Chapter 16: Strategic development and managing strategic change

Chapter learning objectives

Upon completion of this chapter you will be able to:

• describe the concepts of intended and emergent strategy (including how these relate to unrealised and realised strategies) and how these can arise
• describe how process redesign, quality initiatives and e-business can contribute to emergent strategies for an organisation
• describe, with the use of a diagram, what strategic drift is and how it can arise
• describe the types of strategic change in terms of a matrix of nature of change (incremental/big bang) and scope of change (realignment/transformation)
• determine the changes that might be needed in an organisation in terms of the cultural web (symbols, stories, rituals, control systems, structure, power)
• explain the reasons for resistance to change typically found in all organisations
• advise on which of the following leadership styles:
  • education and communication
  • collaboration/participation
  • intervention
  • direction
  • coercion/edict
  might be suitable for specific change environments
• explain for an organisation the roles of strategic leadership, middle managers and outsiders
• describe the main methods that can be used to manage strategic change.

1 Patterns of strategy development

Intended and planned strategies

An intended strategy could be defined as 'a strategy whose objectiveshad been defined in advance and whose main elements had been developedbefore the strategy commenced’.

It is a formal, planned systematic approach to strategy formulationand implementation (such as the rational model of strategy makingdiscussed in chapter 1).

Revision of planned strategies

As discussed in chapter 1, the rational approach involves the following steps.

(1)Strategic analysis.

(2)Strategic choice.

(3)Strategic implementation.

For intended strategies one would expect each stage to be completed before the next starts.

The benefits of a strategic planning system are as follows:

• it can provide a structured means of analysis and thinking about complex strategic problems
• managers will be required to question and challenge the received wisdom they take for granted
• it can encourage a longer-term view of strategy than might otherwise occur
• it can be used as a means of control by regularly reviewing performance and progress against agreed objectives or previously agreed strategic direction
• it can be a useful means of co-ordination e.g., by bringing together the various SBU strategies within an overall corporate strategy, or ensuring that resources within a business are co-ordinated to put the strategy into effect;
• it may help to communicate the intended strategy
• it can be used as a way of involving people in strategy development, therefore perhaps helping to create ownership of the strategy.

Emergent strategies

Several theorists have recognised a problem with this static model:it is not how it is done in real life. They believe that strategy isactually a dynamic and interactive process. Henry Mintzberg made adistinction between deliberate strategy and emergent strategy.

An emergent strategy is a set of actions that is consistent over time,has not been stated in a formal plan and has developed or emergedoutside the formal plan and between planning reviews.

Further details on Mintzberg's ideas

Illustration – Patterns of strategy development

Mintzberg argues that strategy emerges over time as intentionscollide with and accommodate a changing reality, rather than being dueto a deliberate planning process.

This emergent strategy would be one that arises from an externalstimulus not envisaged in the planned strategy. For example, a supplierpursuing modern ideas on supplier/customer relationships might encouragea partnership approach to sourcing. It is easy to imagine that buyersin the customer organisation might see benefits in this, and couldpursue the idea to the point where sourcing strategy took on an aspectnot at all contemplated when planned strategic developments were laiddown.

Mintzberg also believes that few strategies are purely deliberate or purely emergent but a mixture of the two:

• one means no control the other means no learning
• most strategies are a mixture of both to exercise control while fostering learning
• strategies have to form as well as be formulated.

Illustration – Emergent strategy

Potbelly Sandwich Works began in 1977 as a small antique store runby a young couple. Despite the fast-paced, never-a-dull-moment world ofantique dealing, the couple decided to bolster their business by makingsandwiches for their customers. What began as a sideline, turned out tobe a stroke of genius. Soon, people who couldn't care less about vintageglass doorknobs were stopping by to enjoy special sandwiches andhomemade desserts in this unusual atmosphere. As the years passed, thelines grew. Booths were added, along with ovens for toasting sandwichesto perfection, hand-dipped ice cream – even live music. The littleantique shop had become the full-fledged, totally unique sandwich chainwe see in America today.

Strategic innovation

Strategic innovation is the creation of growth strategies, newproduct categories, services or business models that change the game andgenerate significant new value for consumers, customers and theorganisation.

Mintzberg and others are of the opinion that deliberate strategyfocuses on control, while emergent strategy emphasises learning –there are many different ways that organisations can learn to add valueto their product or service through areas such as process redesign ande-business.

Illustration 1 – Strategic innovation

Ford – an example of process redesign

Ford redesigned their business and manufacturing process from justmanufacturing cars to manufacturing quality cars, where the number onegoal is quality. This helped Ford save millions on recalls and warrantyrepairs. Ford has accomplished this goal by incorporating barcodes onall their parts and scanners to scan for any missing parts in acompleted car coming off the assembly line. This helped them guarantee asafe and quality car.

Swatch – an example of process redesign

Swatch reduced costs with ultrasonic welding that eliminated theneed for screws to close watch casings. The company also simplified themanufacturing process, fully mechanising it. The net result was thelowest price/lowest cost structure in the world for a fine watch.

Waterstones – an example of e-business

Waterstones, the booksellers, have branches all over the UnitedKingdom but in 2001 they formed a strategic alliance with Amazon foron-line sales, and the website for both is now http://www.amazon.co.uk.

In chapter 1 the strategy lenses explained that an organisation'sstrategy does not solely come from its plans and design strategy, it canalso come from experience and ideas.

Illustration 2 – Strategy developed through ideas and experience

One of the more powerful examples of how operating managers canhave a huge impact on the real-life strategy of the firm is Intel. Whilethe corporate office continued to conceive of Intel as a memory chipcompany, an operating rule in their manufacturing organisation (tomaximise gross margin per wafer of square inch) meant that themanufacturing floor was increasingly allocating more space tomicroprocessors. As that more profitable market grew, Intel became amicroprocessor company, not a memory company. These operating-leveldecisions changed the de facto strategy of the firm prior to thecorporate office's conception of the company strategy.

Realised and unrealised strategies

When planned strategies are not realised it is often because events develop in unexpected ways:

• the organisation's underlying assumptions turn out to be invalid
• the pace of development overtakes it
• changes in the organisation's external environment, e.g. changes in the market for the goods and services that the firm produces and in the nature of the competition facing the company
• the organisation's internal environment changes.

The rational strategic planning process has also been criticised because it ignores the effects of:

• cultural influences in maintaining strategic stability and sometimes resisting strategic change
• the power structure within the organisation
• the effect of politics and the relative influence on the decision-making of different individuals and groups.

Overall, this can mean that an organisation's actual or realisedstrategy can be very different from the original planned or designedstrategy.

2 Strategic drift

Strategic drift describes a situation where the organisation'sstrategy gradually, if imperceptibly, moves away from the forces at workin its environment.

Over time, organisations will have to deal with many differenttypes of change and it is important that these changes are managedeffectively.

Explanation of the stages in strategic drift

• The organisation takes a series of logical, incremental steps that were part of its plan to change ahead of the market and develop a competitive advantage.
• The rate of change in the market place speeds up, and the firm's incrementalist approach is not enough to maintain its advantage, and it is left behind.
• Faced with a stimulus for action, managers may seek to extend the market for their business, but may assume that it will be similar to their existing market, and therefore set about managing the new venture in much the same way as they have been used to.
• If this is not successful, strategy development is likely to go into a state of flux, with no clear direction, further damaging performance.
• Eventually transformational change is required if the demise of the organisation is to be avoided.

  Transformational change tends to occur when performance has fallen off significantly, i.e. in times of crisis.

Illustration of strategic drift

With hindsight, retail observers could see signs of strategic driftin the M&S of the late 1980s – the arrogance of assuming thatconsumers would adapt to M&S assumptions about shopping behaviourrather than vice versa.

The problem was that the drift was imperceptible at the time, notonly to managers but to other stakeholders too. Because of the laggedeffect on performance it did not show up until a decade later.

3 Strategic change

Types of strategic change

Change can be classified by the extent of the change required, and the speed with which the change is to be achieved:

Types of change

Explanation of the axes

• Transformation entails changing an organisation's culture. It is a fundamental change that cannot be handled within the existing organisational paradigm.
• Realignment does not involve a fundamental reappraisal of the central assumptions and beliefs.
• Incremental change can take a long period of time, but results in a fundamentally different organisation once completed.
• Big Bang change is likely to be a forced, reactive transformation using simultaneous initiatives on many fronts, and often in a relatively short space of time.

Illustration 3 – Strategic change

Strategic change is by definition far-reaching. We speak ofstrategic change when fundamental alterations are made to the businesssystem or the organisational system. Adding a lemon-flavoured Coke tothe product portfolio is interesting, maybe important, but not astrategic change, while branching out into bottled water was – it was amajor departure from Coca-Cola's traditional business system.

Selecting an approach to strategic change

Another way that evolution can be explained is by conceiving of theorganisation as a learning system. However, within incremental changethere may be a danger of strategic drift, because change is based on theexisting paradigm and routines of the organisation, even whenenvironmental or competitive pressure might suggest the need for morefundamental change.

In selecting an approach to strategic change, most managersstruggle with the question of how bold they should be. On the one hand,they usually realise that to fundamentally transform the organisation, abreak with the past is needed. To achieve strategic renewal it isessential to turn away from the firm's heritage and to start with aclean slate. On the other hand, they also recognise the value ofcontinuity, building on past experiences, investments and loyalties. Toachieve lasting strategic renewal, people in the organisation will needtime to learn, adapt and grow into a new organisational reality.

The 'window of opportunity' for achieving a revolutionary strategicchange can be small for a number of reasons. Some of the most commontriggers are:

• competitive pressure – when a firm is under intense competitive pressure and its market position starts to erode quickly, a rapid and dramatic response might be the only approach possible. Especially when the organisation threatens to slip into a downward spiral towards insolvency, a bold turnaround can be the only option left to the firm.
• regulatory pressure – firms can also be put under pressure by the government or regulatory agencies to push through major changes within a short period of time. Such externally imposed revolutions can be witnessed among public sector organisations (e.g. hospitals and schools) and highly regulated industries (e.g. utilities and telecommunications), but in other sectors of the economy as well (e.g. public health regulations). Some larger organisations will, however, seek to influence and control regulation.
• first mover advantage – a more proactive reason for instigating revolutionary change, is to be the first firm to introduce a new product, service or technology and to build up barriers to entry for late movers.

Test your understanding 1

Briefly explain the four types of strategic change in an organisation.

4 Organisational culture

Introduction

For change to be effective an organisation will often have tochange its culture. The extent of the change required will be influencedby the type of change that is planned. For example, revolution islikely to require a greater cultural change than adaptation.

Cultureis the set of values, guiding beliefs, understandings and ways ofthinking that are shared by the members of an organisation and is taughtto new members as correct. It represents the unwritten, feeling part ofthe organisation.

Culture is 'the way we do things around here' (Charles Handy).

Culture is a set of 'taken-for-granted' assumptions, views of the environment, behaviours and routines (Schein).

The effect of culture

Culture, as a set of taken-for-granted assumptions, will effect:

• strategy – what should the company do? What can it do?
• approach to strategic planning. Strategy as design, experience and ideas
• perceptions about competitors
• perceptions about customers
• management style
• attitude to various stakeholders
• ethical behaviour
• attitudes towards CSR.

Cultural web

The cultural web was devised by Gerry Johnson as part of his workto attempt to explain why firms often failed to adjust to environmentalchange as quickly as they needed to. He concluded that firms developed away of understanding their organisation – called a paradigm – andfound it difficult to think and act outside this paradigm if it wereparticularly strong.

The different elements of the cultural web

It is concerned with the manifestations of culture in the organisation and has six inter-related elements.

• Routines and rituals – routines are 'the way things are done around here' and may even demonstrate a beneficial competency. They can be the written or unwritten rules of the game within the organisation.
• Stories and myths – that employees tell one another and others about the organisation, its history and personalities; used to communicate traditions, standards and role models.
• Symbols – such as logos, offices, cars, titles, type of language and terminology commonly used become a shorthand representation of the nature of the organisation.
• Power structure – formal or informal power or influence by virtue of position, control of resources, who the person knows, or history. This may be based on management position and seniority but in some organisations power can be lodged with other levels or functions.
• Organisational structure – reflects the formal and informal roles, responsibilities, and relationships and ways in which the organisation works. Structures are likely to reflect power.
• Control systems – the measurement and reward systems that emphasise what is important to monitor and to focus attention and activity upon.

Illustration 4 – The cultural web in local government

A cultural web for a local government organisation could look like the following:

Test your understanding 2

Outline the cultural elements of a state-controlled health service provider in a cultural web.

Culture and change

Many organisations find that some elements of the cultural web areeasier to change than others. For example, it may be easier to changethe formal organisational structure than it is to change longestablished routines and habits.

Change management looks at how these changes can be achieved effectively and efficiently.

Using the cultural web to map change

The concept of the cultural web is a useful device for mapping outchange but its real worth is in the fact that we can identify whichelements of culture need to change. Questions to ask include:

5 Models of the change process

The change process – Lewin

The process of change, shown in the diagram below, includesunfreezing habits or standard operating procedures, changing to newpatterns and refreezing to ensure lasting effects.

Explanation of the three stages

The process of changing the level of quality of customer service comprises three stages.

• Unfreezing – create the initial motivation to change by convincing staff of the undesirability of the present situation.
• The change process itself – mainly concerned with identifying what the new behaviour or norm should be. This stage will often involve new information being communicated and new attitudes, culture and concepts being adopted.
• Refreezing or stabilising the change – implying reinforcement of the new pattern of work or behaviour by rewards (praise, etc).

Force field analysis

Lewin also emphasised the importance of force field analysis. Heargued that managers should consider any change situation in terms of:

• the factors encouraging and facilitating the change (the driving forces)
• the factors that hinder change (the restraining forces).

If we want to bring about change we must disturb the equilibrium by:

• strengthening the driving forces
• weakening the restraining forces
• or both.

The model encourages us to identify the various forces impinging onthe target of change, to consider the relative strengths of theseforces and to explore alternative strategies for modifying the forcefield.

Extra Test Your Understanding

Your organisation is going through a big upheaval and you are not very pleased – in fact you are quite worried.

What could your manager do or say to increase your resistance.

Solution

Managers can increase resistance by:

• failing to be specific about a change
• failing to explain why change is needed
• not consulting
• keeping people in the dark
• creating excess work pressure
• expecting immediate results
• not dealing with fears and anxieties
• ignoring resistance.

Illustration 5 – Unfreezing existing behaviour

Jack Black – motivational speaker

Grants – the whisky producers – introduced a big-bang changestarting with a physical move and then a change in organisationalstructure. The workforce was less than enthusiastic and managementbrought in Jack Black and made it compulsory for the staff to attend hisMindStore course. Jack's motivating presentation style moved hisaudience to make massive changes in their way of thinking, whileinspiring and entertaining them. His contribution to innovating changewithin Grants and other organisations throughout the UK and Europe hascreated a reputation that is second to none. Jack has taught theMindStore programme to people as diverse as world champion athletes,premier football clubs, company directors, musicians, engineers, membersof the general public and a wide range of organisations and blue chipcompanies.

6 Overcoming resistance to change

Part of unfreezing existing behaviour will be to break downresistance to change. Resistance to change is the action taken byindividuals and groups when they perceive that a change that isoccurring is a threat to them.

Resistance is 'any attitude or behaviour that reflects a person's unwillingness to make or support a desired change'.

Resistance may take many forms, including active or passive, overtor covert, individual or organised, aggressive or timid. For each sourceof resistance, management need to provide an appropriate response.

Reasons for resisting change

According to Kotter and Schlesinger (1979) there are four reasons that explain why certain people resist change.

• Parochial self-interest (some people are concerned with the implication of the change for themselves and how it may affect their own interests, rather than considering the effects for the success of the business).
• Misunderstanding (communication problems; inadequate information).
• Low tolerance to change (certain people are very keen on security and stability in their work).
• Different assessments of the situation (some employees may disagree on the reasons for the change and on the advantages and disadvantages of the change process).

Leadership styles

Kotter and Schlesinger set out the following change approaches to deal with resistance:

Explanation of the Kotter and Schlesinger styles

• Participation – aims to involve employees, usually by allowing some input into decision making. This could easily result in employees enjoying raised levels of autonomy, by allowing them to design their own jobs, pay structures, etc.
• Education and communication – used as a background factor to reinforce another approach. This strategy relies upon the hopeful belief that communication about the benefits of change to employees will result in their acceptance of the need to exercise the changes necessary.
• Power/coercion – involves the compulsory approach by management to implement change. This method finds its roots from the formal authority that management possesses, together with legislative support.
• Facilitation and support – employees may need to be counselled to help them overcome their fears and anxieties about change. Management may find it necessary to develop individual awareness of the need for change.
• Manipulation and co-optation – involves covert attempts to sidestep potential resistance. The information that is disseminated is selective and distorted to only emphasise the benefits of the change. Co-optation involves giving key people access to the decision-making process.
• Negotiation – is often practised in unionised companies. Simply, the process of negotiation is exercised, enabling several parties with opposing interests to bargain. This bargaining leads to a situation of compromise and agreement. 

Addressing resistance to change

Test your understanding 3

A manager is in charge of a team that has been given the task ofintroducing a new management reporting system into regional offices.There is considerable resistance to the changes from the officemanagers, and comments that you have heard include the following.

• I have more important work priorities to take up my time.
• I'm used to the old system.
• The new system is too complicated.
• The new system will create more paperwork.
• The new system will make me more accountable.
• My job in the new system is not clear.

How would you try to deal with this resistance to change?

7 The context for change (Balogun and Hope Hailey)

For change to be successful, implementation efforts need to fit theorganisational context. There is no simple 'off the shelf' approachthat will work for all organisations.

The change kaleidoscope was developed by Julia Balogun and VeronicaHope Hailey to help managers design such a 'context sensitive' approachto change.

Explanation of the model

The kaleidoscope has three rings:

• The outer ring relates to the wider strategic change context.
• The middle ring relates to specific contextual factors that need to be considered when formulating a change plan.
• The inner circle gives a menu of choices and interventions ('design choices') available to change agents.

Contextual features

• Time – is there time for longer term strategic development or does the firm have to react quickly to a crisis?
• Scope – how much of the organisation will be affected? Is the change best described as realignment or transformation?
• Preservation – which aspects of working, culture, competences and people need to be retained?
• Diversity – the need to recognise that different departments (e.g., marketing and R&D) may have different sub-cultures.
• Capability – whether abilities exist to cope with the change. These can be on an individual, managerial or organisational level.
• Capacity – are resources (e.g. money, managerial time) available to invest in the change process?
• Readiness – are staff aware of the need for change and are they committed to that change?
• Power – how much authority and autonomy do change agents have to make proposed changes?

Each of these factors can be assessed as positive, negative orneutral in the context of change. Positive features facilitate changeand negative ones restrict change.

Design choices

Design choices represent the key features of a change management approach:

• Change path – clarifying the types of change in terms of timescales, the extent of change and the desired outcomes.
• Change start point – where the change is initiated (e.g. top-down or bottom up).
• Change style – which management style should be adopted (e.g. collaborative, participative, directive or coercive)?
• Change interventions – which mechanisms should be deployed (e.g. education, communication, cultural interventions)?
• Change roles – assigning roles and responsibilities (e.g. leadership, use of consultants, role of change action teams).

Illustration 6 – Strategic change

Glaxo

Glaxo Smith Kline ('Glaxo') is often quoted as an example of a firm that has successfully managed change.

• Glaxo views change as an ongoing process rather than a series of programmes. This generally means that change timescales are thought of in years rather than months ('time' context positive).
• It also allows an emphasis on ongoing realignment rather than transformation ('scope' context positive).
• Permanent organisational development units exist at national, regional and global levels. The input of these into executive teams ensures that cash and time resources are made available ('capacity' context positive) and that directors have a high readiness for change. (Note: Some writers have commented that Glaxo's sales force were not as open to change during the Glaxo Welcome merger in the 1990s when the 'readiness' context was classified as negative overall).

8 Managing the change – the people involved

Effective leadership is crucial for any organisation. The previouschapter explained how some managers might achieve change by beingtransactional, whereas others might take a more transformationalapproach. The following section looks at who these leaders might be.

Strategic leadership

Strategic leadership means having the ability to anticipate,prepare and get positioned for the future. A leader must be 'tuned in'to the signals that provide insight about the needs and wants of teammembers, senior management and suppliers. Such leaders must have:

Who are strategic leaders?

Strategic leaders are individuals upon whom strategy development and change are seen to be dependent.

• They are individuals personally identified with and central to the strategy of their organisation.
• Their personality or reputation may result in others willingly deferring to them and seeing strategy development as their province.
• In some organisations an individual may be central because he or she was its owner or founder; often the case in small businesses.
• It could be that an individual chief executive has turned round a business in times of difficulty and, as such, personifies the success of the organisation's strategy.

Middle managers

Middle managers – are the linking pin between the seniormanagement team and the rest of the organisation. They haveresponsibility for helping their staff through the change process whilesimultaneously undertaking change themselves. They have four roles toperform. They need to:

• undertake personal change
• help their teams through change – build up and maintain the momentum of change until the change is completed and act as facilitator
• implement the necessary changes in their parts of the business – encourage individuals to use their initiative and put emphasis on teamwork
• keep the business going in the interim.

The change agent

Whether internal or external, the change agent is central to the process, and is useful in helping the organisation to:

• define the problem and its cause
• diagnose solutions and select appropriate courses of action
• implement change
• transmit the learning process to others and the organisation overall.

Skills and attributes of change agents

The skills and attributes of the change agent would include:

Leadership skills – Kanter

Attributes of companies that manage change successfully.

• The imagination to innovate.
• The professionalism to perform.
• The openness to collaborate.

Kanter identified the skills that leaders must have if there organisations are to be adept at managing change:

The importance of vision

The challenges facing organisations today need leaders who arecommitted to change and can inspire others to perform to their fullpotential.

Leaders who are effective in achieving strategic change are thosewho are able to convey a sense of mission and a sense of momentum anddirection throughout the organisation. They can provide certainty andfocus in an uncertain and changing situation. Such leaders have a clearvision of where the organisation is heading and what needs to be done toget there and are able to communicate this to all levels in theorganisation.

In general, visionary leaders:

• are charismatic
• are able to communicate a sense of meaning
• are considerate of others
• have imagination
• possess political skills
• create a sense of belonging within the organisation.

9 Chapter summary

Test your understanding answers

Test your understanding 1

• Adaptation is change that can be accommodated within the current paradigm (the current organisational beliefs and assumptions) and occurs incrementally. This is the most common form of change in organisations.
• Reconstruction is the type of change that may be rapid and can involve a good deal of upheaval in an organisation, but which does not fundamentally change the paradigm.
• Evolution is a change in strategy that requires paradigm change, but over time.
• Revolution is change that requires rapid and major strategic and paradigm change, perhaps in circumstances where pressure for change is extreme, e.g. if profit decline or a take-over threatens the continued existence of the firm.

Test your understanding 2

• Stories – in many older state-controlled health providers stories and myths cover the following: cures, villains (politicians), heroes and heroism, change agents are fools, abuse of managers and the golden age.
• Symbols – include terminology, white coats/uniforms, retinues, bleepers, doctors' dining rooms and big institutions.
• Routines and rituals include clinical rituals, consultation ceremonies, blaming the next tier and treating patients like children – waiting rooms, putting to bed, waking up and ward rounds.
• Structure – is seen as hierarchical, mechanistic, tribal/functional and with a pecking order of services.
• Political systems – include professional bodies, the 'old boy' network and politicians.
• Control – is through waiting lists, financial reporting and responsibility.
• The paradigm – covers issues such as:
  • public service – it is 'ours' and a 'good thing'
  • it is free at the point of delivery
  • providers know best
  • it has superior acute sector
  • clinicians' values.

Test your understanding 3

Change introduced through the use of power or manipulation islikely to add to anxiety. Education and communication will rarelysucceed on their own when introducing major change. However, they areuseful as a support for a negotiation or participation approach. Thenegotiation approach requires the existence of organised representativesand a formal procedure that is suitable for some items such as changein employment terms but would be inadvisable for other items of changingprocedures, organisational changes, decentralisation, etc. In thesecases, participation offers the best opportunity of allaying staffanxieties by involving them early in the change process and continuingthat involvement through to completion.

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