Creating and Managing Change 18 Creating and Managing Change McGraw-Hill/Irwin Management, 7/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives After Studying Chapter 18, You will know What it takes to be world class How to manage change effectively How to create a successful future

Managing Change These executives are all talking about the same things: the difficulties and challenges of creating change, and the need to improve constantly in order to achieve world-class excellence and competitive advantage for the future. Change happens—constantly and unpredictably. Whatever competitive advantage you may have depends on particular circumstances at a particular time, but circumstances change. The economic environment shifts; competitors pop up everywhere; markets emerge and disappear. The challenge for organizations is not just to produce innovative new products—it is to balance a culture that is innovative and that builds a sustainable business. And for individuals, the ability to cope with change is related to their job performance and the rewards they receive.

Becoming World Class Managers today want, or should want, their organizations to become world class To some this may seem like a lofty, impossible, unnecessary goal but it is a goal that is essential to survival and success in today’s intensely competitive business world Being world class requires applying the best and latest knowledge and ideas, and having the ability to operate at the highest standards of anyplace anywhere World-class companies create high-value products and earn superior profits over the long run

Sustainable, Great Futures Over the years world-class companies have been widely admired, been considered the premier institutions in their industries, and made a real impact on the world World class companies also Turn in extraordinary performance over the long run Have strong core values in which they believe deeply; and they express and live the values consistently They do not focus on beating the competition; the focus primarily on beating themselves Great companies have core values, know what they are and what they mean, and live by them – year after year

Sustainable, Great Futures This table displays the core values of several of the companies that were “built to last.” Note that the values are not all the same. In fact, there was no set of common values that consistently predicted success. Instead, the critical factor is that the great companies have core values, know what they are and what they mean, and live by them—year after year after year.

The Tyranny of the ‘Or’ Many companies, and individuals, are plagued by the tyranny of the or This refers to the belief that things must be either A or B, and cannot be both Examples include Choose to either change or remain stable Be conservative or bold Have control and consistency or creative freedom

The Genius of the ‘And’ Organizational ambidexterity; genius of the ‘and’ refers to the ability to achieve multiple things simultaneously Purpose beyond profit and pragmatic pursuit of profit Relatively fixed core values and vigorous change and movement Conservatism with the core values and bold business moves Clear vision and direction and experimentation Long-term thinking and investment and demand for short-term results Visionary, futuristic thinking and daily, nuts-and-bolts execution

Organization Development Organization development is a system wide application of behavioral science knowledge to develop, improve, and reinforce the strategies, structures, and processes that lead to organization effectiveness It improves the organization’s ability to respond to external groups like customers, stockholders, governments, employees, and other stakeholders It has an important underlying value orientation – it supports human potential, development, and participation in addition to performance and competitive advantage

Achieving Greatness Three are four key factors to achieving greatness Strategy – focused on customers, continually fine-tuned based on marketplace changes, and clearly communicated to employees Execution – good people, with decision-making authority on the front lines, doing quality work and cutting costs Culture – one that motivates, empowers people to innovate, rewards people appropriately, entails strong values, challenges people Structure – making the organization easy to work in and easy to work with, characterized by cooperation and the exchange of information and knowledge throughout the organization

Managing Change Shared leadership is crucial to the success of most change efforts People must be not just supporters of change they also need to be implementers There needs to be a permanent rekindling of individual creativity and responsibility, a true change in the behavior of people throughout the organization The essential task is to motivate people fully to keep changing in response to new business challenges

Motivating People to Change People must be motivated to change Managers tend to underestimate the amount of resistance they will encounter Some general for resistance include: Inertia – people don’t want to disturb the status quo Timing Surprise Peer pressure

Motivating People to Change Some change-specific reasons for resistance include Self-interest Misunderstanding Different assessments Management tactics

Motivating People to Change

A General Model for Managing Resistance Motivating people to change often requires three basic stages Unfreezing Moving Refreezing

Specific Approaches to Enlist Cooperation Most managers underestimate the variety of ways they can influence people during a period of change Some effective approaches include Education and communication Participation and involvement Facilitation and support Negotiation and rewards Manipulation and cooptation Explicit and implicit coercion

Specific Approaches to Enlist Cooperation

Harmonizing Multiple Changes Total organization change involves introducing and sustaining multiple policies, practices, and procedures across multiple units and levels Total organizational changes can Affect the thinking and behavior of everyone in the organization Enhance the organization’s culture and success Be sustained over time There are no “silver bullets” or single-shot methods of changing organizations successfully. Single shots rarely hit a challenging target. Usually, many issues need simultaneous attention, and any single, small change will be absorbed by the prevailing culture and disappear. Because companies introduce new changes constantly, many people complain about their companies’ “flavor-of-the-month” approach to change. That is, employees often see many change efforts as just the company’s jumping on the latest bandwagon or fad. The more these change fads come and go, the more cynical people become, and the more difficult it is to get them committed to making the change a success. Management needs to “connect the dots”—that is, integrate the various efforts into a coherent picture that people can see, understand, and get behind. You connect the dots by understanding each change program and what its goals are, by identifying similarities among the programs and identifying their differences, and by dropping programs that don’t meet priority goals with a clear results orientation. Most important, you do it by communicating to everyone concerned the common themes among the various programs: their common rationales, objectives, and methods. You show them how the various parts fit the strategic big picture, and how the changes will make things better for the company and its people. You must communicate these things thoroughly, honestly, and frequently.

Leading Change Successful change requires managers to actively lead it Leaders must start by examining the current realities facing the organization From here they can create a sense of urgency This slide has the steps of leading change listed. The steps include many of the concepts discussed in previous chapters therefore slides have not been added to describe each step.

Leading Change The leader’s first step in a change process is to create a sense of urgency. This requires examining current realities and pressures in the marketplace and the competitive arena, identifying both crises and opportunities, and being frank and honest about them. This is an important component, in part because so many large companies grow complacent. This figure shows some of the common reasons for complacency. To stop complacency and create urgency, the manager can talk candidly about weaknesses compared to competitors, making a point of backing up statements with data. Other tactics include setting stretch goals, putting employees in direct contact with unhappy customers and shareholders, distributing worrisome information to all employees instead of merely engaging in management “happy talk,” eliminating excessive perks, and highlighting to everyone the future opportunities that exist but that the organization so far has failed to pursue. Ultimately, urgency is driven by compelling business reasons for change. Survival, competition, and winning in the marketplace are compelling; they provide a sense of direction and energy around change. Change becomes not a hobby, a luxury, or something nice to do, but a business necessity.

Shaping the Future A newspaper reporter found a variety of forecasts about the global future, but clear agreement on two things A very different world is roaring up on us The history of our times will be the story of how we prepared for this different world – which so far, is mostly a story of how we have failed to prepare

Shaping the Future Most change is reactive Reactive change is in response to pressure; it is problem driven change Implies that you are a follower not a leader Proactive change means anticipating and preparing for an uncertain future It implies being a leader and creating the future you want On the road to the future will you be: The windshield The bug Or the driver

Thinking about the Future If you think only about the present, or wallow in the uncertainties of the future, your future is just a roll of the dice “The global economy could be on the cusp of an age of innovation equal to that of the past 75 years. All the right factors are in place: Science is advancing rapidly, more countries are willing to devote resources to research and development and education, and corporate managers, too, are convinced of the importance of embracing change” - Business Week

Creating the Future Companies can try different strategic postures to prepare to compete in an uncertain future Adapters take the current industry structure and its future evolution as givens Shapers try to change the structure of their industries, creating a future competitive landscape of their own design The challenge is not to maintain your position in the current competitive arena, but to create new competitive arenas, transform your industry, and imagine a future that others don’t see Create your own advantages

Creating the Future This figure illustrates the vast opportunity to create new markets. Articulated needs are those that customers acknowledge and try to satisfy. Unarticulated needs are those that customers have not yet experienced. Served customers are those to whom your company is now selling, and unserved customers are untapped markets. Business-as-usual concentrates on the lower-left quadrant. The leaders who recreate the game are constantly trying to create new opportunities in the other three quadrants.

Shaping Your Own Future If you are an organizational leader, and your organization operates in traditional ways, your key goal should be to create a revolution, genetically reengineering your company before it becomes a dinosaur of the modern era Creating the future you want for yourself requires setting high personal standards Don’t’ settle for mediocrity Become a life long learner Consciously and actively manage your own career Become indispensable to your organization

Shaping Your Future This table helps you think about how you can continually add value to your employer, and also to yourself, as you upgrade your skills, your ability to contribute, your security with your current employer, and your ability to find alternative employment if necessary. The most successful individuals will take charge of their own development just like an entrepreneur takes charge of a business.

Learning and Leading Continuous learning is a vital route to renewable competitive advantage; organizations and people should constantly explore, Discover Take action The philosophy of continuous learning helps your company achieve lower cost, higher quality, innovation, and speed – and helps you grow and develop on a personal level

Learning and Leading

Learning and Leading A leader should be able to create an environment in which others are willing to learn and change so their organizations can adapt and innovate [and] inspire diverse others to embark on a collective journey of continual learning and leading To do this you will need to commit to life long learning Life long learning requires occasionally taking risks; moving outside of your ‘comfort zone’; honestly assessing the reasons behind your successes and failures; and being open to new ideas

Learning and Leading As a leader you will inhabit and grow into different stages in life This suggests that you not only do these things but you do them well These stages are: Level 1 – Highly capable individual Level 2 – Contributing team member Level 3 – Competent manager Level 4 – Effective Leader Level 5 – Level 5 executive

Learning and Leading

The future A successful future derives from adapting to the world and shaping the future; being responsive to others’ perspectives and being clear about what you want to change; encouraging others to change while recognizing what you need to change about yourself; understanding current realities and passionately pursuing your vision; learning and leading.

Concluding Thought For yourself, as well as for your organization, be ambidextrous: recognize and live the genius of the and.

Unfreezing Unfreezing – management realizes that its current practices are no longer appropriate and the company must break out of its present mold by doing things differently An important contributor to unfreezing is the recognition of a performance gap A performance gap is the difference between actual performance and desired performance A performance gap can also be between what is and what could be Management must use care not to blame people for performance gaps Return

Moving Moving is the process instituting the change Begins with establishing a vision of where the company is heading One technique that helps to manage the change process is force-field analysis Force-field analysis is an approach to implement Lewin’s unfreezing, moving, refreezing model; it involves identifying the forces that prevent people from changing and those that will drive people toward change Return

Refreezing Refreezing means strengthening the new behaviors that support the change Implementing control systems that support the change Applying corrective action when necessary Reinforcing behaviors and performance that support the agenda Given the dynamic nature of today’s business world refreezing is not always the best third step, if it creates new behaviors that are as rigid as the old ones Refreezing is appropriate when it permanently installs behaviors that maintain essential core values Return