Purpose / Rationale This paper will explore some of the basic principles of organizational change. An example of where organizational change was used within an organization will be looked at followed by a summary / conclusion that will incorporate organizational change principles as it applies to the example used. Patterns of Change As Josef Schumpeter observed, industrial economies evolve in waves characterized by how significant new technologies find their way into the economic system. Consider the pattern of technological innovation that has marked four great periods of change in the industrial era: 1.
The 1830 s. The spread of the railroad and factory production practices coincides with the opening of the West in the United States and tremendous social dislocation. 2. The 1880 s and 1890 s. Telephone and communications technology enter the economy-along with deep and sustained unemployment that reached 18 percent in 1893. 3.
The 1930 s. Commercial airlines, the automobile, and the oil industry start to become dominant in the throes of the Great Depression. 4. The mid-1970 s to early 1990 s.
This period of economic stress also marks the real beginning of the biotech and information revolution, including the first biotech start-ups and the Internet. The lesson to take from this pattern is simple: The shift to radically different industries and technologies is a recurring phenomenon of the Industrial Age. When times are good we don’t innovate. We incrementally improve; we look for advantages on the margin. Why do hard times foster change? That is when dominant organizations are in disarray. This opens the door for new ideas and new organizations.
... competitors. There are approaches to cater the effects of change in an organization (Bahrami and Evans, p. 3). Proper education on people ... their way out. These reactions of people in an organization with regards to change are normal. Humans are bounded by intellectual and ... things happen in an organization. The management has the dice to roll on how to deal with such changes. People’s motivation ...
These epochs of change provide the context for any leader thinking about the future today (Hesselbein & Johnston, 2002).
The Demand for Change The demands for organizational change have accelerated at an extraordinary pace in recent years. In the late 1970 s and into the 1980 s, much of the organizational change was prompted by economic downturns at home and heightened pressure from overseas competitors. Deregulation and changes in public policy forced companies in industries such and financial services and health care to radically reshape themselves in the ’80 s. Emerging technologies and changing market needs swept through still other industries, such as telecommunications and pharmaceuticals. The ’90 s brought and intensified search for competitive advantage through new corporate alignments-mergers and acquisitions, breakups, spin-offs, joint ventures, and integrated supplier networks.
See Table 1 for the economic and social forces driving the need for major change in organizations. Indeed, change has become so common in the business world that it has become something of a clich’e. That’s unfortunate. Change is far too important, pervasive, and complicated a phenomenon to be taken for granted. Every manager may be aware of it; that doesn’t mean he or she knows how to handle it (Nadler, 1998).
What is Organizational Change? Organizational change can be defined as developing systematic approaches to improve the way an organization conducts its mission (Implementing Change, 2000).
Typically, the concept of organizational change is in regard to organization-wide change, as opposed to smaller change such as adding a new person, modifying a program, etc. Examples of organization-wide change might include a change in the company’s mission, restructuring operations Table 1. Economic and Social Forces Driving the Need for Major Change in Organizations Technological Change International Economic Integration Maturation of Markets in Developed Countries Fall of Communist and Socialist Regimes Faster and better communication Faster and better transportation More information networks connecting people globally Fewer tariffs (GATT) Currencies linked via floating exchange rates More global capital flows Slower domestic growth More aggressive exporters More deregulation More countries linked to the capitalist system More privatization | | | | The Globalization of Markets and Competition | | More Hazards More Opportunities More competition Increased speed Bigger markets Fewer barriers | | More Large-Scale Change in Organizations To avoid hazards and / or capitalize on opportunities, firms must become stronger competitors. Typical transformation methods include: Reengineering Mergers and acquisitions Restructuring Strategic change Quality programs Cultural change (Kotter, 1996, p. 19).
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(e. g. , restructuring to self-managed teams, layoffs, etc. ), new technologies, mergers, major collaborations, “rightsizing” new programs such as total quality management, re-engineering, and so on. Some experts refer to organizational transformation. Often this term designates a fundamental and radical orientation in the way the organization operates (McNamara, 1999).
The Scope of Change Fundamentally, the scope or breadth of change falls into two categories: continuous and discontinuous change. The constant process of change in which all well-managed organizations are constantly engaged as they try to eliminate problems and improve efficiency can be called incremental, or continuous, change. These changes are not necessarily small; they can involve large commitments of time, people, and money. But they are part of an orderly flow-hence the term continuous-and each step build upon previous ones. The goals is to maintain fit constantly among all the components of the organization. It’s only natural that gaps will appear from time to time; incremental changes help restore congruence.
Incremental change goes on all the time-or at least it ought to. This is the kind of change embodied in the quality management term kaizen, or step-by-step continuous improvement. Incremental change can have a major impact on large numbers of people, but that doesn’t mean it has fundamentally altered the company’s strategy, structures, and operating environment. You cannot kaizen your way through major discontinuity. Complex, wide-ranging changes brought on by fundamental shifts in the external environment are radical, or discontinuous, changes. Discontinuity suggests the appearance of some factor that disrupts a normal progression.
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Typically, discontinuous changes require dramatic changes in strategy and abrupt departures from traditional work, structures, job requirements, and cultures, which in turn necessitate a complete overhaul of the organization. This is not a matter of tinkering with the components in an effort to restore good fit; to the contrary, good fit is almost always the enemy of radical change. Radical change means people have to unlearn years, even decades of procedures, rituals, beliefs, work habits, and ways of dealing with customers, suppliers, and coworkers-all of which, in their view, have been working just fine. Discontinuous change is much more intense than incremental change. There is more work to be done.
There is more stress on individuals. The process drains energy from the organization. There is more risk for everyone and a higher probability of failure (Nadler, 1998).
Organizational and Individual Inertia Change is the constant that is constantly challenged.
People resist change and changes even though it may lead to new knowledge or to a better life. Organizations also resist change even though it may lead to a better and more effective system. Most people desire to stay with the known rather than to venture into the unknown, and most organizations stay the course, at best making incremental changes, rather than to launch revolutionary transformations. Success is often the most formidable obstacle to change.
Once a person or organization achieves a certain level of success, there is often inertia to revolutionary change. It is easy to promote visions of change in new companies or organizations but far more difficult to promote visions of change in mature companies with established cultures, values, and traditions. However, without change, organizations cannot sustain growth or maintain success. Success requires much patience, hard work, and risk taking.
... interests of the organization and the individual do not always coincide. GUIDELINES FOR CHANGE MANAGEMENT STRATEGIES The achievement of sustainable change requires strong commitment and ... recognized the problems of making things happen. Resistance to change People resist change because it is seen as a threat to familiar patterns ...
Today, it is imperative for organizations and workers to embrace change, and accept it as not only inevitable, but desirable. New technologies open up new possibilities for workers, their managers, and for the entire organization. In industry, new technologies can open new markets and offer new ways to deliver and create products. In education, new technologies offer new ways to teach, to learn, to administer learning, to manage education resources, and to deliver education materials and knowledge products (Rutkowski, 1997).
Most of us spend most of our time resisting change. Our resistance stems from a horrid suspicion that we are about to encounter some or all of the following: 1.
Fear of the unknown. 2. Lack of information. 3.
Threats to status. 4. Threats to established skills. 5.
Fear of failure. 6. Reluctance to let go. 7.
Lack of perceived benefits. 8. Threats to power base. 9. Low-trust organizational climate. 10.
History of previous custom. 11. Fear of looking stupid. 12. Feeling vulnerable and exposed. 13.
Threat to self-esteem. 14. Loss of control of one’s own destiny. 15. Loss of team relationships. 16.
High anxiety. 17. Stress. The supertanker organizations and ideologies of the 1980 s cannot turn quickly enough to accommodate the rate of change of the 1990 s.
Organizations of vast size and hierarchy are now trying desperately to become a more flexible and adaptable kind of organism or a federation of smaller businesses (Clarke, 1994).
Overcoming Barriers to Change As all cultures, in both West and East demonstrate, people go to extraordinary lengths to avoid loss of face. If accepting a change means admitting that the way they did things in the past was wrong, people are guaranteed to view the change as a personal criticism and to resist. There is no more fatal kiss of death to a program of change than for the change manager to attack directly the actions of his or her predecessor. This is the way to make enemies for life. New organization changes implicitly carry the message that the old ways were wrong.
This automatically puts up the backs of those who grew under the old system and must now either look stupid or defend their past decisions. As those who prospered under the old system have frequently risen to positions of power, this can be a dangerous strategy. Do not give people a chance to build a shrine to the past. Put the change in perspective. People did what was apparently the right thing to do at the time, but now the requirements have changed. There should be a no blame clause, an amnesty period between the old and the new ways.
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People can then see themselves not as incompetents but as strong and flexible in adapting to a different phase of business growth, which is after all the reality (Clarke, 1994).
How To Make Organizational Change Less Threatening People tend to resist change because they do not want to step out of their comfort zone-they like to stay in an environment they are comfortable with. There are a few things that can be done to help minimize the negative impact of change. 1.
Effective communication. It is important for the management to communicate the reason for the change, and the positive impact the change will have on the organization and the people. 2. Team building. Developing a cohesive team builds confidence in the team members, and they are willing to accept change as they work towards a common goal. 3.
Time to adapt. Give the members of the organization time to adjust to the changes you are recommending. 4. Show resolve. Be committed to implementing new ideas. This will help foster creative thinking from the members within the organization (Implementing Change, 2000).
5. Negotiation and agreement. Negotiation is particularly appropriate when it is clear that someone is going to lose out as a result of a change and yet his or her power to resist is significant. Negotiated agreements can be a relative easy way to avoid major resistance, though, like some processes, they may become expensive (Kotter & Schlesinger, 2000).
Change Management: Four Basic Strategies Table 2.
Change Management: Four Basic Strategies Strategy Description Rational – Empirical People are rational and will follow their self-interests – once it is revealed to them. Change is based on the communication of information and the proffering of incentives. Normative – Reeducative People are social beings and will adhere to cultural norms and values. Change is based on redefining and reinterpreting existing norms and values, and developing commitments to new ones.
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Table 2. Change Management: Four Basic Strategies (cont. ) Strategy Description Power – Coercive People are basically compliant and will generally do what they are told or can be made to do. Change is based on the exercise of authority and the imposition of sanctions. Environmental – Adaptive People oppose loss and disruption but they adapt readily to new circumstances. Change is based on building a new organization and gradually transferring people from the old one to the new one.
(Nickols, 2003, p. 1) Generally speaking, there is no single change strategy. You can adopt a general or what is called a grand strategy but, for any give initiative, you are best served by some mix of strategies. Which of the preceding strategies to used in your mix of strategies is a decision affected by a number of factors.
Some of the more important ones follow. 1. Degree of resistance. Strong resistance argues for a coupling of power-coercive and environmental-adaptive strategies.
Weak resistance or concurrence argues for a combination of rational-empirical and normative-reeducative strategies. 2. Target population. Large populations argue for a mix of all four strategies, something for everyone so to speak. 3. The stakes.
High stakes argue for a mix of all four strategies. When the stakes are high, nothing can be left to chance. 4. The time frame. Short time frames argue for a power-coercive strategy.
Longer time frames argue for a mix of rational-empirical, normative-reeducative, and environmental-adaptive strategies. 5. Expertise. Having available adequate expertise at making change argues for some mix of the strategies outlined above. Not having it available argue for reliance on the power-coercive strategy. 6.
Dependency. This is a classic double-edged sword. If the organization is dependent on its people, management’s ability to command or demand is limited. Conversely, if people are dependent upon the organization, their ability to oppose or resist is limited. Mutual dependency almost always signals a requirement for some level of negotiation (Nickols, 2000).
Management versus Leadership Management is a set of processes that can keep a complicated system of people and technology running smoothly.
The most important aspects of management include planning, budgeting, organizing, staffing, controlling, and problem solving. Leadership is a set of processes that creates organizations in the first place or adapts them to significantly changing circumstances. Leadership defines what the future should look like, aligns people with that vision, and inspires them to make it happen despite the obstacles (Kotter, 1996).
See Table 3 for a comparison of management versus leadership. Both good leadership and good management are essential to successful organizational growth and development. Leadership can be viewed as the macro-organizational policies that define and organization’s vision of change, the transformation strategy, and the evaluation and redefinition of change.
Management can be defined as the micro-organizational policies that Table 3. Management versus Leadership Management Leadership Planning and budgeting: Establishing detailed steps and timetables for achieving needed results, then allocating the resources necessary to make it happen. Establishing direction: Developing a vision of the future-often the distant future-and strategies for producing the changes needed to achieve that vision. Organizing and staffing: Establishing some structure for accomplishing plan requirements, staffing that structure with individuals, delegating responsibility and authority for carrying out the plan, providing policies and procedures to help guide people, and creating methods or systems to monitor implementation. Aligning people: Communicating direction in words and deeds to all those whose cooperation may be needed so as to influence the creation of teams and coalitions that understand the vision and strategies and that accept their validity.
Controlling and problem solving: Monitoring results, identifying deviations from the plan, then planning and organizing to solve these problems. Motivating and inspiring: Energizing people to overcome major political, bureaucratic, and resource barriers to change by satisfying basic, but often unfilled, human needs. | | Produces a degree of predictability and order and has the potential to consistently produce the short-term results expected by various stakeholders (e. g.
, for customers, always being on time; for stockholders, being on budget).
Produces change, often to a dramatic degree, and has the potential to produce extremely useful change (e. g. , new products that customers wants, new approaches to labor relations that help make a firm more competitive).
(Kotter, 1996, p. 26).
involve implementation of change including human resource training programs, new hiring, and incentives and motivation policies. Good leadership is important to organization change and growth.
Transformational or change leaders identify the need for change, articulate a vision of change, create guiding coalitions that can help introduce and implement the change, identify the obstacles to change, and devise change strategies that can lead to the realization of organizational goals and the building of new organizational intelligence to support effective decision making. Once change is introduced there is a need to manage the change. In some instances, the same person or persons can effectively lead and manage change. However, a good transformational leader is not necessarily a good manager of change.
The advantage of establishing change coalitions is that a combination of good leaders and good managers can be brought together to effectively coordinate change leadership and management policies and programs (Rutkowski, 1997).
Managers to Leaders What can managers do to become leaders? First, they can clarify in their own minds what leadership is. So many people are trying to be better managers and assuming that means they ” re becoming better leaders. Second, they can be honest in assessing the gaps between their skills and what they need to do if they ” re going to provide any significant leadership.
Third, they can find opportunities almost every day, in some small, low-risk way, to move forward in some dimension where they ” re not perfect leaders yet. They can take some small step, evaluate the results, and if it works, continue to do it. If it doesn’t, they can figure out what they did wrong and repeat that cycle, pausing once in a while to reevaluate whether they are becoming stronger, better leaders. When people do that over time, they grow as leaders (Kotter, 1999).
Managing the Rate of Organizational Change The change leader can manage change realistically by properly timing the organizational change, taking change capacity into account, and continually resourcing change. Timing Organization Change The goal for timing an organizational change is simple to state but frequently very difficult to reach.
The idea is to identify when the organization needs to have its change completed so that organizational goals in the marketplace can continue to be met. Some of the primary factors that determine when an organization should change and how fast is should change are: 1. The state and trends in the organization’s current performance. 2. The presence of business opportunities for those who can take advantage. 3.
How fast and how long those opportunities stay open. 4. How fast the competitors are moving toward those opportunities. 5. How soon the organization needs the projected business results of the change. The goal is to be able to start an organizational change early enough so that the desired outcome of the change can be realized as needed, but not to start the change so early that it is difficult to make a convincing case for the change.
The chief executive would need to initiate the organizational change based on a thorough and comprehensive analysis of the business situation. The ideal situation is for executives to anticipate the changes that need to made and then be able to execute them in time to be able to keep organizational performance at a maximum. The chief executive must pick and publicly commit to the target changeover date. The bottom line on timing organizational change is to pick a time. Most people in organizations are accustomed to responding to hard targets and hard dates. A top manager’s failure to pick the target time for changeover ensures that the change effort will get off on the wrong foot.
Failure to commit to a target time strongly communicates the message that the change will not be managed like the regular, run-the-business work of the organization. The organization needs to hear the chief executive say out loud, “We need to have our change done by this date or we will not be able to take advantage of our opportunity (solve our problem, continue our current level of prosperity, etc. ) ” (Holland, 2000, p. 214).
Stakeholder Infrastructure The stakeholder infrastructure consists of the people who almost always have some degree of direct involvement in a change project. The infrastructure is divided into the following categories: 1.
Sponsors or executive team members. 2. Project managers. 3. Project team members. 4.
Change agents (Mourier & Smith, 2001).
Sponsors or Executive Team Members These are the people who lead the change effort, who maintain general oversight, and who bear the main responsibility for change success or failure. Depending on the change project, this stakeholder group may include the sponsor, executive team, steering committee, leadership team, and oversight committee (Mourier & Smith, 2001).
Project Managers The project manager is the person identified by the executive team or sponsor to spearhead the change. Generally the project manager will be most active towards the latter stages / phases of the change, though it is recommended that he or she be identified and included as early as possible. Generally the project manager should be someone who is respected by most employees in the organization.
This is a person with project management skills, someone who is known in the organization for being able to get things done. It is helpful if the project manager has a network of allies throughout the organization. Though there are no hard and fast rules about who the project manager has to be, it could be someone such as a line manager, department head, or vice president (Mourier & Smith, 2001).
Project Team Members These are the people who are directly involved in analyzing, designing, or implementing the change. They are often at the middle to lower levels of an organization and have the most direct knowledge about the specific issues the organization faces. These people will meet on a regular basis during the change effort to analyze the existing situation, create process maps, metrics, procedures, systems, or other management routines.
Project teams can consist of analysis team members, design team members, implementation team members, or subject team members (Mourier & Smith, 2001).
Change Agents Change agents are the people who provide change methodology to the organization through project planning, facilitation, education, and ongoing mentorship. In the early phases of a change effort, these people may play a more active and direct role (for example, as analysts).
Change agents also play an important role in building the relationship between the project teams and the sponsor and executive team. This involves direct mentoring and / or teambuilding within and between these groups. Examples of change agents are internal consultants, external consultants, quality professionals, organizational development professionals, trainers, and / or performance technologists.
Each of these four major stakeholder groups has varying levels of impact or involvement in organizational change (Mourier & Smith, 2001).
Table 4 gives an overview of the general level of involvement of each group for any given change effort depending of which tactics are being employed. Nine Tips for Change Agents Here are nine lessons for would-be change agents. 1. Be open to data at the start. Even if you think you know what you are doing, chances are you do not know what you could be doing.
Open up your mind to as much new thinking as you can absorb. You may find different and better ideas than the ones your organization started with. 2. Network like crazy. There is a network of people who are thinking about learning organizations.
You can get in touch with them easily. 3. Document your own learning. People in the organization need to see documentation for their own comfort. The smartest thing to do is to create a matrix of ideas from leading thinkers. Document two categories of thinking-the elements of learning a organization and the pitfalls to avoid.
4. Take senior management along. Take senior management on benchmarking trips to other companies to show them that they are doing some of the same learning practices. 5.
No fear. You have got to be fearless and not worry about keeping your job. Table 4. Level of Stakeholder Involvement by Change Tactic Change Tactic Executive Team / Sponsor Project Manager Project Teams change agent Define change as a compelling element of organizational strategy. High Involvement Minor Involvement Minor Involvement Some Involvement Put an infrastructure in place. High Involvement High Involvement Minor Involvement High Involvement Work from an implementation plan.
High Involvement High Involvement High Involvement High Involvement Recognize the investment and commit to the long haul. High Involvement High Involvement Minor Involvement Some Involvement Think small. Some Involvement Some Involvement High Involvement Some Involvement Build alliances in support of the change. High Involvement High Involvement Some Involvement High Involvement Align recognition to support implementation. High Involvement Minor Involvement Minor Involvement Some Involvement Translate the change into job-level details. Some Involvement Some Involvement High Involvement High Involvement Integrate the change into management systems.
High Involvement High Involvement High Involvement High Involvement Follow up relentlessly. High Involvement High Involvement Minor Involvement Some Involvement (Mourier & Smith, 2001, p. 90).
Be a learning person yourself. Change agents have to be in love with learning and constantly learning new things themselves. Then they find new ways to communicate those things to the organization as a whole. 7.
Laugh when it hurts. This can be very discouraging work. You need a good sense of humor. 8.
Know the business before you try to change anything. Being a theorist is not enough. When going about the work of creating a change strategy, you also need to have an understanding of the people in the organization and what they do. 9. Finish what you start.
This is very important to in order to move forward (Morgan, 1996).
The Eight-Stage Change Process The methods used in successful transformation are all based on one fundamental insight: that major change will not happen easily for a long list of reasons: Even if an objective observer can clearly see that costs are too high, or products are not good enough, or shifting customer requirements are not being adequately addressed, needed change can still stall because of inwardly focused cultures, paralyzing bureaucracy, parochial politics, a low level of trust, lack of teamwork, arrogant attitudes, a lack of leadership in middle management, and the general human fear of the unknown. To be effective, a method designed to alter strategies, re engineer processes, or improve quality must address these barriers and address them well. Each stage of the eight-stage change process is associated with one of the eight fundamental errors that undermine transformation efforts.
The first four steps in the transformation process help defrost a hardened status quo. Phases five to seven then introduce many new practices. The last stage grounds the change in the corporate culture and helps make them stick. The eight-stage process of creating major change is as follows: 1. Establishing a sense of urgency: Examining the market and competitive realities. Identifying and discussing crises, potential crises, or major opportunities.
2. Creating the guiding coalition: Putting together a group with enough power to lead the change. Getting the group to work together like a team. 3. Developing a vision and strategy: Creating a vision to help direct the change effort. Developing strategies for achieving that vision.
4. Communicating the change vision: Using every vehicle possible to constantly communicate the new vision and strategies. Having the guiding coalition role model the behavior expected of employees. 5. Empowering broad-based action: Getting rid on obstacles. Changing systems or structures that undermine the change vision.
Encouraging risk taking and nontraditional ideas, activities, and actions. 6. Generating short-term wins: Planning for visible improvement in performance, or “wins.” Creating those wins. Visible recognizing and rewarding people who made the wins possible. 7. Consolidating gains and producing more change: Using increased credibility to change all systems, structures, and politics that don’t fit together and don’t fit the transformation vision.
Hiring, promoting, and developing people who can implement the change vision. Reinvigorating the process with new projects, themes, and change agents. 8. Anchoring new approaches in the culture. Creating better performance through customer- and productivity-oriented behavior, more and better leadership, and more effective management. Articulating the connections between new behaviors and organizational success.
Developing means to ensure leadership development and succession (Kotler, 1996, p. 21).
Why Change Efforts Fail Why does change so often go awry? These mistakes surface time and time again: 1. Too many top executives abdicate their responsibility for personal commitment and involvement and try to delegate the leadership of change. 2. Too many times, small numbers of people-and often the wrong ones-closet themselves in secrecy, hatch grand schemes, and then unleash them upon an unprepared and uncooperative organization.
3. Too often executives rush to seize upon a particular set of strategic choices without generating full discussion of all the possible alternatives. 4. Too many organizations make crucial decisions on the basis of incomplete and biased information. 5.
Too many organizations cling to the misguided hope that one magical concept-one silver bullet-will unlock the mysteries of organizational change (Nadler, 1998).
Implications for Managers A manager can improve his / her chance for success in an organizational change effort by: 1. Conducting an organizational analysis that identifies the current situation, problems, and the forces that are possible causes of those problems. The analysis should specify the actual importance of the problems, the speed with which the problems must be addressed if additional problems are to be avoided, and the kinds of changes that are generally needed. 2. Conducting an analysis of factors relevant to producing the needed changes.
This analysis should focus on questions of who might resist the change, why, and how much; who has information that is needed to design the change, and whose cooperation is essential in implementing it; and what is the position of the initiator vis-‘a-vis other relevant parties in terms of power, trust, normal modes of interaction, and so forth. 3. Selecting a change strategy, based on the previous analysis, that specifies the speed of change, the amount of pre planning, and the degree of involvement of others, that selects specific tactics for use with various individuals and groups, and that is internally consistent. 4.
Monitoring the implementation process. No matter how good a job one does of initially selecting a change strategy and tactics, something unexpected will eventually occur during implementation. Only by carefully monitoring the process can one identify the unexpected in a timely fashion and react to it intelligently. Interpersonal skills, of course, are the key to using this analysis. But even the most outstanding interpersonal skills will not make up for a poor choice of strategy and tactics. And in a business world that continues to become more and more dynamic, the consequence of poor implementation choices will become increasingly severe (Kotter & Schlesinger, 2000).
The Inevitable Decline of Successful Organizations A fundamental reason for the eventual decline, or even failure, of once successful organizations is often directly related to their very success. Those persons that led them to the top develop over time, and with plenty of reinforcement, a confidence for the soundness of their success formula and their own capacity to deal effectively with new challenges. The intermediate levels of middle management that separate the top leadership from the periphery or front line, i. e.
, the people in contact with all that is happening out there (customers, suppliers, competitors, etc. ), serve to insulate the top management from ongoing changes that may become real threats to the organization’s future success. Thus, such organizations seem to freeze the nature of their structure and behavior, in ways that make adaptation for survival difficult when the environment changes in significant ways. So, with the momentum of the winner over an extended period and the overconfidence of the management brought about by their success, companies distinguished for excellence in one period often miss the subtle but critical signals that something really important has changed in the way business is conducted. As long as profits keep coming in and conventional financial indicators appear good to shareholders, life goes on as usual. After all, Enron was in the Fortune 500 best companies for 11 years, listed as number 7 just a year before its collapse.
Putting it another way, when a competitive landscape is changing in ways that render previously successful strategies ineffective, it is more important for a business firm to identify-on time-a strategic inflection point and prepare itself to jump the curve to a more suitable new business model for the emerging conditions. In this sense, business excellence may not always refer to moving to the peak of a mountain that represents an organization’s current competitive field, but a continual effort to adapt to a changing competitive landscape in which another mountain may offer greater long-term opportunities and a more sustainable competitive advantage (Dervitsiotis, 2003).
Eisai: The Power of a Challenge to Change Agents How do you turn a pharmaceutical company into a health care company? Haruo Naito, the chief executive of Eisai, one of Japan’s leading pharmaceutical companies, invited 103 middle managers to help him do just that. Naito gathered them at the Tokyo headquarters, where he introduced them to organizational change concepts and reviewed the trends in the health care industry. The he sent them into the field, to help care for patients for three to four days in a geriatric hospital, and to visit a remote locality in Japan known for the quality of its local health care. Naito had a name for those who went: innovation managers.
They came back from the field profoundly moved by the plight of the aged and keen to lead health care project groups. Almost without exception, the field experience transformed the managers into ardent change agents, proponents of geriatric health care products and services. The success of the geriatric health care projects (started by the first change agents), plus the recognition they got from Naito, immediately attracted others to follow. So much so that two years after the launch of the first project, nine hundred people – a quarter of all Eisai employees – were involved in 73 old-age health care projects.
Within a relatively short time, Eisai was moving quickly towards health care, tackling the twin threats of increasing competition in the Japanese pharmaceutical market and increasing uncertainty in pharmaceutical research. What are the lessons for manager in Naito’s approach? To design new compact frameworks that appeal to change agents, you have to challenge them to stretch beyond their normal routine, just as Naito did. Change agents are driven primarily by their own sense of self-worth, so the most powerful motivation for change agents is a chance to achieve and develop themselves. The support created for innovation projects at Eisai illustrates just how much this challenge can produce. No matter how charismatic or effective change leaders may be, they have to offer change agents new compacts that will rally them to their side. Following is a discussion of change agents, specifically how to: 1.
Get their attention. 2. Design an attractive new compact framework for them. 3. Anticipate when they will need help in their personal process of commitment (Strebel, 1998).
Get Your Change Agents’ Attention However you choose to draw the attention of the change agents to the change effort, it has to open up a dialogue.
To start that dialogue, you have to take account of the degree of openness in the organization. You must remember that the early phases of the compact design process are crucial, because if change agents do not like what they see and hear, they can very easily land in the camp of the resistors. In the early phases, first contacts and impressions often determine whether or not they are willing to renew their compacts (Strebel, 1998).
The Discreet Approach to Change Agents in a Closed Company It is difficult to find change agents in organizations that are closed to change. Not surprisingly, traditionalists and resistors walk their corridors, blocking change at every turn. To avoid alienating everybody with talk of change, you have to use a subtle approach.
You can, for example: 1. Recruit change agents discreetly. 2. Use a defining event to signal that they can come forward (Strebel, 1998).
Public Solicitation in a Partially Open Organization In organizations where at least a few change agents are already operating in the open, you can solicit the support of change agents publicly. Numerous approaches are possible.
You can: 1. Approach the change agents directly. 2. Ask managers to nominate change agents to task forces. At Eisai, some change agents were already operating openly, so Naito solicited the support of more change agents publicly, simply by inviting his 103 managers to join the geriatric field program.
At the first meetings, he unabashedly asked the members of his audience to help implement change by mobilizing and leading project groups. This public approach was only possible because he already had a task force of committed people looking at Eisai’s future. They had come up with the option of geriatric care, so by the time Naito called for support, others in the company at large had already heard the idea and were aware that change was in the air (Strebel, 1998).
Nurturing of Many Change Agents in and Open Organization Companies that are open to change manage to sustain many change agents over time by offering compacts that evolve continually.
Such companies involve change agents in ongoing change: they give them freedom, resources, and contacts. When the company need a change effort, the change agents are already at full attention (Strebel, 1998).
Designing a New Compact Framework for Change Agents Without a new personal compact to back it up, the invitation to be a change agent is meaningless. Change agents need to revise the answers to the questions that make up their compacts in a way that challenges them and, to be productive, the compacts have to support the overall change objectives. For that to happen, you need to design two kinds of change agent compacts – those for your task-oriented change agents, and those for your people-oriented change agents. 1.
Task-oriented change agents tend to be good at fleshing out the formal economic dimensions of new compacts with others, but poor at interpersonal relations. At Eisai, many of the first people who set up geriatric health care projects were so focused on project technicalities that they had difficulty maintaining the outwardly harmonious relations, which normally characterized Japanese team-work. 2. People-oriented change agents who are just as important as task-driven agents, are skilled at aligning the compacts of others with the stated change objectives of the firm. At Eisai, the project leaders with problems got help from team members and others who were more adept at interpersonal relations. Both types of change agents, however, were crucial to the success of team efforts.
Compact features that typically appeal to the two change agent types are listed together in Table 5. Table 5. Compact Features that Appeal to Change Agents Task-Oriented Change Agents People-Oriented Change Agents Economic Dimension Challenge to stretch based on: A task worth doing Acting as a facilitator Social Dimension Organizational space to: Experiment and achieve Coach and develop teams Psychological Dimension Enhance self-worth with: Opportunity to accomplish Opportunity for self-development (Strebel, 1998, p. 22).
For both the task-oriented and people-oriented change agents, the managerial challenges in the design of change agents compacts are summarized in Table 6.
Table 6. Managerial Challenges in the Design of Change Agents Compacts Task-Oriented Change Agents People-Oriented Change Agents Economic Dimension Manage the risk implicit in their freedom Get them to be more economically oriented Social Dimension Create separate rules of the game for them Help them manage conflicts with appropriate guidelines (Strebel, 1998, p. 23).
In compacts for task-oriented change agents, you have to manage the risk in the freedom you give them. In compacts for people-oriented change agents, you have to provide guidelines to help them reduce the risk in personal conflicts their intervention may well cause (Strebel, 1998).
The Compacts for Change Agents at Eisai Haruo Naito wanted his task-oriented change agents to be willing to develop new business opportunities. But developing new business is a high risk activity with a low rate of success. To get change agents to accept the challenge, Naito had to nurture a social compact that included acceptance of failure in the informal rules of the game. After change agents had taken the seminar on health care trends and completed the field work on geriatric care, Naito gave them a challenge: propose a project that will help turn our new health care vision into reality. He gave them freedom to determine most of the terms in their new compacts, to set up and run the projects as they saw fit, without any threat to their job security if they failed. In effect, Naito offered them new compacts that were based mainly on the challenge in the task.
The key elements of these compacts can be summarized as follows: Economic dimension What am I going to do? Develop a health care idea with a team. What help will I get? Whatever resources I need. How will I be measured? Report to Mr. Naito twice a year.
What rewards will I get? Chance to run a business. Social dimension What vision will I share? Dedication to health care. What values will I share? New set of entrepreneurial values. What informal rules will apply? A lot of freedom with Eisai business standards. Psychological dimension How good is it for me? A new career opportunity backed by the CEO. How risky is it for me? Even if I fail, I will get credit for trying.
What personal satisfaction will I get? Lead team and turn product idea into reality. The psychological attraction of this compact is clearly the opportunity to start up something new with a lot more freedom than is usual in a Japanese business setting. Projects ranged from new marketing concepts (such as helping hospitals to improve patient care, and shifting the promotion of drugs from their medical properties to their impact on the quality of the patient’s life) to the pursuit of opportunities in geriatric care (such as the development of drugs for the elderly (Strebel, 1998).
Helping Change Agents to Commit Even though change agents like taking the initiative, they will not automatically buy into new compacts. There are several points in the individual process of compact revision where you should be ready to help change agents commit: 1. When they become aware of a new change initiative, change agents may go through a dip in morale.
This happens whey they believe that their existing projects will be negatively affected. Change agents usually try to restore morale by downplaying the importance of the new initiative. This is a crucial point. When you hit it, you have to challenge the change agents to get involved in the new initiative by putting existing efforts in perspective and, if necessary, lowering their priority. 2. Once the change agents understand what the change priorities are, they have to decide whether to participate.
During this period of indecision, you have to communicate the challenge and excitement in the change initiative. If you can get your enthusiasm across, so that your change agents can see and feel the potential benefits of the project, they will be keen to renew their compacts. 3. To ensure that the change agents buy in, you have to give them the opportunity to signal their commitment.
You have to provide each change agent with the opportunity to accept the new compact. In general, buy-ins occurs when a change agent agrees to lead a task force, run an experiment, or do whatever is needed to get the change started. Successful buy-in is mutual. In return for the change agent’s commitment, you have to promise to deliver the necessary resources and support (Strebel, 1998).
Commitment at Eisai At Eisai, the buy-in occurred at the end of the health care seminar. Each of the managers who attended the health care innovation program had to make a presentation to the company board at the end, describing how they had been affected, and what the implications were for the Eisai vision. In effect, each had to explain how his / her project would help turn the new Eisai vision into reality. This was tantamount to expressing commitment to the new vision publicly.
The manager’s project proposal inevitably put his / her reputation on the line. And Naito’s acceptance committed the company to providing the necessary resources and organizational flexibility. To unleash the full power of change agents, you have to give them the maximum freedom possible, without jeopardizing the cohesion of the change effort. With the freedom to design most of their own compact, change agents will take greater ownership and responsibility for the outcome of the change effort. This feeling of responsibility for the outcome means that there is less need for detailed follow-up. At Eisai, with the large bottom-up role played by change agents in the design of their compacts, there was little need for formal follow-up.
Once the first innovation projects were up and running, there was full identification with, and commitment to, the objectives of the change effort from the change agents. They generated a network of self-organizing teams dedicated to health care. Apart from the twice yearly progress reports that he got on the projects, Naito saw his follow-up role as being the facilitator of corporate knowledge creation at the center of the network teams. In his role, he could both monitor and guide the work of the work teams.
The ultimate reason for monitoring the performance of change agents is to further the progress of the total change effort. The objective of change agent activity is to get the task-oriented change agents to help define the value-creating idea and its implications; while the people-oriented change agents help to initiate compact renewal in the rest of the organization. Whatever the momentum created by change agents, however, at some point the change leadership has to bring the bystanders on board (Strebel, 1998).
Tips on Transforming Eisai to a Healthcare Organization Transforming an organization is changing the way it supplies services to its customers. The purpose of transforming an organization is to establish high-quality outcomes in a low-cost service model. Once an organization has been transformed, the cost of services will be reduced through process and technology while using standards and technology to improve the outcomes for the customer (Hallowell, 2003).
Taking Care of Business Before undertaking an organizational transformation initiative, healthcare organizations need to understand and respond to four critical business pressures in the current marketplace: 1. Bring a low-cost, high-value product to the marketplace. 2. Hold people accountable for results. 3.
Create key metric indicators. 4. Understand the return on investment (ROI) for the initiative (Hallowell, 2003).
Bring a Low-Cost, High-Value Product to the Marketplace Organizational transformation is a major initiative that will require significant investment. Healthcare organizations cannot afford to spend this sum on projects that offer only short-term benefits.
They need to ensure that the initiative will deliver results. With the payment amounts being reduced not only by managed care, but also the governmental players, healthcare organizations cannot spend the money if they do not achieve the results. With the future changes to payment methodologies, which are heading toward outcome-based instead of service-based, the need to transform becomes an urgent matter to deliver a low-cost model with high-quality outcomes (Hallowell, 2003).
Hold People Accountable for Results Healthcare organizations need to set standards for the results they want to achieve. All service-line managers and above should be expected to meet those standards and be held accountable for the results of the transformation (Hallowell, 2003).
Create Key Metric Indicators Change cannot be measured without having benchmarks in place.
Key metric indicators, such as adverse drug events by unit, along with medical necessity denials by unit are essential to determining when a transformation has occurred. Measurement of agreed-upon standards or outcomes requires taking a snapshot of the organization’s current state, which may meet with resistance. Human nature tends to defend the status quo and resist change, claiming best practices already are being used. It is important to remember, and to reinforce to everyone in the organization, that improvement is always possible.
That basic belief is the foundation of organizational transformation (Hallowell, 2003).
Understand the ROI for the Initiative Organizational transformation should result in a four-to-one payback to the cost of organizational transformation and the financial condition of most healthcare organizations. The days when the clinical care cycle was separate from the revenue cycle are over. With payment being tied to services, the two cycles must be in sync to achieve the goal. Determining the dollar value of a transformation project involves an assessment that identifies agreed-upon cost savings and includes buy-in for senior executives. If the assessment does not find that the initiative would result in reduced costs, an influx of cash, and / or an increase in net revenues, and if it does not prevent or correct future or current risk to the patient’s outcome or governmental or contract compliance that results in large fines or loss of contracts, the transformation initiative should not proceed (Hallowell, 2003).
Observing the Domino Effect Many attempts to transform specific areas such as clinical care, revenue cycle, or supply chain have failed or fallen short of expectations because healthcare organizations ignored their interdependence. Organizations should avoid changing one area without evaluating the impact that change would have on other areas. For example, changing the clinical cycle will affect the revenue cycle and the supply chain. Even if an organization achieves the best clinical cycle possible, it can suffer decreased payment and be noncompliant with both the government regulations and payer contracts. Organizations may save time and money by undertaking a transformation simultaneously with another business initiative, such as installing a new information system. The installation of the information system alone, however, will not bring about transformation.
Organizations also need to address desired outcomes and accountability. No process should be regarded in a vacuum. By and large, organizational transformation failures occur at the linkages between departments and functional areas (Hallowell, 2003).
Choosing Partners Wisely Healthcare organizations may find that partnering with firms that offer professional expertise in business transformation would be helpful.
In that case, organizations should ensure that their partners possess the necessary knowledge and change-management skills to achieve the desired results. In addition, a successful partnership must be rooted in mutual respect and trust. True partners will assume responsibility for results (Hallowell, 2003).
Summary / Conclusion It is clear that Eisai is responding to market conditions that stipulate a more diverse field of doing business. Going from being a pharmaceutical company to also becoming health care provider is risky business. However, the company seems to be aware of what is going on in the health care industry and is therefore reshaping itself to changing market needs.
In addition, Eisai should decide whether to split the company into two separate units each with its own mission and vision reflecting the purpose for which is was assembled. Currently the company is spreading itself thin using change agents from the current pharmaceutical company to reinforce leading change for new business. Eisai should consider using external change agents instead of relying too much on internal change agents. Eisai is going through discontinuous change. Discontinuous change always requires a critical emphasis on developing and implementing a new strategy (Nadler, 1998).
Strategic planning is the process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities.
It involves defining a clear company mission, setting supporting objectives, designing a sound business portfolio, and coordinating functional strategies (Armstrong & Kotler, 1999).
Diversification does not need to become a strategic priority until a company begins to run out of attractive growth opportunities in its main business (Strickland & Thompson, 2001).
Eisai realized that the increased competition in the Japanese pharmaceutical market and increased uncertainty in pharmaceutical research prompted the need for diversification and a new strategic plan. Naito use of middle managers to influence strategy in operational areas will span the boundary between the organization and its environment.
Middle managers contribution to strategy is significant and can have an affect on executive management’s view of organizational circumstances. At Eisai, middle managers are enjoying an enhanced role. Much of the boundary spanning that allows middle managers to enhance their involvement in strategic change occurs between the organization and its environment and through cross-organizational project groups within the organization itself. Middle managers are key actors in interpreting strategy as it relates to managerial practices at the operational level of the organization.
To facilitate an enhanced contribution towards strategy it is helpful to encourage middle managers to span boundaries within the organization, as well as between the organization and its environment (The Contribution of Middle Managers to Strategic Change, 2000).
Naito provides leadership behind the changes the he proposed to the company and its employees. The effective leader as a change agent can enable his or her people to excel by: (1) providing a compelling context for change, (2) establishing an effective framework for people to navigate the change, and (3) fostering a teaching / learning environment to harness employee’s full potential to meet change head on (Conner, 2001).
In addition, Naito is a transformational leader for he must create something new-a new vision and get others not only to see the vision but also to commit themselves to it.
There are three identifiable programs of activity with transformational leadership: 1. Creation of a vision: The transformational leader must provide the organization with a vision of a desired future state. Naito wants to transform Eisai into a healthcare organization. The long-term challenge to organizational revitalization is not how the vision is created but the extent to which the vision correctly respond to environmental pressures and transitions within the organization. 2. Mobilization of commitment: Here, the organization, or at least the critical mass of it, accepts the new mission and vision and makes it happen.
Naito used his middle managers as change agents very effectively. After transformational leaders create a vision and mobilize commitment, they must determine how to institutionalize the new mission and vision. 3. Institutionalization of change: Organizations will not be revitalized unless new patterns of behavior within the organization are adopted. Transformational leaders need to transmit their vision into reality, their mission into action, and their philosophy into practice. New realities, action, and practices must be shared throughout the organization.
Alterations in communication, decision-making, and problem-solving systems are tools through which transitions are shared so that visions become a reality. At a deeper level, institutionalization of change requires shaping and reinforcement of a new culture that fits with the revitalized organization. The human resource systems of selection, development, appraisal, and reward are major levers for institutionalizing change (Morgan, 1989).
An organization’s founders and subsequent leaders define the organization’s core values-underlying attitudes and beliefs that strongly influence individual and group behavior. As these beliefs are put into practice, some pan out and others do not. Gradually, the joint learning that takes place creates shared beliefs and forges a unique organizational character.
Research on organizational values led to the discovery of four distinct value clusters. These clusters explain the existence of four basic organizational characters: (1) the achievement type, (2) the safekeeping type, (3) the collaborative type, and (4) the creative type. These value orientations are seldom found in organizations as pure character types, but virtually all organizations center on one or another of them. Eisai falls in the category of the collaborative type.
These organizations are friendly, helpful, and traditional. Not surprisingly, building trust and commitment through participation is paramount at these firms. The climate is open and comfortable. Managers are expected to foster collective effort and cultivate people. Communication, cooperation, and collaboration are strongly rewarded.
Employee development is a strategic focus, and employee success may be defined in terms of sensitivity to customers. In these organizations, things generally are held together by a sense of affiliation and belonging. Eisai is a prototypical example of this type of character (Fernandez & Hogan, 2003).
Making change happen in organizations is extremely difficult work and no “guide” will ever overcome that simple truth. Few individuals and even fewer organizations are open to the messiness and frustration that change work creates. Nevertheless, the potential for greatness that exists within an organization requires those of us who are concerned about the future to embrace the struggle of operating as change catalysts.
We must always remember that the opportunities are within our grasp-if we are prepared to stretch ourselves in order to reach them (De Ca gna, 2001).
References Armstrong, G. , & Kotler, P. (1999)..