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Causes and Effects of Organisational Structure Change

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This dissertation will help to understand the reasons, why organizations change and its affect on the organizational structure. To comprehend the selected topic various secondary sources from the public domain has been taken. Information from these sources has been addressed under the heading 'literature review'. It gives an overview of the triggers of change in the first section with special reference to role of the change agent in the change process, followed by a section how the organizational structure is affected by triggers of change. Next section addresses the contribution of the structure towards change followed by employee's attitude to the change process. This literature review helped to understand already established concepts on the topic. And to realize the commercial application of the management theories two companies have been selected, Atari and Oticon. One of them changed its structure because of triggers in the external environment and it was successful and still performing well but the other did not change and it perished. At the end this dissertation helped to look at the ways of making the changing process a subtle experience instead of making it a knee-jerk incident as suggested by many authors in the field.


This dissertation is an attempt to examine the relevance of theoretical studies to real commercial situations. And it gives us an opportunity to demonstrate our understanding and application of the concepts and theories taught in the MSc programme. While undertaking this task it also tested our ability to exhibit business research skills and to make a clear presentation of findings. And finally at the end it allows us to do a critical evaluation of our future career path.


As a part of MSc Management course work this dissertation is to be completed based on secondary research. And it consists of published journals, books, annual reports of the companies, corporate and other websites. Most of the published journals are available through the University of Glasgow library database belonging to different disciplines from psychology to management reviews. There are certain limitations and challenges faced during its completion like it did not allow any primary research which means restriction of work only through secondary research. But the availability of overwhelming amount of research works on the selected topic posed another challenge. It was challenging to sieve through it and extract the relevant information which would help to conclude the topic. Other challenges faced are the time limit of only four months, and word limit of maximum twelve thousand which is quite less to compress all the work from literature review, company history to analysis of each part.


"I have called this principle, by which each slight variation, if useful, is preserved, by the term Natural Selection" Charles Darwin

Charles Darwin was the British naturalist who was renowned for his theories of evolution and natural selection (www.lucidcafe.com). As the theory of 'natural selection' suggests that in the biological world organisms develop certain characteristics that help them to survive in the environment. That is, the 'strongest survive' in certain environmental conditions and these characteristics are transferred from one generation to the next through genes (www.allaboutscience.org).

Change is inevitable and environment is changing at a much faster rate than anticipated, influencing all levels of the society, from individual to the corporate settings making the world a vibrant place to live.

From organizational perspective, change in an organization can be triggered by advancement of technology, to the quest of the management to excel in the market. And to avoid annihilation one has to transform itself and adapt to its environment. To understand each aspect of change from organizational point of view will be an enormous task with amount of literature available. So the core focus will be to understand the triggers of change, role of a change agent in the changing process. The next aspect is to know why changes within the organization affect its structure. Subsequently the nature of change, that is how organizations change and finally the aspect of employee's reaction to the change.

And for a better understanding of all the aspects, first it is an attempt to understand the literature available on this topic and to comprehend their application in real life situation two companies have been chosen, Oticon and Atari as the case studies.



Literature review is an effort to study the research work done by various authors ranging from 1958 to 2008. The main topic of this research is to understand what makes organizations change and its consequences on the structure.

It includes an introduction on various forms of triggers of change comprising of a discussion on the role of a change agent, its leadership style and power skills in the first section. The second section is about how change affects organizational structure. Next section consists of the nature of change that is, the type of change that organizations go through. And the last section deals with employee's reaction to change with a discussion on Hofstede's work on culture.

There has been an overwhelming amount of research work on different aspect of organizational change and it will be beyond the scope of this dissertation in terms of time and words to cover each topic. So it has been decided to get an overview on a part of organizational change as mentioned above.




This section would cover the reasons that might activate a change process in an organization. Some authors have classified trigger of change into groups based on their relation to the organization, while others have a more generalised view.

Triggers of change have been categorized into external and internal triggers. External triggers would include change in customer needs, competition, innovative technology, new opportunities, change in social and cultural values, change in trading conditions, change in legislation and government policies (Huczynski and Buchanan, 2000a). Scarcity of essential resources also results in change and can lead to formulation of new strategies, policies, rules and regulations, innovative ways of communication, encouraging team work, developing new technology which can lead to the change of the entire structure of the organization (Chackerian and Mavima, 2000). Globalization of marketplace, enhanced technologies, fierce competition, liberalization of economies, single European currency, electronic-trading, reduction of cost in production, information and transportation through economies of scale, supply chain integration (Daft, 2006), environmental awareness towards global warming, industrial waste disposal management, use of renewable and non-renewable raw materials, health awareness towards obesity, diabetes etc making consumers move towards natural food from the synthetic ones, change in lifestyle due to increase in disposable income leading to the change in attitude towards work, leisure-time and society etc. Changing perspective towards work style from traditional to teleworking, outsourcing, advances in communication allows organization to be multinationals without leaving their own countries (Paton and McCalman, 2000a).

Internal triggers would include appointment of a new senior executive, new and better ways of serving customers, infrastructure relocation, innovative product development (Huczynski and Buchanan, 2000b). Presence of influential group within the organization can trigger change (Greenwood and Hinings, 1996) or change in top hierarchy may lead to change through accepting and implementing innovation (Boeker, 1997a; Kraatz & Moore, 2002). Change of managers within the hierarchy of the organization may lead to change (Boeker, 1997b), new responsibility can bring new motivation to do better and can lead to change through enhance learning, communication and introducing new technology etc (Fernandez and Pitts, 2007a).

Organizations experience several types of triggers and thus implement several types of changes. It has been reported that 50% of organizations adapts changes due to crisis (Beddowes and Wille, 2007a). Organizational crisis can arise from external triggers such as competitors which can be a new firm or a rival, change in legislation, action of a stake holder by selling or buying a significant amount of shares, buy-out from an organisation etc (Eccles, 1994a). And 23% of organizations proactively change while anticipating threats and while doing so 44% percent of organizations change their organizational structure. (Beddowes and Wille, 2007b).

According to a study of 100 companies, majority showed re-structuring as successful, as there are examples of companies running in losses for millions of dollars for a decade and then turning into a profit making company in two years with evidence of effective work through teams and employee empowerment. So triggers of change can be financial losses leading to drop in profits which can attract new leadership and which may lead to changes in the structure (Haveman, Russo and Meyer, 2001a), increased competition leading to loss of market share, industry in recession, appointment of new chief executive officer, proactive action (opportunities or threats foreseen), technological development and effective ways of staff utilisation (Beddowes and Wille, 2007c).

According to Champy and Nohria (1996) there are three major triggers of change; technology, government and globalization. Technology especially information technology has transformed business in many different ways. For example e-banking has opened new strategies for the banks of doing their business electronically and over the net, giving better access to customers with personalised services. Another example is the use of information technology in the field of publishing of research journals. It has helped in speeding up the process of research and its publication. The government role as a trigger of change is by changing the policies which affects businesses. Deregulation, privatisation and free trade etc are opening up new ways for businesses and encouraging them to change their strategies. This type of change in government policies has been termed as regulatory punctuation which gives organizations new opportunities for expansion (Haveman, Russo and Meyer, 2001b). Another trigger of change is the observable fact of globalization. It has helped in developing new concepts of this century like outsourcing and forced companies to work in virtual environment. Change can be a powerful energizer and creative force which can be good and would lead to development of innovative ways of getting a competitive advantage as well as bad with callous demands on employees and other measures like downsizing for cost cutting etc.

As mentioned earlier organizations appoint change agent to deal with external triggers which leads to internal changes in the organization.

There is evidence that 16% of changes takes place due to appointment of new Chief Executive Officer (CEO) with characteristics like charismatic personality, with a clear idea of what and how changes are to be made, capable of taking a holistic view of the organization and who believes in team work (Beddowes and Wille, 2007d). Managers do play a crucial role in planning and in implementing organizational change (Fernandez and Pitts, 2007b). For effective implementation of change there are three factors that need to be considered, the attitude, motivation and mind set of the change agent designing the change (Newman, 1973a).

Previous research suggests that there exists a difference in the role of a change agent in the public sector and the private sector organizations. For example, there is significant amount of work directing towards the fact that public organizations although show more resistance to change but they often change according to Peters and Hogwood (1988) cited in Fernandez and Pitts (2007c).

But some authors argued that organizational change has little to do with managerial leadership. As suggested by Hannan and Freeman (1984a) organizations survive because they are strong enough for a particular environment marked by size, age and complexity of the organization.

But an organization stands for collective work of individuals and groups to fulfil the objectives and goal through set of rules, which needs direction and vision which is the responsibility of the organizational leader (Burke, 2002).

And in order to influence individuals to work collectively towards a common goal is a complex task in itself on the part of the organizational leader.

As stated influence is the essence of leadership (Yulk, 2002: P 141). The role of a change agent becomes effective when there is adequate leadership skill or influencing power to let others follow the vision and reach the goal. There is a list of twelve traits which consist of strong drive for responsibility , focus on completing the task , vigorous and persistence in pursuit of goals, venturesomeness and originality in problem solving drive to exercise initiative in social settings, self-confidence , sense of personal identity, willingness to accept consequences of decisions and actions, readiness to absorb interpersonal stress, willingness to tolerate frustration and delays, ability to influence the behaviour of others, capacity to structure social systems to the purpose in hand according to Stogdill (1950, 1954) cited in Huczynski and Buchanan (2007c). While studying American executives, 15 indispensible leadership traits were identified, which are judgement, initiative, integrity, foresight, energy, drive, human relations skill, decisiveness, dependability, emotional stability, fairness, ambition, dedication, objectivity and co-operation according to Stewart (1963) and there are as many as 80 leadership traits, identified in various studies as cited in Huczynski and Buchanan (2007d).

As leadership is all about influential skills or power skills on the part of the change agent so that the vision of the change is followed by others (followers). The power to influence others measures the extent of leadership value (Huczynski and Buchanan, 2007e). At individual level power can be seen as a motivational tool when an individual tries to control and influence events and when this is manifested in terms of observable action by others then power is seen as a behavioural aspect. Power in behavioural terms has been divided into eight categories - reward, coercive, referent, legitimate, expert power (French and Raven, 1958a), informative, affiliation and group power (Benfari, et.al, 1986a).

Reward power describes the ability to influence others in such a manner that followers believe the leader have the capacity to offer valuable reward or incentive in return of the obedience shown to the leader's demand. Coercive nature of power shows that the leader has the capacity to punish in the form of penalties and sanctions in return of noncompliance to the leader's demand. Referent power describes the ability of the leader to control by his/her enigmatic personality. Power is said to be of legitimate nature based on the authoritative position of the leader which is followed by the others as a compulsion. And the expert power which is described by its name that leader has expert knowledge and experience to make other people follow the instructions as it is regarded as of superior nature (French and Raven, 1958b).

Informative power is similar to expert power and describes the leader to have undisclosed information crucial to the organization which makes the leader superior and thus followed by others. Affiliation power shows the leader to have strong relations with influential figures in the organization and society and thus followed on this basis. And the last category is the group power which is associated with the leader's ability to lead a team or group with sharing of power and responsibilities. All the eight categories are perceived either as positive (P+), beneficial or negative (P-) as exploitation or mixed response (P+ and P-) by the receiving party according to its characteristics. For example reward and referent power are received as P+. Coercion and information form of power as P-(Benfari, et.al, 1986b). But all are situational that is they have different influential power when used under different situation and the most effective leadership style that has emerged with time is the group power with sharing of power between the leader and others, as it can give the feeling of responsibility to take decision which can be rewarding (Huczynski and Buchanan, 2007f).


So in brief triggers are mainly external that pressurises organizations to undertake internal changes. And it is a crucial responsibility of the change leader to assess the external situation and act accordingly so that the internal changes are done in a subtle way. When an organization becomes successful in making the relevant changes and performs well, it will pose a threat to other organizations and thus trigger another set of changes taking the course of a chain reaction.

But why does an organization has to change its structure? This can be understood in the next section of the literature review.

Section 3. 2

Affect of change on the organizational structure


As mentioned earlier 44% percent of organizations change their organizational structure (Beddowes and Wille, 2007e) while adopting internal changes.

The structure of an organization can be defined simply as the sum total of the ways in which it divides its labour into distinct tasks and then achieves coordination among them.(Mintzberg, 1979a: 2)

According to Newman (1973b: xiii) Organization is a system for enabling people to reach or attempt to reach certain objectives and it involves the use of resources to carry out activities towards those objectives. The basic features of an organization involve presence of objective(s), people and the environment in which it operates. Objective(s) would be the reason behind its existence, people working in an organization communicate, coordinate with occasional conflicts carry out activities in an organised way which is in par with the objective(s) of the overall organization. And these objective(s) are the opportunities and constraints provided by the environment, within which an organization exists. In order to survive, an organization must be able to understand the environment i.e. its complex surroundings and establish a relation with the trading market, products and services, suppliers, finances, customer preferences, competitors, employees, government policies, social settings, culture etc which would eventually help it to formulate the objective(s). Organization tends to establish relationship between people, units, roles etc with a degree of consistency embracing all the relationships which is the basic source of structure for an organization. The three basic features of organization that demands the need of a structure are - first is the organization's desired activity in order to fulfil its objective(s) through effective use of available resources, second, the way of carrying out its activities i.e. the process and the third is the behaviour of the people working for the organization while carrying out the first two features. The function of a structure is to give stability, consistency, by holding things together giving it a form and reducing randomness while outlining its operations. The design of the structure must facilitate the fulfilment of the organizational objective(s). The conventional forms of organization design were the functional form, the executive or administrative form and line or staff form. The functional form of the structure reflects the kind of function performed by the people. As required, new positions are developed along with new divisions or departments. But as complexity of work increases and it requires more coordination among divisions this structure becomes inadequate otherwise this form works well for independent work in each divisions.






Source: 'The Functional Form' (Newman, 1972c:81)

The administrative form separates the organizations actual work and the internal management of the organization. As it is difficult to separate the executive side of the organization which is more result orientated and the administrative side of the organization which controls the resources . Communication plays an important role in coordinating between the two; otherwise it can give rise to conflicts. The line or staff form shows relationship between the operation and the people within the organization that is, 'work demand' and it is an extension of the executive form. One problem faced in this form is the control of managers over the subordinates and another is the orientation of the structure to the kind of work the organization is engaged with. For example line structure can be marketing orientated, sales orientated and so on. But as demand from the environment increases there is a need for multi-functional structure. The inadequacies of the conventional forms led to the formation of the new structure called the matrix form.




Source: 'Matrix Form' (Newman, 1972d:85)

Matrix structure is task based or project based that is, based on 'work demand'. It is flexible as it changes according to the project or task at hand. And this type became popular among organizations dealing with large projects like civil engineering, research and development organizations etc. This structure deals with two basic objectives, first is the output of the organization and second is the ability to produce the output. Both are interconnected and interdependent on each other with the top management being responsible for its control and ensuring efficient utilization of resources. As it is project specific, unutilised resources needs to be reallocated or used for training etc.

According to Mintzberg (1979b) there are five basic elements of a structure, mutual adjustment, direct supervision, standardization of - work process, work outputs and worker skills and these hold the organization together. Mutual adjustment is achieved through informal communication while coordinating work. Direct supervision is the process of scrutinizing and instructing other's work by an individual which again ensures mutual adjustment. Standardization of work process, output and worker skills can be achieved when they are precisely specified. In complex organizational environment these five factors work in a loop.


Work Process



Mutual Adjustment

Mutual Adjustment

Direct Supervision

Worker Skills

Source: The coordination mechanism among the five basic elements of a structure. (Mintzberg, 1979c: P 7)

Organizational change reflects re-organization in the structure of the organization which includes the patterns of roles, policies and procedures which affects the relationship between them and thus affects the structure. The change can be due to new customer preferences, new work requirements, new strategies etc. In order to have an effective process of change, reviewing of the consequences of change is necessary and making relevant adjustments to the structure and policies from the results. The second factor is the change itself and for effective change it is necessary to have adequate information from the past and present as change begins with the analysis of these situations. As change means weakening of old or existing relationships and strengthening new ones and a critical situation is reached when old ties are weakened and new ties are not strong enough. Problems are faced when relationships between various factors in an organisation which were compatible in the old situation becomes incompatible in the new situation. So it is important to develop all the factors in such a way that will reinforce rather than inhibiting people's work. For an organization to be effective, its structure, policies etc should enhance peoples output and attitude towards change. The third factor is the development of the relationship between the people and the new settings. This can be done by effective communication, consultation, discussion, participation among the employees and involving people in the change process (Newman, 1973e).

According to Greiner (1972) as cited in Meredith and Mantel (2003) an organization tends to develop a structure whilst growing and adding resources and establishing relationship between them and at the core is the specialization factor of the human element of the organization. The structure remains stable till it facilitates the completion of the task but if there is change in the nature of the task due to any of the above mentioned triggers of change, and the present structure hinders the completion of the new task, it will indicate a need for change and which affects the structure of the organization.

According to Chandler (1962a) organizational structure reflects the health of an organization. Structure is defined as the design of the organization through which the enterprise is administered (p: 14). The design has two aspects, first is the line of control and communication between various units and people working in them and second aspect is the flow of information within these lines. And these two aspects are essential to fulfil the organizational goal. Structure follows the strategy of the organization, for example when an organization decides to expand and increase the number of offices; it requires more administrative infrastructure and people to handle it and thus changes the structure. Again if an organization has overseas expansion plans it will have departments and headquarters to administer its individual units. Diversification to new type of function or vertical integration will attract a multi-departmental structure with a central main office. Diversification into new product line will be supported by multi-divisional structure with a general office to control the divisions. This multidivisional structure would attract decentralisation of authority from the centralised control in departmental structure.

The coordination and control of business units takes place through centralisation and decentralisation form of decision making. Centralization means power to control and coordinate resides in one person while decentralisation means division of power into many individuals. Research shows cognitive limitation in centralized decision making as it involves only one person and organizations face many complex situations. And a rational way of making decisions in such situations is through decentralisation. Other benefits of decentralisation are that it allows better understanding of the environment and it facilitates innovation and creativity as it involves many 'brains' (Mintzberg, 1979d).

According to Drucker (1988) as soon as a company changes its strategy from paper work to electronic mode it starts affecting the decision process, management structure, over all way of working style of the organization eventually affecting the organizational structure. And this includes change from 'command - and - control' mode of working in departments and divisions into information based organization of knowledge specialists.

According to Burns and Stalker (1961) as cited in Mintzberg (1979e), that if the environment is volatile the organizations have to have a flexible and an organic structure in order to adapt itself to changing environment but if the environment is stable organizations can have bureaucratic structures performing routine and standardised tasks.

Organizations have adopted flat, flexible structure which emphasizes on empowerment and team work culture in order to cope up with the changing nature of the environment. Successful organizations show involvement of employees in decision making and also as a part of the change the organization needs (Piderit, 2000a). As stated by Burns and Stalker (1961) cited in Meadows (1980a) organic structure has the following characteristics, team work to complete a common task, no fixed rules or methods to accomplish the task, periodic re-examine of the task so that it can be readjusted according to demands of the surroundings through communication, consultative nature of communication instead of autocratic nature, closely knitted network of communication, devotion towards the organization and the task and appreciation for intellectual and technological soundness.


Organizational structure is the reflection of its internal relationship between all its resources (people and work) which are constantly influenced by the external factors. And thus when an organization makes internal changes in order to cope up with the external triggers eventually changes its structure. Organizations need to have a flexible structure (organic) so that it can adapt to the environment which is volatile in nature due to external triggers. And as suggested growth without structural adjustment can lead to economic failure (Chandler, 1962b; p: 16).

The next question that arises is that does the structure of the organization affects or facilitates changes within an organization? This can be understood in the next section of the literature review.

Section 3.3

Nature of change


While organizations adapt to environment, structure plays an important role, if the inherent nature of the structure is flexible then changes are easily done otherwise it poses a threat to both the process and content of change.

Organizational change is the difference in organizational features measured over a period of time. Organizational features can range from functions performed by individuals or organizational subunits or relationship among other organizations and the environment (Van de Ven, 2004a). Organizational theories are either focused on the content of change or process of change. Barnett and Carroll (1995a) have suggested a distinction between process and content aspect of the changing organizations. Content refers to the element of the organization that changes and process refers to the actual course of action or procedure that is adopted to make those changes. The outcomes of both content and process changes have different effects on the organization although there is a clear interaction between them.

Types of changes due to various triggers can be at various levels. For example, at organisational level, change may occur in the culture and structure of the organization with new work practices, emphasising on training and team work, introducing new reward systems and innovative ways of communication etc. Another prominent type of changing is through cost cutting measures like staff reduction or downsizing. Market led issues may lead to customer orientated focus with new products with better quality, adapting innovative technology (Beddowes and Wille, 2007f). A similar list suggested by Van De Ven (2004b) consists of structural change featuring decentralization or centralization; functional change in strategies to bring new and better products and services; compositional change featuring downsizing and recruitment, resource allocation; change in relationship between organization units through effective communication, exchange of resources across units; change in boundary through business expansion or contraction using mergers, acquisition, joint ventures etc; environmental changes due to resource scarcity etc, and lastly change in performance showing profitability, job satisfaction etc. These comprises of the content aspect of the organization change.

The process of organizational change can be understood by four theories, life-cycle, teleology, dialectics and evolution. The life-cycle stages from birth, growth, maturity and decline stages have inherent quality of regulating the process of changes due to triggers in the external and internal environments. Each stage has a fixed path and consists of characteristics from the previous stage and acts as a precursor to the next stage. This kind of theory is applicable in organizations that have rational rules to regulate the process of change. The next theory is about teleology which means 'purposeful development towards an end' (www.answers.com) or planned change which believes in goal setting, its implementation and modification based on learning through evaluation. This theory assumes that organizations consists of responsible, adaptive and rational individuals believing in team work and cooperation and thus are free to set goals which encourage creativity. Here there is no fixed path or precursor stage like in life-cycle theory but certain level of standards are maintained and change is accepted as a process in attaining the set goal. Once the desired goal is reached the organization again starts a new development path to attain a new goal defined due to triggers from the external or internal environment. This theory operates on organizations that are innovative in nature. The dialectic or conflict theory emphasizes that there are possibility of conflicting events and outcomes in an organization due similar goals or resources to gain supremacy over the other. This theory explains change as the conflicting situation and stability as the minimal non-conflicting situation. This theory can be seen in organizations which have powerful bargaining skills. The evolutionary theory explains that changes are periodic which becomes cumulative and are of probabilistic nature in organizations very much like the evolution in the biological world. And this theory is more likely to act on organizations that compete for scare resources (Van De Ven and Poole, 1995).

There are two theories regarding how organizations change. First is 'Adaptive theory' which suggests that flexible organizations adapt themselves to changing demands of their environments. And second theory is the 'Selective theory' according to which static organizations are strong enough to survive in the environment until replaced by flexible ones (Haveman, Russo and Meyer, 2001c).

The variations suggested by different authors who support Adaptive theory as cited in Singh et.al, (1986a) are Contingency theory states that organizations which can read environmental signs and change accordingly to perform better and thus survive then others who do not, suggested by Thompson (1967). Resource based theory which says organizations opts for merger or join ventures in order to minimise its dependency on environmental resources, by Preffer and Salancik (1978); Aldrich and Preffer (1976). Institutionalization theory suggests that when organization undergoes structural changes in order to align itself with the environment within which the organization operates helps it to gain a genuine status thus enhances its survival, suggested by Dimaggio and Powell (1983), Zucker (1983). Organizational strategy theory relates to the capability of the management to set objectives and strategies in order to fulfil the mission of the organization according to the strength and weakness of the organization in relation to the threats and opportunity present in the operating environment, therefore strategies adopted depend upon the manager's understanding of the environment, by Mintzberg, (1978); Miller and Friesen, (1984).

But the adaptive view was challenged in by the Selection theory or structural inertia or population ecology theory which suggests that most of the organizational structures are rigid and changes can lead to failure. Altogether an organization which has the following characteristics of rationality, reliability, stable or uniform performance will have a better chance of survival in the environment and giving it a more stable structure. As an organization grows old and gain experience it gradually becomes immune to change (Hannan and Freeman, 1984a).

As suggested by various 'organizational ecologists' (Hannan and Freeman (1984b); Amburgey, Kelly and Barnett (1993) resources of the changing organizations are diverted to new operations while developing new relations etc which eventually reduces, efficiency and chances of survival for the changing organizations.

But there is ample evidence which supports adaptive theory regarding organizational change. And there is a hypothesis known as Random Organizational Action theory which shows that organizational change does not lead to organizational failure (Singh, House and Tucker, 1986b).


Thus the nature of organizational structure is essential in the process of change. The teleology theory holds true in today's volatile environment and it encourages innovation through flexible (organic) structure. It also supports adaptive theory which is more relevant in unstable environment rather than selective theory which is pertinent in a stable environment. In order to get competitive advantage it is necessary for organizations to be innovative which can be achieved through organic structure (Meadows, 1980b) see Appendix (1). And changes do not have to be a knee-jerk reaction rather it can be subtle and adaptive process to the changing environment (Beddowes and Wille, 2007g).

Next question to be addressed is that what is needed to make organizational changes a subtle experience? As discussed above when organizations change it affects the structure and structure it is all about the relationship shared by the people while working within the organization. And people play a crucial role in change and they are also affected in the process.

As it has been reported that employees of frequently changing organizations like Cisco Systems suffered from repetitive-change syndrome such as anxiety, chronic headaches, hair loss and even recurring ulcers.(Abrahamson, 2004).

The next section of the literature review will take a look at the employee's reaction towards change.

Section 3.4

Employee's reaction to change


Organizations are all about people and people resist change. It is important to understand the nature of resistance and how to deal with it in order to make successful changes.

The action in organization comes from its employees working in groups or individually. It is inherent human nature to feel insecure in a new environment and thus show resistance to change. There is always an emotional barrier to overcome while adapting to change. For a change to be effective it is necessary to communicate (Yeung, 2008) the reasons, positive and negative effects of change to the people involved in the change as suggested by Sagie and Koslowsky (2000) cited in Oreg (2003a). And as people feel vulnerable and uncertain in situation and need support and help which can be provided through discussion, consultation and training etc (Newman, 1973g).

There are six sources of resistance derived from individual's personality. First, the most common characteristic is difficulty in giving up old habits to which individuals are well adapted. The new environment is difficult to adjust with older responses as they may be inadequate and thus resulting in stress (Watson, 1971). Another source is the intolerance attitude towards the adjustment period for change which may be very short in comparison to the amount of adjustment one has to do. Although it is a human nature to adjust to new situation but time period for adjustment plays a crucial role. An individual's ability to adapt to change is another factor that may lead to resistance (Ashforth and Lee, 1990). The next source of resistance towards change is the feeling of imposed change by others rather than self-initiated which may lead to the sense of losing control over the situation, by Conner (1992) cited in Oreg (2003b). Another source of resistance is an observed difference in reaction towards a situation, an adaptive individual who is well adjusted to familiar surroundings and an innovative individual with new ideas and who is creating new environments. The former shows resistance to new situation due to its adaptive nature than the later, as suggested by Kirton (1980, 1989) cited in Oreg (2003c). The sixth source of resistance to some extent is the lack of cognitive openness towards organizational change (Bartunek and Moch, 1987; Bartunek, Lacey, Wood, 1992; Lau and Woodman, 1995). According to Oreg (2003d) resistance to change is a universal phenomenon and there are four collective patterns of disposition of resistance to change. First is routine seeking nature, second is emotional reaction to imposed change by others, third is the short-term focus and the last one is the cognitive rigidity of the individuals.

According to Hofstede (1980), different societies have different tendencies to react to change. It has been suggested that every person has innate patterns of feeling and thinking most of which is shaped in early childhood stage. People's reaction to situations is a reflection of their past which is influenced by social surroundings and experiences gained within a family, education, work and the community as a whole. In his research work with IBM in 40 countries revealed that employees faced common problems like inequality, relationship among individuals and groups, social stigma attach to gender biases and uncertainty. But all displayed different ways of solving the set of problems faced within the corporate environment. And these problems gave dimensions of cultures namely power distance uncertainty avoidance, individualism versus collectivism masculinity versus femininity and long-term vs. short-term orientation. This research showed that on the basis of scores on all the five dimensions of culture, countries can be classified and it helps in understanding the reasons behind their attitude towards solving problem which may have a historical connection and shows the value system possessed by the middle class in the society of that country. Among the five dimensions power distance, in general, is the perception of people towards inequality in terms of status, prosperity, authority, law, civil liberties etc and these carry different weights in different societies. In organizational point of view power distance means unequal distribution of power. Countries with high score indicate that they accept inequality. The next dimension is the 'uncertainty avoidance' that is fear of uncertainty. Some countries acknowledge uncertainty without much resistance and accept uncertainty easily and these countries score low in the uncertainty avoidance index. The third dimension is the individualism vs. collectivism which shows the preference of people to live and work as team or alone. Some countries prefer individualism and thus score high, visible in developed countries. The masculinity vs. femininity dimension defines masculinity as a clear distinction between roles to be played by men and women while femininity indicates a blurring distinction between the roles. The fifth dimension is long-term vs. short-term orientation; long-term indicates working towards future rewards while short-term orientation believed in values related to past and present with respect for traditions and social obligations. Countries which score high on long-term orientation believe in perseverance, slow result, thrift, personal adaptiveness etc (Hofstede, 2005).

Hofstede's work thus gives an idea about how people behave in particular situation and helps to understand reasons for resistance towards change.

Piredith, (2000b) has argued that most of the researchers on resistance have ignored the crucial factor of positive intensions to resist a change which lead to negative consequences. And as there might be some possibility that the reason behind the resistance is valid but the change agent is reluctant to accept it and thus taking the employees reaction as an obstacle. There is evidence on resistance towards change seen as behaviour (Lewin, 1952) as intentional act (Ashforth and Mael, 1998) and as emotional response (Coch and French, 1948). But a new integrated view of the three above components is suggested by the author as the 'Ambivalence Attitude' from a social psychological point of view. Ambivalence is the existence of opposing feeling towards an idea or person or object etc (www.answers.com). It has been shown that resistance to change can be a two way process involving the change agent and the recipients. Change agent may not be accepting the legitimate and reasonable reasons suggested by the recipients and vice versa.

And as suggested by various author effective communication plays a crucial role towards change and its consequences.

It has been observed that from organizational point of view communication has evolved with time. As in the past it was in the form of one to one meetings, hand written letters and memos to the present electronic mailing, video conferencing, cell phones which are much faster and cheaper ways of communication. It also helps organization to overcome linguistic and cultural barriers as organizations are increasingly becoming global in nature. To keep abreast with the latest development in communication technology it is necessary to have regular training programs for the entire organization (Du-Babcock, 2006). As effective use of communication techniques can play a crucial role in minimising resistance and making changes acceptable (Ford, et.al, 2008).

For change to be successful a model can be followed which includes formulation of strategy according to triggers from the environment, next comes planning to implement the strategy and which needs support from management, people and other resources. Before implementing the strategy it needs to be tested for its acceptability and should be modified if required. This can be done through continuous evaluation and feedback of each of the events. All the stages are inter-linked as shown in the figure







Source: 'New model' (Eccles, 1994b:57)

Another observation made through study of successful organizations reveals that its customers are satisfied with high standard of quality of its products and services when it treats its employees as valuable assets. This motivates them to work efficiently and ensures high quality. The design of the organization should facilitate personal and professional growth and development for its people. And this is the concept behind Organizational Development or OD which believes that to make successful changes people's involvement is crucial. As organizations are about people and it is important to make them understand the motive behind the changes and its benefits to the strategic direction of the organization which will ensure minimal resistance while implementing changes (Paton and McCalman, 2000).


Ambivalence attitude is inherent in humans and to make organizational changes effective and acceptable in a positive way which would enhance organizational performance can be achieved through communication, feedback and involvement of people in the process of change. And as seen through Hofstede's work on culture, individuals are affected by its surroundings and if a change agent is aware of the cultural differences of its people, it might be useful in understanding people's reaction to particular situation while making changes.

So is it too hard to anticipate the environment and take radical decisions? This question can be understood in a better way with the help of two case studies below.

Chapter 6


History of Atari

Atari is considered as the pioneer of special effect generation items such as Artificial Intelligence, multimedia and interactive entertainment. Atari was created by a computer programmer, Nolan Bushnell in 1972, Sunnyvale, California. He created a computer game called Pong, a two dimensional, simple game of hitting a dot, back and forth between two rectangular paddles which gave birth to the gaming industry. It launched several games in seventies after it was purchased by Warner Communications which took the gaming market by storm. It remained as a market leader till early eighties, when it faced severe competition from other companies like Mattel and Colleco. This led to the development of cartridge versions of the popular games. Atari's down fall began in 1982, with a premature launch of Pac-Man, a project to change the arcade game into cartridge version on cheaper chip, although higher and costlier chips were suggested by the programmers, which eventually failed to capture the market and turned into a disaster. Another setback faced by Atari was the void created when Bushnell left the company because of disagreements with Warner Communication. During this period, Japanese companies such as Nintendo and Sega started to dominate the gaming market till nineties. In 1996, Atari announces loss of $13.5 million, and tried to revive itself by merging with JTS, a disk drive manufacturing company, but without any fruitful result and finally it came to an end (Ernkvist, 2008a). In 1998, Hasbro, the US based toy manufacturing company bought the rights to Atari home titles but later sold it to Infogrames Entertainment SA (http://www.hasbro.com). In 2003, CEO on Infogrames Entertainment SA, Bruno Bonnell renamed its organization into 'Atari Inc' (Cabelin and Eisner, 2004).

Reasons behind its failure

Several explanations have been offered by various authors as cited in Ernkvist (2008b) but without mush empirical evidence for the crash. For example, the end of an adolescent trend (Friedrich 1983); the negligence by Atari (Cohen 1984); the public disparagement about video games (Williams 2004); overproduction of games together with price competition, saturation for home console systems and the introduction of the home computer also played a major role in crash of home video game market (Cambell-Kelly 2003); the failure of major games due to premature launch and poor quality (Kent 2001).

To have a better understanding of reasons behind failure of Atari it is necessary to comprehend the nature of the video game industry.

The video game industry started with individual investors to legitimization and massive expansion phases due to popularity which ensured profitability (Williams, 2002a). According to Herman, (1997) as cited in Williams (2002b) the video game industry started in 1958 when a government nuclear scientist named Wally Higginbotham created a game of tennis on the oscilloscope screen to entertain bored visitors at his lab by. In 1962 Steve Russell a Massachusetts Institute of Technology engineering student created a computer program Spacewar, which became popular among the students and its commercial importance was soon realized by (Poole, 2000) as cited in Williams (2002c). There were series of negotiations regarding its commercialization and ownership issues. In 1972 a firm called Megnovox produced the first home gaming machine called Odyssey. It allowed different pre-programmed gamed to be played from the same machine. In the same year another enthusiastic student, Nolan Bushnell founded Atari inspired by Spacewar. He created 'Pong' the advanced version of Higginbotham's game, according to Cohen (1984) as cited in Williams (2002d). Atari did not do well until 1974 when Atari Pong game was released. Atari enjoyed it dominance through late 70s and early 80s (Williams, 2002e).

The video game industry faces severe competition not only from the rival companies but also from other entertainment media forms as well like movies, music, television etc. So each needs to be innovative enough to capture the audience attention and remain in the business. As video games are based on digital technology it has immense capacity for growth and diversification. This industry has witnessed too many quick rise and fall of firms and products. The '1975 arcade shake out', 'the 1977 console crash' and 'the videogame crash of 1983'. The crashes have been due to 3Ds that is disruptive technology which means innovative games created by a rival firm to capture the market thus making the present market leader redundant as suggested by Schumpeter (1943) cited in Ernkvist (2008c). The delimited differentiation among products although digital technology is capable of new products with new capabilities, it failed to capture interest of the customers. The third 'D' is the decreased barriers to entry and destructive liabilities of small and newness that is any innovative firm could enter the market but at same time new firms lack experience, customer trust and result in lower chances of their survival. And it caused new firms to quit the market and those that are left started selling products at discounted rates, this became one of the major reasons of market crash in 1977 and 1983. A crash is inevitable when all the 3D factors are prominent and strong (Ernkvist, 2008d).





Source: The 3D Factors Responsible for Crash in the Video Game Industry: Down Many Times, but Still Playing the Game: Creative Destruction and Industry Crashes in the Early Video Game Industry 1971-1986. (Ernkvist, 2008e:166)

Structural inertia of firms was another reason which prohibited firms to adapt them to the changing environment. After the 1977 crash home video game industry experienced the golden period from 1978 to 1981 with number of Japanese companies like Namco, Irem etc entering the market with innovative and new games concept that is through creative destruction. Inspite of heavy losses Atari remained in the market because of financial stability of the new parent company Warner which bought it in 1976. Market crash in 1983 was also due to market saturation with same type of games. But this time Warner sold arcade division to Namco as Japan remained unaffected in the crash in 1983. There were more firms in Japan with extreme innovative gaming concepts which were not even affected by introduction of the home computer. Downfall of Atari was an impact of all the 3D factors. Internally there were conflicts between the administrative side and the programmers which caused many of the programmers to leave the firm, so in order to retain its employees it started paying huge amount of extra pay which turned out be troublesome later when market was not performing well. Externally Atari miscalculated the supply and demand of its products which resulted in heavy losses. It forced the retailers to order in advance for the entire year 1982 and as retailers already faced shortages in the previous years ordered in huge quantity. And Atari could not meet this demand (Ernkvist, 2008f).

As cited in Williams (2002f) gaming industry saw the death with the downfall of Atari. But soon the industry gained momentum with companies like Nintendo (Kent, 2000) which was soon joined by giants like Sony and Sega (Chronis, 1996). In 1999 the US video game industry generated revenue equal to the motion picture, $7.4 billion and in 2008 it recorded more than $22 billion (http://www.informationweek.com). The competition in the industry has been kept alive due to non interoperability of the equipments each of the companies produces, for example a hardware produced by Nintendo will only play software produced by it and not by Sony or Atari. Presently video game industry is in mature stage and diversifying into new areas due to advancement of technology which promises new products with new capabilities. This industry is of volatile nature affected by two factors; one is the technology that changes very rapidly and second is the mismanagement. Once Atari reached the pinnacle it neglected the market and expected irrational success. Nintendo also faced problem at the beginning as it lacked innovation and unhealthy relationships with game developers and lost its leadership too. To capture the market firms often try price cutting or try to anticipate and obstruct the rival launch (Farrell and Saloner, 1986). With the development of the home PC like Microsoft and Apple, video gaming industry felt another threat.


As discussed above the video game industry is of volatile nature due to the technology used and non-interoperability of the products developed by the companies. As already discussed an organization in a volatile environment needs to have an organic structure to facilitate innovation (Meadows, 1980c) in order to survive, which Atari lacked and due to structural inertia it failed and perished. But in such volatile situation Japanese companies were unaffected during that period. If Hofstede's work on culture is used to analyse the failure of Atari and success of Japanese companies it shows the following comparison between the US and Japanese culture based on the five dimensions suggested by him.

If both the countries are compared the major differences are seen in scores related to IDV (US:91;Japan:46), MAS (US:62;Japan:95), UAI (US:46;Japan:92) and LTO (US:29; Japan:80) and comparatively less difference in score for PDI (US:40;Japan:54) (www.geert-hofstede.com) . These differences indicate that both the countries have different attitude in dealing with situations.

For instance collectivism in Japanese society is an indication of characteristics like group work, dependent on social network for information, adaptation to become a group member, long-term and moral relationship between employee and employer etc where as individualistic society has opposite characteristics. This also has a relation with PDI that is high scoring IDV has relatively low PDI that is collective societies accept power inequality. High score in MAS shows result oriented organizations, decisive and aggressive nature in decision making, rewards on the basis of performance etc. Next is UAI which is an interesting observation about Japan scoring high in UAI indicating it is not comfortable with uncertain situation which can be anything that is different from the usual which is in sharp contrast to its innovative nature ensuring novel creations. But it has been suggested that stronger UAI does not necessarily restrict innovation and creativity and Japan proves it as it has produced more new products than any other country in the world. Stronger UAI also ensures long-term orientation towards organization that is more loyal to the employer etc Although gaming industry is generating significant amount of revenue now (http://www.informationweek.com) but in early 80's with changes in the elements of its structure Atari would have been saved. As American society scores low in UAI indicates changes would have been accepted without much resistance. But all these analysis does not suggest that one country can duplicate values from another as there is significant difference in cultural values, although it helps to understand people's perception towards situations (Hofstede, 2005).



Oticon was a hearing aid manufacturing company founded by Hans Demant on 8 June 1904 in Denmark. The reason behind its existence was his strong desire to help his hearing-impaired wife and others to lead a better life.William Demant, son of Han Demant also the successor, was inspired bythe humanistic philosophy of his father, created a charitable trust called 'Oticon Foundation', and it is the major shareholder in William Demant Holding A/S and it is dedicated to support the hearing impaired people (www.demant.com).

Oticon was a market leader for a significant period of time but its position was challenged by innovative companies like Starkey, Siemens, and Panasonic in 1980's. A major turning point at Oticon came with the appointment of Lars Kolind as the President in 1988. Oticon experienced a fundamental change from its traditional hierarchical and horizontal structure of departments to a jumbled work place with maximum disturbance, called the 'spaghetti organization' (Boddy, 2007a). At present the organization has a matrix structure without the elements of spaghetti structure, although it is still branded by decentralization and delegation (Huczynski and Buchanan, 2007g).

Oticon's mission statement is

To help people live the life they want with the hearing they have.

Oticon opened sales offices in Kristiania (Oslo), Malmo, Stockholm, Helsinki and Sankt Petersburg by 1920's and in 1930 its product line consists of hearing aids, church hearing aids and hospital systems, including patient radio receivers. It faced problems due to trade blockade by Germans during the Second World War in importing hearing aids from the US which inspired William Demant to start his own production in Copenhagen. Its first sister company was established at Sweden in 1944 and in1946 it introduced the first true hearing aid called the Oticon model TA. During 1960's Oticon expanded to different parts of the world e.g. Oticon Inc in the US, Oticon S.A. Switzerland and Oticon GmbH Germany. 'Eriksholm' a new independent research unit was established in 1977 and Oticon becomes the world's largest hearing aid manufacturer and maintained its position for several years until it faced severe competition. In 1983 Oticon Holding was established and in May 1995 William Demant Holding was launched on the Copenhagen Stock Exchange. In 1988 with the appointment of Lars Kolind as the president, Oticon undergoes a major transition from a technologically driven company to a more, audio-logically driven company, focusing on customer requirements. In 1990's the company's new headquarters in Copenhagen was designed as an open, paperless office and Oticon wins worldwide recognition as the 'spaghetti-organization'. Later in 1991 and 1996 revolutionised products were launched, like MultiFocus and DigiFocus. And there were series of mergers and acquisition from 1995 till 2000 (http://www.demant.com).


Oticon was the world's most excellent hearing aid manufacturing company till 1970s. As inevitable, its position was challenged by severe competition from bigger companies like Siemens, Sony etc. It discovered that it was enable to remain competitive in the market as it was manufacturing 'behind the ear' hearing aid instrument instead of 'in the ear' products which were manufactured by the rival companies and were in demand. It held expertise in analogue technology while digital technology was in the market. Although it had a strong market in Scandinavian and North European countries; it had a weak presence in American and Far Eastern countries (Burnes, 2004a). Thus a revolution was essential in order to regain its pinnacle within the industry.

The crucial moment at Oticon was the appointment of Lars Kolind as the President in 1988, who was regarded as the change agent. He made some changes like reducing the price of its product by 20 percent, increasing efficiency and cost-cutting and within the next two years changed the slow and loss making company into a profit making organization of $32million (Burnes, 2004b). These changes were essential for a sustainable competitive advantage in the industry. In orderto identify its core competency a new structure was introduced which would give a competitive edge and would help to compete against its rivals.

Kolind suggested changing the way the company was running its business in order to get a competitive edge. As a change agent he took a holistic view and tried to recognize the organization's core competency and suggested the organization to 'think the unthinkable'. This declaration became the key factor and fundamental and brought the revolution at Oticon (Anderson and Turner, 1995a). Customer's requirements were given the foremost priority in order to design and manufacture hearing aids that would be suitable for their lifestyle and thus a total orientation towards customer care was implemented. This led to the d

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