Chapter Eleven Innovation and Change Thomson Learning © 2004

Forces Driving the Need for Major Organizational Change Global Changes, Competition and Markets Technological Change International Economic Integration Maturation of Markets in Developed Countries Fall of Communist and Socialist Regimes More Threats More domestic competition Increased Speed International competition More Opportunities Bigger markets Fewer barriers More international markets More Large-Scale Changes in Organizations Structure change Mergers, joint ventures, consortia Strategic change Horizontal organizing, teams, networks Culture change New technologies, products Knowledge management, enterprise New business processes resource planning E-business Quality programs Learning organizations Source: Based on John P. Kotter, The New Rules: How to Succeed in Today’s Post-Corporate World (New York: The Free Press, 1995). Thomson Learning © 2004

Change: Content vs. Process Content compares what is different about the organization before and after the change ex: new technology, new CEO, fewer workers, new product the WHAT of change Process concerns the way the change occurs or is carried out ex: speed, sequence of activities, top-down or bottom-up, incremental or radical the HOW of change Thomson Learning © 2004

Four Types of Change Content Technology Changes in production process Products and Services Changes in outputs Strategy and Structure Administrative changes Culture Changes in values, attitudes, behaviors Thomson Learning © 2004

Sequence of Elements for Successful Change Process Environment Internal Creativity and Inventions Suppliers Professional Associations Consultants Research literature Organization 1. Ideas 3. Adoption 4.Implementation 2. Needs Customers Competition Legislation Regulation Labor force 5. Resources Perceived Problems or Opportunities Thomson Learning © 2004

Organizational Response to Environmental Change A – Change in environment B – Incremental adjustment C – Radical adjustment A C B Thomson Learning © 2004

Incremental vs. Radical Change Incremental Change Radical Change Continuous progression Paradigm-breaking burst Affect organizational part Transform entire organization Through normal structure and management processes Create new structure and management Technology improvements Breakthrough technology Product improvement New products, new markets Sources: Based on Alan D. Meyer, James B. Goes, and Geoffrey R. Brooks, “Organizations in Disequilibrium: Environmental Jolts and Industry Revolutions,” in George Huber and William H. Glick, eds., Organizational Change and Redesign (New York: Oxford University Press, 1992), 66-111; and Harry S. Dent, Jr., “Growth through New Product Development,” Small Business Reports (November 1990): 30-40. Thomson Learning © 2004

Type of Innovation Desired Dual-Core Approach to Organization Change Type of Innovation Desired Administrative Structure Technology Administrative Core Technical Core Direction of Change: Top-Down Bottom-Up Examples of Change: Strategy Production Downsizing techniques Structure Workflow Best Organizational Design for Change: Mechanistic Organic Thomson Learning © 2004

Dunphy & Stace Model Incremental Change Strategies Transformative Collaborative Models Type 1 Participative Evolution Type 2 Charismatic Transformation Coercive Models Type 3 Forced Evolution Type 4 Dictatorial Transformation Thomson Learning © 2004

Exploitation vs. Exploration Exploitation: Ongoing execution of learned successful behaviors – business as usual Exploration: Search for new ideas and behaviors to revitalize business Thomson Learning © 2004

Barriers to Innovation in Large Organizations Top Management Isolation Unfamiliar with latest technology / out of touch with markets More likely to try to acquire innovation (finance issues) than develop internally Thomson Learning © 2004

Barriers to Innovation in Large Organizations Intolerance of Diversity Typical entrepreneurial personality is not a team-player Impatient; dislikes rules, procedures Poor fit with culture Thomson Learning © 2004

Barriers to Innovation in Large Organizations Short Time Horizons Focus on quarterly performance results Projects under pressure to show results Incompatible with time frame for major innovations 5-7 years Thomson Learning © 2004

Barriers to Innovation in Large Organizations Excessive Bureaucracy Having to go through channels, paperwork, capital appropriations, etc. etc…. Loss of spontaneity Loss of momentum Thomson Learning © 2004

Barriers to Innovation in Large Organizations Inappropriate Incentives Reward stable performance instead of risk taking behavior Don’t penalize missed opportunities Inability to adequately compensate Thomson Learning © 2004

Barriers to Innovation in Large Organizations Excessive Rationality Management is primarily about control / order Innovation is chaotic Upsets plans Difficult to forecast Variation reducing Thomson Learning © 2004

Division of Labor Between Departments to Achieve Changes in Technology General Manager Creative Department (Organic Structure) Using Department (Mechanistic Structure) Thomson Learning © 2004

Horizontal Linkage Model for New Product Innovations Environment Organization Environment General Manager Technical Developments Customer Needs Linkage R&D Department Linkage Marketing Department Linkage Linkage Linkage Production Department Thomson Learning © 2004

Burgelman’s Model Thomson Learning © 2004

Autonomous Strategic Behaviors “I say unto you: one must still have chaos in oneself to be able to give birth to a dancing star.” (Nietzsche, Thus Spoke Zarathustra) Thomson Learning © 2004

The Structural Context Various administrative mechanisms: market research, hurdle rates Object: evaluate fit of new induced ideas to existing strategy Weak feedback to change strategy: echo Thomson Learning © 2004

Strategic Context Separate evaluation system from structural context More open-ended in terms of results & payback Longer time frame Strong influence Thomson Learning © 2004

Barriers to Change Excessive focus on costs Failure to perceive benefits Lack of coordination and cooperation Uncertainty avoidance Fear of loss Thomson Learning © 2004

Daft’s Techniques for Change Implementation Establish a sense of urgency for change. Establish a coalition to guide the change. Create a vision and strategy for change. Find an idea that fits the need. Develop plans to overcome resistance. Create change teams. Foster idea champions. Thomson Learning © 2004

Kotter’s Eight Steps Establishing a Sense of Urgency Forming a Powerful Guiding Coalition Creating a Vision Communicating the Vision Empowering Others to Act on the Vision Planning for and Creating Short-term Wins Consolidating Improvements and Producing Still More Change Institutionalizing New Approaches Thomson Learning © 2004