Why good companies go bad

When business conditions change, the most successful companies are often the slowest to adapt.

(Donald N. Sull 1999)

Session 7

Managing Organizational Change: Strategies Revisited

Topics for Today

• Reflections on EIS simulation

• Strategies for change– The implementation process– Balanced scoreboard

• Why good companies go bad?– Structural inertia– Growth and strategic changes

• Conclusions

The implementation process

• A series of issues:– Top-down vs. bottom-up– Cultural vs. structural– Intrinsic vs. extrinsic motivation

• A systematic change program• The importance of implementation

Problems in implementation

• Examples– The Smithers example– Police in New York state

• Why?– Interests and interpretation– Past experience and interpretation– Competition for attention– Multiple pulling/pushing forces in different

directions– Implementation as a continuation of decision

making

Balanced scorecard

• What is balanced scorecard– Beyond single measure– Generate balanced attention to important

aspects

• Video• But the experience at a large consumer

bank…

Balanced Scorecard at a large consumer bank

• The context– The CEO’s intension – The implementation: HRM – regional office –

branches– The academic conference

• Problems in implementation– Complex system of multiple indicators– Implementation through bureaucracies– Subjective versus objective measures

• Lessons –

Implementation with results(Schaffer and Thomson 2000)

• Why results-driven, not activity centered?– Keep the eyes on the ball – Discourage symbolic compliance– Push out of the comfort zone– Establish early wins

• Provide clear goals and mobilize resources to carry out the change program– Get resources/support ready– Get employees involved– Insert deadlines and demand measurable

outcomes

Case study: Lincoln Electric in China

Background

• Lincoln Electric as a model of pay for performance– Measurable goals– Intensity of incentive plan– Remarkable results

• Does this model work for other industries or other lines of work?

• What are the implications for international management?

Questions for discussion

• How does LE’s management style and incentive design fit the Chinese context?

• What is your view of LE’s efforts in its setup process in China? Would you do anything differently? Why?

• What is your recommendation for the next step?

Summary and Conclusion

Question revisited:

Why do large, successful companies fail?

The case of Intel

• Background: Industry dominance• The changing environment

– Multimedia beyond computing chips

• Why failure?– Confined to expertise within own company

• The change of strategies– From speed to new markets– Challenges from competitors: A.M.D.,

Microsoft.

Overview of the course

Culture

Politics

Strategic design Leadership

Agents

Recipients

Sharing experience:

What is your main lesson about managing organizational change?

Why good companies go bad?(Donald N. Sull 1999)

• It is not paralysis, not unawareness, not inaction.• The inability to take appropriate action• Active inertia – tendency to follow established

patterns of behavior, even when environment changes.

• Example: the Firestone Tire and Rubber Co.– Dominant position in the early 1970s– Response to Michelin’s radial tire – old standards– Delay in phasing out bias tires– Lost market shares and dominance in the industry

Sources of active inertia

• Structure and interests– Ford’s T-model

• Organizational filtering and interpretation– The pooling of experience

• Competence trap• In the time of change, past success can become

obstacle: – Strategic frames blinders– Processes routines– Relationships Shackles– Values Dogmas

For mid-level managers

• Be clear what role you want to play– Change agent?– Entrepreneurial managers, early adopter, catalyst?– Imitator, follower?

• Invest in your social capital– Different networks for different purposes– Mobilize resources

• Protect your interests– Build coalitions– Be adaptive

• Happiness belongs to optimists!

About final examination

• Format of examination:– Essay questions (choose three of four)

• Discussion on business scenarios• discussion on key issues/lessons in organizational

change

• Contents to be examined:– Cases discussed in class– Key readings assigned for reading– Issues discussed in class

Thank you and enjoy the final exam!