‘If the rate of change on the outside exceeds the rate of change on the inside, the end is near’ ~ Jack Welch
Course Curator: Dr. G. Danford (London Business School MBA, Helsinki School of Economics PhD)
Eight MBA-level sessions covering: Models of change, structural barriers, cultural challenges, and the implementation of change. Speakers include: business school professors (Harvard, Stanford…), corporations (McKinsey, Bain & Co…) and more.
Time Required: 45 min.
BEFORE YOU BEGIN: We recommend that you test your understanding of this sessions content.
WHY? Because the MOST VALID method for measuring learning is to compare results from a pre/post test of content.
Please make a note of your score for comparison purposes at the end of this session.
2.0 Models of Change
- What does change mean for an organization?
- The difference between planned vs. improvisational change?
- The difference between anticipated, emergent, and opportunity-based change?
- ‘The Change Lab’ A NEW CHANGE MANAGEMENT TOOL
LEARNING MOMENTS from this session:
Any significant transformation creates ‘people issues’. New leaders will be asked to step up, jobs will be changed, new skills and capabilities must be developed, and employees will be uncertain and resistant. ‘Because change is inherently unsettling for people at all levels of an organization, when it is on the horizon, all eyes will turn to the CEO and the leadership team for strength, support, and direction’ (Peter Drucker, Management Challenges for the 21st Century). In this session the key takeaways are:
- Being a change leader requires the willingness and ability to change what is already being done, just as much as the ability to do new and different things.
- There are two contexts involved in any change effort: personal and organizational.
- Leaders who are able to identify and manage patterns of emotions in a collective are better able to make their ambitious strategies a reality.
- Change programs can take two forms: planned vs. improvisational.
- Careful analysis of ‘resistance to change’, might be as rewarding course of action, than pushing the change process for the sake of self-interests.
- Industry transformation (business environment turbulence), is often the primary driver of change.
- Technological disruption is another emerging driver of change.
- The improvisational change model recognizes three types of change: anticipated, emergent, and opportunity-based.
- The ‘Change Lab’ is a rigorous method for determining whether a change program will accomplish the desired results.
2.1 Is Change a Necessity?
‘Maintaining yesterday’, stated Drucker, is always difficult and extremely time-consuming. Maintaining yesterday always commits the institution’s scarcest and most valuable resources, and above all, its ablest people…to non-results. Yet doing anything differently (innovating etc.), always creates unexpected difficulties. Innovation demands leadership by people of high and proven ability. However, if those people are only committed to maintaining yesterday, they are simply not available to create tomorrow.
Drucker coined the phrase ‘organized abandonment’. When practicing ‘organized abandonment’, change leaders put every product, every service, every process, every market, every distribution channel, every customer, and every end use on trial for its life! And the change leader does so on a regular schedule.
‘Being a change leader requires the willingness and ability to change what is already being done, just as much as the ability to do new and different things. It requires policies and practices that make the present create the future’.
PETER DRUCKER ON CHANGE (2:00)
NOTE: this video will start and stop at the pre-assigned times 0:21-2:15
2.2 The Change Model
As transformation programs progress from defining strategy, setting targets, design, to implementation; these actions affect different levels of the organization. Individuals are inherently rational and will always question to what extent change is needed, whether the company is headed in the right direction, and whether they want to commit personally to making change happen.
The basic change model defines change as: permanently altering patterns of behavior. There are two contexts of behavior involved: personal and organizational. The personal context is influenced by education, age, personality and other factors. The organizational context is influenced by structure, politics and culture.
THE BASIC CHANGE MODEL (4:00)
NOTE: this video will start and stop at the pre-assigned times 0:17-4:06
2.3 Case: Resistance to Change @Nokia
‘Leaders who are able to identify and manage patterns of emotions in a collective are better able to make their ambitious strategies a reality. Our argument centres around the idea that the emotions felt by a large number of people within an organisation can determine the success of strategy implementation even when these feelings go unexpressed’ (Quy Huy, INSEAD).
Nokia’s top leadership employed the best practices of strategy implementation and strategic agility. However, with the benefit of hindsight, The former CEO of Nokia (Olli-Pekka Kallasvuo), acknowledges that the emotional climate within the organisation was overlooked during his turbulent period of leadership (2006-2010).
When leadership does not pay sufficient attention to the emotional undercurrents caused by internal competition for resources to develop a vast array of phone models for various market segments worldwide, each department becomes its own kingdom, each executive a little emperor, and people are more concerned about their status and internal promotion than cooperating actively with other departments to produce innovative products rapidly (silo politics). This behavior spreads naturally and quickly like bad weeds in the garden. The whole became less than the sum of the parts.
‘Even though the top managers sometimes acknowledged the threats publicly, fear of losing internal momentum and external sales in the short term prompted them to emphasise the quality of Nokia’s products and internal developments and, thus, downplay somewhat, at least in relative terms, the competitive threats to larger internal and external audiences. As a consequence, middle managers’ fears toward the competitors and concern over Nokia’s future were reduced’.
Case: Nokia’s Ability to Implement Change? (4:00)
Olli-Pekka Kallasvuo, former CEO, Nokia (2006-2010)
NOTE: this video will start and stop at the pre-assigned times 3:33-7:34
Take A Pomodoro Break Now (5 min. to relax & reflect)
Learning always benefits from short breaks.
2.4 Forms of Change
Leaders of large change programs must over-perform during the transformation and be the zealots who create a critical mass among the work force in favor of change. Change programs can take two forms: planned vs. improvisational.
- The Planned Model: The best planned programs reinforce core messages through regular, timely advice that is both inspirational and practicable. The planned model is effective in stable contexts and within well-architected firms. Improvisational change programs are more emergent although the agreed destination of the proposed change is clear to all. Communications flow in from the bottom and out from the top, and is targeted to provide employees the right information at the right time and to solicit their input and feedback.
- The Improvisational Model: The improvisational model can be, anticipatory (clear on what you intend and want), emergent (much changes during the process of change), and opportunity-based (take advantage of what happens during the change program). Successful change programs pick up speed and intensity as they cascade down (planned) and up/down/across (improvisational), making it critically important that leaders understand and account for culture and behaviors at each level of the organization.
Leaders should be aware of the culture and underlying behaviors that will best support the new ways of doing business.
Determining which change process is ideal (planned, incremental…), can be influenced by internal factors (culture, history if firm), and external factors (nature of business environment, pace of change occurring, disruptive innovations etc.) Furthermore, no change program goes completely according to plan.
People react in unexpected ways; areas of anticipated resistance fall away; and the external environment shifts. Therefore, effectively managing change requires continual reassessment of its impact and the organization’s willingness and ability to adopt the next wave of transformation. Change is both an institutional journey and a very personal one. Individuals (or teams of individuals) need to know how their work will change, what is expected of them during and after the change program, how they will be measured, and what success or failure will mean for them, and for those around them.
Planned vs. Improvisational Change (4:30)
NOTE: this video will start and stop at the pre-assigned times 4:07-8:38
2.5 Decision Making
When an executive makes a big decision, he/she typically relies on the judgement of a team that has put together a proposal for a strategic course of action or change. The team may have thoroughly analyzed the pro’s and con’s of that decision (much more than the executive). The problem is, often biases invariably creep into any team’s reasoning, and often dangerously distort the thinking. A team that has fallen in love with its recommendations. may subconsciously dismiss evidence that contradicts its theories, give far too much weight to one piece of data, or make faulty comparisons to other business cases.
Therefore, decision makers need to thoroughly conduct a careful review not only of the content of the recommendations, but also of the recommendation process. That process helps unearth and neutralize defects in thinking. Has the team explored all the right information (for example, why are employees resistant to change and what are the real factors that contribute to that resistance), and well grounded information to support different cases.
Leaders also need to consider whether their team recommending the proposed course of action were unduly influenced by self-interest, overconfidence, or attachment to past decisions (risk aversion etc.)?. When planning change, as an example, careful analysis of the reasons for resistance to change, and the possible incentives (or other actions) which might help reduce the resistance by key individuals, might be a rewarding course of action rather than pushing the change process for the sake of self-interests or other reasoning. (Source: Harvard Business Review)
CHANGE & BEHAVIORAL ECONOMICS (4:20)
Prof. Daniel Kahneman (Nobel Laureate)
NOTE: this video will start and stop at the pre-assigned times 31:56-36:20
2.6 Industry Transformation
AIRLINE INDUSTRY RESTRUCTURING
David Morris (Huffington Post 2013) reflects on 1978 when the US Airline Deregulation Act become law.
“A new era began. Federal controls over the entry and exit of airlines, flight schedules, airfares and quality of service were abolished. Financial oversight was abandoned. Only airline safety remained under federal regulation. In the next decade, history conspired to bolster the case for deregulation. Dozens of competing airlines entered the market at the same time oil prices dropped by 60 percent. Fares plummeted. Choice multiplied. A near consensus was born that continues to this day to cut across parties and politics: Deregulation has been a virtually unqualified success. Since that time more than 150 airlines have sought bankruptcy protection or gone out of business. Before deregulation 10 major airlines controlled 90 percent of the market. Today, as noted, four control 85 percent.”
Airline Deregulation (3:30)
NOTE: this video will start and stop at the pre-assigned times 14:10-17:42
DIGITALIZATION OF MARKETS
To gain a better understanding of the relative degree to which digitization is transforming different industries, Strategy & analysis (2013) created the industry digitization index. All industries can benefit by investing in the input, processing, and output capabilities needed to extend their digital footprints throughout their business ecosystems.
2.7 Improvisational Change
The improvisational change model recognizes three different types of change: anticipated, emergent, and opportunity-based.
- Anticipated Changes: Those changes that are planned ahead of time and occur as intended.
- Emergent Changes: Arise spontaneously (Mintzberg) out of local innovation, and are not anticipated or intended.
- Opportunity-based Changes: Not anticipated ahead of time, but are introduced purposefully and intentionally during the change process, in response to an unexpected opportunity.
These three types of change build on each other (in an iterative fashion) however, there is no clear sequence. Therefore, different types of changes interact with each other, in response to outcomes, events, and conditions.
Case: Implementing Software Systems (4:30)
NOTE: this video will start and stop at the pre-assigned times 8:38-12:38
2.8 Technological Disruption
The future always comes too fast and in the wrong order. ~ Alvin Tofler
McKinsey Global Institute recently completed a study on the impact of automation efforts across different sectors of the economy. Some of the issues address included: Can we look forward to vast improvements in productivity, freedom from boring work, and improved quality of life? Should we fear threats to jobs, disruptions to organizations, and strains on the social fabric? The major findings from the McKinsey research included:
- As many as 45 percent of the activities individuals are paid to perform, could be automated by adapting currently demonstrated technologies.
- Even the highest-paid occupations in the economy (financial managers, physicians, and senior executives), have a significant amount of activity that can be automated.
- The organizational and leadership implications are disruptive technology will be enormous.
Google project that three things are going to fundamentally change in the future people’s relationships with technology: standardizing how computing operates, standardizing how devices inter-operate with each other, and simplifying the user-experience. This change will apply to everything (even knowledge workers). The big question then is, what are people doing because of these technological changes, and how does that impact the ways organizations operate in the future? However, despite the rapid change occurring, more often than not, organizations are creating systems that are built upon legacy solutions. Therefore, those new solutions are only giving a marginal improvement on legacy solutions.In order to truly innovate, one must step away from legacy solutions are carve a different path in seeking out future solutions. That radical move can be lonely and challenging.
Google: IMPACT OF TECHNOLOGY (4:00)
Umesh Vemuri, Head of Engineering – Google for Work
NOTE: this video will start and stop at the pre-assigned times 20:19-24:21
2.9 The Change Lab
Have you been frustrated with the change efforts made in the past? Even if you had studied the proposed change in detail, communicated it at length, and came up with a strategy for implementing it, introduced it, but all your efforts failed! Consider that one crucial step might have been missing from that process; a rigorous way to determine whether the change will accomplish the desired results? Experimenting with organizational change may be one frequently un-considered option before ‘going all in’ with your change program.
The ‘Change Lab’ concept is one way of testing change, articulating goals and evaluating decisions based on concrete metrics. This form of experimentation can help in avoiding dysfunctional and costly mistakes along with unearthing alternative solutions to the successful implementing of the desired change.
Pharmaceutical companies frequently deploy a similar process when conducting ‘clinical trials (Francesca Gino, Harvard Business School). Furthermore, a few organizations have explored the power of experimentation/behavioral economics (Disney Corporation R&D department) in testing the effectiveness of change programs.
According to Prof. Gino (Harvard), experimental testing can benefit from three ingredients:
- Identifying target outcome. This outcome should be specific and measurable. For example, the effectiveness of the change efforts. This could be measured by employing the ‘Change Promoter Score System’, which was introduced in Session 1/8.
- Articulate what the change will involve. Simpler changes are often better, since complex changes with many moving parts make it difficult to identify the component that is driving results.
- Introduce the change in a “treatment group”. Take a unit which has been targeted as part of the proposed change process and divide that unit into two groups (randomization helps to ensure that the two groups are similar). One of the group will be the ‘treatment group’, and the other a ‘control group’. The ‘treatment group’ will be exposed to the change experiment being tested. The ‘control group’ is monitored simultaneously, without the introduction of the proposed change program. The differences in outcomes between those two groups can then be measured and an assessment made of the determinants of the change achieved.
Behavioral economics offers insights into why the above efforts might have failed. The concept of ‘confirmation bias’ suggests that ‘a particular course of action is the correct decision, and our human tendency is to interpret any available information as supportive of that course of action’. In other words, our way of thinking is distorted toward confirming our currently held views. Furthermore, once we invest resources in that ‘confirmation’, we tend to justify all investments, and continue down the same path even when new information disproves that path (escalation of commitment). Unfortunately, due to ‘confirmation bias and escalation of commitment’, organizations persist in implementing ineffective policies and fail to contemplate the other alternatives.
The intuition of management regarding how to implement change may be worth testing before ‘confirmation bias and escalation of commitment’ take hold of your organizational change program. The ‘Change Lab’ is one way of experimenting with ones intuition before that occurs, along with validating the assumptions made on what will drive the desired results.
THE CHANGE LAB (3:30)
NOTE: this video will start and stop at the pre-assigned times 0:13-3:47
2.10 Now For Something Different!
CHANGE IN THE U.S. ARMY
The U.S. Army has recognized that emerging threats in the battle field need to be anticipated and prepared for, far before battle conditions arise. Therefore, a number of units in the U.S. Army (Rapid Equipping Force and Asymmetric Ware-fare Group) and working collaboratively (together with private corporations and Universities) to explore the threat which ‘Small Unmanned Ariel Systems’ pose to troops on the ground. Therefore, the nature of modern warfare is being impacted by new technologies which are accessible to enemy combatants. Col. Sliwa discusses the efforts being made by the army to counter the threat posed by these new technologies.
Challenge To Learner: When watching this U.S. Army video, consider how your organization might learn from the innovation and adaptation activities/practices of the U.S. Army. What ideas did you get for how to manage change more effectively in your organization from the Army?
Case: U.S. Army RAPID INNOVATION AND ADAPTATION TEAM (3:30)
Col. Steven A. Sliwa, U.S. Army, Rapid Equipping Force
NOTE: this video will start and stop at the pre-assigned times 28:32-32:11
Being a change leader requires the willingness and ability to change what is already being done, just as much as the ability to do new and different things. Change programs can take two forms: planned vs. improvisational however, careful analysis of ‘resistance to change’ is essential in both forms. The improvisational change model recognizes three types of change: anticipated, emergent, and opportunity-based. The Change Lab is a rigorous method for determining whether a change program will accomplish the desired results.
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5-Dimensional Model For Organizational Change (OpenInnovation.eu)
NEXT Session 3/8: CONGRUENCE MODEL OF CHANGE
CONTENT: Designing Change, Professor Michael Porter (Harvard) on strategy and change, Ellen Galinsky on the change ‘fiasco’ at Yahoo, and more (change theory, three actions framework etc.). Congruence Model of Change 3/8