Ch-15 Organization Transformation and Strategic Change: Ch-15 Organization Transformation and Strategic Change By: Radhika Gandhi Points to be covered: Points to be covered Strategy and Transformation Organization Transformation The Corporate Culture Strategic Change Management Changing the Corporate Culture Strategy and Transformation: Strategy and Transformation Organization transformation refers to those drastic changes in how an organization functions and relates to its environment. Good management does not mean trying harder by using old, out-dated methods. It involves developing strategies for coming up with new products, making sure they are what the customer wants, and getting them to market in time to gain a competitive advantage. Cont…: Cont… Accelerating changes in technology, shorter product life cycles, and unexpected new competition make succeeding in business harder than ever. The evidence indicates that managers play a major role in whether or not an organization performs. Managers make strategy and strategy determines business success or failure. Cont…: Cont… Cultural change efforts include activities designed to improve the skills, ability, structure, or motivation of Organization members. The assumption underlying such efforts is that developing an improved culture will result in a more effective organization. The strategy-culture matrix provides one model that can be used to access the readiness of a corporate culture for strategic changes. Cont… : Cont… A growing body of research indicates that culture affects strategy formulation and implementation, as well as the organization's ability to achieve a high level of corporate excellence. Strategic change Management, another type of intervention, involves integrating the organization’s strategy with it’s structure, technology, and people and aligning these factors to the competitive environment. Organization Transformation: Organization Transformation Defined as a drastic, abrupt change to total structures, managerial processes, and corporate cultures. It requires a redesign of everything in the organization. Directive Approaches to Change: OT approaches tend to use directive approach rather than participative approach. Typically, a senior manager initiates a transformational change, deciding when to initiate, what the changes shall be, how it is to be implemented and who is responsible. Strategies of Change: Strategies of Change Several possible approaches to large-scale change programs depending upon the existing conditions. Incremental Approach: refers to long-term planned change that relies upon collaboration and participation Transformational Approach: refers to immediate drastic change accomplished by directive methods. Cont…: Cont… Dunphy and Stace have identified a model of large-scale strategies based upon three key dimensions: The time frame The level of support of the organizational culture The degree of discontinuity with the environment From these three dimensions, four process change strategies have been identified as follows: Participative Evolution Charismatic Transformation Forced Evolution Dictatorial Transformation Slide 10: Participative Evolution Use when organization is in fit but needs minor adjustment or is out of fit but time is available and key interest group favor change. 2. Charismatic Transformation Use when organization is out of fit, there is little time for extensive participation, but there is support for radical change within the organization . 3. Forced Evolution Use when organization is in fit but needs minor adjustment, or is out of fit but time is available and key interest groups oppose change. 4. Dictatorial Transformation Use when organization is out of fit and there is no time for extensive participation and no support within the organization for radical change, but radical change is vital to organizational survival and fulfillment of basic mission. Incremental Change strategies Transformational Change strategies Collaborative Modes Coercive Modes Short Long The Corporate Culture: The Corporate Culture The corporate culture reflects the organization’s past and is deeply rooted in its history and mythology. It influences how managers approach problems, react to competitors, and implement new strategies. It includes: The Strategy-Culture Fit Sharing the Vision The Strategy Culture Matrix The Strategy-Culture Fit: The Strategy-Culture Fit Corporate Culture is important because of its relationship to Organizational effectiveness. Strategy refers to a course of action used to achieve major objectives. It include activities such as leading to identification of objectives and plans of the organization and is concerned with relating the resources of the organization to opportunities in the larger environment. Cont…: Cont… Organizational culture refers to a system of shared values held by members that distinguishes one organization from another. It can be described by a set of core characteristics that include: Individual Autonomy Sensitivity to the needs of customers and employees Support Interest in having employees initiate new ideas Openness of available communication channel Risk Behavior Cont…: Cont… An organization’s success rests on its ability to change its strategy in order to meet rapidly changing market conditions. Under these conditions the culture must be adjusted so the firm can confront and deal with factors that may contribute to its failure, stagnation, or success. Organizations operating in different environments with different competitive situations may need to develop distinct cultures focused upon the goals of their strategy and competitive arena. Sharing the Vision: Sharing the Vision According to a widely used definition, vision is ‘a mental image of a possible desirable future state of the organization…that articulates a view of a realistic, credible, attractive future for the organization, a condition that is better in some important ways than what now exists. An effective vision should be challenging, inspiring, and aimed at empowering people at all levels. Developing a shared vision involves several stages: Share the vision Empower the Individual Develop Trust Reward Performance Slide 16: Share the vision Empower the Individual Develop Trust Reward Performance Encourages Success Increases Performance Improves Quality Increases Employee Involvement Rewards Performance Encourages Risk Taking Enhances Paricipation Builds Trust Sharing the vision Strong versus Weak Cultures: Strong versus Weak Cultures As compared to weak cultures: Strong cultures have more impact on employee behavior and are more directly related to lower turnover Creates high levels of employee loyalty and motivation Members share the basic values with greater commitment Cont…: Cont… It is most important to note here that cultural strength does not necessarily guarantee corporate effectiveness. The definition of the culture, and the degree to which its solutions fit the problems posed by the environment seem to be the critical variables here, not strength alone. The Strategy-Culture Matrix: The Strategy-Culture Matrix Implementing strategic changes can be done more effectively when the culture of the organizations is taken into considerations. The Strategy-Culture Matrix is one way of understanding the relationship between an Organization’s strategy and it’s culture. There are four basic alternatives in determining strategic changes: Manage the change [Manageable Risk] Reinforce the Culture [Negligible Risk] Manage around the culture [Manageable Risk] Change the Strategy to fit the culture [Unacceptable Risk] Slide 20: Manage the Change Share the vision Reshuffle the power or raise key people to positions important in implementing the key strategy Reinforce the new value system Reinforce the culture Forge the vision of the new strategy that emphasizes the values Reinforce and solidify the existing culture Slide 21: Manage around the culture Reinforce the value system Reshuffle power to raise key people Use any available levers of change, such as the budgeting process and reorganization Change the Strategy The proposed changes are incompatible with the entrenched corporate cuture and there is little need for strategic change. The initial reaction is to do nothing because there is little need for change, and if change is to be implemented, it would likely be incompatible with the existing culture Slide 22: Moderate Culture [Intense] Moderate Culture [Stable] Strong Culture Weak Culture Strong Weak Low High Member Commitment to Values Number of Members Sharing Values Relative Strength of Corporate Cultures Slide 23: 3. Manage Around the Culture 2. Reinforce The Culture 1. Manage the Change 4. Change The Strategy High Low Low High Need for Strategic Change Compatibility of change With Existing Culture The Strategy-Culture Matrix Strategic Change Management: Strategic Change Management Noel Tichy proposed the strategic change management model as an important element of the strategic interventions. According to Tichy, organizations are composed of technical, political, and cultural systems. Three basic- managerial tools- organizational strategy, organizational structure, and human resource management- may be used to align the three systems with one another and with the larger environment. Cont…: Cont… The technical system: designed to solve the organization’s production problems. Includes the mission, strategy, and organizational structure to become effective. The political system: resolves the allocation problem; how to distribute resources and power, including reward system, career succession, budgets, and power structure. The cultural system: designed to solve the value/belief problem; what values members share, what objectives should be pursued, and so forth. Cont…: Cont… Tichy’s approach to change suggests the following steps: Develop an image of the desired organization with the technical, political, and cultural systems aligned. Separate the three systems and intervene separately in each one. Plan for reconnecting the three systems. Slide 27: Political System Technical System Cultural System Political Forces Economic Forces Cultural Forces Organizational Systems Environmental Forces and Organizational Systems Changing the Corporate culture: Changing the Corporate culture Terrence Deal and Allan Kennedy suggest that there are only five reasons to justify large-scale cultural changes: When the company has strong values that do not fit the changing environment. When the industry is very competitive and changes with lightning speed. When the company is mediocre or worse. When the firm is about to join the ranks of the very largest. When the firm is small but growing rapidly.