15.2 Change Management

Discuss change management as it functions in organizational behavior

Why is change management a topic in organizational behavior? Organizations need to be able to adapt to different market conditions and customer needs—and it seems as though those kinds of changes are happening every day. When an organization isn’t flexible, another business will swoop in and take those customers—and those profits—away.

But change management is definitely a behavior. Organizations don’t have to change—people have to change. And that’s what change management is all about.

Managers at an organization need to recognize problems as they occur and adjust their processes accordingly to solve for them. Good change management skills make this an easier process.

Learning Outcomes

• Describe forces of change
• Describe types of change
• Discuss ways an organization can be resistant to change
• Analyze models and process for change management

Forces of Change

The art of progress is to preserve order amid change and to preserve change amid order.

—Alfred North Whitehead

Alfred North Whitehead was a philosopher and mathematician, but, with that kind of insight on the subject of change, he could have been a CEO. Today’s business leaders have to worry about addressing customer needs in a fast-paced environment impacted by social, economic, political and cultural shifts. In today’s business environment, the ever-looming presence of change is pretty much the only thing that stays the same.

The problem is, no one likes change.

Organizations and their managers have to learn how to anticipate and implement change effectively. Managers need to find ways to overcome their employees’ natural aversion to change, because managing change effectively can mean the difference between staying in business and becoming irrelevant to their customers. The first step in managing change effectively is to understand what change is and where it comes from.

Organizational change is the transformation or adjustment to the way an organization functions. Organizations adjust to small changes all the time, possibly looking to improve productivity, responding to a new regulation, hiring a new employee, or something similar. But on top of these little adjustments we make at work all the time, there are larger pressures that loom over us, like competition, technology, or customer demands. Those larger pressures sometimes require larger responses.

What forces create these changes?

External forces are those changes that are part of an organization’s general and business environment. There are several kinds of external forces an organization might face:

• Demographic. A changing work demographic might require an organizational change in culture. For instance, Avon built and grew their business around door-to-door cosmetic sales, with the stay-at-home wife and mother as their primary front line employee. When more women entered the workforce in 9-to-5 jobs, Avon had to shift gears and find new ways to get their products in front of their customers.
• Social. Changing social trends can pressure organizations into making changes. Consumers are becoming more environmentally conscious, a trend which has pushed fast food restaurants to replace Styrofoam containers with paper. Manufacturers of cleaning products changed product formulas to omit phosphorus and other environmentally threatening chemicals. Tobacco companies have buckled under the changing image of smokers, the dangers of their products, and some have started looking into eCigarettes and other smoking alternatives to stay in business.
• Political. Government restrictions often force change onto organizations. This can be something as simple as a change in minimum wage for employees, or as complex as rules and restrictions governing fair competition in business. For instance, when the Affordable Health Care act was put into place, businesses had to change their operations and put steps into place to confirm that all employees had healthcare coverage to comply with the new law.
• Technology. Still have your VHS player? The founder of Blockbuster wishes you did. Technological changes can make or break a business. Whether new technology is introduced industry-wide, as when the laser was introduced to modern medicine, making surgeries easier and safer; or when it’s introduced to end users, as when consumers stopped renting videos to enjoy the cheaper, more convenient streaming services like Netflix, organizations must change to accommodate new technologies or suffer the consequences.
• Economic. During the 2008 recession, consumers lost their jobs and cut back on their spending. These economic downturns had a major impact on businesses. Banks failed. General Motors and Chrysler filed for bankruptcy. Survival meant adapting to change. Companies like Lego, who experienced stagnant U.S. sales during this time, took the opportunity to build their markets in Europe and Asia. Netflix realized the potential of providing in-home entertainment to families that had cut back their entertainment budgets and grew their subscriptions by 3 million subscribers in 2009 alone. Meanwhile, in the midst of spiking fuel prices, gas guzzling Hummers were no longer en vogue and quietly went out of business.

Companies can also experience internal forces of change, which can often be related to external forces, but are significant enough to be considered separately. Internal forces of change arise from inside the organization and relate to the internal functioning of the organization. They might include low performance, low satisfaction, conflict, or the introduction of a new mission, new leadership.

Practice Question

https://assessments.lumenlearning.com/assessments/14003

Low performance within an organization must obviously be addressed with change that facilitates higher performance. When low performance yields low quality or inefficiencies, customers complain and organizations need to change.

Harley-Davison’s Beginnings1

Perhaps one of the most famous examples of a company that overcame this situation is Harley-Davison. In 1980, no one wanted a Harley. They were a poor quality bike that even leaked oil on the showroom floor. Their parent company, AMF, couldn’t find a buyer for them, and thirteen Harley managers ended up buying the company.

Dramatic changes were needed, and the new CEO approached them with top-down authority. First, they laid off 40% of the workforce—salaried and hourly alike—and the remaining employees took a 9% pay cut. Their design team built the Evolution Engine and, coupled with the sleek design of their new Softail product line, sales started to improve. Perhaps most significantly, they developed the HOG (the Harley Owners Group) as a way to communicate with their customers. Operating improvements were made, and dealers started looking at Harley as a dependable partner. When they went public in 1986, underwriters were shocked that their IPO raised $25 million more than expected.

Facebook’s Mission Statement2

Companies often respond to external forces by taking on new missions and new leaders. Facebook’s original mission statement was “Making the world more open and connected.” CEO Mark Zuckerberg spent much of 2017 coming under fire for scandals (including accusations of data breaches and the potential of Facebook influencing the 2016 US election).

As the world continued to divide, he led the company in unveiling a new mission statement. That statement, “Give people the power to build community and bring the world closer together,” was accompanied by the release of new group management tools within the application and a goal to help a billion people join new communities. Zuckerberg also acknowledged that Facebook is no longer a simple platform that connects friends and families, but instead a powerhouse that can have significant influence on individuals and how they interact with the world.

Lowe’s new CEO3

When a company brings on a new CEO, that’s often an internal force for change. In July of 2018, Home Depot veteran Marvin Ellison became the CEO of the faltering Lowe’s, a competing big box home improvement retailer. In his first months as CEO, he set out to improve store productivity and customer service in the stores, closed a division of smaller Lowe’s stores and eliminated $500 million in capital projects to free up cash to return to shareholders. He also let go the company’s Chief Financial Officer and Chief Operations Officer. No doubt, the company was reeling over the changes, but it might prove just what they need to get back on track. Time will tell.

More often than not, these forces of change are outside of an organization’s control, but, without exception, they all must be managed if an organization is going to be successful. In the next section, we’ll take these forces of change and dissect them a little bit more, so we can get a better understanding of how we can successfully manage them.

Types of Change

Now that we understand the internal and external forces for change, we can look a little deeper into those changes and define them by type in order to get a better understanding of them.

Planned and Unplanned Change

To start, there are planned changes and unplanned changes. That might not sound very significant or overwhelmingly important, but the distinction is definitely worth pondering. Planned change is a change that occurs when managers or employees make a conscious effort to change in response to a specific problem. An unplanned change occurs randomly and spontaneously without any specific intention on the part of managers or employees of addressing a problem.

Obviously, when change is planned, like a new information management system or a different accounts payable procedure, change management can also be planned to minimize employee resistance. When an unplanned change occurs, like a sudden economic downturn or a shortage of resources, managers are taken by surprise and adaptation may not be as organized.

Evolutionary and Revolutionary Change

Evolutionary change is gradual and incremental. The stages of change are often so small that those affected don’t even recognize the shift, or they do and they’re able to adjust their work and processes a little at a time. Evolutionary change can be planned or unplanned. An example of unplanned evolutionary change might be the example we used earlier of Avon adapting to women entering the 9-to-5 workforce. It didn’t happen overnight, just a little at a time, until Avon realized they had a shortage of “Avon ladies” and needed to find new ways to reach consumers.

Planned evolutionary change, or convergent change, is the result of specific and conscious action to make changes in an organization. For instance, an organization might decide that their customer service department could operate more efficiently with 10 percent less staff. They may opt to arrive at that smaller number of customer service representatives by attrition rather than by layoff, knowing that turnover in the department is relatively high and they’ll be at their desired staffing levels within 18 months.

Convergent change happens all the time within organizations, as managers tweak and adjust processes to make their departments and the company more profitable. Often during convergent change, managers look to ensure employees continue to follow the existing mission and core values of the organization. This, unfortunately, can lead to complacency. For example, IBM fell victim to complacency as their managers dictated the norms of competition. They found out quickly that their fine tuning couldn’t keep them competitive when personal computing started to take off and other organizations had a better handle on the consumer and the market.

Revolutionary change, or frame-breaking change, is rapid and dramatic. It, too, can be planned or unplanned. A planned revolutionary change might mean dramatic changes to an organization’s staffing, structure, or procedures.

Lowe’s CEO4

Remember that when Marvin Ellison was appointed as Lowe’s CEO in 2018, he made drastic changes in his first weeks. He immediately set out to eliminate capital projects, divest the company of multiple smaller locations, and he showed his chief financial officer and chief operations officer the door.

This, no doubt, led to an organizational restructuring in the finance and operations department, as well as the reassignment or layoffs of people working on the capital projects and supporting the smaller locations. The change was revolutionary because it was needed to improve Lowe’s lackluster performance and keep them competitive with Home Depot and other competitors.

Innovation can often lead to revolutionary change inside or outside an organization. Innovations like the cell phone have created revolutionary change within the industry, both for those that produce the products (like Apple and Samsung) and for those that are struggling a little bit more now that they’ve arrived (like long distance providers).

Practice Question

https://assessments.lumenlearning.com/assessments/14004

What Changes?

These changes can affect four elements within an organization:

• Technology. Changes in the way inputs are transformed into outputs, such as machinery, work processes, delivery of goods and services to clients.
• Product or service. Changes in the product or services delivered to customers, such as new product, improved products, customized products.
• Administration and management. Changes in how companies are organized and managed, including changes in mission, structure, policies, etc.
• People or human resources. Changes in employee behaviors, skills, and attitudes, as well as personnel changes.

A change in one of these elements might be significant, but that change in one area will often affect other elements. For instance, if a company develops new features for the phone app that controls your thermostat, employees may have to be trained on that technology, and a new area of focus may have to be created on the organizational structure to support the new focus.

No matter how you define it, change is almost always met by some resistance. It’s human nature to want things to remain status quo, because change often means the stress of new, uncharted territory, more work, and less confidence. Let’s take a look at different types of employee resistance and how that resistance can be managed.

Resistance to Change

There’s no chance that the iPhone is going to get any significant market share.

— Steve Ballmer, Microsoft CEO, 2007

Contemplate that quote for a moment, and then decide for yourself how much resistance to change can cost an organization.

There are similar examples that are equally as hilarious. Henry Ford’s lawyer told him that the automobile was a fad but the horse was here to stay. Movie mogul Darryl Zanuck tossed aside the idea of television, sharing his opinion that the world would tire of “staring at a plywood box.” Their resistance to change may have proven a bit short-sighted.

Ultimately, change is stressful, and people avoid it because they want to avoid the pain, anguish, frustration and lack of confidence that goes along with it. Even a positive change, like a promotion, can be met with stress as the employee marches into their own new and uncharted territory. Even minor changes can require a brief adjustment period, but large-scale changes can take a long time to adjust to.

Resistance to change is as much an organizational and group issue as it is an individual issue.

Organizational Resistance

Organizational inertia is the tendency for an organization as a whole to resist change and want to maintain the status quo. Companies that suffer from inertia become inflexible and can’t adapt to environmental or internal demands for change. Some of the signs that organizational inertia is in play are through internal power struggles, poor decision-making processes and bureaucratic organizational structures.

Organizational cultures and reward systems can foster resistance or acceptance of change. A culture that promotes high levels of trust and cooperation lays the foundation for employees and their acceptance and instigation of change. If employees are punished for honest mistakes, if new ideas aren’t rewarded, and managers aren’t prepared for daily issues with proper training, then that organization is ripe for change resistance.

The timing of change can also play a role in organizational inertia. If the organization is still recovering from a large-scale change in organizational structure, that would not be the time to introduce a new information management system. Employees will be likely to resist the change and turmoil that goes along with a second change. Thinking about the order and timing of a planned change can help managers avoid employee resistance.

Group Resistance

We talked about groups in an earlier module, and we learned that when groups start to work well together, it’s because they’ve established norms and cohesion. Central norms in a group can be difficult to change, because they involve the group’s identity. Any change to them is likely to be resisted, as group members will work to protect each other and preserve the group. If a group is used to practicing centralized decision making and suddenly they’ve been told to use a decentralized style of decision making, they’re likely to resist, because it goes against their norm.

Group cohesion can affect the acceptance of change. If a cohesive group has been disbanded in favor of a different kind of team structure, the group’s desire to stick together may make them resistant to change. But just as group cohesion can work against change, it can also work for change. A cohesive group looking to implement change can typically overcome any one individual member’s resistance to it.

Individual Resistance

People resist change because they fear the consequences. Change means learning new habits and facing new situations. Learning new skills comes with the uncertainty of being able to master those skills. It’s easy to see why change can seem threatening. Furthermore, if individuals sense that there will be economic insecurity or risk regarding the change, or if they don’t trust management, this could further add to the resistance.

Sometimes, individual traits can make one change resistant. Culture, personality and prior experiences can contribute to one’s level of acceptance where change is concerned.

Practice Question

https://assessments.lumenlearning.com/assessments/14005

How to Encourage Change

That’s a lot of resistance to change. If organizational inertia, group resistance and individual resistance can get in the way of initiating positive or necessary change, how can managers make sure that they minimize change resistance and do the right thing for the organization?

Here are some ideas and tactics that can help:

• Education and communication. If there is fear of the unknown, organizations shouldn’t compound that with a lack of information. Face-to-face meetings, newsletters, and updates can often help reduce those fears. A disadvantage of this, though, is the ability to communicate to manage change effectively to large numbers of people.
• Participation and involvement. People who participate in change are less likely to resist it. Managers can involve employees in the change process, creating ownership around it that minimizes resistance. The disadvantage of this approach is that it’s somewhat time-consuming and managers do have to relinquish some control over change implementation.
• Facilitation and support. Facilitation and support require active listening and counseling. These methods can be highly effective when dealing with individual resistance, but are time-consuming and run a high risk of failure.
• Negotiation and agreement. This approach recognizes the role and power of others in the success of the change effort. Trade-offs and incentives are offered in exchange for acceptance. This is a relatively easy way to deal with resistance but can be expensive and lead to more negotiation.
• Manipulation and cooperation. Changing employees’ focus and attention to other issues can be a quick and easy way to minimize resistance to change, but it can lead to mistrust and resentment on behalf of those manipulated.
• Explicit and implicit coercion. If there’s no time and no choice, managers can rely on force to push past change. This method is quick and effective, but it doesn’t build commitment.

Practice Question

https://assessments.lumenlearning.com/assessments/14006

Managers can implement change successfully by using a combination of these methods. Understanding the source of resistance is helpful. But none of the solutions above deal with organizational inertia, which requires a broader set of organizational activities. We’ll talk about that, but first, let’s focus on models and processes for introducing planned change.

Models of Change Management

Navigating change is a constant organizational issue, whether it’s on a small or large level. When it’s planned change, managers can stay ahead of change resistance and create a calculated plan to put change in place. There are several models and processes for managing organizational change. Let’s take a look at them now.

Lewin’s Three-Step Model

Kurt Lewin, a researcher and psychologist we studied earlier when we talked about leadership styles, proposed that successful change in an organization should be conducted in three steps: unfreezing, movement, and refreezing.

In the “unfreezing” process, the equilibrium state can be unfrozen in one of three ways. The driving forces, which direct behavior away from the status quo, can be increase. The restraining forces, which hinder movement from the existing equilibrium, can be decreased. Or, managers can put a combination of the two to use.

The second part of the process, “movement,” is the actual implementation of change. New practices and policies are implemented.

In the third step, “refreezing,” the newly adopted behaviors and processes are encouraged and supported to become a part of the employees’ routine activities. Coaching, training and an appropriate awards system help to reinforce.

Lewin’s model of change has four characteristics:

• It emphasizes the importance of recognizing the need for change and being motivated to implement it.
• It acknowledges that resistance to change is inevitable.
• It focuses on people as the source of change and learning.
• It highlights the need to support new behaviors.

Kotter’s Eight Step Plan for Implementing Change

John Kotter, whom we studied earlier when we talked about the difference between managers and leaders, embellished Lewin’s three step model into a more detailed eight step model.

Kotter studied all of the places where failures could occur in Lewin’s model. Kotter recognized that several things needed to be added in:

• a sense of urgency around change
• a coalition for managing the change
• a communicated vision for the change
• the removal of obstacles to accomplishing change
• the continued pursuit of change in spite of apparent victory
• an anchoring of the changes into the organization’s culture

His revised eight steps of change are as follows:

Kotter expanded Lewin’s “unfreezing” step with his first four recommendations. His steps five, six, and seven correspond with Lewin’s “movement” stage and step eight is parallel with the “refreezing” process.

Nadler’s System Model

David Nadler, an American organizational theorist, proposed a system model that suggests that any change within an organization has a ripple effect on all the other areas of the organization. He suggests that, to implement change successfully, a manager must consider four elements:

• Informal organizational elements: communication patterns, leadership, power
• Formal organizational elements: formal organizational structures and work processes
• Individuals: employees and managers, and their abilities, weaknesses, characteristics, etc.
• Tasks: assignments given to employees and managers

In accordance with a systems view, if a change impacts one area, it will have a domino effect on the other areas.

As an example, a company may put out a new travel and entertainment policy. That policy, a formal organizational element, has an impact on information organizational elements, individuals and tasks. A new CEO joins and creates changes throughout the organization, impacting items at every level.

Ultimately, though, outputs are positively impacted. The travel and entertainment policy minimizes work processes and saves the company money. The CEO increases shareholder value.

Action Research

Action research is a change process based on systematic collection of data and then selection of a change action based on what the analyzed data indicate. The process of action research consists of five steps, very similar to the scientific method:

In the diagnosis stage, information is gathered about the problem or concerns. During analysis, the change agent determines what information is of primary concern and develops a plan of action, often involving those that will be impacted by the change. Feedback includes sharing with employees what has been discovered during diagnosis and analysis with the intent of getting their thoughts and developing action plans.

Finally, there is action. Employees and the change agent (this is a person who champions and sees change management from start to successful finish) carry out the actions required to solve the problem. Then, the final step is evaluation, where the action plan’s effectiveness is reviewed and, if necessary, tweaked for better performance.

This approach is very problem focused, where many people approach a problem with a more solution-centered outlook. It also minimizes resistance to change because it involves affected employees all along the process.

Organizational Development

Remember earlier when we said that these models for change don’t usually solve for organizational inertia? To a certain extent, organizational development addresses that. Organizational development is a collection of planned-change interventions, built on humanistic-democratic values, that seeks to improve organizational effectiveness and employee well-being.

The guiding principles of organizational development are:

• Commitment to long-lasting change
• Humanistic approach
• Action research tools
• Focus on process

Organizational development requires the organization to invest a good deal of time and research and it isn’t as much a fix for organizational inertia as it is a prevention of it. Some of the techniques and interventions employed by organizational development departments include the following:

• Sensitivity training. This is training that seeks to change behavior through unstructured group interaction. The objective is to provide subjects with increased awareness of their own behavior and how others perceive them, to facilitate better integration between individuals and organization.
• Survey feedback. The use of questionnaires to identify discrepancies among member perceptions, with discussion and remedies following.
• Team building. High interaction among team members to increase trust and openness.
• Intergroup development. These are efforts to change the attitudes, stereotypes and perceptions that groups have of each other.
• Appreciative inquiry. This process seeks to identify the qualities and strengths of an organization, on which performance improvement can be built. The inquiry usually involves strategizing with employees on performance improvement and “future state” ideals.

Crisis Management

Crisis management is really just the management of unplanned change. When managers unsuccessfully anticipate their competitor’s next move or don’t accurately read the environment, a crisis can occur. It can also occur as the result of organizational inertia.

Crisis management can be avoided by keeping the organization healthy. That is, not allowing it to become inflexible, infusing a certain amount of conflict in order to stave off complacency, and keeping innovation fresh by encouraging experimentation and bringing in new people with new ideas.

Please note that this is not referring in any way to a public relations crisis. “Crises” like Volkswagen’s issue covering up their vehicles’ excessive emissions, or Les Moonves’ poor judgement with the opposite gender at CBS, are a different kind of animal altogether and not what we’re talking about here.

Practice Question

https://assessments.lumenlearning.com/assessments/14007

Organizations that can anticipate change, minimize resistance and come out on the other side are far more likely to be successful. Almost always, those companies that suffer from poor change management suffer the consequences financially, often leading to the organization closing its doors. In the next section, we’ll take a look at a few companies that faced change, the decisions they made, and how it worked out for them.