1. Managing Change and Innovation
Define organizational change and explain the forces driving innovation and change in today’s organizations.
After studying this chapter, students should be able to:
Identify the three innovation strategies managers implement for changing products and technologies.
Explain the value of creativity, idea incubators, horizontal linkages, open innovation, idea champions, and new-venture teams for innovation.
Discuss why changes in people and culture are critical to any change process.
Define organization development (OD) and large-group interventions.
Explain the OD stages of unfreezing, changing, and refreezing.
Identify sources of resistance to change.
Explain force-field analysis and other implementation tactics that can be used to overcome resistance.
Chapter 11
Managing Change and Innovation

2. Why Change? IBM (1960 – 2000) From hardware, software company
(2000 – present) To a service company (mainly, consulting)
After studying this chapter, students should be able to:
Define organizational change and explain the forces driving innovation and change in today’s organizations.
Identify the three innovation strategies managers implement for changing products and technologies.
Explain the value of creativity, idea incubators, horizontal linkages, open innovation, idea champions, and new-venture teams for innovation.
Discuss why changes in people and culture are critical to any change process.
Define organization development (OD) and large-group interventions.
Explain the OD stages of unfreezing, changing, and refreezing.
Identify sources of resistance to change.
Explain force-field analysis and other implementation tactics that can be used to overcome resistance.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

3. Innovation and Change in the Workplace
If organizations don’t successfully change and innovate, they die
Change and innovation can come from outside forces
Managers want to initiate change from the inside
Disruptive innovation is a goal for global competition
Trickle-up / reverse innovation (p. 296)
Jeep at China
ARE YOU INNOVATIVE?
Personal innovativeness reflects the awareness of the need to innovate and a readiness to try new things. Innovativeness is considered a positive thing for people in many companies where individuals and organizations are faced with a constant need to change. This exercise helps students determine their level of personal innovativeness.
INNOVATION AND THE CHANGING WORKPLACE
Organizational change is defined as the adoption of a new idea or behavior by an organization. In today’s highly complex and rapidly changing world, organizations need to continuously adapt to new situations if they are to survive and prosper. Advances in information technology and the Internet are driving many of the changes in today’s world and today’s organizations. Organizations must embrace many types of change.
Disruptive innovation refers to innovations in products, services, or processes that radically change an industry’s rules of the game for producers and consumers. CDs all but wiped out the phonograph industry, and now iPods and streaming music are threatening the same fate for CDs. Western firms are increasingly using an approach referred to as trickle-up innovation or reverse innovation. Rather than innovating in affluent countries and transferring products to emerging markets, companies are now creating innovative low-cost products for emerging markets and then quickly and inexpensively repackaging them for sale in developed countries.
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4. Organizational Change
The adoption of a new idea or behavior by an organization
Change is not easy, organizations must take an ambidextrous approach (p. 297)
Y theory
Force the change
Managers encourage flexibility and freedom to innovate
An ambidextrous approach means incorporating structures and processes that are appropriate for both the creative impulse and for the systematic implementation of innovations. With this approach, managers encourage flexibility and freedom to innovate and propose new ideas with creative departments, venture teams, and other mechanisms, but they also use a more rigid, centralized, and standardized approach for implementing innovations.
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5. Changing Things: New Products and Technologies
Product Change – a change in the organization’s product or service outputs
Technology Change – a change in the organization’s production process
Three innovation strategies:
exploration,
cooperation, and
entrepreneurship
CHANGING THINGS: NEW PRODUCTS AND TECHNOLOGIES
To thrive in today’s hypercompetitive environment, companies must innovate more, and more quickly, than ever. One vital area for innovation is introducing new products and technologies.
A product change is a change in the organization’s product or service outputs. Product and service innovation is the primary way in which organizations adapt to changes in markets, technology, and competition.
A technology change is a change in the organization’s production processes—how the organization does its work. Technology changes are designed to make the production of a product or service more efficient.
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6. 11.1 Three Innovation Strategies
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7. Characteristics of Creative People and Organizations
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8. 11.3 The World’s Most Innovative Companies
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9. Exploration
Creativity – novel ideas that meet perceived needs or offer opportunities
Idea incubator – a safe harbor where employees can develop ideas and experiment
Yahoo – Brickhouse – Top management support
Exploration Exhibit 11.1, Exhibit 11.2, Exhibit 11.3
Exploration involves designing the organization to encourage creativity and the initiation of new ideas. It is the stage where ideas for new products and technologies are born. Creativity is the generation of novel ideas that might meet perceived needs or respond to opportunities for the organization.
Creativity is the essential first step in innovation. Creative people are known for originality, curiosity, open‑mindedness, a focused approach to problem solving, persistence, a relaxed and playful attitude, and receptiveness to new ideas. Managers are responsible for creating a work environment that allows creativity to flourish. Creative organizations have an internal culture of playfulness, freedom, challenge, and grass-roots participation.
The idea incubator is another popular way to encourage new ideas within an organization. An idea incubator provides a safe harbor where ideas from employees throughout the company can be developed without interference from company bureaucracy or politics.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

10. Cooperation – Internal Coordination
Horizontal coordination mechanisms – simultaneously contribute to innovation
Internal and external
Horizontal Linkage:
Marketing = Research = Production
Key to Success:
MANAGEMENT – Planning, organizing, leadership, control
Team Building
Project Manager
Cooperation
Internal Coordination Exhibit 11.4
Successful innovation requires expertise from several departments simultaneously. The horizontal linkage model is one approach to successful innovation. In this model, people from several departments meet frequently in teams and task forces to share ideas and solve problems. The horizontal linkage model is increasingly important in today’s high-pressure business environment that requires developing and commercializing products and services incredibly fast.
A fast-cycle team is a multifunctional, and sometimes multinational, team that works under stringent timelines and is provided with high levels of resources and empowerment to accomplish an accelerated product development project.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

11. 11.4 Coordination Model for Innovation
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12. Cooperation – External Coordination
Open innovation – commercialization of ideas beyond the organization
Includes customers and partners
P&G – Patent
LEGO + Hollywood studios
Crowdsoucing (p. 303)
Threadless – web 2.0 (open, share, participate)
External Coordination
Organizations also look outside their boundaries to find and develop new ideas. Some organizations build formal strategic partnerships such as alliances and joint ventures to improve innovation success. Outsourcing partnerships can help companies get things done very quickly. Today’s most successful companies are including customers, strategic partners, suppliers, and other outsiders directly in the product and service development process.
Open innovation is one of the hottest trends. Open innovation means extending the search for and commercializing new ideas beyond the boundaries of the organization and even beyond the boundaries of the industry. Smart companies find and use ideas from anywhere within and outside the organization.
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13. Entrepreneurship
Managers should support entrepreneurship activities and foster idea champions
Energy and effort is required to promote a new idea
Sponsors approve and protect ideas when critics challenge the concept
New-venture teams give free rein to creativity
New-venture funds provide resources for new ideas
Skunkworks are informal, autonomous, secretive groups that focus on breakthrough ideas
Entrepreneurship Exhibit 11.5
Creating mechanisms to make sure new ideas are carried forward, accepted, and implemented is the third aspect of product and technology innovation. The formal definition of an idea champion is a person who sees the need for and champions productive change within the organization. Personal energy and effort are required to successfully promote a new idea. Champions are passionately committed to a new product or idea despite rejection by others.
Successful innovation in most companies involves interplay of different people. The inventor comes up with the new idea and understands its technical value. The champion believes in the idea, confronts the organizational realities of costs and benefits, and gains the political and financial support needed to bring it to reality. The sponsor is a high-level manager who approves and protects the idea, and removes organizational barriers to its acceptance. The critic counterbalances the zeal of the champion by challenging the concept, thereby preventing people in the other roles from adopting a bad idea.
Entrepreneurship is often facilitated through a new-venture team, which is a unit separate from the rest of the organization that is responsible for developing and initiating a major innovation. A skunkworks is a variation of a new-venture team in which a separate small, informal, highly autonomous, and often secretive group focuses on breakthrough ideas for the business. A new-venture fund provides resources from which individuals and groups can draw to develop new ideas, products, or businesses.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

14. 11.5 Four Roles in Organizational Change
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15. Changing People and Culture
Changes in how employees think
Changes in mind-set
People change = Training and Development
Culture change = Organizational Development
Large culture change is not easy
CHANGING PEOPLE AND CULTURE
Changes in culture and people pertain to how employees think. These are changes in mindset rather than technology, structure, or products and services.
People change pertains to just a few employees, such as sending a handful of managers to a training course to improve their management skills.
Culture change pertains to the organization as a whole, such as shifting the basic mind-set from an organizational focus on rules and policies to an organizational focus on doing whatever is necessary to satisfy customers.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

16. Organizational Development
Planned, systematic process of change using behavioral science (psychology)
Addresses three types of problems:
Mergers and acquisitions
Organizational decline and revitalization
Conflict management
Organization development (OD) is a planned, systematic process of change that uses behavioral science knowledge and techniques to improve an organization’s health and effectiveness through its ability to adapt to the environment, improve internal relationships, and increase learning and problem‑solving capabilities. OD can help manager’s address at least three types of current problems.
Mergers/acquisitions. The disappointing financial results of many mergers and acquisitions are caused by the failure of executives to determine whether the administrative style and corporate culture of the two companies fit. They fail to recognize that the firms may have widely different values, beliefs, and practices. These differences create stress and anxiety for employees, and these negative emotions affect future performance. OD experts can help smooth the integration of the firms.
Organizational decline/revitalization. Organizations undergoing a period of decline and revitalization experience a variety of problems such as low level of trust, lack of innovation, high turnover, and high levels of conflict and stress. The period of transition requires opposite behaviors to include confronting stress, creating open communication, and fostering creative innovation. OD techniques can contribute greatly to cultural revitalization by managing conflicts, fostering commitment, and facilitating communication.
Conflict management. Conflict can occur at any time and place within a healthy organization. OD efforts can help resolve conflict problems.
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17. OD Activities Team-building activities Survey-feedback activities
Large-group interventions
OD Activities Exhibit 11.6
Team‑building activities enhance the cohesiveness and success of organizational groups and teams.
Survey‑feedback activities begin with an employee questionnaire asking about items such as values, climate, participation, leadership, and group cohesion. An OD consultant provides feedback to the employees regarding their responses and problems identified from the survey or questionnaire.
Large-group interventions are more attuned to bringing about fundamental organizational change in today’s complex, fast-changing world. Large-group intervention brings together participants from all parts of the organization to discuss problems or opportunities and plan for change.
Discussion Question #10: How do large-group interventions differ from OD techniques such as team-building and survey feedback?
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18. OD Steps Unfreezing Changing Refreezing OD Steps
Unfreezing. Participants must be made aware of problems and be willing to change. This step is often associated with diagnosis. An outside expert called a change agent, an OD specialist, performs a systematic diagnosis of the organization. The diagnosis identifies work‑related problems.
Changing. Changing occurs when individuals learn new skills to be used in the workplace. This is sometimes known as intervention, during which the change agent implements a plan for training managers and employees. This may include team building, survey feedback, intergroup coaching, process-consultation, or symbolic leadership.
Refreezing. Refreezing occurs when individuals acquire new attitudes or values and are rewarded for them by the organization. The impact of new behaviors is evaluated and reinforced; the change agent supplies new data that show positive changes in performance. Changes are institutionalized in the organizational culture, so that employees begin to view the changes as a normal, integral part of the organization.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19. 11.6 OD Approaches to Culture Change
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20. Implementing Change Outline the Need for Change
Show the performance gap
Understand the Resistance to Change
Self-Interest
Lack of Understanding and Trust
Uncertainty
Different Assessments and Goals
Job security
IMPLEMENTING CHANGE
Need for Change
External or internal forces translate into a perceived need for change within the organization. Problems are often subtle, so managers must recognize them and make others aware of the need for change. Typically, recognition of problems occurs when there is a performance gap, a disparity between existing and desired performance levels.
Managers must be alert to problems and opportunities because the need for change sets the stage for actions that create a new product or technology. Big problems are easy to spot, but organizations may be in greater danger when the environment changes slowly, because managers may fail to trigger an organizational response.
Resistance to Change
Idea champions and members of new-venture groups often discover that other employees are unenthusiastic about their new ideas. Managers and employees not involved in developing an innovation often prefer the status quo. Employees appear to resist change for the following reasons, and understanding these reasons helps managers implement change more effectively.
Self‑interest. Employees typically resist a change they believe will take away something of value. A proposed change in job design, structure or technology may lead to a perceived loss of power, prestige, pay, or company benefits. The fear of personal loss is perhaps the biggest obstacle to organizational change.
Lack of understanding and trust. Employees often do not understand the intended purpose of a change or distrust management’s intentions for the change. If previous working relationships with an idea champion have been negative, resistance may occur.
Uncertainty. Uncertainty is the lack information about future events. Uncertainty represents a fear of the unknown, as employees do not know how a change will affect them. Uncertainty is especially threatening for employees who have a low tolerance for change and fear the unusual.
Different assessments and goals. Employees who will be affected by innovation may assess the proposed change differently than an idea champion or new‑venture team. Critics voice legitimate disagreements over the proposed benefits of a change.
These reasons for resistance are legitimate in the eyes of employees affected by the change. The best procedure for managers is not to ignore resistance, but to diagnose the reasons for resistance to change and design strategies to gain acceptance by users. Strategies for overcoming resistance to change typically involve two approaches: the force field technique and use of selective implementation tactics.
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21. 11.7 Force-Field Analysis
Driving forces – problems or opportunities that provide motivation for change
Restraining forces – barriers to change
Force-Field Analysis Exhibit 11.7
Force-field analysis suggests that change is a result of the competition between driving and restraining forces. Driving forces can be thought of as problems or opportunities that provide motivation for change within the organization. Restraining forces are the various barriers to change, which could be things such as a lack of resources, resistance from middle managers, or inadequate employee skills. By selectively removing the barriers that restrain change, the driving forces will be strong enough to enable implementation of the innovation.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

22. Tactics for Overcoming Resistance to Change
Implementation Tactics Exhibit 11.8
Communication and education are used when users and others who may resist implementation need solid information about the change. Education is important when the change involves new technical knowledge or the users are unfamiliar with the idea.
Participation involves users and potential resisters in designing the change. This approach is time consuming, but it pays off because users understand and become committed to the change. Participation also helps managers determine potential problems and understand the differences in perceptions of change among employees.
Negotiation, a more formal means of achieving cooperation, uses formal bargaining to win acceptance and approval of a desired change. Companies that have strong unions frequently must formally negotiate change with the unions. The change may then become part of the union contract.
Coercion means managers use formal power to force employees to change. Resisters are told to accept the change or lose rewards or their jobs. In most cases, this approach should not be used because employees feel like victims, are angry at change managers, and may even sabotage the changes. Coercion may be necessary in crisis situations when a rapid response is urgent.
The visible support of top management also helps overcome resistance to change. Top management support symbolizes to all employees that the change is important for the organization. Without top management support the desired change will probably not happen.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

23. Discussion Questions
Define organizational change and explain the forces driving innovation and change in today’s organizations.
 Identify the three innovation strategies managers implement for changing products and technologies.
Explain the value of creativity, idea incubators, horizontal linkages, open innovation, idea champions, and new-venture teams for innovation.
Discuss why changes in people and culture are critical to any change process.
Define organization development (OD) and large-group interventions.
 Explain the OD stages of unfreezing, changing, and refreezing.
 Identify sources of resistance to change.
 Explain force-field analysis and other implementation tactics that can be used to overcome resistance.
Define organizational change and explain the forces driving innovation and change in today’s organizations.
Organizational change is defined as the adoption of a new idea or behavior by an organization. Forces for change exist in both the external environment and within the organization. External forces originate in all environmental sectors including customers, competitors, technology, economic, and international events. Internal forces for change arise from internal activities and decisions. Demands by employees, labor unions, and production inefficiencies can all generate a force to which management must respond with change. Rapidly increasing competition in all areas is driving the need for innovation. One vital area for innovation is introducing new products and technologies. These new products and technologies, in turn, require substantial changes in virtually every aspect of organizations.
Identify the three innovation strategies managers implement for changing products and technologies.
The three innovation strategies managers implement for changing products and technologies are exploration, cooperation, and entrepreneurship. Exploration involves designing the organization to encourage creativity and the initiation of new ideas. Cooperation refers to creating conditions and systems to facilitate internal and external coordination and knowledge sharing. Entrepreneurship means that managers put in place processes and structures to ensure that new ideas are carried forward for acceptance and implementation.
Explain the value of creativity, idea incubators, horizontal linkages, open innovation, idea champions, and new-venture teams for innovation.
Creativity is the development of novel solutions to perceived problems. Creative individuals develop ideas that can be adopted by the organization. If creative conditions are successful, new ideas will be generated that must be carried forward for acceptance and implementation.
An idea incubator is run entirely in-house but provides a safe harbor where ideas from employees throughout the organization can be developed without interference from company bureaucracy or politics. Employees with good ideas can take them to the idea incubator for consideration and development, rather than having to shop their ideas all over the company and hoping someone pays attention.
Horizontal linkages provide a framework for shared development of innovations among several departments. This approach saves both time and money in the development of innovations by increasing coordination among departments.
Open innovation means extending the search for and commercialization of new ideas beyond the boundaries of the organization and even beyond the boundaries of the industry. Most companies generate their own ideas in house and then developed, manufactured, marketed, and distributed them, a closed innovation approach. With open innovation, even customers are brought into the innovation loop. This allows the company to get many perspectives and develop products and services that result from a host of diverse ideas.
An idea champion is a person who sees the need for and champions productive change within the organization. Personal energy and effort are required to successfully promote a new idea. Champions are passionately committed to a new product or idea despite rejection by others.
A recent idea for facilitating corporate innovation is called a new‑venture team. This team is a unit separate from the rest of the organization that is responsible for developing and initiating a major innovation. Its separate facilities and location free it from organizational rules and procedures.
Discuss why changes in people and culture are critical to any change process.
Changes in people and culture pertain to how employees think. These changes involve the adoption of a new mindset. People change pertains to just a few employees, such as sending a handful of middle managers to a training course to improve their leadership skills. Culture change pertains to the organization as a whole, such as shifting the basic organizational mind-set from one focused on rules and policies to one focused on doing whatever is necessary to ensure customer satisfaction.
Define organization development (OD) and large-group interventions.
Organization development (OD) is a planned, systematic process of change that uses behavioral science knowledge and techniques to improve an organization’s health and effectiveness through its ability to adapt to the environment, improve internal relationships, and increase learning and problem-solving capabilities. It focuses on the human and social aspects of the organization and works to change attitudes and relationships among employees, helping to strengthen the organization’s capacity for adaptation and renewal.
The large-group intervention approach brings together participants from all parts of the organization—often including key stakeholders from outside the organization as well—to discuss problems or opportunities and plan for change.
Explain the OD stages of unfreezing, changing, and refreezing.
Unfreezing means that people throughout the organization are made aware of problems and the need for change. This stage creates the motivation for people to change their attitudes and behaviors.
Changing occurs when individuals experiment with new behavior and learn new skills to be used in the workplace. This process is sometimes known as intervention, during which the change agent implements a specific plan for training managers and employees.
Refreezing occurs when individuals acquire new attitudes or values and are rewarded for them by the organization. The impact of new behaviors is evaluated and reinforced, and the change agent supplies new data that show positive changes in performance.
Identify sources of resistance to change.
Employees appear to resist change for several reasons, and understanding them helps managers implement change more effectively. Due to self‑interest, employees typically resist a change they believe will take away something of value. Because of lack of understanding and trust, employees often do not understand the intended purpose of a change or distrust the intentions behind change. Uncertainty is the lack of information about future events. This fear of the unknown causes employees to resist a change when they do not know how they will be affected. Another reason for resistance to change occurs when people who will be affected by innovation have different assessments and goals than an idea champion or new‑venture group. These reasons for resistance are legitimate in the eyes of employees affected by the change.
Explain force-field analysis and other implementation tactics that can be used to overcome resistance.
Force-field analysis suggests that change is a result of the competition between driving and restraining forces. Driving forces can be thought of as problems or opportunities that provide motivation for change within the organization. Restraining forces are the various barriers to change, which could be things such as a lack of resources, resistance from middle managers, or inadequate employee skills. By selectively removing the barriers that restrain change, the driving forces will be strong enough to enable implementation of the innovation.
Participation involves users and potential resisters in designing the change. This approach is time consuming, but it pays off because users understand and become committed to the change. Negotiation, a more formal means of achieving cooperation, uses formal bargaining to win acceptance and approval of a desired change.
Communication and education are used when users and others who may resist implementation need solid information about the change.
Other implementation tactics that can be used to overcome resistance include:
Coercion means managers use formal power to force employees to change. Resisters are told to accept the change or lose rewards or their jobs. In most cases, this approach should not be used because employees feel like victims, are angry at change managers, and may even sabotage the changes. Coercion may be necessary in crisis situations when a rapid response is urgent.
The visible support of top management also helps overcome resistance to change. Top management support symbolizes to all employees that the change is important for the organization. Without top management support the desired change will probably not happen.
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

24. Discussion Questions (continued)
Describe how IBM has changed during last two decades.
Explain the major motive of Chrysler to produce Jeep at China in early 2000s, in terms of change management.
Explain ambidextrous approach in change management.
Describe Yahoo’s Brickhouse, from the innovation strategy perspectives.
Explain briefly key to success of horizontal linkage.
Describe P&G’s purchase of patents, in terms of innovation strategy.
Explain how LEGO survived in early 2000s, by innovation strategy.
Explain briefly crowdsourcing.
List three features of Web 2.0, in contrast to Web 1.0.
Describe innovation strategies of Treadless.
Explain briefly a skunkworks.
 IBM: Manufacturing  Service
Jeep: Trickle up / reverse innovation
Horizontal Linkage: Key to Success:
Yahoo – Brickhouse: Idea incubator – Exploration Strategy in Innovation Strategies
Ambidextrous Approach
MANAGEMENT – Planning, organizing, leadership, control
P & G – Purchase of Patents: open innovation in Cooperation Strategy in Innovation Strategies
Project Manager
Team Building
List three features of Web 2.0, in contrast to Web 1.0.:
Open,
Share,
Participate
Explain how LEGO survived in early 2000s, by innovation strategy.
Cooperation strategy – open innovation with Hollywood studios when LEGO ran out of imagination & creativity, LEGO partnered with Hollywood studios. LEGO - Star Wars series were a big hit, and became cash cow for the firm, which enabled the firm to survive.
Treadless: Web crowdsourcing
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.