CHAPTER 13
Managing Organization Change and Innovation
CHAPTER SUMMARY
This chapter is about organization change and innovation. It first introduces the nature of organization
change and then describes how to manage resistance to change. Next, areas of organization change are
identified and discussed. Subsequent sections are devoted to organization development and innovation.
LEARNING OBJECTIVES
After covering this chapter, students should be able to:
1. Describe the nature of organization change, including forces for change and planned versus reactive
change.
2. Discuss the steps in organization change and how to manage resistance to change.
The opening case describes the success that Genentech, a biotechnology company, has had with respect to
innovation. It uses partnerships to develop drugs and also uses them to market drugs developed by them.
Innovation is key to the growth of the firm and it actively searches for ways to leverage its innovation
LECTURE OUTLINE
I. THE NATURE OF ORGANIZATION CHANGE
Organization change is any substantive modification to some part of the organization.
Teaching Tip: Note that there is no rigid line that separates “substantive” from “nonsubstantive.” The
A. Forces for Change
1. External forces for change derive from the organization’s general and task environments
and include such factors as politics, the economy, and competitors.
Chapter 13: Managing Organization Change and Innovation
Global Connection: The formation of the European Union and the adoption of the euro currency
throughout much of Europe has caused changes in firms from Europe and around the world.
2. Internal forces, such as organization strategy or sociocultural values, also can cause an
organization to change.
B. Planned Versus Reactive Change
Planned change is change that is designed and implemented in an orderly and timely fashion
in anticipation of future events.
Interesting Quote: “There is nothing more difficult to take in hand, more perilous to conduct, or more
Teaching Tip: Stress for students that no matter how effectively a manager plans for change,
environmental uncertainty will also force occasional reactive change.
Teaching Tip: Also stress that reactive change is not necessarily always bad. For example, an
II. MANAGING CHANGE IN ORGANIZATIONS
A. Steps in the Change Process
1. The Lewin model suggests three steps in the change process: unfreezing the people
affected by the change, implementing the change itself, and refreezing the people
involved by reinforcing and supporting the change.
Teaching Tip: A good way to teach the Lewin model is to use the literal meaning of the terms used to
Chapter 13: Managing Organization Change and Innovation
2. A comprehensive approach to change
Step 1: recognition of the need for change
Step 2: establishment of goals for the change
Group Exercise: Have students plan a hypothetical change intervention using the comprehensive
model as a framework.
B. Understanding Resistance to Change
Discussion Starter: Ask students for personal examples of people they know who have been or who
are reluctant to adopt new forms of technology.
Global Connection: People from some cultures are more comfortable with change than are people
Discussion Starter: Ask students how they feel about change. For those who do not like change, ask
them to explain why they feel as they do.
C. Overcoming Resistance to Change
1. Participation is often the most effective technique for overcoming resistance to change.
Discussion Starter: Ask students to share examples of changes in which they were allowed to
2. Education and communication aimed at employees affected by the change also can
reduce resistance to change.
Chapter 13: Managing Organization Change and Innovation
3. Facilitation procedures, such as announcing the changes in advance to provide
III. AREAS OF ORGANIZATION CHANGE
Teaching Tip: Use Table 13.1 of the text to organize and summarize the various key areas of
organization change.
Cross-Reference: Note that the various topics and concepts discussed in Chapters 11 and 12 are often
B. Changing Technology and Operations
1. A change in technology, or how the inputs become outputs, will usually force other
changes in the organization. Frequently it may mean the introduction of new machines or
Cross-Reference: Note that technology was introduced in Chapter 12 but is discussed in more detail in
Chapter 21.
Extra Example: Note for students that relatively recent breakthroughs in information technology (i.e.,
Group Exercise: Ask groups of students to identify examples of operations changes they have recently
C. Changing Business Processes
Interesting Quote: “If you want to get something funded around here—anything, even a new chair for
1. Business process change, also called reengineering, is the radical redesign of all aspects
of a business to achieve major gains in cost, service, or time.
2. Over time, most organizations experience entropy, or system-wide decline. Business
process change allows managers to revitalize a stagnant firm.
3. Business process reengineering has five steps.
a) Step 1: Set goals and develop a strategy.
Extra Example: Other firms that have undergone reengineering include AT&T, Blue Cross of
Washington, Hallmark, and Union Carbide.
Teaching Tip: Note that some experts consider reengineering to be just a management fad, and expect
D. Changing People, Attitudes, and Behaviors
Changing people also may occur if an organization decides to change the skill level in the
workforce, or the workers’ perceptions and expectations.
Discussion Starter: Ask students which areas of change—organization structure and design,
E. Organization Development (OD)
1. Organization development (OD) is a planned, organization-wide effort that is managed
Cross-Reference: Note that OD is a special approach to changing people.
a) Diagnostic activities are used to analyze the current condition of an organization.
who work in groups or teams and promote overall group effectiveness.
Extra Example: Team building is an especially important OD technique today. For example,
Chapter 13: Managing Organization Change and Innovation
Extra Example: As part of an OD program a few years ago, Baker-Hughes provided twenty hours of
classroom instruction to each employee. The instruction was designed to help people in the
organization work together more effectively.
e) Intergroup activities improve the relationship between groups by promoting
Teaching Tip: Many firms today are using both education and process consultation to help promote
diversity.
them develop a sense of how others see them.
Teaching Tip: As the role of managers and leaders in organizations continues to change (as explored
in Chapter 17), coaching and counseling activities are increasingly being performed by managers
themselves.
Global Connection: OD is often used in Europe, although not as extensively as in the United States. It
is seldom used in Asia, however.
IV. ORGANIZATIONAL INNOVATION
Innovation is the managed effort of an organization to develop new products or services or new uses
for existing products or services.
A. The Innovation Process
1. Innovation development occurs after a creative insight is verified and, where appropriate,
Chapter 13: Managing Organization Change and Innovation
2. Innovation application is the stage in which an organization takes a developed idea and
uses it in the design, manufacture, or delivery of new products, services, or processes.
Cross-Reference: Note the similarities between the innovation process and the product life cycle
discussed in Chapter 8. In many ways, the innovation process is a more detailed description of the same
process.
B. Forms of Innovation
1. Radical versus incremental innovations
a) Radical innovations are new products or technologies that essentially replace
2. Technical versus managerial innovations
a) Technical innovations are changes in the physical appearance or performance of a
Cross-Reference: Reengineering, as discussed earlier in this chapter, is a managerial innovation.
3. Product versus process innovations
a) Product innovations are changes in the physical characteristics or performance of
existing products or services, or they are changes in the creation of brand-new
products or services.
Teaching Tip: The relationship of product and process innovation to economic return, presented in
Figure 13.5 may be a bit complex for some students. Take some extra time to make sure they
understand it before proceeding.
C. The Failure to Innovate
Chapter 13: Managing Organization Change and Innovation
1. If a firm lacks resources, for example if it has insufficient money to fund a program of
3. Innovation means giving up old products, which means change. Many people are
resistant to change and, therefore, resistant to innovation.
Cross-Reference: Note that we discussed resistance to change earlier in this chapter.
D. Promoting Innovation in Organizations
2. Organization culture can be used to support creative and innovative activities.
Cross-Reference: Note that we discussed organizational culture in Chapter 3.
3. Intrapreneurs are similar to entrepreneurs, but they work in larger organizations. Some
firms strongly encourage intrapreneurship as a way of promoting innovation.
a) The inventor is the person who actually conceives of and develops the new idea,
END OF CHAPTER QUESTIONS
Questions for Review
1. What forces or kinds of events lead to organization change? Identify each force or event as a
planned or a reactive change.
Both internal and external forces encourage change. External forces in the general and task
2. Compare planned and reactive change. What are the advantages of planned change as compared to
reactive change?
Planned change has the advantage of a systematic and logical process for planning and
Chapter 13: Managing Organization Change and Innovation
3. In a brief sentence or just a phrase, describe each of the organizational development (OD)
techniques.
OD techniques include: (1) diagnostic activities—quizzing workers and examining archives to
4. Consider the following list of innovations. Categorize each along all three dimensions of innovation,
if possible (radical versus incremental, technical versus managerial, and product versus process).
Explain your answers.
• Teaching college courses by videotaping the instructor and sending the image over the Internet
• The rise in popularity of virtual organizations (discussed in Chapter 12)
Questions for Analysis
5. What are the symptoms that a manager should look for in determining whether an organization
needs to change? What are the symptoms that indicate that an organization has been through too
much change?
Poor performance, defined broadly, is the best indicator of the need to change. Poor performance
might be manifested in declining profitability, falling sales, negative customer feedback, dissatisfied
Chapter 13: Managing Organization Change and Innovation
6. Assume that you are the manager of an organization that has a routine way of performing a task and
now faces a major change in how it performs that task. Using Lewin’s model, tell what steps you
would take to implement the change. Using the comprehensive approach, tell what steps you would
take. For each step, give specific examples of actions you would take at that step.
Lewin states that organizations must unfreeze, or accustom employees to the need for change,
7. Think back to a time when a professor announced a change that you, the student, did not want to
adopt. What were the reasons for your resistance to change? Was the professor able to overcome
your resistance? If so, tell what he or she did. If not, tell what he or she could have done that might
have been successful.
Students’ answers will vary, but most will probably mention uncertainty about exactly what the
Questions for Application
8. Some people resist change, whereas others welcome it enthusiastically. To deal with the first group,
one needs to overcome resistance to change; to deal with the second, one needs to overcome
resistance to stability. What advice can you give a manager facing the latter situation?
The people who resist stability are searching for something new, different, or better all the time.
9. Can a change made in one area of an organization— in technology, for instance—not lead to change
in other areas? If you think that change in one area must lead to change in other areas, describe an
example of an organization change to illustrate your point. If you think that change can occur in just
one area without causing change in other areas, describe an example of an organization change that
illustrates your point.
10. Research an innovation change that occurred in a real organization, by interviewing an employee,
reading the business press, or using the Internet. Describe the process by which the innovation was
developed. Did the actual process follow the ideal process described in the chapter? Why or why
not?
Chapter 13: Managing Organization Change and Innovation
END OF CHAPTER EXERCISES
Building Effective Decision-Making Skills
I. Purpose
This exercise provides a format for analyzing the phases in a decision-making process.
II. Format
The exercise involves both individual and group work. The individual identifies a change at work
III. Follow-Up
A. The last part is an individual follow-up activity where the individual reflects on the experience.
Building Effective Diagnostic Skills
I. Purpose
This exercise aids students in understanding how managers approach making decisions related to
organization change.
II. Format
The diagnostic skills exercise can be performed individually or in groups. It should take about 15–
30 minutes to complete.
III. Follow-Up
A. Rank-order your four alternatives in terms of probable success. Make any necessary assumptions.
B. Identify alternatives other than the four that you identified above.
CHAPTER CLOSING CASE
CULTIVATING INNOVATION AT IKEA
IKEA is the brainchild of the Swedish entrepreneur, Ingvar Kamprad. To its many admirers, IKEA is the
cult-like furniture store featuring inexpensive products with minimalist European design. The main
reason for the company’s striking world-wide success is its relentless focus on innovation – both in terms
of products as well as processes.
1. Case Question 1: You’re an IKEA store manager, and corporate headquarters has instructed you to
change the layout of your store. The change must be “dramatic,” but the details are up to you.
Chapter 13: Managing Organization Change and Innovation
Wanting to make the most of the opportunity, you intend to manage the project as planned change.
What steps will you take to ensure that you’ll be successful?
The chapter defines a planned change as “change that is designed and implemented in an orderly
2. Case Question 2: There’s an IKEA TV ad that features a discarded lamp, forsaken on a rainy night
in some American city. A man looks at the camera and says in a sympathetic Swedish accent,
“Many of you feel bad for this lamp,” and then, after a well–timed pause, “That’s because you’re
crazy.” What’s the message of the commercial?
IKEA wants consumers, typically their American consumers, to stop thinking of furniture as durable
the commercial urges people (albeit subtly) to discard the old and buy a new replacement.
3. Case Question 3: One IKEA executive says that the current global economic situation has “pushed
innovation” at the company. In fact, he says, “This is a great time to be more innovative.” Explain
what he means.
IKEA competes on design and its low prices. As the case states, IKEA prices are typically 20-50
4. Case Question 4: Would you want to manage an IKEA store? Why or why not?