Change Management

1. Change Management

2. Organizational Change: Background • Organizational change is intended alterations in organizational design elements such as structures, technology, culture. • Change is increasingly integral to management • External forces for change: The “usual suspects”: regulatory change; globalization; technological change, etc. • Internal forces for change: Poor performance, change in strategy, management, processes, and workforce. • “Change agents” – people (often managers) who catalyze change and take responsibility for making change happen. (I prefer to the term change leaders).

3. Change environments:Calm vs. White-Water Rapids • Calm Water: Relatively long periods of stability interrupted by short periods of significant change • Traditionally, the professions were examples • White Water: Change never really stops • Competitive markets today: complex and dynamic. • Firms’ ability to change rapidly becomes strategic • Senior managers seek change leaders “down the line”

4. Understanding Change:Lewin’s Three-step model • An early and enduring model of change • Says organizations are in inertial equilibrium • “Inertial” equilibrium: organizations must be pushed out of equilibrium (status quo), and moved into another equilibrium. • Otherwise they just “roll back” to where they were • E.g, employees return to comfortable habits & ways.

5. Lewin’s Three-Step Change Model(A different take than the textbook) Unfreezing Changing Refreezing • Unfreezing - increasing forces for change, decreasing forces against change, relative to the status quo (equilibrium). • Changing - move to another equilibrium level • Refreezing - stabilizing new equilibrium to make change permanent

6. Where is Lewin’s model useful • This is a very general model, as applicable for changing a single policy in a department as for transforming an entire organization: • Applies to both Calm Waters and White Waters. • Textbook says its only applicable to Calm Waters, that’s wrong. • Organizational inertia is universal (for example, culture). • Better way to think about it: There is more change in white-water situations, so rather than one big unfreeze-change-refreeze, there are multiple unfreeze-change-refreeze efforts going on all the time.

7. Comparison of Kotter’s (1995) 8 Step Model and Lewin’s Model Unfreeze Establishing a Sense of Urgency Forming a Powerful Guiding Coalition Creating a Vision Communicating the vision Empowering Others to Act on the Vision Change Planning for and Creating Short-Term Wins Consolidating Improvements, Produce More Change Refreeze Institutionalizing New Approaches

8. Types of Change: Decision vs. Behaviorally-driven Structure Technology (processes) People Change in Behavior (or attitudes, expectations, perceptions) across the organization Decision-driven change: change initiators can decide to change these Behaviorally-driven change: change initiators must influence others who decide to change: More Complex More Time-Consuming

9. Resistance to Change: Another reason behavioral change is tough • Rather than simply complying with or committing to changes, people often resist them. There are several reasons: • Uncertainty: Change replaces the known with ambiguity and uncertainty, and potentially thus with fear and anxiety. • Self–Interest: Change threatens personal investments in and rewards from the status quo. Can lead to dysfunctional, “hidden agenda” politics. • Differing Assessments: People affected by the change view the situation – problem, solution, etc. – differently from change initiators. • Misunderstanding: Especially when trust is lacking, people may not understand the implications of change, and they may fear the worst.

10. Reasons experienced, smart managers have trouble driving change • Change takes longer, is more complex, is more problematic, and is more difficult to sustain than managers expect (Jick): • Implementation took more time than originally allocated (76%) • Unexpected major problems surfaced during implementation (74%) • Coordination of implementation activities was not effective enough • Competing activities and crises distracted attention (64%) • Managers underestimate the difficulty of change efforts (Kotter): • Difficulty of driving people out of comfort zones • Degree of resistance that is likely to arise • How much communication it takes to get the vision across • How important it is to remove obstacles (people and policies) to change

11. Don’t assume people will agree with changes Unexpected resistance to change examplesAs president, you initiate these changes: • 1. You create a new position, VP of new product planning & development, to rationalize new product development efforts. Responsibility for new product development is spread across different functions and is too important to not have someone explicitly responsible for it. How do the existing VPs react? • The change substantially reduces existing VPs decision-making power in this new area, and threatens their status because new product development is so powerful. Over the next two months each of the several VPs so threatened come up with six or seven reasons why the arrangement won’t work, and their objections get so loud that you decide to shelve the idea.

12. Don’t assume people will understand changes Unexpected resistance to change examplesAs president, you initiate these changes: • 2. You’ve been to a management seminar that introduces you to a new concept, flexible working schedules. You believe this will improve working conditions, particularly for clerical and plant personnel. In the next company newsletter you include a brief announcement that the company will be implementing a flexible working schedule for those employees. How do employees react? • After the announcement, rumors circulate among employees who don’t know what this means. One rumor suggested it meant most people would have to work whenever supervisors asked, including evenings and weekends. The employee association, a local union, held a quick meeting and then presented management with a non-negotiable demand that the concept be dropped. Caught completely by surprise, you comply.

13. Don’t assume people will understand OR agree with changes Unexpected resistance to change examplesAs president, you initiate these changes: • 3. You are shocked by your executive staff’s analysis of potential losses from REIT (real estate investment trust) loans. Loss exposure is large already and increasing monthly. You take quick action. You decide not to release the report to anyone but the REIT section manager because it is too sensitive, but within a week, you have drawn up a plan to reorganize that part of the bank. How do people within the REIT group react? • People wonder whether you have gone mad and why you are tearing up this section of the bank. 3 talented people leave and cripple an existing program, that you were unaware of, that aimed to reduce loan losses.

14. Methods for reducing or overcoming resistance to change • See exhibit 13.4 p. 347. • Education & communication: To help people see the logic. • Almost always key in general • Crucial to help avoid resistance from misunderstandings. • Participation: in decisions about changes & implementation. • Helps avoid resistance from differing assessments • To gain commitment rather than compliance • Facilitation & Support: counseling, training, etc. • Helps address resistance from low tolerance for change • These are best, if they are at all possible • However, can be expensive, time consuming, and still fail.

15. Methods for reducing or overcoming resistance to change • Negotiation: Exchange value to reduce resistance • Can address self-interest, but can be a “slippery slope” • Manipulation: Hide/distort information. • Tempting and sometimes a seductive way out of a tough situation. But, its playing with fire. • Coercion: Direct or implied threats. • Useful when your position is strong, fast action is needed (e.g., crisis), you know what needs to be done, and just need compliance • Obviously likely to lead to resentment or revolt. Don’t be a one-trick pony. Use multiple methods, strategically

16. Some examples of dealing with resistance to change • Participation -> Head of small financial services company forms a task force of 8 second/third level managers to help design and implement changes in the companies reward system. • Facilitation & Support -> Rapidly growing electronics firm staffs human resources with four counselors who spend most of their time talking with people who are feeling “burnt out” or having difficulty adjusting to their new jobs. • Coercion: Frank Borman (at Eastern Airlines) urges workers to vote for a new union contract to cut costs at the failing airline, “or else.”

17. Change and you “in the trenches” • Senior managers are desperate to find change leaders “down the line.” • Leaders who can provide: • Linchpin linkages: marketplace realities, top leadership aspirations, workforce capabilities • 360 degree impact (most notably impact up) • Expandable toolkit (are opportunistic and experimental to meet the situation at hand) Adopted from “Real Change Leaders.” Katzenbach, McKinsey Quarterly, 1997