Skip to Main Content

Challenge of Organizational Change

How Companies Experience It And Leaders Guide It

About The Book

In an era of increased global competition, of takeovers, downsizing, restructuring, and even outright failure, managing intelligent organizational change is the most difficult challenge facing business. Kanter, Stein, and Jick present here a comprehensive overview and an authoritative model for how to and, in some cases how not to, institute change in organizations.
Building upon their "Big Three" model of change, the authors focus on internal and external forces that set events in motion; the major kinds of change that correspond to external and internal change pressures; and the principal tasks involved in managing the change process. Several "portraits" of companies undergoing different types of change, coupled with the authors' own expert analyses, prove that no one person or group can make change "happen" alone. Instead, the authors assert that it is the delicate balance among key players that makes organizational change a success.
The authors analyze the forces for change by examining Banc One, Apple Computer, and Lehman Brothers, among others, to illustrate environmental and cyclical change as businesses grow. Then they turn to forms of change, drawing on the Western-Delta merger, strategy change at Bell Atlantic, and takeover turmoil at Lucky Stores, to show how companies change their structures and cultures. The section on execution of change shows "change masters," to use Kanter's own famous term, at work at Motorola, General Electric, and other leading firms, as well as the difficulties of implementing change at General Motors and Microswitch.
Fundamental organizational change, they argue, is exemplified by identity change, involving much more than the transfer of tangible assets. Managing the feelings, fears, and hopes of people must be the central strategy during such transitions. In this essential volume for managers and analysts of change, Kanter, Stein, and Jick offer powerful insights, practical new directions for action, prospects for the future of deliberate organizational change, and advice on where to begin the change process, and when: NOW!


Chapter 1
The "Big Three" Model of Change
The approach of the year 2000, with its millennial label and transformational implications, suggests the possibility of an equally profound change in our economic life and the institutions -- primarily business firms -- that populate it. In fact, even though the number has a highly spurious precision, its symbolism is appropriate. The world is undergoing many major transitions, some of which involve the meaning of business and the character and shape of the organizations that carry it out.
Most striking is the strong convergence of streams of thought and experience alike coming from academic theorists and practicing managers, from avowed free-market partisans and committed social democrats, from regulators and those regulated, from countries as diverse as Singapore and South Africa, the U.S.A. and the former U.S.S.R., Vietnam and Venezuela. This trend -- or more accurately, this tidal wave -- is becoming a universal model for organizations, especially large ones.
This model describes more flexible organizations, adaptable to change, with relatively few levels of formal hierarchy and loose boundaries among functions and units, sensitive and responsive to the environment; concerned with stakeholders of all sorts -- employees, communities, customers, suppliers, and shareholders. These organizations empower people to take action and be entrepreneurial, reward them for contributions and help them gain in skill and "employability." Overall, these are global organizations characterized by internal and external relationships, including joint ventures, alliances, consortia, and partnerships.
There are, of course, differences in detail. Professional firms, service businesses, and manufacturing organizations do not look identical. Japanese keiretsu are not identical with their American industry and market counterparts. Decentralizing the National Health Service in Britain is not the same task as privatizing British Telecom or breaking up AT&T. Nevertheless, much of this is cosmetic; the management principles, operating values, and critical features defining the day-to-day behavior in those organizations are strikingly similar, and even the differences in detail are disappearing over time as global competition intensifies, confronting firms with a close look at others and forcing the routine and continuing transfer of practices from one to another.
Under these circumstances, the question most appropriate for the 1990s is not what the competitive world organization should look like but how to become one. Advice on change methodology is itself a flourishing business. Many people tell managers how to achieve competitiveness, though the recipes, the prescriptions, and, above all, the jargon are different. Some offer technologies for implementing a particular concept, such as total quality control. Others tinker with this organizational feature, fix that one, and educate people, the reward being the promised land of organizational transformation.
This sort of"revitalization" is only one route to corporate transformation. There are also "revolutionaries" who are impatient with the slow pace of reformist change or who distrust the managers guiding it. Throw out the whole thing and start over again, they urge. Overthrow management, change control, shuffle the assets, and the organization can be recreated. But these revolutions and battles for control, however effective in one sense, remain costly and unproven in others. In practice, these notions have also led to some prominent media events, such as Italy's Carlo de Benedetti's battle for Société Générale in Belgium, Sir James Goldsmith's takeover of Crown Zellerbach, or KKR's buyout of RJR Nabisco.
Indeed, corporate takeover specialists present themselves as the shock troops of capitalism, preaching the virtues of their approach. T. Boone Pickens, the erstwhile U.S. raider from Mesa Petroleum, became a brief star on the intellectual lecture circuit, founded The Association for Shareholder Rights, and testified before American Congressional committees. Asher Edelman, another American investor, in spare moments between his attacks on undervalued and underprotected companies, taught a class (called "The Art of War") on corporate finance and control at Columbia Business School; he offered to "make it real" for the students by offering an incentive of $100,000 to anyone who identified a suitable candidate, payable if and when he actually took it over. The school asked him to withdraw the incentive. And a third well-known American raider, Carl Icahn, evidently got tired of being seen "only" as a buyer and seller of companies and, upon acquiring TWA, decided to run it personally. (As it turned out, TWA entered bankruptcy in 1992; he might better have stuck with the paper chase.)
There are many views in between the extremes of reform and revolution, of course. And there are times when each is appropriate. But the danger lurking in many discussions of organizational change is that the whole thing starts to sound much simpler than it is. Too much credit is given to leaders when things go well, and too much blame when they go poorly. Yet, despite decades of very good advice to organizations about change, we are struck by how many failures there are and how much can go wrong. Even though both the reformers and the revolutionaries are, in their own ways, utopians, believing in organizational perfectibility, the sad fact is that, almost universally, organizations change as little as they must, rather than as much as they should.
But perfectibility is, in the final analysis, not an accurate picture, and not simply because our reach exceeds our grasp. It is impossible because of the very nature of organizations, in which successes in one realm inevitably produce problems in another. Organizations, whatever their specific purposes, are also institutions facilitating the production of dilemmas. And that, ultimately, is the best reason to suppose that there will always be a need for management, if not managers.
Organizations present not just one-time problems to be solved, and their problems are certainly not solved once and for all. Permanent success -- a single formula that works forever -- is impossible. After every revolution, even the most successful, the revolutionaries have to address continuing internal issues and the new tasks and problems created by the revolution. In short, even revolutionaries have to understand and accept reform. If these tasks are not addressed effectively, they can even destroy the revolution itself and create counterrevolutions.
The recent astonishing transformations which broke up the Soviet Union and its former East European satellites are a striking case in point. Even though we should be extremely cautious about equating countries and whole social systems with organizations, those events suggest an important lesson for organizational change in general. Changes and their effects are distributed throughout organizations. Some of them are visible, some not. Some are captured in the systems and structures of the organization, others in the minds of members, and still others in external adjustments. Some take effect or cause ripples soon, others need to ripen before they can flower. Thus, our ability to recognize changes may be largely limited to the immediately obvious and therefore superficial ones, while ultimately more powerful factors are hidden from our view. As Chapter 2 makes clear, we may be misled by too narrow or short-term perspectives, or by our personal favorite frame of reference, ignoring long-term forces more slowly transforming an organization, and overlooking counterforces and opposing tendencies.
Roadblocks to Progress: The Change Problem
A new ideal of a focused, innovative, and flexible organization is widely accepted around the world, but it is much more difficult to find practical examples of organizations not born that way that have fully transformed themselves to attain this ideal. Is the flexible twenty-first-century organization model wrong? We don't think so. The problem is one of change -- getting from here to there. Change is more complex than optimistic managers -- or analysts -- think. There are several reasons behind the difficulty of finding exemplars that have transformed their organizations to the new model. Each of those reasons tells us something important about change.
First, it is hard to make changes stick. Many of the most admired role models for new practices have subsequently stopped them. For example, the exciting and innovative approach taken by Pacific Telesis and the Communications Workers of America (Kanter, 1989) has disappeared, a victim of the departure of its champions (a more or less accidental by-product of other changes) and the subsequent bypassing of the union staff. Another example: People Express Airline, a pioneering attempt to create a fundamentally different organizational form consistent with the best available knowledge about teamwork, collapsed and went out of business, a victim (though some would dispute this) of excessive optimism and an insufficient recognition of the values and benefits of traditional bureaucracy. This book is full of examples describing, in all-too-gory detail, the problems of organizational changes launched with the highest of hopes and the best available advice. We see in this more than simply a lack of skill, however.
Some of this may reflect a sociological truism: The originators of innovations are generally not the same as those who take the best advantage of them. What People Express invented but failed to accomplish helped Southwest Airlines build more soundly on Donald Burr's dream. General Motors, which during the late 1960s and early 1970s became famous for some of the most exciting new labor participation ideas (its Tarrytown plant was worldfamous), could not sustain its own initiatives and saw them more effectively implemented by Ford, its arch-rival. In one of those wonderful ironies so characteristic of history, Japanese companies seized these innovations to the detriment of their American and European inventors. This truism about organizational innovations applies equally, and more familiarly, to technical innovations. The mouse, the idea of the graphic interface, and even the PC itself were invented by people at Xerox's Palo Alto Research Center. All were commercialized by other firms.
Second, there are clear limitations to managerial action in making change. One can wonder if deliberate change in complex organizations is possible at all or whether instead the enormous forces in their environments do not simply swamp any attempt to control them. As Chapter 2 will describe, a line of argument and evidence has been marshaled over the last fifteen years or so that sees in the rise and fall of firms the simple and inexorable play of evolutionary dynamics. From this point of view, managers have at best a secondary role in organizational change, Being able merely to carry out the business equivalent of the familiar "You can't fire me; I quit."
There is often an extraordinary disconnection between our theories of change, at least as commonly understood and practiced by managers, and the realities of organizations actually undergoing change. Chapter 10 argues that the eminently sensible advice that constitutes conventional wisdom about managing change often does not work.
There are fundamental limits to the potential for action as a deliberate attempt to change organizations. Not everyone is the chief executive. More than that, even CEOs have to recognize severe constraints on their capacity to make the difference they wish. In general, organizational change cannot be ordered to happen. Conflicts of interest are becoming more and more apparent, and important. In addition to shareholders, other stakeholders with an interest in the organization (e.g., customers, suppliers, employees, or community leaders) are becoming more central, and their legal and operational influence is growing. As one consequence, both the capacity of managers to act and the wisdom of their doing so without consulting others are being reduced. And this issue is particularly important when undertaking major changes, with outcomes that may include power redistribution, possible layoffs, plant closings, and shifts in the very concept of the firm itself.
Large structural changes, such as mergers, acquisitions, restructurings, and takeovers, fail operationally unless they are accompanied by much more involving and fundamentally different grassroots efforts. Indeed, grassroots innovation -- often referred to as bottom-up change -- is often preferred to large-scale top-clown change as a source of enduring results (Kanter, 1983).
Third, attempts to carry out programmatic continuing change through isolated single efforts are likely to fail because of the effects of system context. Organizations are systems, which means that anything more than trivial and surface changes needs to be seen as rooted in myriad features, and ultimately is an expression of the organization's character. Trying to change one component or one subsystem, then, may be akin to the old story of the primitive who acquired a radiator for his hut, kicking it to get heat, which he understood worked elsewhere.
Some -- perhaps many -- of these so-called "new" practices worked because they "grew up" in the organization, sharing a common development environment, or because the conditions at the time were favorable, whether recognized or not. There are many examples. Banc One, one of the most consistently profitable and effective banks in the United States (see Chapter 3), has prospered by creating an innovative organization designed to respond directly to its times and needs. Or take Digital Equipment. Kenneth Olsen, its founder and still its CEO, has presided over a justifiably celebrated global computer firm, in part by the use of structures and processes that, though apparently innovative (and certainly different, at least as compared to more traditional competitors such as IBM), was able to build on the attitudes and expectations held by its employees.
Fourth, the need for change may make it harder to change. Few maxims are more established than "Necessity is the mother of invention," and it is true, as much research has established, that adversity, which often produces a sense of necessity, does promote innovation. However, it is also true that scarce resources offer a much less hospitable climate for their utilization than abundance. Adversity, in short, may generate lots of ideas, but their realization is much less likely.
In business, this translates into the principle that crisis and decline are less likely to enable revitalization, though that is when the need is great, than are growth and success. One change dilemma, then, is that the ability of organizations to change significantly appears when the inclination to change is least. This also suggests that the manager has two very different tasks, which require very different strategies -- solving problems (the task of restoration) and realizing positive visions (the task of transformation).
Finally, some of those best at new practices in one realm may sbow limitations in others. Often, the very same leaders who are able to launch one kind of new practice have tragic flaws that reduce their effectiveness in other important areas. How important is that? It depends, as we shall see. For example during the 1980s, American Airlines, under Robert C. Crandall, was a remarkably effective, organization, avoiding most of the traps in which its competitors were caught. It kept prices and market share up, and put in place a whole series of innovations, for example, in labor relations -- the twotier wage system; in marketing -- the frequent flyer program; and with suppliers -- the Sabre reservation system.
But American's very innovations, and the style of leadership this required, also created potential problems. For example, the two-tier wage scale for pilots led the lower-tier people to seek parity with their top-tier colleagues, thus putting upward cost pressures on the airline. And this, of course, contributed to strained labor relations, when American's pilot union renegotiated its contract. Because of its success, the frequent flyer program created unexpected costs when travelers cashed in. Similarly, the airline's strong leadership, which enabled it to move fast and effectively, now faces the need to decentralize and add flexibility, as size, geographical scope, and global competition increase.
The role models of transformation -- such firms as Xerox, Ford, or Motorola in the United States, or SAS, ICI, and British Air in Europe -- demonstrate that it is a long, slow process requiring constancy of leadership attention and commitment, and that the results are not permanent. They also demonstrate that there are no guarantees, since competition may do better in the interim, for reasons that may transcend any simple explanation. For one thing, macroeconomic, political, and environmental variables matter. Capital markets, currency rates, political shifts, tax policy, resource markets, and technology shape organizational fates as much as managerial actions.
A parable about change illustrates one of the problems in understanding it. The nineteenth-century British writer Charles Lamb wrote a wonderful essay in which he imagined how humanity's discovery of cooking came about. Millions of years ago, Lamb supposed, people lived in large extended families, with domestic animals, in crude houses built of wood and thatch, and open to the elements. One day, with everyone gone, a house caught fire by accident, but the only casualty was a neighborhood pig. When the residents returned, all that was left was a plume of smoke, a pile of ashes, and a wonderful smell. Eventually, some of the people poked in the ashes and burned their fingers touching the carcass of the still hot, incinerated pig. When they put the burned fingers into their mouths to cool off the burn, a delicious taste appeared. They had, says Lamb, discovered cooking. Thereafter, when the people of the village wanted to celebrate, they picked out a house, put a pig inside it, and burned the house down!
We suggest a moral to this tale: If you don't understand why the pig gets cooked, you are going to waste an awful lot of houses.
This is a very good lesson for managers in general, especially in connection with change. In the absence of a powerful and convincing theory, managers will use whatever tactics are familiar rather than move to something new, which, absent such a theory, may well produce more and newer problems than the traditional approach. Better the devil we know...
Today, in light of the challenge of change all around us, the need for a comprehensive understanding of organizational change is clear.
What Is Change?
Language is full of ambiguity; it is at once a source of strength and a source of weakness. Certain words and phrases, however, create special problems. Though they sound specific and are generally treated as if everyone used them identically, they often generate more heat than light. This exactly describes the common experience of people discussing "organizational change."
For centuries philosophers have struggled with definitions of "change," though obviously not in connection with business organizations. For example, there can be few managers today who haven't somewhere been exposed to Heraclitus's famous dictum; "Nothing endures but change." But Heraclitus was emphatically not thinking of deliberate -- that is, what we would call intentional -- change, but rather of the change that is a consequence of the inherent potential for development associated with every entity. And that sort of change is closer to what the psychologist Abraham Maslow called "self-actualization."
To the ancient Greeks, in fact, the idea of deliberate and transforming change -- tampering with the basic character of things -- was, if not actually blasphemy, a sure path to disaster; it is fundamental to their great tragic dramas. In modern Western culture, "change" is a more malleable notion, a means to bend fate to one's own ends, although it is far from clear that this is possible. The Greeks may yet have a point in calling attention to the idea that neither people nor organizations are completely malleable, and we thus need to understand the limits of adaptability. Some things may be achievable, given a starting point; others may not.
The conventional modern idea of change typically assumes that it involves movement between some discrete and rather fixed "states," so that organizational change is a matter of being in State 1 at Time 1 and State 2 at Time 2. Kurt Lewin, a pioneer in the systematic study of planned change (as it became known) in the mid-1940s, developed a now-classic model of change used even by those who never read -- or heard of -- Lewin. This, of course, makes no difference. The economist John Maynard Keynes once noted: "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some...academic scribbler of a few years back" (Keynes, 1936).
Lewin's model was a simple one, with organizational change involving three stages; unfreezing, changing, and refreezing (Jones, 1968). This quaintly linear and static conception -- the organization as ice cube -- is so wildly inappropriate that it is difficult to see why it has not only survived but prospered, except for one thing. It offers managers a very straightforward way of planning their actions, by simplifying an extraordinarily complex process into a child's formula. Over the course of this book, we hope readers will develop their own much richer and more powerful understanding of organizational change.
Suffice it to say here, first, that organizations are never frozen, much less refrozen, but are fluid entities with many "personalities." Second, to the extent that there are stages, they overlap and interpenetrate one another in important ways.
Instead, it is more appropriate to view organizational motion as ubiquitous and multidirectional. (See Eccles and Nohria, 1992.) Deliberate change is a matter of grabbing hold of some aspect of the motion and steering it in a particular direction that will be perceived by key players as a new method of operating or as a reason to reorient one's relationship and responsibility to the organization itself, while creating conditions that facilitate and assist that reorientation.
Change involves two very different phenomena. First, it is to some degree in the eyes of the beholder. "Paradigm" theory, as outlined by Thomas Kuhn in his influential book The Structure of Scientific Revolutions (Kuhn, 1962), holds that an accumulation of little-noted, stepwise quantitative increments or small-c "change" (one more of something, then still one more) can suddenly be perceived as a qualitative shift or capital-C "Change," as though entering an entirely new state, with phenomena subsequently reinterpreted in terms of this new paradigm. Something similar occurs in the strategic change process in organizations (Kanter, 1983): the announcement of' "change" is sometimes merely the decision to identify as mainstream a kind of activity that had existed on the organizational periphery all along. Moreover, the point of view of those who think they are creating change as an intentional process will be different from those who are on the receiving end of changes, and historians might reach still another conclusion. Political interests also come into play in the identification and labeling of change. We should always ask who has a stake in declaring something to be "new and different."
Second, organizational change has an empirical side; it is not entirely perceptual. An organization -- any organization -- is defined in its operations by the presence of a set of characteristics associated with enduring patterns of behavior, both of the organization as an entity and of people involved in it. If this were not true, if we could not find patterns, we could not really speak of "an" organization at all. Instead, like the title character in the Argentinian writer Jorge Luis Borges's story "Funes, the Memorious," who is plagued by the inability to see categories or patterns, we would have to regard it as an entirely different object at every moment. This would destroy the fundamental value of any organization, which lies in its capacity to accumulate momentum and exhibit reasonable consistency both over time and with respect to the behavior of its individual members.
This consistent patterned behavior of an organization's members over time constitutes one of its very distinctive and most important features, which we can call its character. This meaning of character needs to be sharply distinguished from the sort that overly anthropomorphizes organizations, for example by declaring that organizations can have a "heart" or a "soul."
It has long been recognized that organizations have great power to shape behavior, not so much by forcing it as by encouraging it. Organizations always make some things easier and some things harder, thus making the former more likely and the latter less likely. This is the work not simply of "culture" -- something in people's heads -- but rather of the formal aspects of the organization, such as its distribution of roles and responsibilities, people's authority to commit resources, existing budget procedures, the physical or geographical arrangement of its space and facilities, differences in information access and availability, and reward and recognition systems. This sort of "character" is rooted in the organization's structure, systems, and culture -- elements that embody the momentum of the organization by "acting on" its members, thereby enabling the organization to maintain a recognizable presence over time.
These are also the same elements that are critical to any enduring change. Changes in character shift the behavior of the whole organization, to one degree or another. Where there is not a change in character, change is cosmetic, temporary, and uncertain in its effects -- it is small-c "change," so to speak. Transformation -- capital-C "Change" -- requires a modification in patterned behavior and therefore is reflected in and rooted in a change in character. An understanding of organizational character and its sources, and of how to modify it, is required for effecting deliberate change. This is precisely why people at all levels, including chief executives, can enunciate new directions yet fail ultimately to make the difference they intend. Organizations cannot simply be "ordered" to change.
What is important about organizations is therefore not the occasional or idiosyncratic event or output, but the patterns that are manifested in those outcomes. Organizationally speaking, anything that is unique is not worth much attention, because it is not organizational behavior. Since by definition it is not going to recur, managers should not waste their time worrying about it, analyzing it, or setting up ways to prevent its future occurrence. What is important is anything that suggests the presence of a pattern of behavior or that could become one. The managerial imperative is very clear. Treat everything as a symptom, seek the underlying pattern, and either reinforce or reduce it. If there is no underlying pattern and no evidence that one is developing, it is not organizationally important.
What then is organizationally important is simply those things that are more or less likely as a routine matter. It is just this capacity of an organization to change the probability of events that gives organizations their power. That capacity, however, is not definitive. Rather, it acts through a bias or a tilt, pressures that can be resisted or overcome in any given case, but that over time and after enough choices are likely to result in a systematic shift away from intended outcomes.
The Importance of Motion: An Action View of Organizations
Our view, then, like that of Heraclitus, stresses continuous flow. Organizations, as we see them, are bundles of activity with common elements that allow activities and people to be grouped and treated as an entity. As activities shift, as new or different units or people are included in activity clusters, what is identified as "the organization" also shifts.
Organizations are always in motion. There is some central thrust or directional tendency -- "keeping the herd roughly moving West," as Tom Peters once put it -- that results from a combination of the trajectory of past events, pushes arising from the environment, and pulls arising from the strategies embraced by the organization's dominant coalition, all within the context of the organization's character. Of course, the activity clusters (task units, divisions, projects, interest groups, alliances, etc.) themselves are also in motion, and their movements at any time may or may not be in step with each other or with the overall direction.
This framework creates situations similar to the "agency" problem in economics (Pratt and Zeckhauser, 1985) -- the problem that occurs when "principals" who own an asset must delegate responsibility for it to "agents" whose stake, interests, and understanding are different. But this framework goes far beyond agency theory in identifying a coordination problem and an implementation problem as well as a delegation problem. These are necessary additions, because organizations consist of multiple stakeholders conducting multiple but overlapping activities, and because even coordinated actions do not automatically produce intended results.
This view of organizations is well suited to the demands of the 1990s. Global economic competition coupled with continuous technological change is hastening the evolution of an organizational model that defines the boundaries of organizations as fluid and permeable. It recognizes that influence over organizational acts comes from many sources and directions, and through many pathways, rather than "down" a "chain of command." It understands the limits of authoritative intentions in the face of an organization's tendency to continue on preexisting paths. Organizational names, legal ownership, and charts with formal reporting relationships thus do not entirely or usefully define the ways action occurs -- or the way change occurs. Intentional "strategic" acts said to represent the organization are only one form of action. There are multiple strategists, and organizational purpose is itself problematic and debatable.
Thus, organizational action in the new model needs to be viewed in terms of clusters of activity sets whose membership, composition, ownership, and goals are constantly changing, and in which projects rather than positions are central. In such an image of an organization, the bonds between actors are more meaningful and ongoing than those of single market transactions but less rigid and immutable than those of positions in authority structures. Action possibilities are neither as fully open as in a market transaction nor as fully constrained and circumscribed as in the classic theory of bureaucracy.
Furthermore, there is great variety in the relationships of individuals to thes

About The Author

Rosabeth Moss Kanter is the Ernest L. Arbuckle professor of business at Harvard Business School.

Product Details

  • Publisher: Free Press (April 1, 2003)
  • Length: 556 pages
  • ISBN13: 9780743254465

Browse Related Books

Resources and Downloads

High Resolution Images

More books from this author: Rosabeth Moss Kanter