August 21, 2012

Case Study: Apple, Inc. Strategy Analysis - Part 2

 

...continued from Part 1

4  Strategy Analysis (2007 – present)


Apple has utilized its unique resources and  core competences to obtain tremendous success over the last five years .Today it has annual revenue in excess of $125 billion compared to $20 billion in end of 2006  and in the span of  5 years between 2007 to 2012 Apple's stock value increased more than 500% from $85 to $542 per share  (wikiinvest-APPL, 2012).

 4.1  Strategic choice


Apple products follow a Focussed differentiation strategy. According to Johnson et al (2008), a focussed differentiating strategy seeks to provide high perceived product value to customers, justifying a price premium and aimed at a niche segment of the market.  Apple has been very successful in creating innovative products targeted at higher income customers who are willing to pay premium price for superior user experience.

  On the surface, it could appear that Apple's competitive advantage is solely due to product differentiation. But on a closer look, Apple's success is not entirely because of its ability to consistently create innovative products. Creating innovative products gives Apple only a temporary advantage as its competitors have imitated and launched their own versions of product in a matter of months.  Apple's success lies in its ability to create a platform around their products that drives and sustains growth.  A platform strategy is one in which third party developers and media companies can sell their contents that runs on Apple's products. 

Apple is unique in that it enters a red ocean, i.e., a highly competitive market and succeeds by changing the market paradigm. Apple combines its 'Product strategy' with a 'Platform strategy' that is free of threats and sustain long term growth. Apple's “Product+Platform” strategy can be summarized as a two phase strategy;

  1. Product differentiation focussing on innovation and consumer experience to enter a new market; i.e., Product Strategy.
  2. Platform development to build, adopt and then consolidate the platform that is centric to its products to achieve long term growth; i.e. , Platform Strategy.


In the last 5 years the most important products from Apple was the launch of iPhone in 2007 and launch of iPad in 2010. Both of these products were diversification to new industries and today constitutes about 70% of Apple's revenue (Apple, Inc. FY12 10-Q Form Apple).  To understand  Apple's iPhone success and subsequent iPad success, its important to understand what Apple did with iPod+iTunes business.

When iPod was launched it was a very innovative product that made technology easy to use. It was hugely successful among the early adopters  but its long term success was primarily due to iTunes music store. The iTunes music store created a platform for online music downloads and iPod was the perfect companion for this platform. This digital music platform is the reason why the iPod dominats the portable digital player market even today, in spite of its competitors coming up with digital music players that were technologically superior to iPods. For example, Microsoft's 'Zune' music player had color screen and video capabilities even before Apple introduced them in their iterations of iPods. However Microsoft's Zune was not successful because it did not have that convenient music platform like iTunes. By 2007, iTunes had evolved considerably enough that customers were locked-in to this platform due to its convenience and ease of use. As more people buy iPods, more media houses want to sell their content in iTunes and as more entertainment are available on iTunes, consumers are more likely to buy iPods.  This self-reinforcing cycle can sustain and reinforce growth by raising barriers to competitors (Lohr, 2011).  Apple repeated this same  “Product+Platform” strategy with their iPhone and iPad products.

 4.2  iPhone in 2007


In 2007, Apple entered the highly competitive mobile phone market with iPhone. iPhone was a product extension of iPod. The iPhone primarily differentiated itself from other mobile phones by its user interface which was the industry-first multi-touch screen.  From Ansoff’s Product/Market Matrix (A12), iPhone targeted both existing Apple customers and also new customers by diversification to mobile phone market.  

Apple's first movers advantage was short-lived as their competitors like Nokia and Samsung introduced their own version of iPhone-look-feel phones within few months. In 2008, Apple launched “App Store”. The word “apps”, short for applications that run on iPhones was introduced by Apple during the launch of App Store. The App Store allowed third party developers to create application to run on iOS which consumers can download onto their iPhones.  This was the beginning of Apple's mobile platform. While competitors were busy making feature-level comparisons to their products, Apple consolidated its iPhone platform and laid the foundations of a new growth engine that revolutionized mobile phone industry. 

Apple makes 30% commission on all apps revenue. On March 4th 2012, Apple announced that 25 billion Apps were downloaded from its App store (Brian, 2012).  As more 'apps' are available for people to download, Apple's mobile platform gets dominant which in turn sells more iPhones. From Ansoff’s Product/Market Matrix (A8), success of App stores along with iTunes consolidated the existing iPhone market and also developed new market as iPhone customers were introduced to other Apple products like iPods and Mac computers.

 4.3  iPad in 2010


After iPhone, the next major product launch from Apple was the iPad, a tablet computer. Apple introduced iPad in 2010, positioning it between the laptops and smart phones as a companion product in Apple's product lineup.  Apple leveraged the iPhone and iPod designs, and integrated iTunes store and the App store in iPad. iPad was a diversification towards the e-reader market as iPad presented opportunities to the publication and content industry. During the iPad launch Apple also announced “ibook store” which is an extension of its Apps store targeting media publishers. The ibook store launch was accompanied by Apple's partnership announcement with five large book publishers: Penguin Group, Harper Collins, Hachette Book Group, Simon & Schuster and McGraw-Hill. This laid the foundation of a e-reader platform with iPad.

  In January, 2012 Apple consolidated the iPad+iBook platform further by releasing the iBook2, and iBooks author which lets anyone author and create digital books on iPad. The ipad+ibook platform has potential to revolutionize educational sector  by giving teachers and any other authors the ability to create their own interactive books.


 4.4  Product Iterations & Market Expansion (2007-present)


Apple operates a very short product life cycle. Throughout the last five years Apple has continuously  updates product line with innovative features that has kept it one step ahead of its competitors and at the same time consolidating its platform adoption. Popularity of iPod, iPhone and now with iPad has strengthened Apple's brand which in turn is drawing more customers to Apple's Mac computer products. Apple reports that half of all computer sales through its retail channel are to people new to Mac computers, Mac products saw an increase of 21% in 2011 (Apple, Inc., FY12 10-Q Form).

The popularity of iPhone and iPad has penetrated the corporate business market segment which Apple had no presence before the introduction of iPhone. Adoption of iPhone among the corporate users has increased Mac computer sales among the corporate users. Apple introduced Macbook Air in 2008 targeting the corporate uses. Even though Macbook Air sales is relatively small compared to overall Apple products sales, it has seen year over year increase (Apple, Inc., FY12 10-Q Form). 

 5  Conclusion


Apple has built a culture of transforming industries by introducing innovative products. iPad is likely to become another big platform for Apple. With iPad, Apple has created a completely new market, just like they did first with the iPod and then with iPhone. Success of the iPhone, and iPad does not appear to be slowing and should continue into 2012 and beyond. Besides these products, Apple’s biggest competitive advantage is its digital content service business based on iTunes and Apps Store, which no other competitor can replicate in the short-term.  Apple remains promising because of is strong brand combined with the halo effect of iPod, iPhone and iPad products have on its other businesses.



 6  References


Removed >


Posted by Vaishak V. Suvarna on Tuesday, August 21, 2012

August 14, 2012

Case Study: Apple, Inc. Strategy Analysis - Part 1




 1  Introduction


Apple, Inc. is a US multinational corporation that needs no introduction.  Apple Inc. with its “Think Differently" motto has been Fortune magazine's  “World's most admired company in the World” for the last 4 consecutive years (Fortune, 2012). On February 28th, 2012, Apple, Inc.'s market value toped $500 billion (Blodget, H, 2012).

'Apple Computers' as it was called prior to 2007 had primarily focused on its core computer business. In 2001, it shifted its strategy by entering the portable digital music player business with the introduction of iPod, and in 2003 entered the music business with the introduction of iTunes music store. According to Apple's FY'07 10-Q, by end of 2006, the iPod & iTunes business contributed to more than half of its revenue. In 2007, “Apple Computer” changed its name to “Apple, Inc.” This paper focuses on Apple, Inc.'s  business strategy in the last five years starting from 2007 to present and throughout this paper 'Apple, Inc.' will be simply referred as 'Apple'.

 2   External Analysis


 Apple competes in the following four industries ;


  • Computer Hardware and Software – with 'Mac' line of computers, Mac OS X & iOS
  • Portable media devices – iPod, iPad & appleTV
  • Smart Phone – iPhone 
  • Music, Media and Content Service – iTunes, iBook, App Store and Mac Store


A firm's business strategies are influenced by the forces in its external environment. PESTEL and Porter's five forces framework can be used to analyze the factors influencing the firm's macro-environmental and industry sectors respectively (Johnson et al, 2008, p.55). From Apple's PESTEL Analysis (A1) and Porter's Five Forces Analysis (A2), the key external drivers of change affecting Apple are ;

Political Threat
Apple manufactures and assembles all of its products in Asia (Apple, Inc. FY12 10-Q Form , p36). Hence it is dependent on political stability in these countries. Any political conflict between these countries and the US can have a negative effect on Apple's operations.

Legal Threat
Apple is a successful company and with success comes persistent threat of litigation from any number of sources, e.g., Apple had legal disputes with Beatles on Apple trademark which was settled in late 2006. Currently Apple is fighting Antitrust lawsuit filed against its iTunes download business (Apple, Inc. FY12 10-Q, p33)

Economic Threat
Apple is subject to global economic cycles, like inflation, GDP, interest rates and levels of disposable income. Apple products are considered premium products and puts Apple in disadvantage during economic downturns as consumers are weary of big-ticket purchases like computers, iPhones or iPads. 

Apple is a multinational company maintaining huge cash reserves which is not fully repatriated. Global interest rate fluctuation will have impact on Apple's income as the company earns interest on its cash reserves. Fluctuation in US dollar exchange rate will have significant effect on its profits as more than half of its revenue coming from outside US (Apple, Inc. FY12 10-Q Form, p18). 

Threats from Competitors 
  Apple's competitors are established companies with substantial resources. Any advantage that Apple gains by product differentiation is short lived as competitors have copied them immediately, e.g., mobile phone companies like Samsung, Nokia, Motorola released their version of touch screen smart phones and tablet computers within months after the introduction of iPhone & iPad.   


Threat of  New Entrants
Even though cost can be a significant barrier to entry, some of potential competitors with substantial resources have diversified into Apple's music and smartphone businesses. New entrants to music industry like Amazon, started their own online music business. Microsoft launched the 'Zune' music player to compete against iPod. Google entered smartphone business with Android based phones to compete  against  iPhone & iOS.


 3  Internal Analysis 


In spite of all four of these industries being highly competitive, we can see from Apple's SWOT analysis (A3), that they are all fast growing industries with huge potential. Apple has been able to successfully exploit these opportunities by entering and then creating a sustainable market for its products.

 3.1  Competitive Advantage

A firm achieves competitive advantage when it has one or more core competencies which is a combination of unique resources and capabilities (Johnson et al, 2011, p.97). From Porter’s value chain analysis (A4) and SWOT analysis (A3)  Apple's success factors can be attributed to its unique Resources and capabilities of ;

Leadership and Talented Employees
Even after Steve Job's death, who was the iconic leader of the company, Apple’s executive  management team, that was hand picked and groomed by Steve Jobs are embedded with  “Think Different” philosophy (Lee, 2011).   Tim Cook, the current CEO, took over day-to-day CEO duties from Steve Jobs since his first medical leave of absence back in 2006. Apple under the leadership of Tim Cook, has done extremely well. Apple recruits the best talents available and Apple has one of the best design team headed by Chief designer Jonathan Ive.


Cash
As of December 31, 2011 Apple has about $92 billion in cash (Apple, Inc. FY12 10-Q Form). This gives the company strategic advantage as Apple can pay in cash upfront to its suppliers and lock out crucial supply parts from the suppliers years in advance (Wingfield, 2011). Having huge cash resources protects Apple in fighting legal battles against it and also aggressively pursue legal actions on any firm that steals Apple's intellectual property. 

Brand
Apple is the world's valuable brand valued at $153 billion (Culpam, 2011). Apple brand stands for innovation and design and has a cult like following. 

Culture of Innovation
From Apple's culture web analysis (A7), an innovation culture has permeated throughout Apple's history by Steve Job's “Think Different” philosophy. This has become a self enforcing and self sustaining culture. Apple's culture of innovation is not just limited to products development, but also to its business model, innovative marketing and captivating communications. It not only boosts sales, but enhances the brand value too. This culture of innovation gives Apple a strategic advantage.

Technology with Integrated Value Chain
Apple puts consumer experience more than the technical prowess of the product. Apple is the only vertically integrated company and thus can manage all aspects of the consumer experience. Vertical integration refers to owning all parts of the product value chain. Apple designs and develops its own Hardware and Software platforms for its products, content service via iTunes and App stores, uses its own sales and service via Apple Retail store and online store. By controlling the whole value chain, Apple is in position to extract all the value from it, and also provide an outstanding value in all aspects of consumer experience. This gives Apple a strategic advantage. 


 3.2  Sustainable Competitive Advantage

An organization can attain sustainable competitive advantage if its unique resources and core competencies are rare, inimitable, valued by customers and embedded within its organization (Johnson et al, 2008, p107). Analyzing Apple's Unique Resources and Core Competencies (A5) using VRIO framework (A6) we can conclude that the above mentioned Unique resources and core competencies give Apple a sustained competitive advantage.


   ... continued in Part 2

Posted by Vaishak V. Suvarna on Tuesday, August 14, 2012

July 9, 2012

Managing episodic and continuous change


Introduction

Organizational change is the transitioning of an organization from its current state
towards a desired future state (Palmer, Dunfin & Akin, 2006). Weick & quinn (1999) in their article titled “ Organizational Change and Development“ discuss organizational change as either episodic or continuous. This distinction between episodic organizational change and continuous organizational change provides different ways to understand change and present different implications for implementing organizational change. Episodic organizational change is systems based macro perspective of organizational change where change is considered rare and radical whereas continuous organizational change is a process based micro perspective where change is considered ongoing or constant.

Weick & Quinn (1999) argue that the same configuration of organizational design and capabilities is best for managing both episodic and continuous forms of change. The purpose of this essay is to examine if this statement can be supported or not. In order to do this this essay will analyze and understand the processes of episodic and continuous change from two perspectives;

  • Organization Readiness to Change: Is a self-organizing and continuously adaptable organization ready for any kind of change?
  • Link between episodic and continuous change: Are episodic and continuous change mutually exclusive, or is there a link between these two phenomenon?
This essay will argue that the organization which is continuously changing is a “change ready” organization and therefore ready for episodic change as well, not exclusively continuous change. This essay will try to show that there is a strong link between episodic organizational change and continuous organizational change. And this is one of the reasons why the same approach works for managing both continuous and episodic changes.




Background

Episodic Organizational Change

Episodic organizational change is a systems-based approach to change. Organizations are viewed as stable and inertial and change is something that is rare. When change generally occurs in such organization, it is a planned and deliberate approach. The underlying assumption in an episodic organizational change perspective is that the organization is in a state of equilibrium, therefore must be acted upon to be changed, and then must be returned to a new state of equilibrium. Changes that are episodic are consistent with organizations that go through a planned, discontinuous and infrequent organizational change (Weick & Quinn, 1999).


Episodic change is a macro-level view of an the organization undergoing a change in its entirety . When viewed at a macro-level, change is seen as an occasional interruption and disturbance in a stable environment.with key concepts being “inertia, deep structure of interrelated parts, replacement and substitution, discontinuity, revolution” (Weick & Quinn, 1999, p. 366).

Organizational Inertia or stability or equilibrium are often created due to past organizational success and conservative organizational culture. Thus a change that is often triggered by an external event after a period of stability tends to be to be dramatic. In an episodic organizational change, the focus is on upper management or skip-level management to direct organizations with a clear vision, mission and goals to create episodic change. The role of a leader is central to a planned episodic change to develop and communicate a vision, fixed objectives and embed new approaches in the organizational culture (Kotter, 1996).


Continuous Organizational Change

Continuous organizational change is a process-based approach to change and considered as “ongoing, evolving and cumulative” (Weick & Quinn, 1999, p. 375). The underlying assumption is that
change happens all the time with small continuous adjustments and culminate to create substantial change” (Weick & Quinn, 1999, p. 375). Such organizations are viewed as self-organizing with continuous change as normal with no return to equilibrium or state of stability.

Continuous change is driven by alertness and the inability of organizations to remain stable ( Weick & Quinn, 1999, p.379). Continuous organizational change views change at a micro-level. Constant changes to organizational processes and practice are considered part of the organizational culture. When viewed from the process-related perspective, changing patterns in micro-level processes, act and amplify to reveal emerging change patterns. Key concepts are “recurrent interactions, shifting task authority, response repertoires, emergent patterns, improvisation, translation, and learning” (Weick & Quinn, 1999, p. 366).

The role of the management in continuous organizational change is very different from an episodic change perspective in that it is viewed from a micro-level, with the leadership role as a participative process with continually changing, and co-constructed organizational goals that result in emerging patterns of change.




Organizational Readiness to change

Organizations will face changes due to various forces surrounding their environment. These forces can be both internal or external to the organization. To successfully lead any kind of change, whether in a micro-level or macro-level, it is critical that the organization must be ready to change. Change readiness is one of the major components for successfully leading change (Palmer, Dunfin & Akin, 2006.p128).

According to Weick and Quinn (1999), an episodic change followed Lewin’s three-stage change model. According to Lewin's three-stage change model, a change process will follow stages of
Unfreezing” , “Change” and “Refreezing” (Palmer, Dunford & Akin, 2006). The unfreezing stage involves moving an organization from its current state of inertia to a state where it is ready for change. This need to unfreeze is identified in Lewin's change model because human behavior is based on a stable situation with forces restraining change. During the unfreezing stage, a state of “change readiness” is created by unlearning old behaviors and focusing on the creating a motivation to change . This idea of unfreezing an organization is also behind the first six steps in Kotter’s 8-step change strategy. In Kotter's eight steps for organizational change, the management need to create an organization comprising of a group of individuals who can work together to enact change, with conscious vision that will guide the change effort. Once this is created, the organization will be ready for change. According to Isabella's (1990) process model of how change affects individuals during the implementation of organizational change, the four stages of “anticipation”,”confirmation”, “culmination” and “aftermath” describes the individual’s experiences with change. The first two stages of “anticipation”, in which individuals interpret and absorb information about the change into a perceived reality and “confirmation” stage, where perceptions and assumptions are confirmed and ingrained, are the clearest aspect to Lewin's “unfreezing” stage.

These traditional change models of Lewin, Kotter and Isabella uses a process framework for
understanding the progression of an organizational change. Each of the models presented above suggest that individuals in an organization are barriers to change because their work behaviors are fixed, requiring change models to initiate with an 'unfreeze' of the status quo before any kind of change can proceed.

Organizational readiness for change is influenced by ; (a) capacity and self-efficacy of employees to change, (b) organization appropriateness for managing change (c) management support for change . Therefore preparing or readying an Organization for change can be viewed from the perspective of an employee's commitment to change and organizational culture to support it.



  • Employee commitment to Change;
Any type of organizational change involves changes to an individual's roles and responsibilities and it is natural that individuals will have reaction to these changes. Employee resistance to change and perceptions of the change process are important drivers of change success (Palmer, Dunfin & Akin, 2006. p146). Hence an examination of the human side of change is needed for the success of change initiatives. To create change, change initiative must appeal to employees cognitively, affectively, and behaviorally. For the change to take place employees must be prepared to change, therefore employee commitment to change is important for a successful change implementation.

Employees usually resist change for a multitude of reasons as an individual's predisposition toward change is personal. Negative reactions to change relate to aspects of loss like loss of job or control, fear of unknown, combined with a climate of mistrust and disruption. This is typical in a static organization where stability is the norm. When an organization is static and process driven, then any deviation from the status quo cause these negative reactions. To overcome these negative reactions, management have to support employees going through major transitions in the workplace by considering the psychological and behavioral roots of employee. According to Scott and Jaffe's model of resistance cycle people go through four phases of response to change, i.e., denial, resistance, exploration, and commitment (Palmer, Dunford & Akin, 2006). Management must communicate the objective and rationale behind the change initiative and make the individuals understand consequences to the organization if the change is not achieved. As individuals evaluate and respond to change initiatives, then change implementation can gain momentum (Isabella 1990). By making employees view the change initiatives from a perspective of an organizational strategy, will change the terms of employees' role and responsibilities towards the organization and management can secure commitments based on these revised objectives that aligns with organizational change initiatives.

Now, a flexible self-organizing and adaptable organization which considerers change as part of the routine is already at a stage where the employees understand that change really is the only constant and are thus always prepared and committed for a new change as soon as any single change is completed. Employees in a continuously changing environment would have developed change-related self-efficacy, and when large episodic changes happen they are mentally prepared and less frightened.



  • Organizational Culture of Change;

Even-though employee's reaction to change is individual and personal, they are affected by the organizational climate they are constrained within. Most change models will stumble when they face organizational designs and management practices that are inherently anti-change (Worley & Lawler III, 2006). Factors significantly related to readiness for organizational change are management support, flexible policies, structures and behaviors. However, all these are directly linked to the concept of the culture of an organization and any changes which are sought will have to be effected within the constraints of the existing culture (Worley & Lawler III, 2006). Therefore effectiveness of change efforts is largely determined by the organizational culture.

The most effective way to change individual behavior, is to put individuals in an organizational culture which imposes new roles and responsibilities on them that encourages and supports change Organizational culture is more complex and hard to change as the culture is based on its members shared values and norms built up over the life of the organization. Until new behaviors and beliefs are rooted into the norms and shared values of the organization , they are subject to degradation as soon as the pressure for change is removed (Kotter, 1995). Thus the role of culture is significant in influencing organizational change . The critical task for management here is to produce and maintain an organizational culture that is able to secure the basis for the next subsequent periods of change.

In a traditional static organization, institutionalizing a new organization culture will take a long time as employees need time to adapt or cope with the change. The episodic change approach in a traditional organization setting assumes that all individuals involved in a change initiatives are willing and interested in implementing it. This assumption clearly ignores organizational politics and conflict or assumes that these can be easily identified and resolved. On the other hand in a continuously changing organization, continuous change can happen only if it is ingrained in the firm's culture, this may be a result of a deep rooted culture at all levels of the organization to continuously change. This kind of continuous change becomes the part of every-day life in the organization and manifests typically as as a change ready organizational culture. As the organization faces new realities in a changing environment, they will be able to adjust and develop an adaptive capacity into the organizational culture. This culture to adapt to continuous change is equally supportive when the organization is faced with an episodic change.Therefore, the culture of change acceptance and adaptability is an important driving force for not only continuous changes but also for episodic change as well.

Many of the principles of continuous change, i.e, embedding the flexibility to accommodate everyday contingencies, opportunities and consequences that punctuate organizational equilibrium are also needed when faced with an one-off episodic change. Brown and Eisenhardt (1997), in their study of the computer industry found that the continuous change organization had organizational structures that was flexible enough to allow various scale of change to occur and be successful, whereas organization with rigid or semi-rigid structures prevented or inhibited change. This is not limited to computer industry where innovation is vital. Tucker, A. L. and Edmondson, A. C. (2003), in their study of the hospitals showed that improvements never took place due to rigid management polices and organizational structures that prevented nurses to inform or escalate the process failures they encounter to the management, thus preventing changes from taking place . When an organization is rigid the process of change becomes too dependent on senior management or skip-level managers, who in might not have a full understanding of the timing and consequences of their decisions at the micro-level. Whereas by developing sensitivity to the change processes continuously at work within the organization, management evaluate and influence change and develop organizations that can readily adapt in a radical change.


Episodic change is driven by inertia and the inability of organizations to keep up, while continuous change is driven by alertness and the inability of organizations to remain stable (Weick & Quinn, 1999, p.379). Rather than pushing for change, organizations that build adaptive capacity has the ability to pull for change by making change, the norm within their organizations. Such organizations are truly change ready due to the organizational culture and employee commitment .





Linking Episodic change to Continuous Change

Continuous change and episodic change are not necessarily mutually exclusive, rather they both provide different views of the same phenomenon. Tsoukas and Chia (2002) suggest that the continuous change gives a more comprehensive understanding of how change is actually
“accomplished on the ground.” Episodic change provides a macro level perspective of organizational change whereas continuous change provides a micro-level perspective. The macro-level view provides measurable milestones, while the micro-level views these changes as they happen (Tsoukas & Chia, 2002).This distinction between the micro and macro levels highlights one of the limitations in perceiving episodic and continuous change as mutually exclusive. From the macro perspective, an observer might see transformational changes in strategy or operations. Whereas, when observing the same transformations from the micro level might show how dynamically interacting individuals influence these changes in strategy and operations as a series of evolutionary stages.


Organizational change is present both at an operational and strategic level.

  • Operational-level Change

For macro-level operational episodic change, a CEO might alter the organizational chart, redefine operational processes to guide organizational behavior. However, to achieve this macro-level change the CEO will have to dig into the micro-level, so that he can identify and understand the deeply held values, and assumptions that may be held by the lower-level organization and its employees. This shows that organizational change is not just about changing macro-level artifacts, like charts and processes; but that it also involves digging into the micro-level phenomena that influence macro-level operational changes. For example, study by Feldman (2000) and cited by Tsoukas & Chia (2002) shows the pattern of the US university move-in routine which transformed from being a stable task of getting the students to simply move-in into their halls of residence to become a more complex coordination task involving the athletic department on football schedules, local city officials to manage traffic jams and accommodating the vendors into the move-in process .

  • Strategic-level Change:

One can view the same from a strategic change perspective also. Strategy is not always formulated by top management as strategies can emerge from anywhere inside an organization. Emergent strategies which emerges from the micro-level interaction of individual throughout the organization . These strategies become organizational when the patterns developed through emergent processes are adopted by the organization as a whole . Leaders and managers at the micro-level who understand the external environment and the internal capabilities of the organization often see important trends that call for organization change before senior management does. These strategic changes that arise at the micro-level gets shared, filters upwards and over time can create organization transforming changes. For Example, Brown and Eisenhardt (1997), in their study of the computer industry found the companies like cruising, midas and titan which were were successful due to development of product portfolios by anticipating and react to the future. This study showed a link between successful product development portfolios and set of organizational structures and processes that were related to continuous change .


Another limitation of looking change as a purely episodic process is that the “freezing” stage of Lewin's model represents a new equilibrium . This new organizational equilibrium must be altered again whenever the organization faces new threats and opportunities. Throughout history, organizations have viewed change through the lens of a stable business environment—an environment in which routine and order were dominant constructs that framed business reality. Operating in an environment thought to be reliable, leaders and organizational members acted with a sense of security and certainty (Tsoukas & Chia, 2002). However today’s competitive environment is hardly static. Many of organizational paradigms and strategic thinking which assumes organization to be static were developed in the 1970swhen speed and flexibility were less relevant to organizational success than they are for con-temporary firms ( Brown and Eisenhardt 1997). In a world that is constantly changing, an organization's design must support the idea that the implementation and re-implementation of a strategy is a continuous process (Worley & Lawler III ,2006). One of the many reasons for change is that the organization needs to be in line with the changing environment in which it operates. 
As we know the environment changes continuously. If the organization does not adapt itself to the continuously changing environment there will develop a gap between the organization and its environment. If an organization tries to keep up with changing environment assuming change as an episodic process , then the high frequency of periodic episodic changes would simply not be sustainable. So adapting to continuous change is the only way to survive . Change has become a normal condition of organizational life (Tsoukas and Chia .2002 p.567) .


Further, if change is considered as being constant, then it invalidates the assumption that a change can be episodic as episodic change creates a new status quo. From the micro-level perspective this new status quo is an illusion because change is constant. When we view macro-level change as leading to stability, we are merely ignoring the subtle but continuous micro-level changes (Tsoukas & Chia, 2002) Acccording to Beer and Nohria (2000) cited by Tsoukas and Chia (2002), approach that gives priority to stability and treats change as merely a secondary part is being pragmatic. Change programs that are informed by that view often do not produce change. From the study of the computer industry conducted by Brown and Eisenhardt (1997), we can see that that the companies had developed ability to sustain continuous change by an effective combination of flexibility and preparation for multiple change scenarios. This organizational model of self-organization enable firms to prosper not only in continuous small changes but also in an era of rapid transformational change.

From this perspective, episodic change is a culmination of many continuous changes as an organization is constantly changing and multiply toward a pattern of adaption and evolution.



Discussion and Conclusion

Weick & Quinn (1999) statement that “the same configuration of organizational design and capabilities is best for managing both episodic and continuous forms of change” is certainly well supported.

It is widely believed that for the completion of any organizational change, the change readiness is fundamental to its success. The pre-requisite for any organizational change initiative is the need to advance organizations to the point of the change readiness. Managing organizational change readiness not only requires restructuring of organizational systems and processes but also It requires managing the employee reactions that accompany any organizational change. For the smooth implementation of change, the management should ready the organization to change by creating a culture of change acceptance.However, a number of traditional organizational design tend to discourage and not encourage change. Therefore, when such organization are encountered with a need of a episodic change, as the first step, they are compelled to transform themselves into organizations that are "ready to change". In relation to continuously changing organization, one thing that we cannot ignore is its agility and capacity to embrace change. A continuously changing organization may seem to be a perfect candidate for an unplanned change . Hence a flexible, self-organizing and adaptable organization who consider change as constant will do well during continuous change as well as episodic changes due to their change readiness.


Also, episodic change and continuous changes cannot be considered as mutually exclusive. Although only transformational changes characterized by episodic change is able to push organizations into the next growth stage, evolutionary change characterized by small continuous changes is vital for providing the base for any kind of transformational change. It is therefore doubtful that without appropriate evolutionary changes there is a base for the support and facilitation for the culminating transformational change . As a result, one can see that large organizational transformations are accomplished via continuous change .

To survive in today's rapidly changing environment, organizations have to develop an ability to continuously change. Thus the long-term corporate strategy to keep up with the fast-moving pace of change relies on flexible organizational structures, culture and employee commitment to continuously adapt to these small evolutionary changes, probing for opportunities which can lead to a transformational change. Both small and large organizational changes are becoming the norm within organizations. In other words, successful strategy is about managing continuous change.This does not mean the end of the occasional episodic transformations compelled purely by external forces like political crisis or an acquisition for example. However, one cannot view these two changes in isolation. Episodic change theory provides a definable and measurable processes for driving change at the macro level of the organization, whereas continuous change theory provides an understanding of the inherent dynamic processes that effect change at the macro level. Linking both perspectives provides the organization with a more complete picture of the same phenomena, not as mutually exclusive.


References

<Intentionally removed>
Posted by Vaishak V. Suvarna on Monday, July 09, 2012

June 5, 2012

Change Management: Why people resist change?




Introduction

Every organization will go through a change cycle due to demands of external pressure or
internal pressure. Organizational change is the transitioning of an organization from its current state
towards a desired future state (Palmer, Dunfin & Akin, 2006). Any type of organizational change
will involve changes to individual's roles and responsibilities and its natural that people will resist
when they feel threatened by these changes. Resistance to change is the unwillingness or an inability
to accept changes that is perceived to be threatening to an individual (Buchanan & Huczynski,
2010). Factors influencing an individual's resistance to change can be associated with psychological
factors like breach of psychological contract, to various other combination of psychological barriers,
contextual barriers and sociological barriers.

Psychological contract

In a workplace environment, where certainty and stability exists to an employees obligations
towards set of tasks and responsibilities, change becomes more difficult to introduce and accept as it
creates a disturbance of an employer's implied pact with the employers (Strebel,1996). This implied
pact is the psychological contract that the employees have with their employer. According to Warr
(2002), a psychological contract can be defined as the implicit relationship between employer and
employee based on mutual beliefs, expectation and informal obligation towards each other. It is the
mutual expectations of inputs and outcomes from the viewpoint of employees formed out of job
description, workplace values and social dimensions. This psychological contract influences
employees behavior and attitudes towards the employer. Employee's trust, commitment,
enthusiasm, and job satisfaction depend on a fair and balanced psychological contract. A Change
will alter these terms as it immediately creates a new relationship comprising of uncertainty between
employees and employers. When the contract is regarded by employees to be broken, they lose the
psychological equilibrium that they value and human inertia makes people cling to certainty and
stability (Conner, 1998).

Psychological Barriers

People like safety, comfort and feeling of control in their work environment. When they feel
their security is threatened due to change, psychological barriers will prevent them from accepting
change. Some of the common psychological barriers that creates an individual's resistance to change
are ;


  •  Uncertainty

When details about why and how change is being implemented is not clear, it creates
uncertainty among individuals and change will be resisted.


  • Confidence

A lack of confidence in individuals that they have necessary skills to be able to perform in their
new role and their ability to adapt to their new role will create a resistance of change.


  • Anxiety

Uncertainty and low confidence will create anxiety and stress in people. It is natural for
individual to reduce the source of this anxiety by resisting change.


  • Fear

An individual's reaction to fear is either to fight or flee. Fear of unknown will create resistance
to change and some employees will just leave.


  • Personality

Some people will be naturally resistant to change due to their personality. Personality
characteristics determine how an individual behaves when faced with an organization change.
Some have certain personality traits that have low tolerance to change irrespective of whether
the change is positive and beneficial. An individual's openness to change can be predicted by
personality traits like self-esteem, risk tolerance, need for achievement and locus of control
(Oreg , 2006). Personality types who typically value independence, stability, order and
consistency like to things to stay the same as it can be a source of comfort and security.


Contextual Barriers

According to Oreg (2006),variables in an organizational context can be factors that prevents
employees from accepting change. The three common types of contextual barriers to employee
change acceptance that were suggested by number of studies and cited by Oreg (2006) are;


  • Power and Prestige

Organizational change is likely to involve changes to employees roles and position. Threats to
power and relinquishment of power can create resistance to change. Organizational change can
make some employees get more powerful roles, whilst others might lose the power they once
had.

  • Job Security

When employees fear losing their jobs due to change, they will resist it. Employee's resistance
to change is found to have significant correlation to the threat to job security (Oreg 2006).
• Intrinsic rewards
Organizational changes can involve changes to tasks and responsibilities causing a perceived
threat to intrinsic rewards like autonomy, challenge and self-determination. An employee's
ability to satisfy these intrinsic needs influence employees their attitude and behavior towards
change (Oreg, 2006).

Sociological Barriers

Resistance to change is usually by individuals, but the nature of the organization and their
surrounding environment can also influence an individual to resist change.

  • Group Norms and Values

Groups form strong norms that govern their behavior with each other. Change alters role and
relationships within a group and may force them to stay together and fight to keep the status
quo. If there is conflict between the change values and group values, resistance and opposition
to change will appear due to beliefs, loyalty and peer pressure.

  • Group Conformity

An individual's need to feel socially accepted by their group can create affective resistance.
When an individual is surrounded by group members who oppose change, they tend to develop
negative emotions to change even when they may not fully agree with a group’s resistance to
change (Oreg, 2006). If the group is highly cohesive, even reasonable changes will be met by
resistance.

An individual's barriers to change are exclusive to that individual. These factors that causes
resistance can not only vary from an individual level, but also to an organizational level and to the
extent of change itself. This makes it difficult to pinpoint the exact causes of individual's resistance
to organizational change. Kotter and Schlesinger (1979) provided the four most common causes for
resisting change. All of these causes essentially fall under the individual's psychological, sociological
and contextual barriers which was described before. According to Kotter and Schlesinger (1979), the
four basic causes of individual resistance to change are;


  • Parochial self-interest

According to Kotter and Schlesinger (1979) this is one of the main reason why people resist
change as they think they will lose something of personal value due to implications of change.
People are self-serving and mainly focussed by their needs. They are concerned with the effect
of change will have on themselves and their own interests. If they feel that change will not
benefit them they will resist the changes. People also worry that the change will make them
fail or show their incompetencies due to the perception that they lack skills to perform change
and fear losing their job.


  • Contradictory Assessments

This type of resistance occurs when people feel the change is not necessary or that there are
better solutions than the proposed change and sometime they may outright disagree with the
reason behind the change. This occurs when people assess the rationale for change differently
than the organizational management or the change initiator.


  • Misunderstanding and Lack of trust

People may not fully understand the needs for the change due to lack of communication. When
their questions are unanswered, it creates a sense of fear, stress and mistrust which leads to
resistance.

  •  Low tolerance for change

People have varying limitation to accepting and adapting to change due to their individual
attitudes and behavior. Some adapt to change quickly, whilst others can take a long time to
accept change. Sometimes people with low level of confidence will likely take more time to
accept change as they fear that they do not have skills required to take on the new
responsibilities needed by the change.

Resistance is an inevitable response to any change as individuals initial reaction is to defend
the status quo when they feel their security is threatened. People do not resist change, they infact
resist the potential outcomes that change can cause to them based on their perception (Palmer,
Dunford & Akin, 2006). The keyword here is “perception”. Perception is what an individual thinks
about the change, i.e their assessment, judgement and rational view of the change. This perception
influences employee's behavior in facing the change. The resistance to change can have significant
effect on whether or not change gets accepted and implemented by organization. If an organizational
change is to succeed then organization and the people who work in them must be readied for change
transformation.


Managing resistance to change;

People must first change themselves before the organizational change can succeed (Bovey
and Hede, 2001). Change can affect people differently. People need time to adjust and adapt to new
behavioral and routines. Therefore it is important for managers to work with the human factors
associated with resistance. To diagnose the cause of resistance it is necessary to understand the
individual (Kotter and Schlesinger,1979).

Managing the resistance to change is the most difficult stage in the change process (Bovey &
Hede, 2001). According to Lewin's three stage change model, a change process will follow stages of
“Unfreezing” , “Change” and “Refreezing” (Palmer, Dunford & Akin, 2006). The first step of
unfreezing, is where the resistance to change is removed and readiness to change is created. The
second step is where the change process is implemented and the last step of “refreeze” is reenforcing
the new behaviors . For the organizational change to be successful it is vital that change gets
accepted by individuals first . To "unfreeze" the resistance to change in people, resistance must be
overcome by the acceptance to change. This process of overcoming resistance change is carried out
first during “unfreeze” stage in a change process. We will not discuss the the last two stages of
“Change” and “refreezing” in this essay.

There are lots of research done on how to manage individual's resistance to change and quite
a few change theories and models are used by organization. However it is important to understand
the there is no single change theory or model that will work in all situations, nor all the situation in
an organizational change are same. Which model would be appropriate depends on the type and
scale of change being undertaken. In this essay we will focus on approaches of “Re-establishing
psychological contract”, Scott & Jaffe's “Resistance Cycle” and Kotter & Schlesinger's “classic six
methods” as I believe that these three approaches highlights some key elements required to manage
and overcome resistance in any organizational change situation.

Re-establishing Psychological Contract;

Managers need to initiate the process of re-establishing the psychological contract with
employees through mutual trust and respect. During the organizational change initiation phase, it is
very easy for managers to underestimate the gap in employee's commitments and organization's
expectations towards the change. Managers must view the resistance from the employee's
perspective to understand the implicit terms which employees hold and revise these terms to remove
the gap. Unrevised terms will continue to resist change, thus revision of these old terms to align with
the change initiative is necessary. Organizations change strategy will not be successful unless this
revision of employee personal terms is tackled first (Strebel, 1996). Managers must make employees
understand the purpose and rationale behind the change initiative and make them understand the
consequences to the organization if the change objectives are not met. By making employees view
the change initiatives from the perspective of the organizational strategy, will alter the terms of
employees obligations and managers can re-establish the psychological contract and secure
commitments based on these revised terms that aligns with organizational strategy.

Resistance Cycle;

According to Scott and Jaffe's model of resistance cycle people go through four phases of
response to change, i.e., denial, resistance, exploration, and commitment (Palmer, Dunford & Akin,
2006). Each phase corresponds to specific behaviors and emotions of individuals facing change.
Denial and resistance phases are characterized by negative emotions like fear and threat, whilst the
phases of exploration and commitment are characterized by positive emotions like hopefulness. It is
critical that managers should be aware of these four phases as it requires different approaches to
address each individual depending on which stage in the resistance cycle those individuals are in.

• Denial results from insufficient knowledge related to change. It occurs when individuals believe
the change will have little, or no impact on them personally. Denial can be overcome by
involving individuals in the change process, providing them information about the change, and
have an open communication with individuals about their perceptions toward change. Managers
should make individuals understand their role in change and how it will affect them personally. .
Denial stage is characterized by calm and quietness among employees and managers should not
mistake this quietness of individuals who are in the denial phase as a “positive” emotion of
being “committed.”

• Resistance stage occurs when individuals begin to doubt the appropriateness of the change as a
result of contradictory assessments, misunderstanding or lack of trust. During this stage
managers should listen and acknowledge the feelings of resisters. Managers
should be engaging the resisting individuals in an open two-way communication that enables
managers to address their concerns, build and earn employee trust, and take corrective actions.
• Exploration phase reflects progress away from the resistance and towards acceptance of the
change. In this phase, individuals have accepted the reality of change and are seeking positive
outcomes from change. During this phase, employees are looking for opportunities and personal
self-interests. Managers should continue to motivate and encourage individuals during this
stage with communications, provide training and short term goals to focus on priorities and
move closer to commitment.

• Acceptance phase is characterized by individuals demonstrating their commitment to change.
During this stage managers should use milestone celebrations, rewards and team building to
motivate individuals to solidify change in their work and re-establish the psychological
contract.

Kotter and Schelesinger's Six Methods;

Kotter and Schelesinger (1979) proposed six strategies to address the source of the resistance to the
change. According to this approach the following six methods can be used to manage resistance to
change;


  • Education and Communication

Education and communication is the simplest way to overcome resistance to change as it not
only allows employees to understand the need and reason for change but also reduces
uncertainty (Bolognese, 2002). Once employees are persuaded, they will likely help with
implementing change, than to resist the change (Kotter & Schlesinger, 1979). Education will
avoid employees getting stuck in the denial phase of the resistance cycle for a long time and
helps employees to adopt new roles quickly. Training on new knowledge and skills specific to
change reduces fear of unknown whilst increasing a person's confidence with changes to
attitude and behaviours (Warr, 2002). Open communication that answers questions and
encourages feedback will eliminate employee mistrust about an organizational change, and also
promotes positive effects of change making them feel more involved with the change initiatives.
Open communication between management and employees is known to reduce stress levels
among employees (Warr, 2002).

  • Participation

According to Bove and Hede (2002), it is hard for an individual to resist a change decision in
which they participated. People who participate will be well informed and committed to
implementing change (Kotter & Schlesinger, 1979). Employee participation during the change
process creates a psychological ownership of decisions and accountability for their success.
Individuals who are allowed to contribute in change planning process will not have any mistrust
about the change and in fact are more committed to its success (Sims, 2002).

  • Facilitation and support

Change affects employees roles and routines, so managers support is essential to maintain a
certain level of comfort for the individuals affected and get them adjusted to the new role.
Facilitating and providing a forum for employees to share their concerns reduces fear and
anxiety which is one of the cause of resistance (Bolognese, 2002).Support activities like
counseling, stress management classes and even offering emotional support like listening or
empathizing will make an employee feel valued and encourage them in coping with change.


  • Negotiation and Agreement

During some circumstances, change will have an inevitable adverse effect on some individuals.
Negotiation is suitable when an individual will suffer loss due to the change (Bolognese, 2002).
Managers will have to recognize the negative effects of change and must negotiate with
employees on their specific concerns of resistance and provide incentives to them in exchange
for acceptance of change. Sometimes this can be the easiest way to avoid resistance (Kotter &
Schlesinger, 1979).


  • Manipulation and co-optation

Manipulation involves intentionally using selective information or skewing information in an
attempt to influence individuals to accept change . Co-optation is about getting acceptance from
employees by using tactics like appointing an individual to an important position to gain
acceptance. This can be the quick way to avoid resistance but can be dangerous in the future
once individuals become aware that they were manipulated (Kotter & Schlesinger, 1979).


  •  Coercion

When participative or motivation approach does not work, then managers have to use force or
threat to overcome resistance. Coercion includes using explicit or implicit threats like job loss,
promotion denial, bonus,etc. Sometimes coercion may be the only available option available to
managers, but with this approach managers need to take into consideration that individuals are
likely to develop resentment which might have long term negative effect on the organization.
(Kotter & Schlesinger, 1979).

Leadership in Change management ;

Kotter's six-method and Scott & Jeffe's approaches only provides strategic frameword to
manage resistance. To successfully carry out these strategies leadership is a key tool. Change is
dependent on the vision which can communicate the directions towards the change to the
organization (Warr, 2002). Leadership provides a vision for change that can influence, direct and
motivate people to take action and at the same time will reduce fear, uncertainty and improve
employee morale. An effective leadership has been shown as necessary to overcome the high levels
of uncertainty that accompanies change (Bass 1990).

When an organization goes through a change process, using the most effective leadership
style can directly impact the success of the change. There are many leadership styles like
participative, collaborative, coercive,democratic or authoritative. According to study conducted by
Oreg & Berson (2011), transformational leadership style is best suited to override employees’
resistance to change. Transformational leadership is a process of transforming the organizational
behavior and performance by influencing followers to share the leader’s vision and enable them to
enact beyond their specified responsibilities (Buchanan & Huczynski, 2010, p.618).
Some of the key behaviors of a transformational leader that can overcome individual's
resistance to change are;

• Transformational leaders can influence followers’ perceptions of change by providing a
common vision and making them see change as an opportunity rather than threat.
Transformational leaders participative style of management will allow people to accept change
and apply self-direction towards the change objectives without the feeling of threats. This style
is tied to McGregor's “Theory Y” of motivation, which produces better performance and
overcoming resistance (Buchnanan & Hucisky, 2008 .p250) .

• Transformational leader has the ability to inspire and align the follower's interests to that of
organization’s vision by using intrinsic motivators like empowerment, support, encouragement
and recognition. Intrinsic rewards has an influence on employee motivation and strongly tied to
higher performance than compared to extrinsic rewards (Buchnanan & Hucisky, 2008
.p280).Focussing on a common vision will have a lessening effect of individual personality and
when employees feel motivated and empowered, they are less resistant to changes.

• By paying attention to follower's own needs and interests and by respecting their followers,
transformational leadership promotes a trusting relationship between the leaders and the
followers. Therefore, the psychological contract is established leading to higher job satisfaction
and lower levels of stress among followers .

The results of study conducted by Seo et al, (2012) also show that transformational
leadership behaviors has a positive effect among employee behaviors relating to less resistant and
greater commitment to organizational change. However, it is important to consider that an effective
leader must be flexible to use a range of leadership styles when situation demands to enhance the
management of the change. For example, when coercion is the only available option left to
overcome resistance to change, then a leader should be able to adapt to a coercive leadership style.

Conclusion & Recommendation;

Change will always affect organization and change in an organization will always affect
people. Resistance to change is an inevitable psychological response that occurs in an individual.
Therefore resistance to change by people in an organization should be treated as normal reaction.
Sources of resistance are mainly individual psychological factors which creates psychological,
contextual and sociological barriers to accept change. With more significant the change, greater the
influence of these psychological factors have on an individual's resistance to change.
For an organizational change to succeed, the people who work in the organization must
accept change by overcoming their the sources of resistance. Therefore it is crucial for managers to
overcome the resistance by considering human factors and identifying the source of resistance
among employees. There are plenty of framework and strategies available for managers and
organization to use that can put employees at ease during change process and make them accept
change faster. Most of these change frameworks revolve around active participation, communication
and training as underlying motivational factors for overcoming individual resistance. Open
communication with employees and their active participation during change process is important for
overcoming resistance as they remove confusion and mistrust among employees and employers .
Education and training not only reduces the uncertainty and fear about the future implications of
change, but also a key motivator to implement change itself. Leadership is a key tool to manage the
resistance to change as it provides the vision and the rationale for change . Many studies have
identified transformational leadership style as most appropriate to effectively manage change
resistance.
To successfully overcome resistance, organization should be able to identify the likely
resisters, the reasons for their resistance and make informed decisions to overcome the resistance by
using effective leadership and combination of strategies or approaches outlined in this essay.

Reference ;

< Removed >
Posted by Vaishak V. Suvarna on Tuesday, June 05, 2012