CHAPTER 10 TYPES AND FORMS OF ORGANIZATIONAL CHANGE

TEACHING OBJECTIVES
1.
2.
3.
2.
4.
5.
6.

To define organizational change as the process by which organizations reach their desired goals. (10.1)
To examine the various targets of change. (10.1)
To discuss both the forces for change and the resistances to change. (10.2)
To contrast the revolutionary and evolutionary approaches to change. (10.3)
To explain Lewins force field theory of change. (10.4)
To explain and apply the basic steps of action research. (10.4)
To examine the various components of organizational development. (10.5)

CHAPTER SUMMARY
This chapter examines organizational change, including technological change. Technological change
requires that organizations learn how to manage the innovation process. Organizational change is defined as
the process by which organizations reach desired goals. Planned organizational change creates value for
stakeholders.
Several forces for change plus resistances to change are examined. The major forces for change are
competitive, economic, political, global, demographic, social, and ethical forces. The major resistances to
change at the organizational level are structure, culture, and strategy. Resistances at the functional level are
differences in subunit orientation and power and conflict struggles. Resistances at the group level are
norms, cohesiveness, and groupthink. Resistances at the individual level are cognitive biases, uncertainty
and insecurity, selective perception and retention, and habit.
Evolutionary change is distinguished from revolutionary change.
Reengineering, downsizing,
restructuring, and TQM are discussed as methods for change. Included in this are the use of flexible
workers and flexible work teams.
Change is also viewed through Lewins force field theory of change. The concepts and steps associated with
action research are detailed to show how organizations reach a desired future state.
Various concepts associated with organizational development are discussed as a tool to help both the
organization and the individuals in the organization maximize their effectiveness and achieve their goals.

CHAPTER OUTLINE
10.1

What Is Organizational Change?

Organizational change occurs when an organization restructures resources to increase the ability to create
value and improve effectiveness. A declining company seeks ways to regain customers; a growing
organization designs new products. Change is prevalent. In the past 10 years, over half of all Fortune 500
companies have undergone significant restructuring.
Targets of Change
Organizational change includes changes in four areas:
1. Human resources are an organizations most important asset.
Q. What changes are made in human resources?
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A. Changes include: investment in training, socializing employees, changing norms to motivate a diverse
workforce, monitoring promotion and reward systems, and changing top management.
2. Functional resources can be transferred to maximize value creation as the environment changes. Thus,
key functions grow in importance. Organizations can change structure, culture, and technology to
improve the value created by functions.
Q. Give examples of structural and technology changes.
A. A product team culture increases development time. Technology that uses self-managed work teams
increases productivity and quality.
3. Technological capabilities provide new products, change existing ones, and create a core competence.
Improving the reliability and quality of goods and services is an important capability. Organizations
may need to restructure to achieve the benefits of new technology.
4. Organizational capabilities are imbedded in operations. Organizations use human and functional
resources to seize technological opportunities through structure and culture.
These four resources are interdependent, so changing one leads to a change in others. Recruiting a team of
scientists leads to restructuring a product team.

10.2

Forces for and Resistance to Organizational Change

Organizations face both the forces of change and resistances to change. (Fig. 10.1)
Forces of change require change or loss of competitive edge.
Competitive forces spur change, because an organization must equal or surpass rivals to sustain a
competitive advantage in efficiency, quality, innovation, or customer responsiveness. Managing
change is crucial when competing for customers.
Economic, political, and global forces, such as the North American Free Trade Agreement
(NAFTA) or other economic unions, are significant forces of change. The European Union (EU)
has increased to 20 countries. Production in an EU country eliminates tariffs, so Japan produces
cars in England to avoid foreign tariffs. The three distinct economic spheresNorth America,
Europe, and Asiaexpect to have more trade within their arena than across spheres.
Low-cost competitors, low-cost inputs, and new technological developments are realities of global
competition. Organizations may need structural change to enter foreign markets and adapt to
different cultures.
Demographic and social forces include an increasingly diverse workforce, changing, hiring and
promotion. Many workers want to balance work and leisure. Companies need flexibility in
scheduling to meet employee childcare needs.
Ethical forces place greater demands on firms for honest, corporate behavior, so some firms have
hired ethics officers to report offenses or give ethical advice. Organizations protect whistleblowers
and foreign employees.

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Organizational Insight 10.1: Nike, Reebok, Adidas, and the Sweatshops

These companies, and the clothing industry in general, came under scrutiny because the countries that they
outsourced production to paid very low wages and had extremely poor working conditions. Public outcry
is a good example of a force that forces an organization to change.
Q. What environmental forces caused these companies to change their practices?
A. In this case, it was primarily the general public.
Transition into the resistances to change section to discuss what may prevent these organizations from
changing immediately.
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Resistances to Change can occur at the organizational level, group level, or individual level.
Organizational Level
Power and conflict: If change benefits one function at the expense of another, conflict impedes the
change process. Powerful divisions, such as IBMs mainframe division, can sabotage change.
Differences in functional orientation mean that divisions or functions view problems from various
perspectives and seek changes to benefit their own group. If sales fall, R&D wants funding for
product development while sales wants to hire more people. Subunit orientations cause
coordination problems and slow decision making. A high level of task interdependence makes
change difficult. The greater the interdependence, the more complicated change is. It is more
complicated at top levels by affecting the entire organization.
Mechanistic Structures are resistant to change by design. People in a mechanistic structure are
expected to act a certain way, and are not given the freedom to change.
Q. Are mechanistic or organic structures more opposed to change?
A. Mechanistic structures are more resistant to change because people behave a certain way and do
not adjust their behavior to changing conditions. Not maintaining the ability to act in an organic
way results in inertia. Sometimes revolutionary change is needed to adapt the structure.
Organizational culture, values and norms, cause predictable behavior. The culture itself may
cause resistance to change. Some develop conservative cultures that make employees reluctant to
take risks. In addition, if property rights are strong, people will protect their position. Only
revolutionary change may be strong enough to change culture.
Group-Level Resistances to Change
Group norms: When change results in different task and role relationships, informal norms may
become invalid, making a new set of norms necessary. People may resist this.
Group cohesiveness, attraction to the group, is helpful, but if it is too high, the group may resist
change. The group may work to maintain its position even at the expense of other groups.

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Groupthink occurs when members ignore negative information to achieve harmony.

Organizational Insight 10.2: InBev Launches a Takeover Attempt for AnheuserBusch

This insight illustrated how Anheuser Busch had become too cautious and prudent to the point that profits
were being impacted. They didnt realize this until a takeover attempt revealed how complacent top
management had been.
Discuss what other types of events trigger organizations to change, such as losing key employees, key
customers, etc. There is always a trigger for change. You might frame this discussion around Lewins
theory.
Individual-Level Resistances to Change
Uncertainty and insecurity: Resistance to the uncertainty and insecurity of change results in
inertia.
Selective perception and retention suggests that people perceive information consistent with their
views. If change doesnt benefit them, they do not endorse it.
Habit: People prefer familiar tasks and tend to return to original behaviors, making change.
Lewins Force Field Theory of Change shows the opposition between the forces for and against change.
When the forces are in balance, a company remains in inertia without change. For change to occur,
the forces for change must increase while resistance to change decreases. (Fig. 10.2)
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Managerial Implications
Managers must continuously monitor the environment to identify the forces for change. Then, they must
analyze how the change will affect the organization, and determine which type of change to pursue.

10.3

Evolutionary and Revolutionary Change in Organizations

Change is classified as evolutionary change, gradual and incremental, or revolutionary change, sudden
and drastic. Evolutionary change adds small adjustments to strategy and structure to handle environmental
changes. Revolutionary change results in new operating methods, goals, and structure. Three ways to
implement revolutionary change are reengineering, restructuring, and innovation.
Evolutionary Change I: Socio-Technical Systems Theory
Socio-technical systems theory contends that managers need a fit between technical systems and social
systems or technology and culture. If change occurs, managers must ensure that technology, structure, and
culture are matched. Researchers suggest that a team-oriented system promotes values that enhance
efficiency and product quality. Total quality management uses sociotechnical systems theory.
After World War II, coal mining in Britain changed from small batch to mass production. With small batch,
workers needed cooperation and adopted an informal structure. The new technology did not meet
productivity forecasts because the new structure abolished the support system and informal relationships
that fostered group cohesiveness. Consultants recommended decentralizing authority to the work group.
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This led to the concept of socio-technical systems theory, which argues that managers need to fit or jointly
optimize the workings of the technical and social systems.
Evolutionary Change II: Total Quality Management
Total Quality Management
First developed by a number of American consultants, including Demming and Juran, total quality
management (TQM) was developed to make flexible work teams more efficient. The goal of TQM is
continuous improvement to decrease costs, enhance quality, and eliminate waste. (Table 10.2)
The implementation of TQM begins with the commitment to quality. Employees aim to improve customer
service delivery. Manufacturing aims for fewer defects. Culture must value TQM, and quality circles
develop TQM norms in functional areas.
TQM empowers employees, letting them design efficient procedures and control quality. Control is attained
by mutual adjustment and decentralization. Costs are reduced as workers aim to improve quality, replacing
numerical targets with a focus on customer service.
Quality circles are groups of workers who meet regularly to discuss how to improve performance.

Organizational Insight 10.3: United Technologies Uses TQM

United Technologies implemented a TQM program designed to address a problem in its Otis Elevator
decision. By examining the processes, the TQM program led to at total redesign of the elevator. This
success prompted David to use these techniques across all its diverse businesses.
Q. Why would managers resist this type of positive organizational change?
A. There are many different reasons, but some sources relate to managers having to give up power and
decision-making ability, it changes their routine (habit), and is a much larger change than many
organizations first anticipate. It needs to become a way of life in an organization as opposed to a quick-fix
program.
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Evolutionary Change III: Flexible Workers and Flexible Work Teams
In implementing socio-technical systems theory and TQM, many organizations are finding it easier to
achieve their goals by using flexible workers and teams.
Flexible workers can be transferred between departments and functions as demand changes.
Q. What are the advantages of flexible workers?
A. Quick response to environmental changes; reduced boredom and increased incentives for quality;
better understanding by learning one anothers tasks; and combining tasks to increase efficiency and reduce
costs.

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Flexible work teams are groups of employees responsible for completing a stage of production. Groups of
assembly line workers are assigned responsibility for one stage of manufacturing, such as producing
a car transmission. A flexible work team is self-managed; members jointly assign tasks and transfer
from one task to another.
To produce cars, different teams assemble different components and deliver those components to the finalproduct work team. Customer demand determines team activities as each team alters activities to the pull
coming from the output side of production. (Fig. 10.3)

Organizational Insight 10.4: Flexible Work Teams at Globe

Globe Metallurgical Inc., a specialty steel producer, wanted to implement flexible work systems, but the
union refused to cooperate.
Q. What happened when work teams were introduced at Globe?
A. Globe wanted flexible work systems, so the union went on strike. During the strike, 10 managers and 35
employees controlled two of the five furnaces. Productivity increased through cooperation; seven workers,
one from each function, operated one furnace. A team leader coordinated the work and schedules. After the
strike, Globe needed 120 workers compared to the previous 350 to run five furnaces. Now, employees also
participate in profit-sharing.
Flexible work teams reduce costs because a quality control function is not necessary; employees control
quality during the conversion process.
Flexible work teams try to improve efficiency. New ideas begin in quality control circles, meetings to
improve productivity. Experienced employees train new members, and everyone is responsible for hiring
new workers. A team culture emerges, and managers merely facilitate activities and help develop improved
procedures.
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Developments in Revolutionary Change Reengineering
Reengineering, a term popularized by Hammer and Champy, involves rethinking business processes,
activities that cross functional boundaries. Processes, not functions, are the focus of attention.
Reengineering involves reorganizing a process, such as materials management, to create value. Vertical and
horizontal communication and coordination are difficult because purchasing, production control, and
distribution have their own hierarchies.
Managers focus on business processes, which is any activity that cuts across functional boundaries.
Slow production and increased costs lead companies to redesign materials management. (Fig. 10.4) Three
areas of responsibility can be integrated into one function with one hierarchy of managers, and this
arrangement improves communication and coordination. (Fig. 10.4b)
Steps for successful reengineering: organize around outcomes, not tasks; have those who use the output of
the process perform the process; and decentralize decision making to the point where the decision is made.

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Reengineering can improve integration between functions and solve control problems. If a company
becomes involved in large, complex activities, it needs a more complex structure.

Organizational Insight 10.5: How to Stay on Top in the Greeting Card Business
Hallmark discovered that once a new design for a card was printed, it took about 3 years to get the product
to the market. Work teams examined the business process, and now the product reaches the market in a
matter of months.
Q. Are these the result of TQM or reengineering?
A. The two concepts complement each other. Hallmark needed to reengineer in order to provide customers
with a higher quality product. TQM is a continuous process, so Hallmark should continue to find ways to
produce products better, cheaper, and faster.
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E-Engineering
This is a term used to refer to companies attempts to use all kinds of information systems to improve
performance.
Restructuring
This is a method used to change task and authority relationships to improve organizational

effectiveness.
The drive to decrease bureaucratic costs results from competitive pressures. Mergers and acquisitions in
many industries, such as banking, have led to downsizing because fewer managers are needed. Other
companies have reduced staff to match competitors.
The negative effects of downsizing include overworked managers and lost opportunities. Companies that
fail to control growth must downsize to remain competitive.
Innovation
This is the successful use of skills and resources to create new technologies or new goods and services.

10.4

Managing Change: Action Research

Lewins Force Field Theory of Change shows the opposition between the forces for and against change.
When the forces are in balance, a company remains in inertia without change. For change to occur,
the forces for change must increase while resistance to change decreases. (Fig. 10.5)
Action research is a strategy for generating and acquiring knowledge that managers can use to define an
organizations desired future state. It consists of the following steps (Fig. 10.6):
Diagnosis of the Organization
Managers must first recognize the existence of a problem that needs to be solved. This is done by
identifying a gap between desired performance and actual performance.

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Determining the Desired Future State

After identifying the present state, the next step is to identify where the organization needs to be in the
future.
Implementing Action
Implementation is a four-step process.
First, managers identify possible impediments to change at all levels.
The second step is to decide who will be responsible for actually making the changes. External change
agents may be used, which are outside consultants who specialize in managing change. Internal change
agents are managers from within that are knowledgeable about the situation.
The third step is deciding which specific strategy to use to unfreeze, change, and refreeze the organization
per Lewins model.
Top-down change is implemented by managers at a high level in the organization, knowing that the change
will reverberate at all organizational levels. Bottom-up change is implemented by employees at low levels
and will gradually rise through the organization.
Evaluating the Action is the final step in the process. Managers assess the degree to which the changes
have accomplished the desired objectives.
Institutionalizing Action Research
Like TQM, action research must be a habit or a norm for every organizational member in order to be
effective. To assist this, members at all levels of the organization must be rewarded for being part of
successful change efforts.
Managerial Implications
Managers must develop criteria to evaluate whether a change is necessary, and carefully design a plan that
minimizes resistance.

10.5

Organizational Development

Organizational development is a series of techniques and methods that managers can use in their action
research program. The goal is to improve organizational effectiveness and to help people reach their
potential.
OD Techniques to Deal with Resistance to Change
The following are tactics that managers can use to deal with resistance to change.
Education and Communication - One impediment to change is that participants are uncertain
about what is going to happen. Providing them information reduces resistance.
Participation and Empowerment - These are key elements of most TQM programs. People that
are involved in the change and decision-making process are more likely to embrace rather than
resist.
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Facilitation - People need both training and time off to deal with the stressful effects of major
organizational change.
Bargaining and Negotiation - Change causes conflict, and bargaining and negotiation are the
major instrument used to resolve conflict.
Manipulation - Sometimes senior managers need to intervene, as politics shows that powerful
managers have considerable ability to resist change.
Coercion - When all else fails, some individuals need to be threatened with dire consequences in
order to get them to change.

OD Techniques to Promote Change

Counseling, Sensitivity Training, and Process Consultation - Recognizing that each individual is different
also requires them to be treated or managed differently. Sometimes, counseling will help individuals
understand that their own perceptions of a situation may be incorrect.
Sensitivity training is an intense type of training designed for those who have problems working with other
groups. They examine their perceptions of the other group, which can be a very intense experience in that
innermost thoughts and feelings are brought to light.
In process consultation a trained consultant works with a manager on the job to help improve his or her
interactions with other organizational members.
Team Building and Intergroup Training - These techniques are designed to manage change with or
between groups. Team building is similar to process consultation except that it involves the entire group
working together. Intergroup training goes a step further and looks at how different functions or divisions
work together.
Organizational mirroring is a technique designed to get both interdependent groups to see the perspective
of the other side. Appreciating others perspectives allows the groups to work together more effectively.
Total Organizational Interventions - At the organizational level, organizational confrontation meetings
can be used. All managers get together and discuss whether the organization is effectively achieving its
goals.
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DISCUSSION QUESTIONS AND ANSWERS

1. How do evolutionary change and revolutionary change differ?
Evolutionary change makes incremental changes consistently and uses a bottom-up strategy. Employees
suggest improvements. Evolutionary change facilitates learning and response to environmental changes.
Revolutionary change takes radical steps with a top-down change strategy. Revolutionary change
overcomes inertia.
2. What is a business process, and why is reengineering a popular instrument of change today?
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A business process is any function that cuts across functional boundaries. Reengineering is popular today
because all organizations need to continuously find ways to do things better in order to compete. The
starting point is to fundamentally rethink how tasks are completed.
3. Why is restructuring sometimes necessary for reengineering to take place?
Because by completely rethinking a business process, a more efficient structure often emerges. Many
organizations, for example, are using flexible work teams in place of a mechanistic hierarchy. The point is
that organizations need to continuously look for more efficient processes, and this often involves
restructuring the task relationships.
4. What are the main steps in action research?
The steps are detailed in Figure 10.6.
5. What is organizational development, and what is its goal?
It is a series of techniques that managers can use in their action research programs to increase adaptability.
The goal is to improve organizational effectiveness and to help people in organizations reach their potential
and achieve their goals.

ORGANIZATIONAL THEORY IN ACTION

Practicing Organizational Theory: Managing Change
Each small group of students represents one of the big three automakers and plans a change to remain
competitive. The plan includes changing from a multidivisional structure to a cross-functional product team
structure and implementing a total quality management program. The students should:
1. Discuss the obstacles to change at the divisional, functional, and individual level.
2. Discuss ways to overcome obstacles to change to move the organization to its desired future state.

Making the Connection #10

Students will find an example of an organization undergoing a major change. They explain why the
organization is making the change and what its change strategy is.

The Ethical Dimension #10

Students assess the ethics of reengineering, and the sources of resistance when it will mean the layoff of
over 30% of the employees.

Analyzing the Organization: Design Module #10

Students examine the extent to which their organization has been involved in major change efforts. They
examine whether the changes are revolutionary or evolutionary, and what types of changes have been
occurring.

CASE FOR ANALYSIS

Starwoods Uses Six Sigma to Improve Hotel Performance
This case illustrates how a hotel chain used Six Sigma techniques to improve quality service. They also
used the system to reduce injuries of hotel employees during work.

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1. How does Six Sigma work? What are the steps that companies must take to implement such a TQM
program?
This program originated as a way of reducing errors. It requires a strong management commitment to
really implement the program correctly.
2. In what ways can Six Sigma bring about types of change that improve an organizations competitive
advantage?
A reduction in errors should always result in a competitive advantage. In this case, they were able to create
work teams that fostered new ideas to really enhance customer service.

TEACHING SUGGESTONS
1. Assign the models in the chapter to individuals or groups to explain to the entire class with examples.
2. To illustrate the importance of cross-functional teams, divide the class into two groups. Group One
consists of 10 members who represent various functions. Group Two is organized into the following
functions: manufacturing, R&D, engineering, and marketing. You are a customer who wants a certain
product, like sunglasses. Group One can produce what you want quickly and at a lower cost. They ask
you what you want and you describe it. They all cooperate to design and commercialize the product.
Group Two takes longer. R&D comes up with the idea. Engineering designs sunglasses. Manufacturing
complains about the high costs. Engineering redesigns the product and sends it back to manufacturing.
Manufacturing produces the product and gives it to marketing. Marketing says this product is not what
customers want.
3. As a follow up, ask students how they would manage the above changes. Discuss all techniques
through coercion. The point is that students need to match the technique with the situation. For
example, coercion can sometimes have really negative effects, but simply providing more information
may not be effective.
4. Ask students how they would respond to changes in the structure of the class. Ask a student in the
back row to come and sit up front, and watch the reaction. This a good illustration of habit, and how
even small changes can make us uncomfortable.

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