Organisational Change Chapter 2

Organisational Change Chapter 2 The Nature of Change 1 Introduction The chapter: ? Discusses a number of frameworks for categorising change. ? Explains why, in order to be effective, it is necessary to understand the differences between various types of change. 2 Objectives To: ? Emphasise the complex nature of organisational change; ? Describe and discuss the multi-dimensional nature of organisational change; ? Analyse change situations in order to choose appropriate methods of managing and implementing change; ?

Recognise that there are limitations to the ‘common-sense’ approach to managing change that assumes that change can be planned as a logical. Step by step, sequence of activities. ? This because of cultural, political and leadership dynamics. 3 Background: A definition of strategy Strategy is: the direction and scope of an organisation over the long term which achieves advantage for the organisation through its configuration of resources within a changing environment to meet the needs of markets and to fulfill stakeholder expectations.

Source: Johnson, G. & Scholes, K. (1993) Exploring Corporate Strategy, London, Prentice Hall, p. 10. 4 Environmental turbulence ? ? ? Ansoff & McDonnel (1990) (recap) – Level 1. Predictable – Level 2. Forecastable by extrapolation – Level 3. Predictable threats & opportunities – Level 4. Partially predictable opportunities – Level 5. Unpredictable surprises Strebel (1996) – Weak forces – Moderate forces – Strong forces Stacey (1996) (recap) – Close to certainty – Far from certainty 5 Varieties of change (overview) ? ? Grundy (1993) – Smooth incremental – Bumpy incremental – Discontinuous Tushman et al (1986) – Converging (fine-tuning) – Converging (incremental) – Discontinuous or frame-breaking Dunphy & Stace (1993) – Fine tuning – Incremental adjustment – Modular transformation – Corporate transformation 6 Varieties of change (Grundy) Smooth incremental – evolves slowly, in a systematic and predictable way. ? Bumpy incremental – periods of relative quiet interrupted by sudden bursts in the rate of change (e. g. re-organisations). Discontinuous – ‘divergent breakpoint’, changes involving crisis, breakthrough, response to high turbulence. ? 7 Major Types of Change (Grundy) Discontinuous Rate of change Smooth incremental Bumpy incremental Time Source: Grundy, T. (1993) Implementing Strategic Change, Kogan Page, p. 25 8 Varieties of change (Tushman et al) ? ? ? Converging (fine-tuning) – trying to do better what is already being done well. Converging (incremental adaptation) – small changes in response to small shifts in the environment.

Discontinuous or frame-breaking – major, rapid (spread over 18-24 months) and revolutionary changes in strategy, structure, people & processes in order to meet radically new or different circumstances. Also termed ‘upheaval. ’ ? Most organisations follow a pattern of convergence/upheaval cycles. This pattern can apply at all levels (department, unit, corporation). 9 Pressures for Frame-breaking Change ? ? ? Industry discontinuities, e. g. sharp changes in the legal, political or technological conditions which shift the basis of competition Product life-cycle shifts, i. . strategic change to fit the next stage of the cycle Internal dynamics, e. g. new management team, with different strategy preferences 10 Examples of Frame-breaking Change ? ? ? ? ? Change of mission or core values Power shifts, resource reallocation Total reorganization New workflow procedures New CEO coming from outside 11 Scale of change (1) (Dunphy & Stace) 1. 1. Fine Tuning. ? At departmental level. ? Making re-alignments to ensure that there is a match between strategy, structure, people and processes. 2. 2. Incremental Adjustment. Bit by bit changes to match the changing environment. ? Minor modifications to strategies or structures….. 12 Scale of change (2) (Dunphy & Stace) ? 3. Modular Transformation. ? Major realignment of one or more departments or divisions. ? Downsizing, re-engineering. ? 4. Corporate Transformation (frame-breaking effecting the whole organisation). ? As described earlier as discontinuous or frame-breaking change. A contemporary research study found that most organisations have been undergoing types 3 & 4 change. 13 Environmental conditions and types of change

ENVIRONMENTAL FORCES FOR CHANGE Ansoff and McDonnell (1990) Predictable Forecastable by extrapolation Moderate Close to certainty Predictable threats and opportunities Partially predictable opportunities Modular transformation Corporate transformation Converging (incremental) Incremental adjustment Bumpy incremental Strong Far from certainty Unpredictable surprises Contained Strebel (1996) Weak Stacey (1996) Tushman et al. (1988) TYPES OF CHANGE Dunphy & Stace (1993) Grundy (1993) Stacey (1996) Close to certainty Converging (fine-tuning) Fine-tuning Smooth incremental Closed

Discontinuous or framebreaking Discontinuous Open-ended 14 ? ? Phases of Emergent Versus Planned Change (1) Fine tuning and incremental change are usually also seen as emergent, ‘unfolding as it happens’. The organisation, an open system, engages ‘naturally’ in emergent change as it tries to maintain equilibrium with its changing environment. 15 ? Phases of Emergent Versus Planned Change (2) However, organizations that rely only on making emergent change may ignore ‘warning signs’ of the need for more radical forms of change, and the organisation will suffer ‘strategic drift’, i. . the strategy and perceptions of the organisation will become less and less in tune with the environment. 16 ? Phases of Emergent Versus Planned Change (3) Some theorists argue that PLANNED CHANGE that is also frame-breaking may then be necessary as a drastic remedy to bring the organization back to health. 17 “Logical Incrementalism” (1) ? Quinn does not agree that change is either emergent or planned. Quinn believes that although managers may have an idea of the destination, they do not really plan change in ‘big chunks’. 8 “Logical Incrementalism” (2) ? Quinn says that managers: ? Are flexible about how to get to the destination. ? Arrive at strategic change through negotiation with stakeholders. ? Allow strategic change to evolve incrementally, although this is not piece-meal or haphazard because it is based on agreed purposes and involves constant critical reassessment. ? The planned change process involves opportunist learning as it goes along. ? Logical instrumentalism is both emergent and planned. 19 Predictable Change (1) ?Some heorists think that change might be neither wholly emergent nor wholly planned. ?Instead, change may reflect the organisation’s LIFE-CYCLE. ?Greiner identifies 4 stages or 5 phases through which organisations go as they grow and develop. 20 Predictable Change (2) ?Each of Greiner’s stages contains a crisis period. ?Stage 1 is entrepreneurial – survival oriented. ?Stage 2 is collective – based on division of labour. ?Stage 3 is formalised- based on bureaucracy. ?Stage 4 is elaborated – based on problem oriented teams. 21 Stages of organisational growth

Phase 1 Entrepreneurial Structure *Informal Phase 2 Direction *Functional *Centralized *Hierarchical *Top down Pahse 3 Delegation *Decentralized *Bottom up Phase 4 Co-ordination *Staff functions *SBUs *Decentralized *Units merged into product groups *Formal planning procedures *Investment centres *Tight expenditure controls *Watchdog Phase 5 Collaboration *Matrix-type structure Systems *Immediate response to customer feedback *Standards *Cost centres *Budget *Salary systems *Profit centres *Bonuses *Management by exception *Simplified and integrated information systems

Styles/ people *Individualistic *Creative *Entrepreneurial *Ownership *Fun *Market response *Strong directive *Full delegation and autonomy Strengths *Efficient *High management motivation Crisis Point *Crisis of leadership *Crisis of autonomy *Unsujited to diversity *Cumbersome *Hierarchical *Doesn’t grow people *Crisis of control *More efficient allocation of corporate and local resources *Crisis of red tape *Team-oriented *Interpersonal skills at a premium *Innovative *Educational bias *Greater spontaneity *Flexible and behaviourial approach ? Weaknesses Founder often empermentally unsuited to managing *Boss overload *Top managers lose control as freeom breeds parochial attitudes *Bureaucratic divisions between line/ staff, headquarters/field , etc *psychological saturation Source: Clarke, L. (1994) The Essence of Change, Prentice Hall, p. 12. 22 Predictable Change (3) ? ? Greiner’s model is potentially useful in identifying what stage an organization is at, and therefore what type of change situation it is in and will be in. The model may therefore help an organisation to plan change and predict the next crisis point. 23 Diagnosing Change Situations ? ? Diagnosis of change situations is not an exact science. Various diagnostic methods can be used in combination, e. g. SWOT, PETS, multicause diagrams. Some more methods are now discussed. 24 Evolutionary Cycle of Competitive Behaviour – 1 ? ? Strebel has suggested a model that examines the industry within which the organisation is located, i. e. the organisation’s competitive environment. Two key concepts are: ? the ‘evolutionary cycle of competitive behaviour. ’ ? ‘breakpoints’, when companies must change their strategies in response to changes in competitors’ behaviour. 5 Evolutionary Cycle of Competitive Behaviour – 2 The cycle involves two main phases. 1. The DIVERGENT PHASE, based on innovation/variety: beginning when one organisation discovers a new business opportunity, the industry as a whole strives to create differentiated products and services that add customer value. 26 Evolutionary Cycle of Competitive Behaviour – 3 2. Eventually a breakpoint occurs, as the emphasis shifts to the CONVERGENT PHASE, based on efficiency/survival, which begins with imitation of competitors’ best features, and then leads to an emphasis on reducing costs.

Competitors converge on total quality management, continual improvement & re-engineering to cut costs and maintain market share. Only the fittest survive. 3. Then back to 1, as further savings are marginal. 27 Evolutionary Cycle of Competitive Behaviour – 4 ? Progressively, with cycle after cycle, industries deliver both more customer value through various generations of differentiation (e. g. mobile phone technology) each followed by more cost reduction. ? Industries vary according to the relative emphasis on divergent phases versus convergent phases 28 Evolutionary Cycle of Competitive Behaviour – 5

High Customer Value new generation of products Concern for Innovation & customer value ? differentiation phase cost reduction phase ? ? Low Customer Value cost reduction phase ? ? = breakpoints pioneering/ novelty phase High Costs Delivery of efficiency & cost savings 29 Low Costs Evolutionary Cycle of Competitive Behaviour – 6 ? ? Spotting the breakpoints. Formal Methods include: ? Environmental scanning ? Benchmarking ? Monitoring, data collection and data interpretation ? Detecting when a new divergent phase is about to begin is more difficult because the new wave of innovation cannot yet be seen. ?

Informal methods include: ? Open-minded attitudes ? Cooperation across the organisation ? Culture supporting innovation and change 30 Difficulties and „Messes? Difficulties. ? ? ? Messes. ? ? ? ? These are characterised by ‘hard complexity’. There are lots of factors and variables. But they can be meaningfully quantified. Optimal solutions can be developed. ? ? These are characterised by soft complexity. People’s description of events is ambiguous. There are multiple interpretations and reconstructions of what the problem is. Stakeholder groups will see things according to their stake in the problem.

Thus there are many different ideas about what kind of solutions there might be. 31 Difficult versus messy problems DIFFICULTIES – Smaller scale, well-defined, ‘hard complexity’, multiple variables, cerebral know what would be a solution know what the problem is limited timescale priorities clear BOUNDED limited applications know what needs to be known limited number of people involved can be treated as a separate matter ____________________________________________________________ ____________________________________________________________ ________

MESSY PROBLEMS – bigger, poorly defined, ‘soft complexity’, multiple perspectives, emotional no solutions longer uncertain timescale priorities called into question know what the problem is don’t know what needs to be known UNBOUNDED uncertain but greater implications; worrying more people involved can’t be disentangled from its context 32 Concluding Remarks ? Diagnosing necessary change and managing subsequent change is usually not just a matter of objective calculation. ? Soft problems present various emotional and social dimensions which demand a broad range of managerial change competencies and approaches.