Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition
1. Introduction: Stories of Change Chapter1
Introduction: Stories of Change Learning objectives
- On completion of this chapter you should be able to:
- Understand why change is both a creative and a rational process.
- Identify why there are limits on what the manager of change can achieve.
- Recognize how stories of change can illuminate key issues in managing change.
- Appreciate the “roadmap” for this book and the multiple “images” approach that underlies it.
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 for those involved in managing organizational change. Rather than pretend that they do not exist, it confronts them head on, identifying why they are there, how they can be managed, and the limits they create for what the manager of organizational change can achieve. It shows how the image(s) we hold about how change should be managed, and of what we think our role should be as a manager of change, affects the way we approach change and the outcomes that we think are possible. As a way into these ideas, we commence this chapter by visiting four prominent companies to look at stories of recent changes. The Hewlett-Packard story concerns Carly Fiorina’s attempts to establish and then manage the merger with Compaq Computer; the IBM story shows how change to this organization has occurred both from the staff within as well as from management at the top; the Kodak story shows how pursuing changes to digitalize the company has provoked reactions from both staff and investors; and the McDonald’s story points to the pressures on organizations to change in order to reestablish themselves in the marketplace. The stories contain both similar and different elements about managing organizational change and the broader tensions and choices this entails. In the last part of the chapter, we draw these out, identifying some key lessons that emerge and indicating where they are addressed in the chapters that follow. We also provide a “road map” that indicates the position taken by this book, that our understanding of the issues addressed in subsequent chapters is affected by our underlying images of managing change. Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 2 Chapter 1 Introduction: Stories of Change Stories of Change A Hewlett-Packard Change Story: Managing a Merger Around 7 a.m. on March 19, 2002, Hewlett-Packard’s CEO Carly Fiorina and CFO Bob Wayman were on the phone to Deutsche Bank trying to make one last ditch effort to convince them to vote yes. 1 The vote, scheduled for later that morning, was an important one. It would determine the future of the proposed Hewlett-Packard (HP) and Compaq Computer Corp. merger and the future of HP as a major player in the technology industry. 2 The months preceding the vote had been tumultuous. After the announcement of the proposed merger had taken place in September 2001, Walter Hewlett, the son of the co-founder of HP, had publicly opposed the proposition, which required shareholder approval. 3 Fiorina and her team faced serious and accumulating opposition to the merger, but there was also growing concern for HP’s future if the deal was rejected. A Merrill Lynch portfolio manager said at the time, “If the deal is voted down, I don’t know what I’m left with. I don’t know if the board will stay, if management will walk out the door, or what the strategy will be. Sometimes the devil you know is better than the devil you don’t.” 4 In the lead up to the vote, HP was confident that a yes vote by Deutsche Bank was a sure thing. Representatives of Deutsche Bank such as George D. Elling had been public supporters of the merger and had reportedly even given HP a $1 million contract to uncover the voting plans of other institutions. 5 Word of a change in Deutsche Bank’s thinking reached Wayman and, despite reassurances from his contacts that the merger would be supported, talk strongly suggested that they had, in fact, reversed their decision. On the morning of the vote, Fiorina and Wayman were given their first and only opportunity to pitch the deal to the investment team at Deutsche Bank. Fiorina, using her innate ability to impress, gave a compelling and persuasive argument questioning the company’s future if the merger did not go ahead. The Deutsche Bank team decided that a failure to continue with the merger would be more disastrous than the merger itself. 6 On March 19, 2002, the merger was approved by a shareholder vote 7 —a result that would have been more difficult had Deutsche Bank not supported the merger. 8 Premerger Back in 1999 when Fiorina joined HP, the company was in serious need of guidance. The personal computer division faced growing competition, the sales force needed better coordination, and the company was losing market share to rivals such as Dell and Sun Microsystems.9 Fiorina joined the organization with aspirations, and external pressures, to change how it functioned. In her view, the culture of HP could be changed by “going back to the roots of the place.” 10 One of the ways she set out to achieve this was by working with a local ad agency and the head of Human Resources to create a set of “Rules from the Garage” that outlined what she hoped the culture at HP would become. “The customer defines a job well done” and “Invent different ways of working” became signifiers of the company’s direction and aspirations. 11 She decided to restructure the company. Customers such as Ford and Boeing were frustrated by the separate sales teams from HP that were constantly marketing individual products to them. They wanted a complete package that addressed the needs they had in their entirety. 12 In light of these uncommunicative operational units within HP, Fiorina reorganized the company into “quadrants,” creating two “front-end” sections that Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 Chapter 1 Introduction: Stories of Change 3 consisted of sales and marketing and two “back-end” functions where manufacturing and research occurred. 13 There was considerable, but subtle, employee resistance to the change. Fiorina’s vision of HP creating a new interface with customers may have been sound, but, as a radical change, it was not widely welcomed by many who were part of the HP “system.” 14 Post-Merger In the aftermath of the merger, and the ensuing lawsuit that opposed the merger and attempted to dissolve it, 15 Fiorina had a huge task ahead of her. The integration of the two corporate cultures was made more difficult by the strained relations Fiorina had with her own staff, many expressing serious concerns regarding the merits of the merger. 16 The transition was made slightly easier by the 65,000 new personnel who became a part of the HP community after the merger. They were more at ease with creating an organization in the way that Fiorina envisioned. According to Fiorina, the necessary cultural adjustment was simplified by this injection of “new DNA.” 17 Following the merger, Fiorina embarked on a series of technological symposiums and “coffee talks” with HP engineers. 18 Although the merger had already been undertaken by HP and Compaq, there were still many employees who were not convinced of the validity of HP’s riskiest move, some of whom faced being victims of the job cuts resulting from the merger. 19 To win over the 147,000 employees worldwide, Fiorina used a range of methods of communicating including the “management by walking around” style that Packard and Hewlett had originally advocated within the organization. A company employee
commented on her style and interaction with all members of the company by saying that her actions and down-to-earth nature “earned her a lot of points” with transferees from Compaq. 20 The company faced challenges in the way of significant competition from both Dell in the PC business and IBM as a service provider. 21Communicating a vision for the future of the company post-merger remained a key issue for Fiorina. 22 Three years later, in February 2005, Fiorina was ousted from HP and replaced by Mark Hurd.23 In one of his first acts as the new CEO, Hurd undid some of the radical changes from his predecessor’s reign. 24 He cut jobs and engaged in a restructure, breaking down the four quadrants into product divisions because they were too “matrix” in design. 25 Some commentators, in referring to “the debacle of the Carly Fiorina years,” argue that many of the changes Hurd has made are “designed to unscramble the forced attempt at synergy attempted by his predecessor, instead handing back clearer responsibility to divisional managers for their own operations.” 26 Greater attention to becoming more efficient and getting better at execution appears to be producing results: in August 2007, Hurd announced HP’s best sales growth for seven years. 27 An IBM Change Story: Transformational Change from Below and Above Change from Below 28 Before using the Internet became as commonplace as watching television, David Grossman and John Patrick took on the mammoth task of convincing their superiors and co-workers at IBM that the Internet was even worth looking at. Their subsequent actions helped to revolutionize Big Blue and drastically change its path into the future. 29Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 4 Chapter 1 Introduction: Stories of Change When David Grossman, a computer programmer, stumbled across a rogue Internet site for the 1994 Winter Olympics in Lillehammer, Norway, he was troubled. IBM had the official broadcast rights to the Games, but Sun Microsystems was taking the raw footage and making it available on the Internet under their logo. Although his position as a programmer did not require him to act on his findings, Grossman was deeply concerned about the implications of the branding of the Internet broadcast and the potential effects on IBM. He pursued the issue by contacting the IBM marketing team for the Olympics. The rogue site was eventually shut down, but the lesson had not been learned. IBM had not even begun to comprehend how the Internet could become an integral part of their business dealings. 30 Grossman’s persistence landed him a meeting with the head of marketing, Abby Kohnstamm, and some of her colleagues. It was here that Grossman was able to give a detailed explanation of the benefits of the Internet. He captivated one member of his audience wholeheartedly. John Patrick, a member of the strategy task force, attended the presentation that day and he immediately became Grossman’s ally in the Internet Revolution and an important link to the world of senior management. 31 As a team, Grossman and Patrick complemented each other. Grossman had the more developed technical know-how. 32 Patrick knew how to make the “boundaryless” culture at IBM work to his advantage. 33 Together they created an underground community of Web fans who shared technical information that ultimately helped IBM into the Internet era, albeit working, for the most part, unofficially. 34The grassroots Web community infiltrated all corners of the company in a way that would have been difficult for an officially sanctioned, top-down group. It was through the advocacy of the lower-level personnel that the Internet message was spread through IBM’s culture. 35 Of course, the downside of being an unofficial part of an organization is the potential lack of financial backing for a group’s projects. However, when it came to finding money for IBM’s first-ever display at an Internet World trade convention in 1995, Patrick was not fazed. By coordinating the funds and the Web technology from various business units and becoming a “relentless campaigner” for the project, he gained support and expertise from multiple parts of the organization. 36By sharing experienced personnel and resources from many departments, Patrick and Grossman were able to provide departments with more expertise and highly trained personnel when they were “returned” to the area from which they came. This strategy reinforced internal support for the change. 37 Over the years, Patrick and Grossman succeeded in creating a system that revolutionized the way in which IBM does business. Coupled with the leadership of Lou Gerstner, the period from 1993 to 2002 was one of reinvention and change. 38 IBM transformed from a computer manufacturer to a global service provider, focusing on e-business and the Internet. By the late 1990s, IBM’s trading in the e-business sector began to reflect in the bottom line, accounting for almost a quarter of its revenue. 39 Change from Above In 2002, Samuel Palmisano, a lifetime IBMer, took over leadership of the company from Gerstner. Palmisano’s focus changed to emphasize teamwork and collaboration. One of his first steps in demonstrating his new management style, to investors and employees alike, was a readjustment in executive compensation. 40 This involved a cut in the controversial Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 Chapter 1 Introduction: Stories of Change 5 CEO bonus that was redistributed within the top management team. Palmisano claimed that in order to function as a team, the gap between the CEO and his team must be reduced. 41 Insiders said that the amount pooled was $3 to $5 million, approximately half Palmisano’s personal bonus. 42 This was an effective way of communicating to the entire organization his intentions and commitment to his vision. In a BusinessWeek e-mail interview, Palmisano wrote that in planning for change, “I kept thinking about an approach that would energize all the good of the past and throw out all the bad: hierarchy and bureaucracy.” 43 To this end, he disbanded the executive management committee and created three teams with which he would work directly. These management teams—in the areas of strategy, technology, and operations—were composed of people from all over the company, not exclusively top management. 44 His aim in restructuring was to make IBM a flatter, more creative organization striving to meet consumer needs. 45 In addition to the restructure, Palmisano saw a lack of skills in IBM around the delivery of global services. In 2002, IBM acquired PwC Consulting as a way of bringing to it highly specific consulting skills and expertise to assist IBM in providing a full range of services to its clients, “from high-end technology consulting to low-end support.” 46 IBM also put in place other techniques to make sure that it listens closely to its people. For example, it introduced the concept of “jams,” which are online brainstorming sessions where any employee can share his or her ideas about management issues or new product development. Palmisano subsequently expanded the use of jams to include clients, consultants, and employees’ family members in order to share ideas and help the company innovate.47 It is as a result of such changes from the top that IBM hopes to meet the challenges of the future. A Kodak Change Story: Provoking Reactions Could this be the beginning of one of the biggest turnarounds in American corporate history or one of the most public and embarrassing busts? After more than a century of producing traditional film cameras, Kodak announced in September 2003 that it would cut this line of production. In Western countries, this involves a complete move away from traditional products within the film industry and a full-scale launch into digital technology. 48
The move is slated “to generate . . . $20 billion by 2010.” 49 At an investor conference, CEO David A. Carp said: We are at the dawning of a new, more competitive Kodak, one that is growing, profitably, that has a more balanced earnings stream, and that will have a dramatically lower cost structure . . . To compete in digital markets, we must have a business model that lets us move even faster to take full advantage of the profitable growth that digital promises. 50 Implementing this change required Kodak to cut their dividend and raise capital for new technology purchases. 51 Further elaboration of this strategy occurred in January 2004 when it was announced that to reach the proposed savings of between $800 million and $1 billion by 2007, Kodak needed to make two physical changes to the organization. 52 First, there would be a reduction in the square footage of Kodak facilities worldwide by consolidating current operations and divesting unnecessary assets. Second, Kodak intended to reduce employment worldwide with up to 15,000 jobs to be cut by 2007. 53Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 6 Chapter 1 Introduction: Stories of Change Investor Reactions The announcement in September 2003 took many external experts by surprise. 54At a series of post-announcement meetings with investor groups, their reactions were not overly supportive,55 particularly to the news that their dividends would be severely cut. 56 They were conscious of promises to increase the company’s revenue that were not realized. 57 It was feared that this would become another “half-hearted transition” 58—as with the $1 billion launch into APS cameras in 1996 that ended in failure. 59 They also pointed to the risk in moving in this direction given the competitive market with rivals such as Hewlett-Packard, Canon Inc., and Seiko Epson Corp., which were already ahead in digital technology research and product development. 60 Carp’s response was to stand firmly by his decision to pursue digitalization of Kodak. 61 Staff Reactions For many of Kodak’s employees, the future looked bleak regardless of the success of the company in moving into digital technology. Employees were rightly concerned about losing their jobs in light of the proposed 20 percent worldwide cutback in employment. 62 Downsizing is not new at Kodak. From 1997 to 2003, the company reduced its workforce by 30,000. 63 As argued in The Wall Street Journal, this type of change “moves parallel [to] those at many companies whose comfortable business models have been threatened by rapid changes in information technology.” 64 As one union representative explained, the stress on workers in one Kodak production plant has been made worse than necessary because “management has not sought to reassure [Kodak employees] that they have got any long term future. When people have families to raise, financial commitments, that’s a very difficult environment to work in.” 65 Hence, along with having to convince investors that the path of change is the right one for Kodak, Carp also had to manage the adverse effects of an ongoing program of downsizing and restructuring. The Next Phase In June 2005, Antonio Perez replaced Carp as CEO. 66 He continued on the path of downsizing and eliminating plants. From 2004 to 2007, Kodak reduced its head count from 63,900 to 30,600 and offloaded a factory that it owned in Xiamen, China. 67 Perez is also engaging in a process of acquisitions in order to grow new businesses—with some concern from the financial community about the amount of debt that the company is accumulating.68 As Guerrera argues, “For now, Kodak’s position illustrates the problems that many companies face mid-turnaround, when the tough choices have been made but the results are still unclear. Management, under intense pressure from investors and buy-out groups, faces a critical test of nerve.” 69 A McDonald’s Change Story: Responding to Pressure Imagine eating nothing but McDonald’s for a month. Morgan Spurlock, independent filmmaker, did just that, restricting his diet with the following limitations: • No food or drink other than McDonald’s menu items. • Meals supersized when given the option. • Every item on the menu had to be eaten at least once. 70Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 Chapter 1 Introduction: Stories of Change 7 Spurlock spent one long month traveling across the United States interviewing various community groups about the implications of eating fast food and using himself as a guinea pig.71 Before embarking on this journey, Spurlock underwent a full medical examination and was deemed to be a physically healthy man. One month later, the diagnosis had changed.72 After three square McDonald’s meals a day for 30 days, Spurlock had gained 25 pounds, his cholesterol level had jumped from 168 to 230, 73 and his liver was in a state that an alcoholic would have envied. 74 The result of this personal experience was a documentary called Super Size Me, an entrant in the 2004 Sundance Film Festival. The aim? Spurlock claims his objective was to uncover the link between foods like McDonald’s and obesity, 75 a correlation that the company had long denied. 76 Nevertheless, the film’s release coincided with the launch of McDonald’s new Happy Meal for adults, comprised of a salad, a bottle of water, and a “stepometer.” Despite valiant attempts by McDonald’s to counteract the claims of the film, Super Size Me became one of the five biggest-grossing documentaries in American history.77 Highlighting health issues related to fast food has only added to other worldwide pressures on McDonald’s operations. Externally these include an epidemic of mad cow disease, foot-and-mouth disease, the SARS epidemic in the Asia-Pacific region, a fall in economies leading to weaker foreign currencies, and high commodity costs. 78 Internally these problems were compounded by McDonald’s aggressive international expansion strategy that made future growth more difficult. 79 As the then-CEO, James Cantalupo, admitted, “we took our eyes off our fries and paid a price.” 80 The problems that the company faced went beyond superficial fluctuations in sales and revenue. The year 1996 was a turning point, with McDonald’s experiencing four consecutive quarters of declining sales and beginning to lose market share to competitors such as Wendy’s and Burger King. 81 Jack Greenberg, the former CEO, implemented the highly unsuccessful “Made for You” kitchens with disastrous results. 82 The result was slower service in contrast to its aim of flexibility with new menu items. 83 Franchisees became frustrated. Take Paul Saber. For 17 years, he was a McDonald’s franchisee, but in 2000 he recognized the lack of fit between the product offerings at McDonald’s and consumer tastes. “The McDonald’s-type fast food isn’t relevant to today’s consumer,”84 he commented as he sold his 14 stores back to the company. Others stuck it out with McDonald’s. Richard Steinig remembers getting a 15 percent profit from the $80,000 sales at his two stores in the 1970s. 85 This was quite a comfortable income given that the minimum wage was less than $2 an hour. By 2003 he was struggling to make ends meet. Even the $1 menus advertised worldwide resulted in a loss for Steinig: as he said at the time, “we have become our own worse enemy.” 86 Getting Back to Basics In 2003 Cantalupo was brought in to rectify the declining state of the organization. 87 He previously held the position of vice chairman and headed McDonald’s international expansion. His vision for the organization’s future was in a “back to basics” 88 approach with organizational changes to refocus the organization on core values of quality and service. However, Cantalupo died in 2004 of a heart attack and his successor, Charlie Bell, left s
oon after (and subsequently died from cancer). In 2004 Jim Skinner took over as CEO. 89Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 8 Chapter 1 Introduction: Stories of Change As part of the new strategy called “Plan to Win,” new store openings were cut back. 90 The aim was to increase sales from existing sites instead of growth through a rapid implementation of new stores. 91 For example, in 2004, 300 new stores were proposed, in comparison to 1995, when 1,100 new restaurants were opened. 92 There was also a complete overhaul of the advertising campaign. By introducing the “I’m lovin’ it” slogan and commercials featuring pop singer Justin Timberlake, 93 the hope was to reinvent the company’s image and connect it with the younger generation. 94 Another part of the revitalization of the McDonald’s business was the introduction of the new salads menu. 95 McDonald’s, in the past, had expressed little concern at the claims that its products are directly linked to obesity, but some critics saw the launch into the “fresh salads” menus as a sign that the unhealthy reputation of fast foods may have been identified internally as a threat to the organization. 96 This new menu has helped to draw in female customers who had previously been reluctant to dine at their restaurants 97 and increase the number of customers during the evening. 98 In the past, McDonald’s had tried creating low-fat menu options for their patrons with the McShaker salads and McLean Deluxe burger, but with limited success. 99 Now, responding to external pressures, customers are given healthier and tastier menu options. 100 One of McDonald’s newer goals is “loved by kids, approved by moms,” focusing their nutritional efforts on these two key customer groups. 101 Franchisees in Colorado, for example, have joined forces to introduce “Smart Meals”—actively promoting meal combinations that meet specific nutritional standards and include two Happy Meal options for children. 102 Other franchisees have revamped their PlayPlace, the traditional children’s play area, by introducing the R Gym, encouraging physical coordination and aerobic activity. 103 McDonald’s also implemented an online training program for all U.S.-based employees to address customer service issues. 104 The aim was to bring the company back on the road to providing the basic, speedy service and quality products that it became famous for so many years ago. Together, these changes reflect the company’s most recent “better, not just bigger” mantra to bring the company back in touch with its customers. 105By 2007 this seemed to be working, with the company declaring some of “its strongest business results in 30 years.” 106 Drawing out the Change Issues and Where They Are Found in the Chapters that Follow As outlined in Table 1.1 , these four stories carry in them a wide variety of lessons and issues relating to managing organizational change. We now highlight the key issues and indicate how they are picked up in the chapters that follow. Images of Managing Change . . . Chapter 2 One of the intriguing features of the IBM story is how David Grossman took on the role of manager of change without a formal mandate to do so. Many in his position would not have seen it as their responsibility to drive change through the organization in this way. They would more likely have experienced change as recipients rather than as initiators of change. Carly Fiorina’s use of persuasion to get Deutsche Bank representatives to vote Palmer−Dunford−Akin: Managing Organizational Change: A Multiple Perspectives Approach, Second Edition 1. Introduction: Stories of Change Text © The McGraw−Hill Companies, 2009 Chapter 1 Introduction: Stories of Change 9 TABLE 1.1 Managing Change: Some Lessons from the Four Stories Hewlett-Packard Change Story • Different interests need to be recognized and addressed during an organizational change • These interests are likely to provoke different reactions to change • Organizational politics and lobbying are likely aspects of an organizational change that will need managing • Negotiation and persuasion are key communication skills • More successful communication strategies are likely to be those that “touch” the people to whom they are addressed • Communicating change often entails providing a vision of the future that is compelling • Pressures to change come from both outside and inside organizations • Restructuring is a common organizational change when confronted with problems • Any organizational change usually involves paying attention to organizational culture IBM Change Story • Innovative changes often emerge from below in organizations • Making change stick requires persistence over time and actions that need to be taken on multiple fronts • Change needs appropriately placed champions to gain support throughout the organization • The informal network of the organization is an important part of mobilizing and communicating organizational change • Change requires marshalling of appropriate resources • Some changes are incremental, others transformational • Some smaller change actions often convey powerful symbolic messages to help reinforce the sincerity and credibility that senior management attaches to the larger change Kodak Change Story • Organizational change involves handling reactions of both internal and external stakeholders • Communication strategies need to be designed for internal and external groups • Reactions to change are likely to be influenced by the success of previous changes and the extent to which there has been delivery on past promises • Change involves risk and uncertainty • The consequences of change cannot always be predicted • Managers of change need to address the question for staff of “How will I be affected?” McDonald’s Change Story • Organizational changes occur in a competitive, international business environment • This means that to prepare for the future, change may need to occur even when things still appear to be going well • Organizations face external pressures to change such as providing socially responsible products and services • Some changes fail to deliver on their intended outcomes • Change in and of itself is not necessarily good for a company; careful assessment is needed of the relevance and likely success of a proposed change