Abstract
Innovation involves creation of new customer value by developing solutions that satisfy emerging needs, unarticulated needs, as well as, existing market needs in a different manner. This can be achieved by introducing new products, processes and technologies. Change, on the other hand, involves initiating and managing the consequences of new business processes, organizational structure and culture. In most organizations, change and innovation often occur simultaneously.
Thus, the two can be conceptualized as two sides of the same coin. Change and innovation can be realized if the process is guided by effective leadership. This paper presents a critical review of various innovation and change theories. An assessment of my leadership skills will also be discussed.
Critical Review of Innovation and Change Theories
Theory E
The aim or purpose of this theory is to facilitate creation of economic value inline with the expectations of the shareholders. According to this theory, creation of economic value is the most important objective of the firm. Thus, it is the only objective that should be pursued. Additionally, financial incentives are used to motivate members of the organization to achieve the sole objective of creating economic value. Leaders using this theory focus on changing the organization’s strategies, structures, as well as, systems.
Since these aspects of the organization can readily be changed, quick financial results can be achieved. Since market expectations drive change, the change process must be pragmatic and well planned. In order to develop these plans, the organization has to engage large consulting firms for professional advice. This is expected to enable the organization to realize rapid and outstanding improvements of its economic value.
The main strength of theory E is its ability to facilitate high returns on investments. In this regard, it promotes sustainability since the high returns can be used for further investments and programs that benefit all stakeholders. However, the theory has several drawbacks. To begin with, the focus on strategies and systems is less likely to be effective, especially if employees are not involved in the process of changing the organization’s structures.
This is because the employees are not likely to identify with structures that are imposed on them. Besides, ignoring the ideas of employees prevents innovation. It is apparent that not all organizations can afford the services of large consulting firms. Besides, the solutions developed by the consultants can be ineffective if the needs of the organization are not clearly understood or the solutions are not properly implemented.
While financial incentives can motivate achievement of change, skill-based incentives have to be implemented to facilitate innovation. Skill-based incentives will promote acquisition of advanced skills which must exist if meaningful innovation is to be achieved.
Finally, the theory provides a narrow view of the firm. In modern economies, objectives such as corporate social responsibility (CSR) and good corporate governance are just as important as the financial objective. Thus, the financial objective cannot be considered in isolation of other objectives which often facilitate its achievement.
Theory O
According to theory O, the purpose of change is to enable an organization to develop capabilities such as employees’ ability to identify and solve problems associated with their work. In this regard, the main objective is to develop a work system that promotes emotional commitment among employees in order to improve the firm’s efficiency and effectiveness.
Thus, the management has to articulate and promote the values and behaviors that inform the organizational culture and emotional commitment. Theory O advocates for non-pragmatic and emergent planning for change. Planning is led by the employees and is done through experiments which facilitate innovation.
Motivation is developed by engaging employees. Thus, financial incentives only play a supplementary role in motivating employees. Proponents of theory O prefer a consulting model that focuses on process. The rationale of this preference is based on the premise that small projects and engagement of a handful of consultants will facilitate a lasting cultural transformation that promotes innovation.
The main strengths of theory O is that its focus on organizational culture helps in implementing a lasting change which all stakeholders identify with. By promoting commitment among employees, innovation and improvement in the organization’s performance can be achieved even in the absence of financial incentives.
Additionally, it is easier to innovate if emerging issues are taken into account during the planning process. Similarly, a consultancy model that focuses on process promotes innovation by enhancing employees understanding of new processes. The culture of experimentation and innovation is internalized by the employees and this promotes the creation of economic value.
Theory O is often criticized due to the following flaws. To begin with, the fact that non-financial objectives are equally important does not mean that the organization should not focus on creating economic value. It is apparent that a firm that performs poorly in terms of returns on investments will be less attractive to investors.
Besides, poor financial performance will hamper the implementation of programs that promote commitment among employees. In this context, theory O can not promote sustainability in the long-run. Cultural transformation and development of emotional commitment often take a long time.
Thus, theory O can not be used to implement revolutionary change. Finally, ignoring expert advice from consultants can hurt the organization. In most cases, product and process innovation requires expert advice and ideas which can only be obtained outside the organization.
Leadership of Change and Innovation
According to theory E, change and innovation should be led through a top-down leadership approach. The leader does not involve his or her management team and other employees in making key decisions. Thus, change and innovation decisions such as restructuring and adoption of new technology are only made by the chief executive officer.
The rationale of this approach is that the delays associated with consultations during decision making can be avoided. In addition, the organization can avoid the risk of entrusting lower-level staff with the responsibility of making strategic decisions during turbulent times.
The weakness of the top-down approach is that leading change requires a powerful coalition that consists of change advocates, targets, sponsors and agents. The leader as the change advocate can not achieve meaningful change by excluding the coalition members. A top-down approach also jeopardizes innovation by discouraging ideation among employees.
Finally, a top-down approach exposes the organization to the risk of failure, especially, if the leader is not a visionary and an effective change advocate. His failure to consult other members of the organization will certainly lead to failure.
Proponents of theory O believe that effective leadership of change and innovation should involve collaboration with employees. Thus, employees should be actively involved in identification of problems and finding solutions to such problems. This involvement is expected to facilitate creation of trust, and commitment that is fundamental for performance improvements.
It also promotes ideation which informs innovation. Besides, long-term change can be achieved if the employees are committed to the change process. However, participative leadership can be a slow way of achieving change. It can also be interpreted as a way of manipulating employees to achieve pre-determined goals.
Examples of Change
Successful Change at Barclays Bank UK
Between 2000 and 2003, Barclays managed to spring back to profitability after years of poor financial performance. In 2004, the bank hired a new CEO, John Varley, who realized that the bank had to change in order to make its strong financial performance sustainable.
The change that Varley believed would facilitate sustainable growth was to focus on employee engagement, as well as, customer satisfaction. He used theory O to effect this change by shifting the focus from financial performance to non-financial indicators of growth. Varley worked with his management team and developed a set of metrics for measuring the bank’s performance in the marketplace (customer satisfaction), organization (employee engagement), and communities (network).
Initial analysis revealed that Barclays performed poorly on these metrics and this prompted a culture change in 2004. These metrics were incorporated in the bank’s medium term targets and the bank managed to record steady growth in profits from 2004 to 2008.
The success of the change can be attributed to the CEO’s ability to create a strong change coalition, and a sense of urgency (Kotter 1995 1-18). He also had a clear vision by using the non-financial metrics to define the bank’s future. Engaging the employees helped the bank to realize the mistakes that underlay its poor performance. Additionally, the focus on non-financial indicators became the main theme in the bank’s cross-group communication.
The measures to be taken by each employee within a specific timeline were identified. These new imperatives were aligned to the reward, as well as, recognition system to promote motivation and emotional engagement among employees. The CEO led the change through selfless leadership which was based on organization-wide consultations. Thus, the focus on these indicators became part of the bank’s organizational culture, thereby facilitating a lasting change. By 2008, the bank boasted of a highly motivated staff and excellent customer service.
Less Successful Change at Citygroup Bank
In order to strengthen its performance, Citygroup merged its investment bank, Solomon Smith Barney, with Schroder in 2001. This move was based on recommendations made to Citygroup by financial analysts and consultants. The decision was made by top managers and junior employees were not consulted.
The change focused on strategy, by restructuring the operations of the two banks and consolidating their resources. Hence, the change was based on theory E. However, the change did not succeed in boosting the bank’s performance as was expected due to the following reasons.
The change ignored the organizational cultures of the two banks. Schroder had a culture that focused on long-term employment, client service, soft perspective and Japanese management style. Solomon Smith, on the other hand, had a culture that focused on American style, hard perspective, and product development.
The culture clash not only lowered the morale but also precipitated a mass exodus of talented employees from the two banks. This increased the cost of labor turnover, and lowered productivity. The bank’s attempt to use financial rewards to retain staff from Schroder failed. This is because the staff believed in greater involvement in the bank’s affairs rather than financial rewards.
Conclusion
Change and innovation are essential and inevitable in every organization. In order to realign themselves to market dynamics and improve their competitiveness, organizations must consistently innovate and implement change. Successful change and innovation depends on how well the process is led by the change advocate. Additionally, the theory that informs the innovation and change process determines success.
In general, innovation and change can be based on theory O or theory E. Each of these theories has its weaknesses and strengths as discussed earlier. Thus, the change advocate must make deliberate efforts to address the weaknesses of the adopted theory. This will help in avoiding failure.
Works Cited
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Hayes, John. The Theory and Practice of Change Management. London: Palgrave Macmillan , 2010. Print.
Kotter, John and David Cohen. The Heart of Change. London: HBS Press, 2002. Print.
Kotter, John. Leading Change: Why Transformation Efforts Fail. London: Harvard Business School Press, 1995. Print.
Stamm, Bettina. Managing Innovation, Design and Creativity. New York: John Wiley and Sons, 2008. Print.