Built to Change

How to Achieve Sustained Organizational Effectiveness

Edward E. Lawler, Christopher G. Worley

• Publisher: Jossey-Bass
• Year: 2011
• ISBN:
  9781118046913
• Edition: 1
• Topic: Business
• Subtopic: Human Resource Management
• Index: Business

In this groundbreaking book, organizational effectiveness experts Edward Lawler and Christopher Worley show how organizations can be "built to change" so they can last and succeed in today's global economy. Instead of striving to create a highly reliable Swiss watch that consistently produces the same behavior, they argue organizations need to be designed in ways that stimulate and facilitate change. Built to Change focuses on identifying practices and designs that organizations can adopt so that they are able to change. As Lawler and Worley point out, organizations that foster continuous change

• Are closely connected to their environments
• Reward experimentation
• Learn about new practices and technologies
• Commit to continuously improving performance
• Seek temporary competitive advantages

Chapter 1
Why Build Organizations to Change

Built-to-Change Strategy:
Seek Temporary Advantages

All organizations are experiencing a business environment characterized by rapid change. This is not news to most people—their lives have changed because of it. What may be news is just how much the speed of change has increased. An analysis of Fortune 1000 corporations shows that between 1973 and 1983, 35 percent of the companies in the top twenty were new. The number of new companies increases to 45 percent when the comparison is between 1983 and 1993. It increases even further, to 60 percent, when the comparison is between 1993 and 2003. Any bets as to where it will be between 2003 and 2013? An early indicator is that the 2004 list shows a 10 percent change in comparison to the 2003 list.

Wal-Mart is now seen as an unstoppable giant (in 2004, it was once again at the top of the Fortune 1000), but in 1993 it was not even on the top twenty list. Back then, Wal-Mart ranked twenty-sixth—behind Sears! In the ten years from 1993 to 2003, Sears, JCPenney, Kmart, and Montgomery Ward all lost market share to Wal-Mart and to newcomer Costco.

Montgomery Ward ended up in bankruptcy; Kmart and Sears merged to try to compete with Wal-Mart and Costco. In their heyday, Kmart and Sears probably felt safe—and were safe. Retail was a traditional, unattractive industry, and they were well-established incumbents. But feeling safe and being safe are two different things. The growth of Wal-Mart demonstrates how a changing environment can rapidly dethrone existing leaders. Will Wal-Mart still be at the top in 2013? Given the rate of change, it is far from a sure thing, particularly when you consider that in 2005 Wal-Mart’s same-store growth in sales slowed for the second consecutive year.

The lesson from the changing of the guard in the Fortune 1000 is clear: change is all around us and is occurring more and more rapidly. It demands the attention of every executive and every organization that wants to survive.

Not surprisingly, the number of books and articles on organization change has skyrocketed. There are books on how to implement Six Sigma programs, organize work teams, create customer-focused organizations, go global, deploy large-scale information systems, manage change, and lead change. For all that is written about organizational change, companies ought to be getting better and better at it, but they aren’t.

We believe that a major reason why organizations are not getting better at executing change is that existing theory and practice in organization design explicitly encourage organizations to seek alignment, stability, and equilibrium. Little mention is made of creating changeable organizations.

Organizations are encouraged to institutionalize best practices, freeze them into place, focus on execution, stick to their knitting, increase predictability, and get processes under control. These ideas establish stability as the key to performance. As a result, organizations are built to support enduring values, stable strategies, and bureaucratic structures, not to change.

Change is viewed as a necessary evil. It is costly, undignified, annoying, hard, and, more often than not, ineffective. Organizations must be disrupted, unfrozen, shocked, and changed; a crisis must be created, a case for change articulated and sold. It is no wonder that people resist it and organizations avoid it. This view of change fails to reflect the reality of today’s business environment and needs to go the way of black-and-white TVs, 8mm home movie cameras, and Oldsmobiles.

But what about creating organizations that don’t resist change, that are built to change? We believe that instead of pursuing strategies, structures, and cultures that are designed to create long-term competitive advantages, companies should seek a string of temporary competitive advantages through an approach to organization design that assumes change is normal. Instead of having to create change efforts, disrupt the status quo, or adapt to change, organizations should be built to change. Further, we believe that many current organization practices and designs actually prevent leaders from successfully implementing necessary changes. Organizations need to be built around practices that encourage change, not hinder it.

Why Organizations Need to Change

The environment in which most organizations operate today is continuously changing, and the rate of change is accelerating. Looking back only ten or fifteen years, one can see tremendous change. There are new countries, such as Slovenia, Namibia, Slovakia, and Kazakhstan. The Deutschmark and French Franc have disappeared. China has joined the WTO and become a leading force in Western economies. A decade ago, American computer programmers hadn’t even heard of Bangalore; now it’s the place they go to visit their old jobs.

We are experiencing a massive increase in international trade, partly due to the enthusiastic entry of India and China into the global market, but also stimulated by the opening up of Eastern Europe and the economic growth of such countries as Korea, Singapore, Malaysia, Vietnam, Cambodia, and Thailand.

The globalization of business has had two profound effects. First, it has raised the level of competition in most industries. Singapore is making a play to take a leadership role in bio-tech; Korea’s Samsung and LG have become respected international brands; Malaysia is a leader in chip manufacturing. These new competitors have advantages that range from geography to high-skill, relatively low-wage workforces. Second, international trade and information technology have opened new markets and challenged firms to deal with global consumers. Overall, international trade has created a world in which the bar that marks “good enough” keeps moving higher and higher.

Perhaps the most dramatic changes in the last decade have been in the area of telecommunications. The Internet, satellite TV, and cell phones have connected most of the world. Perhaps the most striking example of the rapid evolution of technology is the Internet. The number of unique websites grew an average of 53 percent per year between 1998 and 2002 and continues to grow at a rapid rate. In just a few years, the Internet has created a host of new businesses that serve customers in new and different ways. It also has facilitated the movement of work to India, Russia, and a host of other countries.

Human Capital Is Critical

In this new world of global competition and technological change, the era of human and social capital has arrived. There is no single reason why it has finally happened, but it is possible to identify some key changes. Combined, they have made human capital a critical and nearly universally acknowledged element in the effectiveness of organizations and a key source of competitive advantage.

The rapid growth in scientific and technological knowledge is one driver that has contributed to the growing importance of human capital. Second, the information technology boom of the 1990s and the accompanying talent shortage got firms thinking about human capital as never before. Finally, there is a growing recognition that more and more of the market value of firms rests in their human capital.

Knowledge Is Central

The centrality of knowledge to organizational effectiveness has changed the very essence of organizations, what they do, and how they do it. Because of the growth in knowledge and the ways it is used by organizations, the nature of individual work has changed. Increasingly, work in developed countries is knowledge work in which people manage information, deal in abstract concepts, and are valued for their ability to think, analyze, and problem-solve. Fewer and fewer people are doing the mind-numbing, repetitive manual tasks that used to dominate the work scene. It is being done by machines or transferred to low-wage economies.

Organization Makes a Difference

There is growing evidence that the way corporations are organized can in fact provide a competitive advantage. Research focusing on the performance impact of total quality management programs, knowledge management, employee involvement programs, and various organization designs and structures has shown that getting management and organization right can, in fact, produce superior financial returns for organizations.¹

Similarly, research on the impact of companies’ human capital management practices, such as their training programs, efforts to create a desirable place to work, and reward systems, has found that there are practices that produce superior financial results.² Other research suggests that one of the factors that increasingly determines the market value of corporations is the quality of their management talent. When surveyed, stock analysts and investors say that it is a very important intangible feature of a company’s assets.

Investors appear to be very aware that a shift in the source of competitive advantage has occurred. A growing body of research shows quite clearly that the stock price of an organization less and less reflects its book value. In other words, investors no longer primarily price a stock based on its tangible assets: cash in hand, equipment, and buildings. Tangible assets accounted for 62 percent of the typical New York Stock Exchange company’s value in 1982, whereas in 2000 it had decreased to 15 percent of the company’s market value.³

Of course, an organization’s human capital and management systems are not the only intangibles that make a difference. The company’s brands and intellectual property are among its other key assets, although even these cannot be completely separated from its human capital, and certainly not from its management practices. Knowledge is not only generated by individuals but also carried in their minds; it therefore walks out the door every day and may or may not return the next. The return of employees, like their performance, depends on how they are organized and managed.

Perhaps less related to human capital is a company’s brand or brands, but they too are definitely related to its organization and people. One slip-up by an employee can quickly destroy the reputation of a major brand in such areas as health care, food, and transportation. A clear example is Krispy Kreme donuts, which seriously tarnished its formerly enviable reputation by stuffing the distribution channel (sending more donuts to stores than could be sold) to meet short-term revenue targets.

When competitive advantage rests in a company’s people and its ability to organize its human capital, the situation is dramatically different than when organizations compete on the basis of tangible assets. Organizations are now competing based on their ability to organize. Thus innovations in management and organizational change need to be much more frequent and effective, and survival much more a function of possessing the ability to change. When the development of new approaches to organizing is combined with the rapid changes taking place in the environment and the new competitors that have appeared on the global scene, it is clear that performance levels that were good enough a few years ago are almost never good enough today.

Types of Change

Many of the changes that occurred in the last decade were unpredictable, or at least unpredicted. The rise of the Euro as a potential alternative to the U.S. dollar as a global reserve currency, for example, although discussed at times, certainly was not predicted. The implication of the unpredictable nature of change for organizations is clear: although in many cases they may not be able to anticipate change, they can always be fast adapters.

The world of human resources (HR) consulting provides an interesting case of change and product obsolescence. Younger HR managers cannot believe the time and energy that went into job evaluation in the 1970s and 1980s. The major benefactor of this passion for job evaluation was Hay Management Consultants.

In the 1960s, Hay’s CEO, Milton Rock, took the pioneering work of Ed Hay and turned it into a finely tuned consulting process. Rock opened Hay offices around the world. Hay raked in the cash. But as the 1980s wound down, the environment started to change.

Big, stable bureaucracies were ripped apart by downsizing. Constant reorganization meant that this week’s job evaluation might be obsolete next week. Managers were suddenly saying, “I don’t want to spend two hours in a committee deciding what grade a job is in!” Hay needed to change to survive—it almost didn’t. What saved Hay was the acquisition of the McBer consulting firm and the launching of a new area of consulting: competency modeling. The rise of a new consulting practice upset power relationships within Hay, ...

Table of contents

• Cover
• Table of contents
• Title
• Copyright
• Foreword
• Preface
• Chapter 1: Why Build Organizations to Change
• Chapter 2: A Dynamic View of Organizational Effectiveness
• Chapter 3: Strategizing
• Chapter 4: Structuring for Effectiveness and Change
• Chapter 5: Developing the Right Information, Measurement, and Decision-Making Processes
• Chapter 6: Acquiring the Right Talent
• Chapter 7: Managing Human Capital
• Chapter 8: Meeting the Leadership Challenge
• Chapter 9: Designing Reward Systems
• Chapter 10: Rewarding Performance and Change
• Chapter 11: Creating a Built-to-Change Organization
• Notes
• Acknowledgments
• About the Authors
• Index
• End User License Agreement