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Question 3:

Transforming organization, the pressure on the organization to change, why and why firms fail?

Transforming organization “A process of radically altering the organization’s strategic direction, including
fundamental changes in structures, processes and behaviors.”

Why?; Transformation is required when:

1. Significant changes occur in the competitive, technological, social or legal environment;
2. Major changes take place to the product lifecycle requiring different product development and
marketing strategies;
3. Major changes take place in top management;
4. A financial crisis or large downturn occurs;
5. An acquisition or merger takes place.

Transformation capability depends in part on the ability to create and embed processes which link business
strategy to the behaviors and performance of individuals and teams. These clusters of processes
 Link vertically (to create alignment with short-term business needs),
 Horizontally (to create cohesion), and
 Temporally (to transform to meet future business needs).

Steps to achieving organizational transformation, Kotter (1995)

1. Establish a sense of urgency – examining market and competitive realities; identifying and
discussing crises, potential crises, or major opportunities.
2. Form a powerful guiding coalition – assembling a group with enough influence and power to lead
3. Create a vision – creating a vision to help direct the change effort and developing strategies for
achieving that vision.
4. Communicate the vision – using every vehicle possible to communicate the new vision and
strategies and teaching new behaviours by the example of the guiding coalition.
5. Empower others to act on the vision – getting rid of obstacles to change; changing systems or
structures that seriously undermine the vision and encouraging risk taking and non-traditional
ideas, activities and actions.
6. Plan for and create short-term wins – planning for visible performance improvement; creating
those improvements and recognizing and rewarding employees involved in the improvements.
7. Consolidate improvements and produce still more change – using increased credibility to change
systems, structures and policies that don’t fit the vision; hiring, promoting and developing
employees who can implement the vision and reinvigorating the process with new projects, themes
and change agents.
8. Institutionalize new approaches – articulating the connections between the new behaviors and
corporate success and developing the means to ensure leadership development and succession.

Why firms fail?

Firms will fail when they made the following common errors during the transformation. These errors are
suggested by Kotter and are directly related to his 8 steps of change:

Error # 1: Allowing too much complacency; it is the biggest mistake when trying to change the
organization is to plunge ahead without establishing a high sense of urgency to change in fellow managers
and employees, without inspire them to move and make objectives real and relevant , this error is fatal
because transformation is always fail to achieve its objectives when complacency level is too high.
a- overestimating the force of change
b- the effect of comfort zone to people.
c- Reinforcement of the status quo
d- Paralysis by complacency
e- Confuse urgency with anxiety – anxiety causes more resistance to change.
f- 75% of mangers should feel that status quo is more dangerous than launching into unknown. Not
(Yes we have problems but we are doing fine)
Without a sense of urgency people will not give an extra effort , instead they cling to the status quo and
resist initiatives from people above, as the result reengineering bogs down, new strategies fail to be

implemented well, acquisition aren’t assimilated properly, quality programs became surface bureaucratic
talk rather than real business substance.

Error # 2: Failing to create a sufficiently powerful guiding coalition:

Transformational change is said to be impossible unless the head of the organization is an active support,
successful transformation involve building guiding team to get the right people in place with the right
emotional commitment, and the right mix of skills and levels
Coalition is always power in terms of:
 informal titles,
 information and expertise,
 reputation and relationship and
 the capacity for leadership.
Individuals alone no matter how competent have never all the assets needed to overcome tradition and
inertia. weak committees are usually less effective.
Efforts that lack a sufficiently powerful guiding coalition can make apparent progress for a while that the
organization structure might be changed or reengineering effort might be launched but sooner or later
countervailing forces undermine the initiatives.
In behind – the- scenes struggle between the CEO and the executives, the latter often win because they:
1. Prevent structural change from producing needed behavior change.
2. Kill reengineering in form of passive resistance from employees and managers
3. They turn quality programs into sources of more bureaucracy instead of customer satisfaction.
Failure here is associated with underestimating the importance of strong guiding coalition with a strong line
leadership to achieve the power required to overcome what are often massive source of inertia.

Error # 3: Underestimating the power of vision:

No other element of successful transformation change is more important than a sensible vision. Vision play
key role in producing useful change by helping to direct, align, and inspire action without an appropriate
vision, transformation can easily be dissolve into a list of confusing, incompatible, and time
consuming projects that go in wrong direction or no where at all, sound vision is a guide for decision
making on both employees and managers level, In many failed transformation change you find plans and
programs playing a role of vision
A rule of thumb: whenever you cannot describe the vision driving the change initiatives in 5 minutes or less
and get reaction that signifies both understanding and interest, so you are in a real trouble. Vision should
be clear and concise, not to create a debate and waste of time.

Error # 4: Under communicating the vision by a factor of 10 ( or 100 or even 1000)

Transformation change is usually impossible unless most employees are willing to help and make short
term scarifies , this can be achieved when they are unhappy about their status quo and they communicated
about the potential benefits of change, credible communication and a lot of it is required to capture
employees hearts and minds.
Communicate for buy-in - Involve as many people as possible, communicate the essentials, simply, and
to appeal and respond to people's needs. De-clutter communications - make technology work for you
rather than against.
Communications comes in both: words (meetings, newsletters) and deeds (silent). Nothing undermine the
change more than the behavior of important individual that’s inconsistent with change.

Error # 5: permitting the obstacles to block the new vision: new initiative fail far too often when
employees feel disempowered by huge obstacles in their paths.
Some times the obstacles is the
1. organizational structure,
2. narrow job categories,
3. compensation or performance-appraisal system
4. Supervisors sometimes force employees to choose between new vision and their self interest
Whenever smart and well-intentioned people avoid confronting obstacles they disempower their employees
and undermine change and the challenge here is how to Empower action - Remove obstacles, enable
constructive feedback and lots of support from leaders - reward and recognize progress and achievements

Error # 6: Failing to create short-term wins; Real transformation takes time, complex effort to
change strategies or structure organizations risk of losing momentum if there are no short-term goals to
meet and celebrate, without short-term wins too many employees gives up or actively join the resistance.

In successful transformation Set aims that are easy to achieve - in bite-size chunks. Manageable numbers
of initiatives. Finish current stages before starting new ones. Create not wait for short term wins

Error # 7: Declaring victory too soon; early celebrating with first performance improvement is a terrible
mistake, that it could be understood as the job is done while the truth that it still requiring ongoing and
persistence effort. Victory stops the inertia for change.
Until change sink down deeply into the culture, new approaches are fragile and subject to regression

Error # 8: Neglecting to anchoring change firmly into the corporate culture;

Change sticks only when it became " the way we doing things around here" until new behaviors are rooted
in social norms and shared values they are always to degradation as soon as the pressures associated with
a change effort are removed.
Anchoring change often requires sufficient time to be taken to ensure that next generation of managers
does personify the new approach, transformation change rarely last as a one bad succession decision at the
top of organization can undermine a decade of hard work, especially when that top-board of directors are
not an integral part of that work.

Most important cause of transformation failure is the resistance to change:

Resistance to change
 People resist change because it is seen as a threat to familiar patterns of behavior as well as to
status and financial rewards. Woodward (1968) made this point clearly.
Joan Woodward (1968) on resistance to change
 When we talk about resistance to change we tend to imply that management is always rational in
changing its direction, and that employees are stupid, emotional or irrational in not responding in
the way they should.
 But if an individual is going to be worse off, explicitly or implicitly, when the proposed changes
have been made, any resistance is entirely rational in terms of his [sic] own best interest.
 The interests of the organization and the individual do not always coincide.
 However, some people will welcome change as an opportunity.
 These need to be identified and where feasible they can be used to help in the introduction of
change as change agents.

Specifically, the main reasons for resisting charge are as follows:

1. The shock of the new – people are suspicious of anything that they perceive will upset their
established routines, methods of working or conditions of employment. They may feel that
management has hidden motives and sometimes, the louder the protestations of management, the
less they will be believed.
2. Economic fears – loss of money, threats to job security.
3. Inconvenience – the change will make life more difficult.
4. Uncertainty – change can be worrying because of uncertainty about its likely impact.
5. Symbolic fears – a small change that may affect some treasured symbol, such as a separate office
or a reserved parking space, may symbolize big ones, especially when employees are uncertain
about how extensive the program of change will be.
6. Threat to interpersonal relationships – anything that disrupts the customary social relationships
and standards of the group will be resisted.
7. Threat to status or skill – the change is perceived as reducing the status of individuals or as de-
skilling them.
8. Competence fears – concern about the ability to cope with new demands or to acquire new skills.