Managing Rapid or Radical Organizational Changes - Case Study Example

Running Head: MANAGING ORGANIZATIONAL CHANGE Managing organizational change Name Course Institution Date Managing organizational change Change is an inevitable part of many organizations’ life cycles. In today’s corporate environment according to Abrahamson (2000), many organizations are frequently faced with a situation in which they have to change or otherwise perish. This reflects the rapidly changing nature of business. The change itself is necessitated by a number of possible scenarios; a company’s fortunes may be dwindling and in desperate need of a revival, its methods of production or business practice may be outdated and newer systems have to be put in place or new opportunities may show up in the business horizon which the company has to respond to or risk falling behind to its competition by losing significant market share (Kotter 2007). However, while change is inevitable, not every organization successfully manages to undergo change or transformation. Kotter (2007) has identified various behavioral reasons as to why transformation efforts fail in many organizations undergoing change. His analysis is based on the premise that change in organizations has to be a gradual process which should be eased into the system. He concludes that change should be a gradual process that should be introduced incrementally and gradually into the organization as it would otherwise attract resistance and fail. This view is supported by Abrahamson (2000) who defines this kind of change as “painless”. In contrast, there have been documented examples to support the argument that organizations have to change rapidly and radically. This school of thought argues that an organizations’ ability to change rapidly is critical to its success. Thus while some commentators argue that organizations must develop a capacity for rapid and continuous change, others argue that organizations should attempt instead to introduce “painless change”. This paper evaluates the two arguments to establish which is more relevant in today’s business environment. The paper will first introduce the two propositions by a brief review of literature surrounding organizational change. This will identify the arguments put forward by proponents of either “painless” or evolutionary change and radical or revolutionary change. The paper will draw on examples from two different organizations which have undergone transformation as illustration of the two styles of change. Painless Change Kotter (2007) and Abrahamson (2000) have both concluded that change in organization should be treated as a process and not as an event. Kotter identifies common mistakes made by the management of organization which have failed in effecting change. These mistakes include inability to establish a sense of urgency, lack of and effective communication of the vision to employees and failure to remove obstacles to change. Kotter’s arguments show that change must be effected through a consultative process that will minimize disruptions and shocks to the organization. This, he argues, will ensure that the changes or transformation required will receive the popular backing of managers and employees alike and this should improve the chances or likelihood of the introduced change being effective or successful (Kotter ,2007). Abrahamson (2000) discusses the concept of change without pain by arguing that organizations should develop a dynamic stability approach in managing change. He refers to dynamic stability as a system of continuous but relatively minor initiatives that reconfigure existing business models or practices to yield new products rather than the creation of new products (Abrahamson, 2000). By using the example of IBM under the tenure of Lou Gerstner, he illustrates how change should be managed through major initiatives carefully implemented amidst smaller minor and internal change initiatives. He refers to this approach as using tinkering and kludging. “Tinkering” refers to a practice where a company adopts to the market by exploiting existing internal solutions, technologies or methods rather than reinventing the wheel which is costly and sometimes chaotic. “Kludging” refers to creating new assets through a collection of the company’s assets and technologies and some borrowed from outside sources-for instance through mergers and acquisitions. He argues that this approach is more suitable for managing change as big “hairy” changes rammed down the throat of the organization are more likely to face resistance from employees. The key concept behind achieving dynamic stability is thus gradually adapting to change with minimum disruption. He mentions IBM’s success in pacing or slowing down its changes which was critical to the survival of the company (Harreld, O’Reilly, &Tushman, 2006). Weick and Quinn (1999) also identify another variation of painless change as “continuous” change. They argue that continuous change refers to changes in organizations that are in markets where change is constant, cumulative and evolving. This typically refers to sectors such as the information technology and telecommunications sectors which experience newer technologies every now and then. In this sense, painless change can also be thought of as evolutionary change. This kind of change has frequently been associated with the successful turnaround of firms such as IBM and the versatility of companies such as Sony, General Electric, 3M and Hewlett Packard (Abrahamson, 2000). How is painless change effected? Kotter (2007) identifies eight steps for effecting transformation. Initially, a sense of urgency must be created owing to either an impending crisis or market opportunity and this must be established throughout the company. A powerful enough coalition consisting of both top management and employees should then spearhead the change effort and the vision must be created to direct the change effort which must be communicated to everyone in the organization. It is important for the champions of the new changes to be in the top management and to have enough power to see the changes through. The obstacles to attaining the vision must then be systematically identified and rooted out to empower others to act on it. This can be done by removing managers unwilling to implement it or lead by example. Finally, short term wins or benchmarks should be created, improvements as a result of the transformation consolidated and institutional changes made to accommodate the new approaches. These include performance benchmarks for promotions or appointments (Kotter, 2007). In summary, the proponents of painless change argue that change should be as least disruptive as possible to avoid resistance. Change is often likely to encounter cynicism or burnout due to previous failed attempts and to mitigate this, managers or the champions of change should try and make the change process as smooth as possible. Illustration of Painless Change-IBM When Lou Gerstner took over IBM as CEO in 1993, the company’s prospects looked grim. IBM had recently suffered from plummeting stock prices and had been forced to lay off an estimated 125,000 employees in addition to ever-slowing growth rates at six percent (Harreld, O’ Reilly and Tushman 2006). Gerstners’ assessment of the failure of IBM concluded that the company had not faced decline due to the absence of talented work force or resources but that the competition had simply taken away its’ business. He alluded to the fact that the industry was rapidly changing and that advantage went to the swift not the smart. He also admitted that IBM’s costs had risen and that the company was out of touch with the demands of customers (Harreld, O’Reilly, &Tushman, 2006). Having assessed the situation, Gerstner embarked on transforming IBM to enable it recapture its past glory. Key to his strategy was to transform IBM from being primarily a producer of computer hardware and into other production lines such as software development (Harreld, O’ Reilly and Tushman 2006). This was based on his understanding of the customer’s needs and an industry that was increasingly reliant upon the application of technologies rather than mere invention of new technology on commercial success. According to Abrahamson (2000), Gerstner managed to develop dynamic capability or dynamic stability by using existing IBM technologies-tinkering and incorporating partner technologies such as software development to transform IBM to a dynamic organization which would respond to its customer’s needs or a demand driven organization under a new business model. Under Gerstner, IBM created new divisions such as software development and consulting and has seen its stock price rise seven times. IBM also became the largest services company and this was done without lay offs or other cost disruptive measures (Harreld, O’Reilly, &Tushman, 2006). Rapid or Radical Change While the proponents of painless change argue that sudden disruptions or rapid changes are potentially destructive, others argue that organizations should be able to develop a capacity for both rapid and continuous change. This should not be confused with simply continuous change but implies that an organization should develop capability for not only continuous change but also rapid, wholesale, radical, revolutionary or transformative change. Proponents of this argument emphasize on the argument that the organization which restructures itself rapidly enough to meet the demands of the ever-changing market would have a competitive advantage. Unlike painless change, it is argued that organizations should be able to execute and embrace radical or revolutionary changes for it to survive especially if the driver of change is a decline in the company fortunes (Orlikowski, 1993). While proponents of painless change point towards the disruptiveness of radical or transformative change, proponents of radical change argue that attempts at painless or continuous change are simply defensive measures and are costly since they do not address the root cause for change in good time. They also argue that continuous change is never ending, perpetual and costly in the long run and may cause even more disruptions than it is meant to avoid. Orlikowski (1993) challenges the notion that change should be planned, gradual, and incremental and phased in. the argument is that in organizations such as technological based companies, it is changes in technology that inspire change. Thus radical change or discontinuous change should be marked by major or large scale initiatives aimed at restructuring, repositioning, revitalizing or renewing the company (Orlikowski, 1993). Illustration of Radical Change-Semler Semler and Semco Just as the case was with Lou Gerstner and IBM, Semler inherited a troubled Semco in 1980. The company was teetering on the brink of bankruptcy and collapse (Semler 1993). Semler inherited a compact Semco which manufactured hydraulic pumps for ships with only 100 employees and about $4 million in revenues. By 1988, Semco had grown to a company employing 800 people with a profit margin of 10% and sales of $37 million (Semler 1994). Semco had also grown from a small manufacturing company making hydraulic pumps to a company manufacturing a range of sophisticated products such as commercial dishwashers, digital scanners and mixing equipment. The company has even built cookie factories for Nabisco and Nestle. Semler attributes the turnaround in the company’s fortunes to the drastic and revolutionary changes made in the company’s management (Semler 1993). The need for change in Semco when Semler took over in 1980 was driven by the company’s dwindling fortunes. The company’s changes began with an acquisition phases where the company signed licensing agreements to manufacture a whole new range of products for other companies. Semler then heralded a raft of revolutionary changes in the company’s management structure. Some of the changes were unprecedented. For instance, Semler created a lattice organization. In the new program, employees were placed in semi autonomous self-managed groups in charge of different aspects of production. The company’s management structure was also overhauled with only three management levels being created. In what Semler refers to as the organizational circle, management levels were trimmed to three-counselors, partners and employees (Semler 1994). This eliminated what he perceived as many unnecessary levels. Semco also initiated revolutionary changes in the way employees were treated. For instance, they were allowed to set their own working hours, determine their own wages, allowed access to company financial information and even had the dress code liberalized(Semler, 1994). Semco virtually transformed itself into an employee-run organization where work titles were abolished, there were no secretaries or receptionists or personal assistants. Semler also utilized more traditional employee motivation techniques such as profit sharing where employees are allowed to determine how and where they invested their profits. Major company decisions such as acquisition of new companies or factory sites were decided by employee voting (Semler 1989). In addition, Semco also created new satellite divisions for some of their skilled and trained employees who were “set free” to innovate and come up with new products working without titles or bosses such as NTI-Nucleus of Technological Innovation. Semler refers to his management style as treating his employees like adults- which he claims has led to abnormally high employee retention rates. He believes structure and regulation stifles employee productivity and creativity (Semler, 1989). Conclusion As established throughout the paper, there have been successes in both painless and rapid or revolutionary change. The experience at IBM under Lou Gerstner shows that organizational change should be streamlined and as least disruptive as possible for change initiatives to be successful. On the other hand, the experience with Semco under Semler also gives evidence that organizations can embark on rapid and continuous change. It shows that change can be revolutionary, rapid, drastic and even unconventional yet successful at the same time (Semler, 1989). However, Semco and IBM are two very different companies from two different industries facing vastly different markets. IBM is in the technology industry while Semco is in the manufacturing industry. This implies that while the demands for organizational change may be the same for different companies, the pace and the style of change will be determined by multiple factors such as company size, market conditions and employee relations. According to Hannan and Freeman (1984), structural inertia in an organization also affects change. For instance, if the change initiatives are complex and dependent on moral concepts such as leading by example from top management, there is a higher likelihood of opposition or resistance to the change initiative (Hannan & Freeman, 1984). In conclusion, organizational change is not parsimonious but dependent on the circumstances the company faces and its structure. In today’s business environment, the managers or the champions of change should be able to skillfully understand the potential effect of change on their employees. Thus there is no standard methodology for change since both painless and rapid change would be successful if prudently managed (Garvin & Roberto, 2005). References Abrahamson, E. (2000). Change without Pain. Harvard Business Review. July-August 2000. Garvin, D. & Roberto, M. (2005). Change through Persuasion. Harvard Business Review. February 2005. Hannan, M. & Freeman, J. (1984). Structural Inertia and Organizational change. American Sociological Review. Vol 49. No 2, pg 149-164. Harreld, J., O’Reilly, C. &Tushman, M. (2006).Dynamic Capabilities at IBM: Driving Strategy into Action. White Paper Draft. August 10, 2006. Kotter, J. (2007). Leading Change, Why Transformation Efforts Fail. Harvard Business Review. Orlikowski, J. (1993). Case tools as Organizational Change: Investigating Incremental and Radical Changes in Systems Development. MIS Quarterly. Management Information Systems Research Center, University of Minnesota.Vol. 17, No. 3, pp. 309-340. Semler, K. (1989).Managing Without Managers. Harvard Business Review. September/October 1989. Semler, K. (1993). Maverick: the Success behind the World’s Most Unusual Workplace. New York: Warner Books. Semler, K. (1994). Why My Former Employees Still Work for Me. Harvard Business Review. January/ February 1994, p. 64. Semler, K. (1994). Who Needs Bosses? A Brazilian Firm’s Daring Adventure with Participative Management. Across the Board, p. 23. Weick, K. &Quinn, R. (1999). Organizational Change and Development. Annual Review of Psychology. Vol 50, pg 361-386. Read More