Trends in Organizational Change

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Trends in Organizational Change

GLOBALIZATION
DIVERSITY
FLEXIBILITY
FLAT
NETWORKS
BIBLIOGRAPHY

Organizations have entered a new era characterized by rapid, dramatic, and turbulent changes. The accelerated pace of change has transformed how work is performed by employees in diverse organizations. Constant change has truly become an inherent and integral part of organizational life.

Several emerging trends are impacting organizational life. Of these emerging trends, five will be examined: globalization, diversity, flexibility, flat, and networks. These five emerging trends create tensions for organizational leaders and employees as they go through waves of changes in their organizations. These tensions present opportunities as well as threats, and if these tensions are not managed well, they can result in dysfunction and problematic outcomes at the end of any change process. These five trends and the specific tensions they produce are presented in Table 1.

Table 1 Change-Trends and Tensions in Organizations
Trends	Tensions
1. Globalization	Global versus Local
2. Diversity	Heterogeneity versus Homogeneity
3. Flexibility	Flexibility versus Stability
4. Flat	Centralization versus Decentralization
5. Networks	Interdependence versus Independence

GLOBALIZATION

Organizations operate in a global economy that is characterized by greater and more intense competition, and at the same time, greater economic interdependence and collaboration. More products and services are being consumed outside of their country of origin than ever before as globalization brings about greater convergence in terms of consumer tastes and preferences. Yet at the same time, in the midst of greater convergence, there is the opposite force of divergence at work where companies have to adapt corporate and business strategies, marketing plans, and production efforts to local domestic markets.

To stay competitive, more organizations are embracing offshore outsourcing and telecommuting. Many functions are being shifted to India, the Philippines, Malaysia, and other countries for their low labor costs, high levels of workforce education, and technological advantages. According to the 2002–2003 Society for Human Resource Management (SHRM) Workplace Forecast, companies such as Ford, General Motors, and Nestlé employ more people outside of their headquarters countries than within those countries. The 2006 Workplace Forecast, published by the SHRM, lists rising healthcare costs, safety and security, increased energy costs, and employee staffing and retention in the top ten trends forecasted for the late 2000s. These important factors are often the driving forces that make doing business abroad such an appealing option. Creating a transnational corporation allows companies to free themselves of the need to offer healthcare to employees in many cases. It also allows for more lax safety regulations and laws, allowing for less expensive means of maintaining factories and other corporate or industrial centers.

Almost any company, whether in manufacturing or services, can find some part of its process that can be done off site. Forrester Research projects that 3.3 million U.S. service- and knowledge-based jobs will be shipped overseas by the year 2015, 70 percent of which will move to India. Communication and information sharing are occurring across the globe in multiple languages and across multiple cultures. Global competition and global cooperation coexist in the new world economy.

One major consequence of globalization is greater mobility in international capital and labor markets. This creates a global marketplace where there is more opportunity, because there are more potential customers. However, there is also more competition, as local companies have to compete with foreign companies for customers.

According to Dani Rodrik, professor of international political economy at Harvard's Kennedy School of Government, the processes associated with the global integration of markets for goods, services, and capital have created two sources of tensions.

First, reduced barriers to trade and investment accentuate the asymmetries between groups that can cross international borders, and those that cannot. In the first category are owners of capital, highly skilled workers, and many professionals. Unskilled and semiskilled workers and most middle managers belong in the second category.

Second, globalization engenders conflicts within and between nations over domestic norms and the social institutions that embody them. As the technology for manufactured goods becomes standardized and diffused internationally, nations with very different sets of values, norms, institutions, and collective preferences begin to compete head-on in markets for similar goods. Trade becomes contentious when it unleashes forces that undermine the norms implicit in local or domestic workplace practices.

In his 1997 book, Has Globalization Gone Too Far?, Professor Rodrik concluded that “the most serious challenge for the world economy in the years ahead lies in making globalization compatible with domestic social and political stability.” This implies ensuring that international economic integration does not lead to domestic social disintegration. Organizations that are confronted with this challenge will have to manage the tension created by the global integration versus local disintegration dilemma.

The overall picture as a consequence of globalization is one of turbulence and uncertainty, in which a variety of contradictory processes present a wide range of both opportunities and threats that defy established ways of doing business and working in organizations. Integration and exclusion coexist uneasily side-by-side in organizations.

For example, many apparent dichotomies or paradoxes—competition versus collaboration, market forces versus state intervention, global actions versus local solutions—are losing their sharp edges as contradictory forces appear to converge and reinforce each other in organizations across the globe. Companies that compete fiercely in some markets form strategic alliances in others; government guidance and regulation are required to make

markets work effectively; and “think globally, act locally” has been adopted as business strategy (or as a mantra) to deal with the challenges of doing business in the globalized economy. As organizations transform themselves to stay competitive, they will need to confront and resolve some, if not all, of these dichotomies or paradoxes.

On another level, because of globalization, the fates of people living and working in different parts of the world are becoming intertwined. Global events may have significant local impact. September 11, 2001 has been called the “day that changed the world.” Heightened security concerns are changing expectations for people in organizations, and the role of organizations themselves. The threat of terrorism continues to be an ongoing concern worldwide. It has created a renewed focus on work-place security as employees experience a heightened sense of vulnerability in the workplace. Employee monitoring and screening are occurring more frequently. Concern over business travel is resulting in the increased use of alternate forms of communication such as teleconferencing and videoconferencing as well as instant messaging, SMS (text messaging), and handheld communications. A wider acceptance of remote offices and telecommuting has also been a result of globalization.

DIVERSITY

Globalization is impacting how organizations compete with each other. In combination with changing demographics, globalization is causing a rapid increase in diversity in organizations. Never before have people been required to collaborate with colleagues and customers from so many different cultures and countries.

Diversity is moving American society away from “mass society” to “mosaic society.” Organizations now reflect this “mosaic society” in their workforce—not only in terms of race, ethnicity, and culture but also in age, sexual orientation, and other demographic variables. More than ever, people have to interact and communicate with others who come from differing backgrounds. This in turn has meant that employees need new relational skills to succeed. An emerging stream of research in international management has called these new relational skills “cultural intelligence.” According to Earley, Ang, and Tan, cultural intelligence is defined as the capability to adapt effectively across different national, organizational and professional cultures. More managers take up global work assignments in industries around the world. They learn how to work with people who not only think and communicate differently but also do things differently. Managers will need to develop their cultural intelligence to manage greater diversity in organizations.

Diversity in organizations will continue to increase. As indicated by the U.S Census Bureau National Population Projections, the Hispanic population will increase by 11.2 percent between 2000 and 2025 to become the largest minority group in the United States. All other minority groups will increase by about 9 percent, while the number of Caucasians will decrease by approximately 19 percent. The world population is growing at a high rate in developing countries, while remaining stable or decreasing in the developed world. The result will be income inequities and economic opportunity leading to increased immigration and migration within and between nations. More temporary workers will be used for specific tasks, and there will be a greater demand for highly skilled workers.

The aging American workforce population means more retirees and potential gaps in availability of experienced workers. According to American Association of Retired Persons (AARP), by 2015 nearly one in five U.S. workers will be age 55 or older. Retirees often want to keep a foot in the workplace. AARP's research shows that nearly eight of ten baby boomers envision working part time after retirement; 5 percent anticipate working full time at a new job or career; only 16 percent foresee not working at all.

People of different ethnic and cultural backgrounds possess different attitudes, values, and norms. Increasing cultural diversity in both public and private sector organizations focuses attention on the distinctions between ethnic and cultural groups in their attitudes and performance at work. This greater focus can result in the tension between finding similarities and accentuating differences in the face of greater diversity in organizations.

There is an ongoing debate between heterogenists and homogenists concerning the impact of greater diversity in organizations. Heterogenists contend that diverse or heterogeneous groups in organizations have performance advantages over homogeneous groups while the homogenists take the opposing view—that homogeneous groups are more advantageous than heterogeneous or diverse groups in organizations.

According to heterogenists, organizations with greater diversity have an advantage in attracting and retaining the best available human talent. The exceptional capabilities of women and minorities offer a rich pool of talent, education and experience for organizations to tap. When organizations attract, retain, and promote maximum utilization of people from diverse cultural backgrounds, they gain competitive advantage and sustain the highest quality of human resources.

Organizations with greater diversity can penetrate wider and enhanced markets. Not only do these organizations embrace a diverse workforce internally, they are better suited to serve a diverse external clientele. Organizations with greater diversity also display higher creativity

and innovation. Especially in research-oriented and high technology organizations, the array of talents provided by a gender- and ethnic-diverse organization becomes invaluable. Heterogeneous or diverse groups display better problem-solving ability as they are more capable of avoiding the consequences of groupthink, compared to highly cohesive and homogeneous groups that are more susceptible to conformity.

On the other hand, greater organizational diversity has its drawbacks. With the benefits of diversity come organizational costs. Too much diversity can lead to dysfunctional outcomes. Diversity increases ambiguity, complexity, and confusion. Organizations with greater diversity may have difficulty reaching consensus and implementing solutions. In many organizations, diversity can produce negative dynamics such as ethnocentrism, stereotyping, and cultural clashes.

Homogenists argue that homogeneous groups often outperform culturally diverse groups, especially where there is a serious communication problem. Cross-cultural training is necessary to enable culturally diverse groups to live up to their potential and overcome communication difficulties. The diversity movement, according to homogenists, has the potential to polarize different social groups and harm productivity while breeding cynicism and resentment, heightening intergroup friction, and lowering productivity, just the opposite of what managing diversity is intended to accomplish.

The challenge therefore is to manage the tension produced by heterogeneity versus homogeneity. If properly managed, organizations can reap the benefits of greater diversity. Aside from proper management, organizations need to learn to appreciate and value diversity before the benefits of diversity can be fully realized. To achieve this, diversity training programs may help people in organizations understand and value the differences in one another.

FLEXIBILITY

Globalization and diversity trends are forcing organizations to become more flexible and adaptable. To be able to function globally and to embrace diversity, leaders and employees in organizations have to become more flexible and develop a wider repertoire of skills and strategies in working with diverse groups of people in the workplace as well as in the marketplace.

The response to increased diversity has, in many cases, been increased organizational flexibility. Some organizations allow workers to have very different work arrangements (e.g. flex-time) and payment schedules. Some organizations (and workers) have found it convenient to treat some workers as independent consultants or contractors rather than employees. In certain occupations, advances in communication and information technologies have enabled telecommuting —working at home via computer. One consequence of this is the blurring of boundaries between work and home, and where and when work occurs. The benefits of greater flexibility may be countered by the negative consequences of working 24/7 including higher stress and burnout.

The response to increased competition, however, has resulted in a tension generated by the demands to be flexible and yet maintain some stability as changes are implemented in organizations. To stay competitive, organizations are constantly changing and restructuring to increase flexibility and decrease costs. Business process reengineering, business process outsourcing, job redesign, and other approaches that optimize business processes have been implemented to increase operational and process efficiency while reducing the costs of doing business.

Changes in business and operational processes need time to stabilize for employees to learn the new processes, become familiar with them, and be able to operate effectively and efficiently. Yet, competitive pressures can cause organizations to go through a series of changes without giving employees adequate time for learning and training, and for the benefits of the change to be fully realized in the organization. This tension is well-captured by Columbia Business School professor Eric Abrahamson in his 2004 book, Change Without Pain in which he discusses how organizations can go through change overload and how employees can experience change fatigue and burn-out. Professor Abrahamson proposes “creative recombination” as an alternative approach to the highly destructive, destabilizing, and painful changes caused by “creative destruction.”

FLAT

In a greater competitive marketplace, speed or response time is critical. How organizations respond to customers and other stakeholders or whether they are the first to market may make a significant difference, as time is at a premium. Organizations that can develop new technologies faster or adapt to changes in the market more rapidly will more likely survive the competition. To maximize response time, organizations have been flattening their hierarchies and structures, in addition to other initiatives such as downsizing and networking. Flat organizations make decisions more quickly because each person is closer to the ultimate decision makers. There are fewer levels of management, and workers are empowered to make decisions. Decision making becomes decentralized.

However, flat organizations create a new tension between decentralization and centralization. Among the drivers of decentralization are communications technologies that allow companies to push decision making away

from the core. Proponents of decentralization emphasize the idea that less hierarchical organizations mirror the efficiencies of the networks that enable them: they are faster, more resilient, more responsive, more flexible, and more innovative. Also, they argue, people who work within decentralized organizations feel empowered and energized. They do not need to focus on the chain of command and they do not feel constrained by it.

Organizations are caught between the opposing forces of centralization and decentralization. They want to leverage the opportunities offered by decentralization and create more nimble and powerful organizations, but they cannot always do so because the forces of centralization come into play. There are obvious benefits to centralization as control is comparatively tighter and accountability is more clearly cut compared to a flatter, more decentralized organizational structure. However, assumptions about how centralization or decentralization will work for each individual organization are dangerous; one style will invariably make more sense than the other, but proper due diligence and research should be the determinant factors.

Take the example of IT operations. The key to a centralized organization's success is its responsiveness. If the centralized operation can be responsive to the needs of the business, then that approach can make sense. Several companies, such as DaimlerChrysler and PepsiCo, have migrated back to centralizing IT operations after attempts at decentralization.

The debate over the centralization versus decentralization of operations in organizations is an enduring one. It is an age-old battle of standardization versus autonomy, corporate efficiency versus local effectiveness, and pressure on costs and resources versus accommodation of specific local needs.

Vacillation between centralization and decentralization is both non-productive and unnecessary. Organizations, as they desire to become flatter, will need to be clear about how they will respond to the tension between centralization and decentralization.

NETWORKS

Organizations that flatten tend to encourage horizontal communication among workers. Rather than working through the organizational hierarchy, it is often faster for workers who need to coordinate with each other simply to communicate directly. Such organizations are highly networked.

Another meaning of networked organizations refers to their relations to other organizations. Organizations that have downsized to just their core competencies must then outsource all the functions that used to be done in-house. To avoid losing time and effort managing contracts with suppliers, organizations have learned to develop close ties to their suppliers so that social mechanisms of coordination replace legal mechanisms, which are slow and costly. In many industries, such as the garment industry in Italy, strong relationships have developed between manufacturers and suppliers, so that considerable work is done without a contract and without even working out a firm price. For these networked organizations to work, high trust and social capital between organizations are key elements.

Networked organizations are particularly important in industries with complex products where technologies and customer needs change rapidly, such as in high technology industries. Close ties among a set of companies enables them to work with each other in ways that are faster than arms-length contracts would permit, yet retain the flexibility of being able to drop the relationship if needed (as opposed to performing the function in-house). The trend towards networked organizations and structures creates a new tension between interdependence and independence. The forces of aggregation and disaggregation create new challenges for organizations; for example, the use of independent contractors, joint ventures, strategic partnerships, and alliances even with competitors.

One advantage of networks is that organizations have greater flexibility and thus they can become more competitive in the global marketplace. Another advantage is that organizations do not require that many resources such as employee benefits, office space, and financing for new ventures.

On the other hand, networks have distinct disadvantages. Organizations may find it more difficult to control the quality of goods or services when depending on partners in networks to deliver the quality that is desired. Legal and contracting expertise as well as negotiation expertise will also be important for networks. Alternative forms of quality control may need to be developed. Alternative mechanisms for coordination may also need to be developed to manage the growing constellation and sometimes tenuous nature of other partner organizations in the network.

All five trends and the tensions they produce result in greater organizational or system complexity for both leaders and employees in organizations. The tensions produced by these trends cannot be solved or “cured”; they must be managed. Effective approaches in organizational change will involve not one strategy but many alternatives and will require leaders and employees to develop greater resilience in confronting these tensions.

SEE ALSO Diversity; Globalization