«MICHAIL MAVROMATIS JOHAN OLOFSSON Department of Civil and Environmental Engineering Division of Construction Management CHALMERS UNIVERSITY OF ...»
The last section is a description of the change management process, where several grounding theories of how to manage change are presented. The authors have chosen to present a vast variety of theories to provide insight and a better understanding of the most important business aspects when leading change that generate a state of continuous improvements for the organization. Following is the section that identifies the type and level of change, since this is important for understanding the perplexities of the transition process. The transitional process is described in the next section, which emphasizes the importance of the time required for people to adapt and cope with their emotions during the changing process, considering that leaders and managers want to keep productivity at the highest rate possible during the process, in addition to minimizing the organizational anxiety and employees’ resistance to change. The last section describes how change is sustained in the context of institutionalizing the changed process, so that the risk of project failure and employee failure to adapt to the new standard is minimalized. Failure to implement such change may result in loss of all the obtained organizational benefits from the change.
2.1 Organizational strategy tools Strategic tools are vital for organizations to succeed with their business. The different aspects presented below are chosen on the basis that they are used at the top management level in order to guide the organization through their journey. They range from the linchpin of existence of the organization, the vision, down to how the organization uses KPIs in their daily work in order to keep the right course towards the fulfillment of their vision.
2.1.1 Vision A vision statement is a statement of what the organization wants to achieve (Johnson et al 2011). The statement provides the desired future state of the organization. FurCHALMERS, Civil and Environmental Engineering, Master’s Thesis 2013:120 3 thermore, the vision statement should motivate, stretch performance, and gain commitment among employees.
2.1.2 Core values Core values encompass and communicate the underlying core principles that guide an organization’s strategic plan (Johnson et al 2011). They also define how the organization should operate. Furthermore, core values should remain in highest regard, even during circumstantial change; otherwise, they are not ‘core’ values.
2.1.3 Organizational structure The organizational structure provides the personnel with formal roles, responsibilities, and line of reporting (Johnson et al 2011). The organizational structure is often presented via an organizational chart. This chart defines the levels and roles within the organization (i.e. who is responsible for what). The organizational structure is also crucial when the structural lines of reporting, communicating and the exchange of knowledge are drawn. Furthermore, it provides the possibility to identify the skills required to move within the organization and helps to identify whether the organization has a specialist or generalist approach. There are many different structures, where the most common are the functional, multidivisional, matrix, transnational and project (Ibid). However, none of these structures can be seen as universal, since all organizations face different challenges and, therefore, all organizations must evaluate which structure is most suitable for them (Ibid). Changes in the organizational structures might be necessary when organizations are evolving.
2.1.4 Performance indicators Performance indicators are a way to measure whether an organization performs the correct function and to assess if employees are working in the direction that is best for the organization, which is aligned to fulfill its vision (Parmenter 2010). Performance indicators can be measured at both the individual/departmental level or at the organizational level. At organizational level, the performance indicators should quantify, measure, and reflect how the organization is achieving its goals. For the individual or department level, it is important that encouragement and help are provided to employees so that their attitude and values are aligned with the organizations overall strategy.
A common critique towards performance indicators is that the parameters that are measured are the only tasks that are accomplished (Ibid), which means that employees might focus their activities just to fulfill the performance indicators. On the other hand, measurements ensure commitment and highlights important aspects and objectives that are critical for organizational success (Ibid). Well-formulated performance indicators also lead to organizational strategic success (Ibid), which occurs as a direct result of the employees acting to meet the expected performance indicators criteria.
Therefore, it can be said that performance indicators is the circuitry that links the organizational vision with employees’ individual action through the identification and fulfillment of the critical success factors.
CHALMERS, Civil and Environmental Engineering, Master’s Thesis 2013:120 Figure 1 The link from setting a vision and working towards its fulfilment (Parmenter 2010, pp. 35) There are four different performance indicators that are relevant (Ibid): Key Result Indicators (KRIs), Result Indicators (RIs), Performance Indicators (PIs) and Key Performance Indicators (KPIs). Figure 1 shows how these indicators are linked together with the organization’s vision, strategic plan, critical success factors, everyday work, and even factors influencing personnel well-being.
KRIs measure, for example, customer satisfaction, net profit before tax, profitability of customers, employee satisfaction, and return on capital employed.
KPIs represent a set of measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization.
RIs measure the activities behind KRIs such as sales, or the organization’s result and, therefore, only concern financial aspects. They can include net profit on key product lines and sales made yesterday.
PIs are not keys to business and are, therefore, non-financial. Rather, they complement KPIs by helping to align teams with the organization’s strategy, Examples of PIs are percentage increase in sales with top customers, number of employees’ suggestions of improvements during the last year, customer complaints, or late delivery to key customers.
Parmenter (2010) suggests that successful implementation of KPIs begins with senior management commitment and education, with focus on the critical success factors.
Thereafter, the KPIs must be communicated to the employees through a cultural and processual context, where focus is directed towards team performance measurements and its reporting framework. Re-evaluation and refinement are also important because it improves personal satisfaction by encouraging employees to embrace themselves and strive towards their fulfillment.
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2.2 Leadership Leadership and management are prototypical components of any organization and are arguably, the most important aspects for organizational success. A successful leader can stimulate and lead the organization towards success. Therefore, it is important to understand what makes a good leader. The following sections will attempt to explain some of the most common theories of leadership and how they are connected to change management. The first part discerns transactional versus transformational leadership, which is connected to economical and organizational leadership in the sense that both focus on the hard versus the soft side of management. The last section focuses on the evolution of a great leader from a good leader.
2.2.1 Management versus Leadership Management involves a set of processes intended to keep a complicated system of people and technology running smoothly (Kotter 1996). According to (Ibid), the most important aspects of management include planning, budgeting, organizing, staffing, controlling, and problem solving. Management is often identified as leadership, but that is not the case. Leadership, according to (Ibid), is a set of processes that creates organizations in the first place or adapts them to significantly changing circumstances.
Leadership defines what the future should look like, aligns people with that vision, and inspires them to make it happen despite the obstacles (Ibid). Zaleznik (2004) stated that management is tasked with creating stability, while leadership seeks to create change. Kotter (1996) says that management produces orderly results, which keep something working efficiently, whereas leadership creates useful change; neither is necessarily better or a replacement for the other, but both are needed if organizations are to prosper (Gill 2002).
2.2.2 Different styles of leadership One of the most important aspects during a change program is leadership (Eisenbach et al 1999). A good leader is, many times, vital in order to maximize the chance of success (Yukl 2012, Millar et al 2012), wherefore this part is describing some different leadership styles and trying to explain what good leadership is and how it can be related to change processes.
22.214.171.124 Transactional versus transformational leadership Transactional and transformational leadership are based on the assumption that the transactional leader relies on bureaucracy and legitimacy within the organization whilst the transformational leader focuses on motivating followers by appealing higher ideals and moral values such as a well-defined vision for the organization that are attainable (Burns 1978). The most common leadership in business is transformational leadership, due, in part, to the notion that transformational leaders are said to be inspirational because they expect the best from all teams. These attributes and expectations lead to higher overall productivity and inspire the creation of value, adding activities (Brown 2012). For managers, the most common leadership is transactional leadership, because they ensure that routine work is accomplished in a reliable and sufficient way (Avolio et al 2009).
Bass (1990) characterizes transactional and transformational leadership; where a transactional leader is as one that uses contingent rewards, manages by exception, and uses elements of laissez-faire, whilst transformational leaders uses charisma, inspiration, intellectual stimulation and individualized consideration.
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The characteristics of transactional leadership are defined as:
Contingent rewards: leaders rewarding employees in one way or another, it can be either a monetary reward for certain achievements or an express of good performance (Jackson et al 2012).
Management by exception: a way of managing through rules, regulations, standards and corrective actions (Bass 1999). An interesting aspect of this is presented by McGuire and Hutchings (2006) who examine how managers can handle challenges in an organization through a Machiavellian thinking, inspired from his most famous book ‘The Prince’. They find that transactional leadership based on rules, regulations and punishments e.g. powerful, or strong, leaders can have an impact on forcing organizations to change.
Laissez-faire: a leadership style described as a hands-off approach, meaning leaders try to avoid excessive involvement and decision-making. This means that the leader is unavailable when needed and delays responding (Xirasagar 2008). This leader allows total freedom to all employees through a non-interference policy and non-existing goals (Spinelli 2006).
The characteristics of transformational leadership are defined as:
Charisma: a personality trait that is beneficial for creating affiliation within an organization. Leaders that are charismatic create a shared identity within the organization through gaining trust, affection and also through generating excitement and motivation amongst the employees (Flynn and Staw 2004). The three core components of charismatic leadership are identified as envisioning, empathy and empowerment (Choi 2006), where envisioning influences the followers need for achievement, empathy stimulates the employee’s need for affiliation and empowerment enhances the employees need for power.
Inspiration: a way of communicating high expectations, enlighten important aspects, being sensitive towards the employees, and being knowledgeable (Bass 1988). Inspirational leaders tend to communicate through symbols and are said to express important purposes in simple ways.
Intellectual stimulation: promotes intelligence, rationality and careful problem solving to employees (Bass and Avolio 1995).
Individualized consideration: a style of leadership where leaders give employees individual attention, advice and personal coaching in order to reach the organizations goals (Bass and Avolio 1995).
126.96.36.199 Economical versus organizational leadership The idea of change leadership was developed by Beer and Nohria (2000) and it focuses on the differences between economical leadership and organizational leadership, herein referred to as Theory E and Theory O, respectively. Theory E is based on the creation of quickly obtained economic value for the shareholders and focuses more on the hard side of management. Conversely, Theory O is a more patient approach and is geared at the development of a long-term organizational culture. Theory O focuses on the development of corporate culture and human capital, or the soft side of management. The most preferred way is to combine and balance these two leadership approaches so that both economical as organizational growth are obtained. This will boost both profit and productivity as well as achieve sustainable, competitive advantages. The outline of each theory are presented in Figure 2, where the different CHALMERS, Civil and Environmental Engineering, Master’s Thesis 2013:120 7 dimensions of change are presented and aligned with their equivalent within Theory E, Theory O, and in combination between Theories E and O.