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1 © Pearson Education Limited 2015
8 Chapter Managing Change and Innovation © Pearson Education Limited 2015

2 © Pearson Education Limited 2015
Learning Outcomes Define organizational change and compare and contrast views on the change process. Explain how to manage resistance to change. Describe what managers need to know about employee stress. Discuss techniques for stimulating innovation. After studying this chapter you will be able to: Define organizational change and compare and contrast views on the change process. Explain how to manage resistance to change. Describe what managers need to know about employee stress. Discuss techniques for stimulating innovation. © Pearson Education Limited 2015

3 © Pearson Education Limited 2015
8.1 Define organizational change and compare and contrast views on the change process. © Pearson Education Limited 2015

4 What is Organizational Change?
If it weren’t for change, a manager’s job would be easy. Organizational design would be stable because the environment would be free from uncertainty so there would be no need to adapt. Decision-making would be simplified because the outcome of each alternative could be accurately predicted.. The three kinds of organizational change are shown in Exhibit 8-1. Changes in structure includes any alteration in authority relationships, coordination mechanisms, degree of centralization, job design, or similar variables. For example, restructuring can result in decentralization, wider spans of control, reduced work specialization, and work teams. Changing technology includes modifications to the way work is done or to the methods and equipment used. Examples include computerizing work processes, adding robotics to work areas, and equipping employees with mobile communication tools. Changes in people refer to changes in employee attitudes, expectations, perceptions, or behaviors. Examples include using team building efforts to make a team more innovative. © Pearson Education Limited 2015

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External Factors Marketplace Government laws and regulations Technology Labor markets Economic changes External forces that create the need for organizational change include: Marketplace reflects intense competition in recent years. Government laws and regulations are another impetus for change. The Affordable Care Act is causing many companies to review their health insurance programs. Technology creates the need for organizational change. The Internet has changed how we get information, how products are sold, and how we get our work done. Technological advancements have created economies of scale for many organizations. Fluctuations in labor markets can force managers to initiate changes. For example, the shortage of registered nurses in the United States has led hospital administrators to redesign nursing jobs, alter their rewards and benefits packages for nurses, and join forces with local universities to address the shortage of nurses. Economic changes affect almost all organizations. Prior to the mortgage market meltdown, significant growth in the housing market meant more jobs, more new hires, and increased sales in other businesses that supported the building industry. But as the economy soured, the housing industry and other related industries shrunk as credit markets dried up and businesses couldn’t get the capital needed to operate. © Pearson Education Limited 2015

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Internal Factors Strategy Composition of workforce Employee attitudes Internal forces can also create the need for organizational change. Redefining or modifying an organization’s strategy causes change. For example, bringing in new equipment is an internal force for change that can result in employees facing job redesign, undergoing training to operate the new equipment, or establishing new interaction patterns within their work groups. Another internal force for change is a shift in the composition of an organization’s workforce in terms of age, education, gender, nationality, and so forth. A stable organization in which managers have been in their positions for years might need to restructure jobs to retain more ambitious employees and to rework the compensation and benefits systems to reflect the needs of a diverse workforce and to respond to market forces in which certain skills are in short supply. Employee attitudes, such as increased job dissatisfaction, may lead to increased absenteeism, resignations, and even strikes. Such events will likely lead to changes in organizational policies and practices. © Pearson Education Limited 2015

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Initiating Change Organizational changes need a catalyst. Organizational changes need a catalyst. People who act as catalysts and assume the responsibility for managing the change process are called change agents. A change agent can be a manager, internal staff specialist, or outside consultant. Consultants offer an objective perspective, but may not understand the organization’s history, culture, operating procedures, and personnel. They’re also prone to initiating more drastic changes than insiders—which can be either a benefit or a disadvantage—because they don’t have to live with the repercussions after the change is implemented. In contrast, internal managers who act as change agents may be more thoughtful—and possibly more cautious—because they must live with the consequences of their actions. © Pearson Education Limited 2015

8 Two Different Approaches
“Calm waters” metaphor “White-water rapids” metaphor Two metaphors representing distinctly different approaches to understanding and responding to change are used. The “calm waters” metaphor envisions the organization as a large ship crossing a calm sea. Change appears as the occasional storm, a brief distraction in an otherwise calm and predictable trip. In the “white-water rapids” metaphor, the organization is seen as a small raft navigating a raging river with uninterrupted white-water rapids. Aboard the raft are half a dozen people who have never worked together before, who are totally unfamiliar with the river, and who are unsure of their eventual destination. In this metaphor, change is the status quo and managing change is a continual process. © Pearson Education Limited 2015

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Calm Waters Change Until recently, the “calm waters” metaphor dominated the thinking of practicing managers and academics. It is best illustrated in Kurt Lewin’s three-step description of the change process shown in Exhibit 8-2. Successful change requires unfreezing the status quo, changing to a new state, and freezing the new change to make it permanent. The status quo can be considered a state of equilibrium. Unfreezing is necessary to move from this equilibrium and can be achieved in one of three ways: The driving forces, which direct behavior away from the status quo, can be increased. The restraining forces, which hinder movement from the existing equilibrium, can be decreased. The two approaches can be combined. Once the situation has been unfrozen, the change can be implemented. However, for the change to take hold it needs to be frozen so it can be sustained over time. Otherwise the change will be short-lived and employees will revert to the previous state of equilibrium. Therefore, the objective of freezing the new state of equilibrium is to stabilize the new situation by balancing the driving and restraining forces. Lewin’s process treats change as a break in the equilibrium state. This view is an increasingly inaccurate description of the kinds of “seas” that current managers have to navigate. © Pearson Education Limited 2015

10 White-Water Rapids Change
Leading a company in change, in an industry in change. The “white-water rapids” metaphor is consistent with a world that’s increasingly dominated by information, ideas, and knowledge. To get a feeling of what managing change might be like in a white-water rapids environment, consider attending a college that had the following rules: Courses vary in length. When you sign up, you don’t know how long a course will run. The instructor can end a course at any time with no prior warning and the length of the class changes each time it meets. Additionally, the time of the next class meeting is set by the instructor during this class. Also, all exams are unannounced, so you have to be ready for a test at any time. Not every manager faces such a world but it is becoming more the norm. Disruptions in the status quo are no longer occasional and temporary, and they are not followed by a return to calm waters. Many managers never get out of the rapids and face constant forces in the external and internal environment that bring about the need for organizational change. © Pearson Education Limited 2015

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Implementing Change Organization development (OD): Efforts that assist organizational members with a planned change by focusing on their attitudes and values. Often managers make a concerted effort to alter some aspect of the organization—such as its structure or technology—which ultimately affects organizational members. In facilitating long-term, organization-wide changes, OD focuses on constructively changing the attitudes and values of organization members so that they can more readily adapt to and be more effective in achieving the new directions of the organization. Essentially, organization leaders attempt to change the organization’s culture. However, OD relies on employee participation to foster an environment of open communication and trust because change can create stress for employees. © Pearson Education Limited 2015

12 Organization Development Efforts
Survey feedback Process consultation Team-building Intergroup development OD tries to involve organizational members in changes that will affect their jobs and seeks their input about how the change is affecting them. The more popular OD efforts in organizations rely heavily on group interactions and cooperation, and include the following: Survey feedback efforts are designed to assess employee attitudes about, and perceptions of, the change they are encountering. Employees generally respond to a set of specific questions regarding how they view such organizational aspects as decision making, leadership, communication effectiveness, and satisfaction with their jobs, coworkers, and management. This data is used to clarify problems that employees may be facing and to initiate action to remedy the problems. In process consultation, outside consultants help managers to perceive, understand, and act on organizational processes they face, such as workflow, informal relationships among unit members, and formal communication channels. Consultants give managers insight into what is going on and help managers diagnose the interpersonal processes that need improvement. A primary function of OD is to help organizational members become a team. Team-building is generally an activity that helps work groups set goals, develop positive interpersonal relationships, and clarify the roles and responsibilities of each team member. The primary focus of team-building is to increase members’ trust of and openness toward one another. Intergroup development focuses on helping different work groups to become more cohesive. It attempts to change attitudes, stereotypes, and perceptions that one group may have toward another in order to improve coordination of efforts among the various groups. © Pearson Education Limited 2015

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8.2 Explain how to manage resistance to change. © Pearson Education Limited 2015

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Resistance to Change Uncertainty Habit Concern over personal loss Belief change is not in organization’s best interests It’s often said that most people hate any change that doesn’t jingle in their pockets. Here are the main reasons people resist organizational change: Change replaces the known with uncertainty and we don’t like uncertainty. For example, when quality control methods are introduced into manufacturing plants, many inspectors have to learn the new methods. Some may fear that they won’t be able to do so and may develop a negative attitude toward the change or behave poorly if required to use the new methods. Another cause of resistance is that we do things out of habit—we don’t want to have to consider the full range of options for the hundreds of decisions we make every day. A third cause of resistance is the fear of losing something already possessed. The more that people have invested in the current system, the more they resist change because they fear losing status, money, authority, friendships, personal convenience, or other benefits that they value. A final cause of resistance is a belief that the change is incompatible with the goals and interests of the organization. For instance, an employee who believes that a proposed new job procedure will reduce product quality can be expected to resist the change. This type of resistance can actually be beneficial to the organization if expressed in a positive way. © Pearson Education Limited 2015

15 Reducing Resistance to Change
Strategies for dealing with resistance to change are described in Exhibit 8-3. Managers should use the most appropriate technique depending on the type and source of the resistance. Education and communication can reduce resistance to change by helping employees see the logic of the change effort. But this assumes that much of the resistance lies in misinformation or poor communication. Participation involves bringing those individuals directly affected by the proposed change into the decision-making process. It allows these individuals to express their feelings, increase the quality of the process, and increase employee commitment to the final decision. Facilitation and support involve helping employees deal with the fear and anxiety associated with the change effort. Such help may include employee counseling, therapy, new skills training, or a short paid leave of absence. Negotiation involves exchanging something of value for an agreement in order to lessen the resistance to the change effort. This resistance technique may be particularly useful when the resistance comes from a powerful source. Manipulation and co-optation refer to covert attempts to influence others about the change. These tactics may involve twisting or distorting facts to make the change appear more attractive. Finally, coercion, which involves the use of direct threats or force against the resisters, can also be used to deal with resistance to change. © Pearson Education Limited 2015

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8.3 Describe what managers need to know about employee stress. © Pearson Education Limited 2015

17 Employee Reactions to Change
Change often creates stress for employees! For many employees, change creates stress. A dynamic and uncertain environment characterized by restructurings, downsizings, empowerment, and personal-life matters has caused large numbers of employees to feel overworked and “stressed out.” Sometimes the stress gets to be so intense that individuals respond in a drastic (and tragic) way. In the following slides, we’ll review the meaning of the term “stress,” the symptoms of stress, the causes of stress, and what managers can do to reduce anxiety. © Pearson Education Limited 2015

18 Change Often Creates Stress for Employees
As the table shows, the global average for employee stress levels is 29% of employees. Stress is the adverse reaction people have to excessive pressure placed on them from extraordinary demands, constraints, or opportunities. Stress isn’t always bad. Stress can be positive—especially functional stress, which allows an athlete, stage performer, or employee to perform at his or her highest level at crucial times. However, stress is more often associated with constraints and demands and opportunities. A constraint prevents you from doing what you desire; demands refer to the loss of something desired; opportunities refer to the possibility of something new, something never done. Another thing to understand about stress is that just because the conditions are right for stress to surface doesn’t always mean it will. Two conditions are necessary for potential stress to become actual stress. First, there must be uncertainty over the outcome, and second, the outcome must be important. © Pearson Education Limited 2015

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Symptoms of Stress As Exhibit 8-4 shows, stress symptoms can be grouped under three general categories: physical, psychological, and behavioral. All of these can significantly affect an employee’s work. © Pearson Education Limited 2015

20 Causes of Stress: Job Related
Task demands Role demands Interpersonal demands Organization structure Organizational leadership Job-related stressors Include pressures to avoid errors or complete tasks in a limited time period; changes in the way reports are filed; a demanding supervisor; unpleasant coworkers. 1. Task demands are factors related to an employee’s job. They include the design of a job (which includes autonomy, task variety, and degree of automation); working conditions (temperature, noise, etc.); and the physical work layout (overcrowded or in visible location with constant interruptions; work quotas, especially when excessive, high level of task interdependence with others). Autonomy lessens stress. 2. Role demands are stresses due to one’s particular role in the organization. Role conflicts create expectations that may be hard to reconcile or satisfy. An employee experiences role overload when he or she is expected to do more than time permits. An employee experiences role ambiguity when role expectations are not clearly understood and the employee is not sure what he or she is supposed to do. 3. Interpersonal demands are pressures created by other employees. Lack of social support from colleagues and poor interpersonal relationships can cause considerable stress. 4. Organization structure issues like excessive rules and an employee’s lack of opportunity to participate in decisions that affect him or her can cause stress. 5. Organizational leadership refers to the supervisory style of the organization’s managers. Some managers create a culture characterized by tension, fear, and anxiety. They establish unrealistic pressures to perform in the short run, impose excessively tight controls, and routinely fire employees who don’t measure up. © Pearson Education Limited 2015

21 Causes of Stress: Personal
Family and personal issues Personality type Personal stressors include family issues, personal economic problems, etc. Because employees bring their personal problems to work, a manager must understand and address these personal factors. Employees’ personalities also affect how susceptible they are to stress. The Type A personality is characterized by a chronic sense of time urgency, an excessive competitive drive, and difficulty accepting and enjoying leisure time. They are more likely to show symptoms of stress. In contrast, Type B personalities have little to no sense of time urgency or impatience. Stress comes from the hostility and anger associated with Type A behavior. Surprisingly, Type Bs are just as susceptible. © Pearson Education Limited 2015

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Reducing Stress Remember, not all stress is dysfunctional. Even though stress can never be totally eliminated, managers want to reduce the stress that leads to dysfunctional work behavior by controlling certain organizational factors that can reduce job-related stress, and, offering help for personal stress. To reduce job-related stress, managers begin with employee selection—making sure that an employee’s abilities match the job requirements. A realistic job preview during the selection process can help minimize stress by clarifying job expectations. Ongoing organizational communications keep ambiguity-induced stress to a minimum. Similarly, a performance planning program (such as MBO) states job responsibilities clearly, provides clear performance goals, and reduces ambiguity through feedback. Job redesign can also reduce stress by increasing challenge, including employees in decision making, or reducing the workload. Allowing employees to participate in decisions and to gain social support also lessen stress. Stress from an employee’s personal life is not easy for a manager to control directly and there is the question of whether a manager has the right to intrude, even subtly, in an employee’s personal life. If the manager believes it’s ethical and the employee is receptive, consider employee assistance or wellness programs. The rationale for employee assistance programs is to get a productive employee back on the job as quickly as possible. Wellness programs are designed to keep employees healthy. © Pearson Education Limited 2015

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8.4 Discuss techniques for stimulating innovation. © Pearson Education Limited 2015

24 Creativity and Innovation
Creativity: The ability to produce novel and useful ideas. Innovation: The process of taking a creative idea and turning it into a useful product, service, or method of operation. Success in business today demands innovation. In the dynamic, chaotic world of global competition, organizations must create new products and services and adopt state-of-the-art technology if they’re going to compete successfully. Creativity refers to the ability to combine ideas in a unique way or to make unusual associations between ideas. A creative organization develops unique ways of working or novel solutions to problems. For instance, at Mattel, company officials introduced “Project Platypus,” a special group that includes people from a variety of disciplines such as engineering, marketing, design, and sales, and tries to get them to “think outside the box” to understand the sociology and psychology behind children’s play patterns. To fuel this kind of thinking, team members embarked on imagination exercises, group crying, and juggling with a stuffed-bunny to learn to “let go.” The outcomes of the creative process need to be turned into useful products or work methods, which is defined as innovation. The innovative organization is characterized by its ability to channel creativity into useful outcomes. When managers talk about changing an organization to make it more creative, they usually mean they want to stimulate and nurture innovation. © Pearson Education Limited 2015

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Innovation Process Perception Incubation Inspiration Innovation Some people believe that creativity is inborn; others believe that with training, anyone can be creative. The latter group views creativity as a fourfold process consisting of perception, incubation, inspiration, and innovation. Perception involves the way you see things; being creative means seeing things from a unique perspective. While employees sit on their ideas to incubate, they should collect massive amounts of data that can be stored, retrieved, studied, reshaped, and finally molded into something new. Inspiration, that is the moment when all your efforts successfully come together in the creative process, is similar. Innovation takes inspiration and turns it into a useful product, service, or way of doing things. The systems model helps us understand how organizations become more innovative. If an organization wants innovative products and work methods (outputs), it has to take its inputs (creative people and groups) and transform them into those outputs. The transformation process requires the right environment to turn those inputs into innovative products or work methods. This “right” environment—that is, an environment that stimulates innovation—includes three variables: the organization’s structure, culture, and human resource practices, as seen in Exhibit 8-5. © Pearson Education Limited 2015

26 Encouraging Innovation
The systems model helps us understand how organizations become more innovative. If an organization wants innovative products and work methods (outputs), it has to take its inputs (creative people and groups) and transform them into those outputs. The transformation process requires the right environment to turn those inputs into innovative products or work methods. This “right” environment—that is, an environment that stimulates innovation—includes three variables: the organization’s structure, culture, and human resource practices, as seen in Exhibit 8-5. © Pearson Education Limited 2015

27 Structural Variables and Innovation
Organic structures Abundant resources High interunit communication Minimal time pressure Work and nonwork support Research into the effect of structural variables on innovation shows five things: An organic-type structure positively influences innovation. Because this structure is low in formalization, centralization, and work specialization, it facilitates the flexibility and sharing of ideas that are critical to innovation. The availability of plentiful resources is a key building block for innovation. With an abundance of resources, managers can afford to purchase innovations, can afford the cost of instituting innovations, and can absorb failures. Frequent communication between organizational units helps break down barriers to innovation. Cross-functional teams, task forces, and other such organizational designs facilitate interaction across departmental lines and are widely used in innovative organizations. Innovative organizations try to minimize extreme time pressures on creative activities despite the demands of white-water rapids-type environments. Although time pressures may spur people to work harder and may make them feel more creative, studies show that it actually causes them to be less creative. Studies have shown that when an organization’s structure explicitly supports creativity, employees’ creative performance can be enhanced. Beneficial kinds of support include encouragement, open communication, readiness to listen, and useful feedback. © Pearson Education Limited 2015

28 Culture and Innovation
Acceptance of ambiguity Tolerance of the impractical Low external controls Tolerance of risks Tolerance of conflict Focus on ends Open-system focus Positive feedback Innovative organizations tend to have similar cultures that encourage experimentation; reward both successes and failures; and celebrate mistakes. An innovative organization is likely to have the following characteristics: Too much emphasis on objectivity and specificity constrains creativity. Individuals who offer impractical, even foolish, answers to “what-if” questions are not stifled. What at first seems impractical might lead to innovative solutions. Rules, regulations, policies, and similar organizational controls are kept to a minimum. Employees are encouraged to experiment without fear of consequences should they fail. Mistakes are treated as learning opportunities. Diversity of opinions is encouraged. Harmony and agreement among individuals or units are not assumed to be evidence of high performance. Goals are made clear, and individuals are encouraged to consider alternative routes to reach these goals. Focusing on ends suggests that there might be several right answers to any given problem. Managers closely monitor the environment and respond to changes as they occur. Managers provide positive feedback, encouragement, and support so employees feel that their creative ideas receive attention. © Pearson Education Limited 2015

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HR and Innovation Innovative organizations (1) actively promote the training and development of their members so the members’ knowledge remains current, (2) they offer their employees high job security to reduce the fear of getting fired for making mistakes, and (3) they encourage individuals to become idea champions by actively and enthusiastically supporting new ideas, building support, overcoming resistance, and ensuring that innovations are implemented. Research finds that idea champions have certain personality characteristics in common: extremely high self-confidence, persistence, energy, and a tendency toward risk taking. They also display characteristics associated with dynamic leadership: They inspire and energize others with their vision of the potential of an innovation and through their strong personal conviction in their mission. They’re also good at gaining the commitment of others to support their mission. Idea champions also have jobs that provide considerable decision-making discretion. This autonomy helps them introduce and implement innovations in organizations. © Pearson Education Limited 2015

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