CURRENT CHANGE AT XXXXX 1 Current Change at XXXXX Star Student Westcliff University BUS 735: Leading Change David Johnson, Ph.D. Month Date, Year CURRENT CHANGE AT XXXXX 2 Current Change at XXXXX Introduce material here… Remember, each case study must have the heading listed below and must be answered according to instructions; each heading is worth a percentage of each case grade. This is how I want your paper turned in. Your audience is someone like your roommate – intelligent, educated, but has NO IDEA what the case study is about. You will be addressing the scenario: “Identify a current change in an organization with which you are familiar. Alternatively, identify a current public issue about which “something must be done.” In relation to the change issue, think about what sense-making changes might need to be enacted and how you would go about doing this?” This is generally one paragraph. The easiest way to explain this section is to think of it like an abstract or introduction. This section, if written properly, can actually act as the abstract for this paper. It will, in a sense, set up the rest of the paper, which is the review of the case, analysis, recommendations, and the summary and conclusions sections. Remember that you got this information from the textbook. Consequently, you should cite Palmer et al. (2016). You should NOT write “According to the textbook” as your reader has NO IDEA who or what is that. If there is a second paragraph, it will look like this. The paper should be written in third person narrative. I do not want to see you writing in the first person. One other note: a business is an “it,” not a “they.” Remember that when you use pronouns describing a business. Assessing Change Elements In this section, you will briefly describe what you will cover. It should only take a few sentences. Describe the eight elements of the sense-making framework suggested by Helms Mills and as set out in Table 9.7. This will set up the following headings and how they apply to your case. CURRENT CHANGE AT XXXXX 3 Identify Construction Note: I do not want to see heading written as questions or you asking questions within the paper. Social Sense-Making Note: I do not want to see heading written as questions or you asking questions within the paper. Extraction Cues Note: I do not want to see heading written as questions or you asking questions within the paper. Ongoing Sense-Making Note: I do not want to see heading written as questions or you asking questions within the paper. Retrospection Note: I do not want to see heading written as questions or you asking questions within the paper. Plausibility Note: I do not want to see heading written as questions or you asking questions within the paper. Enactment Note: I do not want to see heading written as questions or you asking questions within the paper. Projection CURRENT CHANGE AT XXXXX 4 Note: I do not want to see heading written as questions or you asking questions within the paper. The Ones With the Most and Least Control Were XXXXX and XXXXX This section will answer the questions, “What ones did you feel you might have the most/least control over? Why? What implications does this have for adopting a sense-making approach to organizational change?” Also, you must provide at least eight scholarly references and cite the references in the form of in-text citations in the body of the paper (i.e., the textbook and eight additional peerreviewed sources). Again, when you reference material in your paper, you must also have in-text citations in the body of the paper for each reference. Remember, EVERY citation must correspond to a reference and EVERY reference must correspond to a citation. You CANNOT have one without the other. Summary and Conclusions This section will tie together all sources used for this case study, conclusions drawn from the reading and any inconsistencies. This section will generally be one to two paragraphs. Notice the paper has a continuous flow; there are no page breaks between sections (i.e., do not add extra gaps). The only page breaks occur between the title page and the introduction and the summary/conclusions and the reference page. All references for the case study must appear on a separate page. (See the following page for an example). CURRENT CHANGE AT XXXXX 5 References This section will reference all original work cited throughout the paper. The heading should appear at the top of the page and all reference material should be listed below in alphabetical order by first last name; also, the title for books is always in italic format and in sentence form. In contrast to book references, the title for articles is in sentence format, not in italic, but the name of the publisher is in italic. See examples below: Baldwin, T., Bommer, B., & Rubin, R. (2013). Managing organizational behavior: What great managers know and do (2nd ed.). McGraw-Hill Barzani, R. S. (2014). Studying the effects of business strategies on the organization’s performance in regards to human resources’ policies at the social security insurance companies based. International Journal of Academic Research in Business and Social Sciences, 4(5), 549-561. Chopra, M., Munro, S., Lavis, J. N., Vist, G., & Bennett, S. (2008). Effects of policy options for human resources for health: An analysis of systematic reviews. The Lancet, 371(9613), 668-74. Holt, D. (2016). Branding in the age of social media. Harvard Business Review (online). McShane, S., & Von Glinow, M. (2013). Organizational behavior (6th ed.). McGraw-Hill Palmer, I., Dunford, R., & Akin, G. (2016). Managing organizational change: A multiple perspectives approach (3rd ed.). McGraw-Hill You must also provide a reference for all sources used to support the case study. (Note: As a minimum, the textbook and eight additional peer-reviewed sources shall be used and referenced.) Managing Organizational Change A Multiple Perspectives Approach Third Edition Ian Palmer Richard Dunford David A. Buchanan MANAGING ORGANIZATIONAL CHANGE: A MULTIPLE PERSPECTIVES APPROACH, THIRD EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2017 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2009 and 2006. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 DOC/DOC 1 0 9 8 7 6 ISBN 978-0-07-353053-6 MHID 0-07-353053-0 Senior Vice President, Products & Markets: Kurt L. 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Library of Congress Cataloging-in-Publication Data Palmer, Ian, 1957Managing organizational change : a multiple perspectives approach / Ian Palmer, Richard Dunford, David A. Buchanan. — Third Edition. p. cm. Revised edition of Managing organizational change, 2009. Includes bibliographical references and index. ISBN 978-0-07-353053-6 (alk. paper) 1. Organizational change. 2. Organizational change–Management. I. Dunford, Richard. II. Buchanan, David A. III. Title. HD58.8.P347 2016 658.4’06–dc23 2015033668 The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. DEDICATIONS From Ian To Dianne, Matthew, and Michelle From Richard To Jill, Nick, and Ally From David To Lesley with love—and thanks This book is also dedicated to the memory of Gib Akin, our co-author from 2005 to 2014. Acknowledgements A number of people have contributed to this edition, and we owe them all a debt of gratitude, including Jonathan Bamber, Lesley Buchanan, Daloni Carlile, Mimi Clarke, and Alastair McLellan. In addition, we would like to thank our McGraw-Hill Education team, including Michael Ablassmeir, Director, Laura Hurst Spell, Senior Product Developer; Jeni McAtee, Evan Roberts, Karen Jozefowicz, Content Project Managers; Gunjan Chandola (Lumina), Full-Service Content Project Manager; and DeAnna Dausener, Content Licensing Specialist. We would also like to thank the second edition reviewers for their helpful feedback: Diane Bandow, Troy University; Cynthia Bean, University of South Florida– St. Petersburg; Bradford R. Frazier, Pfeiffer University; Dominie Garcia, San Jose State University; Selina Griswold, University of Toledo; Mark Hannan, George Washington University; Christopher S. Howard, Pfeiffer University; Jim Kerner, Athens State University; Catherine Marsh, North Park University; Patricia A. Matuszek, Troy University; Ranjna Patel, Bethune Cookman University; Mary Sass, Western Washington University; Dennis Self, Troy University; Patricia Scescke, National Louis University. iv Brief contents Preface PART 1 PART 2 Groundwork: Understanding and Diagnosing Change 1 Managing Change: Stories and Paradoxes 3 2 Images of Change Management 31 3 Why Change? Contemporary Pressures and Drivers 61 4 What to Change? A Diagnostic Approach 101 Implementation: The Substance and Process of Change 1 137 5 What Changes—and What Doesn’t? 139 6 Vision and the Direction of Change 171 7 Change Communication Strategies 205 8 Resistance to Change 249 9 Organization Development and Sense-Making Approaches 279 10 PART 3 ix Change Management, Processual, and Contingency Approaches 315 Running Threads: Sustainability, and the Effective Change Manager 353 11 Sustaining Change versus Initiative Decay 355 12 The Effective Change Manager: What Does It Take? 385 Name Index Subject Index 423 433 v Contents Preface ix Part 1 Groundwork: Understanding and Diagnosing Change 1 1 Managing Change: Stories and Paradoxes 3 Learning objectives 3 Stories About Change: What Can We Learn? 4 The Story of Beth Israel Deaconess Medical Center 5 The Story of Sears Holdings 8 The Story of J. C. Penney 10 Tension and Paradox: The State of the Art 14 Assessing Depth of Change 18 What’s Coming Up: A Road Map 19 Change Diagnostic: The Beth Israel Story 21 Change Diagnostic: The Sears Holdings Story 23 Change Diagnostic: The J. C. Penney Story 24 Exercise 1.1: Writing Your Own Story of Change 26 Additional Reading 27 Roundup 27 References 28 2 Images of Change Management 31 Learning objectives 31 What’s in a Name: Change Agents, Managers, or Leaders? 32 Images, Mental Models, Frames, Perspectives 33 The Six-Images Framework 34 Six Images of Change Management 37 Using the Six-Images Framework 46 vi Self-Assessment: What Is Your Image of Managing Change? 49 Self-Assessment: Scoring 51 Exercise 2.1: Assessing Change Managers’ Images 52 Exercise 2.2: The Turnaround Story at Leonard Cheshire 53 Additional Reading 55 Roundup 56 References 57 3 Why Change? Contemporary Pressures and Drivers 61 Learning objectives 61 Environmental Pressures for Change 62 Why Do Organizations Not Change in Response to Environmental Pressures? 79 Why Do Organizations Not Change after Crises? 82 Internal Organizational Change Drivers 85 Exercise 3.1: Top Team Role Play 91 Exercise 3.2: Case Analysis: The Sunderland City Story 91 Exercise 3.3: The Reputation Trap: Can You Escape? 92 Additional Reading 93 Roundup 94 References 96 4 What to Change? A Diagnostic Approach 101 Learning objectives 101 Organizational Models 102 Organization Strategy and Change 108 Diagnosing Readiness for Change 117 Built-to-Change 124 Exercise 4.1: The Capital One Financial Story 125 Contents vii Exercise 4.2: Scenario Planning 127 Exercise 4.3: Readiness for Change Analysis 128 Additional Reading 130 Roundup 131 References 134 Exercise 6.3: The Role of Vision at Mentor Graphics 197 Additional Reading 198 Roundup 199 References 201 Part 2 Implementation: The Substance and Process of Change 137 5 What Changes—and What Doesn’t? 139 Learning objectives 139 What Changes? 140 Innovation 146 Organizational Culture 150 Technology 155 Exercise 5.1: The Nampak Story 161 Exercise 5.2: Organizational Culture Assessment 162 Exercise 5.3: How Will the Digital Revolution Affect Your Organization? 163 Additional Reading 163 Roundup 164 References 166 6 Vision and the Direction of Change 171 Learning objectives 171 Vision: Fundamental or Fad? 172 The Characteristics of Effective Visions How Context Affects Vision 180 How Visions Are Developed 181 Why Visions Fail 187 Linking Vision to Change: Three Debates 189 Exercise 6.1: Interviewing Change Recipients 197 Exercise 6.2: Analyze Your Own Organization’s Vision 197 174 7 Change Communication Strategies 205 Learning objectives 205 The Change Communication Process 206 Gender, Power, and Emotion 211 Language Matters: The Power of Conversation 215 Change Communication Strategies 222 Contingency Approaches to Change Communication 228 Communication Channels and the Role of Social Media 232 Exercise 7.1: Listen to Who’s Talking 238 Exercise 7.2: How Defensive Are You? 239 Exercise 7.3: Social Media at the Museum 240 Additional Reading 241 Roundup 242 References 244 8 Resistance to Change 249 Learning objectives 249 WIIFM, WAMI, and the Dimensions of Resistance 250 Benefits 251 Causes 253 Symptoms 260 Managers as Resisters 261 Managing Resistance 263 Exercise 8.1: Diagnosing and Acting 270 Exercise 8.2: Jack’s Dilemma 270 Exercise 8.3: Moneyball 271 Additional Reading 272 Roundup 272 References 274 viii Contents 9 Organization Development and Sense-Making Approaches 279 Learning objectives 279 Alternative Approaches to Managing Change 280 Organization Development (OD) 280 Appreciative Inquiry (AI) 291 Positive Organizational Scholarship (POS) 293 Dialogic Organizational Development 295 Sense-Making 298 Exercise 9.1: Reports from the Front Line 304 Exercise 9.2: Designing a Large-Scale Change Intervention 304 Exercise 9.3: Making Sense of Sense-Making 304 Exercise 9.4: Interpreting the Interpreter: Change at Target 305 Exercise 9.5: Change at DuPont 306 Additional Reading 308 Roundup 308 References 310 10 Change Management, Processual, and Contingency Approaches 315 Learning objectives 315 Alternative Approaches to Managing Change 316 Why Change Fails 317 Change by Checklist 319 Stage Models of Change Management 325 Process Perspectives on Change 331 Contingency Approaches to Change Management 335 Exercise 10.1: Develop Your Own Change Model 341 Exercise 10.2: The British Airways Swipe Card Debacle 342 Exercise 10.3: The Italian Job 344 Additional Reading 346 Roundup 346 References 349 Part 3 Running Threads: Sustainability, and the Effective Change Manager 353 11 Sustaining Change versus Initiative Decay 355 Learning objectives 355 Initiative Decay and Improvement Evaporation 356 Praiseworthy and Blameworthy Failures 359 Actions to Sustain Change 362 Words of Warning 369 Exercise 11.1: A Balanced Set of Measures 373 Exercise 11.2: Treating Initiative Decay 373 Exercise 11.3: The Challenger and Columbia Shuttle Disasters 374 Additional Reading 379 Roundup 380 References 382 12 The Effective Change Manager: What Does It Take? 385 Learning objectives 385 Change Managers: Who Are They? 386 Change Managers: What Kind of Role Is This? 394 Change Management Competencies 397 Political Skill and the Change Manager 403 Developing Change Management Expertise 410 Exercise 12.1: Networking—How Good Are You? 412 Exercise 12.2: How Resilient Are You? 413 Exercise 12.3: How Political Is Your Organization? 415 Additional Reading 416 Roundup 417 References 419 Name Index 423 Subject Index 433 Preface Since the previous edition of this book published in 2009, the organizational world has changed dramatically—the global financial crisis, fresh geopolitical tensions, environmental concerns, greater focus on corporate social responsibility, economic uncertainties, emerging new markets, dramatic technological developments, demographic shifts, changing consumer tastes and expectations. Add to that mix the growing significance of social media, where positive and critical views of organizations and their products and services can be shared instantly and globally with large numbers of people. From a management perspective, it feels as though the drivers for organizational change are now more numerous, and that the pace of change has also increased; more pressure, more change, faster change. While the pace of change may only appear to have quickened, failure to respond to those pressures, and in some cases failure to respond quickly enough, can have significant individual and corporate consequences. The personal and organizational stakes appear to have increased. The management of organizational change thus remains a topic of strategic importance for most sectors, public and private. Current conditions have, if anything, increased the importance of this area of management responsibility. This new edition, therefore, is timely with regard to updating previous content, while introducing new and emerging trends, developments, themes, debates, and practices. In the light of this assessment, we believe that the multiple perspectives approach is particularly valuable, recognizing the variety of ways in which change can be progressed, and reinforcing the need for a tailored and creative approach to fit different contexts. Our images of how organizational change should be managed affect the approaches that we take to understanding and managing change. Adopting different images and perspectives helps to open up new and more innovative ways of approaching the change management process. We hope that this approach will help to guide and to inspire others in pursuit of their own responsibilities for managing organizational change. This text is aimed at two main readers. The first is an experienced practicing manager enrolled in an MBA or a similar master’s degree program, or taking part in a management development course that includes a module on organizational change management. The second is a senior undergraduate, who may have less practical experience, but who will probably have encountered organizational change through temporary work assignments, or indirectly through family and friends. Our senior undergraduate is also likely to be planning a management career, or to be heading for a professional role that will inevitably involve management—and change management—responsibilities. Given the needs and interests of both types of readers, we have sought to present an appropriate blend of research and theory on the one hand, and practical management application on the other. Instructors who have used our previous edition will find many familiar features in this update. The chapter structure and sequence of the book remain much the same, with some minor adjustments to accommodate new material. The overall argument is again underpinned by the observation that the management of organizational change is in part a rational or technical task, and is also a creative activity, with the need to design novel strategies and processes ix x Preface that are consistent with the needs of unique local conditions. We hope that readers will find the writing style and presentation clear and engaging. We have also maintained the breadth of coverage of the different traditions and perspectives that contribute to the theory and practice of managing organizational change, with international examples where appropriate. The development of this new edition has introduced new content and new pedagogical features. The new content for this edition includes the following: Depth of change: Change can be categorized and understood with regard to how deeply it penetrates an organization. A “depth of change” model is explained, using a “shallow to transformational” scale, forming the basis for discussion and analysis at various points in the text (chapters 1, 4, and 12). New tensions and debates: A new section explores contemporary dilemmas in organizational change management. One of these concerns striking the balance between large-scale transformational change (which can be disruptive) and “sweating the small stuff” (which can create a platform for further changes). A second concerns pace, with some commentators advising how to speed up change, while others warn of the dangers of “the acceleration trap” (chapter 1). Change managers or change leaders: Some commentators claim this is an important distinction, while others argue that this is a words game. Can we resolve this debate (chapter 2)? Post-crisis change: Recommendations for change from investigations into accidents, misconduct, and catastrophes are often not implemented. We explore why this should be the case—in conditions where it might be presumed that change would be welcome and straightforward (chapter 3). We also consider briefly the problems and practice of communication during and after crises (chapter 7). Change in a recession: Is change more challenging when economic conditions are difficult? A new section argues that change may be more straightforward during a recession (chapter 3). Innovation: We explore how change is driven by the proactive development, adoption, and diffusion of product and operational innovations, along with the distinction between sustaining and disruptive innovations, and the nature and development of innovative organization cultures (chapter 4). Built to change: We explore the organizational capabilities that contribute to change, adaptation, responsiveness, and agility, considering mechanistic and organic management systems, segmentalist and integrative cultures, and the concept of the “built-tochange” organization (chapter 4). Change communication strategies: This chapter has been thoroughly updated, with the emphasis on change communication, exploring the characteristics of effective change communication strategies, the potential impact and applications of social media as corporate communications tools, and the “communication escalator” (chapter 7). Middle management blockers: The traditional stereotype has middle managers subverting top team initiatives. Recent research suggests that this image is wrong, and that middle management are often the source of creative strategic ideas as well as the “engine room” for delivery (chapters 8 and 12). Preface xi Organization development and sense-making approaches: As in the previous edition, recent developments in organization development, appreciative inquiry, positive organizational scholarship, and dialogic organization development are explored (chapter 9). Contingency and processual approaches: Covered in the last edition, recent developments have been incorporated to update these sections, reflecting their influence on theory and practice (chapter 10). Praiseworthy and blameworthy failures: The section on “recognizing productive failures” has been updated with recent commentary suggesting that some failures should be rewarded (chapter 11). The effective change manager: What does it take? This new chapter explores the capabilities of change managers, considering competency frameworks, interpersonal communication processes and skills, issue-selling tactics, and the need for the change manager to be politically skilled (chapter 12). The pedagogical features in the text include: • learning outcomes identified at the beginning of each chapter; • fewer, and shorter, “high-impact” case studies of organizational change and other diagnostic and self-assessment exercises for classroom use; • movie recommendations, identifying clips that illustrate theoretical and practical dimensions of organizational change management; • a short “roundup” section at the end of each chapter, with reflections for the practicing change manager, and summarizing the key learning points (linked to the learning outcomes); • a small number of suggestions for further reading at the end of each chapter. Since this book was first published, we have continued our conversations with managers who have been using it as part of their teaching, consulting, and other organizational change activities. In so many of these conversations, it was reassuring to hear how the multiple perspectives framework that underpins this book struck the right chord with them, opening up new, innovative, and different ways of seeing, thinking, conceptualizing, and practicing organizational change. We hope that this new and updated third edition will continue to inspire various change journeys, and we look forward to more conversations along the way. Online Resources Instructors: If you are looking for teaching materials in this subject area, such as case studies, discussion guides, organizational diagnostics, self-assessments, company websites, or audio-visual materials (feature films, YouTube clips) to use in lectures and tutorials, then go to McGraw-Hill Connect: Continually evolving, McGraw-Hill Connect has been redesigned to provide the only true adaptive learning experience delivered within a simple and easy-to-navigate environment, placing students at the very center. xii Preface • Performance Analytics – Now available for both instructors and students, easy-to-decipher data illuminates course performance. Students always know how they are doing in class, while instructors can view student and section performance at a glance. • Personalized Learning – Squeezing the most out of study time, the adaptive engine within Connect creates a highly personalized learning path for each student by identifying areas of weakness and providing learning resources to assist in the moment of need. This seamless integration of reading, practice, and assessment ensures that the focus is on the most important content for that individual. The Connect Management Instructor Library is your repository for additional resources to improve student engagement in and out of class. You can select and use any asset that enhances your lecture. The Connect Instructor Library includes: • Instructor Manual • PowerPoint files • Test Bank Students: If you are looking for additional materials to improve your understanding of this subject and improve your grades, go to McGraw-Hill Connect: Manager’s Hot Seat: Now instructors can put students in the hot seat with access to an interactive program. Students watch real managers apply their years of experience when confronting unscripted issues. As the scenario unfolds, questions about how the manager is handling the situation pop up, forcing the student to make decisions along with the manager. At the end of the scenario, students watch a post-interview with the manager and view how their responses matched up to the manager’s decisions. The Manager’s Hot Seat videos are now available as assignments in Connect. LearnSmart: LearnSmart, the most widely used adaptive learning resource, is proven to improve grades. By focusing students on the most important information each student needs to learn, LearnSmart personalizes the learning experience so they can study as efficiently as possible. SmartBook: An extension of LearnSmart, SmartBook is an adaptive ebook that helps students focus their study time more effectively. As students read, SmartBook assesses comprehension and dynamically highlights where they need to study more. PART 1 Groundwork: Understanding and Diagnosing Change CHAPTER 1 Managing Change: Stories and Paradoxes CHAPTER 2 Images of Change Management CHAPTER 3 Why Change? Contemporary Drivers and Pressures CHAPTER 4 What to Change? A Diagnostic Approach The central theme of the four chapters in Part 1 is groundwork. How are we to approach an understanding of organizational change? With what approaches, perspectives, or images of change management should we be working? What drivers and pressures produce organizational change? What diagnostic tools can we use in order to decide what aspects of the organization and its operations will need to change or will benefit from change? 1 Chapter 1 Managing Change: Stories and Paradoxes Learning objectives By the end of this chapter you should be able to: Understand how stories of change can contribute to our knowledge of theory and practice. LO 1.2 Explain why managing organizational change is both a creative and a rational process. LO 1.3 Identify the main tensions and paradoxes in managing organizational change. LO 1.4 Evaluate the strengths and limitations of our current understanding of this field. LO 1.1 3 4 Chapter 1 Managing Change: Stories and Paradoxes LO 1.1 LO 1.2 Stories About Change: What Can We Learn? Changing organizations is as messy as it is exhilarating, as frustrating as it is satisfying, as muddling-through and creative a process as it is a rational one. This book recognizes these tensions and how they affect those who are involved in managing organizational change. Rather than pretend that these tensions do not exist, or that they are unimportant, we confront them head on, considering how they can be addressed and managed, recognizing the constraints that they can impose. We also want to demonstrate how the images that we hold about the way in which change should be managed, and of the role of change agents, affect how we approach change and the outcomes we think are possible. To begin this exploration, we present three stories of recent changes. The first concerns the turnaround of the Beth Israel Deaconess Medical Center in Boston. The second concerns the new organizational model introduced at Sears Holdings in an attempt to restore falling sales and profits. The third concerns innovative efforts to restore falling sales and a fading brand at J. C. Penney, a retailer. These stories address different problems, but they display many common issues concerning the management of change. Each of these accounts comes with a set of assessment questions. We would like to ask you to think through the answers to those questions for yourself, or in a class discussion. Our aim is to demonstrate that stories about change can be one valuable source of practical lessons, as well as helping to contribute to our general understanding of change. These stories are of course distinctive, one-off. How can they contribute to knowledge and practice in general, in other sectors and organizations? Stories are one of the main ways of knowing, communicating, and making sense of the world (Czarniawska, 1998; Pentland, 1999; Dawson and Andriopoulos, 2014). Our stories have actors: change leaders, other managers, staff, customers. They take decisions that lead to actions that trigger responses: acceptance, resistance, departure. There is a plot: a serious problem that could be solved by organizational change. There are consequences: to what extent did the change solve the problem, and were other problems created along the way? The sequence of events unfolds in a typical manner: … and then … and then. This tells us why the outcomes were reached. Our narratives are not just descriptions of a change process, of what happened. They also provide us with explanations. These are process narratives. Process narratives have several advantages over more traditional (quantitative, statistical) research methods (Mohr, 1982; Poole et al., 2000; Van de Ven and Poole, 2005): r r r r they tell us about the context, give us a sense of the whole, a broader frame of reference; complexity can be expressed within a coherent sequence of events; the nature and significance of the causal factors acting on events are exposed; the narrative patterns transcend individual cases. This approach is based on what is called narrative knowing (Langley, 2009). Because stories can reveal the mechanisms or logics behind a sequence of events, they are process theories. (We will explore process perspectives on change in chapter 10.) What combinations of factors drive, slow down, accelerate, block the change process? The three stories Chapter 1 Managing Change: Stories and Paradoxes 5 that follow explain the relative success of the organizational changes at Beth Israel, Sears, and J. C. Penney. We will ask you to consider the extent to which those explanations, each based on a single unique case narrative, can be applied to managing organizational change in general, in other settings. Although our three stories are quite different from each other, they have common features, with regard to the issues and processes that shape the outcomes of organizational change. Despite the differences, they demonstrate common tensions and the choices that are involved in the change process. When you have made your own assessments, in response to the questions that precede each story, you will find our suggested answers in the Roundup section at the end of the chapter. LO 1.1 The Story of Beth Israel Deaconess Medical Center Issues to Consider as You Read This Story 1. 2. 3. 4. Identify five factors that explain the success of this corporate turnaround. How would you describe Paul Levy’s role and contributions to this turnaround? What insights does this story have to offer concerning the role of the change leader? What lessons about managing organizational change can we take from this experience and apply to other organizations, in healthcare and in other sectors? Or, are the lessons unique to Beth Israel Deaconess Medical Center? The Setting This is the story of a corporate turnaround, rescuing the organization from financial disaster and restoring its reputation, competitiveness, and profitability. Based in Boston, Massachusetts, the Beth Israel Deaconess Medical Center (BID) was created in 1996 by the merger of two hospitals. The business case for the merger was that the larger organization (over 600 beds) would be better able to compete with, for example, the Massachusetts General Hospital and the Brigham Women’s Hospital. The two merged hospitals had different cultures. Beth Israel had a casual management style that encouraged professional autonomy and creativity. Deaconess Hospital was known for its rules-based, top-down management. Staff were loyal to their own organization. After the merger, the Beth Israel culture dominated, and many Deaconess staff, especially nurses, left to join the competition. The Problems By 2002, BID was losing $100 million a year and faced “financial meltdown.” There were problems with the quality and safety of care, with low staff morale, and with poor relationships between clinical staff and management. The media attention was damaging BID’s reputation. The Solutions External management consultants recommended drastic measures to turn around the hospital’s finances, and Paul Levy was appointed chief executive officer of BID in 2002. Levy had no healthcare background and little knowledge of hospitals. He felt that gave him an 6 Chapter 1 Managing Change: Stories and Paradoxes advantage, as he was a “straight talker” and could act as an “honest broker.” But staff were skeptical at first. Levy’s turnaround strategy was based on two themes: transparency and commitment to quality. His first action was to share with all staff the full scale of the financial difficulties, to create “a burning platform,” from which escape would only be possible by making radical changes. His second approach was to signal absolute commitment to the continuous improvement of quality, in order to build trust and to establish a sense of common purpose. Levy described his management style: Perhaps I had an overly developed sense of confidence, but my management approach is that people want to do well and want to do good and I create an appropriate environment. I trust people. When people make mistakes it isn’t incompetence, it’s insufficient training or the wrong environment. What I’ve learned is that my management style can work. Phase 1: With the hospital “bleeding money,” urgent action was necessary. Levy accepted some of the management consultants’ recommendations, and several hundred jobs were lost, in an attempt to restore financial balance. He refused to reduce nursing levels, but the financial crisis was resolved. Phase 2: Medical staff were tired of poor relationships with management. In 2003, Levy hired Michael Epstein, a doctor, as chief operating officer. Epstein met with each clinical department to win their support for the hospital’s nonclinical objectives and to break down silo working. Kathleen Murray, who had joined BID in 2002, was director of performance assessment and regulatory compliance. The hospital had no annual operating plans, and she set out to correct this, starting with two departments that had volunteered to take part in phase 1, orthopaedics and pancreatic surgery. Other departments soon joined in. Operating plans had four goals, addressing quality and safety, patient satisfaction, finance, and staff and referrer satisfaction. One aim was to make staff proud of the outcomes and create a sense of achievement. Although the performance of doctors would now be closely monitored, the introduction of operating plans was seen as a major turning point. Phase 3: To help address the view that medical errors were inevitable, Levy appointed Mark Zeidel as chief of medicine. Zeidel introduced an initiative that cut “central line infection” rates, reducing costs as well as harm to patients and providing the motivation for more improvements. The board of directors were not at first convinced that performance data should be published, but Levy was persuasive, and he put the information on his public blog, which he started in 2006, and which became popular with staff, the public, and the media, with over 10,000 visitors a day. Levy explained: The transparency website is the engine of our work. People like to see how they compare with others, they like to see improvements. Transparency is also important for clinical leaders and our external audience of patients and insurers. We receive encouraging feedback from patients. We’ve also managed to avoid a major controversy with the media despite our openness. Transparency’s major societal and strategic imperative is to provide creative tension within hospitals so that they hold themselves accountable. This accountability is what will drive doctors, nurses and administrators to seek constant improvements in the quality and safety of patient care. Chapter 1 Managing Change: Stories and Paradoxes 7 Other performance data were published, for the hospital and for individual departments. This included measures to assess whether care was evidence-based, effective, safe, patient-centered, timely, efficient, and equitable. Progress in meeting priorities for quality and safety could be tracked on the hospital’s website, and the data were used by staff to drive quality improvements. The board also set tough goals to eliminate preventable harm and increase patient satisfaction. Every year, staff were invited to summarize their improvement work in poster sessions, featuring the work of 95 process improvement teams from across the hospital. Levy hired staff with expertise in lean methods. Previously an option, training in quality and safety became mandatory for trainee doctors, who had to take part in improvement projects. The culture was collaborative, and nurses had the respect of doctors. Patients often chose BID for the quality of nursing care. The departmental quality improvement directors met twice a month to share experiences. Department meetings routinely discussed adverse events. A patient care committee fulfilled a statutory requirement for board oversight of quality and safety. The office of decision support collected data on complication rates, infection rates, department-specific quality measures, and financial goals. A senior nurse said: “We felt a sense of ownership with issues of quality. We have dashboards up in the units to see how we are doing. Staff know what the annual operating goals are, as they are actively involved in setting them and integrating them into their work.” The Outcomes By 2010, BID was one of the leading academic health centers in the United States, with 6,000 employees and state-of-the-art clinical care, research, and teaching. Competing effectively with other major healthcare organizations, BID was generating annual revenues of over $1.2 billion. Postscript Paul Levy resigned in January 2011. He explained his decision in a letter to the board of directors, making this available to staff and the public on his blog. The letter included the following remarks: I have been coming to a conclusion over the last several months, perhaps prompted by reaching my 60th birthday, which is often a time for checking in and deciding on the next stage of life. I realized that my own place here at BID had run its course. While I remain strongly committed to the fight for patient quality and safety, worker-led process improvement, and transparency, our organization needs a fresh perspective to reach new heights in these arenas. Likewise, for me personally, while it has been nine great years working with outstanding people, that is longer than I have spent in any one job, and I need some new challenges. Story Sources Abbasi, K. (2010) Improvement in Practice: Beth Israel Deaconess Case Study. London: The Health Foundation. 8 Chapter 1 Managing Change: Stories and Paradoxes LO 1.1 The Story of Sears Holdings Issues to Consider as You Read This Story 1. How would you describe Eddie Lampert’s leadership style? 2. How would you assess his approach to implementing major organizational change—in this case, restructuring the whole company with a new organizational model? 3. On balance, would you assess his organizational model as having been a success, or not? 4. What lessons about managing organizational change can we take from this experience and apply to other organizations, in this or other sectors? The Setting Sears Holdings Corporation was a specialty retailer, formed in 2005 by the merger of Kmart and Sears Roebuck. The merger was the idea of Eddie Lampert, a billionaire hedge fund manager who owned 55 percent of the new company and who became chairman. Based in Illinois, the company operated in the United States and Canada, with 274,000 employees, 4,000 retail stores, and annual revenues (2013) of $40 billion. Sears and Kmart stores sold home merchandise, clothing, and automotive products and services. The merged company was successful at first, due to aggressive cost cutting. The Problem By 2007, two years after the merger, profits were down by 45 percent. The Chairman’s Solution Lampert decided to restructure the company. Sears was organized like a classic retailer. Department heads ran their own product lines, but they all worked for the same merchandising and marketing leaders, with the same financial goals. The new model ran Sears like a hedge fund portfolio with autonomous businesses competing for resources. This “internal market” would promote efficiency and improve corporate performance. At first, the new structure had around 30 business units, including product divisions, support functions, and brands, along with units focusing on e-commerce and real estate. By 2009, there were over 40 divisions. Each division had its own president, chief marketing officer, board of directors, profit and loss statement, and strategy that had to be approved by Lampert’s executive committee. With all those positions to fill at the head of each unit, executives jostled for the roles, each eager to run his or her own multibillion-dollar business. The new model was called SOAR: Sears Holdings Organization, Actions, and Responsibilities. When the reorganization was announced in January 2008, the company’s share price rose 12 percent. Most retail companies prefer integrated structures, in which different divisions can be compelled to make sacrifices, such as discounting goods, to attract more shoppers. Lampert’s colleagues argued that his new approach would create rival factions. Lampert disagreed. He believed that decentralized structures, although they might appear “messy,” were more effective, and that they produced better information. This would give him access to better data, enabling him to assess more effectively the individual components of the company and its assets. Lampert also argued that SOAR made it easier to divest businesses and open new ones, such as the online “Shop Your Way” division. Chapter 1 Managing Change: Stories and Paradoxes 9 Sears was an “early adopter” of online shopping. Lampert (who allegedly did all his own shopping online) wanted to grow this side of the business, and investment in the stores was cut back. He had innovative ideas: smartphone apps, netbooks in stores, a multiplayer game for employees. He set up a company social network, “Pebble,” which he joined under the pseudonym “Eli Wexler,” so that he could engage with employees. However, he criticized other people’s posts and argued with store associates. When staff worked out that Wexler was Lampert, unit managers began tracking how often their employees were “Pebbling.” One group organized Pebble conversations about random topics so that they would appear to be active users. The Chairman At the time of the merger, investors were confident that Lampert could turn the two companies around. One analyst described him as “lightning fast, razor-sharp smart, very direct.” Many of those who worked for him described him as brilliant (although he could overestimate his abilities). The son of a lawyer, it was rumored that he read corporate reports and finance textbooks in high school, before going to Yale University. He hated focus groups and was sensitive to jargon such as “vendor.” His brands chief once used the word “consumer” in a presentation. Lampert interrupted, with a lecture on why he should have used the word “customer” instead. He often argued with experienced retailers, but he had good relationships with managers who had finance and technology backgrounds. From 2008, Sears’ business unit heads had an annual personal videoconference with the chairman. They went to a conference room at the headquarters in Illinois, with some of Lampert’s senior aides, and waited while an assistant turned on the screen on the wall opposite the U-shaped table and Lampert appeared. Lampert ran these meetings from his homes in Greenwich, Connecticut; Aspen, Colorado; and subsequently Florida, earning him the nickname “The Wizard of Oz.” He visited the headquarters in person only twice a year, because he hated flying. While the unit head worked through the PowerPoint presentation, Lampert didn’t look up, but dealt with his emails, or studied a spreadsheet, until he heard something that he didn’t like—which would then lead to lengthy questioning. In 2012, he bought a family home in Miami Beach for $38 million and moved his hedge fund to Florida. Some industry analysts felt that Sears’ problems were exacerbated by Lampert’s “penny pinching” cost savings, which stifled investment in its stores. Instead of store improvements, Sears bought back stock and increased its online presence. In 2013, Lampert became chairman and chief executive, the company having gone through four other chief executives since the merger. The Outcomes Instead of improving performance, the new model encouraged the divisions to turn against each other. Lampert evaluated the divisions, and calculated executives’ bonuses, using a measure called “business operating profit” (BOP). The result was that individual business units focused exclusively on their own profitability, rather than on the welfare of the company. For example, the clothing division cut labor to save money, knowing that floor salesmen in other units would have to pick up the slack. Nobody wanted to sacrifice business operating profits to increase shopping traffic. The business was ravaged by infighting as the divisions—behaving in the words of one executive like “warring tribes”—battled 10 Chapter 1 Managing Change: Stories and Paradoxes for resources. Executives brought laptops with screen protectors to meetings so that their colleagues couldn’t see what they were doing. There was no collaboration, no cooperation. The Sears and Kmart brands suffered. Employees gave the new organization model a new name: SORE. The reorganization also meant that Sears had to hire and promote dozens of expensive chief financial officers and chief marketing officers. Many unit heads underpaid middle managers to compensate. As each division had its own board of directors, some presidents sat on five or six boards, which each met monthly. Top executives were constantly in meetings. The company posted a net loss of $170 million for the first quarter in 2011. In November, Sears discovered that rivals planned to open on Thanksgiving at midnight, and Sears executives knew that they should also open early. However, it wasn’t possible to get all the business unit heads to agree, and the stores opened as usual, the following morning. One vice president drove to the mall that evening and watched families flocking into rival stores. When Sears opened the next day, cars were already leaving the parking lot. That December, Sears announced the closure of over 100 stores. In February 2012, Sears announced the closure of its nine “The Great Indoors” stores. From 2005 to 2013, Sears’ sales fell from $49.1 billion to $39.9 billion, the stock value fell by 64 percent, and cash holdings hit a 10-year low. In May 2013, at the annual shareholders’ meeting, Lampert pointed to the growth in online sales and described a new app, “Member Assist,” that customers could use to send messages to store associates. The aim was “to bring online capabilities into the stores.” Three weeks later, Sears reported a first quarter loss of $279 million, and the share price fell sharply. The online business contributed 3 percent of total sales. Online sales were growing, however, through the “Shop Your Way” website. Lampert argued that this was the future of Sears, and he wanted to develop “Shop Your Way” into a hybrid of Amazon and Facebook. Story Sources Kimes, M. 2013. At Sears, Eddie Lampert’s warring divisions model adds to the troubles. Bloomberg Businessweek, July 11. at-sears-eddie-lamperts-warring-divisions-model-adds-to-the-troubles. LO 1.1 The Story of J. C. Penney Issues to Consider as You Read This Story 1. What aspects of Ron Johnson’s turnaround strategy were appropriate, praiseworthy? 2. What mistakes did Ron Johnson make? 3. What would you suggest he could have done differently? Chapter 1 Managing Change: Stories and Paradoxes 11 The Setting J. C. Penney Company, Inc. (known as JCPenney, or JCP for short) was one of America’s largest clothing and home furnishing retailers. An iconic brand, founded by James Cash Penney and William Henry McManus in 1913, the headquarters were in Plano, Texas. By 2014, with annual revenues of around $13 billion, and 159,000 employees, JCP operated 1,100 retail stores and a shopping website at JCP once had over 2,000 stores, back in 1973, but the 1974 recession led to closures. The company’s main customers were middle-income families, and female. JCP had a “promotional department store” pricing strategy with a confusing system of product discounts. There were around 600 promotions and coupon offers a year. Mike Ullman, chief executive since 2004, had grown sales with a strong private label program, with brands such as Sephora, St. John’s Bay clothing, MNG by Mango, and Liz Claiborne. Another 14 stores were opened in 2004, and the e-commerce business exceeded the $1 billion revenue mark in 2005. The Problems When the stock reached an all-time high of $86 in 2007, JCP was performing well. However, the recession in 2008 affected sales badly; core customers had mortgage and job security problems. Between 2006 and 2011, sales fell from $19.9 billion to $17 billion. JCP had one of the lowest annual sales per square foot for department stores (around $150). Macy’s and Kohl’s, the main competition, had sales per square foot of around $230. In 2011, the catalogue business, with nineteen outlet stores, was closed, along with seven other stores and two call centers. The New York Times accused JCP of “gaming” Google search results to increase the company’s ranking in searches, a practice called “spamdexing.” Google’s retaliation dramatically reduced JCP’s search visibility. In 2008, JCP struck a deal with Ralph Lauren to launch a new brand, American Living, sold only in their stores. But JCP was not allowed to use Ralph Lauren’s name or the Polo logo. The idea failed. Sales continued to fall. In 2011, 50 to 70 percent of all sales were discounted, based on a “high-low” pricing strategy. An item would be priced initially at, say, $100. Customers would see the product and like it, but not like the price. After six weeks, the price was marked down, say, to $50, and the goods started to sell. But those items had been sitting on a shelf doing nothing for over a month. The Solutions In 2010, two billionaire investors, Bill Ackman and Steven Roth, approached Ullman with an offer to buy large amounts of JCP stock. They felt that the company had potential. Ackman and Roth were invited to join the board, attending their first meeting in February 2011. Leaving that meeting, Ullman was involved in a serious car accident, suffered multiple injuries, and spent three months in a neck brace, making his existing health problems worse. The board wanted a replacement, and there were no internal candidates. Ullman suggested Ron Johnson, who was working for Steve Jobs at Apple. Johnson then met with Ackman and Roth to explore possibilities. Johnson said that he was concerned about the lack of innovation in department stores, and he brought a positive, “can do” approach more typical of Silicon Valley than retailing. In November 2011, Ron Johnson was appointed chief executive officer. JCP stock rose 17 percent on the announcement. Johnson had been responsible for setting up Apple’s 12 Chapter 1 Managing Change: Stories and Paradoxes highly profitable retail stores, and he had also been successful at another retailer, Target. In December, after one month in post, he presented to the board his plans to revive the company with a fundamentally new way of doing business. The board agreed. Johnson told a journalist, “I came in because they wanted to transform; it wasn’t just to compete or improve.” In a board update before leaving, Ullman noted that Johnson had not asked him any questions about how the business was currently running. Johnson moved quickly. First, he wanted to transform the culture. In February 2012, he installed a large transparent acrylic cube in the company headquarters. The cube was a version of the new company logo. Johnson told staff that he did not want to see the old logo anywhere in the building. For a week, staff threw “old Penney” items into the cube: T-shirts, mugs, stationery, pens, tote bags. Second, no more promotions. Why wait six weeks to mark an item down to the price at which it would sell? Why not sell at that price from the start? Johnson simplified the pricing structure with “everyday” prices, which were what used to be sale values; “monthly value,” for selected items; and “best price,” linked to paydays—the first and third Fridays of each month. The stores were tidier, with no messy clearance racks, and the customer relationship became “fair and square” (another slogan). Third, Johnson developed a “store within a store” strategy, with each store becoming a collection of dozens of separate “boutiques.” He wanted a higher percentage of younger and higher-priced brands such as Joe Fresh clothes, Martha Stewart home furnishings, Michael Graves Designs, Happy Chic, and furniture from the British designer Sir Terence Conran. These new boutiques, of course, were not interested in having their brands diluted by discount pricing. Traditionally, JCP got 50 percent of sales from its own brands, which were displayed by product (bath mats) rather than brand (Martha Stewart). When a director asked him when he was going to test his new approach, Johnson replied that he had made his decision relying, like Steve Jobs, on instinct. Hundreds of stores were to be redesigned by the end of 2012. JCP already sold Levi’s jeans, but Johnson wanted 700 Levi’s boutiques in the stores; building these boutiques cost JCP $120 million. Southpole, a clothing brand that appealed to black and Hispanic customers, was dropped. St. John’s Bay, a less fashionable women’s clothing brand generating $1 billion annual revenues, was dropped. The speed of these changes would be motivating and unifying, Johnson thought. He wanted to rebrand an old, stale company with a modern name and logo. Johnson was a charismatic and passionate presenter. He said that the changes would be painful and would take four years to complete. The board were awed by the scale of the transformation, but they did not challenge him. Johnson talked about the “six Ps”: product, place, presentation, price, promotion, personality. One analyst noted, “One ‘P’ that seems to be missing is people.” Employees were also excited about the developments, especially when Johnson threw them a lavish party, costing $3 million. Johnson wanted to make checkout simpler, with roving clerks taking payment on iPads. Millions were spent on equipping stores with Wi-Fi. He also wanted all items to have an RFID tag, but that proved to be too expensive. He also decided to separate the store buying group from the buying group, an approach used by Apple. However, this meant that there was no coordination between what was available online and what customers could find in the stores. Johnson was more concerned with “the look and feel” of the physical stores, and less support went to the website. Chapter 1 Managing Change: Stories and Paradoxes 13 Johnson hired his own new team of top executives, who distanced themselves from the existing staff; most of them refused to move to Dallas, flying there weekly instead. If you were not part of this new team, you were out of the loop. One director called the “old” staff DOPES: dumb old Penney’s employees. Veterans called the new team the Bad Apples. The new human resources director cancelled performance reviews as being too bureaucratic. This made it easier to fire people; managers did not have to consult performance data before making that decision. The new team recruited Ellen DeGeneres—a television celebrity and lesbian—to appear in JCP advertising. A conservative group, One Million Moms, threatened a boycott, claiming that, “DeGeneres is not a true representation of the type of families that shop at their store. The majority of J.C. Penney customers will be offended and chose to no longer shop there.” The relationship with DeGeneres was discontinued. Johnson introduced a new exchange policy; customers could return an item, without a receipt, and receive cash. This policy was immediately abused, and one popular item was returned so often that its sales turned negative. The plan to put Martha Stewart stores into JCP stalled when Macy’s sued, claiming breach of its own agreement with the home furnishings brand. The Outcomes The results published in February 2012 were poor. Revenues had fallen by $4.3 billion, making a $1 billion loss. The stock fell to $18, and Standard & Poor’s cut JCP’s debt rating to CCC+ (a long way from “triple A”). In April 2012, JCP laid off 13 percent of its office staff in Texas, closed one of its call centers, and also “retired” many managers, supervisors, and long-serving employees on the grounds that new working practices required less oversight. In May 2012, store sales were down 20 percent compared with the previous year. Johnson had projected a short-term drop in sales, but not by that much. He commented that, “I’m completely convinced that our transformation is on track,” leading to a 5.9 percent rise in the stock. In July 2012, a further 350 headquarters staff were laid off. By October 2012, online sales were almost 40 percent down over the year. It was estimated that the decision to separate the two buying groups had cost JCP around $500 million. During Johnson’s two-year tenure, the price of the JCP stock fell by almost 70 percent, and sales fell in 2012 by 25 percent, resulting in a net loss of $985 million. JCP had alienated its traditional customers, who were used to shopping for discounts, but had not attracted new ones, and 20,000 employees had lost their jobs. In March 2013, Steven Roth, who had backed Johnson’s appointment but who had now lost faith, sold over 40 percent of his JCP shares at a loss of $100 million. Bill Ackman resigned from the board in August, selling his shares at a loss of $470 million. In April 2013, the company chairman told Johnson that the board would be accepting his resignation; within a few weeks, all but one of the other senior staff hired by Johnson had also left. Mike Ullman was reinstated. He immediately restored the old promotional pricing model. In May, JCP ran an “apology ad,” with an earnest female voice admitting, “We learned a very simple thing, to listen to you.” A coincidence of timing, in June, Johnson’s renovated home departments opened in stores, selling Jonathan Adler lamps, Conran tables, and Pantone sheets. Too expensive for core customers, these departments failed and were withdrawn. However, traditional sales in stores started to grow slowly, and by November, Internet sales had increased by 25 percent on the previous year (Ullman had 14 Chapter 1 Managing Change: Stories and Paradoxes reintegrated the stores and online buyers). Sales of the private brand merchandise lines that had been restored also began to return to previous levels. The JCP brand had been damaged. Sales per square foot of shopping space had fallen steadily since 2010 as shoppers turned to Macy’s and Kohl’s. Macy’s sales per square foot had risen. With sales and profitability falling, in January 2014, JCP closed 33 underperforming stores (3 percent of the total), with 2,000 layoffs. This would reduce annual operating costs by $65 million, but the company had made a loss of $1.4 billion in 2013. After 100 years in business, with Mike Ullman back in charge, JCP stock continued to fall in the first half of 2014. Commenting on Johnson’s legacy at JCP, one analyst said, “Nobody will be attempting something similar for a very long time.” Story Sources Reingold, J., Jones, M., and Kramer, S. 2014. How to fail in business while really, really trying. Fortune, July 4, 169(5):80–92. LO 1.3 LO 1.4 Tension and Paradox: The State of the Art tension paradox when two or more ideas are in opposition to each other when two or more apparently correct ideas contradict each other From a management perspective, organizational change is seen as problematic. How do we persuade people to accept new technologies that will make their skills, knowledge, and working practices obsolete? How quickly can people who find themselves with new roles, and new relationships, learn how to operate effectively after a major reorganization? How about this new system for capturing and processing customer information? We prefer the old system because it works just fine. Change can be difficult. Change that is not well managed, however, can generate frustration and anger. Most estimates put the failure rate of planned changes at around 60 to 70 percent (Keller and Aiken, 2008; Burnes, 2011; Rafferty et al., 2013). In a global survey of 2,000 executives by the consulting company McKinsey, only 26 percent of respondents said that their transformational changes had successfully improved performance and enabled the organization to sustain further improvements (Jacquemont et al., 2015). There is, therefore, no shortage of advice. However, that advice is both extensive and fragmented. The literature—research and other commentary—can be difficult to access, and to absorb, for the following reasons (Iles and Sutherland, 2001): multiple perspectives conceptual spread fluid boundaries there are contributions from several different schools, academic disciplines, and theoretical perspectives—there are several literatures the concepts that are used range in scale, from whole schools of thought or perspectives, through methodologies, to single tools depending on the definitions of change and change management in use, the boundaries of the topic vary between commentators Chapter 1 Managing Change: Stories and Paradoxes 15 rich history varied settings LO 1.2 Multiple perspectives is the most significant of these properties of the literature. That is usually seen as a problem—“the experts can’t agree.” We disagree, and we prefer instead to emphasize the advantages in adopting a multiple perspectives approach to the management of organizational change. First, a perspective that works in one context may not work well in a different setting: we will explore contingency frameworks in chapter 10. Second, this is a way of opening up debate: “Should we define our problem in these terms, or in some other way?” Third, multiple perspectives encourage the search for creative solutions: “Can we combine ideas from two or more approaches and adapt them to fit our context?” We will meet all of these characteristics again in later chapters. The practicing manager, less interested in theoretical perspectives, wants to know “what works?” There are difficulties in providing a clear answer to that question, too, for the following reasons: many variables slippery causality many stakeholders LO 1.3 interesting and useful contributions date from the 1940s, and recent work has not necessarily made previous commentary irrelevant as with our stories, evidence and examples come from a range of organizational types and contexts, using different methodologies even with simple changes, the impact is multidimensional, and measuring “effectiveness” has to capture all of the factors to produce a complete picture it is difficult to establish cause and effect clearly across complex processes that unfold over time, usually at the same time as lots of other changes different stakeholders have different views of the nature of the problem, the appropriate solution, and the desirable outcomes— whose measures to use? What works well in one setting may not work well in another. The broad outlines of a good change strategy are widely known and accepted. What matters is the detail, concerning how a strategy or intervention is designed for a particular organization. For example, most practical guidelines begin by suggesting that change will be more readily accepted if there is a “sense of urgency” that underpins the business case for change. That sense of urgency can be seen in the financial meltdown at Beth Israel and the falling profitability at both Sears and J. C. Penney. Note, however, that there are many different ways in which a sense of urgency can be established and communicated. Some methods may emphasize the “burning platform” in a way that heightens anxiety and encourages escape. Other approaches might encourage instead a “burning ambition” to confront and solve the problem. What works depends on the context. It is rarely possible to just do what someone else has done. Change is in part a rational process; we know what kinds of issues need to be taken into account. Change is also a creative process; it is always necessary to design—to create—an approach that is consistent with local circumstances. Accounts of how other organizations have handled change can be a rich source of ideas that can be adapted creatively to address similar problems in other settings. The field of change management is also rich in tensions and paradoxes. We will explore six of these briefly, in the form of key questions. These issues will also appear in later 16 Chapter 1 Managing Change: Stories and Paradoxes chapters. You will probably encounter further tensions, in your reading across the subject and in practice. How these tensions and paradoxes are managed has implications for the process and outcomes of change. Transformational Change, or Sweat the Small Stuff? Where to start—with sweeping radical changes, or a gradual process of incremental initiatives? We will explore a simple model for “locating” the scale of change in the next section. However, faced with geopolitical, economic, demographic, sociocultural, and technological developments, most organizations seem to think in terms of deep transformational change. The Beth Israel, Sears, and J. C. Penney stories reflect this view, implementing whole-organizational changes to deal with survival threats. This may mean that minor changes are seen as less valuable and important and are overlooked in favor of the “high impact” initiatives. This could be a mistake. Moore and Buchanan (2013), for example, demonstrate how an initiative designed to fix small problems rapidly in an acute hospital generated major performance improvements for almost no cost. In this case, “sweating the small stuff” was an enabling strategy, getting people involved (the small problems were identified by staff), establishing a reputation for getting things done, and creating the platform for further developments. Shallower changes can facilitate and complement the deeper initiatives, and evidence suggests that these should not be underestimated. Systematic Tools, or Messy Political Process? If one looks below the surface of cases of managed change, one can always discern the ever-present effect of the “other side” of organizational life. The ambiguities, uncertainties, ambivalences, tensions, politics and intrigues are always involved, and are influential and addressed in some manner—however half-cocked, fudged, guessed at, messed up or little understood. (Badham, 2013, p. 24) Most of the practical guidance on change implementation (chapters 9 and 10) suggests a straightforward sequence of steps, with advance support from diagnostic tools and assessments (chapters 4 and 5). This is a systematic process, with helpful tools. We have already suggested that change is a creative process as well as a rational one. It is also a political process. Organizations are political systems, and because there are often “winners and losers,” change is a political process. The systematic tools-based approach, the creativity, and the politics work hand in hand. We will explore the political skills that change managers require later (chapter 12). It is important to recognize that, despite what the textbook or the change management consultant says, those systematic tools are only part of the answer to “how to do it, and how to get it right.” Organizational Capabilities, or Personal Skills? Beth Israel, you may remember, was formed by the merger of two organizations with different cultures. One had a casual management style that encouraged professional autonomy and creativity. The other was known for its rules-based, top-down management. The research evidence suggests that the “casual” style is likely to be more open to change, and that this will be a more “agile” and responsive organization. Top-down management and rules suggest that change will be slow, if it happens at all, dependent on due process and committee cycles. In other words, we need to pay attention to organizational capabilities to understand the change drivers and barriers (chapter 5). The skills of change leaders are Chapter 1 Managing Change: Stories and Paradoxes 17 of course also important. However, skilled change agents struggle in rules-based organizations, and agile and responsive organizations still need capable change agents. We will explore the capabilities of effective change managers in chapter 12. Rapid Change, or the Acceleration Trap? The pace of change—social, political, economic, technological—appears to have accelerated. Can organizations keep up? There is now a considerable amount of advice on how to speed up change, to accelerate the pace. Rapid change, however, can cause problems. Can people keep up? Change too fast, and you run the danger of destabilizing the organization and creating staff burnout. There is also, therefore, advice on how to manage “painless change” and how to avoid “the acceleration trap.” We will explore the dilemma of pace further in chapter 3. Change Leader, or Distributed Leadership? It is widely assumed that change needs a champion, a senior figure, who sets the direction, inspires others, and drives the project. A lot of work has gone into identifying the competencies of the “ideas champion,” the effective change leader. This parallels work on the capabilities of effective leaders in general (although most researchers argue that leadership success is highly contingent). However, in most organizations, change is not a solo performance but a team effort. There is usually a “guiding coalition” of more or less senior managers, who guarantee permission for change, oversee progress, and unblock problems that arise. Research has also shown how change is driven by large numbers of organizational members, in an approach that is also called “distributed leadership,” “leadership constellations,” or “leadership in the plural.” Learning Lessons, or Implementing Lessons? Change following crises, accidents, misconduct, failures, and other extreme events often does not happen. There is always an investigation, which produces recommendations for preventing such an event from happening again (or at least reducing the probability). The evidence shows that those recommendations are often ignored. One might assume that, in such circumstances, change would be rapid, straightforward, and welcome. The distinction between passive learning (identifying lessons) and active learning (implementing changes) is important here. The latter does not automatically follow. Why is that not the case? In exploring “why organizations change” in chapter 3, we will also consider why organizations do not change, when they perhaps should. Change Has Never Been So Fast That this is an age of change is an expression heard frequently today. Never before in the history of mankind have so many and so frequent changes occurred. These changes that we see taking place all about us are in that great cultural accumulation which is man’s social heritage. It has already been shown that these cultural changes were in earlier times rather infrequent, but that in modern times they have been occurring faster and faster until today mankind is almost bewildered in his effort to keep adjusted to these ever increasing social changes. This rapidity of social change may be due to the increase in inventions which in turn is made possible by the accumulative nature of material culture (i.e., technology). Source: Ogburn (1922), pp. 199–200. 18 Chapter 1 Managing Change: Stories and Paradoxes The perceptive reader will have noticed that the answer to each of these six paradoxes, these six questions, is in each case “both.” We need big change and small change. Change is at the same time a systematic process and a political one. We need both organizational and individual capabilities. The pace of change must, if possible, vary with circumstances. Change is almost always driven by “a cast of characters” that includes one or more champions and many supporters. There is no point in learning lessons if we do not then implement them. As noted earlier, the way in which these tensions are confronted and managed both drives and constrains the change process, and influences the outcomes. LO 1.4 Assessing Depth of Change We have noted the tension between “transformational change and the small stuff.” Depth is one metaphor that can be used to categorize change. Figure 1.1 presents a framework for that assessment. FIGURE 1.1 Assessing Depth of Change Off the scale Deeper Deep change Disruptive innovation Frame-breaking, mold-breaking Redraw dramatically organization and sector boundaries Paradigm shift, strategic change New ways of thinking and solving problems, whole system change New ways of doing business Change the mission, vision, values, the organization’s philosophy, in order to symbolize a radical shift in thinking and behavior Change the organization’s definition of success Create new goals, objectives, targets Sustaining innovation Improve business planning to symbolize a shift in thinking Tighten up on documentation, reporting, controls Reallocate resources Grow some departments, cut others, create new units Shallow change Fine tuning: cut costs, improve efficiencies Constantly “nibble away” making minor improvements Not on the scale “Sweat the small stuff”—quickly solve the minor annoying problems that nobody has bothered to fix; “grease the wheels” Chapter 1 Managing Change: Stories and Paradoxes 19 At the bottom of this figure sits the “small stuff” that may not even be regarded as “change.” In the middle of the scale we have “sustaining innovation,” which involves improving on current practices. At the top of the scale is “disruptive innovation,” which involves radically new business models and working methods (Christensen, 2000). One obvious point to make is that, in considering change in an organization, the proposed solution should be consistent with the diagnosis of the problem. Using shallow changes to address strategic challenges may not be appropriate, and attempting to solve minor difficulties with disruptive innovation could consume disproportionate amounts of time and resources. Shallow changes are usually easier to implement than frame-breaking changes. Transformational “off the scale” changes are more challenging because they are costly and timeconsuming, and they affect larger numbers of people in more significant ways, potentially generating greater resistance. In most cases, many changes are likely to be under way at the same time, at different depths. Recognizing this, many organizations have established corporate project or program management offices (PMOs) to support and coordinate their initiatives (Ward and Daniel, 2013). The U.S. Project Management Institute’s white paper (2012) gives examples of the aims and benefits of PMOs at the State Auto insurance company in Ohio and the National Cancer Institute in Maryland. One of the tensions in this framework concerns the ambitions of the individual manager. When interviewed for the next promotion, stories about the impact of the deep transformations for which one has been responsible are typically more impressive than stories about minor stuff. LO 1.4 What’s Coming Up: A Road Map This text is divided into three parts. Part 1, including this chapter, sets out the groundwork, and is concerned with understanding and diagnosing change, and with different images of change management. Part 2 focuses on implementation, exploring the substance of change, the role of vision, managing resistance, developing communication strategies, and several approaches to the implementation process. Part 3 examines two running threads that relate to all of the previous chapters. The first concerns managing the sustainability of change, which we argue has to be considered from the beginning and not managed as an afterthought. The second running thread is an assessment of what it takes to be an effective change manager—which is, of course, the theme of the book as a whole. Figure 1.2 sets out a road map, an overview of the content. One of the main assumptions underpinning this road map is that our images of the roles of change leaders affect how we approach the other issues on the map. Remember, for example, how the different change leadership styles adopted by Paul Levy at Beth Israel, Eddy Lampert at Sears, and Ron Johnson at J. C. Penney colored their approaches to communicating the changes that they wanted to implement. This explains why “images,” chapter 2, is at the center of the figure. However, by necessity, a book such as this follows a linear sequence for presentational reasons. This is not necessarily the sequence in which change leaders will need to consider these issues, or in which instructors will wish to introduce and explore these themes. What will work best depends on context. In some cases, the question of “vision” may be fundamental to the change process, and it would be unwise to proceed until that issue has been resolved. In many change models 20 Chapter 1 Managing Change: Stories and Paradoxes FIGURE 1.2 To Be an Effective Change Manager, This Is What You Need … to understand the pressures and drivers for change, internal and external to diagnose the nature and depth of the changes required and individual and organizational readiness Part 1 chapters 3 and 4 to be aware of change manager images, and to see the change process through different lenses: director coach navigator interpreter caretaker nurturer Part 1 chapters 1 and 2 to determine what is going to change to develop a credible and compelling vision of the organization’s future to design “high impact” change communication strategies to anticipate and respond to resistance to change to decide how the process will be driven: organization development and sensemaking approaches to decide how the process will be driven: checklist, process, and contingency approaches Part 2 chapters 5 to 10 strategies to embed change and manage sustainability effective change managers individuals and teams Part 3 chapters 11 and 12 and textbooks, the question of sustainability is presented at the end, as it is here. However, if sustainability is not built into change implementation from the beginning, then this may become an unnecessary problem. Communication is another issue that is typically involved throughout the change process. This road map comes with an added caution. If you follow the recipe correctly, that cake should be perfect; enjoy. However, success is not guaranteed by following a set of change implementation guidelines. There are two main reasons for this. First, designing Chapter 1 Managing Change: Stories and Paradoxes 21 a change process is a task with both technical and creative components; blending these components can in many circumstances be a challenging business involving much trial and error. Second, what works depends on organizational context, which is not stable but which can change suddenly and in unpredictable ways. External conditions can change, intensifying or removing the pressures for change. Budget considerations may mean that resources are diverted elsewhere. Key stakeholders change their minds and shift from supporting to resisting. There are numerous factors that are not under the control of change leaders, and things go wrong despite careful planning and preparation. This is one reason why, as chapter 12 explains, resilience or “bouncebackability” is a core attribute for effective change leaders. LO 1.1 Change Diagnostic: The Beth Israel Story Here are the four questions that you were asked to consider while reading the Beth Israel story, followed by our suggested answers: 1. 2. 3. 4. Identify five factors that explain the success of this corporate turnaround. How would you describe Paul Levy’s role and contributions to this turnaround? What insights does this story have to offer concerning the role of the change leader? What lessons about managing organizational change can we take from this experience and apply to other organizations, in healthcare and in other sectors? Or, are the lessons unique to Beth Israel Deaconess Medical Center? The story of this turnaround has been cited as one from which other healthcare organizations can learn, in other countries. The account on which this case is based was commissioned by the Health Foundation in the United Kingdom. As we will see, many of the change management issues raised here are common and can be found in other sectors and cultures. While it is always possible to argue that healthcare is “special” in some respects, many of the change management concerns are generic. 1. Identify five factors that explain the success of this corporate turnaround. r The sense of urgency, the “burning platform,” created deliberately by the new chief executive, who was open with all staff about the true position concerning the hospital’s finances. r The focus that was consistently maintained on improving the quality and safety of patient care, which appealed (perhaps more than budget layouts) to the professional values of clinical staff. r The phased approach that involved, first and quickly, fixing the finances; second, repairing medical-managerial relationships and getting staff involved in operational plans; and third, focusing on safety issues and eliminating harm. Frontline staff involvement was key. r Making hospital and department performance data available to staff, the public, and the media, to inspire pride in achievement and to stimulate further improvements. r The creation of a “leadership constellation” through the appointment of other senior staff who understood and who supported the chief executive’s goals and strategy (Denis et al., 2001). 22 Chapter 1 Managing Change: Stories and Paradoxes 2. How would you describe Paul Levy’s role and contributions to this turnaround? r Did Paul Levy actually change anything directly? He described his style as “creating the environment” that enabled other people to do good work. r One of his main contributions was to insist on transparency, about the hospital’s financial problems and with performance data. That transparency may have been uncomfortable for some, but it created pride in achievement and the motivation for continuous improvement. r A second key contribution concerned his consistency of purpose, the relentless focus on the quality and safety of patient care, which were issues that engaged and motivated clinical staff. r His innovative use of the Internet and his personal blog about “running a hospital” made sure that everyone—staff, patients, the wider community, the media—knew what he was thinking and doing and why, building respect and trust. r He stayed with BID for nine years. Not many chief executives stick around for this long. But tenure helps to build influence and reinforces the consistency of purpose. 3. What insights does this story have to offer concerning the role of the change leader? r Levy had no healthcare background. Maybe this means that one does not need specialist sector knowledge and experience to drive a corporate turnaround. But he made sure that he had access to those specialist resources though his other senior appointments. r He had confidence in his management approach. That confidence may be as important as the style—maybe a different style, applied consistently, could be just as effective, especially when it involved laying off a number of staff soon after taking up his new post, and standing up to the board of directors and defending a view different from theirs. r The role of a change leader is a demanding one, and it can be difficult to maintain for long periods. It is necessary to recognize when it is time to leave—and also to know when leaving would damage the project. Levy departed only after BID’s financial, clinical, and operational performance goals had been achieved and the future of the hospital was secure. 4. What lessons about managing organizational change can we take from this experience and apply to other organizations, in healthcare and in other sectors? Or, are the lessons unique to Beth Israel Deaconess Medical Center? This is controversial. A lot of the research evidence concerning organizational change management—what works and what doesn’t—relies on case study accounts such as this. Could an approach to rapid and radical organizational change that worked in a large hospital in Boston be applied to a small software design company in Sacramento? Looking at the details, the answer is probably “no”; the software company doesn’t have to worry about medical engagement and patient safety metrics. Looking at the approach in general, however, the answer is probably “yes.” If our software company was losing money and reputation, a new “straight talking” chief executive with clear and consistent goals, an inclusive management style, a strong management team, and a transparent approach to the use of performance data to motivate improvement could be a highly effective combination. Chapter 1 Managing Change: Stories and Paradoxes 23 In other words, if we look beyond the details, we can see a number of actions that could well be applied in other settings. Also, when one gathers a number of such stories, of successes and failures, similar patterns emerge, especially with regard to establishing a sense of urgency and purpose, creating a strong and stable senior team, using “leadership constellations” to drive change, a participative management style, staff engagement, open communications, and transparency of performance information that is used for feedback, performance management, motivation, and reward purposes. The Beth Israel story is a compelling one, but it is neither idiosyncratic nor unique. LO 1.1 Change Diagnostic: The Sears Holdings Story Here are the four questions that you were asked to consider while reading the Sears Holdings story, followed by our suggested answers: 1. How would you describe Eddie Lampert’s leadership style? 2. How would you assess his approach to implementing major organizational change—in this case, restructuring the whole company with a new organizational model? 3. On balance, would you assess his organizational model as having been a success, or not? 4. What lessons about managing organizational change can we take from this experience and apply to other organizations, in this or other sectors? Is this the Sears story, or the Eddie Lampert story? One commentator concluded that, in addition to the other difficulties facing retailers, Sears had a unique problem—Lampert himself. 1. How would you describe Eddie Lampert’s leadership style? Lampert could be described as a transformational leader. He was highly intelligent and decisive. He was innovative, concerning both the company structure and its service delivery. He had a clear and interesting vision for the online future of the business. Check out “Shop Your Way” for yourself. However, he also appears to have been an autocratic leader. There is little evidence to suggest that he either sought or considered the views of others, including his senior colleagues, before making business-critical decisions. He was something of a recluse, preferring to meet with his division heads infrequently, and through a video link (and he rarely allowed media interviews). His “engagement” with staff through the company’s social network was more confrontational than consultative. 2. How would you assess his approach to implementing major organizational change— in this case, restructuring the whole company with a new organizational model? If rapid action is necessary to rescue an organization that is experiencing extreme difficulties, then an autocratic approach may be appropriate. It takes time to pause, to ask everyone else what they think should be done, to process that feedback, to develop a more widely informed decision, to check that with those involved, and then to implement the approach. By that time, the company could be bust. Lampert’s “crisis management” style may thus have been appropriate immediately after the merger. Although profitability was declining, it is debatable whether that approach was appropriate in 2008. 24 Chapter 1 Managing Change: Stories and Paradoxes A more prudent approach in this case would probably have been to listen to the views of colleagues, at all levels of the company, and to take those into account before imposing that reorganization. There could have been many other ways in which to achieve the required end results, including improved divisional and corporate performance, and data transparency. Whatever restructuring was implemented, it was probably going to be more successful if those who were affected understood the decision, had contributed significantly to it, and had agreed with it. “Behavioral flexibility” is one of the core capabilities of managers and leaders at all levels in an organization. This means adapting one’s overall approach and personal style to fit the circumstances. Lampert did not do that. 3. On balance, would you assess his organizational model as having been a success, or not? From 2005 to 2013, the company’s sales, profits, and share value fell. Although not mentioned in the case account, many experienced executives left the company, frustrated by the impact of the restructuring. Divisional collaboration was stifled, and it appears that the competition stimulated by the new organizational model was not healthy competition. The model, therefore, appears to have been damaging to the company’s performance and to its reputation. The new model, however, made it easier for Lampert to set up the online business as a division run independently of the other units. It may thus be too early to assess the longer-term overall success of that organization restructuring. 4. What lessons about managing organizational change can we take from this experience and apply to other organizations, in this or other sectors? Change leaders need to adapt their style to fit the context. An autocratic style can rapidly resolve a crisis. In other circumstances, “decisive action” may leave others feeling that they have been excluded, and they may decide to undermine decisions that they feel were ill-advised (especially where the approach was considered to be idiosyncratic) as well as imposed on them. LO 1.1 Change Diagnostic: The J. C. Penney Story Here are the three questions that you were asked to consider while reading the J. C. Penney story, followed by our suggested answers: 1. What aspects of Ron Johnson’s turnaround strategy were appropriate, praiseworthy? 2. What mistakes did Ron Johnson make? 3. What would you suggest he could have done differently? 1. What aspects of Ron Johnson’s turnaround strategy were appropriate, praiseworthy? First, he was charismatic, passionate, energetic, and persuasive, using theatrics (the acrylic cube) to draw attention and generate excitement. These are useful characteristics for change leaders to possess, although in this case they contributed to the problems. It is possible to be too charismatic, too passionate, too energetic, too persuasive, too theatrical. Second, he was highly innovative, bringing lots of fresh ideas to a long-established Chapter 1 Managing Change: Stories and Paradoxes 25 and stale organization. Organizations that have been trading for a century will often benefit by importing new thinking and practices from other sectors. Third, he was action-oriented and wanted to move quickly, to bring about radical change rapidly. 2. What mistakes did Ron Johnson make? Ignoring the company’s traditional core customers was probably his first and most serious mistake. There was no market research, either directly with customer groups or indirectly through store staff and managers, to develop a better understanding of the buying habits and preferences of JCP customers. How would customers interpret the changes that he wanted to implement? It would have been helpful to know the answer to that question before proceeding. This lack of customer knowledge led to some disastrous marketing, and to pricing and merchandising strategies that alienated core customers without attracting new shoppers. Selling more expensive products seems like a good way to increase sales per square foot, but only if your customers want those items and can afford to buy them. Second, he allowed his new top team of “outsiders” to distance themselves from the existing JCP managers and staff. This meant that the top team had restricted access to the business knowledge stored in the corporate memory, and it also created unnecessary tensions between the DOPES and the Bad Apples. Third, he made critical decisions based on his own judgement, dismissing the views of other senior executives. Fourth, he acted rapidly. While speed may be necessary, especially in a crisis, introducing so many ch…


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