “just”
1927), p. 401; Wallace B. Donham, “The Social society is deeply ideological. That is a matter
Significance of Business,” Harvard Business far beyond the scope of this text. However, any-
Review 5 (July 1927), p. 406; Jeffrey L. one interested in pursuing the topic can look at
Cruikshank, A Delicate Experiment: The Harvard Bert Spector, “‘Business Responsibilities in a
Business School, 1908–1945 (Boston, MA: Divided World’: The Cold War Roots of the
Harvard Business School Press, 1987). Corporate Social Responsibility Movement,”
4. Theodore Levitt, “The Dangers of Social Enterprise and Society 9 (2008), pp. 314–336.
Responsibility,” Harvard Business Review 36 9. To review the Triple Bottom Line debate, you
(Sept.–Oct. 1958), p. 52; Milton Freidman, “The can go to Wayne Norman and Chris
Social Responsibility of Business Is to Increase MacDonald, “Getting to the Bottom of the
196 Chapter 8
‘Triple Bottom Line,’” Business Ethics Quarterly 21. Anderson quoted in “The Green 50: The
14 (2004), pp. 243–262, and Moses L. Pava, “A Industrialist,” Inc. Magazine 28 (Nov. 2006),
Response to ‘Getting to the Bottom of the Triple p. 80. Information on Subaru is from Dean M.
Bottom Line,” Business Ethics Quarterly 17 Schroeder and Alan G. Robinson, “Green Is
(2007), pp. 105–110. Free: Creating Sustainable Competitive
10. See Minda Zellin, “The Greening of Corporate Advantage Through Green Excellence,”
America,” Management Review 79 (June 1990), Organizational Dynamics 39 (2010), pp. 345–352.
pp. 10–18, and Harvey Meyer, “The Greening 22. This point is made in Mirvis et al., “Vision,
of Corporate America,” Journal of Business Mission, Values: Guideposts to Sustainability.”
Strategy 21 (Jan./Feb. 2000), pp. 38–43. The quotes concerning unaligned programs as
11. Berns et al., The Business of Sustainability. well as the Coke example are from that article.
12. Zadek, “The Path to Corporate Responsibility.” 23. Michael E. Porter and Mark R. Kramer,
13. Berns, et al., The Business of Sustainability. “Strategy and Society,” Harvard Business Review
14. Quoted in Jennifer Robinson, “The Business of 12 (Dec. 2006), pp. 78–92. The issue of the South
Sustainability,” Gallup Management Journal African mining company and AIDs is directly
Online (Oct. 3, 2009). addressed in Margie Sutherland and Verity
15. Christopher Marquis, Daniel Beunza, Fabrizio Hawarden, Goedehoop: When Social Issues Become
Ferraro, and Bobbi Thomason, Driving Strategic (Ontario: Ivey Publishing, 2008). The
Sustainability at Bloomberg L.L. (Boston, MA: Porter and Kramer quote is from p. 88.
Harvard Business School Publishing, 2010). See 24. Michael E. Porter and Mark R. Kramer,
also Ram Nidumolu, C. K. Prahalad, and M. R. “Strategy and Society,” Harvard Business Review
Rangaswami, “Why Sustainability Is Now the 12 (Dec. 2006), pp. 78–92. The issue of the South
Key Driver of Innovation,” Harvard Business African mining company and AIDs is directly
Review 87 (Sept. 2009), pp. 56–64. addressed in Margie Sutherland and Verity
16. Schroeder and Robinson, “Green Is Free,” pp. Hawarden, Goedehoop: When Social Issues Become
348–349. Strategic (Ontario: Ivey Publishing, 2008). The
17. Quoted in Jennifer Robinson, “The Business of Porter and Kramer quote is from p. 88.
Sustainability,” Gallup Management Journal 25. Information in Wal‐Mart is from Erica L.
Online (Oct. 3, 2009). Plambeck, “The Greening of Wal‐Mart’s Supply
18. For background on Interface, see “The Green Chain,” Supply Chain Management Review 11
50: The Industrialist,” Inc. Magazine 28 (Nov. (July–Aug. 2007), pp. 18–25, and Erica L.
2006), pp. 80–81; Tom Andel, “Interface’s Green Plambeck and Lyn Denend, Wal‐Mart’s
Epiphany,” Logistics Management 46 (June 2007), Sustainability Strategy (Stanford, CA: Stanford
pp. 36–37; Lauren Hilgers, “Interface Sets the Graduate School of Business, 2008).
Pace for Going Green,” Plastics News 20 (Oct. 6, 26. Walmart: The High Cost of Low Price (2004).
2008), p. 23; Wendy Stubbs and Chris Cocklin, Written and directed by Robert Greenwald.
“An Ecological Modernist Interpretation of DVD. Weades Moines Video, 2004.
Sustainability: The Case of Interface Inc.,” 27. Plambeck and Denend, Wal‐Mart’s Sustainability
Business Strategy and the Environment 17 (2008), Strategy, p. 4.
pp. 512–523; Bruce C. Posner, “One CEO’s Trip 28. Information on McDonald’s comes from Ray A.
from Dismissive to Convinced,” MIT Sloan Goldberg and Jessica Droste Yagan, McDonald’s
Management Review 51 (Fall 2009), pp. 47–51; Corpporation: Managing a Sustainable Supply
Kristy J. O’Hara, “About Face,” Smart Business Chain (Boston, MA: Harvard Business School
Atlanta (Jan. 2009), pp. 1518. Publishing, 2007).
19. Quoted in Jennifer Lynes, Scandinavian Airlines: 29. Ibid., p. 1.
The Green Engine Decision (Ontario: Ivey 30. Hillary Bradbury‐Huang, “Sustainability by
Publishing, 2009), p. 3. Collaboration: The SEER Case,” Organizational
20. Philip Mirvis, Bradley Googins, and Sylvia Dynamics 39 (2010), pp. 335–344.
Kinnicutt, “Vision, Mission, Values: Guideposts 31. Per‐Anders Enkvist and Hela Vanthourmout,
to Sustainability,” Organizational Dynamics 39 “How Companies Think About Climate
(2010), pp. 316–324. Immelt is quoted from pp. Change: A McKinsey Global Survey,” McKinsey
317–318. Quarterly (Feb. 2008); Marc J. Epstein, Adriana
Going Green 197
Rejc Buhovac, and Kristi Yuthas, “Implement- 40. For a discussion of the problems inherent in the
ing Sustainability: The Role of Leadership and rating systems, see Aaron Chatterji and David
Organizational Culture,” Strategic Finance 91 Levine, “Breaking Down the Walls of Codes:
(Apr. 2010), pp. 41–47; Rosa Maria Dangelico Evaluating Non‐Financial Performance
and Devashish Pujari, “Mainstreaming Green Measurement,” California Management Review
Product Innovation: Why and How Compa- 48 (Winter 2008), pp. 29–51.
nies Integrate Environmental Sustainabil- 41. Terrence E. Deal and Allan A. Kennedy,
ity,” Journal of Business Ethics 95 (2010), Corporate Cultures: The Rites and Rituals of
pp. 471–486. Corporate Life (Reading, MA: Addison‐Wesley,
32. Marquis, et al., Driving Sustainability at 1982), p. 4.
Bloomberg L.L. 42. Marrevijk and Were, “Multiple Levels of
33. Quoted in Jennifer Robinson, “The Business of Corporate Sustainability,” p. 113.
Sustainability,” Gallup Management Journal 43. This chart is based on a more detailed elabora-
Online (Oct. 3, 2009). tion in Marrevijk and Were, “Multiple Levels of
34. Robert S. Kaplan and Ricardo Reisen De Pinho, Corporate Sustainability,” p. 113.
Amanco: Developing the Sustainability Scorecard 44. Ibid., pp. 97–99.
(Boston, MA: Harvard Business School 45. Ibid., p. 98.
Publishing, 2008), p. 5. 46. Laura Quinn and Maxine Dalton, “Leading for
35. Robert S. Kaplan and David P. Norton, Sustainability: Implementing the Tasks of
“Transforming the Balanced Scorecard from Leadership,” Corporate Governance 9 (2009), pp.
Performance Measurement to Strategic 21–38; Patricia Hind, Andrew Wilson, and Gilbert
Management: Part I,” Accounting Horizons 15 Lenssen, “Developing Leaders for Sustainable
(Mar. 2001), p. 87. Business,” Corporate Governance 9 (2009), pp.
36. Robert S. Kaplan and David P. Norton, “Using 7–20; Nada K. Kalabadse, Andrew P. Kalabadse,
the Balanced Scorecard as a Strategic and Linda Lee‐Davies, “CSR Leaders Road
Management System,” Harvard Business Review Map,” Corporate Governance 9 (2009), pp. 50–57;
(Jan.–Feb. 1996), p. 3. Anthony Middlebrooks, Lauren Miltenberger,
37. See Frank Figge, Tobias Hahn, Stefan Schalteg- James Tweedy, Grant Newman, and Joanna
ger, and Marcus Wagner, “The Sustainability Follman, “Developing a Sustainability Ethic in
Balanced Scorecard—Linking Sustainability Leaders,” Journal of Leadership Studies 3 (Nov.
Management to Business Strategy,” Business 2009), pp. 31–43; Derek E. Crews, “Strategies for
Strategy and the Environment 11 (2002), pp. 269– Implementing Sustainability: Five Leadership
284; Idalina Dias‐Sardinha, Lucas Reijinders, Challenges,” SAM Advanced Management Journal
and Paula Antunes, “Developing Sustainabil- 75 (Spring 2010), pp. 15–21.
ity Balanced Scorecards for Environmental 47. Chris Argyris and Donald A. Schön,
Services: A Study of Three Large Portuguese Organizational Learning II: Theory, Method, Practice
Companies,” Environmental Quality Manage- (Reading, MA: Addison‐Wesley, 1996), p. 13.
ment (Summer 2007), pp. 13–34; W.‐H. Tsia, 48. Information on Petrobras is from John Barham,
W.‐C. Chou, and W. Hsu, “The Sustainability “Brazil’s Big Oil Man,” Latin Finance, October
Balanced Scorecard as a Framework for 2005, pp. 18–20; “An Interview with José Sergio
Selecting Socially Responsible Investment: Gabrielli de Azevedo,” Oil and Gas Investor
An Effective MCDM Model,” Journal of the (Oct. 2008), p. B4; José Sergio Gabrielli de
Organizational Research Society 60 (2009), Azevedo, “The Greening of Petrobras,” Harvard
pp. 1396–1410. Business Review (Mar. 2009), pp. 43–47; Peter
38. Marc J. Epstein and Priscilla S. Wisner, “Using Haldis, “Future Petrobras Refineries Will
a Balanced Scorecard to Implement Sustainabil- Produce Biofuels, Diesel, Not Gasoline,”
ity,” Environmental Quality Management (Winter Ethanol and Biodiesel News (June 9, 2009); Geri
2001), pp. 1–10. Smith, “Petrobras Brandishes Its Corporate
39. Based on Wendy Stubbs and Chris Cocklin, “An Blog,” Business Week (Aug. 31, 2009).
Ecological Modernist Interpretation of 49. Gabrielli, “The Greening of Petrobras,” p. 44.
Sustainability: The Case of Interface, Inc.,” Business 50. The Newsweek rankings can be found at news-
Strategy and the Environment 17 (2008), p. 519. week.com/feature/2010/green‐rankings.
This page intentionally left blank
INDEX
A Dell Computers, 134 HCL Technologies, 119–122
ABB, 133 DeWolfe, Chris, 5 Help, 41, 44
After‐action reviews, 74 Diagnoses, 41, 51–70 Hewlett Packard, 51–52
Agile development, 6, 47–48 Diagnostic framework, 54–56, 61 Horizontally‐linked structure,
Airbus, 86–87 Diagnostic interviews, 64–65 134–135
Amazon, 4 Dialogue, 51, 65–66 Hurd, Mark, 52
Anderson, Tom, 5 Differentiation and integration, 80–83
Anderson, Ray, 181–182, 184 Discontinuous change, 5 I
Apple, 2, 4, 9, 91–92 Disney, 5–6, 109 IBM, 4, 135–137
Archer Daniels Midland, 14 Dissatisfaction with the status quo, Immelt, Jeffrey, 183, 184
ASDA, 16–21, 77–78, 115–116, 156–157 27, 28 Incentives, 138–145
Divisional structure, 130–132 Inditex, 134
B Donham, Wallace, 178
Dow Jones Sustainability Index, 190
Informal design elements, 77
Innovation, 96–97
Balanced scorecard, 6, 187–189
Duke University’s Children’s Hospital, Interface Flooring, 182–183
Baldoni, John, 159
25–26, 41, 44, 78–79 Intrinsic rewards, 142–143
Beer, Michael, 145
DuPont, 142 Implementation traps, 45–46
Behavioral observation, 65
Dyer, Davis, 159 Isabella, Lynn, 14
Behavioral simulations, 113
Behaviorally‐anchored interviews,
112–113
E J
Elop, Stephen, 3 Job design, 88–90
Best Buy, 100–101, 102
Emotional bond, 158 Johnsonville Sausage, 162
Bloomberg, 181, 187
Employee commitment, 87–90
Borders, 4
Bristol‐Myers Squibb, 142
Employee participation, 10–14 K
Espoused/enacted values, 192 Kaplan, Robert, 187
Extrinsic rewards, 142–143 Kelleher, Herb, 158
C Kim, W. Chan, 117
Campbell, Andrew, 79 F Knight, Phil, 176, 182, 183
CARE, 79, 87, 91 Facebook, 4, 5 Kramer, Mark, 184
Chambers, John, 152 Fair process, 117–118
Change implementation, 3, 26–45, Federal Bureau of Investigation (FBI), L
135–138, 144–145, 146 55 Lawrence, Paul, 81, 159
Change pilots, 79 Feedback, 67–68, 106 Leadership, 152–163, 191–192
Chouinard, Yvon, 114–115 Fiorina, Carleton, 51–52 Leadership development, 159–160
Cisco, 151–152 Formal design elements, 99 Lean, 6
Coca Cola, 184 Freedman, Milton, 178 Learning, 53
Coetese, Leon, 10 FTSE4Good Index, 190 Letterman, David, 154
Collaboration, 91–94, 113, 151–152, Fudd, Richard, 153 Levitt, Theodore, 178
186–187 Functional structure, 128–130 Lewin, Kurt, 26–30, 41
Collins, Jim, 43, 116, 155 LG, 2
Communication, 156–157 G Lincoln Electric, 88
Compliance, 178, 191 Gabrielli, José, 193–195 Lorsch, Jay, 86
Computerized physician order entry, Galbraith, Jay, 133 Louison, Mark, 2
148 Gallois, Louis, 87
Considered design, 6, 186 Gayle, Helene, 76, 77, 79, 87, 91 M
Consultant, 60 General Electric, 9, 109, 139, 156, 183 Macy’s, 126–127, 131
Control and creativity, 83 Gerstner, Lou, 135–137 Marrewijk, Marcel, 190
Controls, 84 Ghosn, Carlos, 14, 28, 162, 164–172 Matrix structure, 132–133
Coote, Jeremy, 80 Gilbert, Julie, 100–101 Mauborgne, Renée, 117
Corporate social responsibility, 177 Global change management, 14–15 McDermott, Robert, 85
Costco, 88 Google, 9–10 McDonald’s, 84, 185
Culture, 58–59, 190–191 Goold, Michael, 78 Meliones, Jon, 25–26, 42, 44
Merck, 142
D H Microsoft, 3, 111
Data collection, 61–65 Hackman, J. Richard, 89 Morris, Ron, 159
Deal, Terrence, 190 Hansen, Morton T., 91–92 Motivation, 8
Decentralization, 58 Harrison, Michael, 67 Motorola, 2
Decision‐making rights, 85–86 Hawken, Paul, 179, 183 Mulcahy, Anne, 14
199
200 Index