Chapter 6 Managing Change and Innovation

• Chapter 6    Managing Change and   Innovation

  
  Change is a constant for organizations and thus for managers. Because change can’t be eliminated, managers must learn how to manage it successfully. Because innovation is often closely tied to an organization’s change efforts, managers must know how to manage it as well. Focus on the following learning outcomes as you read and study this chapter.

  LEARNING OUTCOMES 

  6.1 Compare and contrast views on the change process.
  6.2 Classify types of organizational change.
  6.3 Explain how to manage resistance to change.
  6.4 Discuss contemporary issues in managing change.
  6.5 Describe techniques for stimulating innovation.

  
  A MANAGER’S DILEMMA 

  In today’s dynamic workplace, managers can be sure that one thing will remain constant—change.  In order to compete successfully, managers must encourage creativity and innovation among all of the employees in their organization. In “A Manager’s Dilemma”, one of the most innovative organizations in the United States, and quite possibly the world, is undergoing a dramatic change.  From its high of putting a man on the moon and the development of the space shuttle program, NASA has made a reputation of doing what seemed impossible.  Today, NASA will have to reinvent itself as it is called upon by Congress and the President to cut costs and undergo organizational reformation. How will employees respond?

  Change will not be easy for NASA.  Over the years it has grown like most government agencies into a bureaucracy that resist change.  As your students study this chapter, they will discover ways to stimulate creativity and innovation and to manage change successfully. As Chapter 6 opens, students are asked what NASA should do to revitalize the US space program to promote scientific development and space exploration for the future.  If your students were in a leadership position at NASA, what would they do?
   

  
  CHAPTER OUTLINE 

  INTRODUCTION
   Change and change management are important aspects of the manager’s job. Chapter 6 focuses on ways to manage change effectively and to promote innovation in an organization.

  6.1 THE CHANGE PROCESS
   Exhibit 6-1 shows that both external and internal forces create the need for change. External forces creating the need for change come from various sources:
  1. The marketplace
  2. Government laws and regulations
  3. Technology
  4. Labor markets
  5. The economy

  Internal forces creating change usually originate from the internal operations of the organization or from the impact of external changes.  These internal forces include:
  1. Changes in strategy
  2. Changes in the workforce
  3. New equipment
  4. Changes in employee attitudes
  A. Two Views of the Change Process.  Two very different metaphors can be used to describe the change process.
  1. The calm waters metaphor characterizes the process of change as being like a ship crossing a calm sea. The calm waters metaphor can be illustrated by Lewin’s 3-step process for change. (See Exhibit 6-2)
  a. Unfreezing the equilibrium is the first step. Unfreezing the equilibrium can be accomplished in one of three ways.
  1. Increasing driving forces, which are forces that direct behavior away from the status quo.
  2. Decreasing restraining forces, which are forces that hinder movement from the existing equilibrium.
  3. Combining the two approaches.

  b. The next step is to implement the change itself.
  c. The final step is to refreeze the situation.
  B. The white-water rapids metaphor describes change that takes place in uncertain and dynamic environments.  To put the two views into perspective, it is helpful to note that not every manager constantly faces a world of chaotic change. However, the number of managers who do not face this type of environment is rapidly dwindling!

  
  6.2 TYPES OF ORGANIZATIONAL CHANGE
  A.   What is organizational change?  Organizational change is defined as any alteration of people, structure, or technology in an organization. Instead of trying to eliminate change, managers must realize that change is always present and that they should seek ways to manage change successfully.
  B. Types of Change
   What can a manager change? A manager may make changes in three categories:  structure, technology, and people. (See Exhibit 6-3)
  1. Changing Structure
  a. Managers can alter one or more structural components of the organization, such as work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization.
  b. Frequently, the design of the organization’s structure is changed in order to meet new demands.
  2. Changing Technology
  a. Competitive factors or new innovations often require introduction of new equipment, tools, or operating methods.
  b. Automation is a technological change that replaces certain tasks done by people with machines.
  c. Computerization has probably been the most visible technological change in recent years.
  3. Changing People
  a. Organizational development (OD) is techniques or programs to change people and the nature and quality of interpersonal work relationships.
  b. Exhibit 6-4 provides descriptions of the most popular OD approaches.
  B. The Manager as Change Agent
   Change requires a catalyst.  The manager may act as a change agent— someone who acts as a catalyst and assumes the responsibility for managing the change process.

  6.3 MANAGING RESISTANCE TO CHANGE
  Managers are motivated to initiate change when they are committed to improving organizational performance. 
   A. Why do People Resist Change
  Resistance to change is a natural event in organizations and occurs for three main reasons including:  uncertainty, habit, concern about personal loss, and the belief that the change is not in the organization’s best interest.
  B. Techniques for Reducing Resistance to Change
   Organizations can build up inertia that actually motivates employees to resist change. The techniques for Reducing Resistance are listed in Exhibit 6-5.  They are: 
  1. Education and communication
  2. Participation
  3. Facilitation and support
  4. Negotiation
  5. Manipulation and co-optation
  6. Coercion
  6.4 CONTEMPORARY ISSUES IN MANAGING CHANGE
  Contemporary issues related to managing change include organizational culture, employee stress, and successful change action.
  A. Changing Organizational Culture
  1. Culture is resistant to change because:
  a. Culture consists of relatively stable and permanent characteristics.
   b. Culture is formed over a long period of time.
   c. Strong cultures have highly committed people.
  2. Understanding the Situational Factors
  Some situations can facilitate culture change, including:
  a. A dramatic crisis
  b. A change in leadership
  c. A young organization that is small in size
  d. A culture that is weak 
  3. How Can Cultural Change Be Accomplished?
  Exhibit 13-5 demonstrates the need for a comprehensive,
  coordinated strategy for managing cultural change.
  B. Employee Stress
  1. What is Stress? Stress is the adverse reaction people have to excessive pressure placed on them from extraordinary demands, constraints, or opportunities.
   2. Causes of Stress.  Research shows that stress may be related to the organization or to personal factors.
   3. Symptoms of Stress. Stress may be exhibited in a number of ways. For example, an employee who is experiencing a high degree of stress may become depressed, accident prone, or argumentative and may be easily distracted.  Exhibit 6-7 groups stress symptoms into three categories:  physical, psychological, and behavioral.
     4. Reducing Stress
   Employee selection, RJP, MBO, and job redesign are methods of reducing stress in an organization.
  C. Making Change Happen Successfully
  Managers can increase the likelihood that change will be successful in their organization by:
  1. Focusing on preparing the organization for change
  (See Exhibit 6-8 for characteristics of a change-capable organization.)
  2. Recognizing the important role they themselves play in the change process
  3. Involving every organizational member in the change

  6.5 STIMULATING INNOVATION
   Innovation is essential to organizational success in a dynamic marketplace.  Whether it’s Google, Facebook, or Apple, all companies rely on innovation to deliver the products and services necessary for the marketplace.  Exhibit 6-9 is a list of companies named as most innovative in the world.
  A. Creativity versus Innovation.
  1. Creativity is the ability to combine ideas in a unique way or to make unusual associations between ideas.
  2. Innovation is taking creative ideas and turning them into useful products or work methods.
  B. Stimulating and Nurturing Innovation 
  How can managers foster innovation? The systems model shows how to foster innovation. (See Exhibit 6-10) Three sets of variables have been found to stimulate innovation.
  1. Structural variables can be summarized as follows:
  a. Organic structures positively influence innovation.
  b. The easy availability of organizational resources provides a critical building block for innovation.
  c. Frequent communication among work units helps to break down barriers to innovation.
  d. Minimize time pressures on creative activities.
  e. Provide explicit support for creating work and non work sources.
  2. Cultural variables show that an innovative culture is likely to have the following characteristics:
  a. Acceptance of ambiguity
  b. Tolerance of the impractical
  c. Low external controls
  d. Tolerance of risk
  e. Tolerance of conflict
  f. Focus on ends rather than means
  g. An open systems focus
  h. Positive feedback
  3. Human resource variables indicate the important role that people play in innovative organizations.
  a. Innovative organizations actively promote the training and development of their employees so that their knowledge will be current.
  b. Innovative organizations offer employees high job security.
  c. Innovative organizations encourage individuals to become idea champions—that is, individuals who actively and enthusiastically support new ideas, build support, overcome resistance, and ensure that the innovations are implemented.

  
  LEADERS WHO MAKE A DIFFERENCE

  Ratan Tata, chairman of both Tata Group and Tata Motors in India, has an interesting way to promote innovation in his company.   Each year, Tata host a competition designed to promote internal innovation.  Last year 1,700 employee teams participated.  The prize for the winners?  Tata doesn’t give cash, but instead gives awards that promote team respect and recognition.

  
  ANSWERS TO REVIEW AND DISCUSSION QUESTIONS 

  1. Contrast the calm waters and white-water rapids metaphors of change.

  According to the calm waters scenario, an occasional disruption (a “storm”) means changing to deal with the disruption.  On the other hand, the white-water rapids metaphor implies a dynamic environment with constantly changing paradigms and high levels of competition.

  2. Explain Lewin’s three-step model of the change process.

  In Lewin’s model, successful change usually occurs in three steps: unfreezing, change and refreezing.  For unfreezing to occur, the organization must plan a move away from the status quo. To move away from this equilibrium, the organization undergoes an increase of the driving forces, which are forces pushing for change and/or a decrease in the restraining forces, which are forces that resist change.  After unfreezing, the change itself can be implemented.  To make the change permanent, the new situation needs to be refrozen.

  3. Describe how managers might change structure, technology, and people.

  To change structure, management can change structural components (i.e. jobs could be combined or levels eliminated). More rules and procedures could be implemented to increase standardization or employees could be empowered to make decisions so decision making could be faster.
  Technology can be changed by changing the processes by which employees work to make them more efficient (i.e. the introduction of scientific management techniques).  Technology can be changed by introducing of new equipment, tools, or methods.  Also, companies are becoming more technologically advanced by incorporation automation and/or computerization into their production lines.
  Changing people involves changing attitudes, expectations, perceptions, and behaviors.  This can be done through organizational development initiatives that focus on people and the nature and quality of interpersonal work relationships.

  4. Can a low-level employee be a change agent? Explain your answer.

  If the low-level employee is a low-level manager, it is possible that he or she could act as a change analyst, just as any manager can be a change agent. However, it is important to note that change should begin at the top and work its way done.  Change is most successful when it is supported by top management.  Also, it is important to remember that as organizations empower employees, they may empower them as change agents, also.

  5. Why do people resist change? How can resistance to change be reduced?

  The main reasons people resist change are:  uncertainty, habit, concern over personal loss, and the belief that the change is not in the organization’s best interest.  The techniques for reducing stress include: education and communication, participation, facilitation and support, negotiation, manipulation and co-optation, and coercion. These tactics are summarized in
  Exhibit 6-5.

  6. How are opportunities, constraints, and demands related to stress? Give an example of each.

  This question can be made more personal for students by relating it to class assignments. Have students give an example of an instance when faculty members have provided students with opportunities, constraints, and/or demands in preparing assignments. Ask student to identify the level of stress they felt. Encourage a discussion about the different levels of stress felt by different students. For example, the opportunity to be creative in giving a group presentation may be considered an exciting challenge to one student, while completely overwhelming another student.

  7. Planned change is often thought to be the best approach to take in organizations. Can unplanned change ever be effective? Explain.6.1 6.5

  Student answers will likely vary. To generate discussion, you might ask students to think about the plans they have for this evening, or this weekend. Then ask what would happen if a friend called and suddenly offered them an opportunity to attend an event or to go visit another location. Would they do it? How could this situation be compared with unplanned organizational change?

  8. Organizations typically have limits to how much change they can absorb. As a manager, what signs would you look for that might suggest that your organization has exceeded its capacity to change?

  Signs that an organization may have exceeded its capacity to change include an increasing level of resistance to change. If changes are negatively impacting employee work performance and behavior, the manager may discern that the organization has exceeded its capacity to change.

  9. Describe the structural, cultural, and human resources variables that are necessary for innovation. 

  The structural variables necessary for innovation include:  organic structures, abundant resources, high interunit communication, minimal time pressure, and work and nonwork support.  Cultural variables include:  acceptance of ambiguity, tolerance of the impractical, low external controls, tolerance of risks, tolerance of conflict, focus on ends, open-system focus, and positive feedback. Finally, the human resource variables are:  high commitment to training and development, high job security, and creative people.

  10. Innovation requires allowing people to make mistakes. However, being wrong too many times can be disastrous to your career. Do you agree? Why or why not? What are the implications for nurturing innovation?

  This question offers an opportunity to set up a debate in class. Ask half of the students in the class to argue that being wrong can be fatal, and have the remaining half of the class argue that being wrong does not have to be fatal. Students must, however, understand and be able to incorporate the relationship between nurturing innovation and “punishing” failure. If an organization punishes employees for failing, employees will cease to “take a chance” on a new innovation, and innovative activity will decline.

  
  ETHICS DILEMMA 
  Stress management and counseling can be an important aid for employees.  In this dilemma, students are asked to address why employees would not take advantage of these benefits.  The authors mention a paradox that exists; employees are experiencing stress but they feel that they don’t want to admit to being stressed (which may make the stress even worse). Students are encouraged to think of ways to change the perception of stress management programs and to get employees to participate.  Some companies use EAP programs that keep employees names confidential.  Another way to take away the stigma of stress management programs may take the opposite approach and have employees write testimonials of their benefits.  These could be published in a company newsletter (again with the names confidential). 
  This case also asks students to consider if organizations have an ethical responsibility to help employees deal with stress?  The simple answer to this question is yes.  For many employees it is the stressful nature of the job that causes employees to poor behavior at work which can spill over into their home life.

  
  SKILLS EXERCISE:  DEVELOPING YOUR  CHANGE SKILLS 

  In this exercise, students are asked to work on personal skills that will help make them better change agents.  Change management is a necessary skill for two reasons, first managers are always making change and second employees almost always resist change. 

  WORKING TOGETHER:  TEAM EXERCISE 

  In groups of three to four, have students create a plan for an accounting firm changing from Generally Accepted Accounting Principles (GAAP) to the International Financial Reporting Standards, (IFRS).  Students should use the following two topic areas to guide the change: (1) using communication channels to engage and inform employees, and (2) building needed skills and capabilities. Students should take into account that GAAP is ingrained into the accounting profession and change will not be easy.  To make the change necessary, any plans must incorporate education and communication (why are the new standards necessary and what do they entail), participation (getting employees involved in the change process where they are allowed to be involved in decision making), and facilitation and support (making sure that information and training is available).

  After the groups have developed a written plan, they should share with the rest of the class.

  YOUR TURN TO BE A MANAGER 

  • Take responsibility for your own future career path. Don’t depend on your employer to provide you with career development and training opportunities. Right now, sign up for things that will help you enhance your skills—workshops, seminars, continuing education courses, and so on.

  • Pay attention to how you handle change. Try to figure out why you resist certain changes and not others.

  • Pay attention to how others around you handle change. When friends or family members resist change, practice using different approaches to managing this resistance to change.

  • When you find yourself experiencing dysfunctional stress, write down what’s causing the stress, what stress symptoms you’re exhibiting, and how you’re dealing with the stress. Keep this information in a journal and evaluate how well your stress reducers are working and how you could handle stress better. Your goal is to get to a point where you recognize that you’re stressed and can take positive actions to deal with the stress.

  • Research information on how to be a more creative person. Write down suggestions in a bulleted list format and be prepared to present your information in class.

  • Complete the skill building modules Managing Resistance to Change and Solving Problems Creatively found on mymanagementlab.

  • Choose two organizations that you’re familiar with and assess whether they face calm waters or white-water rapids environments. Write a short report, describing these organizations and your assessment of the change environment each faces. Be sure to explain your choice of change environment.

  • Steve’s and Mary’s recommended readings: Malcolm Gladwell, Blink (Little, Brown, 2005); Peter Senge and others, Presence (Doubleday, 2004); Tom Peters, Re-Imagine! (Dorling Kindersely, 2003); John P. Kotter and Dan S. Cohen, The Heart of Change (Harvard Business School Press, 2002); Malcolm Gladwell, The Tipping Point (Back Bay Books, 2002); Tom Kelley, The Art of Innovation (Doubleday, 2001); and Ian Morrison, The Second Curve (Ballantine Books, 1996).

  • Choose an organization with which you’re familiar (employer, student organization, family business, etc.). Describe its culture (shared values and beliefs). Select two of its values/beliefs and describe how you would go about changing them. Put this information in a report.
  • In your own words, write down three things you learned in this chapter about being a good manager.

  • Self-knowledge can be a powerful learning tool. Go to mymanagementlab and complete these self-assessment exercises: How Well Do I Handle Ambiguity? How Creative Am I? How Well Do I Respond to Turbulent Change? How Stressful Is My Life? Am I Burned Out? Using the results of your assessments, identify personal strengths and weaknesses. What will you do to reinforce your strengths and improve your weaknesses?

  
  ANSWERS TO CASE APPLICATION QUESTIONS 

  Too Big to Change

  1. How would you describe the organizational culture at GM? Why was decision making so slow—“plodding” as one analyst described it?

  While the case does not give much insight into GM’s culture, what is evident is that they have been slow to change.  Having not shown a profit for six years (or much profit in the last 15), GM has either been slow to recognize changing customer preferences and/or slow adapting to technological changes in the competitive automobile industry.  Decision making can be equated to ‘analysis of paralysis,” or the over-thinking of a situation, so that a decision is never made, in effect paralyzing the outcome.

  
  2. Why do you think the previous CEO’s (Mr. Henderson) attempts to change the organizational culture might have been lacking?

  Henderson’s failure could be attributed to his obsession with numbers.  Too much focus on numbers may have clouded his judgment in that it was the culture of GM which needed to be changed.  Another reason could be that Henderson was a GM insider who had been with the company since 1984.  Having risen from the ranks to eventually become Vice President, Henderson could have adopted the same analysis of paralysis of other GM managers.  Having been responsible for approving many of the programs in his position as VP, Mr. Henderson may have also felt some attachment to them and let them continue.

  3. What changes is Mr. Whitacre making to the culture of GM?

  Whitacre seemed focus on changing the decision making process of GM.  By empowering employees to make their own decisions, change could occur more efficiently with the use of too many committees.

  4. What types of resistance is he likely to encounter? Using Exhibit 6-5, what would be the best ways to address that resistance? Be specific.

  Because of GM’s failing economic position, it would be expected that there would be structural and human resource changes in addition to the cultural change Mr. Whitacre was seeking.  These types of change often result in employee layoffs.  Considering the strong emotions that can arise during times of layoffs and the fact the GM had previously tried to change and had been ineffective, facilitation and coercion may be the most effective means of combating resistance.  Any efforts that take too long, or require trust may not work in GM’s situation.

  
  Stress Kills

  1. What is your reaction to the situation described in this case? What factors, both inside the company and externally, appear to have contributed to this situation?

  Students may take the side of employees, the organization, or they may see the situation looking from both perspectives.  From the employees’ perspective, they may see the destructive power that organizations have over their employees.  The suicides in this case are a result of what the company has done by creating a stressful work environment and the policies that may have ultimately lead to employees feeling depressed.  From the company’s perspective, the causes of employee depression could be attributed to many factors external to the organization, i.e. competitive nature of work, economic conditions leading to underemployment, and poor employee self-esteem.  Looking at this situation from both perspectives, we can see that both internal and external factors could be to blame for the employees’ behavior.

  2. What appeared to be happening in the France Télécom’s workplace? What stress symptoms might have alerted managers to a problem?

  It appears that Télécom’s leadership was exerting pressure on their employees by exerting high levels of task demands and by changing the organization’s structure to produce higher levels of productivity.  There are many warning sign’s to stress  that most managers should recognize including decreased job satisfaction, poor organizational commitment, higher turnover and absenteeism, increased number of accidents, and poor communication.  Other symptoms that most managers are not usually trained to see include depression, fatigue, and burnout.

  3. Should managers be free to make decisions that are in the best interests of the company without worrying about employee reactions? Discuss. What are the implications for managing change?

  The key words in the first question are “without worrying about employee reactions.” Management actions will not always be well received by employees. There is no good way to lay off or fire an employee.  Many management decisions are made from the standpoint of what has to be done to ensure organizational survival and discipline.  However, the idea that management would not worry about the reactions is far from the truth of what happens in organizations.  Managers should always take into account how employees will react to their decisions – if not, then execution of those decisions could be affected. With regard to change, in general, employees do not like change.  Any plan by management that changes the status quo should be evaluated to see how it would be received by employees and ways to mitigate negative employee reactions should be considered.

  4. What are France Télécom’s executives doing to address the situation? Do you think it’s enough? Are there other actions they might take? If so, describe those actions. If not, why not?

  According to the case, Télécom is working to rebuild the morale of staff and they have halted the workplace practices identified as being particularly disruptive.  The CEO has also changed company policy on transfers and began encouraging more supportive practices, including working from home.   Other programs that Télécom could implement  involve stress reduction techniques, such as providing yoga classes, wellness programs, and providing employees with counseling (i.e. an employee assistance program or EAP).

  5. What could other companies and managers learn from this situation?

  What happened at Télécom is a sobering reminder about the negative effects of stress.  In addition, these behaviors are not limited to one company or country.  Suicides and homicide by employees are common occurrences in the United States. Companies should be prepared and have policies in place to deal with employees who exhibit out of the ordinary behavior.  Counseling and stress reduction programs should be in place for organizations where employees are exposed to high levels of stress.

  
  ADDITIONAL CHAPTER INFORMATION 

  “Trying to turn around a giant insurance company is like trying to parallel-park a battleship.” Any change effort that requires more than a one-page manifesto to articulate its goal is doomed to failure. If the point of the program is complex, people lose focus—and eventually lose their way.”  Tom Valerio, who was selected by Cigna Property and Casualty to lead a significant organizational change effort at the insurance firm, voiced these observations about the difficulty of managing change within a large company. 

  The article “20/20 Change Agent” describes Valerio’s four-point plan for facilitating change successfully in a large corporation. This article provides an excellent application of organizational change tools and strategies to reinforce concepts presented in Chapter Thirteen.  The article, written by Bill Breen and Cheryl Dahle, can be found in FastCompany, Issue 30, December 1999, Page 402.