Management A Practical Introduction Third Edition Angelo Kinicki & Brian K. Williams

Chapter 10: Organizational Change & Innovation Lifelong Challenges for the Exceptional Manager The nature of change in organizations Organizational development Promoting innovation Managing employee fear & resistance Management Toolbox: Managing for Innovation and Change Takes a Careful Hand Summary: Managing for change and innovation isn’t easy. Managers need to: allow room for failure give a consistent explanation for the change look for opportunities in unconventional ways have the courage to follow ideas allow grieving, then move on For Discussion: How would you manage change? Have you ever been affected by change in the workplace? How was the change handled? Was the process successful? Why or why not?

10.1 The Nature Of Change In Organizations WHAT DO MANAGERS NEED TO KNOW ABOUT CHANGE? Managers need to be aware of five current trends that will shape the future of business: 1. Customer groups are being segmented into ever smaller groups that demand specialized messages Marketing niches are now more important 2. Speed is becoming a key competitive weapon

10.1 The Nature Of Change In Organizations 3. It can be difficult for traditional companies to take advantage of a massive industry change For these companies, it can be more successful to establish a new division to incorporate change 4. Workers in nations like China and India are willing to work twice as hard for half the pay as American workers Companies that outsource to these countries free up domestic employees to work in other areas 5. Knowledge is becoming the new competitive advantage

10.1 The Nature Of Change In Organizations Managers have to deal with two types of change: 1. Reactive change involves making changes in response to problems or opportunities as they arise Managers have less time to get the information necessary to make decisions when they deal with reactive change 2. Proactive change or planned change involves making carefully thought-out changes in anticipation of possible or expected problems or opportunities

10.1 The Nature Of Change In Organizations HOW DO MANAGERS KNOW THEIR ORGANIZATIONS NEED TO CHANGE? Managers can monitor forces inside and outside the firm to identify areas of change There are four types of external forces: 1. demographics - the U.S. workforce is now more diverse 2. market changes - companies are having to change the way they do business and build new relationships with employees, suppliers, and competitors; global economy

10.1 The Nature Of Change In Organizations 3. technological advancements - managers must deal with the realities of information technology 4. social & political pressures - social events create new pressures for managers There are two types of internal forces: 1. employee problems - job dissatisfaction can be a signal for change 2. managers’ behavior - excessive conflict between managers and employees can signal the need for change

10.1 The Nature Of Change In Organizations Figure 10.1: Forces For Change Outside And Inside The Organization

Chapter 10: Organizational Change & Innovation CLASSROOM PERFORMANCE SYSTEM Which of the following is not an example of outside forces? A) mergers & acquisitions B) office automation C) structural organization D) values The answer is C.

10.1 The Nature Of Change In Organizations Change is most likely to be needed in four areas: 1. changing people - perceptions, attitudes, performance, and skills are all areas where change may be needed 2. changing technology - technology (any machine or process that enables an organization to gain a competitive advantage in changing materials used to produce a finished product) is a major area of change for many organizations 3. changing structure - there is a trend toward flattening the traditional hierarchical structure in firms by eliminating layers of middle managers and creating teams that are linked electronically 4. changing strategy - marketplace changes can cause companies to change their strategies

10.2 Organizational Development: What It Is, What It Can Do WHAT IS ORGANIZATIONAL DEVELOPMENT? The set of techniques for implementing planned change to make people and organizations more effective is organizational development (OD) Focuses on people in the process A consultant with a background in behavioral sciences who can be a catalyst in helping organizations deal with old problems in new ways is called a change agent OD is put in place by a change agent

10.2 Organizational Development: What It Is, What It Can Do OD can be used in three ways: 1. Managing conflict - OD experts can help executives improve their relationships with other managers to reduce organizational conflict 2. Revitalizing organizations - OD can help companies communicate, embrace innovation, and deal with stress 3. Adapting to mergers - OD can help firms integrate two disparate organizations with different cultures, products, and procedures

10.2 Organizational Development: What It Is, What It Can Do HOW DOES OD WORK? OD managers: 1. Diagnose problems - surveys, questionnaires, interviews, and meetings are used to identify problems 2. Intervene to make changes - attempts to correct diagnosed problems is intervention 3. Evaluate the results - once a plan has been put into place, it must be evaluated for effectiveness

10.2 Organizational Development: What It Is, What It Can Do OD is most successful in the following cases: 1. Multiple interventions - combined interventions work better than single interventions 2. Management support - when there is the commitment of top executives and the proposed changes are realistic 3. Goals geared to both short- & long-term results - change should only be implemented if it will produce positive results toward the organization’s goals 4. OD is affected by culture - what works in one country might not work in another

10.3 Promoting Innovation Within The Organization HOW CAN MANAGERS PROMOTE INNOVATION? Innovation is important to keeping an organization vital and maintaining a competitive advantage Only four percent of U.S. executives surveyed felt their organizations were doing a good job in promoting innovation in their organizations Instead of focusing on what their customers want and then using that information to drive innovation, companies are taking insular approaches to innovation Practical Action: What Makes a Start-up? This Practical Action explores start-up companies. Start-ups usually begin by making some small change in what someone else is already doing. The difference for start-ups though, tends to be speed and tolerance for ambiguity.

10.3 Promoting Innovation Within The Organization Innovation can occur by design or by accident, and it can come from a profit or non-profit organization Both a country’s culture and an organization’s culture are important to innovation Both types of culture must be conducive to the development of new ideas The U.S. has the type of culture that is essential to innovation

10.3 Promoting Innovation Within The Organization There are two types of innovation: A product innovation is a change in the appearance or the performance of a product or a service, or the creation of a new one A process innovation is a change in the way a product or service is conceived, manufactured, or disseminated Innovation that replaces existing products is called radical innovation Innovation that modifies a current product is called incremental innovation

Chapter 10: Organizational Change & Innovation CLASSROOM PERFORMANCE SYSTEM Innovations that involve the creation of products that replace existing ones are called A) incremental innovations B) radical innovations C) process innovations D) replacement innovations The answer is B.

10.3 Promoting Innovation Within The Organization Innovation has four characteristics: 1. Innovation is uncertain - progress is difficult to predict, and success is always a question mark 2. People closest to the innovation know the most about it - managers who are removed from the innovation process have difficulty understanding it 3. Innovation may be controversial - since innovation requires company resources, it may become controversial since it is not clear that it will be a success 4. Innovation can be complex - because innovation may involve multiple departments, managers need strong communication skills to manage its complexity

10.3 Promoting Innovation Within The Organization HOW CAN ORGANIZATIONS ENCOURAGE INNOVATION? Organizations can encourage innovation by providing: 1. the right organizational culture – celebrate failure 2. the appropriate resources – considerable resources should be devoted to the innovation process 3. the correct reward system - experimentation (and failure) are part of the innovation process

10.3 Promoting Innovation Within The Organization HOW CAN MANAGERS FOSTER INNOVATION? The three steps to making innovation happen are: 1. recognizing problems that need solving and opportunities that are presented 2. communicating your vision to get support for innovation 3. removing obstacles that might prevent employees from executing a vision Lecture Note: It can be interesting to ask students how innovation happens prior to beginning this discussion. Many students have never really thought about the process, nor what it takes to make it happen.

10.3 Promoting Innovation Within The Organization Figure 10.3: Three Steps For Fostering Innovation

10.4 The Threat Of Change: Managing Employee Fear & Resistance HOW SHOULD ORGANIZATIONAL CHANGE BE MANAGED? The degree to which employees feel threatened by change depends on whether it is adaptive, innovative, or radically innovative The reintroduction of a familiar practice is known as adaptive change Since the change has been experienced in the past by the organization, it is not particularly threatening to employees

10.4 The Threat Of Change: Managing Employee Fear & Resistance The introduction of a practice that is new to the organization is called innovative change This type of change tends to create some anxiety in people Introducing a practice that is new to the industry is radically innovative change This type of change is costly, complex, and uncertain, and so triggers considerable anxiety in employees

Chapter 10: Organizational Change & Innovation CLASSROOM PERFORMANCE SYSTEM A catalog clothing retailer that decides to open a physical retail location is making A) an adaptive change B) a innovative change C) a process change D) a radically innovative change The answer is D.

10.4 The Threat Of Change: Managing Employee Fear & Resistance The top ten reasons for resisting change are: -people’s predispositions toward change -surprise and fear of the unknown -climate of mistrust -fear of failure -loss of status or job security -peer pressure -disruption of cultural traditions or group relationships -personality conflicts -lack of tact or poor timing -non-reinforcing reward systems

10.4 The Threat Of Change: Managing Employee Fear & Resistance Kurt Lewin developed a three stage model to explain how to initiate, manage, and stabilize planned change Stage 1: unfreezing- managers encourage employees to become more open to innovation – creating the motivation to change Stage 2: changing - learning new ways of doing things - managers convey that change is a learning process that continues, it is not a one-time event Stage 3: refreezing - managers encourage employees to make the new ways part of their normal way of doing things

Lewin’s Change Model: Initiate, Manage, and Stabilize Planned Change Unfreezing Managers try to instill in employees the motivation to change (let go). Need to be dissatisfied with old ways – “Benchmarking” Changing Employees need to be given the tools for change. Refreezing Employees need to be helped to integrate the changed attitudes and behavior into their normal behavior McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10.4 The Threat Of Change: Managing Employee Fear & Resistance John Kotter claims that organizational change should follow eights steps: -establishing a sense of urgency -creating the guiding coalition -developing a vision and strategy -communicating the change vision -empowering broad-based action -generating short-term wins -consolidating gains and producing more change -anchoring new approaches in the organization’s culture

Chapter 10: Organizational Change & Innovation CLASSROOM PERFORMANCE SYSTEM Which of the following does not correspond with the changing stage of Lewin’s change model? A) communicating the change vision B) empowering broad-based action C) generating short-term wins D) consolidating gains and producing more change The answer is A.