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Final paper 7pages due in 48 hours

Final Paper

Think of an organization you have worked for or one with which you are very familiar. Diagnose the need for change and present a plan to transform the organization, utilizing Kotter’s 8-Step Approach. You will need to research the Kotter 8 Step Change Model extensively. You are encouraged to first review the

Kotter’s Eight Step Leading Change Model (Links to an external site.)

article. You may select any organization or department where you work or where you have previously worked; however, you are strongly encouraged to diagnose one problem area in the company. Attempting to diagnose an entire company is not feasible, and you will become bogged down.

If you choose a company similar to Walmart to analyze, select just one area that you think needs improvement. For example, Walmart is now very strong in online shopping, yet there are still glitches in the system. Delivery times are often late, the packaging method has problems, and some products come from unknown vendors that Walmart does not guarantee. We may know this from personal experience, but that is not enough. Statements, opinions, and experiences must be supported with valid sources. There are many articles online that you can review easily and quickly.

Your sources for this paper must include research for the company you choose, a valid source for the Kotter model, and your textbook. You are encouraged to read as many articles as you can find and contact the Ashford librarians for guidance. There is bias, missing or incorrect information, and contradictory material in most Internet material. The amount of material can be confusing, but wade through it and question everything.

Include the following sections headings and additional sections as needed:

1. Introduction

2. Company Overview

3. Diagnosis

4. Kotter’s 8-Step Approach

5. Conclusion

The Final Paper

for the course must be submitted to the instructor by 11:59 p.m. of the time zone in which you reside on the last day of the class.

Writing the Final Paper

The Final Paper

· Must be seven double-spaced pages in length (not counting the title page and references) and formatted according to

APA Style (Links to an external site.)

resource.

· Must include a title page with the following:

o Title of paper

o Student’s name

o Course name and number

o Instructor’s name

o Date submitted

· For further assistance with the formatting and the title page, refer to

APA Formatting for Word 2013 (Links to an external site.)

· Must include an introduction and conclusion paragraph. Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper.

o For assistance on writing

Introductions & Conclusions (Links to an external site.)

as well as

Writing a Thesis Statement (Links to an external site.)

, refer to the Ashford Writing Center resources.

· Must address the topic of the paper with critical thought.

· Must end with a conclusion that reaffirms your thesis.

· Must use at least five scholarly sources in addition to the course text.

o The

Scholarly, Peer-Reviewed, and Other Credible Sources (Links to an external site.)

table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source for a particular assignment.

· Must document any information used from sources in APA Style as outlined in the Ashford Writing Center’s

APA: Citing Within Your Paper (Links to an external site.)

guide.

· Must include a separate references page that is formatted according to APA Style as outlined in the Ashford Writing Center. See the

APA: Formatting Your References List (Links to an external site.)

resource in the Ashford Writing Center for specifications.

Required Resources

Text

Weiss, J. W. (2016).

Organizational change (2nd ed.)

. Retrieved from https://content.ashford.edu/

· Chapter 5: Adapt & Rejuvenate: Agile and Learning Organization

Multimedia

Her Campus Media. (2011, July 10).

Malcom Gladwell on innovation (Links to an external site.)

[Video file]. Retrieved from http://www.youtube.com/watch?v=wg0Zg8-2_Jo

· This video will assist you in your Partnerships discussion forum this week. This video has closed captioning and a transcript.

Accessibility Statement (Links to an external site.)

Recommended Resource

Article

Tanner, R. (2018, May 20).

Kotter’s eight step leading change model (Links to an external site.)

. Retrieved from https://managementisajourney.com/summary-of-kotters-eight-step-leadin

· This article may assist you in your Final Paper assignment this week.
Accessibility Statement does not exist.
Privacy Policy (Links to an external site.)

8 hours

5 Adapt and Rejuvenate: Agile and Learning Organizations

iStock/Rawpixel Ltd/Thinkstock

Learning Objectives

After reading this chapter, you should be able to do the following:

1. Analyze key traits of successful change leaders.

2. Describe how agile organizations approach change compared to traditional ones.

3. Examine the characteristics, levels, and principles of learning organizations.

4. Explain the relationship between learning and change in organizations, the process a company goes
through to become a learning organization, and the importance of leadership.

5. Summarize the mind-set that both agile and learning organizations must have in the 21st century.

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Introduction

Change is the status quo. Companies the world

over realize that success depends on their ability

to respond to new opportunities and threats as

they emerge, and to keep rethinking their

strategies, structures, and tactics to gain

ephemeral competitive advantages.

—Perry Keenan, Stephanie Mingardon, Harold Sirkin,
and Jennifer Tankersley

Pretest Questions

1. True/False: The traditional leadership traits of decisiveness and composure con-
tinue to rank high in current change leadership models.

2. True/False: Agile organizations tend to have a high tolerance for failure.
3. True/False: A learning organization is holistic, which means it considers how the

entire industry and business market contribute to its specific goals.
4. True/False: Learning organizations respond well to market swings because they can

bring in outside marketing experts to advise them on how to react.
5. True/False: In the 21st century, both agile and learning organizations must accept

that change demands doing things differently.
6. True/False: Tension can actually be a source of energy and renewal for a learning

organization.

Hyundai’s current successes may be surprising to those who know its past. The Korean
automotive company has shed its former image of producing low-quality, “me-too” vehicles—
and the experience of suffering a near collapse in sales in 1998—and replaced it with that of a
$66 billion company that controls 5% of the market today (Holstein, 2013). The company’s cars
have vastly improved and are moving to the top of the list in quality: J. D. Power and Associates
ranked Kia (owned by Hyundai) as number two, behind Porsche, and Hyundai as number four,
behind Jaguar (Levin, 2015).

This change happened by design, not by chance. Hyundai’s skills in design, product launch, and
consumer awareness are credited to its recently implemented product management model. The
company’s overall success is attributed to the fact that it has focused leadership; a dynamic
culture; competitive strategies; high-quality products; innovative design; operational excellence;
shrewd marketing; and an empowered, disciplined workforce.

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Introduction

Chung Mong-Koo, chair of Hyundai Motor Company, assumed leadership in 2000. He succeeded
his father, Chung Ju-Yung, who founded the Hyundai Group. Chung has rejuvenated the
workplace, changing Hyundai’s culture and its overall approach to auto manufacturing. The
company’s redefined culture emphasizes learning and innovation. This focus became clear in
2009, when Chung began recruiting top-level design talent from Germany, Italy, and the United
States (Holstein, 2013) to execute his new design approach: fluidic sculpture, inspired by natural
shapes. The company’s new designers are young and keep an edgier, innovative culture that has
a degree of fearlessness (Levin, 2015).

Chung didn’t make these changes alone. John Krafcik, CEO of U.S. operations, helped Chung
implement new strategies to move the company forward through 2013, which employees
meticulously executed. Hyundai’s workplace culture operates with a mix of Korean superiors
and coordinators who are mostly U.S.-educated and more Westernized than their counterparts
in Seoul. Coordinators help bridge communications between Western and Eastern employees
and in some ways are equals of the U.S. executives for whom they work (Holstein, 2013).

As the company expands its global reach, its major concerns include balancing quality with
production and innovation with sustainable reliability, while maintaining an entrepreneurial
pace in a hypercompetitive environment.

Critical-Thinking Questions

1. What are some competitive advantages Hyundai has shown that have contributed to
its marketplace success?

2. What changes has Hyundai made to evolve from a low-quality, me-too company to a
significant global competitor? (In your answer, refer to concepts in the text as well as
specifics in the opening scenario.)

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Introduction

Introduction: The Road Ahead
We began this text by defining different types of change and showing how organizational
change can be diagnosed, planned, and implemented. In the chapters that followed, strategies
and methods for sustaining change were presented. Here we examine how organizations can
adapt to continuous change by emphasizing innovation, creativity, agility, and learning, as is
the case with Hyundai.

Leading people is a crucial part of whether an organization successfully adapts to continuous
change. Although leaders must facilitate and manage change by articulating clear strategies
and creating flexible structures, they must also create a culture that sustains not only the
“hard” dimensions of change (like strategies, structures, and systems) but also its “soft”
dimensions, which involve motivating and developing people to higher performance levels.
While transformational change happens rapidly and sometimes dramatically, organizations
must also continue to make equally dramatic adjustments to survive and succeed (Paton &
McCalman, 2000). At the same time, developing cultures that attract high-quality talent
involves learning, innovation, and creativity.

Motorola’s 2011 restructuring exem-
plifies this type of continuous inno-
vation and creativity. The company
successfully split from a unified cor-
porate parent into Motorola Solu-
tions, which houses its businesses
that manufacture wireless devices
that are sold mainly to enterprises
and governments; and Motorola
Mobility, which sells cell phones and
set-top boxes to consumers. CEO
Greg Brown has helped engineer
the transformation from cell phone,
cable set-top box, wireless network,
automotive, and barcode scanner
divisions to a pure-play public-safety
LTE, a network technology that offers
high speeds and low lag times over
long distances. (Among other uses, it
provides first responders with valu-
able photos, video, and other infor-
mation via police radios equipped with specially designed smartphones and other devices).
The turnaround involved trimming $500 million in annual operating expenses in 3 years,
changing out 21 of 70 vice presidents, and adding 20% more sales staff (Pletz, 2015).

Organizations that plan, implement, and strive to sustain change must continually adapt
to unforeseen global competition, uneven economic shifts, new technologies, and the rapid
increase of available data. Other challenges may be indirect and less dramatic, such as learn-
ing how best to incorporate recent graduates into the workforce when they may lack certain
skills because educational systems can’t keep pace with changes in the workplace (Marquardt,

AP Photo/Richard Drew

CEO of Motorola Solutions Greg Brown helped Motor-
ola Inc. split into two successful companies, Motorola
Solutions and Motorola Mobility.

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Section 5.1 The Leadership Challenge

2002). Looking ahead, it is nearly impossible to predict the types of adaptations individuals,
leaders, and entire organizations will need to make in order to stay competitive.

5.1 The Leadership Challenge
Different leadership styles and strategies relevant to guiding change have been discussed
throughout the text. These discussions have highlighted that one of the principal challenges
company boards face is finding and developing leaders who can guide their organization
through uncertainty. Effective change leaders must fill new roles, many of which have yet to
be defined.

Successful Change Leaders

Over the past decade, business leaders and psychologists have attempted to identify the qual-
ities of successful change leaders. In a study conducted by the Center for Creative Leadership,
76% of its constituents believed the definition of leadership had already changed, and 91%
believed leaders face increasingly complex challenges. Respondents ranked key traits lead-
ers must have to be successful under these new conditions. Forty-nine percent believed in
the importance of collaboration. They also highlighted change leadership, the ability to build
effective teams, and the ability to influence employees without exerting authority as impor-
tant leadership qualities. More traditional traits such as decisiveness, composure, and finding
ways to get results were ranked low (Martin, 2007).

IBM’s Global Business Services group interviewed more than 1,500 CEOs to analyze the
traits they valued in leaders tasked with managing complex environments. Overall, they
cited creativity as the most important of a CEO’s skills. Digging deeper, they identified seven
approaches exemplified by creative CEOs.

1. A willingness to change business models to meet goals
2. Encouragement of risk taking
3. Openness to out-of-the-box solutions
4. Comfort with ambiguity and experimentation
5. Valuing innovation
6. Decisiveness
7. Inventiveness with new business models (ChiefExecutive.net, 2011)

Creative CEOs share a willingness to change. In other words, these leaders adapt to change
and steer their organizations toward it, rather than clinging to tried-and-true methods of
management.

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Section 5.1 The Leadership Challenge

Vineet Nayar, HCL Technologies Ltd.
Vineet Nayar, vice chair and former CEO of HCL Technologies Ltd. (HCLT), a $3.5 billion global
IT services company based in India, is an example of a creative change leader. Nayar joined
HCLT in 1985 and became president in 2005. He led the company in a complete turnaround
over the following 5 years, expanding from 30,000 to 75,000 employees, tripling revenues,
and doubling market share (HCL Technologies, 2001).

Along with Apple, Google, Lenovo, and Cognizant, HCLT was one of five global technology
firms to reach revenues above $2 billion, with a compound annual growth rate over 30%.
(Flinders, 2010). In his book, Employees First, Customers Second: Turning Conventional Man-
agement Upside Down, Nayar (2010) explains that his leadership approach involves convert-
ing an organizational structure into a transparent, accountable, and value-driven culture.
Under Nayar’s leadership, HCLT has been recognized as one of the best employers with the
most innovative and most democratic workplaces worldwide.

But why redefine leadership away from author-
ity and “doing whatever it takes to get results”?
Given the variety of changes an organization may
encounter and the complexity involved, individual
leaders can no longer serve as ultimate authori-
ties or experts. As noted in Chapter 4, emotion-
ally intelligent leaders and followers have a com-
petitive edge with regard to change, as compared
to more rigid, closed thinking, and closed feeling
professionals. Because effective leaders rely on
employees for information and insight to resolve
complex situations, collaboration and communi-
cation take priority over authority. Today’s lead-
ers create environments in which employees can
share information and propose alternate solu-
tions to problems.

Scott Cook, Intuit
Scott Cook is the cofounder of the software com-
pany Intuit, which creates personal and small-
business finance products such as TurboTax and
QuickBooks. When Cook wanted to revitalize his
organization, he imagined a design-driven model
like Apple. However, he quickly realized that he
was no Steve Jobs, a visionary CEO with the power
to inspire and compel his employees.

Instead, he turned his company upside down, let-
ting the vision come from designers close to the
front lines. He worked with one of Intuit’s design directors to create the Design for Delight
(D4D) forums, which encourage employees to engage problems in new ways. Intuit eventually

AP Photo/Al Behrman

Scott Cook, cofounder of Intuit, revital-
ized his organization by turning his com-
pany upside down. He let the vision come
from designers close to the front lines
rather than from top management.

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Section 5.1 The Leadership Challenge

developed a D4D customer- and design-centered process. It begins with a “painstorm” to
understand real consumer issues and thus better identify ways Intuit can help. These front-
line conversations take place directly with customers.

The team then has a “sol-jam” to generate as many solutions as possible and then develops
prototypes to test what they come up with. Finally, the team has the “code-jam” to quickly get
a product to user testing. From painstorm to testing, the entire process takes 4 weeks and has
yielded some of Intuit’s most popular products, including its highly rated smartphone apps
(Martin, 2011). Now, with Brad Smith as CEO, the firm is included on Fortune’s 2015 100 Best
Companies to Work For list (Fortune, 2015c).

While leaders place increasingly greater emphasis on relationship building and creating open
work environments, the idea of leadership has shifted; it is no longer regarded as a quality
desired only in management. Leadership responsibilities have been pushed down in orga-
nizational hierarchies (Martin, 2007) to enable potential challenges to be identified more
quickly and to compress response times. Another way to describe this shift in expectations
is empowerment. As we discussed in Chapter 4.2, employees are empowered when they are
given more autonomy to make decisions, which is paired with increased responsibility. At
Intuit, the initial D4D facilitators were recruited with the following responsibilities:

Actively participate in a one-day brainstorm/workshop.

Commit to the execution of initiatives generated through the … workshop.

Become a more visible Design for Delight leader across Intuit.

Be a D4D coach/facilitator that the larger company can draw upon. (Martin,
2011, “Recruiting the Innovation Catalysts,” para. 4–7)

These designers were at least one step removed from directorships, meaning they were closer
to the bottom of the organizational hierarchy than to the top. However, they were tasked with
changing the company’s culture and finding ways to more immediately respond to their cli-
ents’ needs.

Jason Kayzar, PhishLine
Jason Kayzar, COO at PhishLine, a social engineering management platform built for informa-
tion security professionals, has a similar mind-set to Cook at Intuit. PhishLine assists Fortune
1000 clients in addressing social engineering threats using risk- and action-based precision
techniques and decision-making processes (Schawbel, 2015). When asked in an interview,
“How do you approach process improvement within your organization?” Kayzar’s quick
answer was “Empowerment” (Schawbel, 2015). He continued:

I have worked in a number of traditional office environments where demo-
cratic rule by committee took the place of leadership. In some ways this can
be a good process, especially if the goal is one of making everyone feel good
but more often than not it slows the process and/or can lead to decision

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Section 5.1 The Leadership Challenge

paralysis. Our business moves at light speed, and is growing in size and scope
accordingly. Our people are smart, and therefore they are empowered to make
many of the process improvement decisions on a daily basis that help move us
closer to achieving our overall goals. We have an internal suggestion process
within our software, so all ideas are captured, catalogued and can be reviewed
by any employee at any time. There are no bad ideas. Many may be rejected,
or added to a future projects list while many others are often implemented
immediately. (Schawbel, 2015)

The following section presents roles, resources, and different ways that organizational devel-
opment consultants provide help to employees.

OD Consultants as Sources of Empowerment

As organizations move from old to new business models, leaders often employ OD consul-
tants. Today many OD consultants view their roles as “educators” or “facilitators” (Rothwell,
Stavros, Sullivan, & Sullivan, 2010) rather than as external experts who present solutions.
This change mirrors evolving leadership roles and organizational cultures.

To recap from Chapter 1, an OD consultant has several goals, including:

• to deeply understand how the various parts of an organization fit together to com-
pose a whole system;

• to communicate that systemic understanding to their clients so that the potential,
organization-wide ripple effects of individual and departmental changes become
clear prior to implementation;

• to facilitate the empowerment of employees so that they constantly aim for improve-
ment and look for creative solutions to problems;

• to consider multiple ideas without judgment and to encourage others to do the
same; and

• to step aside as needed (Rothwell et al., 2010).

An OD consultant may also serve as an executive coach. Organizations hire executive coaches
to advise on complex decisions and individual and/or team skill building aimed at developing
personal and professional performance (Executive Coach Academy, n.d.). These professionals
model the leadership behaviors that flexible and responsive organizations require. They help
establish cultural norms and practices that reflect innovation and change, and then let the
players fulfill their redefined roles, trusting their abilities and the updated processes. In this
way organizations can “learn by doing.”

Organizations are given an opportunity to step back, reflect, and then implement initial
changes under the guidance of a facilitator who eventually exits the process (Rothwell
et al., 2010). As the organization moves forward, its leaders facilitate the same type of
reflective process in whatever new change scenarios arise. An increasing number of
Fortune 500 companies are using executive coaches with OD expertise not only to help
leaders and employees develop new skills, but also to strengthen every part of the orga-
nization, including its productivity, work flow, and well-being, and to increase the bottom
line (McNamara, n.d.).

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Section 5.1 The Leadership Challenge

For example, an organization that plans to move from a hierarchical to a team-based model
may hire an OD consultant to facilitate this shift. Prior to recommending changes, the con-
sultant needs to understand the organization, its leadership, the vision-mission-values and
rationale for desiring the change, the corporate structure, and how various roles fit together.
The consultant would also need to understand individuals’ perceptions of their positions and
how they contribute to the whole. Once the consultant understands the existing system and
the desired outcomes, the shift must be communicated to employees so they understand the
reasons behind the changes and buy in to them.

This process allows OD consultants to gain enough knowledge about an organization to coach
its leaders and managers on how to model new methods of leadership. For example, OD con-
sultants involve employees in the process rather than decreeing change from the C-suite or
the executive team (CEO, COO, CFO, and CIO, or chief information officer).

As changes are implemented, the consultant asks employees for feedback and suggestions and
makes modifications accordingly. Those involved in the change are most likely to understand
what works and what doesn’t, so this reinforces the shift toward employee empowerment.
The OD consultant creates situations in which employees can contribute thoughts that posi-
tively affect outcome. Employees, in turn, take ownership of a process that otherwise would
have been imposed on them. In this way the shift becomes a practical learning experience for
everyone in the company, from the employees up to the CEO; all the OD consultant needs to
do is step aside and let the revised company run itself.

How Leaders Can Develop Employees for Change

There are five emerging trends that impact organizations: globalization, diversity, flexibility,
flattened structures, and networks (Tan, 2015). Globalization and diversity go hand in hand;
organizations now span continents, leading to new challenges of managing in terms of creating
a consistent culture across the organization, communicating effectively, and understanding
local cultures. Organizations attempt to increase flexibility for their workforces by experi-
menting with flexible schedules, alternative compensation packages, and revised reporting
structures.

Instead of highly structured, top-down management hierarchies, decision-making power is
passed to the employee level, flattening layers of management. Rather than communicating
vertically across an organizational chart, employees are encouraged to network laterally and
to work in teams across divisions. Moreover, surveys, discussions, and feedback sessions are
held with teams and employees to obtain information on their need to achieve higher perfor-
mance levels and to yield suggestions that would enhance organizational planned changes.

Cisco Systems designs, manufactures, and sells networking and communication devices
worldwide. The company employs 71,833 people (Yahoo! Finance, 2015). Its vision has
focused on transforming its workplace to “drive employee attraction, retention, productivity
and a perpetual collision of creativity” (as cited in Crandell, 2014), according to Alan McGinty,
senior director of the Global Workplace Solutions Group. The company identified three objec-
tives for its new culture: “Provide different solutions to meet the needs of all types of work,
teams and environments; utilize the company’s own collaborative technology; and have poli-
cies that support workers to work where and when they want to fit their lifestyles” (Crandell,

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Section 5.2 Agile Organizations

2014). To that end, Cisco holds local employee teams accountable for “the health and happi-
ness of their neighborhoods and ensure each employee has an environment that is right for
them” (Crandell, 2014). This is a collective approach to managing people and “is all about
choice and making sure that everyone has ‘more skin in the game’” (Crandell, 2014).

As part of its revitalization, Cisco tran-
sitioned from a centralized model to
a decentralized one because it real-
ized that creative solutions can come
from anyone, and a conventional
pyramid can hinder creative infor-
mation sharing (Useem, 2009). Tech-
nology allowed Cisco to implement a
company-wide communication solu-
tion. It created a “Ciscopedia,” similar
to Wikipedia, for internal use, and the
500 senior managers collaborate lat-
erally to make decisions about prod-
ucts. This leads to faster facilitation
and more localized decision making
and deployment (Useem, 2009).

To some, this may sound utopian. How
can a large organization stay produc-
tive and competitive in these conditions? And how can a hierarchical organization, designed
for stability, reinvent itself ? The key is to develop human capacity within the organization.
Rather than simply executing assigned tasks, employees are asked to contribute ideas and
are recognized for their successes. They take on increasingly creative roles and solve prob-
lems, so they become invested in the organization’s overall success, staying focused on the
big picture and finding ways to meaningfully contribute to the organization’s growth. Moving
forward, leaders and employees are not the only ones that must change; organizations, too,
must transform.

Check Your Understanding

1. Identify some methods that Cisco Systems has adopted to stay competitive in its industry.
2. What are some specific changes organizational leaders can implement to increase employee

effectiveness?

5.2 Agile Organizations
An agile organization is one that can quickly react to changes in the market. This means
that companies can and do successfully respond to new competitors, technologies, and shifts
in the market (BusinessDictionary.com, 2015). Stated another way, agile organizations stay
competitive by identifying and implementing opportunities faster than their competition
(Sull, 2009). Having the ability to respond to changing environments can mean life or death
for an organization. More uncertain, turbulent environments and market changes require
more agility.

AP Images/Chang xu/Imagechina

Cisco changed from a centralized to a decentralized
structure to allow for creative solutions from all lev-
els of the organization, instead of just management.

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Section 5.2 Agile Organizations

Two traditional methods of managing a large-scale enterprise—delegation and
specialization—work well in stable environments. All employees know and understand their
roles, and work flows in a predictable manner. However, when this type of organization faces
a threat, whether from an internal or external source, it often struggles to respond effectively
and rapidly (Reeves, Morieux, & Deimler, 2010). Rather than make an adjustment or try an
alternate process, employees turn to managers for decisions, who in turn look to senior man-
agement. Rapid responses can become lost in a maze of hierarchy.

In a traditional organization, once a threat has been identified, a proposed solution moves up
the chain of command, laterally across divisions, and then down again once a decision is finally
made and is ready to be executed. This process is time-consuming, and, as in a game of tele-
phone, the initial proposal may evolve, perhaps in less productive or efficient ways, in each
subsequent telling as each person reinterprets the suggestion according to areas of expertise,
sometimes adding personal stakes. The individual or team that identified the problem and pro-
posed a solution doesn’t have the decision-making power to execute it and instead must find a
supporter in management. This causes a second problem, in addition to slow response time.

Many organizations that emphasize hierarchy have low tolerance for failure and adopt cul-
tures that favor consensus and obedience (Reeves et al., 2010). In this environment employees

have little incentive to suggest bold solutions or
innovate. They stick to tried-and-true methods
that are sure to be approved by management
rather than attempting to convince multiple lev-
els of hierarchy to take a risk. These organiza-
tions lack flexibility in both process and culture
and therefore struggle to respond to change in
quick and meaningful ways.

When Bob Iger became the CEO of Disney in
2005, he inherited a company that had stag-
nated. It was centralized and hierarchical, due
in part to an ingrained culture in which division
leaders were afraid to make decisions without
the leader’s approval. The company simply could
not respond to new technologies or opportuni-
ties because it lacked the flexibility and freedom
to take small, independent risks that could lead
to new products.

Iger restructured the company and empowered
divisions to make decisions quickly and locally.
The meetings he led changed from directives to
conversations, setting the tone for the rest of the
corporation to engage, ask questions, and listen.
Under Iger, Disney experienced some spectacu-
lar failures, such as the ESPN phone that was
meant for sports fans but never took off. It also
became much more aggressive about acquisi-
tions and launching entire new product lines.

AP Photo/Reed Saxon

When Bob Iger took over at Disney, the
company was stagnant. Iger restructured
the company and empowered divisions to
make decisions quickly and locally, result-
ing in some failures but ultimately herald-
ing a new era of growth and innovation.

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Section 5.2 Agile Organizations

Iger’s success prompted the company to make him chair in March 2012, a title he will hold
until he retires in June 2016 (Smith, 2011).

Agile organizations are similar to the built-to-change firms discussed in Chapter 4.4. They
can quickly adapt and respond to new situations, whether these are opportunities or threats,
because change is already central to their culture and practice. These organizations value
experimentation, communication, decentralized decision making, and modularity.

Modular organizational structures particularly allow divisions to come together and disband
as needed. A temporary and new organizational structure may form to create and launch a
new product. This may include product development, testing, marketing, sales, and customer
service. Once the product is released, the structure can dissolve and each component can join
other projects, so the engineering team that worked on one product may join another while
the sales team continues to add new products to its overall portfolio. In addition to offer-
ing flexibility, modular structures facilitate the transfer of skills and knowledge across the
organization.

Each team learns unique lessons, and when disbanded, individual members can apply their
experiences to new situations. This type of flexibility relies on a relatively flat hierarchy so
that groups don’t compete with each other or report to each other; rather, they meet on equal
footing and exchange ideas.

Responding Rather Than Predicting

Agile organizations are different in that they don’t use in-depth research and analysis to
attempt to predict what will happen. Instead, they watch the market and try to quicken their
response time in situations that require action. For example, the clothing industry has a
6-month production cycle, and organizations typically attempt to predict consumer habits
two seasons into the future. Mistakes are costly, as is the research that goes into making pre-
dictions (Spark, 2011).

One clothing manufacturer, Zara, addressed these challenges by shortening its production
timeline. Instead of trying to research, analyze, design, and manufacture its clothing over the
typical 6-month cycle, it skips the research and analysis stages and focuses on manufacturing
popular, in-season products as quickly as possible and in 15-day cycles. The company simply
observes what people are wearing and produces similar styles. This was a radical shift in its
business model, but one that minimized risk and focused on responding to demand.

Agile organizations face two main challenges: (a) to communicate effectively and (b) to
empower employees to make decisions. Tony Haile, the general manager of Chartbeat, a real-
time web monitoring company, notes that monitoring can only do so much. Companies must
be able to respond in real time, or the information does not help (Spark, 2011).

With a 15-day product-development cycle, Zara employees do not have time to navigate mul-
tiple layers of hierarchy to reach and then implement decisions. Instead, they must take in
new information, make necessary decisions, and dive into implementation. They will quickly
receive feedback on their products and can make adjustments in time for the next 15-day
product cycle.

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Section 5.2 Agile Organizations

As a part of a flattened structure, agile organizations rely on leaders to shape the context
for decision making rather than giving top-down directives, so the emphasis is on guiding
principles rather than strict procedures (Reeves et al., 2010). When employees understand a
company’s values and vision, they can make decisions that align with these overarching goals.

For example, Apple’s mission aims to provide the best and most innovative products in the
world (Investopedia, n.d.). When proposing new products, Apple employees will avoid large-
scale business solutions. Microsoft’s mission, on the other hand, aims to help every person
and organization reach their potential (Microsoft, n.d.), so their products and services target
a different market with specific needs.

The Microsoft Solution Framework (MSF) is another example of how a large business incor-
porates agility into its project management process. The MSF is flexible, allowing develop-
ers to use the software-development approach that works best in a particular situation. This
allows them to quickly produce high-quality technology solutions while using fewer people
and creating less risk, thereby addressing the most common issues related to project failure
(Microsoft Developer Network, 2013).

Influenced by learning organization principles—which are discussed later in this chapter—
the MSF includes mind-sets (attitudes, dispositions, ways of viewing how things work), mod-
els, processes, and disciplines that guide planning and implementation of technology proj-
ects. Teams can produce quality products together once the MSF principles are understood.
The nine foundational principles of the MSF include the following:

1. Foster open communications. Communication is needed for teams to be effective
and efficient. Team members must understand what needs to be done and how to
communicate internally across the company and externally to clients and vendors.
The challenge is determining the appropriate level of information to share with each
group.

2. Work toward a shared vision. Sharing a vision creates empowerment throughout
the team. Team members have the appropriate context needed to make decisions
quickly, since they have clear goals and know how to achieve them. Team members
are also able to fill requirements gaps as they arise.

3. Empower team members. As we saw earlier in the chapter, employee empowerment
facilitates creativity and innovation within a company, allowing it to survive and be
successful. A lack of empowerment creates a low morale and diminishes team mem-
bers’ creativity and the ability to create a high-performance team.

4. Establish clear accountability and shared responsibility. When team members are
empowered, they feel accountable and responsible for a project and are more likely
to work at a higher caliber and provide better quality products and services. Team
leaders should encourage positive growth and responsibility for project tasks. In
this way team members share responsibility for the solution and its deliverables as a
whole, fostering collaboration and motivation.

5. Deliver incremental value. This means that teams should provide deliverables that
are of optimal value to stakeholders and correctly determine at which stages to pro-
vide deliverables, also known as frequency of delivery.

6. Stay agile; expect and adapt to change. Change is inevitable and often occurs at the
most inconvenient times. Because of this, teams must remain flexible and open to
new possibilities. Teams and organizations that are agile can smoothly adapt and
adjust to the disruptions caused by change.

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Section 5.2 Agile Organizations

7. Invest in quality. Many organizations fail to quantify what quality stands for. Success-
ful organizations are able to do so and incorporate this level of excellence into the
solution delivery life cycle.

8. Learn from all experiences. Learning from the past—processes and deliverables that
did and did not work—is imperative to improvement. Team members must embrace
learning at all levels: the project level, such as refining a project-wide process; the
individual level, in interacting with fellow team members; and the organizational
level, by adjusting quality metrics that are collected for a project.

9. Partner with internal and external customers. Collaboration with customers increases
the likelihood of project success. When customers work with the team throughout the
process, valuable feedback can be provided and the solution created will better meet
their needs. This collaboration is mutually beneficial, since it reduces uncertainty and
the time needed to resolve requirement questions and increases the team’s under-
standing of the solution value propositions (Microsoft Developer Network, 2013).

There are more elements to the MSF, including a section on governance and team planning
and implementation roles. The section also reflects the type of mind-sets related to learn-
ing organization principles that Microsoft expects of its leaders, managers, engineers, and
business professionals. Stories of companies that have worked with Microsoft teams pro-
vide examples of how the nine principles work in organizational settings (https://customers
.microsoft.com/Pages/advancedsearch.aspx?mrmcverticals=Hospitality%20&%20Travel).

Learning Agility

Agile organizations’ success depends on the people involved and how comfortable they are
with change. Leaders must be able to adapt to new situations, and one of the predictors of
success in managers and executives is learning agility, or the ability and commitment to
learn from previous experiences to perform successfully in other situations (Lombardo &
Eichinger, 2000). Another phrase for this is leadership versatility (Kaplan & Kaiser, 2006).
In addition to a willingness to change, successful leaders expand their repertoire of strategies
so they have multiple ways to approach each situation.

It can be challenging to identify learning agility as a trait in potential leaders; past perfor-
mance does not necessarily predict future potential. This means that it is impossible to assess
a manager or executive until he or she faces a new situation. It usually takes several trials to
understand how well a leader learns from experience and adapts to new situations.

Learning agility involves practical skills rather than simple intelligence. A leader who can adapt
often will show common sense, strong interpersonal skills, and “street smarts” (Sternberg, Wag-
ner, Williams, & Horvath, 1995). Effective leaders also need to balance humility with confidence
so they can learn from mistakes and continue to grow (McCall, Lombardo, & Morrison, 1988).
Learning requires emotional investment, so the challenges that transform leaders tend to have
high stakes and involve risk. Leaders need to be resilient so they can keep pushing forward.

An example of leadership agility and humility as applied to an organization is Netflix’s CEO
Reed Hastings, who was once touted for being a visionary leader who brought record
growth to his start-up company. Hastings faced harsh criticism in 2011 when licensing
costs for streaming content spiked, leading to a near 60% increase in Netflix’s monthly
rates. Rather than explain the rationale behind the rate hike (of $10 to $15.98 per month),

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https://customers.microsoft.com/Pages/advancedsearch.aspx?mrmcverticals=Hospitality%20&%20Travel

Section 5.2 Agile Organizations

Hastings essentially dismissed it by saying that for most of the company’s consumers, the
price difference amounted to the cost of a latte. Customers criticized Netflix’s arrogance
and lack of concern for its customers and began to switch to other services. This was not the
end of this story.

Hastings apologized several months
later in a message that was sent to all
customers and posted on the Netflix
blog. He said:

I messed up. I owe everyone
an explanation.

It is clear from the feedback
over the past two months
that many members felt we
lacked respect and humil-
ity in the way we announced
the separation of DVD and
streaming, and the price
changes. That was certainly
not our intent, and I offer
my sincere apology. I’ll try to
explain how this happened.
(Hastings, 2011, paras. 1–2)

Hastings then outlined the reasons for the change and his decision to split Netflix into
two companies: one that focuses on streaming video, the other on DVD rental by mail.
This was met with a second round of outrage from consumers who craved a simple, seam-
less experience. Netflix stock, consumer base, and stockholder confidence plummeted by
taking this risk (Sandoval, 2012), but it may have been the only way to save a company
faced with rising licensing costs and a still-evolving market. Hastings learned the impor-
tance of communicating directly with customers, acknowledging mistakes, and continuing
to build toward a positive future with all of the organization’s constituents. Making hard
business decisions does not mean that leaders have to treat customers and employees
disrespectfully.

Experimentation

Agile organizations encourage experimentation. Companies that attempt to vary their prod-
ucts and processes can respond to change more quickly, in part because they’ve established
a culture of innovation. Instead of fearing failure and sticking to the status quo, they test
alternatives and then scale them (Reeves et al., 2010). These experiments add to an agile
organization’s cumulative knowledge, so when new situations arise, it can pull from deep and
varied experience.

Two large-scale agile organizations have consistently outperformed their competitors. The
first is Reckitt Benckiser, the company that owns 17 “powerbrands,” including Lysol, Woolite,

Kyodo via AP Images

Netflix CEO Reed Hastings learned the hard way about
the importance of communicating openly with cus-
tomers when, in 2011, he came under fire for dismiss-
ing concerns about a near 60% rate hike.

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Section 5.2 Agile Organizations

and Air Wick (Mac Iver, 2010), in addition to other smaller brands. CEO Bart Becht described
his four keys to creating a highly successful adaptive (or agile) organization:

1. Ruthless focus
2. Leveling the playing field
3. Encouraging organizational learning
4. Embracing conflict (Mac Iver, 2010)

Ricardo Semler, CEO of Semco Group, has taken more extreme measures in reinventing the
company his father founded. Semco is a democratic organization that engages employees in
all aspects of the business. Employees choose their jobs and salaries, determine the work that
should be done, decide to open or close plants, and actively participate in board meetings. All
employees have access to all company information, and the company trusts them to handle it
appropriately (Mac Iver, 2010).

When Semler first began to chronicle this approach, no one believed he could succeed or cre-
ate a sustainable corporation in the long term. Employees had flexible schedules, so they could
work anytime. What would stop them from arriving late and leaving early? How could work be
completed in this type of environment? Wieners (2004) describes what happened at Semco:

The more freedom [Semler] gave his staff to set their own schedules, the more
versatile, productive and loyal they became, and the better Semco performed.
Nor did he stop with flextime. He did away with dedicated receptionists, org
charts, even the central office—it now resembles an airlines’ VIP lounge, with
people working in different areas each day. He encouraged employees to sug-
gest what they should be paid, to evaluate their bosses, to learn each other’s
jobs, and to tolerate dissent—even when divisive. He set up a profit-sharing
system and insisted that the company’s financials be published internally, so
that everyone could see how the company was doing. (p. 1)

Semler opted for complete transparency and gave his employees both personal and professional
freedom. In return he received more loyalty and higher productivity on a company-wide level.

Whereas Becht focuses on building flexible structures within his organization, giving each
brand independence and institutionalizing experimentation and discussion, Semler empha-
sizes personal connections and investment. In both cases the company’s culture reinforces the
values of an agile organization: experimentation, communication, empowerment, and learning.

Managing Change

The Agile Organization

We all know the story of how the Borders Group was unable to respond in time to keep up
with the Kindle and the Nook. One of the fundamental aspects of business—and one that
relies heavily on the expertise of change managers—is being agile and able to quickly adapt to
consumer demands. Getting any company to turn on a dime is difficult, but it is a necessity in

(continued)

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Section 5.3 Learning Organizations

Check Your Understanding

1. What are characteristics and principles of agile organizations?
2. Can employees learn agility? Explain your response.

5.3 Learning Organizations
Whereas agile organizations move quickly and deliberately, learning organizations take a “big
picture,” reflective approach. Agile organizations can and must adopt learning organization
characteristics and practices to become great. Massachusetts Institute of Technology profes-
sor Peter Senge published a seminal work on organizational development in 1990 called The
Fifth Discipline. In it he introduced the concept of a learning organization, reframing orga-
nizational growth and development in the language of education. This concept remains one
of the most influential and relevant cornerstones of organizational change to date. A learn-
ing organization adapts and evolves at individual and holistic levels, in which individuals
increase their ability to create results, new ways of thinking are cultivated, collective goals
are conceived, and people learn to see the whole organization together (Senge, 1990).

Although this definition has sometimes been criticized for being too abstract and idealistic,
it offers a principled framework by which to exact ongoing, sustainable, and effective change.
Senge (1990) states that real learning is at the heart of being human and is what allows indi-
viduals and organizations to re-create themselves. However, while “survival learning” or

Managing Change (continued)

the modern world. As with other aspects of society, technology has sped up the pace of business
Whether you’re a brand-name snack and soft drink manufacturer responding to the focus
on obesity and healthy eating, a restaurateur responding to customer demand for quicker
service by doing away with paper tickets, or a doctor responding to technological advances
by using a tablet during appointments to research and electronically submit prescriptions—
agility is a business imperative for competitive advantage.

Just as it takes the right ingredients to make any business work, it takes the right
combination of leadership, strategy, culture, and employee initiative to achieve agility. All
companies must grow, but agility is the ability to do it quickly while not compromising the
core of the business.

Discussion Questions

1. How can organizations best address customers’ needs and preferences?
2. How can organizations be managed for continuous improvement?
3. What are some agile practices that individual customers want from organizations?
4. What needs might organizations meet that users haven’t yet thought of ?

(See the end of the chapter for possible answers.)

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Section 5.3 Learning Organizations

“adaptive learning” is necessary, it must be used in conjunction with “generative learning,”
which enhances the ability to create.

Senge (1990) stated that the process of learning in an organization involves transforming
every experience into valuable knowledge that is accessible to all employees and is relevant
to the organization’s mission. This aligns closely with the adaptive organizations previously
described. Both Becht and Semler emphasize the importance of transferring knowledge across
their organizations, whether by moving people, configuring teams as needed, or encouraging
employees to try other positions.

The following is a helpful checklist that all leaders and followers can use to overcome old
habits and resistance to change and to facilitate real learning:

1. Are you willing to examine and challenge your “sacred cows” [things you value so
highly that you believe they cannot or should not be criticized]?

2. What kinds of structures have you designed [that you would be open to have exam-
ined for effectiveness and efficiency]?

3. When people raise potentially negative information, do you “shoot the messenger”?
4. Does your organization show capabilities it didn’t have before?
5. Do you feel as if what you know is qualitatively different, “value-added” from the

data you took in?
6. Is the knowledge accessible to all of the organization’s members? (Senge, Kleiner,

Roberts, Ross, & Smith, 1994, p. 49)

Learning organizations assume “learning is valuable, continuous, and most effective when
shared and that every experience is an opportunity to learn” (Kerka, 1995, p. 3). Some con-
ceptions of learning organizations are that they:

• provide continuous learning opportunities;
• use learning to reach their goals;
• link individual performance with organizational performance;
• foster inquiry and dialogue, making it safe for people to share openly and take risks;
• embrace creative tension as a source of energy and renewal; and
• assure that the learning organizations are continuously aware of and interact with

their environment (Kerka, 1995).

Harvard University professor David Garvin (1993) stated that a learning organization is
skilled in generating, obtaining, and sharing knowledge and changing its behaviors to reflect
what it learns. This definition implies that change occurs in the way work gets done. Garvin’s
definition fits with current change in organizations that focuses on innovation, knowledge
management, and IT.

Garvin (2000) points to L. L. Bean as a learning organization because of its skill in acquiring
knowledge, which in turn leads to behavioral changes within it. Rather than following the
traditional model of conducting market research through surveys to discover potential prod-
uct needs and areas of improvement, L. L. Bean turned to customers who rigorously used its
products and recruited them as testers. Field tests lasted for 3 months, and testers received a

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Section 5.3 Learning Organizations

product from L. L. Bean and one from a competitor so they could compare the two over an
extended period of time.

Although L. L. Bean only required feedback at three
points (beginning, middle, and end), it encouraged
additional touch points over the course of the testing
cycle. In the case of the Cresta Hiker, a failing product
line, L. L. Bean sent designers, marketers, and suppliers
along with the testers for an intensive and immersive
learning experience. Designers could apply feedback
from a live field test to new prototypes, which could
then be retested. Marketers and suppliers also had
firsthand experience with the product.

After a redesign and subsequent relaunch, the Cresta
Hiker ended up with an 85% increase in sales. L. L.
Bean fit Garvin’s initial definition of a learning orga-
nization because it created learning opportuni-
ties, devoted time and resources to both acquiring
and transferring knowledge, and then modified its
behavior based on what was learned. This process
resulted in a product reboot and complete turn-
around in sales, a proactive response to a struggling
line (Garvin, 2000).

The assumption here is that organizations that can
effectively create and sustain transformations in the
face of rapid change are those that not only adapt to
markets but also generate innovations through peo-
ple. Senge (1990) notes that to sustain generative
change, organizations must understand how to draw
on individuals’ commitment and ability to learn at all levels.

Levels and Types of Learning

We have described the dual nature of a learning organization—the learning that happens
at individual and collective, company-wide levels—and how these should complement and
motivate each other. Marquardt (2002) describes three interrelated levels that exist in a
learning organization:

1. Individual learning—the skills and knowledge an employee gains through
study and/or observation

2. Group or team learning—the collective skills and knowledge a group
obtains

3. Organizational learning—the overall productive capacity an organization gains
through the intentional and continual pursuit of improvement

AP Photo/Pat Wellenbach

Instead of following the traditional
market research model, L. L. Bean
turned to customers and recruited
them as testers.

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Section 5.3 Learning Organizations

Each level informs and affects the others, so individual learning contributes to both group
and organizational learning. An organization’s collective knowledge can in turn serve as a
resource for an individual. In order to leverage all levels of learning within an organization,
the structure needs to be flexible enough to facilitate collaboration and communication,
whether it is through a flat structure or modularity.

Organizations can also take multiple approaches to learning:

1. Adaptive learning, or using past experience to influence future actions
2. Anticipatory learning, or envisioning possible futures to identify and pursue new

opportunities
3. Action learning, or reflecting on the present in order to guide development across

learning levels (Marquardt, 2002).

By examining the past and present and looking toward the future, leaders essentially employ
a 360-degree view to examine all aspects of an organization and plan for multiple possible
outcomes. Because they balance immediate action with long-term goals, the organization
continually progresses.

Oil companies like Shell face a great deal of uncertainty, given limited fuel resources. They
have profitability goals, both at the quarterly and annual levels; however, they know they
must start building for a future that does not rely on oil. Long-term goals include transform-
ing Shell from an oil company to an energy company. The challenge is that no one can yet
predict which energy source or sources will replace oil, so a wide range of possibilities must
be investigated.

Shell has been exploring renewable energy, biofuels, wind and hydrogen power, and carbon
capture and storage. Its immediate, short-term actions are straightforward: to keep up with
changes in the energy sector. The company must continue to build its research, development,
and demonstration capabilities for new technologies. It must also remain cost effective and be
ready to work with both government and society when changes occur in the sector (Rausser,
Stevens, & Torani, 2011). Although the company doesn’t know what the future will hold, it is
keeping its options open through research, organizational flexibility, and conversations with
policy makers.

Learning Cultures and Visions

Learning culture is described as “collaborative creativity in all contexts, relationships and
experiences” (Jacacci, as cited in Marquardt, 2002, p. 23). A learning culture is interdepen-
dent, so employees alternate between the roles of student and teacher. They learn indepen-
dently, but they also teach their colleagues in collaborative situations and, in turn, continue to
learn themselves. This type of exchange requires a great deal of trust and honesty. To improve,
everyone must be willing to acknowledge faults and failures and try to move beyond them—
the goal is to learn from experiences rather than dwell on them.

The organization should support feedback, reflection, and action. Leaders set the tone by
modeling desired interactions, so they must also seek feedback and demonstrate learning and
growth. They facilitate collaboration, experimentation, and reflection to maintain an active

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Section 5.3 Learning Organizations

learning cycle, and they ensure that the organization stays focused by communicating and
modeling a shared vision.

A strong vision can motivate employees, engaging their emotions and intellect, which,
as Senge (1990) describes, is instrumental in learning. Vision statements provide a call
to action while still providing parameters for employees to follow. Explicitly stating
organizational values can serve as an additional guide for employees (Marquardt, 2002).
Google’s corporate value statement, that the company has since omitted after becoming

part of its new umbrella firm,
Alphabet, may be the most
famous: “don’t be evil” (as
cited in D’Orazio, 2015).
This simple principle guides
both managers and develop-
ers in their work.

The grocery store chain
Whole Foods Market unites
employees and customers in a
common experience through
its strong values, which have
become a large part of its
brand. Whole Foods Mar-
ket lists seven values on its
website:

1. Selling the highest quality natural and organic products available
2. Satisfying and delighting our customers
3. Supporting team member happiness and excellence
4. Creating wealth through profits and growth
5. Caring about our communities and our environment
6. Creating ongoing win–win partnerships with our suppliers
7. Promoting the health of our stakeholders through healthy eating education (Whole

Foods Market, 2015).

Whole Foods Market emphasizes teamwork, quality, caring, and the environment. These
principles also provide clear parameters for employees. New product lines will never include
junk food. The store will not stock high-preservative foods with artificial flavors and color-
ing. Employees are expected to work in teams and to support each other in a positive culture,
which is both a goal and a method for stores’ operation.

Learning organizations aspire to constantly evolve and improve. As a result, they have lofty
expectations and high standards. To meet or exceed these, a learning organization must reflect
on its own learning process and find ways to improve, whether by identifying new ways to
collaborate across the company or creating new learning opportunities for individuals (Mar-
quardt, 2002). Learning cultures are simultaneously rigorous and positive. New challenges
are viewed as creative opportunities that at best can lead to growth and at worst can offer
lessons to apply to the next challenge.

AP Photo/Tony Dejak

Whole Foods manages to unite employees and customers in
a common experience through its strong values, which have
become a large part of its brand.

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Section 5.3 Learning Organizations

Primary Principles and Disciplines

Senge’s (1990) five principles—known as the learning organization’s basic disciplines or
“component technologies”—are the foundation of the transformational change approach.
These principles include:

• systems thinking,
• personal mastery,
• mental models,
• shared vision, and
• team learning (Senge, 1990).

Organizations that build learning communities and principles into their cultures and sys-
tems differentiate themselves from bureaucracies in that they experience innovations and

Managing Change

The “Postmortem”

Suppose you are the manager of a project that, in the end, went as wrong as it possibly could.
Despite your best efforts, the output had to be redone, deadlines were missed, and budgets
were overshot. In some organizations this would be a fatal failure, and you’d be lucky to
scrape by with your job, a scolding, and some wounded pride. But in a learning organization,
failure is an opportunity.

You, your team, your internal client, and your supervisor decide to meet for a postmortem on the
project, or an “after-action review.” Rather than point fingers and damage working relationships,
after-action reviews take a step-by-step look at the project and where it went wrong. By
examining its flawed path, mistakes become lessons that can be applied to future projects. Doing
this requires openness, honesty, self-awareness, and an ability to acknowledge responsibility in
such a situation. If all parties come to the table from the same place, all can leave armed with the
knowledge of how to do it better. This is a prime example of a learning opportunity.

Learning organizations take a reflective, big-picture look at themselves. Learning allows an
organization to adapt and evolve—critical skills for a successful business. Most organizations
and hierarchies impede the natural abilities needed for a learning environment:
communication, creativity, innovation, and collaboration, among others. Learning can
occur in both directions in an organization—at the individual level from experiences at the
organization and at the organizational level, whereby the individual contributes knowledge
learned to the organization.

Discussion Questions

1. What is the difference between learning and training?
2. What are three types of approaches to learning?
3. How are learning organizations and agile organizations related?
4. What are some examples of learning opportunities in an organization?

(See the end of the chapter for possible answers.)

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Section 5.3 Learning Organizations

continuous improvement. This transformation is accomplished by mastering the five disci-
plines. As agents, individuals use these disciplines to change their organization’s systems and
structures. Effective change occurs when individuals adopt a holistic, proactive stance. They
realize they can shape their own reality when they shift from seeing parts to seeing the whole
picture. Rather than reacting to present conditions, individuals proactively work toward the
future (Senge, 1990). Each discipline is discussed in turn below.

Systems Thinking
Systems theory and thinking is the ability to comprehend the whole and examine the inter-
relationship among the parts to accurately identify and solve problems. Systems theory is the
incentive and the means to integrate the disciplines (Senge, 1990).

Systems thinking is the cor-
nerstone of the five disciplines.
Without it, there can be no
learning organization or moti-
vation for using the other dis-
ciplines. For example, vision—
outside the context of systems
thinking—is a utopian idea with
no understanding of the inter-
related forces that must be dealt
with to realize a vision. Systems
thinking requires the disciplines
of building shared vision, mental
models, team learning, and per-
sonal mastery to mobilize the
vision. Systems thinking moves
the “me” to a “we” mentality and
makes the learning organization
a reality.

Senge (1990) argued that the basic tools of systems theory are straightforward and can be
used to build more sophisticated models. A major criticism of management theory is the sim-
plistic frameworks used to understand and work with complex systems. People tend to focus
on the parts rather than understanding the whole; they often fail to see the organization as a
dynamic set of interrelated processes. Seeing the whole before trying to solve one of the parts
is the first step toward identifying the problem.

Morieux (2011) provides an example in which the hotel portion of an international travel and
tourism group faced falling occupancy rates, spiraling prices, and unhappy customers. Hotel
and sales managers immediately blamed the young receptionists, who came to them with
little experience and often left after a few weeks. Clearly, the receptionists lacked customer
service skills and motivation and had little interest in developing either.

Simple problems had conveniently simple solutions. Managers decided to give these recep-
tionists additional customer service training and add incentives to their compensation struc-
ture based on occupancy rates. However, this solution failed. Receptionists continued to
leave, customers continued to complain, and occupancy rates continued to fail expectations.

william87/iStock/Thinkstock

Businesses are composed of many different parts. The abil-
ity to step back and understand how all of the pieces inter-
act and affect each other is the basis of systems thinking.

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Section 5.3 Learning Organizations

Managers finally took a step back to try to understand the entire system and identify the
actual failure points. After a month of observation, sales managers realized the receptionists’
failure resulted from a lack of teamwork from support staff, including housekeeping, room
service, and maintenance.

Housekeeping would clean a room and neglect to tell maintenance about broken appliances.
Customers would turn to receptionists with their complaints. Receptionists had very few
solutions to offer beyond upgrades and refunds, which affected occupancy levels and drove
down rates. The most invested receptionists would try to solve the problems themselves,
leaving their desks and letting queues of other customers form, who would then become frus-
trated with the lack of customer service. The problem, upon further investigation, was a lack
of teamwork and systemic thinking, not of incentive or interest. In fact, the most committed
receptionists had the highest turnover rate because they burned out from trying to indepen-
dently solve all problems. It took this extra step to understand the actual cause, rather than
the readily apparent one.

Personal Mastery
Personal mastery, the second discipline, involves having good self-awareness. It means
continually defining and deepening our personal vision, focusing our energies in appropri-
ate places, learning patience, and being objective (Senge, 1990). No learning occurs without
personal mastery, because organizations cannot learn when their individuals do not learn.
Individual learning is a necessity to organizational learning, though it does not guarantee
organizational learning (Senge, 1990).

Developing all the disciples involves developing personal vision. Personal mastery depends
on cultivating a personal vision, having creative tension or the ability to see what is needed
to make visions a reality, recognizing organizational tensions and constraints and our role in
them, being honest and trustworthy, and using the subconscious (Senge, 1990).

Mental Models
Mental models are the deep-rooted beliefs, assumptions, and generalizations that shape our
understanding of the world and that motivate us (Senge, 1990). Influenced by Chris Argyris
and Donald Schön (1978), Senge (1990) reasoned that we are not aware of the effects that our
mental models and assumptions have on our behavior, communication, and actions, both at
work and in our personal lives. Our goal is to develop the capability to understand the impact
of our own and others’ assumptions and ways of seeing the world.

Senge (1990) noted that the discipline of mental models begins when we turn our focus
inward to identify our beliefs and assumptions and rigorously scrutinize them. This also
involves learning through open conversations in which all participants share their thoughts
and allow others to influence their view. Being closed-minded and having rigid mental mod-
els prevent changes that could stem from systems thinking (Senge, 1990).

Changing the organization, especially with a large-scale change, involves working through and
transcending internal politics, games, and bureaucratic mind-sets that impede open thinking
and sharing. This practice allows business responsibility to be spread throughout the orga-
nization, while still maintaining control. This creates a localized organization (Senge, 1990).

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Section 5.3 Learning Organizations

Shared Vision
In previous chapters, we discussed the importance of building shared vision in preparing
for, implementing, and sustaining a major change initiative. Here, Senge (1990) incorpo-
rates shared vision as a discipline, one that involves learning to sustain positive and effective
change.

Shared vision starts with leadership, as we have discussed throughout this text. For centuries
leaders have inspired organizations to hold and share visions of the future. Visions are pow-
erful. They can uplift, motivate, encourage experimentation, and yield new inventions. Just as
importantly, visions from a learning organization perspective can hold people and organiza-
tions to a long-term commitment of a future state.

When an organization has a genuine vision, employees have a strong desire to excel, accept,
and implement it. This does not always occur, as leaders’ personal visions may not be verbal-
ized or translated into a shared vision. A set of principles and best practices are needed to
facilitate this process (Senge, 1990).

Team Learning
Team learning is the process of aligning and expanding a team’s capabilities so it is able to
produce results (Senge, 1990). Team learning builds on the other disciplines and takes the
learning organization to an action level—people must be able to create synergy, solve prob-
lems jointly, and create new products and services together in real time. Teams that learn
together benefit the organization and the individuals of which they are composed.

The team-learning discipline begins with the art of dialogue (that is, the capacity of team
members to suspend assumptions and judgment and enter into an authentic process of “think-
ing together”). The Greek word dia-logos refers to an uninhibited flow of meaning through a
group via a process by which the group can discover insights not achievable by individu-
als alone. Dialogue involves identifying the patterns of interaction between team members
(Senge, 1990).

When combined with systems thinking and the other disciplines, teams are able to create
a language that can account for complexity. Team problem solving and creativity can then
focus on deeper structural issues and underlying forces rather than become preoccupied with
trivial diversions related to personality differences, politics, status, and leadership style. The
emphasis on dialogue is a major conceptual and practical tool in learning organizations as
they incorporate and sustain new changes.

Check Your Understanding

1. What are learning organizations, and how are they different from organizations that do not
value or use learning methods and concepts?

2. What are some habits and practices employees (and leaders) would benefit from relinquishing
in order to adopt learning methods and ways of operating?

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Section 5.4 Change and Learning Organizations

5.4 Change and Learning Organizations
At the heart of the learning organization is the idea that change and learning go hand
in hand. Learning organizations develop internal structures that can respond to change
(Watkins & Marsick, 1993) and behave proactively. At the same time, learning leads to
organizational change. The purpose of a learning organization is to empower organiza-
tions, from employees to executives, to accept change as a positive part of their existence
(Senge et al., 1994).

Learning organizations can be defined according to four traits: constant readiness, continu-
ous planning, improvised implementation, and action learning (Rowden, 2009). Constant
readiness refers to a learning organization’s ability to respond to change situations. Unlike the
highly structured traditional organizations that are optimized for stability, learning organiza-
tions are optimized for change. They are willing to question themselves and their assump-
tions and make adjustments. This readiness normalizes the possibility of change rather than
the expectation of routine.

With continuous planning, leaders focus on strategies and flexible approaches rather than
mapping every step of a process. However, many high-powered learning organizations have
successfully combined flexible strategic approaches with electronic databases; the speed and
accuracy this allows for helps organizations adopt more fluid and organic decision-making
processes, as we will illustrate in this section.

By focusing on high-level strategies, organizations can rapidly reevaluate and change course
as needed. Whereas traditional organizations emphasize a strong guiding vision and mission,
learning organizations value revision (Rowden, 2009). They review their assumptions, ana-
lyze implementation, and adjust accordingly. Their clearly articulated guiding principles and
strategies are based on improvised implementation and action learning. In articulating these,
they can provide enough structure to plan; by staying focused on the big picture, organiza-
tions move proactively toward a positive, shared goal.

Improvised implementation has several meanings. First, as a part of a culture that wel-
comes change, learning organizations that adopt improvised implementation encourage
experimentation and reward small successes before scaling these wins company-wide.
Improvised implementation also means that everyone in the company plays a creative role
and contributes to the big picture. Individuals and teams have a high level of autonomy
and responsibility when it comes to decision making. Eventually, successful experiments
become part of the organization’s system, as learning occurs at individual and organiza-
tional levels.

Action learning also refers to continuous planning—that is, instead of annual review-
style reflections and planning, organizations that engage in action learning constantly
reflect and adjust. Because experimentation and innovation are integral to organizations
that need to frequently respond and change in today’s complex environment, reflection,
learning, and continuing are inherent in the culture. Constant experimentation means fre-
quently assessing what worked, what didn’t, and what could be managed differently. These
micro-action learning scenarios eventually add up to large-scale organizational learning
and change.

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Stage 1: Forming

The organization learns through
trial and error.

Stage 2: Developing

The organization implements learning
through training with outsiders.

Stage 3: Maturing

The organization provides internal
training to employees.

Stage 4: Adapting

The organization makes learning part of
the organization’s strategic plan.

Stage 5: Learning

The organization makes learning a
part of their daily activities.

Section 5.4 Change and Learning Organizations

Becoming a Learning Organization: Woolner’s Five-Stage Model

A central characteristic of the learning organization is the capacity to create (Woolner, Lowy, &
Redding, 1995). This proactive vision keeps the organization competitive by emphasizing
innovation (Johnson, 1998). Learning organizations go beyond simply responding and adapt-
ing to factors that demand change. They generate new knowledge, products, systems, and
models, embracing organizational change as an opportunity for improvement and growth.

However, it takes time and conscious effort to create the learning opportunities and incorpo-
rate processes that allow experimentation and reflection. This model may not be appropri-
ate for every organization. A company may value learning and change management without
completely transforming into a learning organization. Woolner, Lowy, and Redding (1995)
mark five stages that an organization passes through when becoming a learning organization:
(a) the forming organization, (b) the developing organization, (c) the maturing organization,
(d) the adapting organization, and (e) the learning organization (see Figure 5.1).

As the name suggests, the first stage per-
tains to start-ups. These organizations
learn through trial and error rather than
through formal processes. At the beginning
of a company’s life, every decision provides
a learning opportunity as founders develop
products and a viable business model.
They constantly test variations, whether in
branding, outreach, product design, or pric-
ing, to determine which combination will be
successful.

Organizations in the developmental stage
have begun to solidify their business mod-
els and products. They are starting to set
up formal, proactive learning situations
through training with outsiders. This kind
of development is not part of the organiza-
tion’s regular processes, although organiza-
tions recognize the need for this change.

Third-stage organizations understand the
need for employee learning and begin to
provide internal trainings. These events
are still not part of the organization’s regu-
lar operations; however, they are valued as
integral to the company’s growth.

Stage 4 is similar to stage 3, except learning
becomes part of the organization’s strategic
plan. Learning is integral to the company’s
long-term growth at individual, group, and
organizational levels.

Figure 5.1: Stages toward becoming a

learning organization

A learning organization needs to work toward
integrating learning as part of its daily activities.

Based on Woolner, P., Lowy, A., & Redding, J. (1995). Learning
organization 5 stage diagnostic survey and workshop version.
Toronto: Woolner Associates.

Stage 1: Forming
The organization learns through
trial and error.
Stage 2: Developing
The organization implements learning
through training with outsiders.
Stage 3: Maturing
The organization provides internal
training to employees.
Stage 4: Adapting
The organization makes learning part of
the organization’s strategic plan.
Stage 5: Learning
The organization makes learning a
part of their daily activities.

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Section 5.4 Change and Learning Organizations

Finally, in stage 5, learning becomes
part of an organization’s day-to-day
activities. It is fully integrated into
operations and is viewed as part of
the organization’s health and success.
Part of what defines a learning orga-
nization is that all employees contrib-
ute to the organization’s knowledge
(Watkins & Marsick, 1993). In this
stage the organization encourages
formal and informal learning with
a strong emphasis on teamwork so
that new knowledge can be commu-
nicated quickly and effectively across
the organization. Learning comprises
past experience, current experience,
and best practices from other organi-
zations (Garvin, 1993).

Senge (1990) emphasizes that learning organizations can create the results they desire. In
part this comes from their proactive behavior. Instead of responding to change as it arises,
learning organizations experiment and innovate in pursuit of specific goals that add up to
larger organizational strategies and vision. They also pay attention to past experience and
adjust to future situations accordingly (Johnson, 1998).

Examples of Learning Organizations

Learning organizational practices can be found in a myriad of settings. This section takes a
brief look at some real-world examples of how learning organization principles are imple-
mented to effectively respond to and enact change.

The U.S. Army
The U.S. Army has a division devoted entirely to learning. Founded in 1985, the Center for
Army Lessons Learned (CALL) gathers data from battle simulations run at its National Train-
ing Centers (Garvin, 2000). CALL observation centers serve as a knowledge repository for the
army, and they collect and distribute information. As the army’s duties changed, so did the
information gathered by CALL. Because of their role as institutional memory, CALL teams are
usually among the first deployed in new operations. They gather information, identify poten-
tial problems, and recommend solutions based on past experiences.

Learning occurs through cycles of trial and reflection. Organizational learning follows
the same path—companies incorporate opportunities for trial and reflection into their
systems and processes. In turn, a learning organization constantly changes at micro and
macro levels, providing the practice and experience needed when unexpected change situ-
ations arise.

monkeybusinessimages/iStock/Thinkstock

Organizations in the third stage of Woolner’s model
begin to understand the importance of learning and
provide internal training opportunities.

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Section 5.4 Change and Learning Organizations

AT&T’s Bell Laboratories
During the 1990s, AT&T’s Bell Laboratories focused on organizational learning by finding
ways to scale the individuals’ knowledge to entire divisions. The company focused on its most
productive software engineers and tried to understand why some were more effective than
others. After identifying top performers, it conducted in-depth interviews with them to under-
stand how they approached their work and what techniques they used to stay productive.

The company translated this research into a hands-on training program, which top perform-
ers used to work with fellow programmers. Productivity improved by 10% immediately and
by 25% by the end of the year (Garvin, 2000). Although this foray into organizational learning
focused on productivity, it also improved problem solving, teamwork, collaboration across
the organization, and customer care (Garvin, 2000).

AT&T
More recently, AT&T has become one of the most highly regarded learning and development
organizations in the United States (Nikravan, 2011). Cynthia Brinkley was named senior vice
president of talent development and chief diversity officer of AT&T in 2008. In 2009 the com-
pany invested $244 million toward employee learning and development programs. It also
allotted $27 million in tuition reimbursement for 9,800 employees—49% of whom were
women and 54% persons of color. In 2010 AT&T created its Leading With Distinction pro-
gram, which encompasses all of the company’s leadership and strategic alignments, includ-
ing strategy and culture. The company delivered the program globally to more than 105,000
managers (AT&T, 2009).

AT&T believes learning and development hold employees’ attention and keep them invested
in all company changes (Nikravan, 2011). Employees know about all upcoming products
and work with the business and device manufacturers to develop mandatory training for all
those involved with the product. This training is provided through webinars, job aids, and
coaching tools.

The Bell Labs and AT&T examples are remarkable not just for their dramatic results, but the
fact that top software engineers became trainers. They accepted new leadership roles that
required a separate skill set and additional responsibilities. Implementing these changes took
team effort, with each member of the leadership and learning groups stretching their knowl-
edge and abilities. Rather than serving as training authorities, managers stepped back and
simply created a learning opportunity while the developers filled the traditionally authorita-
tive role. This point brings us to the final topic in this section: the importance of leadership in
enacting learning organizational principles.

Leadership

The biggest challenge for learning organizations does not come from external threats; it comes
from the time and commitment it takes for leaders and followers to implement changes.
Moreover, because organizational learning depends on changing structures and processes, it
requires long-term commitment (Watkins & Marsick, 1993). This, in turn, depends on strong
and visionary leadership.

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Section 5.4 Change and Learning Organizations

Invest in Learning Programs
Accenture, a preeminent global management consulting, technology services, and
outsourcing company, invests hundreds of millions of dollars on its learning and lead-
ership programs each year. In 2009 the company spent nearly $800 million on these
programs.

Accenture’s leaders understand that first and foremost, developing people influences busi-
ness (Margolis, 2011). As the company develops its employees, they apply their new skills
to their industries, and as a result, those industries grow. Learning and development spur
advanced thinking and improve employees’ skills, allowing them to produce more innova-
tions for Accenture’s clients.

Accenture’s executive team measures the impact and value of its learning strategy holistically
and operationally. Operationally, the executive team needs to know whether learning assets
deliver required results and if the right people receive the development they need (Margolis,
2011). The company uses a scorecard, which is updated monthly, to track goals and objectives
against annual targets. An annual Business Sponsor Satisfaction Survey uses feedback from
executive sponsors to determine value delivered against business leaders’ expectations. The
firm’s single evaluation tool also compares results on learning programs and expenditures
across workforces, geographies, and vendors so that decisions are made using current data
(Margolis, 2011).

Use Improvised Implementation
Leadership also uses the idea of impro-
vised implementation that was discussed
earlier. Like action learning, improvi-
sation teaches employees how to take
risks and respond confidently and in
real time to challenges that emerge.
Employees who improvise foster an
outlook that focuses on curiosity, listen-
ing, flexibility, strong relationships, and
resiliency (Giardella, 2013). At the same
time, improvisation requires people to
think holistically and connect thinking to
action.

For example, Marissa Mayer, a Google
vice president, serves as an “idea con-
nector.” She holds three weekly sessions
where she is available to all Google
employees who want to pitch a new idea.
Mayer brainstorms with these so-called
scout-equivalents and encourages them
to share details on a proposed prod-
uct’s functionality. She then decides
whether to promote the ideas to the company’s cofounders, Larry Page and Sergey Brin
(Brokaw, 2011).

Associated Press/Joe Schildhorn/BFA

To encourage experimentation and improvisa-
tion, Marissa Mayer, a vice president at Google,
holds weekly sessions for Google employees who
want to pitch new ideas.

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Section 5.4 Change and Learning Organizations

Use Action Learning
Action learning offers increased perception and understanding by interweaving action
and reflection. However, it may take time to execute, since it requires careful thought
(Dilworth, 1998). Although speed and efficiency are important to organizations, getting
decisions right is just as important, if not more so. GE has used principles of action learn-
ing in its WorkOut training program throughout its global operations. The program con-
sisted of teams working on real problems in real time, while executives offered feedback
and tips to employees.

Encourage Change
Leadership must guide an organization through change and find ways to help it adapt (Ahn,
Adamson, & Dornbusch, 2004). Strong management is critical to maintaining an organiza-
tion’s competitiveness, especially in organizations that face constant change (Nohria, Joyce, &
Roberson, 2003; Waldman, Ramirez, House, & Puranam, 2001). In order to stay competitive,
organizations must encourage constant, meaningful change.

However, this can be a challenge. Despite the theories and approaches available, many leaders
lack an understanding of change management; that is, what leads to change, effective pro-
cesses for managing it, and how to win follower buy-in for change initiatives (Armenakis &
Harris, 2002). Leaders must be able to motivate their followers, communicate effectively, and
facilitate team building in order to implement smooth organizational change (Gilley, Gilley, &
McMillan, 2009).

Create Learning Opportunities
Many managers view their role as the ultimate authority—as the person who is always right
or who can swoop in to save the day. Instead of fixing employees’ problems for them, how-
ever, effective managers act as a guide that helps employees find their own solutions—and in
the process, improve their skills and performance. Effective managers also aim to constantly
improve management processes and systems by creating learning opportunities that involve
experimentation and reflection (Horan, 2006).

For example, under the leadership of Jack Welch, GE made adjustments toward becoming a
learning organization by emphasizing action learning (Garvin, 2000). Rather than trying to
predict the adjustments the company would have to make, it focused on improving change
management and optimizing processes for effective and rapid response.

In GE’s Change Acceleration Process (CAP), teams of 8 to 12 participants came together
to solve a real problem. Process experts coached each team through the new model of
problem solving, so employees learned the process through participation and experience.
Each of the learning scenarios included an abstract discussion of the CAP framework and
methodology and involved applying the model to the problem at hand. The combination
of action and reflection helped employees apply this process to future scenarios. The CAP
program helped transform GE Plastics in Japan. After 4 consecutive years of posting losses,
managers turned to the CAP program in 1994. The division broke even by the end of the
year and was profitable in 1995.

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Section 5.5 Agile and Learning Organizations in the 21st Century

Check Your Understanding

1. How do action learning and improvisation help leaders and followers respond to real-time
issues more effectively? Offer an example from your own experience.

2. What steps could organizational leaders take to introduce and support organizational learning
principles and practices in an organization before a crisis occurred?

5.5 Agile and Learning Organizations
in the 21st Century

As we discussed at the beginning of this chapter, agile organizations can respond effectively
to changes in their competition, technologies, and markets by being flexible and innova-
tive. Being agile means more than change at face value. It represents disruptive change that
demands employees do things differently (Adamopoulos, 2012). To get to this state of agility,
a number of things must be considered. The top two are cultural change management and
training agile teams.

Organizational learning principles and techniques deal directly with cultural change and
teaching leaders and teams how to implement and sustain constructive, deep change. Com-
bining agility practices with learning principles is a winning combination that takes into con-
sideration both the short- and long-term value of all stakeholder interests.

The idea of organizational learning is compelling and has proved effective in the face of con-
stant change. Rowden (2009) warns, however, that the concept of a learning organization
can easily become a fad; the big ideas could
get watered down into simple, packaged
solutions. Organizational learning should
also not be viewed as a one-size-fits-all
solution. Learning involves failure, and
learning organizations fail regularly. They
attempt to keep experiments small but are
only effective if they internalize the lessons
learned from failures. In fact, failure does
not negate a learning organization’s effec-
tiveness. It is part of the process.

Organizations that fail to grasp this idea may
think that organizational learning simply
doesn’t work or is a utopian ideal with lim-
ited practical application. However, learn-
ing organizations are less a solution than a
process. Unexpected change always disrupts
work flow, but learning organizations have
the systems, human capacity, and depth
of knowledge to make changes as needed,
whether that change is triggered by an exter-
nal event or an internal innovation.

kasto08/iStock/Thinkstock

Although organizational learning is crucial, it
is important to avoid watering down big ideas
and simplifying principles for a one-size-fits-all
approach.

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Section 5.5 Agile and Learning Organizations in the 21st Century

Given the unpredictability of the future, organizations need as many tools as possible to
respond to change. Agile businesses and learning organizations provide two models for how
to embrace change, leveraging it to spur innovation and growth. Although we don’t know
what the future holds, it promises to be both exciting and challenging for the organizations,
employees, and leaders who can mindfully and competitively steer the way.

Check Your Understanding

1. How could organizational learning and agile principles be misunderstood or misinterpreted by
employees who are not accustomed to these practices?

2. Would you prefer to work at an agile organization or a learning organization? Explain your
reasoning.

Managing Change

Companies Are Only as Good as Their People

Suppose your company has experienced an epic fail: A product line that required huge
investments of time, capital, and human effort has gone belly up. Planning and execution,
manufacturing and distribution, and supportive processes took nearly a year to solidify
and prepare, and it ended in a loss. Nearly one third of the company’s human capital was
allocated to this project.

Fortunately, the company stands on solid enough ground that it can absorb the loss. But its
reputation has been compromised, and you and your leadership team find yourselves pulling
the company up by the bootstraps. It’s decision time: What should you do with the one third
of your staff that worked on this product? The answer—take a learning approach. Firing one
third of company staff would be misguided and only done, if ever, in extreme circumstances.
Although the assessment may be relative, the fact remains that firing staff would create a
greater loss than the failed product. Intellectual capital would be squandered, and the cost of
hiring and onboarding would be enormous. So what’s the next step?

Some say you are only as good as your brand; others say you are only as good as your
last product. But it could be strongly argued that an organization is only as good as its
people, and fostering development and enhancing learning can only positively impact
the organization. Learning organizations fail as a rule, and they have the systems, human
capacity, and depth of knowledge to make the necessary changes.

Discussion Questions

1. How does learning facilitate organizational change?
2. What are some caveats to the concept of a learning organization?
3. What are some examples of large-scale organizational failures?
4. Suggest some ways you would recommend from this chapter to have prevented the

failures in question 3.

(See the end of the chapter for possible answers.)

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Summary and Resources

Chapter Summary
Leading and managing change are not easy processes. In fact, planned transformational
change in organizations can be messy because politics, power, emotions, and conflict
are interlaced with technical, cultural, and social expertise. That is why change manage-
ment and OD skills, competencies, and experience are essential for diagnosing, designing,
implementing, and sustaining not only specific planned changes but continuous change.
Going forward, it is not only change that is required for most organizations but change that
is characterized and supported by agile and learning leaders, followers, and processes.

This text has described how to identify, assess, plan, enact, and reinvigorate agile learning
and organizational change. Classic and contemporary examples of different types of change
were discussed: developmental, transitional, and transformational, to name a few. We pre-
sented terminology, studies, methods, and frameworks from the fields of change manage-
ment and OD that provide a common language used by scholars and practitioners. With this
information and understanding, students of organizational change have a conceptual and
working knowledge for advancing into other areas to study and/or apply this knowledge.

Posttest Questions
1. An IBM global study found that fewer than half of the more than 1,500 surveyed

CEOs feel comfortable with __________.
a. increased complexity of change management
b. diversity in staffing
c. out-of-the-box solutions
d. creativity in business models

2. As a successful change leader who develops human potential within her organiza-
tions, Latisha would be LEAST likely to do which of the following?
a. Ask her employees to actively contribute ideas.
b. Urge her employees to be problem solvers.
c. Recognize her employees for their contributions.
d. Encourage her employees to pay attention to even the smallest detail.

3. How do agile organizations approach change compared to traditional ones?
a. They create monopolies across industries more often.
b. They identify opportunities faster than their competition.
c. They hire international CEOs, who typically have more experience with change.
d. They invest more in training than traditional organizations.

4. With which of the following statements would the author most likely DISAGREE?
a. Agile organizations regard change as a central part of their culture.
b. Agile organizations can train employees to be agile.
c. Agile organizations appreciate centralized decision making.
d. Agile organizations value modularity.

5. Learning organizations facilitate learning by being willing to __________.
a. commit to their “sacred cows”
b. challenge their “sacred cows”
c. disregard their “sacred cows”
d. let their “sacred cows” fail in the marketplace

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Summary and Resources

6. A company president sends an email across the organization illustrating how the
marketing team’s ideas resulted in increased sales. Which of the following learning
organization principles is most reflected in this process?
a. Assure that the organization is aware of its external environment.
b. Provide outside review of a marketing plan.
c. Link individual and group performance with organizational performance.
d. Invite one team to apply its principles to another team’s goals.

7. Whereas traditional organizations highly value __________, learning organizations
highly value __________.
a. mission; revision
b. revision; mission
c. action; caution
d. experimentation; action

8. In the five stages a company passes through to become a learning organization,
learning becomes an integral part of the company’s strategic plan and long-term
growth in the __________ stage.
a. forming
b. developing
c. evaluating
d. adapting

9. Change expert Robert Rowden states that agile organizational learning should be
viewed as __________.
a. a one-size-fits-all solution
b. a failure-proof process
c. growth based on knowledge and failures
d. big ideas condensed to simple solutions

10. A lesson to be drawn from the philosophies of both agile and learning organizations
is most likely “An organization is only as good as its __________.”
a. brand
b. last product
c. systems
d. people

11. As a learning organization, how does L.L. Bean increase its market research
knowledge?
a. It hires outside marketers to survey past customers.
b. It uses IT-savvy people to search the web for competitors’ products.
c. It requires employees to use and rigorously test products.
d. It recruits devoted customers to be product testers.

12. The author discusses how __________ is using a learning model in terms of the way it
explores changes and innovations in the energy sector.
a. Charter
b. Shell
c. SunRun
d. Hyundai

Answers: 1 (a), 2 (d), 3 (b), 4 (c), 5 (b), 6 (c), 7 (a), 8 (d), 9 (c), 10 (d), 11 (d), 12 (b)

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Summary and Resources

Learning Objectives Recap

1. Successful change leaders exhibit collaboration, the ability to build effective teams,
and the ability to influence employees. More traditional traits like decisiveness and
composure are less influential in guiding change. Creativity, adaptability, and experi-
mentation are critical traits of change leaders. Successful change leaders cultivate
empowerment in their employees. This involves giving employees greater autonomy
and responsibility. A greater emphasis on building relationships and creating open
work environments has made leadership a necessity at all levels of an organization.
It is required to better identify potential challenges and shorten response time.
Empowered employees can more easily become change agents.

2. Agile organizations have the ability to quickly adapt and respond to new situations
because change is a central part of their culture. They value experimentation, com-
munication, decentralized decision making, and modularity. This flexibility is in
direct opposition to the stability and rigidity of traditional organizations, which lack
the adaptability required to react quickly and appropriately to change. Agile organi-
zations are more responsive than predictive. They also emphasize effective commu-
nication and empowered employees, and they have flatter organizational structures.

3. Learning organizations provide continuous learning opportunities and use learn-
ing to reach their goals. They also link individual performance with organizational
performance, foster inquiry and dialogue to make it safe for people to share openly
and take risks, and embrace creative tension as a source of energy and renewal. The
three levels of learning organizations are individual learning, group or team learn-
ing, and organizational learning. The five principles of learning organizations are
systems thinking, personal mastery, mental models, shared vision, and team learn-
ing. Learning organizations take a big picture view and consider how all pieces of the
organization interact and communicate.

4. Learning and change go hand-in-hand. Learning leads to change within an organiza-
tion and creates an environment of empowerment and affinity, rather than resis-
tance to change. Learning organizations are characterized by constant readiness,
continuous planning, improvised implementation, and action learning. Woolner
suggests five stages in the process of becoming a learning organization: the forming
organization, the developing organization, the maturing organization, the adapting
organization, and the learning organization. Learning often begins through a trial-
and-error process and develops into a fully integrated facet of the organization’s
operations. Learning organizations require significant amounts of time and com-
mitment, which in turn requires strong, visionary leadership. Leaders must develop
flexible strategies and clear communication to foster a culture that welcomes
change. Leaders guide the learning organization through change and find ways to
help it adapt.

5. Being an agile organization in the 21st century means having the flexibility and
innovative mind-set to promote large-scale, disruptive changes to provide better
products and services. Learning organizations are of the mind-set that learning is a
consistent cycle; with this knowledge comes the systems, human capacity, and expe-
rience to make changes as needed.

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Summary and Resources

action learning Continuous planning that
leads to reflection and learning in the cul-
ture of the organization.

agile organization An organization that
can quickly react to changes in the market.
This means that companies can and do
successfully respond to new competitors,
technologies, and shifts in the market.

executive coach A professional hired by
organizations to advise on complex deci-
sions and individual and/or team skill
building aimed at developing personal and
professional performance.

improvised implementation A manifesta-
tion of each employee’s creative role
through experimentation at individual
and team levels before companywide
implementation.

leadership versatility The willingness and
ability to learn from experience and apply
that learning in order to perform success-
fully under new conditions.

learning agility The ability to learn and
adapt to new information and situations. See
leadership versatility.

learning organization Agile organizations
that take a “big picture” reflective approach
in order to adapt and evolve at individual
and organizational levels. A learning organi-
zation continually nurtures new patterns of
thinking and encourages collective aspira-
tion to make learning a fundamental aspect
of the organization.

mental models Assumptions, generaliza-
tions, and images that influence our under-
standing of the world and the ways in which
we take actions.

personal mastery The state of continually
clarifying and deepening personal vision,
focusing energies, developing patience, and
seeing reality objectively.

Key Terms

Discussion Questions

1. What is the difference between “hard” and “soft” dimensions of change? Offer an
example of each dimension from this chapter or from the media.

2. If you were asked to be part of a group to hire a CEO to lead a transformational
change for a large company, what characteristics and skills would you look for, and
why? Base your answer on what you learned in Section 5.1.

3. Why should competent executive coaches be hired to help CEOs and managers sus-
tain changes?

4. Consider this statement: “Agile businesses don’t predict, they respond.” Do you agree
with this statement? Why or why not? Explain your reasoning.

5. What principles and practices from Section 5.2 does the Semco Group demonstrate
to be considered an agile company?

6. What characteristics from Section 5.3 does L. L. Bean demonstrate that classifies it as
a learning organization?

7. Suppose you have been invited to give a talk discussing Hyundai’s turnaround expe-
rience and planned organizational change. What would you say?

8. How does an organization become a “learning organization,” as discussed in
Section 5.4? Do you think any organization can become a learning or agile
organization? Why or why not? Explain your reasoning.

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Summary and Resources

Additional Resources
For more on the Executive Coach Academy
http://hrweb.mit.edu/organizational-effectiveness/organization-development-consulting
Institute of Organizational Development
http://instituteod.com/organization-development-certified-consultant.php
For a video of the “Netflix apology”

To determine if students would like to become an OD consultant, they can read the Guide to
Selecting an OD Consultant
http://impactrising.org/wp-content/uploads/2013/05/guide_to_selecting_an_od_
provider

Managing Change Sample Answers

Managing Change—The Agile Organization

1. A modular organizational structure allows the business to essentially be the sum
of its moving parts. As business develops and initiatives come and go, teams form
to work on a task and then disband when the objective is achieved or the project
ends. This creates flexibility and allows a company to be agile, making it easier
to quickly facilitate a project and then move forward to the next one. Moreover,
employees learn a lot from joining teams and then returning to their regular job
responsibilities.

2. Principles of agility include free-flowing, effective communication and employee
autonomy. Trusting employees to make their own decisions on the fly benefits not
only their engagement but also their development. Furthermore, being able to be
creative and have a direct impact on business processes adds to the business’s ability
to be dynamic because employees at all levels are taking initiative. Achieving this
requires a flatter hierarchy that runs mainly on guiding principles rather than strict,
top-down directives. An agile company also encourages experimentation and fosters
a culture of innovation.

3. Leaders of truly agile organizations must be able to adapt to new situations and be
comfortable with constant change. They should embody the strategy by being open,
flexible, and resilient, and able to acknowledge and learn from mistakes. An agile
company embraces a learning environment. Learning from experience and applying
new knowledge enables agility. Organizations need to provide customers with “bet-
ter, faster, cheaper, more mobile, more convenient or more personalized” (Denning,
2015) services for users.

4. Organizations “must imagine a future that users will truly want, even though users
themselves don’t yet know what that is” (Denning, 2015).

Managing Change—The “Postmortem”

1. Training usually takes the form of a program, session, or class and is goal ori-
ented and finite in nature. Learning is more abstract and ongoing and is a concept

wei82650_05_c05_207-248.indd 244 12/15/15 9:47 AM

http://hrweb.mit.edu/organizational-effectiveness/organization-development-consulting

http://instituteod.com/organization-development-certified-consultant.php

http://impactrising.org/wp-content/uploads/2013/05/guide_to_selecting_an_od_provider

Summary and Resources

embedded into company culture. You can complete training, but ideally you never
stop learning.

2. Adaptive learning draws from past experiences. Action learning reflects on the pres-
ent to guide next steps. Anticipatory learning utilizes scenarios that could result
from the present situation and studies the different outcomes to identify pitfalls and
opportunities.

3. Agile organizations must be comfortable with a learning environment—learning
makes agility possible. The lesson spawns ideas for the company to take direction
and remain competitive. Learning organizations must constantly evolve and improve
so as to recognize opportunities and take advantage of them. Both require commit-
ment, communication, collaboration, and intellectual curiosity.

4. In addition to after-action reviews or postmortems, other learning opportunities
include experiential learning programs, focus groups, working groups, and team
meetings. Of course, ideally, day-to-day work experiences also provide learning
opportunities.

Managing Change—Companies Are Only as Good as Their People

1. A learning organization embraces experimentation. Over time, successful experi-
ments become part of its fabric. Eventually, a succession of these changes results in
large-scale organizational change. Establishing a learning organization is essentially
a way to effectively manage change.

2. How effective a learning mind-set is depends on leaders’ commitment to an ongoing
process and, more importantly, their ability to accept failure. Organizations that fail
to understand this will be unlikely to take advantage of its benefits or instill a culture
that can foster learning and change. Some might view learning organizations as a
fad or as a pie-in-the-sky idea. A fatal flaw would be to assume it is a one-size-fits-all
solution to business. Learning organizations are administered from a macro stand-
point and offer the flexibility to grow and change with time. As they thrive on the
back of failure, it is important to understand that each organization fails differently.
Each has its own journey. Therefore, the abstract principles of learning organizations
are applied to guide an organization through change; in turn, change fuels learning.

3. “New Coke,” Beta video tapes, Euro Disney, the LaserDisc predecessor to the CD/
DVD, Crystal Pepsi, Friendster—the list goes on. Have fun with it! It may not have
been fun at the time, but most of the companies that pioneered these failures have
followed up with successful products since.

4. Relying on the principles of a learning culture, the first steps would be to commu-
nicate openly about what happened. Show support for those involved and express
commitment to improvement. Show appreciation for good jobs done that may not
have affected the outcome. Collaboration will play a huge part going forward. Per-
haps hold an after-action at the organization’s higher level and communicate the
results. Perhaps hold focus groups to elicit ideas, feedback, and other input from
staff. Pinpoint learning opportunities and apply them to the company’s next moves.
Once a rebound plan is formulated, communicate that to employees, ideally showing
them how their feedback played a part in the new direction.

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Summary and Resources

Answers and Rejoinders to Chapter 5 Pretest
1. False. The more traditional leadership traits of decisiveness, composure, and find-

ing ways to get results are ranked low in current leadership models. Rather, current
research indicates that the ability to build teams, being open to risk taking, and hav-
ing the skills to influence employees without exerting authority are ranked high in
change leadership.

2. True. Many traditional organizations that emphasize hierarchy in their business
model have low tolerance for failure. However, agile organizations accept that failure
leads to learning and perhaps to better products and services. For example, a newly
agile Disney organization suffered failures (such as the ESPN phone) that led to
other more successful experiments.

3. False. A learning organization is holistic, which means it takes into account how all
the components within the organization interact and communicate. A learning orga-
nization evolves holistically at individual, team, and organizational levels, in which
collective goals are conceived and new ways of thinking are cultivated.

4. False. Learning organizations can characteristically better respond to market swings
because they have already developed in-place, internal structures that respond to
threats and opportunities proactively. Learning organizations are distinguished by
constant readiness, continuous planning, and action learning.

5. True. In the 21st century, both agile and learning organizations must have a mind-
set for constructive, deep change that demands employees do things differently.
Combining agility characteristics with learning principles leads to success for all
stakeholders.

6. True. Learning organizations understand that creative tension is a source of energy
and renewal, and they strive to create an environment where inquiry, sharing openly,
and taking risks is safe.

Rejoinders to Chapter 5 Posttest
1. Of the more than 1,500 CEOs surveyed, fewer than half feel they can handle in-

creased complexity in change management. In the same survey, CEOs cited being
open to out-of-the-box solutions and being willing to change business models to
meet goals as being hallmarks of creative CEOs.

2. Effective change leaders develop human potential within their organizations by
encouraging employees to focus on the big picture and to become invested in the
organization’s overall growth and success.

3. Agile organizations react quickly to changes in the market, in technology, and to new
competition. They identify opportunities faster than their competition and imple-
ment changes more readily than traditional organizations.

4. The author would disagree that agile organizations appreciate centralized decision
making. Rather, such organizations value decentralized decision making and prob-
lem solving, and empower employees to do both.

5. Sacred cows are those values/ideas that people rate so highly that they think they
should not (or cannot) be criticized or changed (such as “never question the boss”).
Learning organizations facilitate learning by being willing to examine and challenge
their “sacred cows.”

6. In this scenario, the learning organization principle that is most reflected is “Link
individual performance with organizational performance.”

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Summary and Resources

7. Whereas traditional organizations value mission, learning organizations value revi-
sion and thus change more.

8. In the five stages a company passes through to become a learning organization,
learning becomes an integral part of the company’s strategic plan and long-term
growth in the adapting stage.

9. Rowden states that agile organizational learning should be viewed as growth based
on knowledge and (learning from) failures. Failure does not negate a learning orga-
nization’s effectiveness—it is part of it.

10. One lesson to be drawn from the philosophies of both agile and learning organi-
zations is “An organization is only as good as its people.” An organization whose
culture fosters learning and openness to risk and failure will typically have a positive
impact on its employees and its goals.

11. L.L. Bean is a learning organization because of its skills in acquiring knowledge and
effectively converting it to behavioral and business changes. For example, L.L. Bean
increases its market research knowledge when it recruits devoted customers as
product testers, and they give feedback on real products used in actual situations.

12. The author relates how Shell is using a learning model in terms of the way it
researches and explores changes and the innovations it makes in the energy sector.
Although the company does not know what its future holds, it keeps its options open
through organizational flexibility, renewable energy research, and conversations
with policy makers.

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BM64
wbp04Ch02P14

4 Shaping and Sustaining Change

Ryan McVay/Photodisc/Thinkstock

Learning Objectives

After reading this chapter, you should be able to do the following:

1. Describe the major reasons why organizational change programs fail and succeed.

2. Evaluate how to recruit and empower employees.

3. Analyze the five pillars of successful, sustainable change.

4. Explain the characteristics of built-to-change organizations that position themselves to successfully sustain
change.

5. Examine useful principles and practices in sustaining change.

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Introduction

Nothing is easier than saying words. Nothing is

harder than living them day after day.

—Arthur Gordon

Pretest Questions

1. True/False: Because speed and efficiency are hallmarks of the American business
system, a short–term fix approach to organizational change is often successful.

2. True/False: Recruiting experienced individuals to a company that is planning trans-
formational change is risky because such people tend to resist change.

3. True/False: Knowledge management is a system in which organizations sustain
change by making intellectual capital available to employees so they can continu-
ously learn.

4. True/False: Built-to-change organizations prioritize temporary competitive advan-
tage over long-term stability by continuously implementing important changes.

5. True/False: A self-designed organization is one in which stakeholders choose the
direction of the company.

6. True/False: A common mistake in implementing change strategy is to reject a
“blockbuster” innovation in favor of small, unexciting changes.

In Chapter 3 we discussed three companies that underwent significant planned organizational
changes. They are summarized here to illustrate two successful overall outcomes (Ford and
AlliedSignal/Honeywell) and one unsuccessful change (Avon).

Ford

After working at Ford for 25 years, Alan Mulally retired as CEO on July 1, 2014—8 years after
leading Ford’s transformation. Chair Bill Ford said, “Alan deservedly will be long remembered for
engineering one of the most successful business turnarounds in history. Under Alan’s leadership,
Ford not only survived the global economic crisis, it emerged as one of the world’s strongest auto
companies” (as cited in Media.Ford.com, 2014, para. 4).

Mulally’s change strategy, “One Ford,” worked. In 2006 Ford lost $12.7 billion, its worst
performance ever. In 2010, however, the company had net income of $6.6 billion, its highest
profit in a decade. The stock price was $1.25 a share in 2006 when Mulally came on board;
it closed at $17.21 on the day he retired. In 2011 he was awarded stock bonuses worth
$56.5 million (Henry, 2011).

After careful research, Mulally targeted major problems at Ford as “inefficiencies in production,
bad relationships with suppliers, unrealistic delivery dates—and management that deflected
blame” (as cited in Henry, 2011, “One World, One Plan,” para. 2). With the One Ford strategy, he
reorganized the company’s operations and global managers to focus on the same agenda.

Mulally’s overall success factors were that he had a compelling vision for Ford as a mobility
company. He focused on technological innovation (for example, MyFord Touch entertainment)

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Introduction

across vehicles and led product development with partnerships in the consumer electronics
industry. This allowed Ford cars and trucks to transform into mobile centers of entertainment
and communication that grew in concert with smartphones and social media. Now all major
automakers focus on personal technologies to make cars mobile entertainment and information
centers (Caldicott, 2014).

Mulally promoted accountability and collaboration across leadership structures. He also carved
a path for outstanding execution. Ford moved forward with new product vehicle development,
redesigning the Taurus, Focus, and Fiesta models. Mulally then streamlined Ford’s products,
removing 97 weak auto products and concentrating on 20. This resulted in a simpler, leaner
product line that allowed Mulally to focus on and showcase manufacturing, product development,
and customer service excellence (Caldicott, 2014).

AlliedSignal/Honeywell

During Larry Bossidy’s term as CEO, Honeywell emerged from a disastrous merger with
AlliedSignal in 1999, when the latter purchased Honeywell for $14.4 billion. Honeywell operated
in the controls and aerospace business; AlliedSignal was at the time an aerospace, automotive,
and engineering firm. There was a clash of cultures. AlliedSignal was overwhelmed with cost
control, which caused it to neglect its long-term investments and strategic planning. By contrast,
the original Honeywell was known for being customer-centric and creative, but not for execution.

Bossidy was asked to find a successor who could handle the challenge of merging the two warring
cultures. In 2002 he took a chance on David Cote, who had worked under Jack Welch at GE.
Cote’s first step toward a turnaround was to terminate a long-standing aggressive accounting
policy used by AlliedSignal and Honeywell and adopt a conservative approach that put both
firms on a more level playing field. Secondly, Cote introduced a new collaborative strategy for
dealing with Honeywell’s difficult legacy and litigious approach to solving asbestos lawsuits
and environmental liabilities. Honeywell established a trust for the claims, making expenses
predictable.

Cote also introduced principles of best practices in all businesses to stop the conflicts between
the companies. He focused attention on manufacturing practices in particular, sending
70 managers to a Toyota plant to master output production methods. The rewards were
described as spectacular. Since 2002 the company’s sales have grown by 72%, while its head
count only increased by 21% (Tully, 2012). By keeping fixed costs like labor relatively flat, Cote
generated “operating leverage” that magnified brisk revenue growth into outsize earnings.
Since 2003 Honeywell has increased sales by 7% each year, and operating profits have grown by
12% (Tully, 2012).

Cote also excelled at company acquisitions. Honeywell acquired 70 companies. These moves
tripled Honeywell’s profits. In effect, Cote’s collaborative, detailed, and big-picture approach,
along with his relentless focus on integration, has made him a change champion at Honeywell
and within its industry.

Avon

Avon Products’ ex-CEO Andrea Jung stepped down in 2011 and was succeeded by Sherilyn McCoy.
Several large change efforts had faltered and failed under Jung since 2005 (Martin, 2012), and
Avon’s profits had declined every year since 2008. McCoy said in 2012:

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Introduction

Avon’s products and pricing were “off target.” Technology and service “did not
keep pace.” Senior managers were moved so often they couldn’t gain traction.
Avon doesn’t need yet another new strategy. We need to focus on the core of
Avon’s business: representatives, consumers and our people. The challenge
we’re facing didn’t materialize overnight. They developed over years, and our
solutions will take time as well. (as cited in Martin, 2012, paras. 23–25)

What went wrong with Jung’s transformation efforts? What led to her eventual downfall?
Himsel (2014) answered this question by identifying five “traps.” Trap 1: Jung failed to develop
the agility to factor global scale and local requirements into decisions. Avon attempted to
manage economies of scale and local customization requirements with erratic business moves.
First it decentralized the system; then the following year it did the opposite and went back to
centralized control. This led to the company being unable to meet customer demands and being
perceived as overly reactive.

Trap 2: Jung did not align organization culture with strategy. She may have underestimated the
power of culture, which can and did undermine even the strongest strategy. She failed to evolve
the culture with the strategy.

Trap 3: Jung occasionally refused to hold leaders, including herself, accountable for controversial
changes and performance-related decisions. When leaders do not send clear, certain, and
consistent messages and follow-up actions, employees lose confidence in them.

Trap 4: Jung failed to understand the demands of officers and leaders when globally integrating
the company. During this transition, Avon needed a CFO who could improve and consolidate its
financial systems, create consistent financial controls and processes, and increase margins while
decreasing inventory. Instead, the company hired a CFO generalist and “deal maker.” These skills
did not match the demands of a company expanding and integrating into emerging markets.

Trap 5: Jung failed at due diligence and vigilance in having employees work in “at-risk” global,
emerging markets. The result: Avon paid a $135 million settlement with the U.S. Securities
Exchange Commission and the U.S. Department of Justice for allegedly bribing Chinese
government officials. CEOs and their staff must screen and train new hires to follow corporate
values and codes of law and ethics both at home and abroad (Kowitt, 2012).

When McCoy took over from Jung in 2011, Avon’s revenue was $10.7 billion. The loss from
continuing operations was $38 million. In 2014 revenue was $8.9 billion, and the net loss from
continuing operations was $385 million. Avon’s numbers have continued to decrease with McCoy
as CEO.

Critical-Thinking Questions

1. What went wrong at Avon, according to this brief case scenario?
2. As a student of organizational change, identify a few key concepts you have studied

that would have helped diagnose Avon when its sales began to decline.
3. Identify a few actions that Mulally took at Ford that helped turn Ford around at that

time.
4. Identify and briefly state your opinion on a strategic action that Cote implemented

that helped changed the direction of AlliedSignal and Honeywell at that time.

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Section 4.1 Failing and Succeeding at Change

Introduction: Back to the Future
Sustaining major organizational changes—that is, ensuring that planned changes
endure—does not involve “one-shot” or quick-fix solutions. Embedding change in organiza-
tions requires continuous top-down, bottom-up leadership and process improvements—
including supportive and innovative actions throughout the enterprise. The CEO and top-
level team generally define and lead the change, but everyone must be involved in managing,
re-creating, and rejuvenating the ongoing renewal processes.

The transformational change programs at Ford, AlliedSignal, and Avon required years to plan
and complete. Looking back at their successes and problems informs us about the people and
processes used to implement change goals and the initiatives undertaken in response to dif-
ferent environments.

4.1 Failing and Succeeding at Change
Although some transformational changes may start with a “big bang,” embedding and sus-
taining them takes time, talent, and effort. Rosabeth Moss Kanter (2002), Harvard profes-
sor and change expert, noted that effective change is sustained by “long marches” not “bold
strokes.” In order to revitalize and sustain large-scale changes, it is important to know some
of the major reasons why changes fail and also what makes them succeed.

Why Change Programs Fail

There are more than enough reasons why organizational change programs fail. We previously
discussed some in this text and have selected some of the more notable ones to discuss here.
Understanding and learning from each of these can prevent failure and help facilitate strate-
gies and efforts to sustain change. Fletcher and Taplin (2002) list these reasons why organi-
zational change programs fail:

• Opposition to change
• Failure to recognize the need for change
• Superficial recognition of the need for change
• Failure to systematically implement change
• Short-term fix approach
• Structural impediments to change
• Cultural impediments to change
• Failure to sustain change

Large-scale, planned organizational changes are generally complex processes that require
expertise and systematic methods that take the entire enterprise into consideration. Just
as important, the people involved in and affected by the change must not be excluded. Fail-
ing to communicate with and involve professionals and employees who are affected by such
changes often creates opposition and resistance.

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Section 4.1 Failing and Succeeding at Change

Opposition to Change
Change programs are often destined to fail because of the top-down imposed nature of the pro-
cess (Nohria & Beer, 2000). The following scenario is all too common: a CEO or top-level team
member gets some new ideas from either talking to friends, witnessing a change in a competi-
tor, attending a seminar, reading current business trends, or following a current management
fad. He or she then decides to try something new with a division or the entire company.

When change is arbitrarily imposed, poorly explained, and hastily announced from the top, man-
agers and employees can become disillusioned, lose motivation, and become increasingly resent-
ful and resistant to the change. Their work often changes and increases, while resources and
attention to quality decreases. Managers in particular are thrown into confusion when they are
asked to implement and guide changes that are not adequately explained and for which they
have few or no blueprints or models. Also, when managers are given little strategic direction or
rationale for implementing change, they typically revert to emphasizing what they know best:
operational detail that is activity (not goal) driven (Fletcher & Taplin, 2002).

For example, Friendly’s restaurant chain filed for bankruptcy in October 2011 (Reuters, 2011).
Although many reasons explain this chain’s failure—including the slumping economy and the
chain’s debt and financial situation—the lack of a clear strategic direction was also an issue.
One author described Friendly’s in the following way:

The restaurant smells like a bus station. Food takes a long time to arrive at the
table, no matter how painfully empty the dining room is. The salad looks like
it was assembled a few weeks before I ordered it. Only the nostalgia keeps me
coming back. (Baab-Muguira, 2011, “Times Have Changed,” para. 3)

Restaurants like Friendly’s, which was founded in 1935, must continually differentiate themselves
from similar establishments in order to remain competitive in the marketplace. They must be
sure that the public knows what makes them unique. In 2009 Friendly’s former CEO, Ned Lidvall,
stated that the restaurant’s differentiator was ice cream and that the lines and definitions of
brands in the industry were starting to blur (O’Brien, 2009). Friendly’s attempts at competitive-
ness by emphasizing ice cream and other piecemeal marketing ideas proved unsuccessful.

Failure can also occur when the pur-
pose of the change is not shared by the
people and is, in turn, separated from
the organizational processes required
for implementation. When an affiliate
of the private equity firm Sun Capital
Partners took over Friendly’s restau-
rant chain and filed for Chapter 11
bankruptcy protection in 2011, 1,260
workers, or more than 12% of that
chain’s 10,300 member workforce,
were told one evening they would lose
their jobs the following day. A spokes-
person for Friendly’s at that time

AP Images/Charles Krupa

Unfavorable economic circumstances, competition,
and unsuccessful change to differentiate Friendly’s
from other restaurants contributed to restaurant
closures and bankruptcy.

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Section 4.1 Failing and Succeeding at Change

stated, “We’re not trying to put people out of jobs. We’re trying to ensure the future of the com-
pany” (as cited in Hines, 2011). That spokesperson noted that closed locations were unprofit-
able and that closing those locations would help the company and its parent, Sun Capital, gain
control over $296 million in outstanding debt (Hines, 2011). The company survived the painful
downsizing and emerged from bankruptcy, then in 2012 hired John Maguire, who helped rein-
vent the chain (Pohle, 2015).

Failure to Recognize the Need for Change
In the 1970s and 1980s, CEOs of some of the largest, most innovative world-class U.S.-based inter-
national firms were entering a period they did not anticipate, one featuring fierce global compe-
tition and new ways of streamlining operations. IBM, Digital Equipment Corporation, Polaroid,
and General Motors were still resting on their past successes, because they believed they could
continue to dominate their industries with bulky hierarchies, unrealistic overhead costs, and out-
dated operations. As a result, Digital Equipment Corporation and Polaroid did not survive.

Japanese auto and electronics companies entered the scene with the first wave of new and
competitively priced products that were made with higher efficiency operational methods.
The result was 2 decades of radically induced change for all U.S. industries: total quality man-
agement, just in time, reengineering, and the introduction of information technology into the
assembly line process.

Failing to recognize the need for change is not relegated to the past. In 2014 the Huffington
Post published a list titled “9 iconic brands that could soon be dead” (Jacques, 2014) because
of failure to adjust to contemporary markets, customers, and business models. These included
Quiznos, JCPenney, Zynga, Red Lobster, BlackBerry, the Women’s National Basketball Associa-
tion, Volvo, Martha Stewart Living magazine, and Abercrombie & Fitch (Jacques, 2014).

The inability to recognize the need for change continues to be a major cause of failed change
programs. Other causes for failure include changes that are initiated too late to regain com-
petitiveness; are initiated poorly, without proper attention to how change processes should
be planned; or are not initiated at all.

Superficial Recognition of the Need for Change
Some CEOs and organizations move forward with a change without the necessary commit-
ment to allot the resources and harness the energy of the entire enterprise. They believe that
targeting a certain division, business unit, department, program, or management practice for
change will be enough to solve the problem and generate new opportunities throughout the
entire organization.

In such instances concern for cost, in terms of time and money, is the prohibitive factor. In other
instances such shortsightedness may be due to a top-level individual, team, or dominant coali-
tion’s lack of political or business acumen or some other limiting capacity. Whatever the spe-
cific reasons for not understanding or taking action on the need for total change, this general
type of thinking has been characterized as myopic or nearsighted (Colea & Coltea, 2013)—that
is, top-level leaders are trapped into thinking in terms of the status quo: “If it isn’t broken, don’t
fix it.” Moreover, leaders do not direct enough attention to frontline managers, and they do not
focus these managers on specific actions needed to achieve stated business outcomes.

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Section 4.1 Failing and Succeeding at Change

When incremental, piecemeal, or selected organizational targets for limited change are
adopted in place of needed enterprise-wide and transformational changes, the result is often
loss of resources, time, effort, and competitiveness. For example, a department in a large uni-
versity organization needs laptops replaced every 4 years on a revolving basis for eligible
members who sign up for the program well in advance. This is a change that is not large in
scope and that does not need a complicated plan. At the entire university level for all depart-
ments, a change plan may be needed.

An example of a successful organizational change that followed a plan is the United Arab
Emirates’ du Telecom. The firm was started in 2006 and offers mobile and fixed telephony,
broadband connectivity, and Internet Protocol television to consumers and businesses. The
company acquired almost 40% of the region’s market share by 2010 and has sustained a 32%
growth rate since.

The company’s strategic capability, planning, and leadership are factors that contribute to
its success. For example, the firm expanded by joining China’s Huawei Technologies Co.
Ltd. in 2013. Huawei is a multinational networking and telecommunications equipment
and services provider. This partnership and du Telecom’s strategic and tactical expertise
and vigilance have enabled the firm to (a) reduce project failures; (b) reduce the number
of employees needed per project; (c) lower costs and tighten up time frames and projects,
which cost less than predicted; and (d) create a single point of contact to manage projects
(Wang, 2015).

Failure to Systematically Implement Change
Failing to systematically lay out a complete change program and implement that plan can lead
to catastrophe. Productivity and financial gains are more likely to be obtained when imple-
mented with a systematic approach (Kaydos, 2015). Companies that attempt to change one
system without coordinating and aligning complementary related systems to facilitate the
change generally fail to achieve their original goals.

Examples abound and include airlines that attempt to improve customer relations by training
flight attendants but not check-in agents; firms that attempt to decrease time between point-
of-sale and collection of payment by improving sales professionals’ strategies but do not
change the internal processing of payments; companies that move marketing content online
to extend their product’s reach to potential customers but do not create systems to process
online purchases; and so on. When organizations do not study all the core processes in their
business from the perspective of their new vision and change goals and do not decide on an
implementation plan that aligns all the major systems, failure is on the horizon.

Short-Term Fixes
The American capitalist business and financial system is based on short-term time horizons.
U.S. corporations operate on a quarterly basis and are valued on both short- and long-term
information. Financial analysts evaluate, predict, and recommend buys, holds, and sells on
stocks from quarterly reports using past and future trends. Although speed, efficiency, and
innovation are hallmarks of the American capitalist business system, the short-term perspec-
tive also can and does contribute to myopic decision making and short-term fixes (Tanden &
Effron, 2015).

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Section 4.1 Failing and Succeeding at Change

CEOs and executive teams that rush environmental scanning, planning, and problem/opportu-
nity diagnosis may run the risk of targeting the wrong problems and opportunities. Then, the
rush to hasty implementation compounds problems that can create further failure, including
being left with poorly coordinated and ill-prepared implementation teams that sacrifice the
quality of implementation; suboptimizing goals (selecting less than desirable goals so as to
meet time and task completion pressures); and preparing the change effort for increased
costs, wasted effort, and lack of goal attainment.

Diagnoses and implementation plans that impose a short-term fix mentality and framework
on a large-scale change program usually suffer the symptoms described here, as well as other
unintentional consequences that eventually lead to unnecessary costs and delays, if not failed
goals and wasted time and effort.

Structural Impediments
to Change
Large corporations’ bureaucratic struc-
tures and hierarchies have posed major
obstacles to implementing large-scale
change. In fact, the methods of business
process engineering and reengineering
were revolutionary in that they elimi-
nated unnecessary barriers in all busi-
ness processes and were designed to
decrease time, effort, and costs while
increasing speed and effectiveness in
moving a task from start to finish. Orga-
nizations that begin with structure over
strategy and purpose risk not being
able to transform a company’s vision to
a new state.

Corporations are generally moving toward less structure to achieve more economies of scale
and effectiveness. As we will discuss in the following section, alternative solutions to tradi-
tional vertical structures are being used as a result of change initiatives. Among these alterna-
tive solutions are outsourcing, streamlining business processes, and experimenting with new
forms of networked structures and communities of shared competencies.

Cultural Impediments to Change
Resistance to change usually stems from an old culture in which employees refuse to give up
leaders’ dominant values, assumptions, and norms. The previous state of the organization may
have worked well in a past environment or era but is no longer as efficient as it needs to be.

With a new vision and fresh values—and perhaps leaders—new cultural meanings, lan-
guages, symbols, and experiences must be embedded. When the change champions and lead-
ers do not pave the way for a shift in the alignment of the organization’s dimensions and
systems, previous cultural values tend to prevail with some groups and managers; the status
quo is often the default position, even if it is to the detriment of the organization.

Jirsak/iStock/Thinkstock

The traditional business hierarchy holds many orga-
nizations back. Companies are beginning to move
away from this structure for greater efficiency.

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Section 4.1 Failing and Succeeding at Change

Failure to Sustain Change
It has been estimated that 70% of large-scale change initiatives in companies fail (Colea &
Coltea, 2013). This is due to any one or a combination of the factors discussed here.

Generally, people settle back into the status quo if they do not have to change. Change cannot
be sustained if people in an organization maintain a bureaucratic and functional mind-set
and refuse to adopt new attitudes, beliefs, and behaviors. Sustaining change requires strong,
committed, and informed leaders who involve others in the alignment of all an organization’s
systems around the new vision.

Organizing to Succeed at Change

Maintaining an organization’s alignment to a new vision and future state requires leaders and
followers to keep the organization’s big picture in mind. The model shown in Figure 4.1 and
discussed in Chapters 1 and 2 provides a useful reminder that leaders are an integral force at
the outset in guiding the alignment of organizational dimensions to the new vision and future
state.

Customer Partnership

Transformation

Current to Future State

Customer Satisfaction

Outputs

Customer Requirements

Inputs

Vision and
Strategy

Culture

Nature of
Work

Structure

Technology

People

• Leadership
• Environment
• History
• Resources

Organizational Level
• Competitiveness
• Market share
• Product and service
quality
• Responsibility
(environment and
community)

Group Level
• Synergy
• Performance
• Effectiveness
• Satisfaction

Individual Level
• Performance
• Satisfaction
• Development and
growth

Measurement
Systems

Customer Partnership
Transformation
Current to Future State
Customer Satisfaction
Outputs
Customer Requirements
Inputs
Vision and
Strategy
Culture
Nature of
Work
Structure
Technology
People
• Leadership
• Environment
• History
• Resources
Organizational Level
• Competitiveness
• Market share
• Product and service
quality
• Responsibility
(environment and
community)
Group Level
• Synergy
• Performance
• Effectiveness
• Satisfaction
Individual Level
• Performance
• Satisfaction
• Development and
growth
Measurement
Systems

Figure 4.1: Strategic alignment model

This model offers a way to understand organizational actions through a process of taking resources into
a system, processing them, and producing outcomes.

Source: Based on Weisbord, M. (1987). Productive workplaces. San Francisco: Jossey-Bass; and Burke in Howard, A. (Ed.). (1994).
Diagnosis for organizational change. New York: Guilford Press.

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Section 4.2 Attracting Talent and Empowering Employees

We provide examples of how leaders in different organizations and industries use interven-
tions to sustain change to compete in their external environments while internally empower-
ing their organization’s people and culture.

Check Your Understanding

1. Of all the reasons why change programs fail, which do you think is the most common? Explain
your reasoning.

2. Choose one of the reasons why change programs fail and discuss how this knowledge can be
used to help sustain change.

4.2 Attracting Talent and Empowering Employees
A critical task of sustaining change involves continually attracting, involving, and empowering
the right talent. Because people are an organization’s most important asset, and leaders can
only get things done through people, revitalizing organizations requires developing strategies
for leading and managing human capital. Human capital refers to the skills, knowledge, and
experience of a workforce with regard to people’s value and cost as invested in and incurred
by an organization (Fitz-enz, 2000). Managing human capital is a process in which senior
executives spend as much time and energy on acquiring, allocating, developing, and keeping
their employees (human capital) as they do on other types of capital (Lawler & Worley, 2006).

Recruiting Talent

Contemporary organizations face a “new world of work” that challenges and necessitates dra-
matic strategy changes for HR and company leaders (Deloitte University Press, 2015). HR
departments are particularly challenged by how to recruit, evaluate, and manage talent. They
must also determine how best to engage, develop, and retain new professionals and teams,
which is not easy. HR groups are continually rethinking methods for measuring and moni-
toring the larger organizational culture to attract and interest professionals. Organizational
change in this regard has become an ongoing process.

Recruiting Through Branding
Hiring the right talent to fit the organization’s new vision, strategy, and business process can
be challenging. Organizations generally use branding—their image, reputation, and identity,
or what they are generally known for—to attract new hires. Highly visible, successful organi-
zations like Google, Microsoft, and Facebook do not worry about their branding as a recruit-
ing method because they are so well known.

However, smaller, less visible companies need to make more deliberate attempts to promote
their brand to potential employees, yet few companies seem to succeed at this strategy. Con-
sequently, it has been recommended that organizations view their employees or potential
employees as customers. Companies should spend time conducting marketing analyses to
identify which corporate attributes are most important to the employees they wish to recruit
and how best to reach those recruits (Hieronimus, Schaefer, & Schröder, 2005).

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Section 4.2 Attracting Talent and Empowering Employees

Two McKinsey surveys showed that traditional recruiting methods focused on job security,
opportunities for creativity and individual growth, and compensation but that a hiring com-
pany’s intangible and emotional associations appeared to be strong motivators for potential
recruits (Hieronimus et al., 2005). Whatever techniques are used to attract and recruit prom-
ising new talent, the McKinsey study concluded that they should be strongly aligned to the
company’s brand strategy (Hieronimus et al., 2005).

Recruiting Using Social Media
Another recent recruiting method is
to use social media. LinkedIn, Face-
book, Twitter, and YouTube are popu-
lar recruiting sources. For example,
the large online retailer Zappos uses
social media for branding and recruit-
ing. Talent acquisition experts observe
that large employers are using online
job boards and social media combined
with traditional recruiting methods to
post new listings (Drew, 2014).

Recruiting Using a Talent
Mind-Set
Organizations look for talent that can help them ramp up operations quickly, start new busi-
ness models, and create new roles by acquiring and/or merging with other companies.
Although companies like General Electric, PepsiCo, and Colgate–Palmolive are renowned for
their ability to develop top-notch employees and emerging leaders in their industries, they
are also dedicated to external recruiting (Beeson, 2011).

Part of these firms’ success at external recruiting is their ability to integrate newcomers
into their established high-performing cultures. Firms that combine external talent recruit-
ing with internal integration practices are called “talent mind-set companies” (Beeson,
2011). These companies seamlessly combine talent acquisition with talent development.
Firms that recruit individuals to fill job positions generally focus on their job-specific expe-
rience. Talent mind-set companies also pay attention to candidates’ leadership ability and
prospective career growth. These companies are particularly interested in the following
characteristics:

• abstract, conceptual thinking ability and ease in handling ambiguity, which are
needed in strategic thinking;

• risk taking and feeling comfortable taking independent positions and not going
along with what everyone else in the company thinks; these are building blocks of
innovation and leading change, even if these characteristics mean moving an organi-
zation out of its comfort zone in order to implement effective change;

• empathy and organization knowledge/savvy, which embody the ability to read
people and situations and to influence peers and coworkers so that projects and
initiatives can be implemented across organizational boundaries; and

AP Images/Chris Radburn/Press Association

Social media sites such as LinkedIn are changing the
ways companies recruit new talent.

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Section 4.2 Attracting Talent and Empowering Employees

• the ability to set high standards, let go of certain detailed work, and avoid getting
mired in too much detail or micromanaging, all of which are important elements of
managing implementation (Beeson, 2011).

Organizational change is generally not an episodic event; it is a process that involves manag-
ing change on an as-needed basis. Since talent and human expertise is perhaps an organiza-
tion’s most valued asset, recruiting, engaging, and retaining the right people is an intricate
part of change.

Empowering Employees for Change

Recruiting the right talent also involves integrating new employees into the company by
providing opportunities for them to meaningfully participate in achieving the organiza-
tion’s objectives. Cameron Kauffman (2010), a certified public accountant, suggests five
areas of employee involvement that she used in her San Francisco–based firm. We have
adapted these for general business: personal, organizational, customer, professional, and
community.

Managing Change

Recruiting Talent in the 21st Century

Suppose you are the HR director at a growing e-commerce company. The company must stay
dynamic to keep up with changing technology and evolving social attitudes, as well as to be
agile so as to respond to customer demand. Your company has a good reputation, but the
sales and marketing teams are working to spread the word about your service.

Leaders can’t change and grow companies on their own—human capital is among a
company’s most important assets. Organizations need talent to rebound from a recession
and revamp productivity, start new lines of business, and acquire or merge with other
companies. Your task is to make sure you have the right people in place for the job. Your
department starts to look for those with e-commerce, programming, and general Internet
experience. You need employees who can keep up with the pace of technological change
and know what role the Internet plays in popular culture.

Naturally, your HR team turns to social media to find web-savvy candidates. However, you
must pay attention to your company’s mission and values and understand how they relate to
recruiting.

Discussion Questions

1. How do you stay on top of the hiring game in your industry?
2. How do you use social media to recruit talent?
3. What does it mean to have a talent mind-set?
4. What is a company with a talent mind-set looking for in its new hires?

(See the end of the chapter for possible answers.)

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Section 4.2 Attracting Talent and Empowering Employees

Personal employee involvement is achieved through training, mentoring, and career-development
programs. Organizational involvement includes efforts that enable employees to participate
in organization-wide visioning, planning, and addressing generational differences. Employee
customer involvement will differ, depending on the type of business, but may include meetings
or events with customers and direct interaction, such as having employees sit in on planning
and focus groups.

Professional development refers to providing employees with opportunities for personal and
professional growth. This may mean becoming involved with professional organizations or
associations. Finally, community involvement is achieved by providing volunteering oppor-
tunities and is often linked to the organization’s corporate social responsibility initiative
(Kauffman, 2010), which is discussed later in this chapter.

Fortune magazine’s 100 Best Companies to Work For list provides abundant examples of
personal and professional development available to employees. The list is published annu-
ally and organizes companies by industry. Companies rigorously compete for placement on
the list because being selected improves their reputation and makes their name more rec-
ognizable. There are also extensive marketing benefits for being recognized for recruiting
top talent. Based on the Trust Index, organizations that submit their proposals are metic-
ulously evaluated on criteria such as evidence of credibility, respect, fairness, pride, and
camaraderie. Methods used to evaluate companies include extensive surveys from employ-
ees and managers and analyses of employee engagement using criteria from the Trust Index
(Zappe, 2011).

The North Carolina software giant SAS has been on the list for 14 years and was ranked num-
ber one in 2010 and 2011. The company provides many employee benefits, including on-site
child care, health care, and an employee gym (Zappe, 2011). SAS ranked number two on the
2014 Top 25 World’s Best Multinational Workplaces list from the Great Place to Work Insti-
tute. It was also number two on Fortune’s 2014 Best Companies list and number four on its
2015 list (SAS, 2015).

Finding and involving the right employees is only one aspect of developing a workforce built
to change. Once the right employees are hired, management must retain them by creating
an engaging and empowering environment in which to work (Lawler & Worley, 2006). Right
Management Inc. publishes a global survey each year to evaluate workplace engagement. A
2015 survey from Deloitte showed that organizational culture and engagement is a top chal-
lenge for 87% of organizations surveyed, and 50% feel that this issue is “very important”
(Deloitte University Press, 2015).

Surveys by Right Management, Deloitte, and others suggest that empowerment (providing
employees with the necessary motivation and autonomy to achieve great things toward the
organization’s objectives) is achieved through clear reporting structures, meaningful oppor-
tunities for employees to share their opinions, clear and understood career opportunities,
and autonomy (Deloitte University Press, 2015).

The purpose of empowerment is to reduce sources of powerlessness (Styhre, 2004). Power-
lessness is often a trademark of continuous change if an organization is not prepared. Good
structures for attracting, involving, and retaining the right talent hedge against this power-
lessness and give an organization tools to sustain and even shape change.

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

Check Your Understanding

1. Explain why talent recruiting and management is an important part of organizational change.
2. What do you look for in a company as a potential employee? What qualities must it have to

make you stay long term? Explain your reasoning.
3. What are the similarities and differences in the way you answered question 1 versus question 2?

4.3 Revitalizing the Five Pillars: Leadership, Strategy,
Culture, Structure, and Systems

For a company to shape and sustain growth, it must continually revitalize the principal ele-
ments that made it strong. Organizations that can survive, innovate, and compete in changing
environments have leadership teams that must decide whether and how to continuously
adapt, shape, deconstruct, and/or recreate strategies to match structure, cultures, technolo-
gies, and the right people. The case study of Alibaba in Chapter 1 presents a road map for
many larger companies going forward.

This section focuses on five principal components that are integral to any successful company:
leadership, strategy, culture, structure, and systems. What appears to be changing with regard

to these basic organizational dimen-
sions is not the dimensions themselves
but the flexibility, speed, and continu-
ous improvements required by leaders
and teams to adjust to complex, unsta-
ble external environments. We discuss
these dynamics in this section.

Lessons From the Great
Companies

Although the next generation of
“great” companies may be Google,
Facebook, Amazon, Alibaba, and some
of the sharing economy companies like
Uber and Airbnb, it is still important to
understand lessons from the classic

firms that Jim Collins, author of the best-selling books Built to Last (Collins & Porras, 1994)
and Good to Great (Collins, 2001), spent 5 years researching.

Collins studied companies that sustained market competitiveness over 15-year periods. His
findings are relevant to our discussion of how organizations can sustain change programs to
reach higher levels of competitiveness. Not all organizations that pursue large-scale change
can or will become great. However, it is worth noting the principles and practices that underlie
the number of companies that reached and maintained market dominance for long periods.

The dominant messages regarding how good companies become great are relevant to sus-
taining effective leadership, strategy, culture, structure, and systems:

Alexander Hassenstein/DigitalVision/Thinkstock

The five pillars to sustain change—leadership, strat-
egy, culture, structure, and systems—should be at
the core of every successful company.

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

• Level 5 Leadership: The leaders led and worked not with highly observable
charismatic, loud, or dramatic styles but calmly, quietly, humbly—even shyly—in
strong-willed ways.

• First Who, Then What: The leaders found and placed the right people in the
right places and let the wrong people go before setting a new vision and strategy.

• Confronting Brutal Facts: The great companies and their leaders confronted
harsh, unflattering truths about the organization, while never losing faith that
they would prevail in the face of adversity.

• Hedgehog Concept: When a hedgehog faces a predator, it rolls into a ball. Unlike
the clever fox, the hedgehog’s strategy is surprisingly easy, repetitive, and effec-
tive. Great companies and their leaders learned and followed their strengths by
understanding and implementing their (1) passion, (2) what they could do best,
and (3) what drove their economic engine.

• Culture of Discipline: They developed a culture of discipline that made hierar-
chies excessive and unnecessary.

• Technology Accelerators: They carefully applied selected technologies to ignite
and accelerate their transformation—not to define their change.

• The Flywheel: They used the “flywheel” approach to change, that is, not seeking
a grand, single defining moment or killer application but relentlessly pushing a
large, heavy flywheel in one direction, turn after turn, until momentum built to a
point of breakthrough after breakthrough. (Collins, 2001, pp. 13–14)

Although not all of the great companies Collins wrote about represent exciting or glamorous
industries, their evolutionary journeys and transitions to greatness are based on combina-
tions of these principles and practices.

Table 4.1 shows the good-to-great companies (which must be placed in historical context)
along with their respective 15-year cumulative stock market results. Data include the mul-
tiple times the companies beat the Dow Jones average for that time period.

Table 4.1: Good-to-great companies in the stock market

Company Times the market Years

Abbott 3.98 1974–1989

Circuit City 18.50 1982–1997

Fannie Mae 7.56 1984–1999

Gillette 7.39 1980–1995

Kimberly–Clark 3.41 1972–1987

Kroger 4.17 1973–1988

Nucor 5.16 1975–1990

Philip Morris 7.06 1964–1979

Pitney Bowes 7.16 1973–1988

Walgreens 7.34 1975–1990

Wells Fargo 3.99 1983–1998

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

In Table 4.2 the comparison companies of each of the good-to-great firms are shown in ital-
ics. They are interesting to note because these companies did not make the leap to greatness.
You may not recognize the comparison firms or even some of the historically great companies
unless you do a quick Internet search.

Table 4.2: Comparison companies

Good to great Comparison

Abbot Upjohn

Circuit City Silo

Fannie Mae Great Western

Gillette Warner–Lambert

Kimberly–Clark Scott Paper

Kroger A&P

Nucor Bethlehem Steel

Philip Morris R. J. Reynolds

Pitney Bowes Addressograph

Walgreens Eckerd

Wells Fargo Bank of America

Interestingly, Wells Fargo survived the financial meltdown in 2008 and its aftermath and is
prospering. Although great firms cannot maintain superior stock market returns indefinitely,
there is an important and interesting set of leadership and management principles relevant
to sustaining best practices and change mandates across industries (Gandel, 2015).

There are other important elements that great companies employ during times of nearly
unprecedented global economic and political turmoil (Collins, 2001). Their response is rel-
evant to leadership and management seeking to identify and sustain organizational change
in real time. In uncertain times it is crucial that companies have core values, which need to be
timeless and consistently preserved to retain their meaning. The more challenges a company
faces, the more important it is to rely on core values—the reasons the company exists.

Companies like Proctor & Gamble (P&G), GE, Johnson & Johnson, and IBM have strong core
values. In addition, these organizations understand that the caliber of their employees can get
them through any challenge, including the Great Recession. They know that when problems
arise, people are more important than the plan (Rheingold, 1993).

Revitalizing Leadership

We have seen that leaders must first guide the design and diagnosis and then implement
change within their organizations. Then they must sustain it. As integrators, orchestrators,

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

and strategists, leaders have a primary role in keeping the strategy, culture, structure, and
systems of the organization in alignment. As Porter (1996) writes, a leader is primarily a
strategist who must choose which customer demands and industry shifts the company
responds to, while simultaneously maintaining the company’s unique traits and avoiding any
organizational distractions. The leader is responsible for teaching those in the organization
about strategy and for setting limits (Porter, 1996).

Leaders as Change Integrators and Orchestrators
Leaders are not only strategists but integrators. They integrate the organization’s new vision,
mission, and values with its changed strategy, culture, structure, and systems. A 2010 IBM lead-
ership report acknowledged that leaders should remove the silos within their organization and
replace them with integrated, cross-functional capabilities (IBM Global Business Services, 2010).

Take Shelley Nandkeolyar, for example. Nandkeolyar was an e-commerce group manager at
the kitchen retailer Williams–Sonoma who brought technological savvy and organizational
integrative understanding to his role. He created a new position within the company specifi-
cally to improve connections and communication among operations groups. This change and
others that he led were intended to enhance the speed and content between groups, which
was achieved.

With continuous change a reality in the current marketplace, leaders must carefully and cre-
atively orchestrate the facets of the organization, which includes different cultures, intergen-
erational dynamics, and communication styles (IBM Global Business Services, 2010). The kind
of creative leadership needed today is not a one-person show. It requires collective input and
output across the organization. The leader must integrate the organization to create collec-
tivity through frequent, clear, consistent communication and then orchestrate its functionality
around the organization’s vision, mission, and values. Leadership requires the ability to set lim-
its (Porter, 1996), which should be informed by the organization’s vision, mission, and values.

Take Seagate Technology as an exam-
ple. Seagate is a large manufacturer of
hard drives and other storage solutions
for personal computers. In the 1990s
the lack of integration from Seagate’s
leadership created a fragmented orga-
nization, and communication was poor.
This led to seven separate research and
development (R&D) groups and a lot of
internal competition. Seagate employ-
ees did not communicate or exercise
any common vision or mission.

Then, in 1998 new management
was brought in. CEO Steve Luczo and
COO Bill Watkins worked as part-
ners and integrators. They brought
Seagate together under one vision.
They defined expected performance

AP Images/Paul Sakuma

COO Bill Watkins is pictured with a Seagate product.
Together with CEO Steve Luczo, he worked to trans-
form Seagate Technology from a fragmented organi-
zation to one that was united under one vision.

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

behaviors and integrated organizational goals. They formed cross-functional teams and led
training that was the same for all employees across the organization. This integrated approach
allowed Seagate to become a market leader equipped for change (Clark, 2009).

Leaders of especially large global companies must also decide how to create a strategy for
their firms (Reeves, Love, & Tillmanns, 2012). A Boston Consulting Group survey of 120 inter-
national companies across 10 major industry sectors found that executives knew they needed
to match their strategic processes to the demands of their competitive environments, but
many still relied on strategic methods that fit more predictable, stable environments, even
though their environments were highly unstable (Reeves et al., 2012).

There are calculated decisions executives can make to create strategies that match their external
environments: These strategies include classical, adaptive, shaping, and visioning (Reeves et al.,
2012). The shaping type of strategy is more adapted to volatile environments than the other
three, since shaping strategies embrace shorter planning cycles. Being flexible is of the utmost
importance, since the strategy is often implemented as a series of experiments, with few predic-
tors used. Leaders must explore different strategies that match their competitive environments.

Leaders as Interpersonal Communicators and Motivators
As we consider the difficulty many leaders have with change, Gilley, McMillan, and Gilley
(2009) suggest a model based on interpersonal skills. They suggest that a leader’s success
with change may be improved through his or her ability to build teams, motivate, and com-
municate within the organization.

The Gilley et al. (2009) study noted that leaders’ ability to communicate, motivate, coach,
build teams, reward, and involve others has been associated with the successful implemen-
tation of change. The skills of motivation, effective communication, and team building are
ranked by the study as most important to the rate of success (Burke & Litwin, 1992; Conner,
1992; Sims, 2002).

More recently, studies show that design-oriented approaches may be more motivating than top-
down prescribed changes. Companies such IDEO, Innova, and Intercorp in Peru exemplify this
contemporary thinking in change management. For example, Brown and Martin (2015) discuss
the logic and process of design thinking and organizational change. They state that constant
interaction and discussion with the decision maker is more effective than top-down decisions.

In this type of interaction, the individuals interested in making a change would approach
the responsible executive early on, stating that they believe there is a problem that must be
solved. They would ask whether their viewpoint matches that of the executive (Brown &
Martin, 2015). Following this conversation, strategy designers would return to present the
possibilities that could be explored, given the definition of the problem that was previously
discussed with the executive. They would ask to what extent the possibilities match what the
executive imagined and if any are missing or are nonstarters.

Finally, designers would approach the executive again with a plan for analyses to be con-
ducted on the possibilities on which they all agreed. They would ask if the executive would
like to see the analyses run and if any are missing. IDEO uses this process for product innova-
tion and other organizational changes.

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

Leaders as Resource and Change Support Champions
Leaders must provide resources, build a support system for change agents, reinforce the
development of new skills and behaviors, and stay on course to sustain implemented changes
(Cummings & Worley, 2015). Financial support for large-scale change must be administered and
approved from the top, otherwise potential feuds over who gets which resources can occur at
lower levels. For example, a company that changes its vision by adding an e-business dimension
to its marketing and product operations must ensure that clear communication and structural
and skill changes are sustained and supported with adequate budgets. When such a dramatic
change occurs without the required investment, conflict and confusion are likely to ensue.

Similarly, sustaining organizational changes also requires leaders to help key managers build
a support system. Such a system would help followers learn and develop new skills and
behaviors to keep the changes on course. As with the example of an organization starting a
new e-business, leaders and managers must ensure that some employees are trained and
skilled in e-commerce tools and business practices to succeed both in the e-market and to
integrate the new business with the existing one.

Managing Change

The Qualities of a Change Leader

Suppose you are leading a pet food company that has made major transformational changes.
You have paid attention to building capability and made sure the right leaders are in place
to support the change. The infrastructure and processes have been altered to execute the
change. Company values include a commitment to quality, which means better scrutiny of
the suppliers and supply chain management. The strategy includes a modernized rebranding
and a focus on organic ingredients to support company values.

Financial backing has been secured to see the organization through the new changes.
Feedback and input from staff and stakeholders has been sought and incorporated into the
plan. The organization’s culture and the functions of its various units have been aligned to
the common goal. There are open lines of communication, and as a leader at the top-tier
management level, you have strong relationships with your management team and new
vendors.

It may seem like everything has been covered, but organizations must continue to evolve
and adapt to the business environment. Profits are up, but change is an ongoing process. It is
important to recognize business achievements and reward those who contributed to them.
The leader’s task at this point is to sustain the positive change.

Discussion Questions

1. Identify a few key roles a leader must take, specifically, in sustaining change.
2. What must the leader integrate to successfully implement change?
3. What kinds of capabilities should a leader possess to increase the likelihood of

success?
4. What additional responsibilities, in general, does the leader have?

(See the end of the chapter for possible answers.)

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

Revitalizing Strategy

Enterprise or corporate strategies define a purpose and mission for an organization to sat-
isfy stockholder and stakeholder expectations. They also set a course to meet the demands of
rapidly changing external environments while accommodating the needs of internal systems
(Johnson & Scholes, 1993; Reeves et al., 2012). Business-level strategies define the reasons
why organizations take certain actions to gain a competitive advantage using their competen-
cies in a specific business.

Operational and functional-level strategies define ways each part of the business or func-
tional area (marketing, production, sales, R&D) is organized to deliver corporate and business
unit–level strategic direction (Johnson & Scholes, 1993). Strategies for continuous change
may also differ from those employed in traditional and other types of environments.

Different functions within a company may operate in environments that require various
approaches to their planning (Reeves et al., 2012). For example, in some functions, optimiz-
ing production might work for that unit, but not for a marketing and sales department where
digital analytics may be needed to shape strategy to meet those environmental requirements.
Enterprise strategists, then, would need to manage different strategic styles and strategies
within the organization.

Kanter (2006) observed several mistakes made in relation to implementing strategy, espe-
cially at the corporate and/or business levels:

• Rejecting what appear to be small innovations to go after a “blockbuster”
• Focusing only on new product development, rather than on new services or

improved processes
• Confusing customers and increasing “internal complexity” with too many minor

product changes. (pp. 76, 79)

With effective leaders as head strategists, organizations should broaden their scope and
widen their search when it comes to strategy (Kanter, 2006). An innovation pyramid approach
would be best; that is, a few large strategies at the top with clear direction and investment,
many midrange ideas with promise in test stages, and a large foundation of ideas in develop-
mental stages (Kanter, 2006).

Another important consideration with regard to strategy and sustaining change is strategic
positioning, or the way in which the organization’s vision and values align with the strategy.
A company using strategic positioning should gain a competitive advantage by focusing on its
unique qualities. It should engage in different activities than its rivals, or if similar activities
must be used, the way of going about them should be different (Porter, 1996). Porter (1996),
a strategy expert, describes three different sources of strategic position:

• Variety-based positioning: This type of positioning provides a small number and
specific type of product or service to a large number of customers. The strategy
is chosen based on the product or service, rather than by a customer group. For
example, Jiffy Lube International offers oil changes and other automotive services.
Before it began providing repair services, the company was a perfect example of
variety-based positioning as it specialized in one thing: oil changes. The company
based its strategy on this single service.

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

• Needs-based positioning: This type of positioning fulfills a large number of
needs for a small number of customers. The strategy is chosen based on the
demographics of customers rather than the type of product or service offered. For
instance, IKEA based its strategy on its target customers and offers them a large
number of home décor products around a certain price point that meet all of their
needs, including furniture, kitchenware, decorations, and more.

• Access-based positioning: Finally, this type of positioning fulfills many needs of
many customers in a narrow market. The strategy is based on customer accessi-
bility. For example, Carmike Cinemas, based in Georgia, only focuses on small- to
mid-size markets when finding locations for their theaters. The company bases its
strategy on small-town populations.

Kanter (2006) warns against adopting a strategic focus based solely on new product devel-
opment. Good ideas may come from any level of the organization, which is why it is critical
for the leader, as integrator and strategist, to create a fruitful environment for these ideas to
flourish (Kanter, 2006). One motivation underlying market positioning is to gain customers’
attention and make emotional contact with them.

A classic example was Avis Rent a Car’s proud claim: “We’re No. 2, We Try Harder.” It caught
the attention of customers and hurt Hertz’s position as first in the industry at that time. Avis
was near bankruptcy when the company came up with this strategy. It succeeded not as a
gimmick or slick marketing slogan, but rather allowed Avis to shift time, interactions, per-
ceptions, and structures to generate new possibilities with customers, transform the nature
of the competitive game with Hertz, and even change consumers’ behavior toward Avis
(Monger, 2012). The strategy led the way for the company to change its way of doing busi-
ness; Avis did in fact try harder, and it paid off.

Revitalizing Culture

Deloitte research has found that more than half of all business leaders view culture, engage-
ment, and employee retention as their most urgent challenges (Bersin, 2015). Culture
counts if an organization is to retain high-quality talent. For example, Zappos has one of
the most desired value- and innovation-focused cultures in the online retail industry. The
company has 10 core values, including “embrace and drive change” and “create fun and a
little weirdness” (Zappos, n.d.). Netflix has a manifesto, “freedom with responsibility” (as
cited in Zandlicious, 2015). Quicken Loans employs colorful ideals to guide values (such as
calling back every client the same day). Google uses its 10 things that outline what it believes
(including focusing on users and the idea that great isn’t good enough). Salesforce promotes
community.

These are not just clichés. Talented employees who have options in a rising economy do not
stay with companies where the culture does not match their needs and aspirations.

Organizational cultures may be the most critical yet challenging factor in successfully navigat-
ing change. Cultures need to accommodate and match the strategies of the organization and
at the departmental levels. Strong cultures exist when there is unified understanding and
perspective on what the organization is, what it stands for, and how it functions. Changing it
is often easier said than done. There are numerous aspects of culture that can affect an orga-
nization’s ability to handle change, as Senior and Fleming (2006b) show in Figure 4.2.

Figure 4.2: Capacities for change and culture

The interrelation of organizational leadership, strategy, culture, structure, and systems must be
managed when revitalizing transformational changes.

Source: Senior, B., & J. Fleming, J. (2006b). Organizational change (3rd ed.). Essex, UK: Prentice Hall, Figure 4.9, p. 173. Reprinted by
permission of Pearson Education, Inc., New York, New York.

ORGANIZATION’S
CAPACITY

TO CHANGE

Degree of management’s
openness to new ideas—

especially from below

Degree of willingness to
discuss sensitive

issues openly

Attitudes to
conflict

Degree of willingness to
give people authority and

support them in their actions

Degree to which the
organization’s structure

facilitates change

Attitudes to
experimentation in

processes and products

Attitudes to
sharing information

Attitudes to
criticism

wei82650_04_c04_155-206.indd 176 12/15/15 9:44 AM

ORGANIZATION’S
CAPACITY
TO CHANGE
Degree of management’s
openness to new ideas—
especially from below
Degree of willingness to
discuss sensitive
issues openly
Attitudes to
conflict
Degree of willingness to
give people authority and
support them in their actions
Degree to which the
organization’s structure
facilitates change
Attitudes to
experimentation in
processes and products
Attitudes to
sharing information
Attitudes to
criticism
Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems
• Needs-based positioning: This type of positioning fulfills a large number of
needs for a small number of customers. The strategy is chosen based on the
demographics of customers rather than the type of product or service offered. For
instance, IKEA based its strategy on its target customers and offers them a large
number of home décor products around a certain price point that meet all of their
needs, including furniture, kitchenware, decorations, and more.
• Access-based positioning: Finally, this type of positioning fulfills many needs of
many customers in a narrow market. The strategy is based on customer accessi-
bility. For example, Carmike Cinemas, based in Georgia, only focuses on small- to
mid-size markets when finding locations for their theaters. The company bases its
strategy on small-town populations.
Kanter (2006) warns against adopting a strategic focus based solely on new product devel-
opment. Good ideas may come from any level of the organization, which is why it is critical
for the leader, as integrator and strategist, to create a fruitful environment for these ideas to
flourish (Kanter, 2006). One motivation underlying market positioning is to gain customers’
attention and make emotional contact with them.
A classic example was Avis Rent a Car’s proud claim: “We’re No. 2, We Try Harder.” It caught
the attention of customers and hurt Hertz’s position as first in the industry at that time. Avis
was near bankruptcy when the company came up with this strategy. It succeeded not as a
gimmick or slick marketing slogan, but rather allowed Avis to shift time, interactions, per-
ceptions, and structures to generate new possibilities with customers, transform the nature
of the competitive game with Hertz, and even change consumers’ behavior toward Avis
(Monger, 2012). The strategy led the way for the company to change its way of doing busi-
ness; Avis did in fact try harder, and it paid off.
Revitalizing Culture
Deloitte research has found that more than half of all business leaders view culture, engage-
ment, and employee retention as their most urgent challenges (Bersin, 2015). Culture
counts if an organization is to retain high-quality talent. For example, Zappos has one of
the most desired value- and innovation-focused cultures in the online retail industry. The
company has 10 core values, including “embrace and drive change” and “create fun and a
little weirdness” (Zappos, n.d.). Netflix has a manifesto, “freedom with responsibility” (as
cited in Zandlicious, 2015). Quicken Loans employs colorful ideals to guide values (such as
calling back every client the same day). Google uses its 10 things that outline what it believes
(including focusing on users and the idea that great isn’t good enough). Salesforce promotes
community.
These are not just clichés. Talented employees who have options in a rising economy do not
stay with companies where the culture does not match their needs and aspirations.
Organizational cultures may be the most critical yet challenging factor in successfully navigat-
ing change. Cultures need to accommodate and match the strategies of the organization and
at the departmental levels. Strong cultures exist when there is unified understanding and
perspective on what the organization is, what it stands for, and how it functions. Changing it
is often easier said than done. There are numerous aspects of culture that can affect an orga-
nization’s ability to handle change, as Senior and Fleming (2006b) show in Figure 4.2.
Figure 4.2: Capacities for change and culture
The interrelation of organizational leadership, strategy, culture, structure, and systems must be
managed when revitalizing transformational changes.
Source: Senior, B., & J. Fleming, J. (2006b). Organizational change (3rd ed.). Essex, UK: Prentice Hall, Figure 4.9, p. 173. Reprinted by
permission of Pearson Education, Inc., New York, New York.
ORGANIZATION’S
CAPACITY
TO CHANGE
Degree of management’s
openness to new ideas—
especially from below
Degree of willingness to
discuss sensitive
issues openly
Attitudes to
conflict
Degree of willingness to
give people authority and
support them in their actions
Degree to which the
organization’s structure
facilitates change
Attitudes to
experimentation in
processes and products
Attitudes to
sharing information
Attitudes to
criticism

Attitude, willingness, and communication are key factors in successfully navigating change.
Figure 4.2 shows that attitudes toward experimentation and the willingness to provide auton-
omy and support are most related to the organization’s ability to change. When information
sharing is encouraged and experimentation is rewarded (even if it leads to failure), the organiza-
tion will be more flexible and innovative in dealing with change. Good communication among all
levels of the organization is also a critical success factor. Employees at all levels should be willing
to discuss sensitive issues without fearing negative repercussions. Management must be open to
new ideas, and all employees must adopt a positive attitude toward conflict and criticism.

In the case of a change organization, conflict and criticism are fruitful tools that help con-
tinuously mold the organization. The attitudes, willingness, and communication within the
organization work together to facilitate—or resist—change. An organization seeking to suc-
cessfully navigate change should be careful to evaluate these factors internally. Take Google,
for example, whose bottom-up culture is one of open communication and collaboration.
“Googlers” (Google employees) take part in Thank Goodness It’s Friday forums nearly every

wei82650_04_c04_155-206.indd 177 12/15/15 9:44 AM

Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

week to ask company founders questions and keep an open dialogue. Google also holds Fixit
forums to discuss company challenges and potential solutions. This perpetuates a culture of
communication, collaboration, and openness to change. Attitudes at all levels of the organiza-
tion are receptive, rather than resistant (Corporate Executive Board, 2009).

A collaborative effort from top to bottom is needed to create a culture conducive to change.
Organizations that support change, creativity, and innovation are more natural and integra-
tive and are perpetually forward looking and competitive (Senior & Fleming, 2006a). Kanter
(2006) suggests that innovations succeed in collaborative cultures because of connectors, or
individuals who know how to find partners and work effectively with others.

As in any business function, risk assessment is a valuable tool to increase efficiency and
improve operations. Cultural risk is the idea that strategy and culture will be incompatible,
creating a resistance to change. Management should assess cultural risk to determine the
specific areas of incompatibility and articulate the best course of action. In some cases culture
may be changed to fit the new strategy, whereas in other cases the strategy should be changed
to fit the culture (Senior & Fleming, 2006a).

Organizations like IBM and P&G handle change well because they have created change cul-
tures. Both companies have high levels of employee autonomy but strong, open channels of
communication. Good ideas are rewarded, whether successfully implemented or not. IBM, for
example, creates intercontinental teams as needed to address problems or new opportuni-
ties. These teams are often temporary and make use of virtual communication technologies.

Change is considered normal and is encouraged in the attitudes and communication from
both the top down and the bottom up. Collaborative efforts and openness to new ideas, cou-
pled with a flatter, more responsive structure, allow these organizations to maintain a com-
petitive advantage and respond quickly and smoothly to change.

Revitalizing Structure

IBM’s top leaders have stated that sharing organizational knowledge and experience is vital
to a workforce that is open and responsive to change. All employees should be self-reliant and
equipped to solve problems across the
company, and leaders must know how
to apply employees’ talent and ideas.
However, many companies do not have
the structures or resources to create
an environment conducive to knowl-
edge sharing and collaboration. As
such, they remain in cultural and orga-
nizational silos (IBM Global Business
Services, 2010), a term that describes
specific processes or departments that
work independently of each other with-
out strong communication between or
among them.

Integrated structure and communi-
cation are key. Organizations must

Rawpixel Ltd/iStock/Thinkstock

It is important to create an environment conducive
to openness and collaboration to stimulate growth.

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Section 4.3 Revitalizing the Five Pillars: Leadership, Strategy, Culture, Structure, and Systems

avoid the temptation to work in silos. Instead, companies should encourage mutual learning
through frequent communication and strong interpersonal connections (Kanter, 2006).

When a company’s departments are too isolated from each other, they risk losing valuable
opportunities. In the 1990s, for example, while personal care giant Gillette had success with
the Oral B toothbrush, its appliance unit Braun, and its Duracell battery unit, it was slow
to introduce a battery-powered toothbrush (Kanter, 2006). In environments of continuous
change, organizations cannot afford to have segregated operations. Integrated communica-
tion and shared knowledge within the structure increases operational efficiencies and helps
the organization manage change.

Processes and systems also need to be flexible and integrated. Budgets, planning, reviews,
and other processes should be adaptable. Tight processes discourage and often punish flex-
ibility. BBC, a television network in the United Kingdom, implemented greater flexibility in
its processes and systems by creating a special reserve fund for new business ideas. A new
recruit used funds that were designated for a new training film to create a pilot episode for
a new series, The Office. The show was a phenomenal hit and was the inspiration for NBC’s
The Office, which premiered in the United States in 2005. The flexibility of BBC’s processes
allowed new ideas from any level of the organization to be implemented (Kanter, 2006).

Revitalizing Systems and Processes

The availability of accurate, timely data often makes or breaks an organization’s capacity for
change. Organizations use IT to assist strategic and operational decision making to support
and sustain organizational changes. Increasingly large amounts of complex data are analyzed
for reporting and decision making. Data warehousing and business intelligence software pro-
vide solutions to the evolving need not only to locate and store data but also to strategically
apply it to marketing, sales, and competitive analysis opportunities and issues in the market-
place, especially in support of new organizational changes.

Data warehousing refers to the use of databases that store all company data, which users
access to create reports and generate answers to what-if questions (Daft, 2013). Business
intelligence, or data mining, is the process of analyzing data to make sound strategic deci-
sions (Daft, 2013).

Systems that allow for data warehousing and data mining help organizations manage large
amounts of data and facilitate both horizontal and vertical communication. For example,
organizational restructuring uses IT systems to integrate departments within and across
other functional and expertise areas (like production, R&D, marketing, and sales). Because
each expertise area can easily share data, the quality and efficiency of decision making
increases. This is particularly important when an organization is facing continually changing
environments.

Systems should be designed to facilitate effective control and decision making. Several types
of systems have been developed for this purpose. For example, a management informa-
tion system is a computer-based system that provides information and support for man-
agerial decision making. An executive information system is a higher level application
that facilitates decision making at upper levels of management using software. It provides

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Section 4.4 Sustaining Change: Built-to-Change Organizations

tailored, automatically updated signals and performance information to management
through executive dashboards, which are easy-to-read digital information system user
interfaces. The system displays like an automobile’s dashboard and continuously updates
information about key organizational processes (Sorenson, 2002). With many industries
continually changing, these software and systems capabilities provide management the
information that is needed to make informed, timely decisions.

Many companies also practice knowledge management, and some even dedicate whole
departments to this task. Knowledge management refers to efforts to obtain, categorize,
and make intellectual capital available within a company. It also describes attempts to cre-
ate a culture that promotes continuous learning and knowledge sharing. This information
then becomes a foundation that organizational activities can build on (Holzer & Seok-Hwan,
2004). (For further reference, also see Data, 1999, pp. 46–52; Mayo, 1998, pp. 34–38; and
Miller, 1999, pp. 42–45.)

Check Your Understanding

1. Which dimensions do you think are more difficult to revitalize in organizations that need large-
scale change: leadership, strategy, culture, structure, or systems? Explain your reasoning.

2. Identify an organization recently in the media or business news that is failing to revitalize the
dimensions listed in question 1. What issues prevent the organization from doing so?

4.4 Sustaining Change: Built-to-Change Organizations
As we’ve discussed, change is a continuous reality that successful organizations learn to sus-
tain. In 1942 economist Joseph Schumpeter coined the term creative destruction, which
describes the industrial transformation that accompanies radical innovations introduced by
entrepreneurs. These forces sustain long-term economic growth, even if they destroy estab-
lished companies that had monopoly power (Hughes, 1986).

Richard Foster and Sarah Kaplan (2001) extended this argument in their book on organiza-
tions, Creative Destruction, Why Companies That Are Built to Last Underperform the Market—
and How to Successfully Transform Them. They studied more than 1,000 corporations in
15 industries over 36 years. The companies included old-economy industries, such as paper
and chemicals, and new-economy industries, like semiconductors and software. They found
that old-school corporations used management philosophies rooted in the assumption of
continuity—which meant that they could not change or create value at the speed and scale
of markets. The technology and processes that enabled their long-term survival endangered
them in the new economy’s constant need for change. Foster and Kaplan argued that restruc-
turing corporations to change at the speed and scale of capital markets, rather than focusing
on changing controls, required more than simple adjustments.

The authors claimed that companies like Johnson & Johnson, Corning, and GE prevailed over
cultural lock-in (becoming insular and closed) by transforming their companies, not just slowly
improving them. They argue for radical change strategies such as creating new businesses;

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Section 4.4 Sustaining Change: Built-to-Change Organizations

selling, spinning off, or closing businesses and divisions with slow growth; shutting down out-
dated, ingrown structures and procedures; and creating new processes, controls, and ways of
thinking. Foster and Kaplan (2001) state that organizations must be as dynamic and respon-
sive as the markets in order to sustain superior performance and long-term success.

Less sweeping in their analysis and views on organizational change, authors Edward E. Lawler
III and Christopher G. Worley (2006) also evaluated contemporary organizational effective-
ness and developed key practices for creating organizations that are self-sustaining change.
In their book, Built to Change: How to Achieve Sustained Organizational Effectiveness, they
define b2change organizations as those that are built with practices in place to encourage
change, rather than obstruct it. Here we explore several of those practices in order to iden-
tify ways to sustain and invigorate organizations undergoing change. Those practices include
seeking competitive advantages by embracing continuous, sustainable change—based in part
on Fowler’s (2000) concept of a virtuous spiral—as well as creating structures without jobs,
implementing downward decision making, and leading as a team.

Seeking Temporary Competitive Advantages

Historically, best practices mandated that in order to be successful, organizations had to
exhibit stability through strong values, structures, and strategies (Lawler & Worley, 2006).
Organizations were encouraged to endure and were designed for alignment and equilibrium
rather than alteration and uncertainty. This led to clearly defined but inflexible organizations.
They were not equipped to navigate change, let alone grow in the process.

Stability has a place, and it is useful in developing long-term competitive advantages (unique
products, ideas, and/or practices that distinguish the organization within the market). Lawler
and Worley (2006), however, suggest that organizations should continuously review the short
term and implement temporary competitive advantages one after another. The basic assump-
tion here is that if change is to be expected, stability will always be disrupted, so organizations
should focus on short-term strategies. This requires a unique support system. Human capital,
knowledge, and organization are critical to the success of temporary competitive advantages
(Lawler & Worley, 2006).

Human and social capital have become critical sources of competitive advantage as intangible
assets (nonphysical assets that are often not found in the organization’s accounting records, such
as goodwill, patents, and a skilled workforce) and now make up more of a firm’s market value. In
1982 tangible assets, like the facility and equipment, represented 62% of the value of a typical
New York Stock Exchange company, but in 2000 tangible assets represented only 15% of a com-
pany’s value (Lawler & Worley, 2006). Knowledge and technology are growing rapidly, increasing
the need for human capital and knowledge within organizations.

Moreover, the very nature of work is being redefined. Individual work is now primarily
knowledge-oriented and is no longer task-oriented, as the founder of modern management,
Peter Drucker (1999), stated in the late 1950s. Consider the significant outsourcing that
takes place today. Many outsourced jobs require advanced technical knowledge and exper-
tise. Many manual jobs are now performed by machines, which require human capital to

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Section 4.4 Sustaining Change: Built-to-Change Organizations

develop and maintain. As our knowledge grows, it must be used differently by organizations
to develop new competitive advantages (Lawler & Worley, 2006).

Organizational structure itself can
now be a competitive advantage.
Traditional departments—sales,
accounting, and others—are no lon-
ger sufficient. New departments like
total quality management, knowledge
management, and talent management
play a significant role in differentiat-
ing an organization and sustaining
change (Lawler, Mohrman, & Benson,
2001; Lawler & Worley, 2006). Many
of these new departments seem to
focus on the importance of human
capital within the organization—
managing talent and knowledge,
engaging employees, and improving
the workplace environment.

Organizations with these structures understand that the ability to sustain change starts with
its human capital. Knowledgeable employees must be engaged, well-managed, and rewarded
properly if the organization is to retain them. Organizations compete through involving peo-
ple as well as products. Think about the computer technology industry. Most people would
say that Apple has a competitive advantage over Microsoft—but why is this the case? Apple’s
human capital has for many years been a significant factor in its success. Former CEO Steve
Jobs was instrumental in developing new products, strategies, and vision, often creating the
change in the market (Lawler & Worley, 2006).

Sustaining organizational change was traditionally determined by a company’s ability to
unfreeze, freeze, and refreeze (Lawler & Worley, 2006; Lewin, 1997). Unfreezing dissolves the
normalcy of the organization, allowing it to then refreeze new structures and practices. It dis-
rupts one period of stability so the organization can create a different one. It is a singular event,
which is not the practice of built-to-change organizations (Lawler & Worley, 2006). These orga-
nizations are successful at sustaining change because they are designed for continuous change—
by seeking temporary competitive advantages through structures, strategies, and leadership.

Continuous Change and the Virtuous Spiral

An organization’s ability to strategize well and sustain change depends on its identity. As the
continuous change model in Figure 4.3 illustrates, a company’s identity functions as the core,
providing a platform for designing, strategizing, and creating value.

Identity—or who the organization is and what it stands for—is traditionally viewed as being
very stable. Here stability is not a hindrance to change, but rather a prerequisite. An orga-
nization cannot sustain change without first establishing a strong identity. Identity is most
clearly seen in the organization’s culture and how it is viewed by the outside world (Hatch
& Schultz, 2002; Lawler & Worley, 2006). Just as your peers, coworkers, friends, and family

Kuzihar/iStock/Thinkstock

As manual labor becomes more automated, the
workplace’s human element is becoming more
knowledge-based.

Formulating Strategies

Organizational
Identity Adding ValueCreating Design

Figure 4.3: Continuous change model

An organization’s identity is interrelated to its ability to add value
by creating designs and formulating effective strategies that lead
to desired change.

Source: Adapted from Worley, C. G., & Lawler, E. E., III. (2010). Agility and organization
design: A diagnostic framework. Organizational Dynamics, 39(2), 194–204.

Formulating Strategies
Organizational
Identity Adding ValueCreating Design

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Section 4.4 Sustaining Change: Built-to-Change Organizations
develop and maintain. As our knowledge grows, it must be used differently by organizations
to develop new competitive advantages (Lawler & Worley, 2006).
Organizational structure itself can
now be a competitive advantage.
Traditional departments—sales,
accounting, and others—are no lon-
ger sufficient. New departments like
total quality management, knowledge
management, and talent management
play a significant role in differentiat-
ing an organization and sustaining
change (Lawler, Mohrman, & Benson,
2001; Lawler & Worley, 2006). Many
of these new departments seem to
focus on the importance of human
capital within the organization—
managing talent and knowledge,
engaging employees, and improving
the workplace environment.
Organizations with these structures understand that the ability to sustain change starts with
its human capital. Knowledgeable employees must be engaged, well-managed, and rewarded
properly if the organization is to retain them. Organizations compete through involving peo-
ple as well as products. Think about the computer technology industry. Most people would
say that Apple has a competitive advantage over Microsoft—but why is this the case? Apple’s
human capital has for many years been a significant factor in its success. Former CEO Steve
Jobs was instrumental in developing new products, strategies, and vision, often creating the
change in the market (Lawler & Worley, 2006).
Sustaining organizational change was traditionally determined by a company’s ability to
unfreeze, freeze, and refreeze (Lawler & Worley, 2006; Lewin, 1997). Unfreezing dissolves the
normalcy of the organization, allowing it to then refreeze new structures and practices. It dis-
rupts one period of stability so the organization can create a different one. It is a singular event,
which is not the practice of built-to-change organizations (Lawler & Worley, 2006). These orga-
nizations are successful at sustaining change because they are designed for continuous change—
by seeking temporary competitive advantages through structures, strategies, and leadership.
Continuous Change and the Virtuous Spiral
An organization’s ability to strategize well and sustain change depends on its identity. As the
continuous change model in Figure 4.3 illustrates, a company’s identity functions as the core,
providing a platform for designing, strategizing, and creating value.
Identity—or who the organization is and what it stands for—is traditionally viewed as being
very stable. Here stability is not a hindrance to change, but rather a prerequisite. An orga-
nization cannot sustain change without first establishing a strong identity. Identity is most
clearly seen in the organization’s culture and how it is viewed by the outside world (Hatch
& Schultz, 2002; Lawler & Worley, 2006). Just as your peers, coworkers, friends, and family
Kuzihar/iStock/Thinkstock
As manual labor becomes more automated, the
workplace’s human element is becoming more
knowledge-based.
Formulating Strategies
Organizational
Identity Adding ValueCreating Design
Figure 4.3: Continuous change model
An organization’s identity is interrelated to its ability to add value
by creating designs and formulating effective strategies that lead
to desired change.
Source: Adapted from Worley, C. G., & Lawler, E. E., III. (2010). Agility and organization
design: A diagnostic framework. Organizational Dynamics, 39(2), 194–204.
Formulating Strategies
Organizational
Identity Adding ValueCreating Design

can distinguish your identity
based on your priorities and
choices, an organization’s
identity can be gleaned by how
it manages conflict and pri-
oritizes its stakeholders and
environment. Organizations
that make their external envi-
ronment and ability to make
strategic adjustments part of
their identity will be able to
sustain change (Lawler & Wor-
ley, 2006).

Once identity is established
and communicated, strategic
intent is the next step in man-
aging continuous change. Stra-
tegic intent refers to the ways
in which the organization
develops its temporary com-
petitive advantages. Good stra-
tegic intent is characterized by
five elements: breadth, aggres-
siveness, differentiation, logic,
and orchestration.

Breadth refers to the broadness of a strategy. For example, P&G has a broad, global strategy
involving multiple markets and consumer products. The WD-40 company, on the other hand,
has a very narrow strategy and makes only a single type of lubricant. Aggressiveness is how
an organization grows, interacts with competitors, and creates new products. Consider the
Coca-Cola versus Pepsi feud for market share, or Apple versus Microsoft. The Mac versus
PC commercials struck such a chord in highlighting these products’ consumer rivalries that
many are posted online and are watched by hundreds of thousands of viewers from around
the world.

Differentiation is the degree to which an organization’s products and services vary from the
competition. We see this daily in the automotive industry. Each manufacturer offers unique
vehicle features in an attempt to capture more of the market and distinguish itself from com-
petitors. Logic refers to the core business model behind the organization’s revenue, costs,
and profits. Some companies, like Walmart, choose a high-volume, low-cost model. Others,
like Ferrari, choose a low-volume, high-cost model. Logic affects the way a company markets
its products and how it interacts with the consumer.

Finally, orchestration is the process of planning and sequencing different strategies. It is the
way in which the organization predicts and responds to environmental changes through the
breadth, aggressiveness, and differentiation of its strategies (Lawler & Worley, 2006).

For example, Southwest Airlines has long relied on a keep-it-simple strategy: it keeps costs
low, bags fly free, and it has a well-known corporate culture—promulgated by legendary CEO

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Section 4.4 Sustaining Change: Built-to-Change Organizations

Gary Kelly. This has given the airline a unique strategic position and allowed it to manage
continuous change. In 2010 it announced its acquisition of AirTran to create “the most expan-
sive network of any low-cost carrier in the U.S.” (Reed & Jones, 2010, para. 1). The strategic
shift maintained the company’s identity as a low-cost airline and gave it a new competitive
advantage. It expanded its network to new cities and began to offer international flights—a
first for Southwest. Kelly acknowledged that this strategic shift allowed Southwest to grow its
presence in markets that it was not yet serving and placed the company in a good position to
expand further (Reed & Jones, 2010). Southwest is approaching strategy with flexibility and
vision, allowing it to sustain change.

Organizations built to change think
about strategy continuously. They also
constantly evaluate their identity and
strategic intent in relation to the chang-
ing environment. Those that are suc-
cessful in this endeavor are able to cre-
ate virtuous spirals, upward patterns
of increasing performance that are cre-
ated when an organization can match
its strategy, value creation, and design
to the changes in its environment.

Companies like IBM, Intel, GE, Micro-
soft, and P&G have successfully created
and recreated virtuous spirals over
decades as built-to-change organiza-
tions. In the 1980s Intel was an estab-
lished manufacturer of dynamic random-access memory chips but was suffering in competi-
tion with its low-cost Asian competitors. The company adapted to its new environment and
began to manufacture microprocessors. Its identity and adaptable strategic intent allowed it
to create a new virtuous spiral, and it is still doing well today. Organizations that are built to
change, like Intel, think about the current environment but also imagine potential future envi-
ronments and react accordingly (Lawler & Worley, 2006).

Creating Job Structures Without Job Titles

Traditional job descriptions and titles are now stagnant and high-cost hindrances to organi-
zational change. If not kept up-to-date, they become irrelevant to the organization. Built-to-
change organizations instead create job structures without job titles. They focus on creating
a dynamic employee experience through changing work relationships and assignments. Simi-
lar to many professional services like accounting or consulting firms, employees are assigned
responsibility for a set of tasks on a temporary basis. As change occurs, tasks are adjusted to
fit the new needs of the organization and the customer.

Although this approach expects much from employees and management in terms of frequent
job redesign, it has significant advantages for sustaining change. Such a structure allows
employees to be defined not by a title, but by their unique skill set and current tasks. Their
work is always relevant to the organization, and learning opportunities increase as different
teams are created (Lawler & Worley, 2006).

AP Images/Ric Francis

Southwest Airlines is approaching strategy with
flexibility and vision, allowing it to sustain change.

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Section 4.4 Sustaining Change: Built-to-Change Organizations

For example, GE, a successful and long-standing built-to-change organization, encourages
a dynamic work environment. Its entry-level rotational programs allow new employees to
spend several months in different divisions over several years. This provides exposure to the
various operations in the organization and instills the GE culture of adaptation and team-
work. Whereas other companies view training as expensive and time-consuming, GE makes
it a priority, spending approximately $1 billion each year on employee training and devoting
weeks or months to evaluating talent (Brady, 2010). The focus is not on the job title, but on
what employees can do. GE’s method of frequently changing teams establishes change as the
norm and encourages horizontal and vertical communication and knowledge sharing.

Another aspect of this structure is business process outsourcing (BPO). BPO involves out-
sourcing certain functions like accounting or human resources to firms dedicated to those
services. These firms have the most current knowledge in their respective fields and can
more easily handle change. BPO reduces the stresses on the organization and the resources
needed to change. It can also represent a significant cost savings. New jobless structures and
outsourcing put built-to-change organizations in a position for different communication and
decision making (Lawler & Worley, 2006).

Implementing Downward Decision Making

Sustaining change requires good communication and involvement from top to bottom. IBM is a
company that understands the importance of vertical communication (top–bottom or formal
communication) and horizontal communication (interdepartmental communication). IBM
holds “jam sessions” through its intranet (internal company Internet site) to gather ideas and
communicate about current and future company issues. One such session involved 10,000 com-
ments and more than 50,000 employees. CEO Sam Palmisano understands that a good idea can
come from anywhere and that good feedback does not come just from superiors (Brady, 2010).

For communication and downward decision making to occur, an organization must have a
good information system. The seven most important characteristics of a good information
system are:

1. Provide comprehensive data on key processes
2. Integrate data across departmental boundaries
3. Monitor capabilities as well as performance
4. Link to goal setting and rewards
5. Include information on competitors
6. Provide trend data on the business environment
7. Make measurements visible throughout the organization. (Lawler & Worley,

2006, p. 126)

This kind of system allows the organization to frequently set goals, have a customer focus, and
be transparent regarding its goals. Decision making related to those goals should then take
place at the corresponding level. Built-to-change organizations understand that employee
input can improve the quality of decisions and make change easier.

Leading as a Team

Leadership is the common thread in built-to-change organizations. Leaders in this context
have a unique combination of leadership and managerial skills. Individuals who are both

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Section 4.4 Sustaining Change: Built-to-Change Organizations

leaders and managers react to the external environment and practice shared leadership.
Shared leadership involves developing an entire organization of leaders, at all levels, to dis-
tribute decision making and uncertainty among knowledgeable leaders. To do this requires
that organizations either hire managers with flexible styles or replace those whose styles are
inconsistent with the organization’s strategy and identity (Lawler & Worley, 2006).

The CEO of HP describes leadership as a “team sport” (Lawler & Worley, 2006, p. 217; Tam, 2005,
p. B1). The best teams are designed for organic growth—individuals are thoughtfully placed with
the intention of maximizing innovative output and flexibility. Leadership development should
occur at all levels. The organization’s attitude inspires all employees to gain the knowledge and
skills to lead and makes those resources readily available (Lawler & Worley, 2006).

For example, P&G, led by CEO A. G. Lafley, places special emphasis on leadership develop-
ment within the organization. The company strengthens leadership and management from
the executive team down to the line employees and recognizes that leadership development
and training is the most important requirement to maintaining a healthy company for the
long term. During Lafley’s first term as CEO, he doubled the company’s revenue and market
value and outperformed the market with his acquisitions. He retired in 2015 (Byron, Ng, &
Lublin, 2015).

Lafley (2011) understood that leadership was not the responsibility of a single person; rather,
the more leaders he could help create within the organization, the better P&G could sustain
change:

It was my responsibility to develop as many potential CEOs as we could—
leaders who would be ready and able at any time to lead P&G under any cir-
cumstances.… My objective was to groom more horses for the race. I wanted
horses that could run in all kinds of conditions and on all kinds of tracks. (p. 70)

P&G works as a team, allowing it to successfully sustain change through improved communi-
cation and knowledge sharing.

Not only should organizations develop leaders at all levels, they should reward employees
for being leaders. Many reward systems are designed around stability, but consistent, stable
performance is not the goal for built-to-change organizations (Lafley, 2011). Employees often
need an incentive to change. Incentives should be given for both successes and failures. In a
continuously changing organization, failure cannot be avoided and is not necessarily some-
thing to avoid. Good failure, as Lawler and Worley (2006) describe, should be rewarded and
included in the organization’s learning process.

A Duke University and University of Southern California survey of 549 successful company
founders found that they primarily attributed their success to their ability to learn from
mistakes (Kauffman Foundation, 2009; Newlands, 2014). Basketball star Michael Jordan
admitted to failing over and over again before succeeding. The writer James Joyce described
mistakes as “portals of discovery” (as cited in Gillett, 2014, para. 3). Entrepreneurs generally
admit that learning from mistakes is necessary before succeeding.

So how do organizational leaders encourage “good failures” (Manimala, Jose, & Thomas,
(2006, p. 56) in the workplace? One way is to let employees reward each other for different,

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Section 4.5 Future Change Challenges and Best Practices

maybe even unusual performance that may initially fail but later prove successful. Employ-
ees might also feel less fearful of making mistakes or even failing in order to strive harder
to achieve results another time. Providing support for employee risk-taking with the aim of
helping organizations succeed is practiced through peer-to-peer compensation, as is the case
at Zappos. Also biotechnology company Genentech enables employees to receive checks from
$1,000 to $2,500 for going beyond job responsibilities (Gillett, 2014).

Removing some of the formality from striving for performance can encourage risk-taking and
reduce the fear that often surrounds innovating. Intuit, for example, has a company-wide “Fail-
ure Award” ceremony to reward a team whose unsuccessful ideas lead to valuable learning.
The plastics company W. L. Gore & Associates throws a celebration with beer or champagne
when a failing project is killed. There is no need to fear failure or success. When rewarding
efforts or actions that fail, it is important to be sure that employees are following metrics and
a plan that is meeting the organization’s goals (Gillett, 2014). Incentivizing good failure is
related to the learning organization principles and practices presented earlier.

Check Your Understanding

1. Are you incentivized by good failure? Why or why not? Would you be moved to innovate more
either at work or in school if you knew you would not be penalized or would be rewarded or
recognized for trying? Explain your reasoning.

2. How would you apply what you learned from Figure 4.3 if assigned to a team to design and
implement an organizational change? What parts of the model would you use and/or change?
Explain.

4.5 Future Change Challenges and Best Practices
Shaping and sustaining change requires that an organization continually evaluate and respond
to its environment, as we discussed in Chapter 2. The environment creates change, but inno-
vative leaders can also change and shape competition in the environment, as we saw with
Steve Jobs and Apple earlier in this text. In this section, we discuss effective change practices
that apply to sustaining organizational change.

Self-Designing Organizations

One of the most important change practices is building organizations for change. For exist-
ing organizations, the challenge is to create learning organizations (which is the topic of
Chapter 5) and self-designing organizations; that is, organizations that are able to renew
and change themselves fundamentally and continuously (Cummings & Worley, 2009). This
type of organization is created through a collaborative process in which stakeholders choose
the direction of the company, create structures and processes to reach the business goals,
and then implement them (Cummings & Worley, 2009).

As we move into the future, organizations will also need the following practices to survive and
thrive: a focus on strategic corporate social responsibility; attention to core competencies; an
emphasis on sustainability (with regard to operations and toward the environment); a focus

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Section 4.5 Future Change Challenges and Best Practices

on incorporating analytics as a capability; managing globalization; meeting the challenges of
disruptive change; and developing leaders’ and followers’ emotional intelligence.

Corporate Social Responsibility

Corporate social responsibility (CSR) is an organization’s self-imposed efforts toward
making a positive social, environmental, and ethical impact, considering its core identity and
industry. Many organizations are now global players and recognize that the impact of their
operations extends far beyond headquarters. Ethisphere’s World’s Most Ethical companies
have shown that good ethical practices that are also innovative can differentiate a company’s
brand and even improve its financial performance (Mitchell, 2011).

Studies support the claim that ethical companies generally outperform their competitors
(Semuels, 2014). Companies like Aflac, GE, Marriott, and others continue to shape change.
They rejuvenate and create successful standards for business practices, and consumers,
stockholders, and stakeholders are responding.

For example, IKEA, the multinational furniture retailer, is one of several socially responsible
corporations in Sweden (Sweden.se, 2015). Its identity and commitment to CSR was exempli-
fied in its actions regarding child labor in the 1990s. Rugs are a key IKEA product; the com-
pany purchases rugs from suppliers in the Middle East and India, among other countries. In
the mid-1990s the media discovered that child labor was used in the production of some of
the rugs and confronted the company.

IKEA examined its entire supply chain (all the participants involved in bringing a product to
its end user) and established its own set of supplier standards. Standards included restrictions
against child labor as well as environmental standards. The company created positions dedi-
cated to evaluating supplier compliance and suspended or terminated contracts with suppliers
that were not in compliance. IKEA also partnered with the United Nations Children’s Fund to cre-
ate programs for children and women in
developing areas in which the company
does business and to address the issue of
child labor at its root causes. IKEA takes
its role as a global player very seriously.
It considers the negative externalities of
its operations and addresses its respon-
sibility to society and the environment.

IKEA has been socially responsible
since long before it became popular
to do so. The company now sets stan-
dards in CSR, which can be an expen-
sive investment (IKEA Group, 2014;
Llopis, 2011). IKEA’s approach to CSR is
comprehensive, and all companies can
learn from it as we move into the future.
Ethics and social responsibility are not
just words or individual choices; they

AP Images/Jing wei/Imagechina

IKEA is an iconic global furniture retailer that is also
one of the most socially responsible corporations
in the world. It has its own set of labor and environ-
mental standards for its suppliers.

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What are our core
competencies?

What business
are we in?

Who is our
customer?

What is our
product or service?

• Vision
(Who are we? Who
will we become?)

• Mission
(What is our strategic purpose

for operating?)

• Values
(What do we stand for and
believe? What standards

can be used to
evaluate and
judge us?)

Section 4.5 Future Change Challenges and Best Practices

have a significant impact on an organization’s reputation and financial performance. Compa-
nies that understand and embrace this behavior can shape change in the global business world.

CSR and ethical practices are increasingly important dimensions of all organizations, espe-
cially those trying to sustain changes and adopt new practices involving stakeholders, includ-
ing the environment. It is the responsibility of top leaders to develop an ethical culture and
emphasize its importance to each employee (Daft, 2015).

In some instances ethical behavior is intuitive; however, there are many instances that are not
black and white, but gray. Ethics are often subjective, and they may mean something different to
each individual and organization. That is why it is critical, in the gray areas, that company lead-
ership at all levels model ethics and create a culture of ethical practices. Most companies today
have a code of ethics, a formal statement that details the ethical and social responsibility values
that guide employee conduct (Daft, 2010). The code of ethics informs the organization’s vision,
mission, and values, which in turn dictate the organization’s core competencies (see Figure 4.4).

To sustain competitiveness, organizational leaders and followers must be clear in identifying
those dimensions that are key to survival and success. Core competencies, discussed next, are
one such dimension.

Figure 4.4: Strategic contingency framework

These key questions align internal and external organizational dimensions to make a company more
effective.

What are our core
competencies?
What business
are we in?
Who is our
customer?
What is our
product or service?
• Vision
(Who are we? Who
will we become?)
• Mission
(What is our strategic purpose
for operating?)
• Values
(What do we stand for and
believe? What standards
can be used to
evaluate and
judge us?)

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Section 4.5 Future Change Challenges and Best Practices

Core Competencies

Core competencies are an organization’s strongest capabilities, based on the combination of
production skills and technologies. They are also critical factors in creating sustainable orga-
nizations (Prahalad & Hamel, 1990). However, businesses can’t solely rely on a core compe-
tency forever; rather, every business needs to adapt its core competencies to market changes
and demands.

The Digital Equipment Corporation (DEC) was once IBM’s major competitor before it floun-
dered and failed to read the competitive environment correctly. A major core competency
of DEC was mainframe computers. However, the industry shift from mainframes to desk-
top and laptop computers was not taken seriously by that company. Consequently, DEC did
not shift its core capabilities to match the changing customer and industry demands. The
company was a market leader as a manufacturer of mini computers in the 1960s through
the 1980s but fell apart as the PC market exploded. DEC’s business processes and costs
were designed around building and integrating components internally, whereas the PC
market relied heavily on outsourcing and speed of design. Its organizational structure was
not sustainable for the change in the market, and DEC did not recover (Christensen &
Overdorf, 2000).

“The corporation, like a tree, grows from its roots” (Prahalad & Hamel, 1990, p. 81). Core com-
petencies are an organization’s roots. If the organization doesn’t know where its roots are and
doesn’t water them, it cannot grow and thrive. Likewise, it must provide enough room for its
roots to grow. Core competencies are dynamic, changing as the organization grows and as its
surrounding competitive environment evolves. A keen understanding of core competencies
will help the organization sustain that change. DEC did not give its core competencies room
to grow and change, which ultimately spelled the end of the company.

It can be difficult to determine an organization’s core competencies, however. Management
must first evaluate the vision, mission, and values and see how this identity aligns with what
the organization does best. Prahalad and Hamel (1990) developed three tests:

1. It is a core competence if it provides “potential access to a wide variety of markets.”
2. It is a core competence if it makes “a significant contribution to the perceived cus-

tomer benefits of the end product.”
3. It is a core competence if it is “difficult for competitors to imitate” (pp. 83–84).

Consider 3M and its core competency in chemical processes and materials (Lawler & Worley,
2006). This competency allows 3M to produce products ranging from tape to its legendary
Post-it® notes to adhesives for the aerospace industry. The company’s unique ability to manu-
facture bonding materials that are difficult to imitate gives it access to many markets and
adds value in the customer’s mind.

Sustainability

Sustainability is an organization’s responsibility to maintain its operations and relevance to
all stakeholders, including the physical environment, into the future. Sustainability is influ-
enced by the organization’s identity, structure, and capabilities. The factors that determine

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Section 4.5 Future Change Challenges and Best Practices

these progress over time, from resources to processes and values to the organization’s culture
(Christensen & Overdorf, 2000). Organizations that practice sustainable policies integrate
such practices into their leadership mind-sets, strategies, cultures, products, and services.
We have discussed examples from companies like GE, P&G, and IBM.

Another important aspect of sustainability is minimizing the negative environmental and
societal impact of business practices. Companies are measured not only by financial perfor-
mance, but also by the quality of their actions. Shaping change in the future requires an analy-
sis of negative externalities (unintended negative social and environmental consequences
of doing business, such as pollution) in decision making.

The shift toward “green” business practices is not just a fad. Businesses are more concerned
than ever about using renewable resources, and the government has begun to support sus-
tainability, selecting Eleni Reed as the first chief greening officer in 2010. This position is
responsible for pursuing new sustainable practices (Hoffman, 2010). Businesses cannot sus-
tain change in the future if they do not address sustainability. We see this already reflected in
expanded CSR programs.

Managing Change

Embedding CSR and Sustainability Into Business Practices

Suppose you are responsible for instituting CSR and sustainability at a manufacturing
company. This company still focuses on classic business principles but must now consider
its social and environmental impact. It has been proved that becoming a leader in CSR and
sustainability has a positive impact on revenues and customer loyalty. Competitive advantage
also increases: Customers favor companies that engage in these efforts and even come to
expect them from the brands they habitually purchase.

The manufacturing company must change its old practices and modernize, and then
communicate its new vision to stakeholders and customers to gain maximum return on
investment. Some of the ways it can embody CSR and sustainability are by engaging in fair
trade, standing against the exploitation of children for labor, using renewable resources,
opposing cruelty to animals, ensuring it is environmentally conscious, and addressing social
needs.

The company begins to communicate its plans to employees well in advance of the change,
because making them feel a part of the change initiative and appealing to their ethical and
environmental concerns has positive effects. When employees believe in the mission and feel
like their daily responsibilities contribute to it, their sense of fulfillment and engagement
increases.

Discussion Questions

1. What is the difference between CSR and sustainability?
2. What are some specific ways in which this company can change its way of doing

business to adhere to CSR and sustainability standards and practices?
3. What can the company do to allow the new philosophy to take hold among

employees?

(See the end of the chapter for possible answers.)

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Section 4.5 Future Change Challenges and Best Practices

Analytics Capability

When considering core competencies, organizations cannot afford to ignore technology and
analytics. Analytics is the collection and organization of relevant data in order to determine
trends and evaluate performance. It is another evolving core competency that has become a
necessary benchmark. With technology advancing daily, we now have more tools than ever to
collect and analyze data. Those organizations with the knowledge to best leverage available
information will have an advantage when attempting change.

The United Parcel Service (UPS), for example, uses analytics comprehensively to anticipate
customer actions and needs. It tracks the movement of each package and evaluates the likeli-
hood of problems. The company has created the UPS Customer Intelligence Group to analyze
customer usage patterns and complaints. Companies like UPS want to be as informed as pos-
sible, and they have the means to do so. This improves decision making and quickens reaction
time (Davenport, 2006).

Meeting the Challenges of Globalization

The past few decades have seen a trend toward globalization—the expansion of business oper-
ations around the globe. Large, sustainable companies like IKEA have been successful at global-
ization. These multinational corporations have the wisdom to see that creative leaders will
remove boundaries by using innovative strategies, developing a universal vision, and motivating
individuals around the world (IBM Global Business Services, 2010). The 2010 McKinsey Global
Survey identified five themes of globalization: “growth in emerging markets; labor productivity
and talent management; the global flow of goods, information, and capital; natural-resource
management; and the increasing role of governments” (McKinsey & Company, 2010a, para. 3).

Emerging markets are those in places like China, India, and Russia that are experiencing sig-
nificant and rapid growth through industrialization. Companies in these markets will move
aggressively beyond their own markets and compete for global business (Beebe, 2007).
To respond to these emerging markets, companies must create a local presence, develop
partnerships and joint ventures with local firms, hire talent from new markets, and build
new business models (McKinsey &
Company, 2010a).

Organizational structures must become
more flexible, frequently evolving as
emerging markets present change.
This organizational evolution has been
termed “boundarylessness” (Falk, 2001,
p. 7). To successfully sustain change in
emerging markets, organizations must
become boundaryless—when boundar-
ies are removed, the company has more
flexibility and can more easily expand.

Heinz CEO Bill Johnson implemented a
strategy of “Four As” to guide the com-
pany’s approach to emerging global
markets: applicability, availability,

AP Images/Keith Srakoci

Heinz CEO Bill Johnson (left) implemented a strat-
egy of “Four As” (applicability, availability, afford-
ability, and affinity) to help the company expand its
reach in the global marketplace.

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Section 4.5 Future Change Challenges and Best Practices

affordability, and affinity (Feigenbaum, White, & Matticks, 2011). Applicability involves a fit
between a product’s acceptance by end users and customers in a local culture. In China, for
example, the main condiment Heinz sells is soy sauce, rather than its iconic ketchup. Applica-
bility also relates to how a product may be used differently in different markets. In Korea, for
example, ketchup is eaten primarily on pizza, and in the Philippines, it is made with bananas.

Availability involves selling the product in the relevant local channels. Most emerging markets
don’t have large grocery stores, so Heinz had to rethink its distribution channels to reach
more of the local population. Affordability seems to be self-explanatory. Emerging markets,
while growing, are still fractionally as wealthy as markets in Western, developed countries.
To address affordability, for example, Heinz offers its products in different sizes—soy sauce is
sold in small, 3-cent packets in Indonesia.

Finally, affinity involves how local employees and customers regard the company’s brand.
Affinity can be built through CSR and sustainability. Heinz created its core capabilities in
emerging markets primarily through acquisitions and has been very successful in sustaining
that change, with more than 20% of the company’s 2011 revenues originating in emerging
markets (Feigenbaum et al., 2011). Heinz was purchased by Berkshire Hathaway and the pri-
vate equity firm 3G Capital for $23 billion in 2013 and has successfully merged with the Kraft
Foods Group (Kenwell, 2015).

The McKinsey survey’s second theme of globalization is labor productivity and talent manage-
ment. Globalization has created a need for more productive and skilled labor in management,
R&D, and strategy. As we move into the future, talent will be found mostly in emerging and
developing markets (McKinsey & Company, 2010b). Companies must learn to leverage the pro-
ductivity of aging workers and efficiently acquire and place the right talent in the right places.

The global flow of goods, information, and capital is both a cost and a benefit of globaliza-
tion (McKinsey & Company, 2010b). New technologies allow information to be available
and accessible around the world. This helps companies make quicker, more informed deci-
sions, but it also presents a risk of intellectual capital being stolen. There are also high costs
associated with obtaining and maintaining these technologies. Free-flowing information
has created significant pricing transparency and engaged consumer networks (McKinsey &
Company, 2010b). More available information means more informed consumers, now on a
global scale.

Managing natural resources is the fourth theme of globalization. As operations expand around
the world, the issue of sustainability and the supply and use of resources is more critical than
ever. Constraints on natural resources have a significant effect on global companies’ strategies.

Finally, the increasing role of government shapes globalization, now and in the future. Devel-
oped and emerging markets carry concerns about volatility and high debt. Government
actions affect which markets may be invested in and how business may be conducted in those
markets. Natural resources and governmental oversight are significant external factors to be
considered in globalization (McKinsey & Company, 2010b).

As globalization becomes the norm for business, companies must consider these five themes
and respond accordingly to sustain the changes that come with globalization. Companies like
IKEA and Heinz have been successful, and even ahead of the curve, in sustaining this change.

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Section 4.5 Future Change Challenges and Best Practices

Meeting the Challenges of Disruptive Change

Change will become more significant and increasingly disruptive, particularly as the playing
field expands globally. Leaders must shift their thinking from individual employees’ capabili-
ties to the capabilities of the organizational as a whole (Christensen & Overdorf, 2000). When
considering an organization’s big picture, there are three factors that affect its ability to focus
its values, use resources, and integrate its processes (Christensen & Overdorf, 2000).

What an organization has (its assets) affects what it can do. Both tangible (equipment, cash,
inventory) and intangible (patents, employees, knowledge) resources help companies navi-
gate disruptive change. Processes are the ways organizations interact—through coordination,
communication, and decision making—to enhance values by transforming resources into
products and services. Processes are inherently designed to be stable and unchanging. The
difficultly arises in creating organizational flexibility in order to respond to change. Finally,
values are the bases employees use to set priorities. The ideal combination of resources, pro-
cesses, and values will be different for each organization, and finding this balance is the key
to sustaining change.

Disruptive change is most difficult when the organization’s capabilities lie primarily in its
processes and values, rather than in its people, and are embedded in its culture. In this case
companies may deal with disruptive change by creating new capabilities in three ways: inter-
nally, through spinout organizations, and through acquisitions (Christensen & Overdorf,
2000). Organizational boundaries must be changed and new teams created if new capabili-
ties are to be created internally.

Chrysler, for example, recognized the need to change capabilities to focus on automobile
types rather than on components. The company sold its stake in Maserati, Lamborghini, and
Diamond–Star Motors to focus on developing “great cars, great trucks.” This move sent a sig-
nal to employees and other stakeholders that helped jump-start the company’s renaissance
(Fiat Chrysler Automobiles, 2015).

To achieve these new capabilities, Chrysler changed its organizational boundaries. Its component-
based product development teams (power train, electrical systems) were changed to heavy-
weight teams (minivan, small car, Jeep, truck) to make its development faster. This internal
restructuring allowed Chrysler to create new capabilities (Ott, Katz, & Thomas, 2011).

Spinout organizations are new, independent organizations related to the parent organiza-
tion—that is, new divisions. They can be an effective way to create new capabilities in the
face of disruptive change. For example, when HP first entered the ink-jet printer business,
it had difficulty integrating with its existing laser-jet operations because the capabilities
needed for each were different. HP decided to create a new ink-jet division in Vancouver,
British Columbia. This spinout division allowed the company to create new capabilities for
the ink-jet business and maintain its capabilities in laser-jet printers. More recently, HP
chose to sell its PC operation and bought the United Kingdom’s largest software firm, Auton-
omy, to enter the software business (BBC, 2011).

Capabilities can also be created through acquisition, or an organization’s purchase of all or
a portion of another existing company. Rather than expending valuable resources to create
capabilities from scratch, an organization may purchase an existing company that already has

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Section 4.5 Future Change Challenges and Best Practices

the desired capabilities. Any of these three methods allow an organization to navigate disrup-
tive change and create new organizational capabilities.

Developing Emotional Intelligence

Finally, shaping and sustaining change in a global playing field with socially responsible and
ethical players requires a new kind of intelligence. According to psychologist Daniel Gole-
man (1995), the most effective leaders have a major similarity: a high degree of emotional
intelligence (EI). EI encompasses self-awareness, self-regulation, motivation, empathy, and
social skill (Goleman, 1998). These five components are shown in Table 4.3. This kind of intel-
ligence requires much more than IQ, technical skills, or know-how. It is very relational and
self-reflective, and it is not just for leaders.

Leaders and followers need EI to shape and sustain change. Having and expressing EI moti-
vates a diverse global workforce that is becoming more local each day, and leaders need to read
or predict markets based on this diversity. Its first and most fundamental component is self-
awareness. Goleman (1995) defines self-awareness as an individual’s strong understanding
of his or her emotions, strengths, weaknesses, needs, and drives. This is often easier said than
done; however, if understanding the organization is fundamental to sustaining change, how
much more important is first understanding oneself ? Self-awareness provides a context for
the role of the individual within the organization. One cannot enact an organization’s vision,
mission, and values without first understanding one’s own vision, mission, and values.

Table 4.3: Emotional intelligence

Component Definition Hallmarks

Self-awareness • The ability to recognize and
understand your moods, emo-
tions, and drives, as well as their
effect on others

• Self-confidence
• Realistic self-assessment
• Self-deprecating sense of humor

Self-regulation • The ability to control or redirect
disruptive impulses and moods

• The propensity to suspend
judgment—to think before acting

• Trustworthiness and integrity
• Comfort with ambiguity
• Openness to change

Motivation • A passion to work for reasons that
go beyond money or status

• A propensity to pursue goals with
energy and persistence

• Strong drive to achieve
• Optimism, even in the face of

failure
• Organizational commitment

Empathy • The ability to understand the emo-
tional makeup of other people

• Skill in treating people according
to their emotional reactions

• Expertise in building and retaining
talent

• Cross-cultural sensitivity
• Service to clients and customers

Social skill • Proficiency in managing relation-
ships and building networks

• An ability to find common ground
and build rapport

• Effectiveness in leading change
• Persuasiveness
• Expertise in building and leading

teams

Source: Reprinted by permission of Harvard Business Review. From “What Makes a Leader?” by Daniel Goleman. Harvard Business
Review, November–December 1998. Copyright © 1998 by the Harvard Business School Publishing Corporation, all rights reserved, p. 95.

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Summary and Resources

Self-regulation involves thinking before acting and being able to control impulses. Indi-
viduals who self-regulate develop environments of trust and fairness (Goleman, 1998). An
organization cannot sustain change without an environment of trust. Such an environment
takes time to establish. Motivation is an individual’s incentive to succeed beyond every-
one’s expectations (Goleman, 1998). Change is rarely easy—successfully and efficiently
implementing it requires drive, trust, and communication. Trust can be developed if lead-
ership is empathetic. Empathy involves thoughtfully considering others’ feelings when
making decisions (Goleman, 1998). Finally, social skill includes being friendly to persuade
individuals to move in a certain direction (Goleman, 1998).

EI is more than a personality trait. It’s a new kind of intelligence, and it can be learned (Goleman,
1998). EI involves the ability to identify and control one’s emotions and those of others. In this
way positive manipulation is a critical success factor in shaping and sustaining change. Leaders
with EI, at all levels of a company, create and motivate cohesive work environments and support
and inspire change.

Check Your Understanding

1. What happens when a leader does not show EI when planning and/or implementing a large-
scale change initiative? Review Table 4.3 and offer an example from your own experience or
from your research.

2. How would you use Figure 4.4 to explain how the “as is” state of an organization will change
to a “to be” state? (Consider using an example from the business press or media.) What would
change and why? What are the forces pressuring or presenting an opportunity to change? Apply
the dimensions in Figure 4.4 to address these questions.

Summary and Resources

Chapter Summary
Shaping and sustaining planned and continuous organizational changes are tasks for the
entire organization, from leaders to employees. Sustaining change requires keeping the
plan for change updated and on course. It also demands that leaders continue to benchmark
organizational operations and expertise to the latest technologies and practices in their
fields and those used by their most successful competitors.

This chapter began with a reminder of why major organizational changes fail. We then
launched into best practices of leadership, strategy, culture, structure, and systems that help
shape and sustain change. We identified built-to-change practices and methods that help
organizations succeed both with implemented changes and with those that have yet to be
planned. Selecting leaders who can plan and implement strategies, cultures, structures, and
processes that are built to change increases the likelihood of shaping lasting change.

Challenges to organizations and current best practices that address these challenges are dis-
cussed. Global threats and opportunities and disruptive changes brought about by a number
of sources, including new technology, are among the major challenges organizations face. The
last section also explained how strategic CSR, an organization’s core competencies, sustain-
ability, the practice of analytics, and organization-wide EI can create a competitive advantage.

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Summary and Resources

Posttest Questions
1. With little notice, GreenTree Company’s employees were given a new graphics soft-

ware program that was hastily explained to them. Shortly thereafter, some struggling
employees reverted to their old graphics program. The most apparent reason for this
failure is __________.
a. strong opposition to change
b. cultural impediments to change
c. inadequate preparation and direction
d. a short-term solution for a complex problem

2. The failure of Friendly’s restaurant chain in 2011 demonstrates that in order to stay
competitive, businesses must continually __________.
a. change, even for the sake of novelty
b. differentiate themselves from similar businesses
c. add new locations and expand headquarters staff
d. switch out upper-level management

3. One viable strategy to attract and retain new hires who may already be aligned with
an organization’s image, vision, and goals is to use organizational __________.
a. branding
b. analytics
c. differentiation
d. orchestration

4. __________ refers to the skills, knowledge, and experience of employees as per their
value and cost to an organization.
a. Recruitment capital
b. Talent-based positioning
c. Recruitment price
d. Human capital

5. Recent studies suggest that __________ is the most successful structure a leader can
use to motivate sustained change.
a. top-down prescribed change
b. design-oriented change
c. creative destruction
d. competitive advantage

6. Innovations succeed most often in collaborative cultures because of __________, indi-
viduals who know how to work effectively with others.
a. accelerators
b. knowledge managers
c. connectors
d. data mavens

7. Which of the following is NOT a typical characteristic of b2change organizations?
a. being aggressive
b. being visionary
c. being flexible
d. being conventional

8. According to the author, stability is primarily necessary to a company that __________.
a. owns a unique product that distinguishes it within the market
b. owns a product that is commonplace within the market
c. focuses on short-term strategies and incremental changes
d. focuses on the pace and scale of current markets

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Summary and Resources

9. The author cites IKEA, the multinational furniture retailer, as shaping change in the
global business world through its __________.
a. corporate social responsibility standards
b. sensitive use of child and female labor
c. adaptation to each nation’s customs
d. practice of using external, independent auditors

10. __________, which determines trends and evaluates performance, is a core competency
that organizations cannot ignore if they wish to sustain change.
a. Sustainability
b. Self-regulation
c. Access-based positioning
d. Analytics

11. As described by Jim Collins, “Level 5 leadership” refers to a leader who is __________.
a. flamboyant and enigmatic
b. humble but strong-willed
c. charismatic but distant
d. forceful and dramatic

12. When a company defines a new mission to better satisfy stockholder and stake-
holder expectations, this is known as setting __________ strategy.
a. business-level
b. operational
c. enterprise
d. functional-level

Answers: 1 (c), 2 (b), 3 (a), 4 (d), 5 (b), 6 (c), 7 (d), 8 (a), 9 (a), 10 (d), 11 (b), 12 (c)

Learning Objectives Recap

1. Change programs fail for many reasons, including opposition to change, failure to
recognize the need for change, superficial recognition of the need for change, failure
to systematically implement change, adopting a short-term fix approach, structural
and cultural impediments to change, and failure to sustain change. Change is often
arbitrarily imposed and poorly explained, and employees are given little or inad-
equate direction.

Leaders guide the alignment of organizational dimensions to the new vision and
future state through the change process. Figure 4.1 illustrates this role. Leaders use
interventions and empowerment to sustain change. Leaders are integrators, orches-
trators, motivators, communicators, and strategists.

2. Employees bring skill, talent, knowledge, ideas, and experience to the change pro-
cess—without employees, change could not be implemented. Organizations need
to attract desirable talent and retain it in order to sustain change. Recruitment and
retention can include social media efforts and professional development.

3. The five pillars of successful, sustainable change are leadership, strategy, culture,
structure, and systems. These five pillars are interrelated and interdependent.
Leaders guide the new strategy and shape the culture, which in turn suggests the

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Summary and Resources

appropriate structure and systems. All five dimensions must be aligned for change to
be successful and sustainable.

Jim Collins offers the following principles regarding how good companies
become great: level 5 leadership, good personnel placement, confrontation of
reality, the hedgehog concept, a culture of discipline, use of technology, and the
flywheel approach. Level 5 leadership is servant leadership characterized by a
calm, quiet, and humble style. The hedgehog concept refers to a company under-
standing its passion, what it does best, and what drives its economic engine. The
flywheel approach involves building momentum, as if pushing a large flywheel in
one direction.

Enterprise or corporate strategies are broader, high-level strategies that define
the organization’s purpose and mission so as to satisfy stakeholders. Business-
level strategies focus on the actions the organization needs to take to gain a com-
petitive advantage. Finally, operational or function-level strategies focus on the
organization of each functional area in order to achieve corporate and business-
level strategies.

4. Built-to-change organizations seek temporary competitive advantages rather than
long-term stability. They implement continuous change centered on the organiza-
tion’s identity, and they focus on job structures rather than job titles. They also
implement downward decision making through strong top-to-bottom communica-
tion and emphasize shared leadership.

5. Self-designing organizations have the ability to change themselves fundamentally
and continuously. Existing organizations often have greater difficulty becoming a
learning organization. To make this transition, organizations need to focus on stra-
tegic CSR, emphasize sustainability, pay attention to core competencies, adopt a way
to manage globalization, try to meet the challenges of disruptive change, incorporate
analytics, and develop EI among employees.

Discussion Questions

1. Suppose you have been invited to talk to a local business group about why organiza-
tional change programs fail and how they can succeed. Outline your presentation to
such an audience.

2. If you had to advise a group of newly appointed CEOs on specific roles that leaders
can play in sustaining organizational change, what would you say?

3. How can an organization’s strategy, culture, and systems be revitalized to sustain
change? Offer some specific recommendations for each of these dimensions.

4. State an argument for and against each of the following statements using what you
learned from Section 4.2. (a) Human capital cannot be easily developed after an
organizational change is implemented. (b) Recruiting new talent through an orga-
nization’s branding is more myth than reality. (c) Organizations, HR personnel, and
leaders can’t really empower employees to sustain a change; people have to motivate
themselves.

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Summary and Resources

Key Terms

access-based positioning The process of
focusing business on activities tailored to
reach particular customer segments that
offer desired returns on investment.

acquisition An organization’s purchase of
all or a portion of another existing company.

aggressiveness The way the organization
grows, interacts with its competitors, and
creates new products.

analytics The collecting and organizing of
relevant data in order to determine trends
and evaluate performance.

assets What an organization owns, both
tangible and intangible.

b2change organizations Organizations
that are built with practices in place to
encourage change rather than obstruct it.

branding The image, reputation, and iden-
tity of a company; that for which the com-
pany is known.

breadth The scope, scale, depth, and reach
of a strategy.

business intelligence An analysis of com-
pany data to make better strategic decisions.
Also known as data mining.

business-level strategies Strategies that
define the logic and actions organizations
take to achieve competitive advantages
using their specific business competencies.

business process outsourcing (BPO) The
act of outsourcing certain business func-
tions, like accounting or human resources, to
firms dedicated to those services.

5. Evaluate (argue the validity) of these statements based on what you learned from
Section 4.4. (a) Built-to-change organizations should seek long-term competitive
advantage, not short-term competitive strategies. (b) An organization’s identity
follows its strategic intent: strategy first, then who an organization is and what it
stands for. (c) An organization’s virtuous spiral refers to the process of showing
performance first, then changing strategy and structure to increase its perfor-
mance. (d) Decision making and leading from the top should be centralized to avoid
confusion.

6. Argue the following statement and present evidence to support your opinion (using
what you learned from Section 4.5): When organizations change to satisfy customer
and competitive demands, CSR is a great theory, but in the real world every company
and organization has to do what is required to survive and succeed—and that some-
times involves questionable legal and ethical activities.

7. Discuss why and how the following are important for sustaining organizational
change: (a) self-designing organizations, (b) defining and updating core competen-
cies, (c) sustainability, (d) analytics, and (e) global competitiveness.

8. Respond to the following statements and support your reasoning with evidence and
an example: (a) Disruptive change may be desirable in theory, but in reality it should
be prevented, controlled, and if possible, extinguished. (b) EI is a great trait to have
if you’re born with it, but many people who are shy, introverted, and not outwardly
oriented should not be pressured to learn or demonstrate EI, especially by organiza-
tional leaders and trainers.

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Summary and Resources

code of ethics A formal statement of the
company’s values concerning ethics and
social responsibility; it clarifies to employees
what the company stands for and its expec-
tations for employee conduct.

competitive advantages Unique products,
ideas, and/or practices that distinguish the
organization within the market.

confronting brutal facts The practice of
great companies and their leaders to con-
front brutal facts or harsh, unflattering
truths about the organization, while never
losing faith that that they could and would
prevail in the face of adversity.

connectors People who know how to find
partners in the mainstream business or the
outside world.

core competencies An organization’s
strongest capabilities, based on the combi-
nation of production skills and technologies.

corporate social responsibility (CSR) An
organization’s self-imposed efforts toward
a positive social, environmental, and ethi-
cal impact, considering its core identity and
industry.

creative destruction The industrial trans-
formation that accompanies radical innova-
tions introduced by entrepreneurs.

cultural risk The risk that strategy and cul-
ture will be incompatible, creating a resis-
tance to change.

culture of discipline Jim Collins’s idea of
sustained great organizational results that
depend on developing cultures of self-
disciplined people who used disciplined
action to help organizations be their best
through the help of deeply passionate
people driving economic performance.

data warehousing The use of large
databases to combine all company data
and allow users to access data and create
reports.

differentiation The degree to which an
organization’s products and services vary
from the competition.

emerging markets Markets like Brazil,
China, India, Russia, and others that are
experiencing significant and rapid growth
through industrialization.

emotional intelligence (EI) A dimension
of intelligence encompassing self-awareness,
self-regulation, motivation, empathy, and
social skill.

empathy Thoughtful consideration of oth-
ers’ feelings in the process of making intel-
ligent decisions.

empowerment A shift in expectations by
which employees are given more autonomy in
decision making and increased responsibility.

enterprise or corporate strategies Strate-
gies that define a purpose and mission for an
organization to satisfy stakeholder expecta-
tions and set a course to meet environmen-
tal demands while accommodating internal
system needs.

executive dashboards Digital information
system user interfaces that are easy to read
and provide information tailored to user
requests that is automatically updated.

executive information system A high-level
application that facilitates decision making
at upper levels of management.

first who, then what The practice of find-
ing and placing the right people in the right
places and letting the wrong people go first,
before setting a new vision and strategy.

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Summary and Resources

flywheel Jim Collins’s term to describe
great companies that did not seek a grand,
single defining moment, or killer application,
but relentlessly pushed a large, heavy fly-
wheel in one direction, turn after turn, until
momentum built to a point of breakthrough
after breakthrough.

globalization The expansion of business
operations around the globe, including the
integration of national economies with the
global economy.

hedgehog concept Jim Collins’s metaphor
used to describe great companies; when a
hedgehog faces a predator, it simply rolls up
into a ball. Unlike the clever fox, the hedge-
hog’s strategy is surprisingly easy, repetitive,
and effective.

horizontal communication Interde-
partmental communication within the
organization.

human capital The skills, knowl-
edge, and experience of individuals or
a workforce with regard to their value
and cost as invested and incurred by an
organization.

identity Who the organization is and what
it stands for.

intangible assets Nonphysical assets that
are often not found in the organization’s
accounting records; for example, goodwill,
patents, and a skilled workforce.

intranet A company’s internal Internet site.

knowledge management The process of
systematically finding, organizing, and mak-
ing a company’s intellectual capital available
to foster a culture of continuous learning
and knowledge sharing.

level 5 leadership Successful leaders, as
described by Jim Collins, who worked not
flamboyantly or with highly observable char-
ismatic, loud, or dramatic styles; but calmly,
quietly, humbly—even shyly—in strong-
willed ways.

logic The core business model behind
an organization’s revenue, costs, and
profits.

management information system A com-
puter-based system that provides informa-
tion and support for managerial decision
making.

motivation The drive to achieve beyond
expectations.

needs-based positioning The act of
serving many needs of few customers;
choosing a strategy based on a group of
customers, rather than on a specific set of
products.

negative externalities Unintended nega-
tive social and environmental consequences
of doing business.

operational and functional-level
strategies Strategies that define the
ways in which each functional area of a
business is organized to deliver the cor-
porate and business-unit level strategic
direction.

orchestration The process of planning and
sequencing different strategies.

self-awareness An understanding of one’s
own emotions, strengths, weaknesses,
needs, and drives.

self-designing organizations Organiza-
tions that have capabilities to renew and
change fundamentally and continuously.

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Summary and Resources

self-regulation The ability of an individual
to control impulses. The term also refers
to groups and organizations being able to
control their operations and activities legally
and ethically without the intervention of
governmental or outside forces.

shared leadership Distributed decision
making and activities among managers,
employees, and leaders throughout an
organization.

silos Specific processes or departments
working independently—and sometimes
in isolation—of each other without strong
communication or relationships between or
among them.

social skill Friendliness with a purpose;
ability to relate to people through social
means.

spinout organizations New, independent
organizations related but operating sepa-
rately from a parent organization.

strategic intent Ways in which organiza-
tions develop competitive advantages.

strategic positioning Ways in which
organizations’ visions and values are aligned
with their strategies.

supply chain All the participants involved
in bringing a product to its end user.

sustainability An organization’s respon-
sibility to maintain its operations and
relevance to all stakeholders, including the
physical environment, into the future.

sustaining major organizational
changes Continuous top-down, bottom-
up leadership and process improvements
implemented to embed change within the
organization.

technology accelerators Planned and
applied selected technologies that ignite and
accelerate an organization’s transformation.

values The standards by which employees
set priorities, develop strategies, and make
decisions.

variety-based positioning An entrepreneur-
ial, flexible approach of choosing a competi-
tive strategy based on a variety of products,
rather than relying on a specific or previously
defined group of customer segments.

vertical communication Top-to-bottom
and bottom-to-top communication within the
organization’s formal chain of command; also
referred to as formal communication.

virtuous spiral An upward spiral of
increasing performance that is created when
an organization can match its strategy, value
creation, and design with the changes of its
environment.

Additional Resources
For more on information why organizational change can fail
http://www.forbes.com/sites/victorlipman/2013/09/04/
new-study-explores-why-change-management-fails-and-how-to-perhaps-succeed/
Strategies to empower employees
https://hbr.org/2010/04/empowering-your-employees-to-e

wei82650_04_c04_155-206.indd 203 12/15/15 9:45 AM

http://www.forbes.com/sites/victorlipman/2013/09/04/new-study-explores-why-change-management-fails-and-how-to-perhaps-succeed/

https://hbr.org/2010/04/empowering-your-employees-to-e

Summary and Resources

Managing Change Sample Answers

Managing Change—Recruiting Talent in the 21st Century

1. Your brand is just as important to recruiting as it is to marketing. You must recognize
your position in the industry, identify key rivals that may be seeking the same kind
of talent, determine what attributes you are seeking in candidates, and understand
the best way to reach potential candidates. Large employers have transitioned to the
21st century by combining social media tactics with traditional recruiting tech-
niques. This is a cost-effective strategy that smaller companies can emulate.

2. Popular social media sites can contribute in their own unique way to a social media
recruiting strategy. LinkedIn is one way to reach candidates who have desired quali-
fications while simultaneously showcasing your company’s attributes and listing job
openings. Facebook can help strengthen the company’s identity and brand and make
it visible to the market. YouTube can present the company to potential recruits and
give candidates a realistic look into the company’s culture, values, and day-to-day
processes. Twitter can communicate job openings while at the same time define the
company’s voice.

3. Companies with a talent mind-set seamlessly combine talent acquisition with talent
development. They have strong onboarding processes—they may pair new hires
with more established employees as a way to train and acculturate them, which
has the simultaneous advantage of adding mentoring to the established employee’s
professional development. Talent mind-set companies integrate new employees into
their existing culture and are concerned not only with candidates’ qualifications but
with their leadership potential and long-term career development.

4. Companies with a talent mind-set look beyond a candidate’s capabilities to fulfill job
requirements. They are looking for leadership qualities, such as the ability to “think
outside the box,” be comfortable in ambiguous situations, and be able to formulate
strategies. These candidates are able to understand abstract concepts, be indepen-
dent, and be willing to take risks to innovate. Other desired capabilities include
empathy, self-awareness, the ability to read other people and analyze situations, and
the ability to step away from details when necessary.

Managing Change—The Qualities of a Change Leader

1. Leaders are integrators charged with keeping the organization in alignment through
the change process. They must provide discipline and boundaries that will dictate the
company’s actions as it works to fulfill its goals. The organization must be flexible and
creativity must be embraced if it is to adapt and sustain change down the line. Fre-
quent, clear, and consistent communication helps facilitate integration as the leader
orchestrates the cross-functional synergy that is necessary for sustaining change.

2. Leaders must integrate the mission—including the vision and values—with the
strategy, culture, silos, structure, and systems within the organization.

3. The ability to build teams, motivate, and communicate are associated with a higher
rate of success regarding organizational change. This includes coaching, mentoring,
and rewarding employees, as well as involving others in tasks that support the change.

4. Leaders are responsible for making sure the required resources are available for the
organization’s change plan and for ensuring that managers have the support they

wei82650_04_c04_155-206.indd 204 12/15/15 9:45 AM

Summary and Resources

need to carry out the plan. They also must foster new skill development and behav-
iors in employees so that they can change with the company. Leaders must give their
staff members the tools to succeed to keep them engaged.

Managing Change—Embedding CSR and Sustainability Into Business Practices

1. Sustainability is a commitment not just to the environment, but to the company
itself. Sustainability is influenced by the organization’s identity, structure, and capa-
bilities. The organization must maintain its operations and relevance by integrating
sustainability practices into its leadership, strategies, cultures, products, and ser-
vices. Sustainability is also about minimizing negative impact on the environment,
which can be accomplished by using renewable resources. It is important to keep
current with—and even stay ahead of—government regulation requirements for
sustainability. On the other hand, corporate social responsibility is a company’s deci-
sion and the result of its ethical and sustainable efforts to positively impact society
and the environment.

2. A manufacturing company can make dozens of changes to adopt sustainable prac-
tices. It can institute a recycling policy, switch to wind or solar power, recycle its
water, responsibly dispose of hazardous waste, ban animal testing in its production,
scrutinize its suppliers to ensure they adhere to the same standards, and switch to
fuels that emit less exhaust or employ “clean technology.” From a CSR standpoint, the
company can get involved in the community through philanthropic activities.

3. To instill the change in employees, companies can institute a code of ethics consistent
with the organization’s CSR values. This helps include employees in achieving the
company’s mission and familiarizes them with the change initiatives about to take
place. It is important that leadership exemplify these ethics for employees to follow.

Answers and Rejoinders to Chapter 4 Pretest
1. False. Although speed and efficiency are hallmarks of the American business system,

a short–term fix approach to organizational change most often fails. A short–term fix
typically adopts a myopic view of change solutions, which is not very useful.

2. False. Recruiting experienced people to a company that is planning transformational
change can be extremely valuable. Seasoned employees often bring the ability to
work in teams, set high standards, reprioritize, let go of detail work, and offer tested
experience.

3. True. Knowledge management is a system in which organizations help sustain
change by making intellectual capital available to employees for their continu-
ous learning. Some companies even dedicate whole departments to obtaining and
categorizing intellectual capital to foster a culture of continuous learning and knowl-
edge sharing.

4. True. Built-to-change organizations—modeled by companies such as Apple, Toyota,
and Johnson & Johnson—prioritize temporary competitive advantage over long-
term stability (although such companies have achieved long-term success). Such
organizations are not afraid to transform themselves within a rapidly moving
environment.

5. True. A self-designed organization is one in which stakeholders collaboratively
choose the direction of the company. These companies are designed specifically to
renew and change themselves fundamentally and continuously.

wei82650_04_c04_155-206.indd 205 12/15/15 9:45 AM

Summary and Resources

6. False. In her study of change management, Rosabeth Moss Kanter observed several
mistaken strategies, one of which is to reject what initially appear to be small, unex-
citing changes in favor of a “blockbuster” innovation.

Rejoinders to Chapter 4 Posttest
1. In this scenario, the most apparent reason for this organizational change failure is

that employees were given little or inadequate preparation and direction.
2. The failure of Friendly’s restaurant chain—founded in 1935 and bankrupted in

2011—demonstrates that in order to stay competitive, businesses must continually
differentiate themselves from similar businesses. Moreover, they must continually
check that the public knows what makes them unique.

3. A successful strategy to attract and retain new hires who may already be aligned
with an organization’s image, vision, and goals is to use organizational branding. For
example, companies like Google and Facebook are well known for their company
cultures and goals, and thus attract and retain hires who are already on board with
that culture and those goals.

4. Human capital refers to the skills, knowledge, and experience of employees as per
their value and cost to an organization. A critical task in sustaining change includes
continually recruiting, involving, and empowering the right human capital, or talent.

5. Recent studies suggest that design-oriented change is a popular and successful
structure for a leader to follow—one who also motivates sustained change. Individu-
als interested in making a change approach the appropriate executive and define
the problem/challenge. Continual interaction and discussion about how to plan and
execute the change follow.

6. Innovations succeed in collaborative cultures because of connectors, individuals who
know how to find like-minded partners and work effectively with others.

7. Being conventional does not typically apply to b2change organizations, which do not
generally follow time-honored conventions. Rather, they thrive on sequencing new
strategies and implementing meaningful changes.

8. According to the author, stability is primarily necessary only to a company that owns
a unique product, process, or practice that distinguishes it within the market. In this
case, stability is useful to develop long-term competitive advantage.

9. The author cites the multinational furniture retailer IKEA as shaping change in the
global business world through its uncompromising corporate social responsibil-
ity (CSR) standards. IKEA’s restrictions against child labor and pro-environment
principles affect its entire worldwide supply chain, and other global businesses are
following suit.

10. Analytics is the collection and organization of relevant data that determines trends
and evaluates performance. Organizations cannot ignore this core competency if
they wish to make smart changes and sustain good change.

11. “Level 5 leadership,” according to Good to Great researcher Jim Collins, refers to a
leader who is humble and calm, yet strong-willed—rather than loud, flamboyant,
and dramatic. His research suggests that the Level 5 leader is most successful in
sustaining change and market competitiveness.

12. When a company defines a new mission to better satisfy stockholder and stake-
holder expectations, this is known as setting enterprise (or corporate) strategy. This
includes setting a course to meet the pressures of quickly changing external environ-
ments while accommodating internal systems.

wei82650_04_c04_155-206.indd 206 12/15/15 9:45 AM

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