Understanding Change

PART ONE Understanding change Perspectives on change The ethics of organizational change Planned change and its critics Strategic change Building and developing competitive advantage 3 39 73 11 1 147 CHAPTER 1 Perspectives on change 1. 1 Introduction 1. 2 Perspectives on change 1. 2. 1 Modernity, progress, and change 1. 2. 2 Pathways to change 1. 3 Structural-functional change: changing structures and functions 1. 3. 1 An organization is a complex whole 1. 3. 2 Structural theory 1. Multiple constituencies: change by negotiation 1. 4. 1 Stakeholder interests 1. 5 Organizational Development: the humanistic approach to change 1. 5. 1 Intervention strategies at the individual level 1. 5. 2 Intervention strategies at the group level 1. 5. 3 Intervention strategies at the organizational level 1. 6 Creativity and Volition: a Critical Theory of Change 1. 6. 1 Conflict, flux, and change 1. 6. 2 People are active agents 1. 6. 3 The critique of the spectator view of knowledge 1. Summary Study questions Exercises Further reading References 4 6 6 7 8 13 16 18 20 22 24 24 25 28 28 29 30 33 35 35 36 36 4 UNDERSTANDING CHANGE 1. 1 Introduction This chapter lays the framework for this book by arguing that organizational change is developed within models and frameworks that inform our understanding of the subject. In this chapter we will learn that knowledge and practice of organizational change are influenced by assumptions derived from the models or perspectives we use.

For example, if we regard change as a matter of systemic structural arrangements we can make in an organization, then we can see how the analogy of organism or biological system helps to inform our judgements. Because perspectives offer ways of seeing, they will inevitably organize our perception in line with the dominant analogy used. However, analogies are only partial knowledge claims. Four perspectives on change are cited in this chapter: why four perspectives in particular?

The answer to that question is straightforward but you need to understand at this point that a perspective is an overarching approach that contains a variety of theories that have become associated with it. You will see why these are the dominant perspectives once you have read the remainder of this section. First, the structural-functional perspective is the oldest approach to organizational design and therefore change. Like each perspective, it contains a variety of theories that attempted to resolve some of its difficulties as it developed.

These theories include the hard systems, systems dynamics, cybernetics, soft systems, criticalsystems heuristics, and postmodern systems thinking (Jackson, 2003). The structuralfunctional perspective encourages us to think about structural arrangements and functional interrelationships within organizations. The development of the opensystems model in the 1950s assisted our understanding further by focusing on how inputs to an organization are transformed into outputs. This is useful for thinking about how we might change tasks and relationships in a production process.

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The value of the structural-functional perspective lies in its ability to change the arrangement of tasks and procedures in relation to the customer or client specification. The advantage of the perspective lies in its ability to look at an organization as a control mechanism: that is, to understand the important structural components and to articulate the functional interrelationships between the parts. Inevitably, structural redesign will therefore influence the functions that each part produces for the whole. But the perspective has disadvantages also.

Because it is a model for controlling operations, it is therefore mechanistic. It tends to ignore how motivations, behaviours, attitudes, and values contribute to effective performance. The multiple constituencies perspective emerged from dissatisfaction with the structural-functional perspective. Although it was initially associated with the work of Cyert and March (1963), it increasingly came to adopt a range of theories associated with the action and motives of individual actors rather than with the action of systems per se.

The multiple constituencies perspective refers to the way that complex organizations have to negotiate objectives with different groups of stakeholders who have overlapping and often conflicting needs. When we consider hospitals, health PERSPECTIVES ON CHANGE trusts, postal services, public bodies, local government, and transnational companies, then we come to recognize that the organization’s needs are inextricably linked to various stakeholder groups. This affects how resources are managed and distributed, as well as how change might be facilitated to maximize efficiency and effectiveness.

An investigation of how multiple constituencies bring their own interests and motivations into the organizational arena will help us to provide an informed approach to managing change by recognizing the various resource needs of different groups. We can recognize the advantage of this perspective in drawing attention to the various stakeholder needs but we can also recognize that it is limited to a partial analysis. It is less concerned with developing people. It also has a limited view of power. Consequently this reduces organizational change to consensual negotiation between pluralities of groups.

Those academics and practitioners that adopt the Organizational Development perspective would share much with the two previous perspectives because it embraces both a systems approach and a focus on stakeholders and governance. However, it is distinguished by its methodology of action research as much as it is by its ethical approach to developing organizations through people. For the first time we begin to see people as resources to be developed rather than as simply costs on a balance sheet. This perspective emerged from the human relations approach, which focused on personal and group development.

However, unlike the two previous perspectives, it argues that maximum efficiency and effectiveness cannot be achieved by dealing with tasks, procedures, and customers’ or clients’ needs without looking at the quality of management, leadership, communication, culture, motivation, and values. Because the Organizational Development (OD) perspective on change emerged out of human resource theory, it became a synthesis of structural functionalism and behavioural research. The two main contributions of this approach are the focus on social characteristics and ts methodology dedicated to a humanistic approach to change and development. OD is also associated with the idea of planned change and the need to clearly diagnose clients’ needs before making an intervention. These provide major advantages in thinking about change but they are also partial and limited to conceptualizing change as a matter of consensus, as does each perspective mentioned so far. The final perspective—Creativity and Volition: a Critical Theory of Change— reflects the challenges and assumptions of Critical Theory.

It cannot be regarded as a unified perspective, as the others can, because it does not seek to offer solutions to change problems. But it does go further than any of the other perspectives in demonstrating that people, rather than systems, are the main element of analysis in any change theory. Each of the other perspectives tends to reify human action. By contrast, this perspective seeks to redress the balance by arguing that people are active agents of change. It also brings another important element under scrutiny.

That is, each of the other perspectives focuses on rational change. This has implications for designing and planning change as a linear sequence of events. However, if change programmes ignore emergent processes that result more from conflict, flux, and uncertainty than from consensus and stability, then intervention strategies will have a limited and often 5 6 UNDERSTANDING CHANGE unintended effect. Because this perspective is derived from Critical Theory we should not assume that it is immune to criticism. The main criticism is that it does not offer solutions.

It does not provide useful intervention strategies. It does, however, make us stop and think before we act. You should now be clear that each perspective contains a range of theories that share assumptions, methods, and approaches. These can be stated simply as: 1. A focus on systems and structures (the structural-functional perspective). 2. A focus on governance (the multiple constituencies perspective). 3. A focus on behavioural improvement through personal and Organizational Development (the OD perspective). 4.

A focus on constant critique (Creativity and Volition: a Critical Theory of Change). A simple reminder of the focus is: systems, governance, behaviour, and critique. The argument throughout the book is that to manage change you need to understand these interweaving debates. In this chapter we will: • Explain the benefits and limitations of change contained within the structural-functional perspective. • Examine how a multiple constituencies perspective provides arguments for involving stakeholders in complex change initiatives. Explore the value of human resource and organization development interventions as well as their limitations in planned change initiatives. • Appreciate why organizational change may be characterized better by conflict, flux, and uncertainty. • Consider the source of creativity. • Appreciate the role of Critical Theory in understanding organizational change. 1. 2 Perspectives on change 1. 2. 1 Modernity, progress, and change It is important to contextualize the four perspectives of this chapter by illustrating that each emerged from, or in reaction to, the process of modernism.

The term ‘modernism’ was originally used to describe the new machine age of the early twentieth century, which reflected progress through the application of scientific principles, order, and control. Scientific principles emerged from the pursuit of rationality embedded in the philosophy of the Enlightenment. The twentieth century was influenced PERSPECTIVES ON CHANGE by progressive movements in art and architecture, but the new age was eventually associated with negative qualities that, paradoxically, were linked to its greatest triumph—the machine age.

The new machine age was characterized by large-scale movements, revolutions, and world wars which all proclaimed progress through the application of machine technology or through the metaphor of the machine as the embodiment of efficiency and effectiveness. This was no more apparent than in business and management, where modernity reflected the task of controlling large-scale organizations. Techniques or processes such as bureaucracy, Taylorism, and Fordism came to reflect the new managerialism of the machine age in which the principles of measurement and calculation came to dominate thinking.

This emphasis on rational calculation had advantages in the form of mass production of cheap goods but, to achieve this, the human cogs in the machine were alienated by a technology that largely ignored social practices. You should therefore be aware that the structural-functional perspective emerged at the time when modernism suggested progress through the application of rational principles. It should be no surprise, then, that it tended to focus on task and throughput by using the metaphor of organism as machine. The perspective referred to as multiple constituencies emerged in the 1960s.

It was the first to challenge the naive rationalism of the structural-functional perspective by arguing that an organization is not equivalent to a biological entity and that therefore the organic model was not appropriate to organizations. An organization was better conceived as a ‘legal fiction’ (Shafritz and Ott, 1991). This had the advantage of persuading us that progress is simply a result of social processes and that all organizations are no more than devices to achieve certain objectives. The perspective helped to establish the idea of change through governance.

Organizational Development has been the main tradition of organizational change and has much to recommend it, such as a declared humanistic commitment to change. It has also developed useful techniques and methods, but its use of the biological model limits its critique. The perspective we call ‘Creativity and Volition: a Critical Theory of Change’ is united only by its objection to modernism. It therefore provides a useful counterbalance to the other perspectives by offering criticism of the conventional wisdom. But it also suggests that human volition and creativity are a long way from the modernist assumptions of progress. 1. 2. 2 Pathways to change Each perspective contains theories that lead to a change intervention. The phrase ‘change intervention’ refers to change actions taken at a strategic level to help an organization become more effective. A perspective can therefore be regarded as a model for understanding how a subject can be understood. Advocates of a perspective develop theories to inform their views and they construct methodologies to test the accuracy of their various theories within a perspective. However, each perspective is open to criticism precisely because it contains assumptions about organizational reality.

Each is therefore valuable as a framework 8 UNDERSTANDING CHANGE Figure 1. 1 Pathways to change STRUCTURAL-FUNCTIONAL CHANGE Change occurs for dysfunctional reasons when internal functions fail or when structures do not reflect the rational design of the best system INTERVENTIONS focus on the alignment of functional relationships and the structural re-design of the system to accommodate changing external environmental conditions MULTIPLE CONSTITUENCIES Change is a negotiated order and organizations are arenas in which internal groups and external stakeholders seek to exert influence

INTERVENTIONS focus on contractual relationships. A distinction is made between a formal contract and an informal or psychological contract ORGANIZATIONAL DEVELOPMENT Change is planned once needs are diagnosed INTERVENTIONS focus on both personal and Organizational Development and change CREATIVITY, VOLITION AND CRITICAL THEORY Change results from conflict not consensus INTERVENTIONS are replaced by critical analysis for change, but in the interest of validity we need to be cautious about the claims to certainty that each makes.

We would be wise, therefore, to view these perspectives as pathways to understand organizational change. We can take the analogy further and suggest that each perspective represents a pathway through a minefield of conceptual difficulties. Each perspective is illustrated in Figure 1. 1. 1. 3 Structural-functional change: changing structures and functions Structural-functional change is the oldest perspective on organizational change. This perspective is also known as structural-functional analysis. It is effectively a social-systems PERSPECTIVES ON CHANGE iew of organizations as opposed to the mechanistic or closed-systems perspective of physics. Henry Fayol was one of the first writers to make the link between structure and function. In his 1916 book General and Industrial Management, he describes the relationship between organizations and biology in terms of an analogy. Thus he points out that, just as organisms evolve and become more sophisticated in their structural properties, so do organizations. We can see why the organic analogy is important to organizations when we consider Fayol’s description of specialization and differentiation.

For example, [s]pecialization belongs to the natural order; it is observable in the animal world, where the more highly developed the creature the more highly differentiated its organs; it is observable in human societies where the more important the body corporate the closer its relationship between structure and function. As a society grows, so new organs develop destined to replace the single one performing all functions in the primitive state. (Fayol, 1916: 19) 9 Thus, as organizations grow and develop, they become much more complex and require new types of structure.

In order to deal with this complexity, work has to be simplified through the division of labour. Some years later, structural-functional analysis viewed the study of organizations as the analysis of both structural and functional interrelationships between elements in an organizational system. Structural-functional analysis of an organization begins with the assumption that organizations are cooperative systems. Whilst they are constituted by individuals, this is less relevant than the fact that they are systems designed to coordinate the actions of individuals. They are better viewed, therefore, as adaptive organisms.

This means that any organizational system ‘is deemed to have basic needs… related to self-maintenance… and… self-defence’ (Selznick, 1948: 26). Selznick suggests that organizations, as systems, maintain themselves by means of five essential imperatives, described as follows: 1. The security of the organization as a whole in relation to social forces in its environment. This imperative requires continuous attention to the possibilities of encroachment and to the forestalling of threatened aggressions or deleterious (though perhaps unintended) consequences of the actions of others. 2.

The stability of the lines of authority and communication. One of the persistent reference points of administrative decision is the weighing of consequences for the continued capacity of leadership to control and to have access to the personnel or ranks. 3. The stability of informal relations within the organization. Ties of sentiment and self-interest are evolved as unacknowledged but effective mechanisms for adjustment of individuals and subgroups to the conditions of life within the organization. These ties represent a cementing of relationships which sustains the formal 10 UNDERSTANDING CHANGE uthority in day-to-day operations and widens opportunities for effective communication. ‘Consequently, attempts to “upset” the informal structure… will normally be met with considerable resistance. ’ 4. The continuity of policy and of the sources of its determination. For each level within the organization, and for the organization as a whole, it is necessary that there be a sense that action taken in the light of a given policy will not be placed in continuous jeopardy. Arbitrary or unpredictable changes in policy undermine the significance of (and therefore the attention to) day-to-day action by injecting a note of caprice.

At the same time, the organization will seek stable roots (or firm statutory authority, or popular mandate) so that a sense of the permanency and legitimacy of its acts will be achieved. 5. A homogeneity of outlook with respect to the meaning and role of the organization. To minimize disaffection requires a unity derived from a common understanding of what the character of the organization is meant to be. When this homogeneity breaks down, as in situations of internal conflict over basic issues, the continued existence of the organization is endangered.

On the other hand, one of the signs of a ‘healthy’ organization is the ability to orient new members effectively and readily slough off those who cannot be adapted to the established outlook. (Selznick, 1948) These imperatives are the mechanisms of a stable ‘organic’ system that is applied by analogy to an organization. One particularly relevant assumption of this analogy, and indeed of structural functionalism in general, is that of compulsion. There is little room for individuals to exercise imagination because organizations are viewed as constraining mechanisms that compel people to act in a particular way.

When viewed through a structural-functional frame, organizational analysis proceeds by following three basic assumptions, as indicated below. 1. Organizations are cooperative systems with adaptive social structures, made up of interacting individuals, subgroups, and formal and informal relationships. 2. Organizations contain variable aspects, such as goals, which are linked to needs and self-defence mechanisms. 3. Organizations are determined by constraints and characterized by transformations when adjustments to needs are required.

Such adjustments are required to deal with dysfunctions caused by instability in the operating environment. The biological sciences were seen as rescuing social science from the laws of traditional Newtonian physics, which saw everything as a closed system (Katz and Kahn, 1966: 16). Consequently, the emergence of the open-systems model, which was influenced by von Bertalanffy’s ‘general system theory’, enables us to view organizations as continuous flows of inputs, transformations, and outputs beyond their own boundaries. In 1966 Katz and Kahn articulated the concept of an organization as an

PERSPECTIVES ON CHANGE open system. This was reinforced by Thompson’s systems contingency perspective in 1967. What emerged was an idea of an organizational system as an artificial rational construction designed to improve work performance. Unlike the closed systems of physical sciences, social (and biological) systems depend on, and interact with, their external environments. For Katz and Kahn, the main difficulty in proactively managing strategic change results from the fact that organizations have in-built protective devices to maintain stability. Changing these patterns is very difficult.

Unintended change often occurs when organizations drift from their original aims. As Katz and Kahn indicate: [t]he major misconception is the failure to recognize fully that the organization is continually dependent upon inputs from the environment and that the inflow of materials and human energy is not a constant. The fact that organizations have built-in protective devices to maintain stability and that they are notoriously difficult to change in the direction of some reformer’s desires should not obscure the realities of the dynamic interrelationships of any social structure with its social and natural environment.

The very efforts of the organization to maintain a constant external environment produce changes in organizational structure. The reaction to changed inputs to mute their possible revolutionary implications also results in changes. (Katz and Kahn, 1966: 278) 1 1 The open-systems model expresses the relationship between the elements as indicated by Figure 1. 2. Figure 1. 2 The open-systems model of Katz and Kahn ENVIRONMENT Task Technology INPUTS Human, financial information, materials Management OUTPUTS Products and services Structure People 12 UNDERSTANDING CHANGE

The organization has inputs that are then transformed through a variety of management functions. These are designed to achieve the best possible organizational design by coordinating the task, through the use of technology by people who are structured or organized in a way that is both efficient and effective. x Stop and think 1. 1 Identify an organization and illustrate its inputs, outputs, and transformational processes. Provide details on how the internal processes are managed and controlled. Following Katz and Kahn, the open-systems model contains eight characteristics: 1.

Importing energy from the external environment. Thus, just as the biological cell receives oxygen from the bloodstream or the body takes in oxygen from the air and food from the external world, the organization draws energy from other institutions. 2. Throughput is a phrase used in many organizations, meaning that, as open systems, organizations transform the energy available to them. Just as the body converts starch and sugar into heat and action, an organization takes raw inputs such as materials and people and transforms them by producing products or services.

Katz and Kahn suggest that, just as the personality converts chemical and electrical forms of stimulation into sensory qualities, and information into thought patterns, so the organization creates a new product, or processes materials, or trains people, or provides a service. 3. Output is essentially the service or product. Just as the biological organism exports from the lungs physiological products like carbon dioxide that help to maintain plants in the immediate environment, the organization provides customers with an output they value. 4.

Systems are cycles of events in which the product is exported into the environment, where it furnishes sources of energy for repetition of the cycle of activities. Thus energy is the exchange of inputs and outputs with the external environment. For example, raw materials and human labour are turned into products and services, which are then marketed for monetary return, which is then used to obtain more raw materials and labour and perpetuates the cycle of activities. 5. Entropy is a process described by Katz and Kahn as ‘a universal law of nature in which all forms of organization move toward disorganization or death’.

For example, ‘all complex physical systems move toward simple random distribution of their elements and biological organisms also run down and perish’. Therefore the survival of the organization requires the ‘arrest of the entropic process’. This is overcome because the organization imports more energy from its environment than it expends. In other words, ‘social organizations will seek to improve their survival position and to acquire in their reserves a comfortable margin of operation’. Organizations do go out of business but they can replenish themselves.

As PERSPECTIVES ON CHANGE Katz and Kahn point out, ‘social systems, however, are not anchored in the same physical constancies as biological organisms and so are capable of almost indefinite arresting of the entropic process. Nevertheless the number of organizations which go out of existence every year is large. ’ 6. Information input, negative feedback, and the coding process mean that all inputs are also ‘informative in character and furnish signals to the structure about the environment and about its own functioning in relation to the environment’.

Furthermore, the ‘simplest type of information input found in all systems is negative feedback’, which ‘enables the system to correct its deviations from course’. Katz and Kahn see this as analogous to the digestive system, in which selective signals are absorbed or assimilated. Terms like adaptation and assimilation reflect the biological analogy because an organization responds only to those signals to which it is adapted, and reacts to the information signals to which it is attuned.

Katz and Kahn argue that, rather like the selection process in nature, the term coding reflects the selective mechanisms of a system by which incoming materials are either rejected or accepted and translated for the structure. 7. Organizations, like biological systems, are not motionless, so there can never be a true equilibrium. Instead, we must understand that organizations, like organisms, develop a steady state or ‘continuous inflow of energy from the external environment and a continuous export of the products of the system’.

The biological analogy is illustrated by the ‘catabolic and anabolic processes of tissue breakdown and restoration within the body’ that ‘preserve a steady state so that the organism from time to time is not the identical organism it was but a highly similar organism’. Related to this are what they call the ‘homeostatic processes’ for the regulation of body temperature. Thus, as external conditions of humidity and temperature vary, the temperature of the body remains the same because it is regulated by the endocrine glands. The steady state and dynamic homeostasis of organizations are regulated by the organization’s subsystems. . Organizations ‘move in the direction of differentiation and elaboration’. That is, in biological systems genetic change occurs: organisms move from primitive to complex arrangements in order to survive. Similarly, as organizations mature they become increasingly diffuse. Thus they ‘move toward the multiplication and elaboration of roles with greater specialization of function’. 13 1. 3. 1 An organization is a complex whole As Michael Jackson states, ‘a system is a complex whole the functioning of which depends upon its parts and the interactions of those parts’ (2003: 3).

Broadly speaking, we can think of three types of system: • Natural biological systems. • Social systems, such as families and religious and political institutions, which are socially constructed entities designed to accommodate relationships between people. 14 UNDERSTANDING CHANGE • Artificial or mechanical systems, such as built environments and information systems, which are designed to make improvements to living or work arrangements. One of the advantages of systems theory, as Jackson informs us, is that it is not reductive.

That is, it does not seek to reduce complexity by breaking it down into its component parts. Systems theory seeks to understand phenomena as wholes and consequently the term ‘holism’ is sometimes used to illustrate that a system needs to be seen in its entirety. The idea of holism is articulated by Thompson (1967): Approached as a natural system, the complex organization is a set of interdependent parts which together make up a whole because each contribute something and receive something from a whole, which in turn is interdependent with some larger environment.

Survival of the system is taken to be the goal, and the parts and their relationships presumably are determined through evolutionary processes. Dysfunctions are conceivable, but it is assumed that an offending part will adjust to produce a net positive contribution or be disengaged, or else the system will degenerate. Central to the natural-systems approach is the concept of homeostasis, or self stabilization, which spontaneously, or naturally, governs the necessary relationships among parts and activities and thereby keeps the system viable in the face of disturbances stemming from the environment. (Thompson, 1967: 283)

Systems theory seeks to explain complex interrelationships among organizational elements and external variables by using quantitative techniques. Because they see them as continually changing dynamic equilibria, systems theorists therefore view organizations as designed to cope with and manage change. An example of this is Weiner’s model of an organization as an adaptive system. Weiner uses the term ‘cybernetics’ (from the Greek for ‘steersman’) to describe a study of structures and functions of control, and information processing systems in both animals and machines. Thus, such systems are able to regulate themselves.

In biological systems this is a natural process, whereas an organization’s systems must be designed. The overly mechanistic approach to viewing artificial systems needs to be balanced against two concerns related to the environment in which the organization exists: 1. Organizations are also social systems: any technical system requires people to operate it. Consequently their needs must be designed into the technical system. 2. Organizations have contingencies. In other words, the technology used by the organization, the nature of the industry it operates in, the competences of the

PERSPECTIVES ON CHANGE staff who work for it, their motivations and leadership are also important contingencies that affect an organization’s performance. Each concern reflects the view that any change interaction must incorporate these constraints into the design of the new (changed) systems model. For example, if an organization is seen as a social system and not simply a technical system, then we must come to recognize the way in which people have to live, work, and engage in some way with the technical system.

For systems designers such as architects and computer programmers it is therefore important to involve the people affected by the system. 15 x Stop and think 1. 2 Think of a technical system that you might redesign if asked to do so by an organization. For example, this might be an IT system, a production system, use of a physical space, or an administrative system. If you do not involve in its design the people who will eventually use the system, what negative outcomes might emerge? The link between organizational systems design and contingency theory illustrates how systems theory developed from a simple biological analogy.

Galbraith’s (1973) book made a clear link between the functional components, organizational structures, and contingent circumstances of an organization. For example, Galbraith’s approach invites us to look for: • The type and quality of information required in conditions of certainty or uncertainty. • The degree of interdependence between the various functional components. • Mechanisms that enable organizational adaptation. Table 1. 1 illustrates how information within the system affects an organization’s ability to take action towards change. The degree to which hange can be planned depends upon the amount of reliable information in the system. When the quality of information is high, changes can be planned but are unlikely to be major; when conditions are unpredictable, information is unreliable and the degree of success in any change initiative is low. We can therefore state that the greater the level of uncertainty, the more the organization must make provisional judgements and be ready to change things quickly. Contingency theorists who work within this perspective view organizational change as the degree of control an organization has over circumstances.

Thus we can formulate a simple question for this purpose: ‘how wide is the gap between the amounts of information required by this organization at this time? ’ If we take the 2008 world banking crisis as an example, we can illustrate this point. During the month of 16 UNDERSTANDING CHANGE Table 1. 1 Control over circumstances: situations where significant change is inevitable The likelihood of major strategic change is low when: The situation is highly predictable. Traditional roles and procedures guide action. The quality of information is high.

The likelihood of major strategic change is high when: The situation is not predictable. New procedures are required. The quality of information is low. October 2008, protracted negotiations between President Bush and the US Senate representatives, unhappy with his initial plans, eventually resulted in a rescue package for US banks. This was followed by the British Prime Minister, Gordon Brown, partly nationalizing some UK banks. Members of the G7 countries lowered interest rates around the world at the same time, also attempting to find a coordinated approach to the world economic crisis.

The reality was that, at the time, no one could realistically estimate its extent: the information gap was simply too large. No one really knew who owed money to whom; nor did anyone know what impact the banking crisis was likely to have on other sectors of the world economy. Thus, attempting to steer change was impossible because there was insufficient information to make reliable decisions. Although this is an extreme example, many organizations face similar problems to varying degrees. In situations of severe unpredictability caused by lack of information, managing planned change becomes highly problematic.

The solution, according to Galbraith, is to find new solutions: The ability of an organization to successfully coordinate its activities by goal setting, hierarchy, and rules depends on the combination of the frequency of exceptions and the capacity of the hierarchy to handle them. As task uncertainty increases, the number of exceptions increases until the hierarchy is overloaded. Then the organization must employ new design strategies. Either it can act in two ways to reduce the amount of information that is processed, or it can act to increase its capacity to handle more information.

An organization may choose to develop in both of these ways. (Galbraith, 1973: 312) 1. 3. 2 Structural theory The structures of organizations are considered to be amenable to change. Organizations are viewed as rational and should be designed to achieve their objectives. The Classical School of Management argued that all organizations should be designed scientifically. The main contributors to the school were Henry Fayol, PERSPECTIVES ON CHANGE Charles Babbage, Daniel McCullum, Frederick Winslow Taylor, and Max Weber. For these writers, organizational efficiency was achieved through the rational design of organizations.

The Classical School assumed that there was a best structure for any organization, related to the environment in which the organization operated. The design of an organization was related to specialization and to the division of labour. Specialization is the extent to which highly skilled operations and individuals are required. Because the design of organizations was seen as a purely rational activity, problems or dysfunctions were seen to result from structural imperfections or flaws that could be solved by changing the organization’s structure.

Furthermore, although the Classical School considered that a bureaucratic structure was the best means to achieve efficiency and effectiveness, by the 1950s this view was increasingly challenged. The first challenge emerged with the work of Burns and Stalker (1961), who were interested in the rapidly changing electronics industry in Britain, and in Scotland in particular. Their research revealed that organizations in stable operating environments are heavily dependent on control mechanisms and therefore require mechanistic structures.

Conversely, the newer industries based on, or developing, micro-electronic technology required organic structures in order to meet situations that are changing. The message, therefore, was that the rate of organizational change is critical to organizations. Where they have to meet rapidly changing circumstances and conditions, and where technology is critical to their survival, then organic structures need to be designed. This would also be true today of the fashion industry, where styles change quickly and competition for change requires organizations to get goods into the high street quickly.

In the following year Blau and Scott (1962) argued that organizations have both a formal structure and an informal aspect to them. The formal structure determines the standard rules and regulations: for example, a highly structured organization operating bureaucratic procedures is managed through complex rules, policies, frameworks, and desk instructions. However, they argued that it is impossible to understand how organizations are structured by simply looking at rules and regulations without understanding the informal aspect of the organization.

Their argument was heavily influenced by Barnard’s (1938) book, The Functions of the Executive, and suggested that the informal organization reflects unconscious processes. In other words, habits, attitudes, and assumptions of people are critical to performance. This was clearly an early recognition that change requires more than structural redesign because it suggested that senior managers have to align the structure with what we call today the organization’s culture. The earlier work of Max Weber in the 1920s reflected his concerns with specialization.

By the 1960s academics used the word ‘differentiation’ to reflect this but also to indicate how specialization is affected by increasingly complex environments. In relation to organizational change, we can note that the process of differentiation— increased complexity of organization—suggests that diverse forces are responsible for pulling organizations apart. This process of differentiation therefore means that 17 18 UNDERSTANDING CHANGE organizational change is required in order to integrate the organization with its new environment.

To put this more succinctly, differentiation requires integration. This particular concern was articulated by Lawrence and Lorsch (1969) in their book, Developing Organizations: diagnosis and action. It also reflects the emphasis on design since change planning is required to deal with uncertainty caused by rapidly changing circumstances. This was reinforced by Davis and Lawrence’s (1977) argument that a matrix organization was required when external change was forced upon organizations. Accordingly, they argue that change in design is therefore determined by three conditions: 1.

Outside pressure for dual focus. What they mean by this is that some companies need to focus attention both on complex technical issues and on the unique requirements of the customer; this dual focus requires a matrix structure. 2. Pressures for high information-processing capacity. The second reason to adopt a matrix structure is a requirement for high information-processing capacity among an organization’s members. The failure to construct a matrix organization in such circumstances will lead to information overload. 3. Pressure for shared resources.

When organizations are under pressure to achieve economies of scale, they need to find ways of utilizing scarce human resources to meet quality standards. Both systems theory and structural theory share the view that organizations are rational and serve utilitarian purposes. That is, organizations are viewed as a means to achieve efficiency and effectiveness. They do this by identifying clear goals. The structural-functional systems perspective is therefore described as rational because it assumes a relatively simple cause and effect relationship among variables related to functional integration and structural change.

As a perspective, it is clear about what it seeks to achieve. Organizational change is relatively straightforward: we either change functional relationships in order to achieve harmony or we change the design of the organization in order to meet the complexity of its environment. 1. 4 Multiple constituencies: change by negotiation In advancing a critique of the structural-functional perspective Michael Keeley (1983) argues that it is common to model organizations after biological systems. In most texts organizations are depicted as ‘social actors’ who possess the distinguishing features of living beings such as goals and needs.

By contrast, individuals are portrayed as functional ‘members’ filling roles and serving as ‘human resources’ to further the organization’s ends. The organic model is useful mainly for addressing survival needs, PERSPECTIVES ON CHANGE but one difficulty is that it tends to confuse the goals of an organization with the goals of powerful individuals. The structural-functional perspective presents a reified and overrational picture of social systems. By contrast, the multiple constituencies perspective does not assume that organizations exist independently from the people who work for them or interact with them.

Multiple constituency theory was first outlined by Cyert and March in their book A Behavioural Theory of the Firm (1963), which describes organizations as coalitions of self-interested participants. Organizational goals, they argue, change as a result of bargaining processes because an organization is a dynamic coalition of individuals and groups, all of which have different demands. The perspective focuses on how goals are achieved and whose interests are satisfied and affected by the actions taken in the name of the organization.

If we think, therefore, of an organization containing a number of groups and external stakeholders, all of which have differing interests, then we can consider how organizational change affects each different group, or alternatively how each may make demands on an organization to change its strategy. The multiple constituencies perspective focuses on the way in which resources are managed and distributed among organizational members and stakeholders in the interests of governance. 19 x Stop and think 1. 3 Imagine that you start a new job as a travel executive and are required to visit overseas destinations six times a year.

You chose this job because you were excited by the prospect of overseas travel. As an incentive, employees are permitted to stay in the destination for two days after they have completed their tasks. Consequently executives are motivated to choose an interesting destination. Your organization operates from two different sites in the UK. During your first year of employment you hear rumours that the person who allocates staff to destinations ‘cherry picks’ the best for herself and then for friends or colleagues who work with her at the main site.

You begin to realize that the rumours have a ring of truth about them. What do you do? Try to ingratiate yourself with the decision maker by becoming friends? Offer to take on more work if she offers you one or two better destinations? Should you take the issue to her line manager at the risk of becoming unpopular? Or do you accept the situation for what it is and that life is not fair? How do you bargain for change? The multiple constituencies perspective criticizes the structural-functional approach for making it difficult to achieve conceptual clarity about what constitutes organizational effectiveness.

For example, Connolly, Conlon, and Deutsch argue that effectiveness statements are evaluative and descriptive. Generally they are not attempts to answer the question ‘how is an entity X performing? ’ but usually ‘how well is entity X performing? ’ and often ‘how much better should entity X perform? ’ The central differentiation among current effectiveness statements is how they specify the evaluation criteria used to define how well the entity is performing or could perform (Connolly, Conlon, and Deutsch, 1980: 211). As a result, the multiple 20

UNDERSTANDING CHANGE constituency view treats organizations as systems with differential assessments of effectiveness by different constituencies. Although the interests of internal groups (for example, executives, managers, production workers, and so forth) and external stakeholders (for example, clients, shareholders, government regulators, suppliers, and so forth) may overlap, they each have specific interests and priorities or goals they seek to pursue. Each constituency brings its own interests and motivations into the organizational arena.

We can therefore consider organizations as webs of fluid interactions between different groups of people whose interests keep changing. The multiple constituencies approach is therefore a means to identify the actions and motivations of people. More importantly, it reflects organizational change as a continuously negotiable order because interests and coalitions change over time. Although the multiple constituencies perspective originated with Cyert and March, it is rooted in the social contract tradition of political and moral argument.

The idea of contract theory emerged in the seventeenth century with the political theorists Thomas Hobbes, John Locke, and Jean-Jacques Rousseau. In the twentieth century such theories have become the basis for political theorists (as we will see in Chapter 7) and writers concerned with corporate ethics (see Chapter 2). 1. 4. 1 Stakeholder interests Since stakeholders reflect dynamic interests, change agents need to learn how to interact with them. There are various ways of doing this. For example, Mitroff (1983) suggests seven approaches.

These are: 1. The imperative approach, which identifies stakeholders who feel strongly about an organization’s proposed policies or actions. This approach requires making a list of as many stakeholders as possible and interacting with them to resolve concerns. 2. The positional approach, which identifies stakeholders who occupy formal positions in a policy-making structure. For example, health trusts, schools, colleges, universities, and charities are required to have boards of governors who must oversee the operations of such organizations.

Many boards of governors can be identified from organization charts or legal documents. 3. The reputational approach entails asking various knowledgeable or important people to nominate those they believe to have a stake in the organization. 4. The social participation approach identifies individuals or groups of stakeholders who may have an interest in a policy-related issue for the organization. For example, members of committees, and people who might normally be excluded because they are not so visible, or who do not normally have the opportunity to articulate their views, will be represented. 5.

The opinion-leadership approach identifies individuals who have access to leverage of some sort. Examples include informed professionals, commentators, and editors of important newspapers or journals. PERSPECTIVES ON CHANGE 6. The demographic approach identifies stakeholders by characteristics such as age, sex, race, occupation, religion, place of birth, and level of education. 7. The focal organization approach seeks to identify individuals and organizations that have important relationships with the focal organization. That is, suppliers, employees, customers or clients, allies, competitors, regulators.

The multiple constituencies perspective suggests that, prior to any change initiative, change agents should analyse the following issues: • The purposes and motivations of a stakeholder. • The resources of a stakeholder. These will include material, symbolic, and physical resources, as well as informational resources and skills. • Special knowledge and opinions of the stakeholder. • Stakeholders’ commitments to the organization and expertise. • Relationships between stakeholders, focusing particularly on the amount of power (or authority), responsibility, and accountability they have. The extent of the network of interdependent relationships among stakeholders. • The extent to which a change in strategy can be identified in the interests of any one particular stakeholder. 21 Such an analysis of stakeholder interests suggests that whilst stakeholders are generally supportive and have an interest in the organization, they can also become a negative influence on it. They might indeed reflect a threat and become a barrier to organizational change. Mitroff therefore suggests a number of options for influencing or changing the views and actions of particular stakeholders. We can: • Simply exercise power and authority by ommanding the stakeholder to comply. • Appeal to reason and therefore attempt to persuade the stakeholder. • Engage in tactical bargaining with a stakeholder. • Negotiate in order to reach a compromise. • Engage in problem solving by sharing information, debating, and arriving at mutually agreed perceptions. The multiple constituencies perspective reflects a view of social systems in which people take actions and engage in activities to maximize their own interests. They also collude with others and engage in purposeful activity. Negotiation of organizational change revolves around three central issues: 1.

Changing organizational objectives requires that leaders be able to re-evaluate the organization’s current mission, purposes, objectives, and goals, and mobilize action through inspiration. Such leaders need to embrace inspirational leadership. 22 UNDERSTANDING CHANGE 2. The ability to develop and mobilize intellectual capital by using the combined resources held by all stakeholders creatively. This should include the identification and cultivation of scarce resources, skills, and capital. 3. The ability to sustain cooperation and to eliminate conflict among stakeholders so that ethical, moral, and cooperative understanding is achieved.

The perspective argues that it is constituencies of people, rather than organizations, that have goals and objectives. Consequently, it moves us away from the problem of reification, because stakeholder interests must be negotiated. Yet it still assumes that people act rationally through an appeal to the common good. The perspective draws us towards interventions that focus on a concern with organizational and personal values, social justice, and the distribution of rights and obligations. It provides a useful way forward for organizations in the public domain that are subjected to public scrutiny through governance. . 5 Organizational Development: the humanistic approach to change Organizational Development (OD) is derived from human resource theory or organizational behaviour. It dates back to the Hawthorne experiments, which began in the Western Electrical Company in 1927. Elton Mayo and his team began these experiments by using the same assumptions as the structural-functional perspective: that is, they initially sought to investigate improvements to organizational efficiency by redesigning an organization’s environment along scientific principles.

The experiments focused on rational pragmatic concerns such as technology and work performance, the rate of flow of materials, and throughput of a factory system. One can therefore recognize the early development of open-systems theory and structural design within these experiments. Their lack of success meant that the problem of efficiency and effectiveness was refocused towards socio-psychological factors, such as group norms. One interesting source dating back to 1926 was Mary Parker Follett’s description of ‘The Giving of Orders’ (1926).

Follett argued that psychology could make an important contribution to understanding motivational relationships in the workplace. One example she discusses is the importance of understanding the law of the situation. Once this is discovered, better attitudes follow. She suggested that giving orders in a positive manner facilitated more harmonious attitudes within the workplace. But related concerns that began with the Second World War later paved the way for a more sophisticated social science concerned with behaviour in organizations.

In particular, a concern to identify effective leadership and to enhance workgroup relationships was paramount because of the American army’s focus on morale. As a result, many academics emerged from this tradition with a clear focus on the relationship PERSPECTIVES ON CHANGE between leadership, motivation, and group dynamics. The investigation of individual and organizational needs was part of this use of applied social science. An early example was Maslow’s research, which resulted in his paper ‘A Theory of Human Motivation’ (1943).

The awareness that human needs impact on organizations was a theme developed further in McGregor’s The Human Side of Enterprise (1957). By the late 1960s and 1970s OD emerged from this behavioural research as a distinct discipline. Whilst it focused on harmonizing individual and organizational needs, it also readily adopted the open-systems framework of the structural-functional perspective. French and Bell (1978) were largely responsible for articulating this approach when they characterized the perspective as a mixture of open-systems theory with humanistic values.

Today, we can discern six essential characteristics of OD. These are: 1. A methodology informed largely by Action Research—a term coined by Kurt Lewin in the 1940s. 2. Interventions should only result from careful organizational diagnosis (Tichy, Hornstein, and Nisberg, 1976). 3. A recognition that effective change requires process consultation (Schein, 1995) rather than negotiation through an individual in order to achieve corporate social responsibility in change initiatives.

It should be noted that this is in line with OD’s humanistic approach to change. 4. An awareness of barriers to personal growth and organizational change, championed largely by Elisabeth Kubler-Ross (1973). 5. An emphasis on personal and organizational learning in contrast to training, proposed by Reg Revans (1982). 6. A recognition that groups and culture will influence change initiatives, articulated by Lewin (1951) and Schein and Bennis (1965). OD emerged as a distinctive discipline for managing change.

It did so initially by adopting experiential approaches such as T-groups (training groups) and Lewin’s Force Field Analysis as a technique for managing organizational transitions. Action Research encouraged employees to develop a collaborative approach to diagnosing problems and engaging in action learning. Argyris’s book on Intervention Theory and Method (1970) is a comprehensive review of process-consultation techniques articulated by Schein (1995) and intervention techniques that became associated with the idea of planned, organization-wide change.

Such change strategies were ‘managed from the top’ in order to ‘increase organizational effectiveness and health’ through interventions in the organization’s processes using behavioural science knowledge (Beckhard, 1969). Lewin’s (1951) three stages of change—unfreeze, change, refreeze—reflects the essence of the traditional OD approach through which a clear goal or destination is identified and cascaded to the organization’s members. This has been described as a linear model of change (Marshak, 1993) that tends to omit the 23 24 UNDERSTANDING CHANGE untidy parts of the process that do not fit neatly into Lewin’s framework’ (Inns 1996: 23). Most critics of Lewin’s planned change model make this argument. However, we must be cautious about this since, as we will see in Chapter 3, Lewin did not apply this approach to organization-level change. Often, OD proceeds with problem identification through the application of Action Research at the individual, the group, or the organizational level. Following careful diagnosis, intervention strategies are designed to deal with an organizational problem by applying various techniques.

At the individual level, behaviour modification theory is often used to encourage personal growth. At the group level, intervention strategies are informed by analysis of group dynamics, whilst at the organizational level, strategic interventions are designed to manage strategic change through the application of technology, structural change, or change to human resources. We can understand how these interventions work by exploring them in greater depth. 1. 5. 1 Intervention strategies at the individual level Strategies at the individual level were influenced by behaviour modification theory.

The purpose of this technique is to increase the frequency of desired behaviours and reduce the frequency of undesired behaviours. Behaviour modification therefore seeks to modify the behaviours of individuals by training people to recognize a positive stimulus in order to provoke a desired response. It can also be used to change an individual’s reaction to fears and phobias. Intervention strategies used instead of behaviour modification theory include personal and management development techniques such as Lewin’s Force Field Analysis and learning interventions designed to improve personal learning. Stop and think 1. 4 We rarely remember modifying our own behaviour but we do this all the time. Think about the last time you learned a new skill. How difficult was this at first? During the learning process how did you modify your own behaviour or attitudes? How did evaluation lead to improvement? 1. 5. 2 Intervention strategies at the group level At the group level, intervention strategies originated from studies of group dynamics including armed forces personnel, industrial workers, and professional groups. Group dynamics was first defined by Kurt Lewin in the 1940s.

Observations of groups led Lewin to note that groups develop personalities as a result of their unique composition. Change was therefore more likely when the group as a whole made a collective decision to have its members change their behaviours. This was far more effective in producing the desired changes than more formal techniques such as lectures and PERSPECTIVES ON CHANGE instruction. Lewin’s work became the foundation for training in group skills, sensitivity training, teambuilding, and OD. Groups therefore can be a major influence on change, or can inhibit change.

However, the capability of a group to respond flexibly to change will depend on the degree to which its members: • Explore problem-solving alternatives. • Are motivated to achieve the objectives of the group. • Make an effort to learn how to change. • Discover what specifically needs to be changed to meet current demands. • Are prepared to experiment. 25 1. 5. 3 Intervention strategies at the organizational level At the organizational level, a greater depth was provided by a focus on planned change interventions.

Planned change strategies, according to Chin and Benne (1976), emerged from the Enlightenment tradition with the application of rational thought to interventions in the modern world. In other words, changing things requires an application to reason. Associated with this was the pursuit of social progress. Chin and Benne describe a central element common to all planned change programmes as ‘the conscious utilisation and application of knowledge as an instrument or tool for modifying patterns and institutions of practice’ (1976: 22).

Planned change interventions are therefore extremely varied but they fall under three broad headings: 1. Empirical–rational interventions, such as political interventions giving rise to new

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