Chapter: 9

Organization Change
and Innovation

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 The Nature of Organization Change

• Organization Change
–Any substantive modification to some part of the
organization.
–Change can involve any aspect of organization: work
schedules, machinery, organization design, span of
management, employees, etc.
–It is important to keep in mind that any change in an
organization may have effects extending beyond the
actual area where the change is implemented.

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 The Nature of Organization Change
• Forces for Change
– External forces in the organization’s general and task
environments that force the organization to alter the
way in which it competes.
• Energy crisis, currency exchange rates, new rules of
production, new laws, technological development, inflation,
cost of living, socio-cultural dimension, etc.
– Internal forces inside the organization that cause it to
change its structure and strategy; some internal forces
are responses to external pressures.
• Revisions in organizations strategy, workers’ attitude towards
their job, change in working hours or working conditions.

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 The Nature of Organization Change
• Planned Change
–Change that is designed and implemented in an orderly
and timely fashion in anticipation of future events.
• To develop a multistage change program intended to
educate workers about safety, improve safety
equipment in the organization, & eliminate firms bad
culture to achieve the best safety record.
• Reactive Change
–Change that is a piecemeal response to events and
circumstances as they develop.
• Kodak had to cut 12,000 jobs in reaction to sluggish
sales and profits. 4
 Managing Change in Organizations
• Organization change is a complex phenomenon.
• A manager cannot simply implement a planned
change like magic.
• The manager needs to understand the steps of
effective change and how to counter employee
resistance to change.
• In this section we will discuss
–Steps in the Change Process
–Understanding Resistance to Change
–Overcoming Resistance to Change

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 Steps in the Change Process
• Researchers have over the years developed a number of
models or frameworks outlining steps for change.
• The Lewin model was one of the first
• Also a more comprehensive approach is more useful in
today's complex business environment
• Lewin Model
• Kurt Lewin suggested that every change requires three
steps.
–Unfreezing
• Individuals who will be affected by the impending change must
be led to recognize why the change is necessary.
–Implementing change
• The change itself is implemented
–Refreezing
• Involves reinforcing and supporting the change so
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that it becomes a part of the system.
 Steps in the Change Process
• A Comprehensive Approach to Change
• The comprehensive approach to change takes a
systems view and delineates a series of specific
steps that often leads to successful change.
• This expanded model is illustrated in Figure 18.1.

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 Figure 18.1
Recognition of the need for change
Steps in the Change Process

Establishment of goals for the change

Diagnosis of relevant variables

Selection of appropriate change technique

Planning for implementation of the change

Actual implementation

Evaluation and follow-up

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 A Comprehensive Approach to Change
Galpin (1996)
• First step is recognizing the need for change.
– Reactive change might be triggered by employ
complaints, declines in productivity or turnover, sales
slumps, a labor strikes.
– Recognition may simply be managers' awareness that
change in a certain area is inevitable.

• Second, managers must next set goals for the

change.
– To increase market share, to enter new markets, to
restore employee morale, to settle a strike, and to
identify investments opportunities all might be goals for
change. 9
 A Comprehensive Approach to Change
• Third, managers must diagnose what brought on
the need for change.
– Turnover, for example, might be caused by low pay,
poor working conditions, poor supervisors, or employee
dissatisfaction.

• Fourth, managers select a change technique that

will accomplish the intended goals.
– If turnover is caused by low pay, a new reward system
may be needed. If the cause is poor supervision,
interpersonal skills training may be called for.

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 A Comprehensive Approach to Change
• Fifth and sixth, after the appropriate technique has
been chosen, its implementation must be planned.
– Issues to consider include the costs of the change, its
effects on other areas of the organization, and the
degree of employee participation appropriate for the
situation.
• Seventh, if the change is implemented as planned,
the results should then be evaluated.
– If the change was intended to reduce turnover,
managers must check turnover after the change has
been in effect for a while.
– If turnover is still too high, other changes may be
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necessary
 Understanding Resistance to Change
• Managers need to know why people resist change and what
can be done about their resistance
• People resist change because of:
–Uncertainty: In the face of impending change, employees
may become anxious and nervous. They may worry about
their ability to meet new job demands, they may think that
their job security is threatened, or they may simply dislike
ambiguity.
– Threats to self-interests: Many impending changes
threaten the self-interests of some managers within the
organization. A change might diminish their power or
influence within the company, so they fight it.
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 Understanding Resistance to Change
• People resist change because of:
– Different perceptions: A manager may make a decision
and recommend a plan for change on the basis of her
own assessment of a situation. Others in the
organization may resist the change because they do not
agree with the manager's assessment or perceive the
situation differently
– Feelings of loss: Most people resist any change that
might adversely affect social relationships. Other
intangibles threatened by change include power, status,
security, familiarity with existing procedures, and self
confidence.
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 Overcoming Resistance to Change
• Methods of handling resistance
Kotter and Schlesinger have suggested six major
methods to deal with the resistance to change
realizing the causes, sources, types and
implications of resistance to change:

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 Education and Where people lack information or have inaccurate
communication information and analysis of the situation

Participation and Where all the information needed to design the change is not
Involvement available, and where others have considerable power to resist

Facilitation and Support In situations where people are resisting because they
have adjustment problems

There are chances of someone or some group losing out in a

Negotiation and change, and where that group has considerable power to resist
Agreement

Manipulation and Co- Situations where other tactics will not work, or are too
optation expensive

Explicit and Implicit Where sped is essential and the change initiators
coercion possess considerable power
 Areas of Organization Change
• Change can involve virtually any part of an
organization.
• In general, most change interventions involve
organization structure and design, technology and
operations, or people.
• The most common areas of change within each of
these broad categories are listed in the Table 18.1.
• In addition, many organizations have gone through
massive and comprehensive business process
change programs.
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 Table 18.1 Areas of Organization Change

Organization Structure People

and Design Abilities and skills
Job design Performance
Departmentalization Perceptions
Reporting relationships Expectations
Authority distribution Attitudes & Values
Coordination
mechanisms Technology and
Operations
Line-staff structure
Information technologies
Overall design
Equipment
Culture
Work processes
Human resource
Work sequences
management
Control systems 17
 Changing Business Process

• Business process change, or reengineering. is the

radical redesign of all aspects of a business to
achieve major gains in cost, service, or time

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 Changing Business Process
• Approaches to Reengineering:
– Figure 9.3 shows general steps in changing business processes,
or reengineering.

Develop goals and a strategy for

reengineering effort

Emphasize top management’s commitment

to the reengineering effort

Create a sense of urgency among members

of the organization

Start with a clean slate; in effect, re-create

the organization

Optimize top-down and bottom-up

perspectives 19
 Changing Business Process
• Approaches to Reengineering:
– The first step is setting goals and developing a strategy
for the changes. The organization must know in advance
what new business processes are supposed to
accomplish and how those accomplishments will be
achieved.
– Next step, top managers must begin and direct the
reengineering effort.
• If a CEO simply announces that business process change is to
occur but does nothing else, the program is unlikely to be
successful.
• But, if the CEO is constantly involved in the process,
underscoring its importance and taking the lead, business
process change stands a much better chance of success.
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 Changing Business Process
• Approaches to Reengineering:
– Third, People in the organization must see the clear and
present need for the changes being implemented and
appreciate their importance. Most experts also agree that
successful business process change is usually
accompanied by a sense of urgency.
– Fourth, most successful reengineering efforts start with a
new, clean slate. Business process change usually starts
by asking questions such as how customers are best
served and competitors best neutralized. New approaches
and systems are then created and imposed in place of
existing ones.
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 Changing Business Process

• Approaches to Reengineering:
– Finally, business process change requires a careful
blend of top-down and bottom-up involvement.
– On the one hand, strong leadership is necessary, but too
much involvement by top management can make the
changes seem autocratic.
– Similarly, employee participation is also important, but
too little involvement by leaders can undermine the
program's importance and create a sense that top
managers do not care.

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 Organizational Innovation
• Innovation
–A final element of organization change is
innovation.
–Innovation is the managed effort of an organization
to develop new products or services or new uses
for existing products or services.
–Innovation is clearly important because, without
new products or services, any organization will fall
behind its competition.

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 Organizational Innovation
• The Innovation Process: The organizational innovation process
consists of developing, applying, launching, growing, and managing
the maturity and decline of creative ideas. This process is depicted in
Figure 18.4.

Development Application Launch

Organization evaluates, Organization uses developed Organization introduces new

modifies, and improves on a idea in design, manufacturing, products or services to the
creative idea or delivery of new products, marketplace
services, or processes.

Decline Maturity Growth

Demand for an innovation
decreases, and substitute
innovations are developed
and applied.
Most competing organizations Demand for new products or
have access to the idea. services grows.
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 Forms of Innovation
• Radical Innovation
–A new product, service, or technology developed by an organization
that completely replaces the existing product, service, or technology
in an industry.
–Radical innovation fundamentally changes the nature of competition
in an industry.
–For example, compact disk technology replaced long-playing vinyl
records, DVDs have replaced videocassettes.
• Incremental Innovation
–A new product, service, or technology that modifies an existing one.
–Incremental innovation does not significantly affect competition in
an industry.
–For instance, each new generation of the iPhone and the iPod
represents relatively minor changes over previous versions.

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 Forms of Innovation
• Technical innovation
–A change in the physical appearance or performance of a product
or service, or the physical processes through which a product or
service is manufactured.
–For example, the serial replacement of the vacuum tube with the
transistor, of the transistor with the integrated circuit, and of the
integrated circuit with the microchip has greatly enhanced the
power, ease of use, and speed of operation of a wide variety of
electronic products.
• Managerial innovation
–A change in the management process by which products and
services are conceived, built, and delivered to customers.
–For instance, business process change or reengineering represents
a managerial innovation.

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 Forms of Innovation
• Product innovation
–A change in the physical characteristics or performance of
existing products or service or the creation of brand-new
products or services.
–Sony produces digital camera

• Process innovation
–A change in the way a product or service is
manufactured, created, or distributed.
–The implementation of robotics is a process innovation.

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 The Failure to Innovate
• Reasons for Failing to Innovate
• Lack of resources: If a firm does not have sufficient money
to fund a program of innovation or does not currently
employ the kinds of employees it needs to be innovative, it
may lag behind in innovation.
• Failure to recognize opportunities: If organizations are not
skilled at recognizing and evaluating opportunities, they
may be overly cautious and fail to invest in innovations that
later turn out to be successful for other firms.
• Resistance to change: Innovation means giving up old
products and old ways of doing things. These kinds of
changes can be personally difficult for managers and other
members of an organization. Thus, resistance to change28
can slow the innovation process.
 Promoting Innovations in Organizations
• Three specific ways for promoting innovation
• The reward system: The idea is to provide financial and
nonfinancial rewards to people and groups who develop
innovative ideas. Once the members of an organization
understand that they will be rewarded for such activities,
they are more likely to work creatively.
• Organizational culture: A well managed culture can
communicate a sense that innovation is valued and will be
rewarded and that occasional failure in the pursuit of new
ideas is not only acceptable but even expected. E.g., firms
such as Apple, Google, Nintendo, Nokia, Sony, Walt
Disney, have strong, innovation-oriented cultures
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 Promoting Innovations in Organizations
• Intrapreneurship in larger organizations:
– Intrapreneurs are similar to entrepreneurs except that
they develop a new business in the context of a large
organizations.
– There are three intrapreneurial roles in large
organizations, such as, the inventor, the product
champion, and the sponsor.
– To successfully use intrapreneurship to encourage
creativity and innovation, the organization must find one
or more individuals to perform these roles.

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