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Strategies of Implementing Change
Dickhout and Denham’s Change Strategy Characteristics
Relationships and Inconsistencies
Change Management: A Look at Xerox
Change management is the most pivotal concept for top executives in the 21st century. Without it, organizations cannot adapt to the ever-changing business world. When faced with a new, more challenging market environment, organizations usually execute change management to make fundamental changes in how they conduct business (Kotter 1). Since one definition of change management remains nonexistent, this paper outlines suggested guidelines and strategies of implementing successful organizational change. In addition, the paper summarizes two theories for organizational failure during periods of change. Next, the paper offers pointers for change agents, the one who often implements the organizational change. Finally, this paper applies the concept to Xerox, a company that experienced significant changes throughout the 1990s, and examines Rick Thoman, CEO of Xerox, as a change agent during the company’s turnaround.
According to research, organizations change either through drastic action or through evolutionary adaptation. Drastic action often forces change on the organization due to sudden modifications in regulatory, legal, or competitive landscape. Evolutionary adaptation is gentle, decentralized, occurs over time, and produces a “lasting shift with less upheaval” (Meyerson 94). The best way to obtain satisfying results during organizational change requires a combination of drastic action and evolutionary adaptation. John Kotter writes, “The changing process goes through a series of phases that usually require a considerable length of time. Skipping steps creates only the illusion of speed and never produces a satisfying result. A critical mistake in any of the phases can have a devastating impact” (Kotter 1). Whether the change occurs dramatically with drastic action, or moderately with evolutionary adaptation, Kotter insists the change must go through several steps to ensure success.
Strategies of Implementing
Change
Change is difficult to implement for a few reasons. Not only do managers need flexibility during times of change, but they need patience dealing with their employees as well. Research shows that change adversely affects most people (Abrahamson 2). They meet change with strong resistance because traditional change programs typically involve drastic measures. Drastic change measures usually result in initiative overload and organizational chaos. Eric Abrahamson, management professor at Columbia Business School, suggests a better approach for companies to attempt when introducing change termed dynamic stability. This process consists of continual but relatively small change efforts, similar to evolutionary adaptation, that involve reconfiguration of existing practices. The principles of dynamic stability include tinkering, kludging, and pacing.
Tinkering means that companies should “toy” with the ideas, products, and policies that are currently in place. Abrahamson points out that tinkering does not guarantee a successful change, but costs less and takes less time than “creative destruction and invention” (3). Kludging embodies tinkering at a higher management level. Because kludging takes place on a larger scale and involves parts in addition to ideas, products, and policies, the creation of a division or an entire business possibly results. Older companies trying to adapt to the new economy can use kludging very effectively (for example, the internet) by using assets lying around an organization’s backyard, such as standard technologies or models (Abrahamson 4). Abrahamson claims, “Most proponents of change management argue that you have to change as much as you can as quickly as you can to stay ahead of the competition. That advice [is not wrong, just] over generalized. Like individuals, organizations have different needs for change” (4). Some companies need rapid change, but pacing refers to the companies that have been changing rapidly and need to shift down to tinkering and kludging. Abrahamson takes a contemporary stance, which caters only to the companies that do not require rapid change.
Methods to transform a company’s performance differ from case to case. The change approach that makes one company a success may prove a failure when applied to another company. Executives need a strategy that creates and sustains momentum. This strategy needs to recognize the specific need for change and where the energy to drive change comes from. According to Roger Dickhout and Michael Denham, principals at McKinsey & Company, appropriate strategies fall into six categories: evolutionary/institution building, jolt and refocus, follow the leader, multifront direct, systematic redesign, and unit-level mobilizing.
Dickhout and Denham’s Change Strategy Characteristics
Evolutionary and institution building focuses on contextual and indirect change through values, structure, and performance measures. This strategy results in long-term improvement and places emphasis more on enabling moves to shape behavior and future performance than on short-term results. Companies using this strategy gradually reshape their company’s values, top-level structures, and performance measures so that line managers posses the capability to drive the change (2).
Contrastingly, jolt and refocus relies on top-down implementation that aims to force a company response to a future threat. The process initially focuses on contextual and indirect change by instilling power at the team and top level. Jolt and refocus provides business unit structure and strategy and uses a vertical process. This approach shakes up gridlocked power structure to realign power. It creates urgency, shapes fears and aspirations, and affects beliefs. If the strategy causes confusion which delays initial results, once confusion clears, the strategy experiences accelerated performance improvement driven by new leadership or external agents (2).
Follow the leader, characterized as “very top-down,” allows the leader’s aspirations and preferences to dominate. Once initiated, this strategy places heavy emphasis on direct change and experiences rapid performance improvement. The leader drives the change and ultimately sustains or stalls action (2).
Multifront direct focuses on immediate and direct financial improvements. Unlike previous strategies, task teams drive change with more wide-ranging targets. The teams hope to seek performance gains through cost reduction, asset sales, or sales stimulation. The programs temporarily overwhelm the old organization, but the company later realigns to sustain the improvements (2).
Systematic redesign, like multifront direct, has task teams driving change across a broad set of economic factors to boost performance. Dickhout and Denham say, “Core process redesign and other organizational changes planned parallel with the economic improvements produce the necessary results” and differentiate this strategy from multifront direct. Systematic redesign generates rapid performance improvement driven by change agents (3).
Top managers choose unit-level mobilizing to achieve major gains in performance by improving unit-level operations without redefining strategy or organizational processes. Change leaders empower task teams to get ideas from middle managers and frontline employees to create a temporary power structure that ensures implementation (3).
Out of all the above strategies, the design chosen hopefully reflects three underlying factors: how performance needs to improve, the leader’s aspirations and preferences, and the human energy available to power the transformation. Considering these variables helps senior managers design an approach that works for their company (3).
“One of the most common business phenomena is also one of the most perplexing: when successful companies face big changes, they often fail to respond effectively,” says Donald Sull (1). He theorizes that the real problem is active inertia, or an organization’s tendency to fall into a pattern of behavior. Stuck in the modes of thinking and working that are past successes, market leaders promote their established and reliable activities. Instead of digging themselves out of the hole, Sull says, “They just deepen it” (2).
The fresh thinking that led to a company’s initial
success is replaced by a rigid devotion to the status quo. And when changes occur in the company’s
markets, the formula that had brought success instead brings failure. – Donald Sull
To understand why successful companies fail, Sull writes, “It is necessary to examine the origins of their success” (5). Most leading businesses stem from a combination of strategies, processes, relationships, and values that set them apart from competitors. As the company becomes more successful and profitable, customers multiply, talented workers apply, investors bid up stock, and competitors respond with imitation. “All this positive feedback,” claims Sull, “reinforces managers’ confidence that they have found the one best way” (5). Managers focus and improve the one strategy, which leads to active inertia and failure. Four things occur that manifest active inertia: strategic frames become blinders; processes harden into routines; relationships become shackles; values turn into dogmas (Sull 5).
Strategic frames – mental models and mind-sets – shape how managers see the world. They provide the answers to key strategic questions that help managers see, but strategic frames also potentially blind them. Sull says, “By focusing managers’ attention repeatedly on certain things, frames can seduce them into believing that these are the only things that matter” (5). Frames prevent people from noticing new options and opportunities; they “constrict peripheral vision” (5). This leads to failure because companies unable to capitalize on new opportunities lying outside chosen strategic frames lose a competitive edge.
When a company implements change and tries something new, employees usually attempt different methods to carry out the activity until they find a way that works exceptionally well. Processes harden into routines because employees lock into their chosen methods and stop searching for alternatives. Focusing on a single process frees people’s time and energy for other tasks. An employee’s routine benefits a company because repetition leads to increased productivity as employees gain experience performing the process. However, established processes “cease to be means to an end and become ends in themselves,” says Sull (7). Routines lead to failure because they prevent employees from considering new ways of working. Employees likely fail to consider or try alternative processes, and active inertia sets in.
“In order to succeed, every company must build strong relationships with employees, customers, suppliers, lenders, and investors,” claims Sull (7). Nevertheless, relationships become shackles because the need to maintain existing relationships with customers can hinder companies in developing new products or focusing on new markets. In addition, managers find themselves constrained by their relationships with employees. For example, managers feel unable to cut costs when necessary because the policy potentially runs counter to the company culture. Furthermore, top managers find themselves frustrated when they try to exert more control and employees refuse to change their ways. An over-commitment to relationships leads to failure because when conditions shift, companies often find their relationships have turned into shackles, which limits their flexibility and leads them into active inertia (Sull 8).
Values define how employees see themselves and their employers. A company’s values consist of the set of beliefs that unify and inspire the employees. Sull comments, “Values also provide the centripetal force that holds together a company’s operations” (8). As companies mature, their values turn into dogmas. As this happens, the values no longer inspire, and according to Sull, “their unifying power degenerates into a reactionary tendency to circle the wagons in the face of threats” (8). This results in active inertia, which ultimately leads to failure. Active inertia exists because the pull of the past remains so strong. “Success breeds active inertia, and active inertia breeds failure,” says Sull (9).
Successful companies can overcome active inertia. First, they need to break free from the assumption that their worst enemy is paralysis, yet realize that action alone solves nothing. Most companies lack the understanding of how their old formulas for success hinder them to respond to changes. “Even after a company has come to understand the obstacles it faces, it should resist the impulse to rush forward,” Sull writes (9). “By trying to change everything all at once, managers often destroy crucial competencies, tear the fabric of social relationships that took several years to weave, and disorient customers and employees alike” (9).
John Kotter, Professor of Leadership at the Harvard Business School, theorizes other reasons that lead to failure when a company changes. After monitoring several large corporations inflicting change, Kotter summarizes the eight big errors that companies make when implementing change.
The first error is not establishing a great enough sense of urgency. In successful change efforts, an individual or a group must bear the news about new competition, a declining competitive edge, et cetera to start the change process. If the need for immediate change does not come across as an urgent issue, employees remain unmotivated, and the effort does not progress. Kotter writes, “When the urgency rate is not pumped up enough, the transformation process cannot succeed and the long-term future of the organization is put in jeopardy” (3).
The second error occurs when companies fail to create a powerful guiding coalition. A guiding coalition forms when several people come together and commit to outstanding performance through change. The guiding coalition tends to function outside the standard management hierarchy since the members are not senior managers. According to Kotter, “Companies that fail [in this phase] usually underestimate the difficulties of producing change, and thus the importance of a powerful guiding coalition” (3). The author admits that companies without a powerful guiding coalition historically make initial progresses, but danger lies in the opposition. The opposition gathers and stops the change (4).
Lacking a vision constitutes the third error. When a corporation forms a guiding coalition to enforce change, the coalition forms a vision. Every business application needs a vision, especially during change. Kotter claims, “Without a sensible vision, a transformation effort can easily dissolve into a list of confusing and incompatible projects that can take the organization in the wrong direction or nowhere at all” (4). His findings indicate failed transformations had plans, directives, and programs, but without a vision, chaos seems inevitable. When forming a vision, Kotter suggests, “If you can’t communicate the vision to someone in five minutes or less and get a reaction that signifies both understanding and interest, you are not yet done with this phase of the transformation process” (4). The ability to communicate the vision becomes imperative so employees know the direction of change, and how they as individuals assist the transformation.
Kotter theorizes the fourth error companies make when managing change remains under-communicating the vision by a factor of ten. Successful transformation involves numerous people willing to make sacrifices to accomplish the goal for the common good. If the people making sacrifices fail to clearly understand the vision, disaster becomes unavoidable. Executives and members of the guiding coalition must use all available channels to communicate the vision. One channel often overlooked is direct contact. Kotter mentions, “Communication comes both in words and deeds, and the latter are often the most powerful form. Nothing undermines change more than behavior by important individuals that is inconsistent with their words” (5). Successful transformations stem from top management’s positive outlook and ability to “walk the talk.”
The fifth error constitutes not removing obstacles to the new vision. Obstacles occasionally form in an employee’s mind because workers do not know how to move the vision forward. Other obstacles lie in organizational structure. Kotter suggests, “Narrow job categories can seriously undermine efforts to increase productivity or make it very difficult even to think about customers” (6). Removing all obstacles at once remains impossible, but immediately confronting large obstacles helps ensure effective change.
Not systematically planning for and creating short-term wins represents the sixth error. Long-term goals and a vision are necessary for successful change. Short-term goals become the only steps to achieving long-term goals. Change efforts risk losing momentum without short-term goals to detain and celebrate. Achieving short-term goals boosts the credibility of the transformation effort and the morale of those involved.
Declaring victory too soon constitutes the seventh error companies make. Watching net income turnaround to produce a profit from a loss seems victorious. This highlights an example of a short-term win, but true change finally occurs when it lies within a company’s culture. If change initiators declare victory too soon, change agents and guiding coalitions disappear and the changes implemented slowly disappear along with the “successful” transformation.
The final error that exists when companies inflict change is not anchoring changes in the corporation’s culture. Kotter states, “Change sticks when it becomes ‘the way we do things around here,’ when it seeps into the bloodstream of the corporate body” (8). The author claims two factors necessary in institutionalizing change in corporate culture. First, managers and protagonists of the change show others how the new approaches, behaviors, and attitudes have helped improve performance (Kotter 8). Second, time allows the next generation of top managers to personify the new approach (Kotter 8).
The reasons described above highlight the main mistakes companies experiencing failure make. If companies take every precaution according to Sull’s Theory and Kotter’s Theory, the possibility of failure still remains. According to Kotter, “Even successful change efforts are messy and full of surprises…[but] vision of the change process can reduce the error rate” (8). Every step towards fewer errors helps to determine the fine line between success and failure.
Boone and Kurtz define change agents as “managers who seek to revitalize established firms to keep them competitive in today’s marketplace” (215). Successful change agents need to recognize employee strengths and motivate people to move toward common goals as members of a team (Boone 36). Chris Turner, chief change agent at XBS, offers nine tips for change agents. Through her experience, Turner suggests that change agents open themselves to data at the start, network like crazy, document their personal learning, take senior management along, have no fear, be a learning person themselves, laugh when it hurts, know the business before trying to change anything, and finish what they start (Morgan). If change agents embrace flexibility and exhibit the afore-mentioned characteristics, success becomes highly likely.
Xerox, The Document Company, has experienced many changes since introducing the first plain-paper copier in 1959 (Howard 1). Their most dramatic change occurred in 1999 when G. Richard Thoman became Chief Executive Officer and chief change agent. For a short time, the company placed trust in Thoman to successfully transform Xerox into the digital era.
Several factors contributed to Xerox’s need for change. One of the factors, the “Xerox giveaway,” aided competitors by inspiring product technology innovation (Port 1). A second factor stems from Xerox’s reliance on old-fashioned analog copiers for over half its revenue. Because industry growth lied in digital products, Xerox could not project high growth revenue. To oversee the change, Paul A. Allaire, Xerox CEO from 1990-1999, hired Thoman as Xerox Corp.’s president and CEO successor in 1997. Thoman’s plethora of managing experience included president of Nabisco Inc., head of international operations for American Express Co., and IBM Chief Financial Officer (Smart 1). While at IBM, Thoman worked with Chairman and CEO Louis V. Gerstner, Jr. during IBM’s successful turnaround (Brady 2). At Xerox, Thoman hoped for similar success by transitioning from analog machines to digital technology, slashing costs, selling the company’s financial services unit, targeting small-businesses and home-offices, and increasing the number of retail outlets (Smart 2).
Unfortunately, Thoman’s plans backfired. On October 18, 1999, the company announced flat revenues for the third quarter. The transition disrupted more of the company’s culture than Thoman imagined. He tore up the old sales structure in an attempt to turn Xerox’s box salesman into consultants who sold systems. The salespeople trained to forget all they had previously known, which resulted in lowered morale. Xerox lacked the capability of achieving the vision Thoman attempted to sell the public (Brady 1-2). Thoman resigned after 13 months in office due to his lack of success. With Xerox in desperate trouble, Paul Allaire stepped back in as CEO.
Relationships and Inconsistencies
Thoman proved himself as a successful change agent at IBM. At Xerox, the opposite transpired. According to Kotter’s Theory, the only correct move Thoman made occurred when he established a sense of urgency. Thoman accomplished the first phase by asking the strategic services department to cut $1 billion in three years and by chopping 9,000 jobs worldwide (Brady 6). In addition, Thoman’s actions proved he designed a strategy, which fell under Dickhout and Denham’s category of follow the leader. Thoman’s plan allowed his aspirations to dominate. Thoman made two correct moves throughout the entire turnaround attempt yet committed numerous mistakes at Xerox.
The first mistake Thoman made, in opposition of Sull’s Theory, occurred when ties broke between salespeople and customers. For example, Diane Bergmanson, a New York sales rep, developed relationships with many of Xerox’s customers. An article written by Diane Brady stated, “George Chen, a senior manager of purchasing at Philips Electronics North America Corp., was distraught to have Bergmanson, a trusted problem solver, pulled off his account. ‘By severing relationships like that, [Xerox] put themselves at risk at a time when we’re making decisions as well,’ said Chen, whose company was currently evaluating its own supplier network” (Brady 4). Sull’s Theory argued the need to maintain relationships usually hindered companies from focusing on new markets. Because Thoman felt no obligation to maintain relationships with Xerox’s customers, the customers bought merchandise from competitors, proving costly for Xerox.
The next mistake Thoman made concurs with Kotter’s Theory regarding why change efforts experience failure. Thoman wanted change to occur so rapidly, he never created a guiding coalition. The opposition halted Thoman’s change efforts and the turnaround proved unsuccessful. Since Thoman never tackled this phase of Kotter’s Theory, the other phases could not occur. The following mistakes stem from Thoman’s need of a guiding coalition. For example, employees found themselves unable to aid the change effort because they lacked knowledge of where Xerox was heading. The employee’s idleness occurred because Thoman lacked a clear vision and a guiding coalition to spread the vision.
Thoman’s principal mistake occurred when he signed on as CEO and failed to insist that Allaire resign as chairman. Allaire posted a threat to Thoman’s change initiatives because Allaire was “old Xerox”. As an insider, Allaire planned a different change for Xerox than the change that Thoman tried to implement. Falling under Kotter’s fifth assumption regarding failure, Allaire functioned as an obstacle to Thoman’s plans. Allaire questioned Thoman’s motives because Thoman was an outsider. If Allaire stepped down and let Thoman implement his plan without question, the turnaround would have experienced a different outcome. A Business Week editorial claims, “[Allaire] continued to control the board of directors and sat in on key management meetings with Thoman, leaving managers to wonder who was really in charge. Thoman, for his part, made a major blunder in not insisting on a free hand as CEO when he took over” (Lessons… 1-2). As Kotter claims, immediately confronting large obstacles helps ensure effective change.
If Thoman produced a successful transformation, Xerox would experience stronger competitiveness through knowledgeable salespeople and superior, less expensive digital technology; however, Thoman commented on his behavior, “I was tone deaf to a degree around people’s concerns simply because I was worried that if we slowed down we would never get there” (Moore 2). This statement clearly indicated Thoman’s desire for drastic action. In addition, the statement showed Thoman’s unwillingness to listen to the employee’s recommendations, which provided concerns and solutions regarding problems during the turnaround. Because Thoman ignored his employees, never engaged a guiding coalition, and through his many other mistakes, success never occurred. Xerox’s transformation attempt failed at Thoman’s hands.
Organizational change requires a knowledgeable change agent capable of managing change to ensure a successful turnaround. The change agent must be familiar with different strategies of implementing change and different guidelines to follow, such as those previously discussed. In addition, the knowledgeable change agent needs to research successful companies and failed companies when designing a turnaround. Extensive research efforts encompass theories for organizational failure, such as Sull’s Theory of active inertia and Kotter’s Theory of eight mistakes.
Change management is an essential concept for all businesses facing turnaround. Rick Thoman, ex-CEO of Xerox, failed to familiarize himself with change management strategies, and he dragged Xerox down. As seen in the late 90s Xerox turnaround attempt, without some appropriate method to manage change, chaos and failure rule ostensibly.
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