1. Change Management Lecture 4 What changes in organizations

2. Scale of Change Not all change is the same magnitude First-order change:  Incremental  To maintain and develop the organization  E.g. continuous and smaller changes to the structure of an organisation Second-order change:  Transformational  Fundamentally changes the way an organization functions  E.g. downsizing

3. Nadler and Tushman IncrementalDiscontinuous Anticipatory Reactive TuningReorientation (frame bending) AdaptationRe-creation (frame breaking)

4. First order – personal initiative According to Frohman, not enough attention has been paid to the overall impact on organizations of small-scale changes and the role of personal initiatives  Technological leads are short-lived  What is most important is people who are able to identify relevant, innovative (local) organizational changes  Go beyond their job, strive to make a difference, are action-oriented, focus less on teamwork more on results Managers tend to want to go for the Big Bang theory of change and ignore front line performers Vaill calls this unlocking the ‘latent energy’ of the organization

5. First order – Adapting local routines Feldman  Routines have traditionally been seen as static and in need of disruption through transformational change  Feldman argues that routines are in flux and can be a first order source of change because: Past outcomes fall short of aspiration levels Performance exceeds aspiration levels Different people place their own interpretations and actions on how a routine should occur Therefore, routines evolve over time and have aspects of stability and flexibility Do we buy this argument? What are the implications?

6. Types of transformational change Type 1  Moving from an entrepreneurial to professional management structure Type 2  Revitalization – same business but increasing efficiency and/or effectiveness Type 3  Visionary – fundamental change of the business model

7. Examples of transformational change Strategies  Delayering  Networks/alliances  Outsourcing  Disaggregation  Empowerment  Flexible work groups/project-based organizations  Short-term staffing  Reduction of internal and external boundaries Questions  How prevalent are these practices?  Are some practices more prevalent than others?  Are old routines replaced, modified or co-exist?

8. Downsizing Key points  Common – millions downsized every year  Does not necessarily lead to increased profit/productivity (2 in every 3 cases failed to generate benefits) Short term share price spike, long term loss of value  Can be an excessively costly exercise ($7K per $30K employee) Key challenges:  employee retention, survivor syndrome, communication, due diligence, cultural adjustment

9. Technological change There are a variety of new technologies and techniques being used, for example:  CRM, ERP, RFIDs, BPR, Six Sigma Key challenges  Piloting, integration, timing, technology choice, communication, training,

10. Mergers and acquisitions Key points  Many rationales for acquisitions  Usually to achieve growth and/or synergy  Low success rate (~30%) Key challenges  Cost savings, cultural adjustment, due diligence, employee retention, power structure, communication

11. Between First and Second Order Change Mid-range changes  Overcomes inertia but is not revolutionary  Avoids the alarming (high stress) implications of large scale change  “tectonic change” Destroy outdated elements but keep the good ones Punctuated equilibrium  Traditional view: Long periods of stability followed by short bursts of change and instability Robust transformation  Change is continuous  May be permanent or temporary (we don’t know)  Develop dynamic capabilities to respond to any situation (experiment)

12. Questions How do you approach the paradox of change?  Is the risk of failing less risky than not changing? Is this a good assumption for all changes that you undertake? What criteria can you develop to assess this balance? Traditional organizational practices  When should they be replaced? Retained? Modified?  Are you more open to transformational, tectonic, or incremental change? Why?  How aware have you been to sense-making routines? How might knowledge of sense-making assist you?

13. Nestle Case List examples of first and second order change in the Nestle case.  B-L emphasizes the need for incremental change – is this what he has done?  Explore the differences and similarities between his views about change and yours