Change Management: Exploring the understanding of an Organization’s Capacity to Change in Atkins and Rio Tinto.
Measuring an Organization's Change Management Capacity
Master's Thesis 2011 102 Pages
Table of Contents
- Able and How
- Project Brief
- Rio Tinto
- Change Management
- Organization’s Capacity in Managing Change
- Change Capacity as a Dynamic Capability
- Organization’s Capacity to Change
- Building Blocks of the OCC Construct
- Extending the Concepts of the Construct
Implications of the Research
- Organizational capacity that enables firms to Change
- Strategic advantage
- Enrich some areas of the Change Kaleidoscope
Approach and Research Methodology
- Pilot Study
- Research Objective
- Evaluating Options
- Sample Selection
- Design of the Research
- Analysis of insights of the respondents on the Dimensions
- Limitations of the Study
- Scope for future work
- Appendix A: The original questionnaire used while creating the OCC construct
- Appendix B: The new, adapted questionnaire used for the purpose of this study (Screenshots of the online survey)
- Appendix C: Questionnaire reviewed by Professor Colin Carnall at Cass Business School
- Appendix D: Interview Discussion Guide
- Appendix E: Atkins - Survey Results
- Appendix F: Rio Tinto - Survey Results
List of Abbreviations Used
Able and How
Able and How is an international management consultancy firm. It specialises in helping clients solve their communications, change and people issues by bringing together the best minds in change management, human resources management, project management and organisational communications.
The consultants at Able and How are not wedded to any one specific approach and are clear that there is no such thing as an off-the-shelf solution. Their methodology entails offering a very personal and customised solution that comes from analysing the problem in its unique context1.
The project saw the light when the group was working on a growth strategy for Rio Tinto . The group had identified that for Rio Tinto to grow its top-line by 100% in 3 years, it needed, amongst other things, a capability to manage change and adapt itself to the volatile business environments.
The tinkering over the recommendations lead the group to question, whether they can create a definition of change management as an organizational capability? If yes, whether there are any reliable and credible ways of assessing and benchmarking the same? The long term goal of the group is to create a sort of ranking system that would rate organizations’ on their ability to manage change or adapt itself successfully to the changing environments.
It was the combination of challenge (vagueness of the idea) and the knowledge of the expertise at Cass, which lead Able and How to come to Cass and specifically to Veronica Hope Hailey to seek help with the project.
Atkins is UK's largest engineering and design consultancy and world's 11th largest design firm. The group has recently changed the way HR services are delivered. The HR modernization program happens to be one of several business improvement initiatives for the Group. The objective of this is to improve the accessibility of services for the people at Atkins, whilst streamlining the HR service for the organisation.2
Rio Tinto is a world leader in finding, mining and processing the earth's mineral resources. Rio Tinto has successfully operated more as a federation of semi autonomous business units across the globe. The senior management felt that Rio could become even more successful by truly operating as a Group - that is, “capturing the best of what we have, making the most of our knowledge and scale and raising our game across all our business units”. This idea of a more “joined up” Rio Tinto paved the path for the plan and rollout of the One Rio Tinto Project. It was aimed at stepping up the pace and level of collaboration across the Group, in order to effectively tap into the collective expertise to deliver even more value3.
The rapid changes in the business ecosystem create pressure on organizations to implement change initiatives to meet the demands of the stakeholders. Of late, the frequency and magnitude of change has increased. If one were to look at an indicator of this, it would be the Fortune 1000 list of companies. The list shows that between 1973 and 1983, 35% of the companies in the top 20 were new, and this has increased to 60% when we compare the figures for years between 1993 and 20034. This fact is indicative of the speed at which changes are taking place these days. This also suggests that increasingly more businesses are dealing with / managing changes in their organizations to stay ahead. At this point, one pertinent question that comes to our mind is what is change management?
Change management, as defined in the Business and Management dictionary, “is the coordination of a structured period of transition from situation A to situation B in order to achieve lasting change within an organization”
Change management can be of varying scope, from continuous improvement, which involves small ongoing changes to existing processes, to radical and substantial change involving organizational strategy. Change management can either be reactive or proactive. It can be instigated in reaction to something in an organization's external environment, for example, in the realms of economics, politics, legislation, or competition, or in reaction to something within the structures, processes, people, and events of the organization's internal environment. As a proactive measure, an organization might undergo change in anticipation of say, unfavourable economic conditions in the future (Bloomsbury Business Library - Business & Management Dictionary 2007).
Change management is a well-known and respected means to deal with budget cuts, volatile requirements, and other non stationary core reasons for project failures. The definition of change management includes at least four basic aspects: (1) the task of managing change, (2) an area of professional practice, (3) a body of knowledge, and (4) a control mechanism. Change can either be programmatic and planned or can be emergent, driven by unforeseen external events (Carl and et al, 2010).
Boomer suggests that both academics and practitioners see change management capability as a strategic advantage and view change as a control mechanism, which typically results from standards, policies and processes. He goes further to define that as a body of knowledge, change management consists of methods, tools and techniques (Boomer 2008) to successfully manage the transition from one state to another.
The different aspects of change management have been researched a lot, especially in the academic world. If one were to look for articles in the Business Source Complete with keywords of “change management”, one could find that there are 2515 results in the category of academic journals out of a total of 4309 articles. This result was obtained by limiting the search to articles published in the past 20 years. Moreover, the importance of the industry can be highlighted by the presence of a number of consulting firms with sophisticated tools and techniques to help clients plan and manage change. However, even recent studies show that approximately 70% of all planned organizational change initiatives fail (Eaton, 2010). This leaves us wondering why?
The study done by Beer and Eisenstat in 2000, does talk about the top 6 ‘silent killers’ of a change initaitive. They are
Top-down or laissez-faire senior management style Unclear strategy and conflicting priorities An ineffective senior management team Poor vertical communication Poor coordination across functions, businesses or borders Inadequate down-the-line leadership skills and development (Beer and Eisenstat, 2000).
A lot has been talked about in the academic literature and in practioners’ world of the prescriptive way to overcome issues that come up in a change program. However, not much has been done to identify the causal effect of these and the failures of change initiatives thereafter. As identified by Pellettiere (2006), one of the main causes for these failures is the lack of a thorough diagnostic investigation in an organization's readiness and risk for a planned change. By a thorough diagnostic investigation, he intends to include both an external as well as an internal analysis using some form of an assessment to determine the need to change as well as an organization’s readiness and risk involved in a planned change. He did identify that organizations have a tendency not to conduct a thorough internal analysis but rather have a propensity to initiate quick-fix solutions, sometimes ignoring the context, when implementing a change initiative (Pellettiere, 2006).
As such, there have been numerous efforts to develop a scale to assess an enterprise’s managerial or organizational capabilities to change. This leads me to ask what is an organization’s capacity and how can it help an organization to change?
Organization’s Capacity in Managing Change
Amongst the list of things that an organization undergoing change might consider are having to decide upon new organizational solutions; modifying existing product programs; reallocating positions; revising routines and policies; taking up programs to re-train employees; and the list goes on (Meyer & Stensaker, 2006). All this requires a lot of effort and is a deviation from routine work of the people undergoing change.
As such, as highlighted by Meyer and Stensaker (2006), organizations that have a capacity for creating multiple change processes in order to create sustainable change must not only have the ability (resources and capabilities) to change the organization successfully, they must also have capability to maintain daily operations and implement subsequent change processes. They defined change capacity as “the allocation and development of change and operational capabilities that sustains long term performance” (Meyer & Stensaker, 2006).
An organization’s capability in managing change should ensure that change should happen without destroying the well-functioning aspects in an organization or adversely affecting subsequent changes. This requires both capabilities to change in the short and long term as well as capabilities to maintain daily operations (Meyer & Stensaker, 2006).
Meyer & Stensaker see this change capacity as means for the organization to have changes that result in improved organizational performance, without in anyway affecting the short term performance.
Gtaetz and Smith see it more than a means to yield mere improved performance. They define it as a firm’s ability in initiating, managing and implementing critical changes in organizational structures and development processes (Graetz and Smith, 2005; Self et al., 2007),which enables a firm to launch and implement large scale changes to develop organisational capabilities for rapid adaptation, flexibility and innovation (Graetz and Smith, 2005; Yanni Yan, Ding & Mak, 2009).
The above definition of change capability does give us an impression that the capability is a static advantage. It can be set in place by having the right processes and structures. If it is so prescriptive then why does it happen that there are organizations that are better off at changing because of some unknown factors.
Change Capacity as a Dynamic Capability
We know the key ingredients of a successful planned change comprise of leadership, visioning, teamwork and communication, but in dynamic environments on the other hand, change can hardly be planned ex ante in a detailed and distinct manner. The most severe disadvantages of planned change can be seen by large losses in the short-term, a high probability of a relapse, issues coming up as an result of limited foresight, unadjusted takeover of best practice from a different context, ignorance of key contingencies, a possible implementation lag that makes change already outdated before completion and a lack of suitability for large-scale change matters (Weick, 2000; Burnes, 2004). One especially severe drawback for hypercompetitive environments is that planned change represses innovative behaviour and, thus, rejects the important innovators, innovations and adaptive processes for this context (Weick, 2000; Biedenbach & Söderholm, 2008).
These drawbacks have encouraged us to think of the proactive, emergent change.
Such an approach supports experimentation, is sensitive to local contingencies, open to shortened and tightened feedback loops from results to action, is comprehensible and manageable. However, also within emergent change there are some drawbacks such as due to its incremental nature the speed of change which is slow, outcomes might be too small and, thus, more appropriate for exploiting opportunities than countering threats. Weick (2000) suggests that such an emergent change, in general, is most suited for operational level change than a major strategic change, which however can be built up incrementally through smaller emerging changes. Moreover it is because of the diffuse and less focused character of emergent change that it is less likely to deliver a transformational shift (Weick, 2000; Biedenbach & Söderholm, 2008).
Continously changing environments require more than a static advantage. It is by extending the concepts of RBV and combining it with change management capability that we can overcome the problem of static advantage. Savory (2006) distinguished the terms resource, competence and capability. He defined resources as factors that are owned and controlled by the organization or available through alliances and other external relationships whereas competence is “the ability to use the resources to an acceptable level of performance towards a desirable purpose”. Further, he defined capabilities as “the ability to operate a specific configuration of an organization’s set of resources”. He further defined dynamic capabilities as “the ability to reconfigure both the use and coordination of a specific configuration and the development of new configurations of resources, according to changes in the organization’s environment and strategic direction” (Butler, 2009).
When we talk about organizational change capacity, it cannot be restricted to an activity simply performed to improve operations or products once the change has been implemented. Instead, it is an inherent and continuous ingredient of the firms’ activities that need to be incorporated as a capacity of regular operations. Organizational change is thus “upgraded” from being a one-off and unique activity, to a strategic capability of the successful companies in hypercompetitive or turbulent environments (Nadler and Tushman, 1999; Meyer and Stensaker, 2006; Biedenbach & Söderholm, 2008). Such a capability encourages flexibility and creativity which are very important for a successful organizational change (Mckinsey Quarterly, April 2009).
Organizational change in frequently changing business environments would require some kind of dynamic capabilities that would enable an organization to proactively change to the external environment. Teece et al. (1997) define dynamic capabilities as “firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments”. In other words, independent of the line of business, technology applied or markets served, dynamic capabilities point to the ability to constantly change in order to respond to environmental changes, to overtake competitors and to maintain competitive advantages (Biedenbach & Söderholm, 2008).
The dynamic capability is an extension of the static resource based view, which fails to explain firms’ competitive advantage in changing environments (e.g., Priem & Butler, 2001). As a result, Teece (1997) and colleagues proposed the dynamic capabilities framework to fill the gap.
It seems that the concept dynamic capabilities is the one most suited for developing a theory on organizational capacity to change because of the focus of the theory on the organizational processes that enable growth and adaptation in changing environments (Eisenhardt and Martin, 2000; Teece et al., 1997). Moreover, such capabilities are grounded in organizational learning and managerial capabilities, the former, because organizational learning both leads to dynamic capabilities and is a dynamic capability (Zollo and Winter, 2002) and the latter as managers play crucial roles in developing organizational capabilities (Teece et al., 1997). The dynamic capabilities have actually taken up a strategic stage and subjugated the operational capabilities as “zero level” capabilities, being the “how we earn a living now” capabilities (Winter, 2003; Dixon, Meyer & Day, 2010).
Organization’s Capacity to Change
When we talk of a construct that would enable us to measure an organization’s capacity to proactively change, one is lured to think of 3 antecedents, viz. organizational ambidexterity, environmental uncertainty and relative performance.
Ambidexterity, which means doing 2 things at the same time, when extended to an organizational context, refers to the ability of organizations’ to achieve alignment in their current operations while also adapting effectively to changing environmental demands (Gibson and Birkinshaw, 2004). As conceptualized by Ghoshal and Bartlett (1994) ambidexterity builds on the 4 interdependent attributes, which are discipline, stretch, support, and trust. Discipline encourages individuals to voluntarily strive to meet all expectations generated by their explicit or implicit commitments. Stretch tempts members to voluntarily strive for more, rather than less, ambitious objectives. Support refers to the collective action of members to lend assistance and countenance to others. Finally, trust induces members to rely on the commitments of each other (Gibson and Birkinshaw, 2004).
They argued that an organization needs to foster discipline and stretch to encourage individuals to push for ambitious goals, but it also needs support and trust to ensure that this happens within a cooperative environment. In terms of “the yin and yang of continuous self-renewal” (Ghoshal & Bartlett, 1997): “a balance between a pair of hard elements (discipline and stretch) and a pair of soft elements (support and trust)” (Gibson and Birkinshaw, 2004).
To understand the meaning of environmental uncertainty, another antecedent to the change capability, we need take each word at a time. Uncertainty, which is defined as an individual's perceived inability to predict something accurately because he/she perceives himself/herself to be lacking sufficient information to predict accurately or because he/she feels unable to discriminate between relevant data and irrelevant data (Gifford, Bobbitt,& Slocum, 1979). The word environmental when attached to the term uncertainty, suggests that the source of the uncertainty is the organization's external environment. This uncertainty stems from the components of the environment (e.g., suppliers, competitors, government, distributors, consumers, etc) in which a company operates.
Milliken (1987) said that the decision makers need to not only understand the particular source of "environmental uncertainty", but also understand the type of "environmental uncertainty". While specifying the source of uncertainty he refers to the domain of the environment which the decision maker is uncertain about (e.g. competitors or suppliers). The type of uncertainty focuses on delineating the nature of the uncertainty being experienced. This could of 3 types, State uncertainty, Effect Uncertainty and Response uncertainty. State uncertainty refers to the inability in understanding how components of the environment might be changing. Effect uncertainty is defined as an inability to predict the nature of the impact of a future state of the environment on the organization. Response uncertainty’s definition acknowledges the lack of knowledge of response options and/or the inability to predict the likely consequences of a response choice (Milliken, 1987).
One of the reasons to construct a scale to measure an organization’s capacity to change is to help the firm gain a competitive edge. This would mean superior performance. A firm’s performance depends on its strategy, but as per Bourgeois, (1980) the lack of consensus on means is more troublesome than disagreement on ends (final strategy). Also, a firm’s performance is affected by its organizational structures (centralised or decentralised), adaptive entities and decision problems (decomposable or non -decomposable) (Siggelkow and Levinthal, 2003).
Based on the aforementioned 3 concepts, a new dynamic capability called “organizational capacity for change” (hereinafter referred to as OCC) was developed by Judge and Elenkov (2005). They conceptualize OCC as a “dynamic organizational capability that allows the enterprise to adapt old capabilities to new threats and opportunities, as well as create new capabilities”. More specifically, it is defined as the “dynamic resource bundle comprised of effective human capital at varying levels of a business unit, with cultural predispositions toward innovation and accountability, and organizational systems that facilitate organizational change and transformation” (Judge et al., 2009).
OCC is defined as a meta-capability that enables an enterprise to regain or remain competitive with other enterprises through effective leadership, adaptive cultures, resilient employees, and an organizational infrastructure conducive to change. As suggested, it is different from Cohen and Leventhal’s (1990) ‘absorptive capacity’. Absorptive capacity “focuses exclusively on organizational routines and processes” while OCC focuses not only on the organizational routines and processes but also takes into account leadership talent and employee attitudes (Zahra and George 2002; Judge et al., 2009).
Another construct that comes close to the OCC is the “organizational readiness for change” (Armenakis, Harris and Mossholder, 1993), as both constructs deal with the organization’s receptivity to change and organizational resilience. However, organizational readiness for change is focused exclusively on employee attitudes toward change, while OCC examines employee attitudes, leadership capabilities, and organizational infrastructure for bringing about change. In essence, OCC presents a comprehensive and as such, OCC is a ‘bigger’ and more encompassing concept than absorptive capacity or organizational readiness for change (Judge et al., 2009).
Having defined the Organization Capacity for Change, let’s see how this has been developed as a construct in the organizational sciences that can be used by executives to prepare for and enhance their organizational change process, or for scholars to study the organizational change process.
Building Blocks of the OCC Construct
The construct was developed by an inductive process of assessing the works of several academics and practitioners in the area of organizational change over a period of 20 years. The construct has defined eight distinct but inter-related dimensions relating to the issues of “human capabilities, formal organizational systems/processes and informal organizational culture” (Judge and Douglas, 2009)5.
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Figure: Graphic representation of the construct
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Not only have Judge and Douglas (2009) designed the construct, interestingly they have found significantly positive relationship between OCC and financial performance of companies. This co-relation lends support to the contention that OCC is a strategically important organizational capability, and that it may be a source of competitive advantage. This capability assumes all the more importance when the “perceived environment uncertainty” is high (Judge and Douglas, 2009).
Judge and Douglas (2009) have attempted to make OCC construct as robust and relevant as possible by refining it while surveying 3,725 employees within 161 organizational units in a wide variety of industries during the period of 1999-2005. While they do intend to help leaders in one of the most difficult aspects of leading organizational change initiatives, which is the ability to diagnose and develop the organization’s capacity for change (Bossidy and Charan, 2002), their study is not void of shortcomings. Neither does it take into account the size of the change nor does it measure the effects of the “specific nature” of the environment changes. The study is not free of regional bias, as all the findings are validated in a North American context.
Moreover the construct has references to studies that are out-dated, the oldest one done in 1983. A lot of research has been taken place in each of the dimensions in the recent years. It will be worth exploring / expanding the ideas of the construct in the light of latest works.
Extending the Concepts of the Construct
The construct talks about trustworthy leadership, without mentioning what attribute make leadership trustworthy. Ingenhoff and Sommer (2010) identified the 4 different dimensions that influence the degree of overall trust in a leader. They are ability, integrity, benevolence, and information quality. They also found trust as being significantly important for a company’s ongoing success, as it strengthens the long-term relationship between stakeholders and the company (Ingenhoff and Sommer, 2010).
Trust, which is correlated with greater information sharing, has been identified to reduce transaction costs. It is unique as a governance mechanism and also creates value in the exchange relationship (Dyer and Chu, 2003). Croonen, 2010, through his studies strengthened the findings of Brockner and Siegel, (1996); Krishnan et al. (2006); Mishra and Spreitzer, (1998) who have considered fairness as an important element of trust and says that it should be shown more often.
Every leader's top priority should be to establish trusting relationships in order to drive productive working environments, as a study by the Institute for Organizational Performance has revealed that "trust" alone predicts 46% of the difference between low and high performers (Mercurio, 2005). When subordinates trust their managers, they are willing to provide benefits in the form of extra effort toward job performance and OCB and have more favourable attitudes toward the exchange relationship and be more willing to maintain it (Dirks & Ferrin, 2002; Konovsky & Pugh, 1994; Mayer & Gavin, 2005).
For this, it is not only sufficient for senior managers to be able to demonstrate that they are trustworthy, but also they have to trust their subordinates. Such trust- building practices involve exchange of information and the empowerment of employees (Cummings, 1983; Deluga, 1994; Folger & Konovsky, 1989; Whitener, 1997). This does puts the manager in a more vulnerable position and organizations should help managers learn to use these procedures wisely (Brower et.al, 2009).
It has been identified that effective followers play significant roles in “fostering leadership and organizational effectiveness”. Trusting followers lead to very effective employees, but requires the leaders put forth leadership over their specific area of work and requires honest upward communication. Such followers need to be dependent, loyal and co-operative (Agho, 2009).
The construct does talk about an organization’s ability to attract, retain and empower change leaders, without talking about the skills and abilities of the so called change leaders.
In his book, The Change of Champion's Field guide: Strategies and Tools for Leading Change in the New Era, Ulrich says that the winners in turbulent times will be the ones’ who are good at “understanding the environmental and technological contingencies and leveraging them to the advantage of the organizational performance and excellence”. It has been found that good change managers are very good at envisioning. They can see the future they want to create, the short and long-term wins they want to achieve. They are completely aware of the dynamics involved in developing adaptability, team-learning and responsiveness within the organization to achieve the desired win (Khan, 2006).
We all know that change in an organization takes in 3 phases and each phase requires specialized skills. The table on next page gives a summary of same and has been adapted from the study done by Warrick (2009) and the book Exploring Strategic Change by Veronica Hope Hailey and Julia Balogun (2008).
For a successful change, change champions are required to create a creative culture, manage diversity, empower employees, maintaining organizational integrity, establish a just and fair reward system, create an environment of trust and inclusion that will really empower leaders and proponents of change to deal with any change process, whilst at the same time make use of appreciative enquiry, intuition and creativity (Khan, 2006; Warrick 2009).
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