978-1305502215 Chapter 8

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CHAPTER 8

MANAGING CHANGE AND INNOVATION

CHAPTER OUTLINE

New Manager Self-Test: Do You Have True Grit?

I. Innovation and the Changing Workplace

A. Why Do People Resist Change?

B. Disruptive Innovation

C. The Ambidextrous Approach

II. Changing Things: New Products and Technologies

A. Exploration

New Manager Self-Test: Assess Your Creativity

B. Cooperation

C. Innovation Roles

III. Changing People and Culture

A. Training and Development

B. Organization Development (OD)

IV. Implementing Change

A. Create a Sense of Urgency

B. Apply Force-Field Analysis

C. Use Implementation Tactics

ANNOTATED LEARNING OUTCOMES

After studying this chapter, students should be able to:

1. Define organizational change and identify some reasons why people frequently resist change.

Organizational change is defined as the adoption of a new idea or behavior by an organization.

Forces for change exist in both the external environment and within the organization. External

Managing Change and Innovation •

the proposed change differently than an idea champion or new-venture team.

2. Explain disruptive innovation and the ambidextrous approach as possible responses to the

forces that drive innovation and change in today’s organizations.

3. Identify the three innovation strategies that managers implement for changing products and

technologies.

4. Explain the value of creativity, a bottom-up approach, internal contests, idea incubators,

idea champions, and new-venture teams for innovation.

Creativity is the development of novel solutions to perceived problems. Creative individuals

develop ideas that can be adopted by the organization. If creative conditions are successful, new

organization. Personal energy and effort are required to successfully promote a new idea.

Champions are passionately committed to a new product or idea despite rejection by others.

A recent idea for facilitating corporate innovation is called a new-venture team. This team is a

unit separate from the rest of the organization that is responsible for developing and initiating a

major innovation. Its separate facilities and location free it from organizational rules and

procedures.

5. Describe the horizontal linkage model and how it contributes to successful product and

service innovations.

One approach to successful innovation is called the horizontal linkage model, which shows that

6. Explain open innovation and how it is being used by today’s organizations.

Open innovation is one of the hottest trends today in the product and service development

7. Discuss why changes in people and culture are critical to any change process.

Changes in people and culture pertain to how employees think. These changes involve the

8. Summarize the organization development (OD) stages of unfreezing, changing, and

refreezing, and define large-group interventions.

Managing Change and Innovation •

Organization development (OD) is a planned, systematic process of change that uses behavioral

science knowledge and techniques to improve an organization’s health and effectiveness through

9. Describe force-field analysis and implementation tactics that managers can use to overcome

resistance.

Force-field analysis suggests that change is a result of the competition between driving and

restraining forces. Driving forces can be thought of as problems or opportunities that provide

Managing Change and Innovation •

time consuming, but it pays off because users understand and become committed to the

change. Negotiation, a more formal means of achieving cooperation, uses formal bargaining

to win acceptance and approval of a desired change.

• Coercion means managers use formal power to force employees to change. Resisters are told

to accept the change or lose rewards or their jobs. In most cases, this approach should not be

used because employees feel like victims, are angry at change managers, and may even

sabotage the changes. Coercion may be necessary in crisis situations when a rapid response

is urgent.

• The visible support of top management also helps overcome resistance to change. Top

management support symbolizes to all employees that the change is important for the

organization. Without top management support the desired change will probably not happen.

LECTURE OUTLINE

NEW MANAGER SELF-TEST: DO YOU HAVE TRUE GRIT?

This exercise measures s person’s grit, which is defined as perseverance and passion for long-

term goals. Grit is a key trait for change agents who must persevere through resistance and

setbacks to succeed with implementation of a significant innovation. Individuals high in grit do

not swerve from their change implementation goals.

I. INNOVATION AND THE CHANGING WORKPLACE

Organizational change is defined as the adoption of a new idea or behavior by an

organization. In today’s highly complex and rapidly changing world, organizations need to

continuously adapt to new situations if they are to survive and prosper. Advances in

information technology and the Internet are driving many of the changes in today’s world

and today’s organizations. Organizations must embrace many types of change.

A. Why Do People Resist Change?

1. Many people prefer the status quo, which is one reason why change is so difficult.

Understanding why people resist change is a good start toward knowing how to help

lead needed change in organizations.

a. Self-interest. Employees typically resist a change they believe will take away

something of value. A proposed change in job design, structure or technology

may lead to a perceived loss of power, prestige, pay, or company benefits. The

fear of personal loss is perhaps the biggest obstacle to organizational change.

b. Lack of understanding and trust. Employees often do not understand the intended

purpose of a change or distrust management’s intentions for the change. If

previous working relationships with an idea champion have been negative,

resistance may occur.

c. Uncertainty. Uncertainty is the lack information about future events. Uncertainty

Managing Change and Innovation •

represents a fear of the unknown, as employees do not know how a change will

affect them. Uncertainty is especially threatening for employees who have a low

tolerance for change and fear the unusual.

d. Different assessments and goals. Employees who will be affected by innovation

may assess the proposed change differently than an idea champion or new-venture

team. Critics voice legitimate disagreements over the proposed benefits of a

change.

2. These reasons for resistance are legitimate in the eyes of employees affected by the

change. The best procedure for managers is not to ignore resistance, but to diagnose

the reasons for resistance to change and design strategies to gain acceptance by users.

B. Disruptive Innovation

1. Disruptive innovation refers to innovations in products, services, or processes that

radically change an industry’s rules of the game for producers and consumers. DVDs

all but wiped out the videotape industry, and now streaming video is threatening the

same fate for DVDs. Digital cameras appear to be eliminating the photographic film

industry.

2. Western firms are using reverse innovation. Rather than innovating in affluent

countries and transferring products to emerging markets, companies are now creating

innovative low-cost products for emerging markets and then quickly and

inexpensively repackaging them for sale in developed countries.

C. The Ambidextrous Approach

1. An ambidextrous approach means incorporating structures and processes that are

appropriate for both the creative impulse and for the systematic implementation of

innovations.

2. With this approach, managers encourage flexibility and freedom to innovate and

propose new ideas with creative departments, venture teams, and other mechanisms,

but they also use a more rigid, centralized, and standardized approach for

implementing innovations.

II. CHANGING THINGS: NEW PRODUCTS AND TECHNOLOGIES Exhibit 8.1

To thrive in today’s hypercompetitive environment, companies must innovate more, and more

quickly, than ever. One vital area for innovation is introducing new products and technologies.

A product change is a change in the organization’s product or service outputs. Product and

service innovation is the primary way in which organizations adapt to changes in markets,

technology, and competition. A technology change is a change in the organization’s production

processes—how the organization does its work. Technology changes are designed to make the

production of a product or service more efficient.

Managing Change and Innovation •

A. Exploration Exhibit 8.2, Exhibit 8.3

1. Exploration involves designing the organization to encourage creativity and the

initiation of new ideas. It is the stage where ideas for new products and technologies

are born. Creativity is the generation of novel ideas that might meet perceived needs

or respond to opportunities for the organization.

2. Creativity is the essential first step in innovation. Creative people are known for

originality, curiosity, open-mindedness, a focused approach to problem solving,

persistence, a relaxed and playful attitude, and receptiveness to new ideas. Managers

are responsible for creating a work environment that allows creativity to flourish.

Creative organizations have an internal culture of playfulness, freedom, challenge,

and grass-roots participation.

3. Innovative companies use a bottom-up approach, which means encouraging new

flow of ideas from lower levels and making sure they get heard and acted upon by top

executives. Some companies also use internal innovation contests.

4. The idea incubator is another popular way to encourage new ideas within an

organization. An idea incubator provides a safe harbor where ideas from employees

throughout the company can be developed without interference from company

bureaucracy or politics.

NEW MANAGER SELF-TEST: ASSESS YOUR CREATIVITY

Facilitating improvements through innovation and change is an important part of a new

manager’s job. Not everyone thrives in a position of initiating change, but for new managers,

initiating change within the first six months enhances their impact. This exercise helps students

assess their level of previous change initiation and preparation for the new manager role of idea

champion.

B. Cooperation

1. Internal Coordination Exhibit 8.4

a. Successful innovation requires expertise from several departments

simultaneously. The horizontal linkage model is one approach to successful

innovation. In this model, people from several departments meet frequently in

teams and task forces to share ideas and solve problems. The horizontal linkage

model is increasingly important in today’s high-pressure business environment

that requires developing and commercializing products and services incredibly

fast.

2. External Coordination

a. Organizations also look outside their boundaries to find and develop new ideas.

Some organizations build formal strategic partnerships such as alliances and joint

ventures to improve innovation success. Today’s most successful companies are

Managing Change and Innovation •

including customers, strategic partners, suppliers, and other outsiders directly in

the product and service development process.

b. Open innovation is one of the hottest trends. Open innovation means extending

the search for and commercializing new ideas beyond the boundaries of the

organization and even beyond the boundaries of the industry. Smart companies

find and use ideas from anywhere within and outside the organization.

c. The Internet enables companies to tap into ideas globally and let hundreds of

thousands of people contribute to the innovation process, which is why some

approaches to open innovation are referred to as crowdsourcing. Crowdsourcing

is also being used to gather creative ideas for solving social problems.

C. Innovation Roles

1. Creating mechanisms to make sure new ideas are carried forward, accepted, and

implemented is the third aspect of product and technology innovation. The formal

definition of an idea champion is a person who sees the need for and champions

productive change within the organization. Personal energy and effort are required to

successfully promote a new idea. Champions are passionately committed to a new

product or idea despite rejection by others.

2. Successful innovation in most companies involves interplay of different people. The

inventor comes up with the new idea and understands its technical value. The

champion believes in the idea, confronts the organizational realities of costs and

benefits, and gains the political and financial support needed to bring it to reality.

The sponsor is a high-level manager who approves and protects the idea, and removes

organizational barriers to its acceptance. The critic counterbalances the zeal of the

champion by challenging the concept, thereby preventing people in the other roles

from adopting a bad idea.

3. Entrepreneurship is often facilitated through a new-venture team, which is a unit

separate from the rest of the organization that is responsible for developing and

initiating a major innovation. A skunkworks is a variation of a new-venture team in

which a separate small, informal, highly autonomous, and often secretive group

focuses on breakthrough ideas for the business. A new-venture fund provides

resources from which individuals and groups can draw to develop new ideas,

products, or businesses.

III. CHANGING PEOPLE AND CULTURE

Changes in culture and people pertain to how employees think. These are changes in mindset

rather than technology, structure, or products and services. People change pertains to just a few

employees, such as sending a handful of managers to a training course to improve their

leadership skills. Culture change pertains to the organization as a whole, such as shifting the

basic mind-set from an organizational focus on rules and policies to an organizational focus on

doing whatever is necessary to satisfy customers.

Managing Change and Innovation •

A. Training and Development

1. Training is one of the most frequently used approaches to changing the organization’s

mind-set. A company may offer training programs to large blocks of employees on

subjects such as teamwork, diversity, emotional intelligence, quality circles,

communication skills, or participative management.

2. Some companies particularly emphasize training and development for managers, with

the idea that the behavior and attitudes of managers will influence people throughout

the organization and lead to culture change. Leading companies also want to provide

training and development opportunities for everyone.

B. Organization Development

1. Organization development (OD) is a planned, systematic process of change that

uses behavioral science knowledge and techniques to improve an organization’s

health and effectiveness through its ability to adapt to the environment, improve

internal relationships, and increase learning and problem-solving capabilities. OD

can help managers address at least three types of current problems.

a. Mergers/acquisitions. The disappointing financial results of many mergers and

acquisitions are caused by the failure of executives to determine whether the

administrative style and corporate culture of the two companies fit. They fail to

recognize that the firms may have widely different values, beliefs, and practices.

These differences create stress and anxiety for employees, and these negative

emotions affect future performance. OD experts can help smooth the integration

of the firms.

b. Organizational decline/revitalization. Organizations undergoing a period of

decline and revitalization experience a variety of problems such as low level of

trust, lack of innovation, high turnover, and high levels of conflict and stress. The

period of transition requires opposite behaviors to include confronting stress,

creating open communication, and fostering creative innovation. OD techniques

can contribute greatly to cultural revitalization by managing conflicts, fostering

commitment, and facilitating communication.

c. Conflict management. Conflict can occur at any time and place within a healthy

organization. OD efforts can help resolve conflict problems.

Discussion Question #9: Do the underlying values of OD differ from assumptions associated

with other types of change? Discuss.

NOTES________________________________________________________________________

______________________________________________________________________________

2. OD Activities Exhibit 8.5

a. Team-building activities enhance the cohesiveness and success of organizational

groups and teams.

b. Survey-feedback activities begin with an employee questionnaire asking about

items such as values, climate, participation, leadership, and group cohesion. An

OD consultant provides feedback to the employees regarding their responses and

problems identified from the survey or questionnaire.

c. Large-group interventions are more attuned to bringing about fundamental

organizational change in today’s complex, fast-changing world. Large-group

intervention brings together participants from all parts of the organization to

discuss problems or opportunities and plan for change.

3. OD Steps

a. Unfreezing. Participants must be made aware of problems and be willing to

change. This step is often associated with diagnosis. An outside expert called a

change agent, an OD specialist, performs a systematic diagnosis of the

organization. The diagnosis identifies work-related problems.

b. Changing. Changing occurs when individuals experiment with new behavior and

learn new skills to be used in the workplace. This is sometimes known as

intervention, during which the change agent implements a plan for training

managers and employees. This may include team building, survey feedback,

intergroup coaching, process-consultation, or symbolic leadership.

c. Refreezing. Refreezing occurs when individuals acquire new attitudes or values

and are rewarded for them by the organization. The impact of new behaviors is

evaluated and reinforced; the change agent supplies new data that show positive

changes in performance. Changes are institutionalized in the organizational

culture, so that employees begin to view the changes as a normal, integral part of

the organization.

NOTES________________________________________________________________________

______________________________________________________________________________

IV. IMPLEMENTING CHANGE

A. Create a Sense of Urgency

1. External or internal forces translate into a perceived need for change within the

organization. Problems are often subtle, so managers must recognize them and make

others aware of the need for change.

2. Managers must be alert to problems and opportunities because the need for change

Managing Change and Innovation •

sets the stage for actions that create a new product or technology. A need for change

is a disparity between existing and desired performance levels.

Discussion Question #1: Microsoft and Intel are giants of the computer industry. Why do you

think that these large companies have had such a hard time competing against disruptive

innovations such as mobile computing?

NOTES________________________________________________________________________

______________________________________________________________________________

B. Apply Force-Field Analysis Exhibit 8.6

1. Force-field analysis suggests that change is a result of the competition between

driving and restraining forces. Driving forces can be thought of as problems or

opportunities that provide motivation for change within the organization. Restraining

forces are the various barriers to change, which could be things such as a lack of

resources, resistance from middle managers, or inadequate employee skills. By

selectively removing the barriers that restrain change, the driving forces will be

strong enough to enable implementation of the innovation.

C. Use Implementation Tactics Exhibit 8.7

1. The visible support of top management also helps overcome resistance to change.

Top management support symbolizes to all employees that the change is important

for the organization. Without top management support the desired change will

probably not happen.

2. Communication and education are used when users and others who may resist

implementation need solid information about the change. Education is important

when the change involves new technical knowledge or the users are unfamiliar with

the idea. Managers should speak to people’s hearts and minds. People are more likely

to accept changes in their behavior when they both understand the rational reasons for

doing so and see a picture of change that influences their feelings.

3. Participation involves users and potential resisters in designing the change. This

approach is time consuming, but it pays off because users understand and become

committed to the change. Participation also helps managers determine potential

problems and understand the differences in perceptions of change among employees.

4. Negotiation, a more formal means of achieving cooperation, uses formal bargaining

to win acceptance and approval of a desired change. Companies that have strong

unions frequently must formally negotiate change with the unions. The change may

then become part of the union contract.

5. Coercion means managers use formal power to force employees to change. Resisters

are told to accept the change or lose rewards or their jobs. In most cases, this

approach should not be used because employees feel like victims, are angry at change

Managing Change and Innovation •

managers, and may even sabotage the changes. Coercion may be necessary in crisis

situations when a rapid response is urgent.

SUGGESTED ANSWERS TO END–OF-CHAPTER DISCUSSION

QUESTIONS

1. Microsoft and Intel are giants of the computer industry. Why do you think that these large

companies have had such a hard time competing against disruptive innovations such as

mobile computing?

2. A manager of an international chemical company said that few new products in her company

were successful. What would you advise the manager to do to help increase the company’s

success rate?

The manager should understand that all companies have a poor success rate with new products.

3. As a manager, how would you deal with resistance to change when you suspect employees’

fears of job loss are well founded?

4. If you were a manager responsible for floor cleaning products at a consumer products

company, how might you apply crowdsourcing to identify a new product that would meet

customer needs?

5. To tap into the experience of battle-tested soldiers, the U.S. Army recently began

encouraging personnel from all ranks to go online and collaboratively rewrite some of the

Army’s field manuals in a Wikipedia-like fashion. When the rank and file showed little

interest, one retired colonel suggested top leaders should make soldiers participate. Does

coercion seem like a good way to implement this type of change? Discuss.

Coercion means managers use formal power to force employees to change. Resisters are told to

6. Analyze the driving and restraining forces of a change that you would like to make in your

life. Do you believe understanding force-field analysis can help you more effectively

implement a significant change in your own behavior?

Force-field analysis examines change with respect to the social forces impinging on it. Kurt

7. Why do you think research has shown that idea champions are so essential to the initiation of

change? Could they be equally important for implementation?

managers of the merit of a new idea and provide the passionate commitment needed to push a

new product or idea through to completion despite rejection by others.

8. You are a manager, and you believe the expense reimbursement system for salespeople is far

too slow, taking weeks instead of days. How would you go about convincing other managers

that this problem needs to be addressed?

9. Do the underlying values of OD differ from assumptions associated with other types of

change? Discuss.

The underlying values and assumptions of OD were made explicit in the chapter. They include:

“people desire personal growth and development,” “work groups can satisfy important needs for

10. What do you see as the major advantages and disadvantages of a company moving to open

innovation?

Open innovation means extending the search for and commercialization of new ideas beyond the

Managing Change and Innovation •

APPLY YOUR SKILLS: SELF-LEARNING

Is Your Company Creative?

An organization’s culture has a tremendous influence on how receptive employees are to change.

This in turn influences the effectiveness of an attempted organizational change. This exercise

measures the culture/climate of an organization for which students worked or with which they

are familiar. Once students have completed the questionnaire and have determined how

effectively their organization fosters creativity, ask them to consider how important creativity is

to the success of that organization. Some organizations may not benefit substantially from

creativity. Of course, many would argue that creativity and innovation are becoming

increasingly important to most organizations given the complexity and rate of change in the

external environment (e.g., international competition). You might ask students to identify

specific actions organizations can take to foster creativity. What actions stifle creativity?

APPLY YOUR SKILLS: GROUP LEARNING

An Ancient Tale

The purpose of the exercise is to understand, analyze, and improve organizations, which requires

carefully thinking through the issue of who is responsible for what activities in different

organizational settings. The exercise could be conducted on either an individual or group basis.

It provides an opportunity to see how different individuals assign responsibility for an event. It is

also a good opportunity to discuss the concept of organizational boundaries (what is the

organization, who is in or out, etc.). This is followed by an action learning exercise in which the

students are asked to analyze how they have handled change in the past.

The case study or tale has implications regarding the impact of the organization on the

individual, the ability to protect him- or herself in the organization, and how to manage the

organization to accomplish objectives which are in the best interest of the organization as well as

the participants.

Role-Play Option

If you want to bring life to the case, you could ask students to perform role-plays; to act out, for

example, a scene between the Lord and the Princess, between the Princess and the Godfather, or

the Princess and the Knight. I have used this with much success in class.

Group Discussion Format

One suggestion is to use a group discussion format for the case as follows:

1. Prior to class, assign members to read the case and answer the questions at the end of

the case.

2. Divide class members into groups of four to eight members.

3. Assign each group to discuss the five questions and to arrive at a consensus decision.

This should take about 10-20 minutes.

4. With the entire class, have each group report their responses to the questions, noting

especially the criteria for making their decisions.

5. After each group has made a presentation, follow the Class Discussion guidelines

which follow to highlight the implications of the case for individuals within

organizations.

Simulated Court Trial

Another way (optional) of stimulating discussion on “An Ancient Tale” is through the use of a

court trial.

1. Prior to the class in which the story will be discussed, assign individuals to play the role

of each of the seven characters and “defense attorneys” for each character (Princess,

Lord/Husband, Dragon, Vagabond, Sorcerer, Godfather, White Knight).

2. Instruct each role player to be prepared to explain in the next session why he/she (or

his/her client) is not responsible for the death of the Princess (who will be brought back

from the dead to defend herself).

3. Select an articulate student (or have the instructor) perform the role of prosecuting

attorney (have this individual prepare arguments as to why each person should be held

responsible for the death of the Princess).

4. On the day of the trial, a jury is selected (volunteers) along with a jury foreman, and the

classroom is arranged in the following manner:

Defending Attorneys

Class

Prosecuting Attorney

The trial proceeds in the following manner:

1. The defendant and “defense attorneys” for each character proclaim the defendant’s

innocence (two minutes per character).

2. After each character proclaims his/her innocence, the prosecutor presents the case for

their guilt. The prosecutor will present the case for guilt after each character’s defense

(two minutes per character).

3. After all the characters have been tried, the jury retires (maximum period – 10 minutes)

and passes a verdict on each separate defendant. The jury foreman announces the

verdict on each character with a brief explanation.

After the trial, discussion follows.

APPLY YOUR SKILLS: ETHICAL DILEMMA

Crowdsourcing

1. Go to the meeting and argue for abandoning crowdsourcing for now in favor of maintaining

the artistic integrity and values that Off the Hook has always stood for.

strongly in favor of crowdsourcing, you are likely to lose the argument and you may have

created bad feelings between yourself and the CEO to no avail.

2. Accept the reality that because Rob strongly favors crowdsourcing, it’s a fait accompli. Be a

team player and help work out the details of the new design approach. Prepare to lay off

graphic designers as needed.

3. Accept the fact that converting Off the Hook to a crowdsourcing business model is inevitable,

but because it violates your own personal values, start looking for a new job elsewhere.

designers who are being laid off from Off the Hook.

APPLY YOUR SKILLS: CASE FOR CRITICAL ANALYSIS

Cleaver’s Sausage House

1. What do you think are the reasons for people’s resistance to the MRP implementation?

Explain.

People at Cleaver’s Sausage House were resistant to the MRP implementation for many reasons:

Managing Change and Innovation •

problems associated with the maintenance of an MRP system that can lead to customer

dissatisfaction.

d. Different assessments and goals: Employees who will be affected by innovation may assess

the proposed change differently than an idea champion or new venture team. Critics voice

legitimate disagreements over the proposed benefits of a change. It was obvious to Allison Elam,

the idea champion, the idea of MRP implementation was not a priority topic for the other VPs

and department head, as it was to her.

These reasons for resistance are legitimate in the eyes of employees affected by the change.

2. What is the value of the task force idea suggested by the CEO as a way to facilitate

implementation? Explain.

3. Which implementation tactics do you think Elam should follow? Why?

ON THE JOB VIDEO CASE ANSWERS

Honest Tea: Managing Change and Innovation

1. Part of Honest Tea’s mission is to convince consumers to make healthier choices by offering

innovative products. Based on what you saw in the video, describe at least two “disruptive

innovations” this company has made to support this goal.

2. When Honest Tea decided to become a division of Coca-Cola, many employees and

customers expressed resistance to that change. Based on what you know about the two

companies, why do you think people might have resisted this change?

People might have resisted this change because of fear of the unknown. Coke is a huge

corporate giant and Honest Tea is a small, employee-friendly company with a distinct culture.

Employees might have feared that the new ownership would threaten their job security.

Employees might not have understood that Honest Tea lacked the corrected distribution

capabilities and could not expand nationally without a large company like Coca-Cola.

3. Of the implementation tactics described in the text, which tactics did Honest Tea’s leaders

most likely use to overcome that resistance?

• Top Management Support. The visible support of Seth would make employees aware of

the importance of the change. Top management support is especially important when a