Change at Norwest Labs
In 1991, Jean Crï¿½pin, the CEO of Norwest Labs initiated a series of events which would significantly alter the face of his company. Norwest had reached a point where it could no longer grow without becoming prohibitively inefficient. The decision-making responsibilities, which up to now had been centralized in the hands of its CEO, would now have to be delegated to subordinates in order for Crï¿½pin to address issues of a more strategic nature. With the help of external consultants, Crï¿½pin went on to modify his organisation with the hope of creating a decentralised, business-oriented company of empowered individuals. Unfortunately, by 1994, it was becoming quite clear that the transformation had not been entirely successful.
Via the change process, Crï¿½pin had hoped to redirect certain behaviours to bring them more in line with his new company objectives. While the process did modify behaviour, it did not, unfortunately, lead to the desired ones. Worse, it even brought about undesired behaviours that had previously been absent.
The clearest sign of the unsuccessfulness of the change process expressed itself in employee disorientation. Several behaviours attested this state including, confusion about the bonus system, new job descriptions, and Norwest’s relationship with a former partner turned competitor. There seems to also have been clear apprehension as to the future of the company and confusion as to interdepartmental as well as hierarchical relationships.
Perhaps the most disturbing sign that things were not going according to plan was the appearance of animosity at Norwest. Following the company’s restructure, conflicts began erupting between the CEO and general managers who were clearly angry about losing some of their independence. Conflicts also appeared between the more business-oriented staff hired after the reorganization and the more technically oriented staff hired previously. At a broader level, the company even began to experience tensions across departments.
The change process also seemed to have brought about increased employee apathy, as can be seen from declining morale, the indifference displayed towards any goals that gain sharing might serve beyond handing out pecuniary rewards, and the continued apathetic tolerance of an opaque bonus system, whose favouritism and unfairness had been widely criticized and yet accepted.
Perhaps the most striking evidence that the change process had not reached its goals can be seen in the poor performance displayed by the employees who were promoted as a result of it. There seemed to have been a collective inertia among them as they refused to be empowered and continued to rely on Crï¿½pin for decision-making. They even went as far as being cynical of the new employees who were more in line with company objectives.
In order to correct the behavioural challenges identified in the previous section it is imperative that we determine what caused them. To that effect, we will analyse the situation at Norwest using the tools provided by the organizational behaviour theories of change, culture, leadership, motivation and empowerment.
The Change Process
As mentioned previously, Norwest underwent important changes in 1992. These changes, unfortunately, did not bring Norwest to the point where its CEO had planned that they would. We will examine the change process in two parts. First, we will try to get an understanding of why the change process failed. Later, we will try to see how the changes could have caused the undesirable behaviours currently taking place at Norwest. By understanding the direct causes of the undesirable behaviours we hope to be able to stop them. By understanding how the change process failed we hope to be able to devise a new course of action for Norwest that will allow it to become the kind of company its CEO had hoped it would become.
Lewin’s Change Model
Lewin provides us with a concise model for managing change. It consists of three steps: unfreezing, moving and refreezing that must be consecutively followed in order to maximize the chances for success. It is this model that we will use to understand what went wrong at Norwest during the months in which the changes were implemented.
The unfreezing phase, according to Lewin, is the stage where the organisation is readied for the upcoming changes. In the case of Norwest, it appears that this stage was, at the very least, hurried through. It is unclear whether Crï¿½pin even conducted a readiness assessment. While he clearly, had a good idea of what the driving forces of the changes were (increasing competition, desired growth and regulation changes), he neglected to consider what restraining forces might be working against him. Many of these resistance factors might have successfully been predicted, like the fact that some employees would reject empowerment and attempts to change the existing bonus program. Finally, Crï¿½pin clearly failed to arouse dissatisfaction with the status quo and to involve employees in the decision-making process.
The second phase of Lewin’s model, the moving phase, is the stage where the actual changes are implemented. While Crï¿½pin clearly had his own mental blue print for the upcoming changes, he failed to establish specific goals for the initial changes and, as a result, created, in his employees, unnecessary confusion about the company’s future direction. Most importantly, Crï¿½pin did not institute small, incremental changes. Instead, he created, all at once, a corporate services division where accounting, marketing, information systems and quality assurance were rounded up. This department was staffed by the promotion of employees and by externally hiring. Unfortunately, it soon became evident that many of the promoted employees were out of their element. Outside of corporate services, lack of openness and two-way communication led to significant conflicts between Crï¿½pin and the general managers of the labs.
The final stage of Lewin’s model, the refreezing stage, is the stage where changes are stabilized. In Norwest’s case, this stage was entirely skipped. Targets for change and company focus to meet them were not established and, as a result, no successful experiences were built. No system was put in place to reward behaviours that reinforce the changes, instead the old bonus system, which was seen as arbitrary at best and biased at worst, was kept. Finally, no structures, such as regular and objective performance reviews, were developed to institutionalize the changes.
Overall, it seems clear that the change process at Norwest gave unsatisfactory results because it failed to address several significant steps of Lewin’s model for change. As a result, the changes Crï¿½pin had hoped would occur never did and employees continued to come to him for decision-making.
The Human Side of Change
We saw in the previous section how the change process at Norwest was fundamentally flawed. We also quickly examined how its inherent weaknesses could have caused the undesirable behaviours we now see. We will now explore this link in more details. In this context, Kanter’s framework for managing the human side of change provides us with a powerful tool for understanding the mechanisms that triggered the employees’ reactions to the change process.
In 1992, the creation of centralized corporate services at Norwest was a major source of conflict between Crï¿½pin and the general managers. Research indicates that change is exciting when it is done by someone but threatening when it is done to someone. In the case of Norwest, while some general managers may have been involved the consultant’s review process of the organization, they were never involved in the recommendation process. As a the implementation of the consultants’ recommendations got under way, the general managers naturally started to feel that they were losing control over their position and responsibilities.
This feeling of powerlessness leads people to try to reassert their control by rejecting other people’s ideas and even sometimes by behaving in “petty, territorial ways”, something that undoubtedly would fuel tensions with Crï¿½pin. Another interesting dimension of Kanter’s model that may shed some light into this conflict is the idea of loss of face. The notion that the organization has to change and that general managers will lose authority can be inferred to mean that general managers were not up to the job. Resistance therefore becomes a way for them to oppose this conclusion and to save face.
One of the major reasons why Crï¿½pin’s culture change seems to have failed is because individuals who were promoted to corporate services did not want to be empowered. Kanter tells us that very often people tend to “resist change because of personal concerns about … future ability to be effective after the change.” This seems particularly relevant in the context of Norwest whose scientists, according to Maurice, were “strong technical people, not strong business people” and who ‘did not consider “business empowerment” as being part of their job.’ Scientists may understandably have felt inadequate when entrusted with responsibilities for which they had no background or training. To a more limited extent, the more work factor is also interesting in explaining the outcome. Promoted employees may have resisted the change in their work description simply because it increased their workload beyond what they were willing or capable to achieve.
Unfortunately for Norwest, after gain sharing was introduced, the situation reached such a point that some employees began worrying that “Jean was taking the company down a path that would lead to its end.” This mistrust in Crï¿½pin may have been the end result of too long a period of what Kanter calls excess uncertainty. Employees in companies undergoing changes need to be kept up-to-date at every step of the change process. They need to clearly know where they are heading. Although Crï¿½pin may have clearly known where he wanted to lead his employees he may not have communicated that plan well enough. As a result, employees came to the conclusion that the continuous surprise changes were a symptom of improvised management and lost faith in their president.
There seems to be a clear dichotomy at Norwest between the few employees embracing the changes (most of whom were hired after 1992) and those who do not (hired before 1992). Worrisomely, this dichotomy has led to tensions between the two groups. Tensions can, of course, be caused by the conflicting goals of both groups. It is also, however, an inevitable by-product of the differences brought about by change that has been studied and identified as the difference effect. When “different” individuals are introduced in a rather homogenous group, they make the group feel self-conscious and cause it to question its habits. This effort is burdensome and leads to irritability, which in turns leads to tensions.
It is tempting to jump to the conclusion that employees are not interested in gain sharing from the reaction they displayed when first confronted with the possibility. However, a better understanding of the reaction can be achieved when studied in the light of Kanter’s past resentment factor. According to Kirk, there was clearly “a great deal of negativism surrounding [past] bonuses.” We know from research that people are more likely to resist change when they harbour unresolved past grievances.
Culture and leadership
In addition to the change process, it appears quite clear that culture and leadership played a significant role in the how the situation at Norwest unfolded. In a large sense, culture and leadership are bonded together by corporate blood. On the one hand, the leader impacts the company and its culture with his/her unique personality and leadership style; on the other hand, different forms of organizational culture demand and breed relevant and compatible leadership as well as resist and expel the outdated or incompatible ones. In Norwest’s case, the lack of supportive culture and appropriate leadership certainly share part of the responsibility for the failure of its first reform in 1992 and, could lead to the failure of the coming one in 1994.
Looking at Norwest from a cultural perspective, we can see that it has deeply-rooted technical norms, values and beliefs. This culture was implanted and encouraged by Crï¿½pin over the years and adhered to by Norwesters, most of whom were scientists. Because of the early success Norwest gained, we may deduce that this culture, if not supportive, was at least not obstructive to Norwest’s objectives. However, after the organizational changes were brought about, we can see that the old culture was now more or less obsolete. First, apart from Crï¿½pin, few focused on the external environment and what it meant for Norwest.
Second, Crï¿½pin’s long-term plans alienated the employees’ whose focus was on the short-term. Third, morale was low. Fourth, cynicism was growing. Fifth, group relations deteriorated as animosity and conflict among departments appeared and finally, Crï¿½pin, as the leader and the founder for Norwest and its culture, failed to play his role of being the hero of Norwest culture and, therefore, was objected and isolated by his subordinates with their negative reaction. Simply put, Norwest’s culture was, considering the degree of resistance, disadvantageously strong. It failed to support the mission, goals and strategy of the organization and, thus, became a liability.
In order to successfully bring about changes in an organisation, effective leadership is absolutely necessary. Unfortunately, in the case of Norwest, Crï¿½pin failed to achieve this. Not only did his leadership fail to mitigate the resistance to change, it may even have to some extent led to the undesirable behaviours currently displayed at Norwest. What Crï¿½pin possessed was good business sense and charm derived from his personality and experience; what he lacked was the ability to selectively and discriminatively project his objectives/goals onto Norwest and its employees. To be fair, Crï¿½pin’s leadership was not always inadequate for Norwest.
Considering that most Norwesters were scientists with little business sense and skills, Crï¿½pin tended to be more task-oriented and to tell them what to do instead of promoting self-leadership through empowerment and training. This pragmatic leadership style worked well until Crï¿½pin himself realized its limit, as Norwest grew larger and larger. Unfortunately, Crï¿½pin could not adapt his leadership style to effectively implement his changes. Sadly, he failed in four major aspects of successful leadership. He could not inspire employees by creating a clear and understandable vision. He could not communicate effectively, especially in crucial moments. He could not empower his employees and finally, he turned a blind eye to his own personal weaknesses and, when others pointed them out, refused to acknowledge them and change.
Unfortunately for Crï¿½pin, despite somewhat practicing a higher, more advanced form of leadership, he failed because he was not aware of the vulnerability of such leadership. Crï¿½pin unintentionally differentiated Norwesters by their business skills. He told most old Norwesters what to do, while he allowed more business-oriented people, such as Maurice and Kirk, to participate in policymaking and even delegated to them some decision-making power. This form of situational leadership, which balances between a task and relationship orientation, could have been beneficial to Norwest had Crï¿½pin realized what he was doing and communicated it clearly to his employees. However, his inability to do so isolated the employees with whom he shared values and attitudes through spontaneous leader-member-exchange from the rest of the company who simply took Crï¿½pin’s attitude towards these employees as “obvious favouritism”.
Another element of Crï¿½pin’s style that produced negative results was his quiet leadership. Crï¿½pin never seemed to bother to explain the reasoning behind some of his decisions, such as how he handed out bonuses, his corporate empowerment or gain sharing attempts. Although Crï¿½pin was evidently being nobly selfless and, with hindsight, was leading Norwest the right way, his opaque style couldn’t help but spawn scepticism about his impartiality and professional capability. Needless to say, such doubts were devastating for morale at Norwest.
Interestingly, Crï¿½pin was quite aware of the close relationship between culture and leadership. In fact, one of his main goal was what is called leader substitution, an attempt to have a new culture, as defined by rules, policy and values take over some of the work that was accomplished by his leadership. In that way, Norwest would stand more chance to survive were something to happen to him. Unfortunately, the culture change was not a complete success and ironically Norwest now finds itself in a situation where more than ever it needs strong leadership.
By all accounts, the change process at Norwest exacerbated the decreasing employee motivation. Poor performances, general disinterest and, most of all, declining morale are all symptoms of this. Because motivation is so complex and because it is so crucial for the health of a company, it will be studied independently here.
Employee motivation can be clearly explained by the individual process designed by Handy (Understanding Organizations, 1993, p.38).
The process is based on the idea that we are self-activating organisms and can, to some degree, control our own destiny and our response to pressure, that we can set our goals and choose the path toward them. Each of us has some needs and some desired results (our own personal objectives). The decision to do or not to do something, and the energy we put into it (the ‘E’ factor), derives from a calculus we interiorise. Each calculus, however, depends on our personality and is operated within the limits of a psychological contract (coercitive, calculative or co-operative) – between the company and the individual.
What exactly is missing then at Norwest Lab that prevents the motivation calculus from operating? If we apply Hertzberg’s two-factor theory prior to the first change in 1992, we see that hygiene factors were already not completely satisfied because of problems with bonuses that people felt were arbitrarily handed out. However, satisfaction from motivating factors compensated this shortfall. After the change, however, the motivating factors once satisfied no longer were, thereby deteriorating an already fragile situation.
Not only did the change impact the employees’ satisfaction, but by changing the actual scope of the job, it also somehow modified what the desired or obtainable results were. It is even possible to go further in the analysis and see how the change impacted the contract itself, passing from a calculative to a slightly more co-operative one where the calculative contract is a voluntary one, with an explicit exchange of goods and money for services rendered, while the co-operative contract requires a major identification of the employee with the organization. In addition, while Crï¿½pin changed the company’s people orientation (as defined by Holland) from realistic (practical jobs) to enterprising (business-oriented jobs), employees maintained a realistic people orientation. It is not surprising then that employees, finding themselves structured in an unknown contract, with different goals and low motivation, responded by reducing the ‘E’ factor in their job.
A second element further complicates the situation. While it wouldn’t be fair to say that Crï¿½pin did not truly do his best for both his company and its employees, he clearly failed in his application of theory Y. He presumed that his employees possessed those traits that make theory Y applicable: that they want job satisfaction, that they would seek responsibility and be self-starters. Unfortunately, he simply required them to be business-oriented and self-sufficient without providing them with adequate coaching and training.
In order to increase performance and morale and to reinstate a sense of team-identity, Crï¿½pin must figure out a way to instil new confidence and motivation in his employees. There are two major activities to which Crï¿½pin should devote his energies: 1) modify the employees’ motivation calculus variables to increase their resulting ‘E’ factor and 2) smooth his Theory Y approach to be more supportive. Though not an easy goal, this is certainly achievable if well planned and given the required efforts and resources available.
We have seen how the change process at Norwest was fundamentally flawed and how it triggered undesirable behaviours. We also saw how Norwest’s leader and culture not only failed to support the change process, but further aggravated the situation. Finally, we saw how motivation, as a result, was deeply affected. Fortunately, the situation is far from hopeless. Below are detailed a series of steps that will both reduce the actual conflicts and redefine a successful path for the company.
Become a Transformational Leader
Obviously, Norwest is not on course to reach the objectives set out by Crï¿½pin. Therefore, any recommendation we will bring will involve further changes at Norwest. Crï¿½pin must learn from past mistakes. He must adapt his leadership style to facilitate the transformation. Not surprisingly, being a transformational leader involves the application of Lewin’s change model and therefore every recommendation that follows is done in this spirit.
Improve Communication with Employees
The first stage of Lewin’s model involves arousing dissatisfaction with the current state. Things cannot go on the way they are and Crï¿½pin must communicate this to his employees. Given the current state of things at Norwest, it should not be too difficult. As a transformational leader, Crï¿½pin needs to form a vision and a plan for his company and he needs to explain them to his employees. As Lewin’s moving phase suggests, his plan must be made up of small incremental steps so that the change is less disturbing. It is important to underline how the implementation of the plan requires extra efforts from everybody and how, at the same time, it offers new excitement and opportunities for those willing to take them. A two-way communication channel should be defined during the change period, maintained and improved afterwards as an efficiency and transparency tool. This is absolutely necessary to counter the uncertainty created by change.
Involve Employees in the Change Process
Employees need to be aware of the change, of its reasons and of its goals. They must also see themselves as active agents in the change process. This is necessary to counter the loss of control that employees feel in times of change. It is also an integral part of Lewin’s unfreezing phase. For those employees willing to, a chance should be given to take part in change teams. The empowered teams, and the individuals that make them up, must be given well-defined goals and coached in how to accomplish these tasks.
Doing this would increase motivation by matching results, needs, contract and orientation in each employee’s motivation calculus. A one-to-one communication will make the change process more effective and smooth and as a result establish more trust across the whole company. Enhancing the participation and cooperation will also boost the moving phase of the change process. Finally, the leadership role would be reinforced, implanting the idea of the leader as a chief advisor, chief guardian of principle, chief accountability officer and chief encourager of Norwest.
Give Employees Greater Control over their Careers
Employees should be given greater freedom in defining their role within the company. Forcing R&D guys to be business-oriented will help neither business development nor R&D. A driving message should be the empowerment of those wishing it, underlining that all the others will be able to continue their job as they did before. In such way Norwest would enhance motivation, allowing employees to retain their desired position inside the company. Following this approach and, again, communicating it to the employees will pinpoint the source of resistance and minimize it prior to change
Provide Training to Employees
In the change process, employees will be required to face new responsibilities and new challenges. It is absolutely necessary for them to be trained and coached; otherwise, as we saw earlier, employees will resist the change because of concerns about their ability to perform new duties. A good way to do this is through team building is to train the whole change-process team together. Training would enhance motivation, help employees understand gain-sharing more and generally smooth the overall change process.
Rely on internal hiring
External hiring should be limited to some few individuals recognized as bringing outstanding expertise in a field until such a time that unity and culture have been recreated. The few new-hires should be given a clear message about the culture of the company and should be trained on the internal policies and rules. Relying on internal hiring has the advantage of retaining top performers by giving them the chance for promotions. Internal hiring will also reduce the difference effect felt by employees.
Define goals and performance evaluations
Lewin’s third phase, the refreezing phase, involves building success experiences by setting change targets and having everyone work towards them. Consequently, each change-process team or any empowered individual should be given clear and objective goals. Goals should be set slightly over the reachable level and bonuses should be proportionate to the effort.
Most important is that whatever bonus is defined for teams and/or individuals; strict rules must be set to let everybody know when and how they are evaluated. To implement such a change, coaching and evaluating processes that reinforce desirable behaviours with clear verbal and material messages must be defined. In such processes Crï¿½pin could even credit the work that has been accomplished during the first change in 1992. Setting an appraisal and coaching process enhances corporate culture and cohesion; it helps to stabilize changes and to keep everyone on the right track in the new system.
Define a Reward System
Lewin’s refreezing phase also encourages the rewarding of the desired behaviour. In the case of Norwest, an inadequate bonus program is presently in effect. Crï¿½pin should first address the issue of the old bonus plan and recognize its major flaws. Doing so will address the past resentment of employees. Discussions concerning the timing and approach to a new reward system could be handed over to the change-process team. Gain sharing could certainly be an option. The important idea is that the choice of the reward system should involve the employees. In the end, the bonus plan could even be inserted in a cafeteria-style benefit plan, where employees can choose to opt-out or not in exchange for higher salaries.