Managing Strategic Change: Building Learning Organizations ppsx

CHAPTER OUTLINE CASE Sony Corporation Introduction Characteristics of Learning Organizations Frequent Rotation of Managers Continual Training of Personnel Decentralization of Decision Ma

CHAPTER OUTLINE

CASE Sony Corporation

Introduction

Characteristics of Learning Organizations

Frequent Rotation of Managers Continual Training of Personnel Decentralization of Decision Making Encouragement of Multiple Experiments High Tolerance for Failure

Openness and Diversity of Viewpoints

Implementing Change

in Static Organizations Resistance to Change

in Static Organizations

Lack of Awareness Lack of Interest Incompatibility With Cherished Values Fear of Cannibalization

Fear of Personal Loss

Change Steps

Sense the Need for Strategic Change Build Awareness of Need to Change and Learn

Foster Debate Create Consensus Assign Responsibility Allocate Resources

From Static to Learning Organization

Managing Strategic Change:

Building Learning Organizations

WHAT YOU WILL LEARN

• Why companies need to think aboutchange

• The concept of a learningorganization

• The key practices found in learningorganizations

• Why static organizations havedifficulty in responding to change

• The steps senior managers use indealing with resistance to change

Sony Corporation is one of the world’s most consistently

suc-cessful innovators of consumer electronic products With 1997

revenues of $51.1 billion and $1.682 billion in profits, Sony

has surprised and delighted consumers with superbly

designed, user-friendly, high-technology products year after

year Many of its innovations—the pocket-sized transistor

radio, Walkman portable radio/cassette player, videocassette

recorder (VCR), Trinitron system color television set,

cam-corder, compact disc (CD) player, and now personal

comput-ers and digital cellular phones—have become staples

through-out the world In addition, its most recent innovations, such as

the Mini Disc (a miniature version of the portable CD player),

the Palmtop (an electronic diary capable of registering

infor-mation written with a special pen-type stylus on a small

screen), Playstation video game system, Cybershot digital

filmless cameras (using charged-coupled (CCD) devices and

flash memories), and the Data Discman (an electronic book

that displays thousands of texts stored on a removable disc),

are just beginning to make consumer inroads throughout

Europe, the United States, and Japan.

Equally important, but less apparent, Sony is also an active

supplier and participant in shaping the next generation of office

equipment, notebook computers, advanced integrated circuits,

ultrathin display materials, and other multimedia technologies

currently under development Sony has benefitted from

tech-nological and market-based changes by learning and leading

rather than following competitors in the innovation race In

1989, Sony purchased Materials Research Corporation, a

lead-ing U.S supplier of manufacturlead-ing equipment and advanced

materials for the semiconductor industry During the 1990s,

Sony has become an important player in the global film and

entertainment industry Its purchase of both Columbia

Pic-tures, a longtime U.S film producer, and CBS Records initially

came under financial difficulties in 1993 to 1995, but has now

recovered in a major way with the release of blockbuster

movies such as “Men in Black.” These investments in both

internal innovation and acquisition of content-related assets

should help Sony attain its long-term goal of transforming

itself into an integrated electronics, entertainment, and content

company.

How has Sony achieved this success? The answer lies in its

use of organizational practices that foster continuous learning.

Companies that learn are better able to innovate and build

competitive advantage Successful learning at Sony uses

sev-eral steps: (1) allocation of resources for innovation and

experimentation, (2) extensive decentralization of operations, (3) a bias against overspecialization, (4) frequent rotation of employees, (5) use of multiple product development teams, and (6) a balance between psychological and monetary rewards.

Resource Allocation

Sony spends more than $1.8 billion annually for new product development (about 4 percent of total revenues), and employs more than 9,000 engineers and scientists devoted to such effort—almost 10 percent of its total work force Competitors such as Matsushita, Sanyo, Sharp, Motorola, Nokia, and Gen- eral Electric greatly admire its formidable commitment and capability in product R&D Sony has been able to use its skills

to cut significantly the amount of time needed for developing next-generation products.

Extensive Decentralization

Sony’s operations are divided into 23 separate business groups, each responsible for a particular product line In addition, the company also supports hundreds of development teams that can cross divisional lines on innovation projects These teams, typ- ically organized around product development tasks and span- ning across functions, help to bring multiple perspectives and approaches to thinking about and commercializing a new prod- uct Equally important, these teams serve a vital integrative function that helps to unify the company’s many decentralized operations into moving along a central direction This combi- nation of extensive decentralization and special teams creates many relatively small centers of decision making throughout the company.

Bias against Specialists

Like other Japanese companies, Sony recruits extensive nical talent at Japan’s major universities However, it does not necessarily pursue students with the highest grades Instead,

tech-Sony seeks people who are neyaka—which roughly translates

as “open-minded, optimistic, and wide-ranging in interests”— because Sony managers believe these traits foster continual learning and innovation Conversely, they believe an overly specialized orientation hampers innovation As company founder Ibuka puts it, “Specialists are inclined to argue why you can’t do something, while our emphasis has always been

to make something out of nothing.” Sony’s commitment to openness to new ideas depends on a diversity of backgrounds

As demonstrated in the cases and examples given in this text, most industries and their

competitive environments are rapidly changing Rapid change is not confined to

high-technology or knowledge-intensive industries such as semiconductors, computers, health

care, financial services, entertainment, software, biotechnology, and advanced materials

Many once stable industries such as automobiles, banking, insurance, steel, retailing,

pub-lishing, food processing, and even hospitals now face the need to adapt to change quickly

With change comes the necessity of learning new skills and developing new sources of

competitive advantage Thus, all types of firms—large and small, established and new

entrant, diversified and single-business—cannot rely on their existing sources of

competi-tive advantage for survival; they must be able to learn and create new ones as their

envi-ronments change Building and sustaining competitive advantage in the midst of rapid

change requires the organization to learn new technologies, new markets, and new ways of

managing In the future, the only truly sustainable source of competitive advantage will be

the organization’s ability to change and learn new skills.2

Successful organizational learning demands management’s focused effort Often,

learn-ing new skills and technologies can be a traumatic experience The large-scale, ongolearn-ing

restructurings of firms such as AT&T, IBM, Citicorp, Fidelity Investments, JC Penney,

United Technologies, and Eastman Kodak are just a few examples in which one can see

among its personnel This diversity provides the fertile

learn-ing ground for Sony to test and commercialize new product

concepts.

Frequent Rotation of Staff

Engineers in the company may seek new assignments anywhere

in the organization, often without first notifying their

supervi-sor If an individual locates an attractive new position, the

employee’s boss is expected to cooperate in the transfer This

practice, which Sony refers to as “self-promotion,” causes fairly

frequent movement of technical talent within Sony’s

organiza-tion Such movement infuses development teams with periodic

new arrivals who bring fresh ideas and heightened enthusiasm.

Multiple Experiments

Sony often assigns several teams, each pursuing a different

technology, to work on the same development problem For

example, five teams worked at various times on the company’s

CD player and later the MiniDisc project The use of multiple

experiments adds an element of healthy competition to the

development process It increases the likelihood that Sony will

emerge as a leader in successful new technologies Moreover,

working with different technologies helps Sony learn which

products are more likely to be easily manufactured and

improved over time By working with different designs and

see-ing how a customer will likely use a product from different

angles, Sony can continuously improve its products over time

by incorporating new features and streamlined designs This additional development information gives Sony a market edge over its competitors.

Balance of Psychological and Monetary Rewards

Sony avoids paying monetary rewards such as bonuses and salary increases for technical achievement Instead, it relies pri- marily on nonmonetary rewards in a variety of forms to inspire creative effort Perhaps most important, Sony gives engineers a great deal of leeway in selecting the development projects they will work on The excitement of development work then pro- vides its own psychological reward Sony also allows individu- als who originate new product ideas to supervise the teams formed to conduct the development work This practice some- times produces project leaders who are younger and less highly paid than the team members they supervise Yet, it supplies a powerful incentive toward creative effort by enabling the com- pany’s most creative engineers to lead the development effort Another device Sony uses to foster creativity is a technical fair sponsored annually by its corporate research department The three-day event, open only to company employees, provides engineers and scientists an opportunity to display projects to their peers and the company’s most senior executives, who make a point of visiting each display This practice provides substantial psychological rewards for creative efforts and helps cross-pollinate ideas among project teams and business groups.

the dramatic effects of rapid environmental change However, bringing about tional change that facilitates learning is not an easy task Managers and employees at alllevels frequently resist the process of change, since it may alter their existing practices andweb of relationships Senior managers who seek to induce organizational changes that pro-mote the learning of new skills and distinctive competences must therefore be sensitive topotential resistance Their challenge is to take steps that encourage lower-level managersand employees to join and facilitate needed changes We explore this challenge in the pres-ent chapter.

organiza-The first part of this chapter focuses on how top managers can help their firms becomelearning organizations.3Learning organizations are firms that view change as a positive

opportunity to learn and create new sources of competitive advantage We focus on ous organizational practices that promote this kind of proactive, change-oriented learning.Although instilling new forms of learning can be a difficult task, companies that are suc-cessful in doing so can better adjust and thrive in a rapidly changing environment.The second part of the chapter examines the difficulty of implementing change in firmsthat have not yet become full-blown learning organizations Not all firms in every indus-try face the same degree of rapid change, and change can occur at varying rates across dif-ferent industries Yet, it is likely that all firms in all industries will inevitably face the need

vari-to learn and create new sources of competitive advantage or, at a minimum, understandhow to improve their existing sources of competitive advantage Thus, senior managementmust tackle the challenge of promoting and implementing change in an increasing number

of industries and must often do so in the face of manager and employee resistance to suchefforts We examine some sources of resistance to change and discuss how senior man-agers can muster support for organizational change

CHARACTERISTICS OF LEARNING ORGANIZATIONS

Some firms possess characteristics that greatly enhance their capabilities to adapt to rapidchange Exhibit 12-1 highlights key organizational practices that contribute to a firm’spotential for learning: (1) frequent rotation of managers, (2) continual training of person-nel, (3) decentralization of decision making, (4) encouragement of multiple experiments,(5) high tolerance for failure, and (6) openness and diversity of many viewpoints Thesepractices encourage managers to be truly open to ideas that identify trends and generatechoices Under these conditions, adapting to the environment becomes easier and morelikely to succeed

Frequent Rotation of Managers

Managers new to their positions are less likely to be wedded to a particular set of values

or way of operating than individuals who have held the same position for many years.Long-standing managers of a department are likely to be proponents of their department’scurrent strategy and, therefore, emotionally tied to its success Over time, these individu-als have a tendency to become less accepting of new strategies, approaches, and ways ofdoing things For example, at both Timex and Eastman Kodak (in Chapter 5), managerswho stayed with their respective lines of business were often unable to understand thenature of the changes facing their products and technologies; change became more diffi-cult when managers were locked into a particular “lens” and functional perspectivethrough which they defined and solved problems

One organizational practice that enhances a firm’s ability to change is periodic rotation

of managers throughout the firm Rotating managers across business lines exposes them to

experiences, perspectives, functional skills, and competences that were developed

else-where Managerial rotation also promotes the building of interrelationships and synergies

that cross departmental and divisional lines At Sony, managerial rotation infuses managers

with new insights and ideas and gives them greater awareness of a wide range of

tech-nologies and products that consumers may want Managers are thus able to see how

employees from other departments work together smoothly to get new products to market

fast In turn, they become more aware of their own competitive environment Frequent

managerial rotation greatly enhances Sony’s ability to adapt to environmental change

General Motors’ Saturn operation practices managerial rotation to encourage its people

to visit other parts of the factory Rotating both managers and employees throughout

Sat-urn’s many work areas helps convince people of the need to do their best in producing

quality products This system enables Saturn employees to see how their efforts and work

contribute to the entire car’s production and assembly Managers and employees also learn

multiple sets of skills that are used in auto manufacturing and assembly In turn, the

qual-ity of the car improves, and people learn and share manufacturing insights and skills

throughout the factory.4

Continual Training of Personnel

An insidious source of resistance to change is fear that change will render obsolete many

managers’ and employees’ current skills, promotion opportunities, and career paths

Reg-ular training and development through which managers and employees learn new skills

lessen such fears and thus reduce resistance to change Many researchers and analysts have

Management Practices of Learning Organizations

Frequent

rotation of

managers

Openness and diversity

of ideas

Multiple

experiments

High tolerance for failure

Continual training

Decentralization

Learning Organization

e x h i b i t (12-1)

noted that continuous training is one key pillar of Japanese firms’ success in learning newtechnologies to develop new products quickly.5Sony and many other Japanese firms viewtraining as an ongoing investment in corporatewide continuous improvement Companiescan undertake continuous improvement (discussed more extensively in Chapter 13) whentheir employees are not afraid to suggest and implement changes Finding ways to dothings better helps the whole company improve Sony’s long string of product successes isdue in part to a strong commitment to training and development of both personal and tech-nically oriented skills This training contributes to lower cost, higher quality, better morale,more openness in thinking about problems, and even whole new product ideas Mostimportant, by encouraging its employees to learn new skills, Sony reduces employees’ fear

of change

Sony maintains an internal training program designed to impress young Japaneseemployees with the firm’s newest technologies It also instills the company’s managementprocedures, corporate values, and operating practices Additionally, Sony trains its man-agers extensively to prepare them for overseas assignments Overseas customs and prac-tices are taught regularly This type of training helps Sony’s managers spot new trends andpotential opportunities in consumer electronics markets and understand what each marketwants in Sony’s products

Decentralization of Decision Making

Lower-level managers, sales representatives, and front-line employees are much closer tothe action than most senior managers They are therefore often the first to become aware

of potential new developments and changes A firm can improve its responsiveness bypushing decision-making responsibility down to these individuals; therefore, a firm shouldpractice some degree of decentralization wherever possible Careful decentralization facil-itates organizational change and learning because it encourages managers and employees

to participate in making decisions that directly affect them It also gives them room toexperiment with new methods they feel are appropriate Yet, decentralization should not go

so far that it results in duplication of activities across businesses, the dilution of a defined corporate mission and culture, or other inefficiencies When carefully imple-mented, decentralization increases the number of employees who can deal with change,and mobilizes the energies of many people Making the right level of decentralization workrequires trust among managers and employees throughout the company If managers can-not trust their employees or vice versa, then unfettered decentralization can cause numer-ous problems for the firm

well-Well thought-out decentralization works to promote change and learning because the flow

of information is less likely to be distorted.6People on the front line (especially marketing,sales, customer service) are constantly exposed to numerous sources of timely informationvital to detecting potential developments or opportunities On the other hand, thick layers ofmanagement (particularly in companies organized along strictly functional lines for longperiods of time) often distort or delay information flows Managers tend to “reinterpret”information from their employees and pass it on in a distorted form to their superiors

Of course, decentralization must be balanced with a strong sense of shared values topromote change and learning Decentralization frees up the creative energies of managersand employees but can result in chaos if people do not share some common goals and val-ues Although Sony delegates responsibility widely, the firm carefully impresses upon itspeople the company’s innovation-driven creed and goals This combination allows Sony’semployees to learn and apply new ideas in ways that are consistent with Sony’s goals Amajor part of Sony’s decentralized organization is its use of small project teams that can

move from one part of the company to another These teams have the authority to make

changes to improve the quality or efficiency of operations Project teams help other

depart-ment and business managers coordinate product developdepart-ment and use of new technologies

They also serve a vital purpose of moving across different functions and departments,

thereby promoting active “cross-pollination” of ideas and skills throughout the company

Sony’s flexible and fast-moving project teams thus provide the basis for building strong

interrelationships among business units These interrelationships facilitate the sharing of

know-how and skills systemwide

Johnson & Johnson is another example of how effective decentralization can foster the

creation of new sources of competitive advantage J&J’s senior management has divided

the company into more than 50 operating divisions (or “companies”) that produce

every-thing from surgical sutures to Tylenol, anesthesia, advanced surgical implements, medical

instruments, diagnostic equipment, toothbrushes, baby oils, shampoos, and blood

moni-tors J&J’s senior management believes in giving each division the power to do whatever

is needed to succeed in its market This high degree of decentralization has enabled J&J

business units to become some of the most successful innovators and marketers in the

United States, although the company may be becoming overstretched in recent years The

CEO of Johnson & Johnson compares his role to that of an orchestra conductor: he gives

his players inspiration and direction, but his subordinates get complete freedom to execute

the desired objective.7

Kodak’s problems with its core photography and imaging operations stem in part from

insufficient decentralization After nine restructurings throughout the 1980s and 1990s,

Kodak still has great difficulties in encouraging a high level of autonomy and

responsive-ness to market change Despite holding numerous patents in the field of chemical and

dig-ital imaging, Kodak still appears unable to harness fully the knowledge of its product

development teams to create new products faster and better Kodak struggles with

decen-tralization because the company lacks a well-defined, concrete mission that its people can

follow in their day-to-day projects A lack of a common focus and awareness of the need

to learn new skills related to digital imaging has also contributed to Kodak’s problems

Encouragement of Multiple Experiments

Developing new products and technological processes are often complicated tasks

Some-times several initiatives need to be tried simultaneously to determine which is better

Run-ning multiple projects reduces the likelihood that a superior approach will be overlooked

As separate groups or teams work on a solution to the same problem, people develop skills

and insights that can prove useful in thinking about future products In other words,

com-panies need to “parallel process” their efforts to learn new technologies and develop new

products Parallel processing enables a firm to see which technologies, product standards,

marketing approaches, and management methods work best This approach harnesses a

healthy degree of internal competition with a dual focus on continuous improvement and

search for best designs and best value In turn, people are exposed to different ways of

thinking about and doing things

Sony’s legendary success with its portable Walkman radio/cassette player reveals the

enormous power of experimentation in producing breakthrough products Several project

teams worked on this project, helping to determine which format would be the most

desir-able to consumers and the most easily manufactured Sony has used numerous parallel

project development teams to work on other promising technologies, such as miniaturized

compact and optical disks, hand-held color televisions, and small video camcorders that

automatically adjust the lens for better picture quality

Multiple experiments are one key to Honda’s enormous success in developing a broadrange of engine technologies for automobiles, motorcycles, lawnmowers, power boats, andpower generators Honda keeps an “idea file” that includes numerous prototypes anddesigns for models previously developed but never produced Many of these ideas havelater become the basis for motorcycles, automobiles, and lawnmowers when opportunitiesopened up.8Oftentimes, ideas developed in one business unit to serve a particular customerhave had considerable future, unanticipated value serving Honda’s customers in anothermarket.

Timex’s early unwillingness to experiment with innovative applications may have shutthe company out from new generations of products The company’s cadre of mechanicalengineers was unable to assimilate electronic displays and other new technologies in watchdesigns, because they saw mechanical springs and gears as superior to emerging electronictechnologies being developed by other companies For example, competing manufacturerssuch as Citizen Watch, Seiko, Casio, and Texas Instruments were already producingwatches made with electronic components, which were often derived from other productapplications, such as calculators and measuring instruments

High Tolerance for Failure

If people are punished for working on projects that eventually are not selected, then fewwill be willing to take on risky projects in the future Firms must be careful not to dis-courage people associated with projects that do not work out if they want to sustain highcreativity Instead, senior managers should continue to reward them if their efforts aremeaningful and reasonable This approach ensures that employees receive the encourage-ment they need to “venture off the beaten path” when exploring new solutions

Many innovative companies, including Sony and IBM, have experienced failures, some

of them rather large For example, during the 1980s, Sony pioneered a new digital cameracalled the Mavica The company believed the public was ready for a new filmless camerathat could take clearer pictures faster Yet, the Mavica was ahead of its time and few con-sumers were interested, so Sony withdrew the product Not until the mid-1990s did Sonyreintroduce the Mavica and the even more improved Cybershot digital camera system.This product is now a real winner in the marketplace Even with this early failure, Sonygained many insights into digital technology that led to new generations of compact diskplayers, Minidiscs, advanced integrated circuits, digital video disks (DVDs), digitalphones, and network appliances Sony did not penalize its managers or employees for thisproduct’s failure Instead, it gave these individuals important positions in which they couldborrow upon their newly acquired experiences and skills They were encouraged to applytheir expertise to designing new products and technologies Ultimately, Sony is now well-positioned to compete across a whole spectrum of digital imaging technologies for use inadvanced consumer electronics applications

IBM is another company that traditionally has not punished its people for a given uct’s failure For example, IBM entered the home market for personal computers with thePS/1 model in the mid-1980s Unfortunately, this product was severely underpowered andlacked many practical applications for home use Customers could not use it very easily tomanage their home finances, play computer games, or create their own stationery IBMwithdrew the product from the market and concentrated on improving the product’s powerand versatility Managers involved with this product were not punished but instead weregiven new marketing and development assignments for a new line of business and homecomputers These newer models (many labeled under the Aptiva brand) now enjoy con-siderable market success IBM’s continued reliance on these people to design more

prod-advanced types of personal computers has helped retain valuable experience and insight

that the company used to revitalize its personal computer business

At both Sony and IBM, managers are encouraged to learn from their experiences

instead of being fired for their decisions Failures are defined as part of the learning

process and personal growth The knowledge gained by personnel associated with failures

became instrumental in developing new products that helped the company enter other

mar-kets In other companies, the very prospect of failure causes organizational paralysis rather

than growth

Openness and Diversity of Viewpoints

True openness by managers to new ideas, suggestions, and criticisms is rare in most firms

Openness not only means a willingness to listen to new ideas and face reality but also

encouragement of a diversity of viewpoints and perspectives throughout the firm

Open-ness demands that managers suspend their need for control The need for constant and

direct control often limits the potential for effective learning, since it suppresses people

from bring up contrary viewpoints, “bad news,” or alternative problem solutions that may

cause internal political problems Excessive control sharply narrows the manager’s

atten-tion to short-term objectives For example, if managerial attenatten-tion is riveted solely to

quan-titative performance measures such as return on investment (ROI), managers will be less

attuned and sensitive to environmental developments with potential long-term impact (as

we’ve seen occur at Westinghouse) Moreover, managers obsessed with control are often

unable to draw useful suggestions and ideas from their employees, many of whom may be

afraid of their superiors Control usually focuses managers’ attention on immediate details,

taking the time and effort that managers need for discovering and understanding important

long-term trends

Another essential ingredient to openness is the ability to understand diverse

perspec-tives and viewpoints Managers must be able to appreciate other people’s values,

back-grounds, and experiences as being no less important than their own In other words, true

openness means a willingness to accept and listen to other people’s ideas and perspectives

Although Sony tried to understand and shape the motion picture and entertainment

indus-try through its initial acquisition of Columbia Pictures in 1989, the company soon

discov-ered that many of its highly successful management techniques and insights learned from

the electronics business had little direct applicability to the entertainment side of the firm

After a few difficult years in the early 1990s, Sony now applies a policy of openness to

managing its Columbia Pictures unit in California Realizing that film-making and

elec-tronics are two distinct industries, Sony encourages Columbia’s film producers, studio

managers, and technical talent to share their viewpoints with Sony’s managers This

com-munication helps Sony’s senior management understand the specific film-making

prob-lems and issues that differ from issues involved in making electronics-based products

Instituting these changes became especially urgent when Sony at first did not grasp the

fundamental differences in operational procedures, management practices, and attitudes

that defined and separated the two businesses and their respective mindsets.9

Asea-Brown-Boveri (ABB) also practices a policy of being open to many viewpoints

This European producer of power-generation equipment and machine tools believes that

each market in which it operates is unique and that managers must therefore be open to

their customers’ and local personnel’s specific requests Products and technologies are

customized to each market ABB’s managers often work directly with their customers to

get a better feel for their special needs Internally, ABB relies on lower-level managers

and employees within each national market to suggest ideas on how best to deal with

competitors and government regulations By listening to customer and employee tions, ABB’s managers gain insights into how to make their products better and whatcompetitors are offering This openness helps ABB become a better competitor.

sugges-The hidden belief that one’s own background or experience is superior to another’sseriously hinders learning This phenomenon is especially dangerous for firms whose topmanagement is overly represented by a particular function For example, engineering-dominated firms, such as Rockwell International and Texas Instruments, have experienceddifficulty in entering the consumer market for such products as calculators and personalcomputers TI’s inability to view marketing as a function equal in importance to engineer-ing and production is partly to blame Consequently, TI developed consumer products (cal-culators, personal computers) in the same way they developed products for the governmentand other large companies The result was a series of consumer products that were over-priced and lacking many user-friendly features Resources that TI allocated to the con-sumer market were not as great as those dedicated to industrial markets that were morefamiliar to its senior managers As a result, TI’s managers were unable to get a feel for theconsumer market

IMPLEMENTING CHANGE IN STATIC ORGANIZATIONS

A handful of firms have fully incorporated the practices described in the preceding tions into their management systems Because of their ability to create new sources ofcompetitive advantage rapidly, these learning organizations can adapt quickly to environ-mental change On the other hand, many companies perceive change as a threat to theirexisting sources of competitive advantage and established procedures In these firms, man-agers often resist efforts to change Exhibit 12-2 presents a spectrum of how firms differ

sec-in their adaptability and responsiveness to change

Learning organizations such as Sony are found on the far right side of Exhibit 12-2

In learning organizations, managers view change as an opportunity for improvement andrenewal of competitive advantage At the far left are firms that have not adopted theorganizational practices that promote learning and change but instead focus on doing

e x h i b i t (12-2) Adaptability to Corporate Change

Static

"dinosaur"

organizations

Learning organizations Most firms fall somewhere in the middle

Timex General

Motors

Sears IBM Kodak

DuPont Lockheed-Martin Toshiba

AT&T

Adobe Systems Lucent Technologies Microsoft

Hewlett-Packard

Sony Ben & Jerry's Qwest Southwest Airlines

Cisco Systems United Airlines

better what they are already doing Such firms we call “dinosaur” or static

organiza-tions.10Static organizations are akin to dinosaurs in that they have adapted themselves

well to current environmental conditions but have little ability to change They have a

management system well attuned to a particular environment These firms are often

wedded to a particular technology, distribution channel, or other way of doing things that

makes them vulnerable to new products or new competitors Such firms often perform

well for a considerable period of time but tend to become insular and averse to change

Their senior management loses the ability to see the ripples of change occurring in both

the immediate competitive environment and the larger general environment Managers

at all levels within the firm become more inwardly focused rather than understanding

what customers, competitors, and new entrants may be doing in the marketplace In

effect, their existing sources of competitive advantage have become extremely brittle

and inflexible and thus especially vulnerable to new entrants, new products developed

by competitors, or new technologies developed elsewhere in the industry (or beyond) As

a result, when their competitive environments eventually change, they lack the ability to

readily adapt

For example, companies such as American Express, General Motors, and Sears during

the late 1980s displayed many characteristics of a static, dinosaur-like organization Each

company was superbly adapted to its own previous low-change environment In the

auto-motive and retailing industries, GM and Sears considered themselves as “definers” and

incumbent leaders of industries they thought would not change very quickly Yet, both

companies came close to extinction because of rapidly changing environments brought

about by new entrants, new technologies, and shifting customer needs General Motors

steadily lost market share to both Japanese imports and domestic competitors from 1983

to 1998, dropping from 50 percent of the U.S market to a current low of somewhere

around 29 percent The company struggled to reverse its slide by investing in advanced

manufacturing technologies, robotics, acquisitions of Electronic Data Systems (EDS) and

Hughes Aircraft, accelerated product development, quality improvement programs, and

new car designs Yet, despite all of these massively expensive undertakings, thick layers of

bureaucratic management impeded fast information flow and made GM unresponsive to its

customers’ needs To this day, despite tremendous advances made with its Saturn

opera-tion and the newly revived Cadillac Northstar and Aurora product lines, there remains

some doubt whether General Motors has finally narrowed the productivity/quality gap

with its competitors and become more responsive to its environment Nevertheless, it has

shortened the time of new car model development by including suppliers, customers, and

people from every function on its product development teams GM also started practicing

continuous improvement by asking its suppliers for ways to improve its manufacturing

operations and reduce its inventory costs.11

Sears faced the same kind of problem in the retailing industry Confronted with new

“boutique” retailers and “category killers” such as Benetton, Abercrombie & Fitch,

Wal-Mart, The Limited, and The Gap, and revitalized competitors such as J.C Penney, Sears

was unable to provide the wide variety of products demanded by younger generations of

consumers Boutique retailers and category killers focus their efforts on specific niches

Their dedicated focus enabled them to command much higher customer loyalty and

supe-rior margins Sears even lost ground to other main-line department stores and larger,

mega-retailers such as J.C Penney and Wal-Mart respectively These mega-retailers were better able to

provide brand-name merchandise at lower prices Now, Sears appears to be in the midst of

earning higher levels of profits and attracting new types of customers that previously

shopped at its competitors Sears is selling many popular brand-name consumer

electron-ics and household appliances in addition to its own popular Kenmore appliance line It has

static organization: firms

that have adapted extremely well to a particular environment but lack the ability to respond quickly

to change.

stopped selling high-cost, low-turnover household furniture items that consume an nate amount of space at its stores Its fashions are becoming more up-to-date and cater to

inordi-a younger inordi-audience

The majority of companies are located somewhere in the middle of the spectrum shown

in Exhibit 12-2 Change can and does occur in these firms but not without varying degrees

of resistance and difficulty However, most companies need to change or adapt within ashort period of time Rapid environmental change, if unanticipated, can seriously erode thevalue of a firm’s distinctive competence and other sources of competitive advantage Forexample, Eastman Kodak faces competitors capable of rapidly innovating new digital andelectronics-based products that threaten its core film products Kodak’s skills and tech-nologies used to make chemical-based film are not very transferable to producing digital-based imaging products The distribution channels for electronics-based products (largespecialized retailers, for example) are unlike those used to sell film (drug, grocery, andconvenience stores) Thus, Kodak faces a different environment from the one in which it

is used to competing However, Kodak does have many promising technologies that willenable it to compete more effectively in the new environment Convincing its own peoplethat change and redirection are necessary to Kodak’s survival is the critical task facingsenior management In Kodak and other firms facing similar pressures to change, seniormanagement must play active roles in bringing about needed modifications

Consequently, a static or slowly changing organization faces a significant challenge.Caught between the proverbial rock and a hard place, a static organization must often adaptquickly to an environmental development or be left behind in the wake of more nimblecompetitors Yet, it may lack many of the organizational practices that enhance its ability

to learn Furthermore, the learning practices described previously often require able time to take effect For example, several years at the very least may be required to gen-erate value from a program of management rotation All too often, a static organizationrequires even more rapid adaptation or it will lose its competitive position It is easy toimagine how change can be so fast in some industries (e.g., software, semiconductors,Internet, financial services, and entertainment) that a change program initiated in one timeperiod may already be obsolete before it is fully embraced by the organization To bringabout change in a static organization, senior managers must take a much more active role

consider-in the change process than is necessary consider-in a learnconsider-ing organization The followconsider-ing sectionidentifies some of the obstacles senior management experience in trying to carry out thisrole In a two-part discussion, we first discuss the resistance that senior managers of astatic organization often encounter when attempting to bring about change Then wedescribe a series of steps managers can take to overcome such resistance

RESISTANCE TO CHANGE IN STATIC ORGANIZATIONS

Senior managers interested in promoting change in static organizations often possess ficient knowledge to determine precisely how a firm should respond They therefore needhelp designing and implementing a change program from managers and employees whohave more specialized knowledge in specific areas The need for such assistance is particu-larly great if a senior manager has been brought in from outside the company and possesseslittle industry experience A senior manager interested in bringing about change in a staticorganization faces another kind of obstacle Such an individual must also rely on managersand employees to implement the new response once it has been developed Consequently,senior management needs the support of managers and employees in designing a change

insuf-initiative and in implementing it Unfortunately, managers and employees in static

organi-zations often withhold such support Among the most common reasons for withholding

support are (1) lack of awareness of the need to change, (2) lack of interest in the

opportu-nity that environmental change presents, and concern about (3) incompatibility, (4)

canni-balization, and (5) personal loss (see Exhibit 12-3)

Lack of Awareness

An appreciation of the need to change often requires a broad view of both the competitive

and general environments Managers and employees, especially functional managers and

technicians preoccupied with their daily operating tasks, are often too focused on current

activities to develop this kind of perspective Therefore, people become overly

short-sighted and narrowly focused to be aware of potential changes over the horizon As a

result, they often fail to appreciate the need for change, especially if change means

learn-ing new methods, processes, or techniques that are significantly different from what they

currently practice The earlier IBM, Timex, and Eastman Kodak examples showed how

people can become riveted to an earlier product, technology, or way of thinking about a

problem

Lack of Interest

Even when managers and employees recognize the need for change, they often perceive it

as having only marginal impact on them This kind of reaction is common even with new

developments that could have severe consequences for the firm It often occurs when a

firm’s own business is growing rapidly Energies remain fully engaged with the firm’s

cur-rent activities People also tend to ignore developments that represent transient or

rela-tively small opportunities for expansion Too often, an unproven or unorthodox approach

is dismissed because of people’s inability to understand the nature of the change

Unfortunately, arrogance becomes a significant barrier to understanding the

implica-tions of new developments For example, many once-existing U.S companies in the

con-sumer electronics industry, such as RCA, Philco, Motorola, General Electric, and Zenith,

did not perceive the Japanese quality and low-cost advantage in making color televisions

until it was too late U.S firms did not believe that Japanese manufacturing skills would

help Japanese products penetrate the U.S market, where domestic firms had long

com-manded a strong market position Japanese success in this activity underscores the vital

roles of openness and experimentation to promote learning and competitive advantage

Incompatibility with Cherished Values

Firms frequently develop their own sense of shared values and corporate cultures that

define the company’s outlook and future strategies over time In many cases, strongly held

Common Reasons for Organizational Resistance to Change

• Lack of awareness of need to change

• Lack of interest in opportunity for change

• Incompatibility of change with existing values or interests

• Fear of cannibalization

• Fear of personal loss

e x h i b i t (12-3)