Nadler, “Champions of change,” Ch. 2

Nadler, “Champions of...

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Unformatted text preview: Chapter Two Where to Start Understanding Organizations Your first visit to a new company can be awfully confusing. From the outside you see the front of the headquarters build- ing and the visitor’s entrance—but not much more. Inside you see a maze of offices and work areas—but at first glance they don’t seem to be arranged in any particular pattern. You see people rush- ing busily to and fro, but you have no idea what they’re doing or what, if anything, they’re actually accomplishing. Ifyou’re to have any chance of quickly making sense of what’s going on—of how the company is organized and how it really op- erates—you need a mental template, a systematic way to observe and understand the organization. For executives and managers in- tent on leading change, that kind of template, or model, is essen- tial. Without it you haven’t a clue where to start. Lucent Technologies CEO Henry Schacht, who has led massive change at two very different companies, describes it this way: “The most fundamental issue about managing change, or creating change—whichever is required—is an assessment of where you are. . . . Understanding the topology of where you start is absolutely critical, as opposed to ‘I have a set of things I do to manage . change. Here’s my bag of tricks.’ If a doctor, diagnoses a patient with X, he prescribes one kind of medicine; if he diagnoses the pa- tient withY, he prescribes another kind of medicine. You don’t use penicillin when physical therapy is indicated.” ‘ Throughout this book I’m going to be talking about organiza- tional change in terms of a model my colleagues and l have devel- oped and refined over the past two decades. The purpose of this 21 22 CHAMPIONS or CHANGE chapter is to share with you that model, that basic perspective on organizations, and to provide you with terms and concepts funda— mental to diagnosing and understanding the need for change in any organization. Dynacorp: A Case Study I’m going to start with a case study I’ve used over the years with hundreds of managers (Delta Consulting Group, 1980). All the names have been changed to protect the innocent, but rest assured that the following scenario is based on a very real set of circum- stances that prevailed several years ago at a leading corporation. The Dyna Corporation—better known as Dynacorp—is a major global player in the field of information technology. You are an executive at Dynacorp. You’ve done well with the company; over the past eight years, you’ve held a succession of increasingly responsible positions in its key European markets. N ow, during a troubled and volatile period for this once-dominant organiza- tion, you’ve been told you’re about to become executive vice president for US. Customer Relations. You’re well aware of your company’s recent history. Formed in the 19603 and transformed in the 19795 by high-tech developments, Dynacorp sped into 7‘ the ’805 with strong growth based on its reputation as an innovative provider of high-quality products. But the past decade has been tougher. Smaller companies and Japanese competitors have matched your innovations, and your image as a high-tech ' leader is slipping. Although the trend in your market was shifting heavily to- ward wholly integrated office “solutions”—combined offerings of networked hardware and software, professional support, and special applications—you kept trying to sell updated versions of your old reliable stand—alone machines. And customers who in the past would willingly wait up to a year for your prod- ucts because they were considered the best new are turning to competitors who can give them something just as good, but faster. Faced with slowed growth and decreased earnings, Dynacorp started mov- ing two years ago to address the new competitive realities. Management reor— ganized the company, moving from a functional organization to a set of end-to-end business units responsible for development, manufacturing, and WHERE TO START 23 marketing. But at the same time the managers decided to retain the existing field organizations rather than create multiple salesforces, a move they saw as costly and possibly a barrier for customers who frequently dealt with Dynacorp for a whole range of products. So, back to you. You’ve returned briefly to New York City, mainly to find an apartment. You figure since you have a few extra hours you’ll stop in and see the man you’re replacing, Carl Greystone, who’s about to retire. Greystone, one of the few people aware of your still—unannounced promotion, is more than happy to meet with you in his office on the thirty-fourth floor of the Dy- nacorp building and give you an overview. “Yes,” he says, gazing with a satisfied smile at the landscape of midtown office towers beyond his office window, “we’ve made the big changes—we’ve reorganized into Regional and Customer Teams, and we have our people thinking about the business in new terms. I think we’re beginning to see the light at the end of the tunnel.” Greystone arranges for you to chat with Ben Walker, Vice president of the Northeast Region, “my most experienced general manager.” Walker assures you the new strategy is headed in the right direction; the problem is that the company is trying to meld an army of free-wheeling equipment salespeople into seamless teams to help customers solve complex office and communica— tion problems. “The skills and attitudes on many levels are mismatched with our current needs,” Walker says, and estimates at least 25 percent of the staff will have to be replaced. Then he walks-you down to the fourteenth floor to meet with branch manager Martha Pauley. The details start getting a little grittier. The reorganization has been so hectic, Pauley tells you, that there hasn’t been time for any of that training on how to sell solutions instead of specific products. She keeps meaning to hold off-site sessions but inst can’t find the timeAnd whenever she’s about ready, someone upstairs revises the job guidelines. What’s more, her people are still losing sales to competitors who offer lower prices and swifter technical support, and that new plant in Asia that was supposed to help cut prices has run into all kinds of problems. 7 Then she takes you down the hall to one of the meetings each account team is supposed to have every two weeks. Upon arriving, Pauley is surprised to find that half the team members are missing; they’re attending the introduc- tion of a new product line. Then come the reports—all bad. The competitors 24 CHAMPIONS or CHANGE are offering betterprices, better support, better integration of equipment and software. _ “This situation is getting very depressing,” remarks a member of the sales team. For you too. Returning to Greystone’s office, you look at your watch and see that you have only a few minutes left before you have to leave for the air- port. You desperately want to talk with Greystone and figure out what’s really going on in this operation you’re about to inherit, but you have time to ask him only four questions. What would you ask? Yes, it is a test in a way—one Delta consultants have given to hun- dreds of managers with whom they’ve done the Dynacorp exercise. What’s interesting is the range of different questions people want to ask Greystone: “Show me your strategic plan.” “What do your monthly and quarterly results look like?” “Describe to me how you implemented the reorganization plan.” “Show me your staffing records.” “Explain your plans for tactical support.” It’s a fascinating exercise. Everyone who participates in it is con— strained by the same knowledge—it’s all contained in a twelve- ' minute videotape—but somehow, everyone comes away with different, and sometimes radically different, ideas of what’s going wrong. 7 Why is that? Let’s step back into character once again and give this a little more thought. You’re going to succeed Greystone, and soon. So what is it you really want to do? You want to take action, of course. Before you can do that, you need an action plan with clearly defined and carefully staged ac— tion steps. Those steps in turn convert solutions into action—so first, you have to arrive at solutions. Clearly, you can’t identify so- lutions unless you fully understand the problems, and that under— standing is impossible until you’ve analyzed the available data. So WHERE TO START 25 the first crucial step in sizing up Dynacorp—or any new or chang- ing situation in which you find yourself—is to collect data. The problem is, the moment you walk in the door of Dyna- corp—or virtually any organization you can think of—you are im- mersed in information of every imaginable kind. It’s not just the hard data contained in research and reports and financials; every- where you turn, people want to give you their version of Dynacorp reality. Years ago in a graduate program at Harvard Business School I took part in a research project headed by Harry Levinson in which five of us were assigned to perform a full-scale diagnosis of a three-hundred—bed hospital in Cambridge, Massachusetts. We each spent fifteen hours a week for eight months just doing diag- nosis, and at the end of those eight months we had a pretty good idea of what was going on inside that hospital. But you don’t have that kind of time. In the business world no one does. So either consciously or subconsciously, you’re going to make some discriminating decisions about what data to collect. That is, you are always going to pick up on some things and ignore others—just as everyone who goes through the Dynacorp exercise zeros in on some things and pays little or no attention to others. Everyone sees the gap between Greystone’s glowing appraisal and the sense of despair that pervaded the team meeting; beyond that, each participant seizes on different symptoms, problems, conflicts, outcomes—different data. Why? Because we all have prior notions of how business systems should work. Anyone stepping into Greystone’s job—in fact, almost anyone with the business experience to have become a manager— has formed some deeply held ideas of how an organization should be structured and how it should operate. Though few of us would describe these notions as an organizational model, that is in fact exactly what they are—a set of assumptions, rarely explicit or all en— compassing but very real to each of us nonetheless. This set of as— sumptions constitutes the ideal against which we match any unfamiliar situation in which we find ourselves. Here’s the problem. Your model—that prism through which you view every organizational situation you’re likely to encounter— is the product of your own experience. Therefore the validity of that model, its capacity to help you understand and predict what’s going to happen in any organizational setting, is based on the ~— 26 CHAMPIONS or CHANGE assumption that what you’ll deal with in the future is what you’ve dealt with in the past. Now think back to Chapter One and the notion that practically everything in the business environment is changing—and chang- ing faster all the time. Where does that leave you if your percep— tual guidebook for sizing up a new situation is obsolete the moment you walk in the door? These aren’t abstract theories. Remember how we got here: I was discussing how every manager’s personal organizational model largely determines what data he or she thinks is important to col— lect. In fact, the model shapes not only what data managers collect but how they collect it—in what form, and from whom—and how they analyze it, what they perceive as problems, what they conceive of as solutions, and how they go about putting those solutions into action. The Congruenee Model Given how crucial organizational models are to each manager’s ability to analyze and act upon a situation involving fundamental change, my colleagues and I have devoted much of our work to refining a model that is profoundly useful. I’m not suggesting that it is the only model available” or even the best one; what I can tell you is that it has been developed over nearly twenty years of hands— on work with practically every kind of organization and that it has worked for literally tens of thousands of managers who have used it It is not heavily biased toward any particular kind of solution; it is, above all else, a helpful tool, one that performs the true func- tion of a model—to take something complex and make it simpler. This model guides managers to an understanding of the con— cept of organizationalfit. It helps them answer the basic question, How do we Understand and predict the patterns of organizational behavior and performance? Because if managers can’t do that, they don’t stand a chance of understanding and managing change throughout the enterprise. When I ask people to draw an organization, the vast majority come up with a traditional table of organization, with columns of boxes connected by straight lines. To be sure, that’s one organiza- tional model; it has enjoyed great popularity for close to two thou- , : Hmlwwv: WHERE TO START Z7 sand years, starting with armies and the Roman Catholic Church. But as a way of looking at organizations, it’s terribly limited and in- credibly static; it leaves you without the essential tools to figure out what’s actually going on along those lines and between those boxes. You could easily draw a table of organization for Dynacorp’s U.S. Customer Relations operation, but you’d still be a long way from diagnosing the problems. Instead, as I’ve worked with CEOs to help them understand how their organizations have to change in order to compete suc- cessfullyrin a constantly changing environment, I’ve employed a much more dynamic way of looking at an organization and orga— nizational fit—what my colleagues and I have come to describe as the congruence model. Some History The congruence model rests on thinking first formalized in the late 19405 when people in the physical sciences developed the concept of a system as a set of elements that took input from the environ- ment, subjected it to some form of transformation, and produced an output (see Figure 2.1 later in this section). Think of this in very simple business terms: a company takes the input of capital, mate- rials, and technology, subjects it to a transformation process, and the result is an output of products, services, earnings, and em— ployment. Moreover, these early theorists believed a true system had the capacity to alter its input and transformation processes based on how the output was received or responded to; it pro— duced and used feedback, in other words. But this systems theory generated little interest. In the mid— 19605, Harvard and University of Michigan researchers looked fur— ther at the common characteristics of systems and organizations: both take input, produce output, are influenced by feedback, and are interdependent—if you change one piece, another piece changes. The work was interesting and insightful—but it still met with a collective shrug. Then in 1975, when Michael Tushman and I were both teaching at Columbia University, we came to believe it was important to develop and teach a unified theory of organiza- tions; that is, we saw applications for systems theory in examining businesses as systems. Building upon the work of others (Katz and 28 CHAMPIONS or CHANGE Kahn, 1966; Lorsch and Sheldon, 1972; Seiler, 1967), we tried to develop a simple, pragmatic approach to the problem. Other peo- ple—in particular Harold Leavitt at Stanford and Jay Galbraith at MIT—were doing the same thing at the same time. The resulting convergence of thought helped me and my colleagues develop and refine the approach that became the congruence model. Some Basic Organizational Components As you’ll see, the model provides a simple, straightforward way to understand not only how an organization looks as a system but also how it works—or doesn’t. Let’s begin by examining the elements that constitute the basic components of every organization. These are among the components we have to analyzerto diagnose orga- nizational fit. Input At any particular time, each organization operates with the fol— lowing set of givens. Taken together, these three factors constitute the input component of the organizational system. The environment. This includes. all of the forces, conditions, and players operating outside the boundaries of the organization. They can be customers, labor unions, competitors, suppliers, techno- logical developments, regulatory restrictions, communitieS—the list goes on. The environment exerts powerful demands that the organization must successfully respond to or die. It exerts con- straints on the organization, and it provides opportunities to capi- talize on organizational competencies. An important note: this model applies equally to organizations and to discrete units within larger organizations; in the latter case, the parent organization be- comes a huge factor in a unit’s external environment. In terms of organizational change remember this: virtually all large—scale change originates in the external environment. It does not bubble up from within the organization through some myste- rious process of spontaneous generation. Something is happening “out there” that is causing so much anxiety that change is un— avoidable. A case in point: back in the early 197 Os, when I was on the staff of the Institute for Social Research at the University of WHERE TO START 29 Michigan, some of my colleagues and I got federal research money to investigate the relationship between quality and worker in- volvement. One day we headed out to One American Road in Dearborn, the worldwide headquarters of Ford Motor Company, to offer Ford executives the chance to participate in our ground— breaking project, at no cost to them. They listened incredulously to our research subject and then asked, “Why would we want to do that?” About ten years later, Ford got interested. Why? Because the explosion in japanese auto sales was sending shockwaves through Detroit, forcing U.S. carmakers to take a close look atjapanese management techniques—including quality and worker involve- ment. Faced with a threat of historic proportions, Ford launched a massive and fairly successful quality initiative of its own, captured in the ubiquitous advertising slogan, “At Ford, Quality is Job One.” But quality didn’t climb to the top of Ford’s chart by itself; it took a lot of help from Toyota and Nissan and Honda. And that’s the way major change almost always starts—from the outside. Resources. These are the organizational assets that have poten- tial value in light of the demands, opportunities, and constraints of the environment. Resources can be tangible assets such as capital, plant, facilities, and numbers of people, or they can-be intangible ones like customer relations or the creativity of key employees. And of Course there’s money. Keep in mind that current assets don’t necessarily hold their value. AT&T, for example, viewed The Net— work—its nationwide system of in—ground copper wire—as one of its most valuable assets. As fiber optics made copper wire obsolete, however, AT8cT found itself forced in 1990 to write off billions of dollars for that very same network. Histmy. This comprises the past events, activities, and crises that continue to influence the way the organization works today. Like people, organizations are massively influenced by their experience, perhaps more than they realize. In the late 19805, I was trying to help Xerox figure out why it was having so little success with joint ventures and alliances. As it turned out, history was a major factor. Xerox, founded as the Haloid Corporation, had initially spent nearly fifteen years developing the process it was to call xerogra- phy. When it designed its revolutionary new copier in the late 1950s and sought a larger partner to assist with production, sales, 50 CHAMPIONS or CHANGE and distribution, it contacted such major corporations as IBM, GE, and RCA—all to no avail. (Tom Watson, the legendary head of IBM, later described his refusal to buy into xerography as the biggest mistake of his career.) In the end Xerox introduced the copier on its own—and the result was one of the most successful product launches in recent history. As a result, however, there is a strong sentiment running through the organization’s subconscious that states, “Real men don’t do joint ventures.” Just think, man- agers will tell you, of the billions that would have been lost if Xerox had found a partner. The historical lesson was clear and resonates to this day: winning means going it alone. As I said at the outset, these three factors—the environment, re— sources, and history—represent the givens in an organization’s sit- uation. In a sense they are the hand each new leader is dealt as he or she tries to decide which cards to play in the process known as strategy (Figure 2.1 illustrates these organizational components). Strategy More specifically, strategy represents the set of decisions made by the enterprise about how to configure its resources vis-a—Vis the de- mands, opportunities, and constraints of the environment within the context of history. Those decisions involve: O Markets. Who are our customers, and which of their needs are we going to meet? 0 Oflerings. What is the set of products or services we will create to meet those needs? 0 Competitive basis. What features will persuade customers to come to us rather than our competitors? Low cost? High qual- ity? Cutting-edge technology? Exceptional customer service? 0 Performance objectives. By .what measures will we determine how successful the other elements of the strategy have been? Keep in mind that I’m referring here to business strategy, not corpo- rate strategy. As I’ll explain in more detail later, there’s a distinct dif- ference. Corporate strategy, as opposed to what I’ve just described, makes fundamental decisions about what'businesses the enterprise wants to be in and typically focuses on portfolio decisions. I’m also Figure 2.1. Organizational System Model: Input, Strategy, and Output. Input Organizational Performance Environment The Operating Organization Resources Strategy Group / Unit Performance History Individual Performance _————————— 52 CHAMPIONS or CHANGE talking here about enacted—not espoused—strategy. Written strategies often have little or nothing to do with what’s really hap- pening. Henry Mintzberg says strategy is best seen not by standing at the front of a ship and looking at where you’re going, but by standing at the stern and seeing where you’ve been (Mintzberg, 1994). There’s a lot of truth to that. Output The ultimate purpose of the enterprise is to produce output—the pattern of activities, behavior, and performance of the system at the following levels: 0 The total system. There are any number of ways to look at the ‘ output of the total system—goods and services produced, rev- enues, profits, employment created, impact on communities, and so on. V 0 Units within the system. The performance and behavior of the various divisions, departments, and teams that make up the organization. 0 Individuals. The behavior, activities, and performance of the people within the organization. Although this might seem basicfit’s also extremely useful. When— ever I’m invited into a new situation and asked to offer a diagno— sis, my first step—-just as it would be in the Dynacorp exercise—is to try to understand the environment, resources, history, and strat— egy. Then I look at performance—the output side of the system—' and measure it against the performance objectives embodied in the strategy. The existence of a gap between objectives and out— put—and the size of the gap—provides my first glimpse of the di- mensions of that particular organization’s problems. The Operating Organization At the heart of the congruence model is the operating organization. The operating organization is the transformation mechanism that takes the strategy, in the context of history, resources, and envi- ronment, and converts it into a pattern of performance. In this model, just as the all—encompassing organizational system has its WHERE TO START 55 basic components, the operating organization has its major com- ponents: its work, its people, the formal organizational arrange— ments, and the informal organizational arrangements (Figure 2.2 offers a summary). Analyzing these components will also be part . of our diagnosis of organizational congruence. Let’s examine each in turn. ' Work Work is the defining activity of any enterprise—the basic and in— herent tasks to be performed by the organization and its parts. Visit a company you haven’t been to in five years, and the offices—even entire buildings—may well be different. You may be unfamiliar with the new equipment people are using. For that matter, you might not recognize many of the people. But the work the people are doing, in terms of creating a category of goods or providing certain types of service, will be essentially the same. For example, DowJones and Company, which for decades has been publishing the Wall Streetjoumal, now offers all kinds of on— line services, but the core work is still the same—collecting, pro— cessing, and distributing news and information of interest to the business community. When trying to understand the characteristics of work in any organization, there are three elements to look at: 0 Skills and knowledge demands. What do people need to know in order to do this work? ' Rewards. What are the psychic rewards people derive from their work? These can differ immensely from one industry to another. Producing pine boards, for example, offers signifi- cantly different rewards than designing business software which is different again from managing investment portfolios. 0 Uncertainty. What is the degree—of uncertainty associated with the work? What are the key sources of stress and uncertainty that have to be managed? 0 Impact of strategy. What are the constraints or demands placed upon the work within the context of strategy? For example, Wal—Mart and Nordstrom are both general retailers, but strate- gic decisions about the basis on which each competes result in two very different operations. Wal—Mart competes on the basis A) Figure 2.2. Four Major Components of the Operating Organization. Formal Organizational Component Work People Arrangements Definition The basic and inherent The characteristics The various work to be done by the of individuals in the structures, processes, organization and its parts organizations methods that are formally created to get individuals to perform tasks V Critical The types of skill and Knowledge and skills Organizational design, features of each knowledge demands including grouping of component the work poses Needs and preferences functions, structure, or The types of rewards the work inherently can provide The degree of uncertainty associated with the work, including interdependence, routineness The constraints on performance demands inherent in the work (given a strategy) Perceptions and expectancies ) \ ‘ Background factors subunits; coordination and control mechanisms Job design Work environment Human resource management systems Informal Organizational Arrangements The emerging arrangements including structures, processes, relationships Leader behavior Intragroup relations Intergroup relations Informal working arrangements Communication and influence patterns WHERE TO START 55 of low cost and has developed purchasing, warehousing, distri- bution, and sales processes all designed to lower expenses and keep prices low. Nordstrom offers its affluent customers a unique shopping experience and selects its merchandise, de- signs its stores, and trains its salesforce accordingly. People In order to diagnose any organizational system you have to analyze four characteristics of the people who work there: 0 What knowledge and skills do the people bring to their work? 0 What are the needs and preferences of the people in the orga- nization in terms of the benefits they expect to flow from their work? ' 0 What are the perceptions and expectations they develop over time? 0 What are the demographics? What does the workforce look like in terms of age, gender, and ethnicity as these factors re,- late to the work? The Formal Organization If all of us were genetically programmed to get up each morning, stream from our homes in lemminglike fashion to our places of work and voluntarily—perhaps even cheerfully—perform our as- signed tasks, the model could stop with work and people. Clearly, however, that’s not the way the world works, and to compensate for it organizations of every kind have developed formal organizational arrangements: structures, systems, and processes that embody the patterns each organization develops for grouping people and the work they do and then coordinating their activity in ways designed to achieve the strategic objectives. The Informal Organization So far the operating organization on the congruence model in- cludes the work, the people, and the formal organizational arrangements. But there’s a final element that’s crucial to under- standing how organizations actually operate. Ifyou put three peo- ple together for more than fifteen minutes, it becomes obvious that another powerful force is at work. Here’s what I mean. 36 CHAMPIONS OF CHANGE Consider the city of New York. It has an extensive and intricate system of streets that perform several functions. One, of course, is to facilitate the flow of traffic (I’m speaking theoretically). Another is to store vehicles; this is commonly referred to as parking. But people in New York, despite their many lovable traits, are not known as particularly tidy. So there’s an additional work require- ment: cleaning the streets. So how does the city juggle the com- peting demands of storage and cleaning? Alternate side of the street parking and cleaning, reinforced by street signs every— where—“No parking this side of the street every Tuesday, Thurs- day, and Saturday, 8:30 to 11:30 A.M.”—and a fleet of city tow trucks. In terms of our model the city has developed a formal or— ganizational arrangement to accommodate the competing de- mands of two work requirements. But that formal arrangement means that every morning, armies of New Yorkers have to move their cars to make way for the street sweepers and garbage trucks. So where do they go? To the other side of the street of course, where they double—park. But double—parking is illegal in New York City. Do these people get tick- eted? No. The slips of paper you see on the Windshields of these double-parked cars just carry the phone numbers where the own— ers can be reached in a hurry by the owners of the cars they’re blocking. k Where is this arrangement written down? Nowhere. But some- how eight million New Yorkers all know about it and make it work surprisingly well. What has emerged over time is an informal orga- nizational arrangement that balances the demands of the work and the needs of the people. The informal organization, then, includes the emerging arrangements and interaction patterns that overlap the formal structures and processes. More specifically it encompasses 0 The organizational culture—the values, beliefs, and behavioral norms ° The informal rules and work practices 0 The patterns of communications and influence 0 The actual behavior of leaders, rather than their prescribed roles. WHERE TO START 37 Later in this book I’ll describe many of these elements in terms of an organization’s operating environment. And I’ll be returning to the issue of leaders’ behavior over and over again. For now it’s suffi- cient to say that no single factor has more influence in changing an organization’s operating environment than the day—to—day be- havior of its leaders and managers. Several years ago, for instance, I worked on a project involving the branch banking operations of what is now called Banc One. Each branch was constructed and de- signed identically, each was suppoSed to do the same work, each had a top supervisor with the same title and job description. Yet each branch had a distinctly different feel—and the determining factor turned out to be the behavior of the branch manager. The Concept of Fit There’s one more Vital issue to discuss before leaving this central portion of the model. Russell Ackoff, a noted systems theorist, has described it this way. Suppose for a moment that you could build your own dream car. You might take the styling of ajaguar, the power plant of a Porsche, the suspension of a BMW, and the interior of a Rolls— Royce. Put them together and what have you got? Nothing. Why? Because they weren’t designed to go together. They don’t fit. You can see the concept brought to life nearly every time an all—star team of professional athletes takes the field. Inevitably, these tem— porary amalgams of world-class talents produce teams that are woe- fully less than the sum of their parts. This concept of fit is crucial to understanding the organiza— tional model I’ve been describing. In systems the interaction of the components is more important than the components themselves. In terms of the organization, its overall effectiveness relies on the internal congruence, or fit, of its basic components. The tighter the fit, the greater the effectiveness. As an example, think about Sun Microsystems, one of the most successful companies in Silicon Valley. Founded in 1982, it was by 1996 experiencing an extraordinarily high degree of internal fit. CEO Scott McNealy redesigned the company in the early 19908 to create a structure he describes as “loosely coupled, tightly aligned” 38 CHAMPIONS or CHANGE independent business units. Some are so independent, in fact, that some of their customers are Sun’s competitors. That kind of for- mal structure in turn encourages independence, entrepreneurial innovation, and a heavy dose of competitiveness—all in keeping with the company’s strategy. At the same time, McNealy’s own highly informal—sometimes to the point of quirky—personality has spawned a consciously anticorporate operating environment. There are no assigned park- ing spaces or executive dining rooms, no luxurious corporate offices. Not surprisingly, that environment attracts the creative en- gineers and scientists Sun needs to produce the kinds of break- throughs—such as the Java system for creating Internet materials that can be read by any computer—that have fueled the company’s success. ‘ For now, at least, each component of Sun’s organization is aligned and in reasonable congruence. The structure and the work support the strategy, and the work provides the challenges, and the operating environment provides the atmosphere to attract the highly skilled creative professionals the company’s strategy re- quires. Somewhat remarkably, Sun maintained that degree of fit as it grew from a tiny start-up run by four twenty—seven-year—olds to a $7—billion-a-year corporation with 14,500 employees. Typically, ex- ponential growth creates huge problems because it almost always throws some organizational component out of alignment. For in— stance, the demands of the work and the size of the workforce fre- quently result in controlling bureaucracies, which then destroy the entrepreneurial spirit that made the company successful in the first place. So far, Sun has escaped that dilemma. Principles Implied by the Model This, then, is the essence of the congruence model: the greater the congruence among the internal components (see Figure 2.3), the more effective organizations will be in transforming their strate- gies into performance. Conversely, the poorer the fit, the wider the gap between strategy and performance. For managers about to em— bark on change, identifying the points at which the organizational fit is breaking down is the vital first step in figuring out what has to change. WHERE TO START 59 . Figure 2.3. Meaning of Fit for Each Component. Fit Issues Individual-organization A To what extent individual needs are met by Individual-task Individual-informal organization Task-organization Task-informal organization Organization—informal organization the organizational arrangements. To what extent individuals hold clear or distorted perceptions of organizational structures; the convergence of individual and organizational goals. To what extent the needs of individuals are met by the tasks; to what extend individuals have skills and abilities to meet task demands. ' To what extent individual needs are met by the informal organization. To what extent the informal organization makes use of individual resources, consistent with informal goals. To what extent organizational arrangements are adequate to meet the demands of the task; to what extent organizational arrangements tend to motivate behavior consistent with task demands. To what extent the informal organization structure facilitates task performance; to what extent it hinders or promotes meeting the demands of the task. To what extent the goals, rewards, and structures of the informal organization are consistent with those of the formal organization. 40 CHAMPIONS or CHANGE Let’s go back to Dynacorp one more time. Think about how you would summarize what was going wrong there. The answer? Nothing fit. The Dynacorp we glimpsed was riddled with poor con- gruence. In a company where lone—wolf salespeople had tradi— tionally succeeded by selling individual pieces of hardware, these same people, without any training, were being asked to operate as team members selling integrated office solutions. People were being asked to operate—and not doing it very effectively—without the technical knowledge or team skills essential to meeting the re- quirements of the new work. Wherever you looked in Dynacorp, nothing seemed to fit. In case after case the new requirements of work and the formal organization were running headlong into the old realities of mismatched people, obsolete skills, inadequate training, and a resistant culture. Figure 2.4 shows the full congruence model, with the various A components discussed so far. For anyone involved in planning and managing change, this model implies three general principles that can boost the odds of success. Or if ignored, they can doom the ef- fort to failure. 1. Make sure the new strategy fits the realities of the organi— zation’s resources and environment. In the mid—19905, Apple Com- puter’s successive regimes stumbled from one disaster to another as they misjudged the external environment and underestimated their need to find a powerful partner to help stave off the growing dominance of Microsoft and the Windows operating system. At the same time, cost-cutting measures depleted and demoralized the ranks of first—class engineers who could provide Apple with the needed product innovations. 2. Make sure the strategy fits the formal structures, systems, and processes. Without that fit the most brilliant strategy is doomed from the start. When I first started working with Xerox, managers excitedly told me about their far-flung subsidiaries where lots of cre- ative people were inventing new systems. The executive in charge explained that the major issue at that time was integration—how to get this array of innovative office systems to talk to each other. The company’s solution was to set up each of the development groups as a separate independent operating unit. Well, if your strategic goal is integration, but your formal structure eliminates Congruence Model. u4t‘ Figure 2 t n C m n 0 .w n E Resources Individual 42 CHAMPIONS OF CHANGE nearly all coordination and interaction among the units, you’re almost certainly going to fail—--and this attempt did. 3. Make sure there’s fit among all the internal components of the organization—the strategy, the work, the formal and informal organizational arrangements, and the people. As I’ll illustrate throughout this book, a lack of fit between any of the organiza- tional components—between people and their work requirements, between formal structures and the informal operating environ- ment, and so on—can produce huge problems. Whatever you do, don’t assume that by changing one or two components of the model you will cause the others to fall neatly into place. Four Additional Thoughts on the Model First, you can think of the congruence model as describing two facets of the organization. Looking at the illustration of the model in Figure 2.4, think of the horizontal axis—the work and the for— mal organization—as the technical—structural dimension of the op- erating organization. The vertical axis—the people and the informal organization—make up the organization’s social dimen- sion. You can’t ignore either axis. In terms of congruence every- thing has to fit. Clearly, that was one of the major shortcomings of process reengineering in the early 1990s. Reengineen'ng said, essentially, that you should change your formal organization in order to better perform the processes that make up your work. That’s a narrow and woefully incomplete View of the organization. Reengineering had almost nothing to say about an organization’s people and its informal structures, and consequently, rarely produced the scale of change it promised. Second, in contrast with traditional organizational models, the congruence model doesn’t favor any particular approach to orgae nizing. Instead, it runs counter to many of the snake-oil bromides being peddled today that purport to offer solutions that will work in all situations. The congruence model says, “There is no one best structure. There is no best culture. What matters is fit.” This model does not suggest you should try to copy your competitor’s strategy or structure or culture; it says your most successful strategy will be one that accurately reflects your own set of environmental reali- WHERE TO START 45 ties, no one else ’5. It is a contingency model of how organizations operate and as such is adaptable to any set of structural and social circumstances. Third, this model helps you understand the dynamics of change, because it allows you to trace the ripple of change through the organizational system. As I said earlier, all major organizational change starts in the environment. It next shows up in comparisons of output to expectations, when people either see or anticipate changes. That leads to a review of strategy—what are we going to do to regain or extend our competitive advantage? Inevitably, this means changes in work and the formal organization—which is where many companies stop.Just look at Dynacorp. The environ- ment Changed; they had problems with output and saw a drop in sales and profits; they changed their strategy, realigned the work,“ and altered the formal structures. But they ignored their people and the informal organization. The result—huge problems of fit. Indeed, Dynacorp embodies what we have come to View as the clas~ sic change scenario. Fourth, it’s important to View the congruence model as a tool for organizing your thinking about any organizational situation, rather than as a rigid template you can use to dissect, classify, and compartmentalize what you observe. It’s a way to make sense out of auconstantly changing kaleidoscope of information and impres- sions—a way to think about organizations as movies rather than snapshots. You can’t look at a complexrorganization as a static pat- tern of photos, capturing a narrow scene as it existed at one point in time, all neatly pasted in a scrapbook. Instead, it’s a dynamic set of people and processes, and your challenge is to digest and in- terpret the constant flow of pictures—the relationships, the inter- actions, the feedback loops—all the elements that make an organization a living organism. In the end it is those dynamics that make change so fascinating and so challenging. 0%) Now, keeping in mind this model for understanding organizations, it’s time to take a closer look at the dynamics of change and their implications for leaders and managers. ...
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