Unit 430 Leadership Topic 8: Leading change

Understanding complex organisational change

The types of change encountered by organisations are generally far more complex than those faced by individuals. This is due to the large number of stakeholders that are involved in organisational change, and the wide range of spheres in which the organisation engages. Most researchers agree that the pace of change in the external environment is higher than that seen in the past, and is continuing to accelerate. This phenomenon increases the number of environmental cues that the organisation must monitor.

One tool that may assist executives and organisations in analysing the environment (and the complex network of change drivers which it presents) is the PEST analysis. PEST is an acronym defining four categories of change in the wider environment: political, economic, socio-cultural and technological. Two additional categories—environmental and legal—are sometimes added, producing acronyms such as PESTEL or LEPEST.

Traditionally, PEST analysis has been used in marketing to assess market potential or reactions to proposed initiatives such as introducing a new product or service line. However, the fundamental design of the PEST analysis favours a broader scope of inquiry, and a form of strategic planning that is genuinely responsive to the environment.

Most organisations are divisional in nature, meaning that they are divided into discrete components, based either on function (e.g. IT) or geographic location (e.g. Melbourne office). Furthermore, the structure of organisations is generally hierarchical, with certain components overseeing or spanning others. The discrete and pluralistic nature of organisations holds the potential for much complexity when undertaking change management. Each of the discrete components of an organisation may experience different change drivers, a different combination of change drivers, or different impacts from given drivers. Each of the discrete components of an organisation may experience different change drivers, a different combination of change drivers, or different impacts from given drivers. It is for this reason that PEST analysis seldom considers the organisation as a whole, but rather a specific function or unit. Moreover, each component of an organisation will have certain distinctive qualities.

It has often been noted that organisations resist change, favouring tradition and the status quo. This may be traced back to divisional structure.

Kotter and Schlesinger (1979) have identified four distinct sources of change resistance within the organisation:

1. Parochial self-interest—There may be a perception the change will create winners and losers. On this basis, some people and groups may look more to their own interests than to those of the organisation at large, and will accordingly resist the change. This form of resistance will often be political in nature.

2. Misunderstanding and lack of trust—People will naturally resist change when they do not fully understand what it involves. The root of this problem is poor communication, and it can be made worse by a lack of trust between the change leader and the stakeholders.

3. Different assessments—Even where the relevant change drivers have been communicated to all stakeholders, some groups may assess the need for (and potential impacts of) the change quite differently. Groups will resist the change where they see costs outweighing the benefits, either for themselves or for the organisation.

4. Low tolerance for change—Often people will resist change because they worry that they will not be able to develop the new skills or behaviours required of them. This anxiety becomes more acute if they feel that too much change is occurring too quickly, or if they see a potential for 'losing face' in front of others.

Leading organisational change

Previously, we examined some of the sources of complexity in organisational change and some of the difficulties inherent in introducing change within an organisation. One insight arising out of this discussion is that effective change does not happen by itself—it requires
careful management in order to realise all of the intended benefits. The role of the change leader is central to this undertaking.

The concept of change management is a process composed of sequential (and interrelated) stages. Each stage is critical for the success of the overall change, and failure to complete a given stage or to dedicate sufficient time to a stage will adversely affect the outcome. In a worst-case scenario, the change initiative will fail; in a best-case scenario a great deal of time will be lost as the organisation will need to revisit a prior stage and complete it effectively.

John Kotter, a leading exponent of change management theory, proposes an eight stage model of change management.

Stage 1: Establish a sense of urgency: Leaders begin by looking at the internal and external environments (perhaps through a PEST analysis), and identifying potential threats that must be avoided, as well as large opportunities that may be time-limited.

Stage 2: Form a powerful guiding coalition: A powerful guiding coalition is one that has enough power (due to the formal positions of certain members or the number of people involved) to drive the change through the organisation. The coalition must bring together people from all levels of the organisation, and work in a coordinated way. This is achieved by rallying the coalition around shared interests in the change, and by developing a common approach to issues.

Stage 3: Create a vision: At Stage 3, the change leader is directly responsible for formulating a vision of the desired future state of the organisation, in which all threats have been dealt with and any opportunities successfully exploited. This vision will guide the change effort in the right direction and will motivate the coalition. More specifically, the leader must develop
strategies for achieving the vision.

Stage 4: Communicate the vision: Once the vision and strategy have been articulated, the leader's next task is to communicate them throughout the organisation. To achieve this, the leader should use every appropriate opportunity and communication channel that is available. Another important method for communicating the vision is for the leader to model the new behaviours that the vision
promotes in everyday activities. The leader must demonstrate a high level of commitment to the vision throughout this stage, and be prepared to make personal sacrifices to promote it.

Stage 5: Empower others to act on the vision: There are two main ways the leader can empower others to act on the vision. The first is to remove any barriers that could prevent action by the stakeholders. These could be structures within the organisation, procedures or policies. The second is to provide people with the resources they need to take action, such as training, equipment, human resources and delegated authority.

Stage 6: Plan for and create short-term wins: Stage 6 provides an opportunity for the leader to refine the strategies chosen to achieve the vision in Stage 3, and to incorporate within them the potential for short-term wins. If the leader can plan for visible improvements along the way (and celebrate employees who help to produce them), this will increase the credibility of the change process and bolster enthusiasm for it. This stage may be particularly important for lengthy change processes, where it easy to lose momentum.

Stage 7: Consolidate improvements and further changes: Stage 7 involves building on the credibility and enthusiasm generated by the short-term wins to renew commitment to the change process and encourage people to undertake further, and perhaps more ambitious, change. It is important to note that short-term wins may provide the opportunity for further positive change.

Stage 8: Institutionalise new approaches: The final stage of Kotter's model recognises that the change is not complete until it has been embedded in the organisation's culture. As mentioned in the previous stage, this is necessary to avoid a natural return to the previous ways of doing things. The leader must look beyond an adherence to new procedures or a compliance with management directives and promote new values and behaviours. This also requires a sustained effort so that the coalition no longer views the change as something new, but rather as the normal way of operating. The leader should also ensure that the new values and behaviours will be passed on to future managers and leaders via mechanisms such as succession planning.

Garvin and Roberto (2005) have built upon these insights and have shown that the attitude adopted by the change leader will be critical to the success of the process. They found that change is best promoted when the leader adopts an attitude of persuading the coalition and broader stakeholders rather than an attitude of command and control or one of driving the change in a top-down fashion. An important point to note with Garvin and Roberto's model is that it does not intend to disassociate the persuasion process from the operational change undertaken as part of the initiative.

Kotter and Schlesinger (1979) propose six possible approaches to overcoming change resistance. Each approach has strengths and weaknesses, and each is responsive to a particular set of conditions in the change environment.

1. Education and Communication
2. Participation and Involvement
3. Facilitation and Support
4. Negotiation and Agreement
5. Manipulation and Co-optation
6. Explicit and Implicit Coercion

Leading cultural change

Culture is an important principle for any organisation because it integrates team members into the organisation and influences the way they interact with each other and with external stakeholders. It also helps the organisation adapt to the external environment.

According to Daft (2008), cultures may be measured according to three main criteria: how strong they are, whether they are adaptive, and whether they contribute to high performance. Strong cultures are those in which all members of an organisation agree upon the values and methods enshrined within the culture. Strong cultures ensure that organisations are well integrated. Adaptive cultures promote an awareness of the external environment, and they respond to changes in that environment. Clearly, this type of culture is particularly conducive to implementing change. Cultures that are both strong and adaptive will contribute to high performance, in that organisational effort is well coordinated and directed to needs that exist in the external environment.

Daft has identified three specific cultural values that typify high performance organisations:
1. The greater good outweighs that of specific units within the organisation, and the divisions between units are minimised.
2. Equality and trust are cherished values.
3. Risk taking, change and improvement are encouraged.

Daft (2008: 430–433) also identifies six cultural change mechanisms that can help the leader to fulfil this role effectively:
1. Coordinating ceremonies
2. Telling stories
3. Communicating with symbols
4. Developing specialised language
5. Selection and socialisation of staff
6. Reinforcing values through their daily actions.

Leading an innovative organisation

Daft (2008: 463) defines creativity as "the generation of ideas that are both novel and useful for improving efficiency and/or effectiveness of an organisation". From this point of view, due to the performance gains that innovation and creativity may deliver, developing a more innovative organisation is a worthwhile subject for change in its own right.

Viewed from another point of view, innovation is a necessary ingredient for any change process. As discussed earlier, change initiatives begin with a recognition of change drivers, usually in the external environment. The change initiative attempts to capitalise on the opportunity, or to manage the risk, represented by the driver. Organisations that innovate as they develop change strategies increase their chances of truly maximising opportunities and dealing effectively with threats.

Drucker (1998) identifies seven sources of innovation. Leaders who understand these sources, and monitor them for opportunities to innovate, can increase the overall creative output of their organisations. This activity (and the sources themselves) bear close resemblances to scanning the external environment for change drivers, as with a PEST analysis.

1. Unexpected Occurrences
2. Incongruities
3. Process Needs
4. Industry and Market Changes
5. Demographic Changes
6. Changes in Perception
7. New Knowledge

Opportunities can only be exploited successfully if the organisation provides an environment which nurtures and guides creativity. Daft (2008) discusses several ways in which the leader can contribute to this type of environment. In order to guarantee that the innovation is beneficial, the leader must align individuals' interests with those of the organisation. This is achieved by communicating the organisation's overall strategy, and specifying goals. The leader can instil creative values (such as exploration and risk-taking)
by providing a context where these can be acted on without adverse consequences. Leaders can encourage others to experiment and think outside their normal role by allowing time for 'unofficial activity'.

In addition to providing a conducive environment, the leader can improve overall creativity by working directly with those who are innovating. Over the long-term, these techniques will also build the organisation's capacity to innovate. Techniques outlined by Daft (2008) that draw out creativity from people include:

Brainstorming—The main benefits of brainstorming are access to a wide range of perspectives and immediate face-to-face feedback.
Lateral thinking—This technique involves unconventional approaches to the problem, and may produce genuinely original answers.
Free-association activities—Word association and riddles are two examples of activities that train people to allow their subconscious mind to suggest creative answers.

Creating and leading a learning organisation

An innovative organisation will provide a superior response to change drivers through its ability to generate creative solutions. Learning organisations, by contrast, do more than respond to change drivers. They instigate ongoing change and sit more within a framework of continuous improvement.

Garvin (1993) presents learning organisations in terms that help us to understand how they should operate, and how one might be established. Garvin's explanation of the learning organisation is organised around three issues, all of which are critical to implementation: meaning, management and measurement.

Meaning: Garvin (1993: 80) defines a learning organisation as "an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights". We can see in this definition that learning organisations are founded on innovation.

Management: Garvin (1993) identifies five 'building blocks' for managing the productive operation of a learning organisation. These include; Systematic Problem Solving, Experimentation, Learning from Past Experience, Learning from Others, Transferring Knowledge.

Measurement: The final issue relevant to creating and leading a learning organisation is to measure its performance. Garvin (1993: 89) reminds us that 'if you can't measure it, you can't manage it'. In the context of learning organisations, this means measuring the learning in the same way as performance against any other organisational target.