Organizational Change Plan

9 September 2016

Organizational Change When executives and students of management talk about organizational change, they mean many different things. Introducing a new enterprise resource planning system in order to coordinate and standardize internal processes is an organizational change. So is shutting down a factory, selling off a noncore business, or laying off employees. How about introducing a new business model to meet innovative competitors, adopting a new pay-for-performance system to motivate individual effort or a stock option plan to encourage a shared sense of ownership in the company?

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Entering global markets, integrating acquired companies, and outsourcing nonstrategic activities—these, too, are examples of organizational change. In order to understand and analyze the dynamics of change, and particularly the requirements of effective change implementation, it is important to sort out and distinguish the various approaches an organization can take. This chapter will explore multiple paths to change, paying special attention to behavioral change. In particular, this chapter will: Identify the role of strategic renewal in propelling change

Focus on the behavioral aspect of organizational change Analyze the dynamics of motivating employees to alter their behaviors Differentiate the three faces of change Understand the source of both employee resistance to and support for change We will start by looking at an attempt by the president of a small but prestigious local bookstore to improve financial performance in the face of competition from national chains as well as from Internet giant Amazon.

Massachusetts, is the site of the opening battle of the American Revolutionary War. Its rich literary history dates back to the nineteenth century when it was the home of the transcendental writers, notably, Ralph Waldo Emerson and Henry David Thoreau. Eight of Concord Bookshop’s employees, including the trio of top managers, have quit or given their notice. The staffers’ years of service add up to 73. The three managers, including [the] general manager . . . have worked at the store for a total of 34 years. Meanwhile, a group of outraged local authors .

Has fired off a letter to the owners supporting the staff. The precipitating event was a surprise announcement last month by the owners—a group of three families represented by a board led by President Morgan “Kim” Smith of Concord—that a new general manager will be hired. No one was laid off, and no one’s salary was cut. Yet many of the staff were outraged at the de facto demotions, as well as by what they saw as the owners’ immovable stance. . . “We asked for a meeting with the whole board,” says [a departing staff member].

We presented our concerns, and they thanked us for our input and said, ‘We’re going to do it our way, and if you don’t like it, each of you will have to make up your mind as to how to proceed. ’ Something in me died, the fragile alchemy that made it such a great place to work had died. They had made their plans, we were expendable employees, and we could take it or leave it. ”. . . “We’re heartbroken about it,” says David Donald, professor of history emeritus at Harvard University . . . “These are people we deal with all the time. It’s a wonderful store, beautifully arranged.

They are knowledgeable and are glad to look things up. ” Adds Joanne Arnaud, director of the Boston Literacy Fund and a Concord resident who also signed the letter: “What makes the Concord Bookshop different is the people and their institutional memory and their memory for a customer. I can say, ‘I’m looking for a book for someone who liked the last book by Nicholas Basbanes. Can you help me? ’ They are so warm and welcoming. ” The clash appears to be rooted in finances. Smith declined to give numbers but portrayed the store’s financial situation as dire. “Things have never been worse,” he says.

We are offering something important to the town of Concord, which is wonderful, but it isn’t profitable. ” Smith praises the three managers but says, “The owners felt the three-way management was not working out. ” The managers say finances aren’t so bad. They . . . issued a written comment: “In explaining to us the change in management structure, the owners told us they wanted to take the store in a different direction. We hold different opinions regarding the financial health of the store. We are very proud of what we have been able to accomplish these past five years.

There’s no disagreement, though, that profit margins are tighter than ever, and that the past few years have been rough on independent bookstores, especially in the age of Barnes & Noble, Borders, and Amazon. com. Smith believes some of the store’s programs should be reexamined, such as regular weeknight author appearances and signings, which require paying staff to keep the store open. “Increasingly, people are buying their books elsewhere and bringing them to signings,” Smith says. “We had 70 people at the Tracy Kidder signing, but we sold only 10 books.

I discovered a guy coming in with five copies of the book that he bought [elsewhere]. We want to preserve the store, but we need to make the finances work. ” There’s no dispute, either, on Concord’s national reputation in the trade. “It is one of the jewels of New England,” says . . . [the] executive director of the New England Booksellers Association. . . “They are the kind of store that’s on everyone’s A list. Publishers are interested in what Concord buys. They ask, ‘How is Concord doing with the book? ’ They are exemplars for reaching out to the community and in cultivating authors”. . .

The conflict illustrates the special place a bookstore can have in a small community, especially one such as Concord, with its numerous authors and links to such literary giants as Emerson and Thoreau. The store is regarded as a community resource, not just a business. “This is Concord vs. Concord,” says Martha Holland, who is quitting after 18 years. “There were a hundred points where it could have been smoothed over. How it got so out of hand, I don’t understand. The owners have every right to run their business as they see fit. But if the staff goes, it’s just a bunch of bookshelves and carpets.

Strategic Responsiveness Morgan Smith’s attempt to bring financial discipline to the Concord Bookshop seemed quite sensible in the face of new competitive realities. Owners, employees, customers, and suppliers all agreed on the desirability of maintaining the store’s viability. Yet Smith’s approach to change implementation—the actions taken by organizational leaders in order to support strategic renewal and achieve outstanding performance—led to resistance, conflict, and resentment. Recognizing the need for change is a vital first step.

Successful implementation, however, is required to translate that recognition into an effective strategic response. We live in a period of rapid and dramatic change: significant alterations in customer expectations and demands, new technologies, competitors with innovative business models, shifts in workforce demographics and values, new societal demands and constraints. Organizations need to respond to external dynamics in order to create and maintain outstanding performance. Theory into Practice Strategic responsiveness to a dynamic external environment demands organizational change.

In response to those dynamics, organizational leaders often decide to engage in a process of strategic renewal. Strategic renewal refers to an alteration of an organization’s strategy with the intent of regaining sustainable competitive advantage. 1 Exhibit 1-1 provides examples of organizations whose leaders made a purposeful decision to renew their strategies. Some attempts have been more effective than others. Strategic renewal at IBM and Walgreens proved successful, while efforts to transform Enron’s strategy collapsed in failure.

At different points in the text, we will explore and analyze the efforts of these companies to implement new strategies effectively. Exhibit 1-1 Strategic Responsiveness in Sample Companies. Company Altered Strategy Enron Move from energy production to energy trading GE Move from commodity business to high value-added products and services IBM Move from product to service/consulting company Marks and Spencer Move from a department store appealing to traditional, conservative adult British shoppers to a store appealing to young, trendy shoppers Renault

Move from French-based to internationally focused automobile company Walgreens Move from store-based chain in order to capture growing Internet business Facebook Move from restricted, college campus-only social network to become a “universal utility” open to everyone Strategic renewal requires organizational change (see Exhibit 1-2). Strategic renewal demands “wide-scale invention, reinvention, and redesign of business processes and organizational structures. ” 2 IBM pulled off strategic renewal as it moved from a product to a service/consulting company.

Harley-Davidson managed a different but equally significant strategic renewal by redefining its relationship with its customers. Exhibit 1-2 Strategic Renewal and Organizational Change. Theory into Practice To implement a renewed strategy, organizational leaders need to engage in a change process. For strategic renewal to be effective, organizations need to do more than announce a new strategy. Leaders need to align internal processes, structures, and systems with the demands of that new strategy. New organizational capabilities—talents and skills possessed by employees—need to be built.

Underlying all those shifts is the requirement to engage in discontinuous change: large-scale, long-term reorientation of most or all of the central aspects of organizational life. The goal is to create lasting alterations in patterns of employee behavior in order to support strategic renewal. Strategic Renewal through a New Business Model Apple Computer seemed well positioned to achieve a breakthrough into the corporate/business market. With the extraordinary popularity of its iPod and iPhone offerings, young customers were flocking to Apple products as never before.

But successful penetration into the business market would require more than loyal customers and brand familiarity. Apple’s business mode would need to change. The company’s long-standing highly secretive culture (Steve Jobs enjoyed launching new products with high security prior to his grand announcements) would need to change. In the corporate world, customers expect to be treated as long-term partners, actually having a say in the development of new products. 3 In order to extend its popularity among young, tech-savvy consumers into the corporate marketplace, Apple would need to alter its business model.

Business model innovation has become an increasingly common avenue for corporate growth. At its most basic level, a business model is the organization’s approach to generating revenue and making a profit. More specifically, business models involve the configuration of and the nature of the linkage between operations. 4 Start-up companies often gain a competitive advantage over long-standing market leaders by offering novel business models. Consider the following examples: Starbucks offered high-priced coffee specialty drinks in a relaxed environment.

Amazon sold books online. Southwest Airlines provided an air service that competed with bus service and driving. Dell built computers to customer specifications. Zara placed low-cost high-fashion items on shelves with incredible speed. YouTube revolutionized the creation and distribution of video. Facebook integrated web-based interconnectivity with traditional school-based yearbooks. All of those companies had the advantage of building the innovative business model from scratch, “greenfield” as it is often called.

They could harmonize their internal processes and employee competencies and behaviors with the requirements of their model. They did not face the challenge of nurturing a new business model within an existing, long-standing approach to generating revenue. Theory into Practice It is possible to gain competitive advantage through the creation of a new business model, but changing your existing business model will create special change challenges. Altering an existing business model, especially one that has been successful in the past, has proved much more challenging than a greenfield effort.

Some organizations have been successful: Under Louis Gerstner, IBM transformed its business model for generating profits from the sales of hardware to generating profits from services and software. Lufthansa’s Jergen Weber moved the company from a centralized collection of functional stovepipes to a number of free-standing service offerings, including cargo handling, on-plane catering, and service maintenance. Carlos Ghosn changed the failing business model of Nissan by simultaneously centralizing product design and globalizing the company’s supply chain.

Not all attempts to alter a company’s business model lead to success, of course. Michael Armstrong’s effort to move AT&T from a long-distance phone company to a full-service provider of a wide array of offerings—cable, long-distance, local, wireless, etc. —proved disastrous. 6 Most notoriously of all, Jeffrey Skilling’s alteration of Enron’s business model—from energy provider to energy futures trader—disintegrated over the company’s inability to build sustainable profitability (and its leaders’ willingness to hide that fact from the public, investors, and employees).

Corporate leaders believe that business model innovation will be the major source of growth over the next decade. 8 To achieve that desired growth, however, they will need to become effective change leaders. Because business model innovation alters the nature of linkages among employees, it disrupts existing patterns of behavior while demanding new competencies and skills. The failure of a company to engage in organizational change undermines a company’s capacity to innovate in their business model. 9 All business model innovation—that is, moving from the status quo to a new model—requires organizational change.

Theory into Practice Adaptation of a new business model within a corporation will require organizational change. Behavioral Change Effective strategic renewal requires behavioral change that directly targets patterns of employee actions and interactions in order to meet the company’s strategy and to achieve and sustain outstanding performance. Theory into Practice If change interventions are to achieve significant and sustainable impact on performance, they must focus on altering patterns of employee behavior. Effective implementation depends on an alteration in patterns of employee behavior.

Behavior refers to the actions employees take to enact their roles and responsibilities within the organization. Behaviors involve what employees do and how they do it, how much effort they bring to their roles, and how persistent they are in achieving desired outcomes. Behavior also involves the enactment of relationships: how employees interact with others (peers, subordinates, superiors, customers, suppliers, the host community, and so forth). It is this enactment of roles, responsibilities, and relationships that constitutes employee behavior in organizations.

The collective enactment of those roles, responsibilities, and relationships—that is, the patterns of employee behavior within organizations—constitutes the target of behavioral change efforts. Behavioral change seeks more than a short-term alteration. New behaviors that are adopted for a short period of time and then dropped as employees return to old approaches will undermine strategic renewal. In order to support strategic renewal and outstanding performance, new behaviors need to be sustainable and adaptive to shifts in the external environment.

The reason sustainability of new behaviors matters can be stated simply: the ways in which employees behave significantly impact the organization’s performance. Beyond products and market position, beyond plants and technology, employee behaviors affect the bottom-line performance of the organization. 10 Theory into Practice Organizational change seeks to create long-term, sustainable alterations in employee behaviors. Just how does that happen? How is it that patterns of employee behavior impact a company’s bottom-line performance? The key to understanding the relationship of behaviors to performance can be found in the idea of motivation.

Motivation, in this case, refers to the degree to which employees are committed to the achievement of outstanding performance both for themselves and for their company. Employee motivation pays off in bottom-line performance. High motivation creates in employees the capability and willingness to work together to solve problems. Quality improves, customer responsiveness increases, and adaptation occurs. Chapter 4 will examine in detail efforts to redesign organizations to capture the benefits of enhanced employee involvement and commitment. For now, we can suggest that behaviors count.

The competitive advantage delivered by behavioral change can be long term and sustainable. The manner in which work is organized, information is shared, decisions are made, coordination occurs, and problems are solved are all performance differentiators. 11 Furthermore, that performance edge is sustainable for decades, leading to significant and often staggering competitive advantage. 12 Theory into Practice The way employees behave impacts the bottom-line performance of the company. Sources of Behavior Effective change implementation needs to start with an appreciation of the source of an individual’s behavior.

What is it that leads an individual to behave in a certain way? Individual psychology is important, of course: who the individual is, what values he or she brings to the workplace, even how that individual thinks and learns. But individual psychology can be difficult to assess and slow to change. A leader seeking leverage over employee behavior can start by focusing not on individual psychology but on the organizational context in which employees work. Theory into Practice Behavior comes from both the individual and the organizational context in which the individual works.

Organizational context—the setting and circumstances in which employees work—exerts a powerful impact on behavior. Companies as diverse as Google, Nordstrom, MySpace, and Southwest Airlines endeavor to promote an organizational context that shapes individual behavior. They call upon organizational culture and values, the behaviors of leaders, as well as rules and procedures to define a context that shapes how employees enact their roles, responsibilities, and relationships. To appreciate the power of organizational context to shape behaviors, we can examine a specific example of an employee mistake.

Sheryl Sandberg, an advertising manager at Google, made a mistake that cost the company millions of dollars. “Bad decision,” she admitted, “moved too quickly, no controls in place, wasted some money. ” 13 Sandberg quickly informed Google cofounder Larry Page. Employees make mistakes, even occasionally big ones such as Sandberg’s. Leaders have an important opportunity to shape organizational context by the manner in which they respond to those errors. Quick and harsh repercussions—firing, for example, or demotion—will have one kind of impact on the organizational context in which employees work.

That response may be justified and reasonable, but it may also work to stifle future risk-taking behaviors. Or perhaps employees will be less willing to admit mistakes, slowing down an organization’s response time. The boss may also respond in a less harsh and punishing manner. Listen to the reaction of Google cofounder Larry Page, to Sandberg’s admission: I’m so glad you made this mistake, because I want to run a company where we are moving too quickly and doing too much, not being too cautious and doing too little. If we don’t have any of these mistakes, we’re not taking enough risk.

The point is not that Page’s response is the only “correct” or reasonable response to the admission of a mistake. Leaders have to determine what type of organizational context they seek to create. That context will need to be aligned with the company’s strategy and purpose. Page and Google cofounder Sergey Brin believe that mistakes can provide fuel for improvements, even innovation. “We’re willing to tolerate ambiguity and chaos,” says senior vice president Shona Brown, “because that’s where the room is for innovation. ” Google’s leaders want a context that tolerates risk in order to generate innovation.

Employee Participation and Resistance to Change Not all employees greet change with equal enthusiasm. It is useful, therefore, to examine the sources of employee resistance to change and the ways in which managers can overcome resistance. Resistance refers to action, overt or covert, exerted on behalf of maintaining the status quo. 14 Why Employees Resist Change You’re either for this change or you’re against it. That refrain may be familiar; it is not, however, accurate. Employee response to change runs across a broad spectrum, ranging from “commitment” at one end to “aggressive resistance” on the other (see Exhibit 1-3).

Individuals may view change as a threat, fearing it will adversely affect them in some significant way. Individuals may understand that change brings both benefits and costs, but feel that the costs far outweigh the benefits. Individuals may view change as potentially positive, but may still resist because they believe that the organization’s management is mishandling the change process. Individuals may believe in the change effort, but still believe that the change is not likely to succeed. Managers can see employee resistance in negative terms: It is a “bad thing” that represents an irrational response to a dynamic competitive environment.

In this way, employee resistance can be dismissed as invalid or disobedient. 17 Resistance to change, in this view, is a force to be overcome. There is another way of thinking about resistance to change, however; one that may actually improve the effectiveness of implementation. Theory into Practice Employee resistance is not just a negative force to be overcome; it also presents an opportunity to learn. How Managers Can Inadvertently Fuel Resistance During Implementation It is tempting to believe that a certain type of individual is likely to resist change.

Perhaps you’ve heard, or even thought, ideas such as: Older workers are more likely to resist change than are younger workers. Middle managers are more likely to resist change than lower-level workers or upper-level executives. Men are more likely to resist change than women. And so on. Don’t take these explanations at face value. Study after study of employee resistance to change in organizations refutes these and other individualistic contentions. Individual differences may account for some variance in employee acceptance of or resistance to change.

But the overwhelming determinant of employee reaction to change comes from how the process is managed and the degree to which employees are allowed to participate in the process. 18 Managers can inadvertently create resistance by the manner in which they pursue change. Here’s a checklist of employee resistance and possible sources of that resistance: Employees resist because they remain satisfied with the status quo. Perhaps management has not included employees in the diagnosis and learning process. Employees resist because they view change as a threat.

Perhaps management has not offered employees the opportunity to acquire the new skills that will be required in the renewed organization. Employees resist because they see the cost of change outweighing the benefits. Perhaps management has not articulated the goals of the change adequately to allow a true assessment of the costs and benefits. Employees resist because they believe that management is mishandling the process. Perhaps employees have not been given a voice in the process itself. Employees resist because they believe that the change effort is not likely to succeed.

Perhaps management needs to articulate why this change process is more likely to be effective than past efforts. By looking at the aforementioned reasons for employee resistance, we can see how many can be understood in part as a natural and expected outcome of implementation. Theory into Practice Participation in the change process is the best way to build support and overcome resistance to change; but remember—it’s no guarantee. In treating employee resistance as a negative force to be overcome, managers shut down the possibility that they can learn from resistance.

When employee voice has been excluded from the change process, there is likely to be valuable data missing from the diagnostic and action planning phases of the effort. Employees may ask whether management really understands what customers expect from their products or services or what barriers the organization has erected to outstanding performance. Even when employees question whether management has selected an appropriate strategic response, it is useful, perhaps even indispensable, for managers to learn about employee hesitations and concerns. Instead of treating resistance as a force to be overcome, managers may decide to treat resistance as an opportunity to learn from employees and improve the change process.

Theory into Practice Employee resistance can offer leaders the opportunity to learn—what are the sources of resistance? Not all resistance to change offers an equal opportunity to learn, of course. Some resistance will have to be addressed and overcome. We will explore specific techniques and approaches management can consider to avoid creating resistance. For now, let us understand employee resistance as a form of expression that is not always a bad thing and that needs to be considered and understood by change leaders.

Theory into Practice There comes a point in the change process where employee resistance will need to be addressed and overcome. Employee Participation Builds Support for Change Just as there are ways in which a change implementation process may inadvertently fuel resistance to change, there are also techniques for purposefully building support for change. Participation in the process of defining problems and designing solutions will help build commitment to the new directions that result from that process.

By diagnosing problems, understanding their importance, and being part of the process of formulating solutions, people develop a psychological sense of “ownership” over the outcome. That ownership now creates in employees the heightened motivation to implement change in order to achieve desired goals. 20 Change imposed from “above”—top executives telling employees that they must alter their behaviors in order to implement a new strategy or perform better under the old strategy—is likely to engender resistance.

The employees resisting change at the Concord Bookshop complained that the board had dismissed employee suggestions to respond to the crisis by saying, “We’re going to do it our way. ” Their felt loss of voice in the strategic response of the bookstore to new competitive realities contributed to high levels of resistance. People don’t resist change, the saying goes, they resist being changed. The difficult challenge for managers, then, becomes how and when to engage employees in the process of diagnosis, problem solving, and planning for change.

General Motors (GM) can offer some historical perspective on both approaches; change that is imposed from above, and change in which employees participate in designing the solution. Theory into Practice Imposing change from above can lead to employee resistance. In the 1970s, soaring fuel prices and gas shortages made the U. S. consumer much more aware of the fuel in efficiencies of domestic automobiles. At the same time, Japanese car manufacturers such as Toyota, Honda, and Nissan captured significant market share by offering small, reliable, and fuel-efficient alternatives.

GM, with its fleet of gas-guzzlers built for an era of expanding interstate highways and cheap gas, was especially vulnerable. When Roger Smith became chairman of GM in 1980, the company was hemorrhaging money and market share. Layoffs, factory closures, and the shedding of non-auto-related businesses followed. Smith had more in mind than trimming costs, however. To lead strategic renewal, he called on a massive multibillion-dollar investment in state-of-the-art robotics and assembly technology. Out of that effort came the Chevrolet Vega, a small, fuel-efficient model produced at the company’s newly retooled Lordstown, Ohio, plant.

The Vega represented GM’s intent to face down the rising tide of imports. State-of-the-art robotics and automation would help GM keep the costs of producing the Vega low. Employees at the Lordstown plant, however, resisted the changes that had been imposed on them from above. In particular, they objected to the depersonalization and sped-up pace of new robotic technology. Resistance went far beyond complaining. Some employees engaged in sabotage, open rebellion, and a wildcat (unauthorized) strike.

Six years after its appearance, GM discontinued the model that had once held such high hopes for meeting Japanese competition. 21 Theory into Practice A participative process can help build support for change efforts. Compare that resistance to a different initiative just a few years later at GM’s Cadillac plant in Livonia. Cadillac and Vega were worlds apart in terms of intended market niche. Nevertheless, GM executives hoped Livonia would help address some of the same pressures for strategic renewal: the need to produce a world-class car that would help the company regain slumping market share.

As they had done at Lordstown, executives sought improved quality and increased efficiency at Livonia. Now, however, the company approached change quite differently. Management worked closely with labor through the United Auto Workers union. Instead of imposing new technology and work processes on the plant, management and the union involved hourly workers in a planning committee that would redesign the way the plant operated. Theory into Practice In a unionized environment, creating employee participation involves inviting the union itself into the decision-making process.

The joint worker-management planning committee created employee teams organized around a product line or function and given responsibility beyond production, including responsibility for quality control and material handling. Other design changes proposed by the planning committee—the removal of multilevel job classifications in order to improve flexibility and efficiency in the deployment of workers, extensive front-end training for all employees to gain teamwork and problem-solving skills—turned the plant into what some in the company called “a Lordstown that worked.

Twenty-five years later, Livonia continued to operate as a high-quality producer of Cadillac’s highly regarded Northstar engine. Imposed change encourages resistance. Individuals can feel manipulated, coerced, or even ignored. When people participate in designing change, on the other hand, they are more likely to feel they are making an informed choice about altering their behaviors. Individuals can develop commitment to the choice as well as feeling responsibility for implementing that choice.

When people participate in the design of change (in the diagnosis, action planning, and implementation stages), they will be more motivated to alter their behaviors. And, to emphasize a point made earlier, employee motivation matters. New behaviors will not be sustainable if they have been prompted by manipulation or coercion. Effective change does not seek to fool employees into setting aside their better judgment. Rather, it seeks to encourage employees to find continually new and improved ways of applying their better judgment.

How can internal processes be improved? What are customers telling employees about our products and services? How might we eliminate waste and improve quality? To support behaviors that can sustain outstanding performance, effective change efforts avoid manipulation and coercion, aiming instead to enhance employee willingness and ability to contribute their own judgment. Theory into Practice Behavioral change seeks to motivate employees to change their behaviors; not to force, coerce, or trick them into changing.

Because motivation is internal to each employee, the change leader’s challenge is complex. The task involves shaping the organizational context in such a way as to encourage and support an internal desire on a large number of employees to alter their behaviors in ways consistent with the shifting demands of the new strategy. How that is done will be the subject of the remainder of this book. When change leaders are successful, the organizational context unleashes “people’s innate curiosity and desire to experiment,” says Peter Senge, which creates a powerful “engine for improvement.

Motivation works to build initiative and a desire on the part of the employees themselves to innovate and alter behaviors in order to achieve outstanding performance. The Three Faces of Change Not all change efforts take aim directly at behaviors. Let’s return to GM. In February 2006, with the U. S. automobile industry in a state of drastic decline, America’s leading auto manufacturer made some tough decisions: cutting dividends, reducing white-collar benefits, and slashing executive pay.

On top of 30,000 job cuts announced the previous year, company losses totalling $10.6 billion, and share prices hitting their lowest point since the middle of the Great Depression of the 1930s, GM’s CEO (chief executive officer) Rick Wagoner declined to predict when the company would return to profitability, saying only it would be “as soon as possible. ” 24 In 2008, after announcing a huge loss, the company dove even deeper into turnaround, offering a “special attrition program”—an offer to buy-out contracts in order to encourage retirement—for all 74,000 of its domestic hourly workers. 25 Theory into Practice

Not all change is behavioral. GM’s approach to change can be characterized as turnaround. Rather than focusing on new behaviors, turnaround looks at a company’s assets and seeks to manage them in a new way in order to stabilize cash flow, shore up the balance sheet, and maximize shareholder wealth. GM’s turnaround may have been unusual in its scope. The activities of the turnaround effort—reducing capacity, shutting down facilities, reducing levels of pay, health insurance, and pension benefits—are typical.

Is turnaround by itself enough? “Cutting costs is not a business plan,” observed Gary Chaison. Turnaround does not by itself create sustained outstanding performance. The impact of layoff announcements on the psychological state of employees—on their sense of security and belief in the future—accounts for part of the difficulty of translating downsizing into sustained outstanding performance. Employees who become insecure because of workforce reductions are less productive and less committed to the organization.

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