Chapter 14.

Managing Organizational Change

Laura Harstinen and Katariina Peikola

1. Organisation and it’s need for change

1.1 What is an organization?

It’s not so easy task to define what an organization is, because there are several different definitions
of what is meant by an organization. In the book Organizational Behaviour Huczynski and
Buchanan define organization as social arrangements for the controlled performance of collective
goals. Statt’s definition is that an organization is a group of people brought together for the purpose
of achieving certain objectives. In common an organization can be understood as a term which
means people interacting in order to achieve some defined purpose. It’s a social entity that has a
purpose, a boundary and it patterns the activities of participants into a recognisable structure (Daft
1989).
In book Organizational Transitions: Managing Complex Change Beckhard and Harris offer three
ways to describe organizations. They can be seen as social, political or input-out systems.
Organizations as social systems have many different sections like production, sales, finance and
development activities, which must all be integrated in an effective way. Organization is parent
system that consists of several subsystems that each have their own identities and purposes but their
activities must be coordinated in order to get the organization to function.
In the classic political power system, people at the top have more power in most matters than people
at the bottom. Some rules of political-system behaviour are vastly different from rules of social-
system behaviour. When some managers in organizations operate under social-system rules, others
under political-system rules it’s no wonder there are communication problems in many
organizations. Viewing an organization as an input-output system considers it as a system that
transforms needs and raw materials into services and products.

1.2 What causes change in an organization?

An organization is surrounded by its environment and an organization receives its inputs from the
environment and releases outputs back into it. Environment affects in several ways what an
organization produces, sells or how it works. Environmental factors are for example markets,
suppliers, legislation, taxation and labour supply. More such factors are given in figure 1 where the

1
different environmental factors are grouped in four categories; political, economic, technological
and socio-cultural. (Senior 1997)
The environment is getting more and more uncertain in the future because the pace of change
quickens and the future becomes more unpredictable. The factors, which may necessitate change
within organization, can be divided in external and internal factors. External factors to change
originate in the organization’s environment and the internal factors are generally characterized as
comprising, technology, people, task and administrative structures. Internal and external factors for
change are often interdependent. Forces for change within an organization are frequently the result
of some external force. It is also certain that organizations that do not respond to triggers such as
increasing competition, new legislation or the expectations of customers will soon decline and may
cease to exist. (Senior 1997)
Economic
ΠCompetitors
ΠSuppliers
ΠCurrency exchange
rates
ΠEmployment rates
ΠWage rates
ΠGovernment
economic policies
ΠLending policies of
Political financial institutions Socio-Cultural
ΠGovernment ΠDemographic trends
legislation ΠLifestyle changes
ΠGovernment ideology ΠSkills availability
ΠInternational law ΠAttitudes to work and
ΠUniversal rights employment
ΠWars ORGANISATION ΠAttitudes to minority
ΠLocal regulations goups
ΠTaxation ΠGender issues
ΠTrade union ΠConcern for the
acytivities environment
ΠInformation
technology/ the
internet
ΠNew production
processes
ΠChanges in transport
technology

Technological

Figure 1 PETS (Political, Economical, Technological and Socio-cultural) factors and

organizational change

2
2. Management of Organizational Change

2.1 Introduction

Clarke (1994) has stated that change is “moving from the devil you know to the devil you don’t”.
How can something unknown then be managed? When we try to understand change and phenomena
related to it, such as natural human uncertainty and resistance, and then trying to learn how to deal
with them, wouldn’t it be possible to find the logic of change and thus be able to manage it? (Clarke
1994, 73)
Management of organizational change means planning and realizing changes that concern
organization’s strategic success factors. These success factors might be the meaning of it, its
policies, competencies and the capability of renewal. (Huttunen 2000, 94-95) No matter of the
nature of the change, it is always people who will be affected somehow. That is why, in managing
change, much attention must be paid to people who make the organization function.
Employees’ trust in the company is a starting point for successful change (Ogbor 1990, 346). Trust
is most difficult to establish in situations where it would be needed most: trust is there, where
everything is fine and changes not required but fades away soon when problems appear. (Stewart
1994, 24) Another problem is that large organizations do not always realize the need for change in
the organization because they have become complacent about their competencies. Often a major
crisis of some kind is needed before changes can happen. But, crisis make it indispensable for
managers to make quick moves which in turn prevents them from planning the change process in
detail. Planning carefully, nevertheless, is the only way of managing organizational changes right.
(Farquhar & al. 1989, 34-45)
Even though managers might understand the necessity of change in order to cope with new
competitive realities, it is often difficult for them to find out what it takes to implement the change.
In literature many authors have presented ways of avoiding pitfalls and getting real results from
change plans. Many of the models show that managing is possible, despite of all the difficulties
experienced in it. Also, they have highlighted well-functioning communication system and brilliant
communication plans, and, maybe most importantly, their successful implementation. (Auvinen
1997, 72-73)

3
2.2 What Is Needed to Manage Change Effectively

Managing organizational change concerns somehow almost the entire field of management science.
In this chapter we present different aspects how people affected by change should be taken into
consideration and how they could be assured of the importance of the change. Few guidelines are
quite general but the task of a project manager is to apply them in the context he is acting.
Managers confront often uncertainty and resistance. Change always disrupts normality and
threatens job security, in addition to which existing patterns of behavior and values are questioned
(Thompson 1990, 74). Therefore, resistance is a natural reaction. Although change brings along also
some positive outcomes, such as new challenges or opportunities, people tend to ignore these. They
focus on perceptions of negative feelings and outcomes that are often strengthened by informal
communication. (Clarke 1994, 76)
Paying attention to communication is critical in change management. Here are some things for the
project managers to consider when thinking questions of managing organizational change. These
ideas were presented by Newton Margulieres and john Wallace in Organization Change:
Techniques and Application in 1973. In their writing they raise three important views: management
structures, people involved/affected and technique to change management.
First, any change effort in which changes in individual behavior are required, regardless of initial
focus, must include means for ensuring that such changes will occur. These necessary changes
cannot be left to chance. Indeed, they must be planned with careful concern for implementation and
reinforcement. For example, as values reflecting participation and openness develop, management
structures and process characterized by extreme position authority and secrecy may have to adapt.
Second, organizational change is more likely to be met with success when key management people
initiate and support the change process. The point is that there is no substitute for an informed and
sophisticated management that acts collaboratively in planning and implementing change.
Organizational change is best accomplished when persons likely to be affected by the change are
brought into the process as soon as possible. For the most part sudden and unexpected change
creates and intensifies resistance to change. So, involving people early in the process permits them
to express their wishes and expectations in those changes, which are likely to affect their jobs,
relationships and personal satisfaction.
Furthermore, successful change is not likely to occur following the single application of any
technique. Meaningful and “real” change is a long-term endeavor that requires time, nurturance and
effort.

4
In addition, successful change programs must rely upon informed and motivated persons within the
organization if the results are to be maintained. The maintenance of change must be taken care by
people within the organization, who will be trained, developed and given the same managerial
legitimacy as other respected and valued managers of the organization. Project manager should
recognize potential persons of this kind.
Finally, no single technique or approach is optimal for all organizational problems, context and
objectives; diagnosis is essential. The problem in managing organizational change is a management
decision problem. In successful change management the approach to the need, the situation, the
constraints and the objectives must be matched. (Kirkpatrick 1985, 72-75)
On the other hand, Beer & al. believe that the most effective way to conduct lasting change is to
base the process on task alignment starting at the “periphery” of the organization and moving
steadily from there toward the corporate core. They suggest a six-step approach that is able to
develop “a self-reinforcing cycle of commitment, co-ordination and competence”. This model
advises how to proceed to gain people’s confidence to the change. The six steps of this “critical
path” are
1. Mobilize commitment to change through joint diagnosis of business problems.
2. Develop a shared vision of how to organize and manage for competitiveness.
3. Foster consensus for the new vision, competence to enact it, and cohesion to move it along.
4. Spread revitalization to all departments without pushing it from the top.
5. Institutionalize revitalization trough formal policies, systems and structure.
6. Monitor and adjust strategies in response to problems in the revitalization process. (Beer & al.
1990, 159-165)

By this model, employees are given new roles, responsibilities and relationships in new
organizational context. This requires new attitudes and modes of behavior to be adapted and thus,
makes it efficient to change behavior towards change.
As a summary we could present the following “checklist” of the dos and don’ts for successful
change management. It is a summary of the things mentioned most commonly in literature of
change management.

1. Managers must understand the people who will be affected by the change. Their feelings and
emotions will have much to do with the effectiveness of the change.
2. Change should not be forced on people. Otherwise, strong resistance will probably occur.

5
3. Effective communication is a must. People must be informed in advance and must understand
the reason for change. Feedback for employees must be encouraged and listened to. If the ideas
are used, credit must be given. If not, the manager should explain why the idea was not used.
4. People who will be affected by the change should be involved in the decision-making process.
5. It usually takes time for change to be accepted: The more the resistance, the longer the time.
Therefore, planning should include the speed at which change is introduced.
6. Strategies for deciding on changes and getting them implemented must be developed. These
strategies should be placed on principles that will help to make the best decisions and get them
accepted by those affected. (Kirkpatrick 1994, 35)

3. Different strategies for managing organizational change

The need for making chances in organization can be result from many different reasons and the
circumstances for the change are very varying. Because there are so many different kinds of
situations, there isn’t any one solution to implement process of change. A great variety of processes
have been developed to handle change in different cases. The problems arising in an organization,
that to solve out force to make some kind of organizational changes, vary in complexity and
seriousness. (Senior 1997) McCalman and Paton (1992) use the terms hard and soft to divide the
problems in two categories in their book Change Management: A Systems Approach.
Hard problems are usually small and quite limited problems. They don’t cause any serious
consequences and usually they involve only a few people. Hard problems can be handled in relative
isolation from their organizational context and it’s easy to perceive what’s needed to be done. Often
they are also technical orientated and have known time scales. To determine the hard problems
there are quantifiable objectives and performance indicators to use. (Senior 1997)
Soft problems are larger and concern many people in organization. If not taken care of they can
cause serious and scary implications. It’s impossible to separate soft problems from their context,
because it is difficult to limit them. Soft problems have subjective and at best semi-quantifiable
objectives and both goals and means of achieving them are unclear. (Senior 1997)
Flood and Jackson (1991) use the system perspective and call the systems struggling with hard
problems for hard systems and the systems struggling with soft problems for soft systems. Different
models of change have been developed, because it’s impossible to use one and only model in all
different cases. Some models are more useful in hard system and others in soft systems. It is
important to find the most suitable one for each case of organizational change.

6
3.1 The hard systems model of change

Hard systems model of change (HSMC) is based on methods of analysis and change associated with
systems engineering, operational research and project management. By the help of HSMC it’s
easier to determinate objectives for change, find options for action and then at last test them against
a set of explicit criteria. The Hard Systems Models of Change is divided to three phases:
description, options and implementation. (Senior 1997)

3.2 Description

A. Situation summary
The current system, where the change is going to be made, is described and the reason and for an
analysis is explained. The current situation can be described in words, diagrams and so on.

B. Identification of objectives and constraints

Objectives are factors in organization which are largely under control and constraints such factors
over which members of organization have little control. Those objectives that are consistent with
the themes that emerged from the diagnostic stage should be listed and arranged into hierarchy,
where high-level objectives are at the top and the lower-level objectives arranged in descending
order. Constraints are listed in terms of those, which are inviolable and may be modified.

C. Identification of performance measures

The performance measures are identified by formulating them so that they give an answer how well
the objectives are achieved.

3.3 Options

A. Generation of options

In this stage the means to achieve the objectives are defined and a list of those options is drawn up.

B. Editing and detailing selected options

The best of the options defined in the previous stage are chosen and they are described more
detailed.

C. Evaluating options against measures

In this stage the chosen options are evaluated against the criteria identified earlier. To compare

7
different options with each other it’s useful to use for example evaluation matrix that makes it easier
to find the best options.

3.4 Implementation

A) Implementation

There are three ways to implement the change; pilot studies, parallel running and big bang.
Implementation by using pilot studies is the safest way, because it reveals the eventual defects of
the new system and they can be corrected before the old, working system is abandoned. The parallel
running means situation where the old and the new systems are run alongside. It’s good, because it
accelerates the change but the change is still quite safe because the old system can be run until it’s
sure that the new system is reliable and effective. Big bang is the speediest way but it also contains
a high risk of failure unless it’s planned very carefully. It’s not necessary to choose only one of
these implementation strategies; the best one may be the blend of all three.

B) Consolidation

When a new system is successfully implemented to an organization there tends to be a decline in

concentration and the control loosens. This should still be avoided because even though the
implementation would have been successful some problems can appear even later on and need
prompt solving.

Even though HSMC-analysis is better in dealing with situations of hard complexity it can be used
also at least as a starting point to analysis of more messy situations. To drive quickly a way through
HSMC-analysis can result in a suggestion of at least a tentative solution in a situation requiring
change. Anyway it’s very important to keep people affected by change well informed of coming
changes from the very beginning.

3.5 The Soft Systems Model of Change

Because the hard systems model of change is not so useful in situations that lie towards the soft end
of the hard-soft continuum of change situations, it has been required to develop another model for
change. The most of the change models associated with soft situations and systems imply a need for
redesigning systems at many levels of the organization. There are many different variants of
analysing change in soft systems and a generalised description of them is Organization
Development (OD). It concentrates mainly to people in organization and handle them as both the

8
drivers and the engines of change. Organization Development sees people as social beings that are
willing to form groups and organizations as systems, which consist of sub-systems. All the different
parts of organization are interconnected and interrelated with each other. OD approach assumes that
no single person or group can act in isolation from any other and therefore a change in some part of
the organization will inevitably have impact on operations in another part. And contrariwise a
problem can be result of some action in some totally different part of organization. One old but still
useful Organization Development Model is Lewin’s (1951) Model that can be divided to tree
phases; unfreezing, moving and refreezing.
Unfreezing concerns the shaking up of people’s habitual modes of thinking and behaviour to
heighten their awareness of need for change. Moving is essentially the process of making the actual
changes that will move the organization to the new state. Refreezing involves stabilizing or
institutionalizing the changes so that the organization will not drift back to the situation where it
was before the change process.
An action-research-based model of change is another model for change in soft systems. It differs a
lot from the hard systems model of change. An action-research based model of change is not a on-
off event as HSMC, that ends when a change has been completed, but it’s a repetitious or cyclical
process which is continuous and continues as part of everyday organizational life. It emphasises
that all who are or who might be involved in change should be part of the decision-making process.
There are five stages in action-research based model of change.

1. The present and the future

The current situation is diagnosed and the goals for the change are determined.
2. Gaining commitment to the vision and the need for change
The goals are confirmed and the commitment to them is obtained. If the change process
doesn’t gain support enough, in this stage it’s still possible to put down the project without
any bigger loss.
3. Developing an action plan
The transition from organization’s current state to its desired future state is planned. Who is
going to guide the planning and implementation, what needs to be done and where the action
should take place?
4. Implement the change
The new system is implemented to the organization. There are several things, which make
the implementation process easier to accomplish. Some examples of these kinds of activities
are survey feedback, organizational mirroring and intergroup confrontation.

9
5. Assess and reinforce the change
Last thing is to measure how well the settled goals have been achieved and to make sure that
the change process is brought to the end and the new system is consolidated. Though it is
more difficult to measure the success of a change process in a soft system than in hard
system, there are several ways to do it. However the measurements are usually more abstract
and assess is done for instance in form of interviews.

4. Characters of a manager of change

Managing change can be the most important and satisfying thing to do as a manager. By changing
the organization the manager may see the organizations effectiveness to increase. The quality of
work may improve by the personal satisfaction and morale of subordinates.
Project manager, when conducting a project, drives also the change. For a successful project and
change implementation the project manager has to have certain competencies for his/her
assignment.

4.1 The role of a project manager

The main responsibility of a project manager is to deliver the promised results; it is the leader’s
responsibility to create the climate for success. The five functions of management are:

1) planning the work to be done to achieve the defined objects

2) organising the team of people to do the work
3) implementing by assigning work to people
4) controlling progress
5) directing the people involved in the project.

Figure 2 illustrates the functions as described above:

10
 Plan

Control Direct Organize

Implement
Figure 2 Project manager’s functions

Effective project manager can be “defined” by three criteria.

• Management traits: Effective managers have certain common traits
• Management styles: Effective managers adopt certain styles
• A contingent approach: Effective managers adapt their styles to suit the circumstances.

4.2 Traits of effective project manager

The task of a project manager is highly demanding. Project manager has to have many different
abilities from organizer to listener. We present six traits of a project manager who acts as a change
manager. These abilities can be seen the most important ones.
Firstly, project manager should have problem solving ability and results orientation. Effective
managers are usually of above average intelligence, able to solve complex problems by analyzing
the current situation and recognizing patterns. The ability at problem solving should be coupled
with result orientation. The purpose is not to complete the work for work’s sake, but to achieve the
desired results. The solution to the problems should deliver the planned objectives and defined
purpose.
The project manager has to also be energetic and initiating. He/she usually works under pressure
and against considerable odds. The energy will be coupled with initiative to see the needs for action
and the resolve to take such action.
The project manager must have the self assurance to know that what will be done is right. He/she
has to be resolute, confident in their opinions and judgement. The self-assured manager also
delegates readily to the team, confident in the ability of team members and their own ability to
motivate the team. Sometimes, especially in the IT industry, you see good technologists promoted

11
in managerial positions who are very reluctant to delegate because they believe, quite rightly, that
they can do the work better than anyone else. They work to their early grave, while their team
members are idle and consequently demotivated.
Managers need to have sense of perspective: to be able to look beyond the project team, and to see
how they fit into the organization as a whole. It is necessary to understand the detailed work of the
project and how it will deliver the project’s objectives and to understand how the project’s
objectives will meet the needs of the parent organization.
Good communication skills are a must in project management. The manager must be able to
communicate at all levels, from the managing director down to the janitor. They must be
ambassadors for the project, able to sell it to senior managers and win their support; they must be
able to talk their peers, functional managers and recourse providers to win cooperation.
Additionally, they must be able to brief and motivate the project team and they must be able to talk
to the janitor, because often the latter knows better than anyone how the project is progressing.
The project plan is a contract on two levels:
• Between the project manager and the sponsor agreeing what the project team will deliver to the
organization, and the support the organization will give in return to enable the team to deliver
the contracted results
• Between the project team members on another level, agreeing how they will work together to
deliver the results to the project manager.

Like all contracts this must be negotiated through bipartite discussions. Project managers rely on
their ability to negotiate, because they do not have direct line authority over their recourses as
functional managers do. They must win and maintain the cooperation of other people through their
ability to negotiate and persuade. (Turner & al. 1996, 104-105)
We would like to add the human perspective to the proceeding trait of a project manager. In change
management, project manager needs to have a sense of empathy. This is needed to know your
people, and why someone resists and someone welcomes the change. Manager should also
anticipate how each person affected would react to a contemplated change
In addition, getting others to participate ensures the support for the change. Manager should get
input from people, who are involved, before the decision of change is final. He/she should listen to
them carefully and consider their opinions as well as the facts. Finally, the manager should use their
input in decision-making, to the extent that is possible. When their input is not used it should be
explained to them why. On the other hand, they should be given credit for the ideas used.
(Kirkpatrick 1985, 255-257)

12
4.3 Styles of effective project manager

There are many models on the management style adopted by project managers. The parameters
against which managers are judged are:
• Focus on people or relationships
• Focus on tasks
• Use of authority
• Involvement of team in decision making
• Involvement of team in decision taking
• Flexibility versus application of rules and procedures

A democratic manager consults the team, but decides the best course of action. This style may be
appropriate during the feasibility and planning stages of a project, when you want to encourage
people to contribute their ideas. An autocratic manager dictates to the team what should be done
and how. This style may be appropriate during execution and close-out, when the specification and
design of the facility has been decided, real money is being spent and early completion of the
project is required to achieve the revenue returns.
A bureaucratic manager manages through rules and procedures. This style is usually only
appropriate on projects with low risk, with little expected change, because the bureaucratic manager
is unable to respond to change. This probably means it will only be appropriate during the close-out
stages of a project. A laissez-faire manager allows the team to manage themselves. They behave
like all the other members of the team, and are there to advise if required. This style is appropriate
during the early developmental or feasibility stages of a project. (Turner & al. 1996, 105-107) The
next table (Table 1) summarises the four styles regarding to team decision-making and taking, and
flexibility.

Table 1 Four styles adopted by project manager (Turner & al. 1996, 106)
Bureaucratic Autocratic Democratic Laissez-faire
Team decision Low Low High High
making
Team decision Low Low Low High
taking
Flexibility Rule-based Flexible Flexible Flexible

13
4.4 Situational management

Many managers have a preferred style. Effective managers adopt the style appropriate to the team
and task at hand. The four styles presented above can be related to four team types. Adopting an
inappropriate style and team structure can cause dissonance, sending different messages to the team.
It is, however, quite common for managers to adopt a preferred style that is different to the style
that team members would prefer. Next table (Table 2) presents the style and team type, and gives a
brief description of the team.

Table 2 Management styles and team structures

Style Team type Description
Democratic Matrix Teams of mixed discipline working on
several tasks
Autocratic Task or functional Teams of each of a single discipline working
on separate tasks
Bureaucratic Surgical A single professional supported by others
with specific duties
Laissez-faire Ego-less Teams of professionals with shared
responsibility for decisions

14
References

Auvinen, Katri (1997) Communication in Change Management - Communicating Internally During

Organizational Change. Pro Gradu, Turku School of Economics and Business Administration.

Beckhard, Richard – Harris, Reuben T. (1987) Organizational Transitions: Managing Complex

Change

Beer, Michael - Eisenstat, Russel A. - Spector, Bert (1990) Why Change Programs Don’t Produce
Change. Harward Business Review, Vol 68, No 6: 158-166

Clarke Liz (1994) The Essence of Change. Prentice-Hall: New York

Dawson, Patrick (1994) Organizational Change: A Processual Approach

Farquhar, Alison - Evans, Paul - Tawadey, Kiran (1989) lessons from Practise in Managing
Organisational Change. In: Human Resource Management in International Firms, ed. By Evans &
al. 33-55.

Flood, R.L. and Jackson, M.C. (1991) Creative Problem Solving: Total Sytems Intervention,
Chichester Wiley

Huczynski, A – Buchanan, D (1991) Oganizational Behaviour, Hemel Hempstead, Prentice-Hall

Huttunen Pekka (2000) Neljäs aalto. Kauppakaari Oyj: Helsinki

Kirkpatrick Donald L. (1985) How to Manage Change Effectively. The Jossey-Bass Publishers: San
Francisco.

Lewin. K (1951) Field Theory in Social Science, New York, Harper & Row

McCalman and Paton (1992) Change Management: A Systems Approach, London, P.C.P

Ogbor John (1990) Organizational Change within a Cultural Context: The Interpretation of Cross-
culturally Transferred Organizational Practices. Lund University Press: Lund

Senior, Barbara (1997) Organisational Change Pearson Education Limited, Essex

Stewart Thomas A. (1994) How to Lead a Revolution. Fortune. 11/28, 22-31

Thompson, John L. Strategic Management: Awareness and Change. Chapman & Hall:
London/Glasgow/New York/Melbourne/Madras.

15