B2∆
Built to Change Designing Organizations for Change: The Role of Orchestration Capabilities Edward E. Lawler III Christopher G. Worley Center for Effective Organizations Marshall School of Business University of Southern California
New Topics in Organization Design Teleconference September 29, 2006
© 2006 Center for Effective Organizations, University of Southern California
Signs of Change Of Fortune 1000 Companies:
From 1973 to 1983
35% new
From 1983 to 1993
45% new
From 1993 to 2003
60% new
From 2003 to 2004
10% new
© 2006 Center for Effective Organizations, University of Southern California
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Signs of Change Of the 400 richest Americans, In 1985
Were worth an average of $600 million 165 were self made 103 were in manufacturing
In 2005
Were worth an average of $2.8 billion 255 were self made 22 were in manufacturing
© 2006 Center for Effective Organizations, University of Southern California
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Signs of Change
AT&T has gone from over 1 million employees in the 1960’s to being acquired Over 50% of IBM employees have less than 5 years of seniority Over 40% of IBM and Sun Microsystems employees don’t report to a company worksite
© 2006 Center for Effective Organizations, University of Southern California
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Share Value Determinants
Intangibles account for more of market value: From 38% in 1982 to 85% in 2000 of market value missing without them
Investors say non-financial measures important: 35% of investment decisions driven by them
Management effectiveness most important non-financial information
© 2006 Center for Effective Organizations, University of Southern California
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Resource Allocation OLD: Competitive advantage is in obtaining and allocating low cost financial capital and physical assets.
NEW: Competitive advantage is in obtaining, developing, allocating, organizing and managing human capital and knowledge assets
© 2006 Center for Effective Organizations, University of Southern California
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The B2∆ Model
Why does planned change go so wrong so often? Avoiding the “Execution” trap Avoiding the “In Search of Excellence” trap
© 2006 Center for Effective Organizations, University of Southern California
Culture eats strategy for breakfast
“Way forward” war room Ford Motor Company
© 2006 Center for Effective Organizations, University of Southern California
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Strategy
Competencies Capabilities People
Structure Identity
Rewards
Process
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© 2006 Center for Effective Organizations, University of Southern California
Write your strategy in pencil. --Mark Goldston CEO, United Online
© 2006 Center for Effective Organizations, University of Southern California
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From Traditional… Strategy
Environmental scans and industry structure Sustainable competitive advantage Culture as a constraint to change
Competence/Capabilities
What can we do well? Achieving “fit” is key
…to Dynamic Strategizing
Possible alternative future scenarios Stringing together a series of momentary advantages Identity as an enabler for change
Creating Value
What do we need to learn? The capability to change is key
© 2006 Center for Effective Organizations, University of Southern California
From Traditional… Design
Structures with jobs and hierarchy Functional groupings
…to Dynamic Designing
Structures with maximum surface area – customer focus Flat-team based Improvisation
© 2006 Center for Effective Organizations, University of Southern California
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From Traditional… Management Processes
…to Dynamic Change Enabling Processes
Strong Leaders
Leadership as a Team Sport
Budget for Control
Revenue Based
Internal Focus
External Focus
Top Down
Performance Driven
Secretive Business Information
Open Competitive Information
Reduce Variability
Encourage Experimentation, Learning
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© 2006 Center for Effective Organizations, University of Southern California
From Traditional… Rewards
Job Based Merit Pay Seniority Driven
…to Dynamic Rewarding
Person Based Performance Goals and Bonuses Tied to Business Performance
© 2006 Center for Effective Organizations, University of Southern California
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Talent Management •Flexible Staffing •Develop multiple employment deals •Assess buy/build •Hire people for core who like change
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Te t c m po t ra n o ra C ry Regular
Core
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The Transition to a B2Change Organization
Create a “change-friendly” Identity Make Strategizing the normal condition ¾ ¾ ¾
Build an Orchestration Capability Implement changeable organization features ¾ ¾ ¾ ¾
Think dynamically Focus on the future String together a series of momentary advantages
Structures with “maximum surface area” Transparency in information systems and decisions Flexible performance management and reward systems No jobs, only accountabilities
Evangelize shared leadership © 2006 Center for Effective Organizations, University of Southern California
The Rhetoric is Well Known… As the pace of change quickens… …and globalization continues unabated… …the premium on innovation and the ability to change increases
© 2006 Center for Effective Organizations, University of Southern California
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Rhetoric
≠ Reality
“The auto industry is facing new competitive challenges…and Ford, as always, is meeting those challenges with innovation” (emphasis added)
US auto manufacturers have been losing market share for over 20 years
Since the days of company founder George Eastman, Kodak has focused on unleashing the power of images through innovation and by making complex technology simple to use.
Not until late 2005 did Kodak’s digital revenues exceed traditional film sales
At United, we are dedicated to doing what's best for our customers, and we remain focused on delivering the highest levels of performance and service to our passengers worldwide.
Customer satisfaction and ontime performance rankings consistently below average
© 2006 Center for Effective Organizations, University of Southern California
Organizational Capabilities and New Capability Development Current & Future Environments IDENTITY
Strategic Intent Resources & Capabilities
Current & Future Environments
• Resources represent what an organization has -- its asset profile • Capabilities represent what an organization does • A Dynamic Capability is the ability to learn and change to sustain leadership or develop new kinds of capabilities that provide a competitive advantage.
B
In a 2∆ organization, orchestration is both an element of strategic intent – the horizons of business value – and a dynamic capability – the ability to change the way the organization is changing © 2006 Center for Effective Organizations, University of Southern California
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A Dynamic Capability is Sophisticated and Complex Dynamic Capabilities
Orchestration
Capabilities
Processes & Routines
Resources
© 2006 Center for Effective Organizations, University of Southern California
Building an Orchestration Capability
Create a critical mass of change-related skills and knowledge ¾
Design a process infrastructure ¾
¾
Develop “versatilists” not “generalists” Commit to a common language, model, and “toolkit” of materials Integrate strategic planning with organization development processes
Engage in and learn from change
© 2006 Center for Effective Organizations, University of Southern California
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Critical Mass of Change-related Skills Business Partner Corporate Centers of Excellence
Shared Services
Divisions Decentralized Business Support/ Partner Units
Principle: Place deep expertise where it adds the most value Question: Where and how should the orchestration capability be deployed?
© 2006 Center for Effective Organizations, University of Southern California
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Designing a Process Infrastructure at Capital One
Recognized need for change management capability Convened a “community of practice” among changeinterested people Abandoned 19 separate models and 160 tools and chose a simple model Gained corporate sponsorship in an HR “imperative” Trained managers in the change model Targeted key managers and projects to get public successes Encouraged everyone to use the model as part of business Tied change management use into promotion and assessment decisions Evangelized the process © 2006 Center for Effective Organizations, University of Southern California
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The ADKAR model explains what individuals, or groups of individuals, require to adopt a change A wareness
Awareness of the need for change (why?)
D esire
Desire to support and participate in the change (my choice)
K nowledge
Knowledge about how to change (the learning process)
A bility
Ability to implement the change (turn knowledge into action)
R einforcement
KEY DRIVERS: Communications
KEY DRIVERS: Sponsorship, resistance management, coaching
KEY DRIVERS: Training
KEY DRIVERS: Coaching
Reinforcement to sustain the change (celebrate success; discourage recession) KEY DRIVERS: Coaching
Source: Procsci Change Management Learning Center © 2006 Center for Effective Organizations, University of Southern California
ADKAR guides the actions used in the three phases of any change management process Preparing for change
Define your change management strategy Prepare your change management team
Managing change
Develop change management plans Take action and implement plans
Develop your sponsorship model
Reinforcing change
Collect and analyze feedback Diagnose gaps and manage resistance Implement corrective actions and celebrate successes
© 2006 Center for Effective Organizations, University of Southern California
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© 2006 Center for Effective Organizations, University of Southern California
How Orchestration Affects Performance Desired level of performance
Performance
Orchestration also shortened the time required to meet desired performance levels
Orchestration has leveled out the performance declines
Current Performance Time
Status Quo: Without an orchestration capability, and with great will, an organization can achieve improved performance but at a substantial cost
© 2006 Center for Effective Organizations, University of Southern California
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Is this any way to think about organizations?
© 2006 Center for Effective Organizations, University of Southern California
Organization Design and Self-Organization
Sue Mohrman Center for Effective Organizations Marshall School of Business University of Southern California © 2006 Center for Effective Organizations, University of Southern California
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Purpose of the Study To Understand
The network structures and populations that are involved in the creation and leverage of (scientific) knowledge The factors that influence the leverage of knowledge within and among communities The factors that stimulate or impede the selforganization of collaboration and knowledge sharing networks
To Better Understand
The organizational design features that can stimulate the leverage and assimilation of knowledge across organizations and within organizations
© 2006 Center for Effective Organizations, University of Southern California
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Assumptions Behind Studies
Innovation is generated and leveraged through two processes:
Knowledge sharing – allows application Knowledge combination – allows novel solution
The relevant knowledge for industry leadership exists across boundaries of the organization and across boundaries within the organization Creating the context conducive to selforganization for sharing and combining knowledge is critical for firms that compete on knowledge creation © 2006 Center for Effective Organizations, University of Southern California
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The Sites
Three Case Studies focused on work that centered in the National Laboratories (Sandia, Lawrence Berkeley, Oak Ridge, Los Alamos, Brookhaven, Argonne, and Lawrence Livermore), but the network of contributors included many universities, other national labs, and corporations. Three Case Studies focused on work being carried out largely within Corporations: Shell, UTC, Siemens The Knowledge Networks we studied were doing basic research and/or doing R&D as part of the technical development of new products and/or new technical processes. © 2006 Center for Effective Organizations, University of Southern California
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Key Observations
In each of the case studies, as the work proceeded through different phases, the nature of the knowledge links and structure of the knowledge network changed to fit the nature of the task. Rigid boundaries work against self-organization around task. The network continually self-organized to address the knowledge requirements of the task at hand. People came and went according to their interests, knowledge and roles. This happened more readily in the work centered at the National Labs than in corporations. © 2006 Center for Effective Organizations, University of Southern California
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Organizational Conditions for Self-Forming Networks Interorganizational and cross-departmental collaborations are critical to the connection of dispersed knowledge resources.
Administrative ease of organizational integration ¾ ¾ ¾
¾
flexible co-location sharing of funds across departments to pursue a common research problem ease of funding people in other departments on a one-off basis—ease of interdepartmental consulting relationships ease of formation of cross-departmental teams
Broad policy direction providing umbrella for diverse projects in support of organizational goals—networks often form around new ideas rather than existing directions © 2006 Center for Effective Organizations, University of Southern California
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Organizational Conditions for Self-Forming Networks
Furthering both basic research and applications is seen as enabling knowledge generation—requires close dynamic interdependence and collaboration, and the ability to easily initiate network connections across these groups. Multiple and flexible sources of funding and flexible funding: ¾
¾
Intermingling of various sources of funding— rather than strict segmentation into discrete projects Flexible to change through the stages of the work in ways that can’t be fully pre-planned
© 2006 Center for Effective Organizations, University of Southern California
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Organizational Conditions for Self-Forming Networks
The most successful collaborations are those that are self-forming:
Opportunities for employees to initiate collaborations Process for bottoms up initiation of projects Flat network with multiple interlinked knowledge champions—multiple overlapping sub-networks. Knowledge champions are critical. But if the networks that form around these knowledge champions are self-contained clusters, the movement of knowledge between them is limited. Movement of people between sub-networks is critical. Knowledge travels through people. © 2006 Center for Effective Organizations, University of Southern California
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Organizational Conditions for Self-Forming Networks
Flexible hiring systems—bringing people in as interns, post-docs, project-based collaborators—assuring continual flow of new knowledge. located—flexible employment conditions Multidisciplinarity and interdisciplinarity—many researchers with training in multiple fields, and researchers in different disciplines working with each other. Eliminate strict discipline boundaries. Invest in people learning each others’ language © 2006 Center for Effective Organizations, University of Southern California
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Organizational Conditions for Self-Forming Networks
Norms and culture supporting collaboration—aligned with reward systems and publishing traditions— collaboration among knowledge champions set the tone for collaboration deeper in the organization. Active 2-way flow of knowledge through conferences, invited seminars, publications, co-authorship with people in other institutions (internal and external)
© 2006 Center for Effective Organizations, University of Southern California
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Implications
Organization Design Features that enable the flexible flow of resources (people, funding, and knowledge) are those that foster self-organization and innovation
Hierarchically determined networks have purposes, but they are just another hierarchical design feature—hierarchy provides context but not engagement
Self-organization unleashes the energies of employees © 2006 Center for Effective Organizations, University of Southern California
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Strategy
Star Model
Work Processes
People
Structure
Management Processes
Rewards
Adapted from: Galbraith (1994) © 2006 Center for Effective Organizations, University of Southern California
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The CEO Certificate in Organization Design Next 2 sessions of the Strategic Organization Design Workshop: • November 14-17, 2006
Advanced Topics Workshop • June 19-22, 2007
• February 27-March 2, 2007 Questions: Contact Alice Yee Mark at
[email protected] or (213) 740-9814 http://ceo-marshall.usc.edu/orgdesign
© 2006 Center for Effective Organizations, University of Southern California
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