Strategy Implementation Session 10 – Strategic Change

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Strategy ImplementationSession 10 Strategic
Change
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Agenda

• Mea Culpa Grading still catching up
• 1 Week to Expo
• Knowledge, Authority VF
• Intro the Challenge of Change
• Nissan Discussion
• Break
• Nissan Update
• Political Dynamics of Strategic Change

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Project Expo Tuesday, February 24

• Please Come Early to Set Up
• 90 minutes
• A stand-alone, visual presentation of your
  project and analysis (20 points)
• Animated powerpoint, Poster
• Bonus points for creativity
• 2 (or more) feedback points/questions for each
  team (10 points)
• Give me an email contact for each team to handle
  feedback
• Ill post them during the expo
• Forward me a table with your teams feedback for
  each other team

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Strategic Change and Renewal

• ? Most strategic initiatives represent strategic
  change.
• Change is challenging when tackling the
  interdependent system in a company.
• Relational contracts are especially unstable in a
  time of change.

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Why is organizational change so difficult?

• Inertia is the tendency of organizations to pull
  back towards existing practices and attitudes.
• 5 sources of inertia (Rumelt, optional in course
  pack)
• Distorted perception myopia, hubris, denial
• Dulled motivation costs of change,
  cannibalization, cross-subsidies
• Failed creative response speed complexity,
  reactive approach, vision
• Political deadlocks differences in personal
  interest, belief, fundamental values.
• Action disconnects leadership inaction, embedded
  routines, collective action problems, capability
  gaps
• Since many activities in the firm are
  interdependent with other areas, any individual
  change faces enormous pressure to revert because
  it reduces the effectiveness of other parts of
  the organization.
• gt Coherent systems become rigid.

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Fit Misfit
Fit when more of one activity increases the
value of another

• System effect the whole is worth much more
• than the parts
• Incremental improvement may lead to a
• competence trap no isolated change can
• Improve performance

Misfits the opposite, two choices that
each reduce the value of the other
See complementarities section of Chapter 2
in John Roberts, The Modern Firm (on reserve)
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Example of a Complementary System

• Mass Production
• Specialized machinery
• Long production runs
• Mass marketing
• Low skilled
• Centralized
• High Volume
• High Inventory

• Modern Manufacturing
• Flexible machinery
• Short production runs
• Frequent product changes
• Targeted markets
• Cross-functional teams
• Focus on cost quality
• Low inventories

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Complementarities create challenges in moving
from one configuration to another.
BP/Exxon
Southwest
Shell
Continental
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Given all these links, what is the effect of
fixing misfits one-by-one?
misfits remaining
misfits fixed

• If you start to fix one problem, you may create
  more problems.
• But comprehensive change is quite costly.

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Complementarities Strategic Change

• Strategic change in the face of interdependence
  requires attention to organizational links.
• Where are my levers?
• Which key changes will drive the firm towards a
  stronger competitive position?
• Which key changes will start a positive feedback
  cycle?
• What are my constraints?
• Which areas will hold back change if we ignore
  them?

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Relational contracts are very unstable in times
of change.

• Why?

Value
Cooperate Act in ways that cannot be specified
contractually.
Punish
Time
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Relational contracts are unstable in the face of
deep change because

• This looks like defection in the game
• It leads to upheaval in the culture
• And a new relational contract requires trust
  time

which are both in very short supply during
change.
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Nissan Case Exercise
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Nissan Prep Questions

• Summarize Ghosns main change initiatives.
• What lessons can we draw from Ghosns approach to
  change management?
• Why did Nissans employees implement Ghosns plan
  when they had failed to follow through on
  previous turnaround efforts?

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Break
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My Take Nissan
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Strategic change is a political process
John P. Kotter HBR 1995
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The Strategic Transition

• Key issues
• Power and politics
• Individual anxiety and resistance to change
• Losing control during the transition

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1. Political dynamics of change

• Shape Coalitions
• Mobilize key players support
• Who has the power to make or break the change?
• Who controls critical resources or expertise?
• How will the change affect these individuals?
• Will blocs of them that will mobilize together?
• Levers
• Participation, involvement, co-optation
• Incentives
• Exchange
• Isolation
• Removal or transfer
• Reinforce the message with mundane behaviors
• Pfeffer Sutton walk the walk
• Build in Stability
• What will stay the same? Which parts of the past
  are relevant for the future?

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2. Manage Individual Resistance
Recognize the limits of your people

• Create dissatisfaction with the status quo
• Emotionally, not just intellectually
• Create a credible crisis
• Participation creates a sense of ownership
• Work-out sessions at GE, Operation Centurion at
  Philips
• Recognize and reward new behaviors
• Provide time opportunity to disengage
• Honor past competence, while stressing changed
  times

• Optimal Stress
• Attentive
• Motivated

Individual Performance

• Extreme Stress
• Biased info
• Decreased attention
• Reduced Problem Solving

Amount of Stress
Minimal Stress - Lethargy, Apathy
Tushman OReilly, p.198
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3. Maintain control during the transition

• Communicate clear image of the future state
• Use multiple levers to promote change
• Skills, people, processes, rewards, structure,
  and culture need to shift together
• Design transition management structures
• Transition managers
• Eg McDevitt at UPS
• Transition teams
• Alcoa, IBM others drove change through
  credible, powerful transition teams
• Transition plans
• Concrete plans with goals, metrics, controls
  budgets just like a new product launch
• Transition metrics
• Celebrate and calibrate progress

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Assessing Implementation Calibrating Progress

• Does the organization achieve the plan?
• Does the new organization function as planned?
• Does the change occur without catastrophic costs?
• Does the process recognize and minimize the cost
  of the change to individuals?
• Those at the front lines bear the costs of
  change, and especially failed change, most
  heavily.

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How would you apply Kotters 8 steps to Shell?

• Prepare steps as a group of 3-4
• Write down or put in a slide and email to me
• 12 minutes, then well share each teams steps

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The integrating elements of implementation.

• The traditional approach to re-org began with
  formal structure, but this proved a path to
  failed initiatives and the re-organization
  merry-go-round.

Informal Organization
Formal Structure
People
Planning
Partnerships
Projects
Processes
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Get off the re-organization merry-go-round by
leading from the informal organization.

• The 21st century process
• Change in individual attitudes mentalities
• Change in interpersonal relationships processes
• Change in formal structure responsibilities

• The traditional model
• Change in formal structure responsibilities
• Change in interpersonal relationships processes
• Change in individual attitudes

• Renewal starts with people and coalitions in the
  process, and then moves
• to changing capabilities and organization

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Strategic Change Issues

• All successful companies reach points where
  radical change is required.
• competency trap old complementary system
• Fit makes strategic change very challenging!
• In a coherent system, changing any one part
  creates misfits with many other aspects of the
  firm.
• When strategic conditions demand a radically
  different system, firms must tackle many changes
  at once.
• Strategic change is a political process
• Success hinges on understanding and action
  throughout the organization
• Every change needs a credible crisis
• Communicate a vision
• Develop participation in strategic response
• Build coalitions for success
• Successful efforts address natural resistance
• Find roots of future success in the past
• Overcome resistance through participation
• Give time to adjust, then eliminate hold-outs
• Transition teams need to lead by example
• And build in control through plans and processes

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Missteps with change failing to understand the
power dynamics.

• Failure to establish urgency.
• Failure to create a guiding coalition.
• Failure to develop a vision.
• Failure to communicate the vision.
• Repetition, behavior example
• Failure to recognize remove obstacles.
• Failure to create short-term wins.
• Failure to follow through for the long-run.
• Failure to embed the change in the culture.

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Next Up Global Implementation, AES

• Could AES management style and organizational
  structure work in a post-communist state such as
  Georgia? Why or why not?
• Who were Sculley's allies and opponents in making
  Telasi a viable company? Why did they support or
  oppose AES interests?

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Next up International

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• Link here.

• Could AES management style and organizational
  structure work in a post-communist state such as
  Georgia? Why or why not?
• Who were Sculley's allies and opponents in
  making Telasi a viable company? Why did they
  support or oppose AES interests?