Managing Organizational Change

Chapter 3
Why Organizations Change
 The Risks Associated With Change
• Risks in undertaking change
• Risks in NOT undertaking change
• “Up to 84 percent of U.S. firms are involved in a major
organizational change, although many are deemed
not successful.”
• Often shareholders demand change
• Organizational learning perspective assumes that
organizations and human systems of all sorts are
complex and evolving and therefore cannot be
reduced to a single, linear objective of maximizing
shareholder value
 Complex Role of Managers
• “Managers are called upon to stabilize the
unstable and destabilize the rigid, adapt to the
present and anticipate the future; improve
what is and invent what is to be; lead a
renaissance while preserving tradition, the
possibilities for which are grounded in the
belief that progress is possible and that
managers can make a difference.”
 Environmental Pressures for Change
1. Pressures to carry out fashionable management
changes
2. Pressures that are forced or mandated on the
organization from outside agencies
3. Broad changes in geopolitical relationships
necessitating changes in organizational operations
4. Pressures associated with declining markets
5. Hypercompetitive business pressures
6. Pressure to maintain corporate reputation and
credibility with stakeholders
 1. Pressures to carry out fashionable management changes

• Mimetic isomorphism – when organizations

imitate the structures and practices of other
organizations in their field or industry, usually ones
that they consider as legitimate or successful
• Eg. Boeing copying elements from GE
• Such pressures may lead organizations to adopt
fashionable ideas but often with little critical
assessment of the need for the change and
without having clear information about the
performance effects of making the change
 2. Mandated Pressures
• Eg. Texaco, Coca-Cola, and Denny’s Restaurants being under
court order to improve their record on diversity
management
• Led to major company changes in policies and cultural
practices – eg. diversity training, minorities targeted for new
hires, etc.
• Eg. asbestos-related disease fund
• Coercive-isomorphism – organizations are forced to take on
activities similar to those of other organizations because of
outside demands placed on them to do so
• Formal and informal coercive pressures
 3. Geopolitical Pressures
• May be in the form of immediate crises or
longer-term geographic realignments
• Eg. cost control through layoffs, escalation of
mergers and acquisitions
• World events – eg. 9/11, Berlin Wall
 Global Environmental Forces for Change
(Kotter, 1996)
1. Technological, which requires more globally
connected people and faster communication
and transportation
2. Greater economic integration of currencies and
international capital flows
3. Maturation and slowdown of domestic markets,
leading to greater emphasis on exports and
deregulation
4. Fall of socialist countries and their reorientation
toward capitalist economies
 4. Market Decline Pressures
• Declining markets for products and services
place organizations under pressure to remain
relevant
• Eg. Steve Jobs returning to Apple, Verizon
Communications choosing to focus on wireless
 5. Hypercompetition Pressures
• Eg. Dell vs. Gateway and Dell vs. HP and
Lenovo
• Organizations are forced to deliver goods and
services more quickly, more customized, and
more flexibly.
• Eg. YouTube and Netflix disrupting television
 6. Reputation and Credibility Pressures
• Eg. Mattel and toy recall, Johnson & Johnson and
the Tylenol recall
• Eg. Enron, Tyco, Worldcom scandals
• Change is associated with maintaining proper
corporate governance mechanisms to ensure a
positive corporate reputation
• One common change, meant to signal “a new
era,” is the symbolic exiting of a high-profile
organizational person such as the CEO
Why Organizations May Not Change in the
Face of External Environmental Pressures
1. Organizational Learning vs. Threat-Rigidity
2. Environment as Objective Entity vs.
Environment as Cognitive Construction
3. Forces for Change vs. Forces for Stability
4. Bridging (Adapting) vs. Buffering (Shielding)
 1. Organizational Learning vs. Threat-Rigidity

• Organizational learning theorists argue that

environmental pressures such as market decline
will lead to innovative organizational adaptation
and change as managers learn from the problems
and try to close the gap between performance
and aspirations
• Threat-rigidity theorists argue that such pressures
will inhibit innovative change as managers’
cognitive and decision-making processes become
restricted when confronted with threatening
problems
 Discontinuous Change
• An organization faces discontinuous change –
where it faces new, fundamentally different
trends in its operating environment
• Gilbert (2006) points out that “it is not that one
set of capabilities suddenly becomes obsolete, to
be replaced with another – rather the path from
one capability to the other is not continuous.”
• Eg. newspapers to digital content (both exist at
the same time)
 Paradox
• The paradox suggests that companies in this situation
need to be able to have frames co-existing within it that
focus on both opportunities and threats, one protecting
the current business and the other helping to transition
the company into new arenas.
• This can occur through structural differentiation of the
company, separating it into different organizational units
dominated by different cognitive frames and operations
• At the same time it is up to senior management to be able
to strategically integrate these competing frames, ensuring
that the company takes appropriate, timely actions across
its operations
 Trapped By Success
• Companies that have a winning business formula
may become trapped by this when conditions
change
• This view is fueled by their cognitive frames, which
become blinkered by success; by routines that
become embedded in the organization as correct
ways of operating; by relationships to stakeholders
that act as shackles and inhibit them from
exploring new business ventures; and by shared
beliefs that become company dogmas that they are
proceeding in the right direction.
2. Environment as Objective Entity vs. Environment as Cognitive Construction

• Type 1 error occurs when the environment is

(objectively) stable, but managers perceive it
as turbulent and take (unnecessary) actions
accordingly
• Type 2 error occurs when managers threaten
the survival of their firms by failing to take
actions as they perceive their environment as
stable when it is (objectively) turbulent
 Constructivist View
• The outside world is brought into existence
through individuals’ perceptions of it – further
questions the very status of the terms used in
discussion about why organizations change –
or don’t take actions to change
• “Success is based on a series of rapid and
anticipatory actions that move industry to the
next round of competition”
 3. Forces for Change vs. Forces for Stability

• Whether environmental pressures will lead to

innovative change will be affected by three
factors (Mone, et al, (1998)):
1. The extent to which an organization’s mission
is institutionalized in stakeholders and the
external environment: the less
institutionalized it is, the more flexibility the
organization will have to respond to
innovative change
 Factors affecting whether environmental pressures will lead to innovative
change – continued (Mone, et al, (1998)):

2. The extent of diffusion of power and resources

throughout the organization: the more concentrated the
power in the organization, the greater the ability to make
decisions and allocate resources to achieve change

3. The rationale managers employ to explain decline: the

more controllable or stable the causes, the more likely
manages are to introduce innovative changes since the
causes of decline are perceived to be permanent
 4. Bridging (Adapting) vs. Buffering (Shielding)
• Bridging strategies are designed to keep the
organization effective by adapting parts of it to
changes happening in the outside environment
• Buffering strategies are designed to keep the
organization efficient by avoiding change
through shielding parts of it from the effects of
the environment – eg. using public affairs
techniques in order to alter public rules,
perceptions, and expectations.
 Buffering Strategies
• “By the time environmental shock waves
reach the stability-sensitive technical core…
they are diffused into manageable
adjustments and innovations” (Lynn, 2005)
 Organizational Pressures for Change

1. Growth Pressures
2. Integration and Collaboration Pressures
3. Identity Pressures
4. New Broom Pressures
5. Power and Political Pressures
 1. Growth Pressures

• Change in the form of growth

• Need for rules, policies, and procedures once
an organization reaches a certain size
• Some managers resist the growth of their
organization beyond where they lose personal
control of the day-to-day operations – beyond
this point they lost job satisfaction
 2. Integration and Collaboration Pressures

• Some changes are made in order to better

integrate the organization or create
economies of scale across different business
units
• Goal is to have better coordination and
collaboration across multiple business units of
the company in order to produce a customer-
oriented culture
 3. Identity Pressures

• Employees might lack cultural identity with

the organization and its name brand
• Goal is to enhance the identity and
commitment of staff to the organization’s
brand as well as to achieve service excellence
• Eg. the U.S. Mint – seen as a slow, inefficient
organization – became more modern,
customer-focused
 4. New Broom Pressures

• When a new CEO arrives it can act as a signal

that the old ways are about to change
• Not all new broom changes are necessarily the
right changes
 Advantages New CEOs Have
1. Likely to be able to create energy for change
2. Unhampered by adherence to past organizational
practices (will not appear inconsistent if they change
things)
3. Can focus on problems that may have been known
but not able to be named in the past as they were
organizational “sacred cows” that could not be
brought into question
4. Likely to be able to tackle customer problems with
credibility since they are not associated with
previous problems
 5. Power and Political Pressures
• Competition between CEOs when companies
merge
• Ousting of CEOs by powerful investors
• Sam Palmisano abolishing the IBM Executive
Management Team when he took over as CEO
• Internal conflicts within organizations