European Management Journal Vol. 20, No. 1, pp. 55–71, 2002 2002 Published by Elsevier Science Ltd.Pergamon

Printed in Great Britain0263-2373/02 $22.00 + 0.00PII: S0263-2373(01)00114-1

An Integrated Frameworkfor Managing Change inthe New CompetitiveLandscapeGREGORY PRASTACOS, Athens University of Economics and Business and Deloitte &ToucheKLAS SODERQUIST, Groupe ESC Grenoble and Deloitte & ToucheYIANNIS SPANOS, Athens University of Economics and BusinessLUK VAN WASSENHOVE, INSEAD, France

It is not the strongest species that will survive, northe most intelligent, but the one most responsive tochange.

Charles Darwin

The pace of change experienced by modern busi-nesses is phenomenal. Businesses today have toabandon many of the principles that have guidedgenerations of managers, and develop a new set ofobjectives and rules that will enable them to suc-cessfully manage change and guide them to trans-form into 21st century corporations.

Extensive work has been done recently to developmodels and frameworks for addressing a variety ofthe issues associated with organisational change.This paper integrates and advances some of themodels and concepts in an effort to develop an all-encompassing framework to guide managerialaction.

Using Scott-Morton’s framework as a point ofdeparture and integrating the key managementimperatives and change-enablers of the new com-petitive landscape, the paper develops an integrat-ive model of organisational change encompassingall parts of the organisation (i.e. strategy, structure,processes and human capital), that seeks to offermanagers guidance as to the fundamental factorsthat need to be considered when planning andimplementing change initiatives. 2002 Publishedby Elsevier Science Ltd.

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Keywords: Change, Competitive landscape, Strat-egy, Organisational change, Management objec-tives, Innovation

Introduction

Change is an inherent element in social life andactivities and this is perhaps nowhere more obviousthan in the business world. Despite recent attentionfrom business practitioners and academics in thedynamics and processes of organisational change(OC), it is important to keep in mind that OC has‘always been here’. Whether it was the agricultural,industrial or information revolution, a new type ofleadership has always been required to solve newproblems and take advantage of new opportunities(Hoenig, 2000).

What has not always been around, however, is thephenomenal pace of change experienced by modernbusinesses during the 90s, in particular the secondhalf of the decade. This situation is, of course, closelyconnected to the technology explosion phenom-enon – particularly with respect to information andtelecommunication technologies, also to the resultingglobalisation of economic activities through freetrade and movement of products and capital and, toa lesser but accelerating extent, of human resources(Hitt et al., 1998).

Propelled by the driving forces of technology and

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globalisation, the economic landscape continuouslytransforms in a way that has come to undermine therelevance of received wisdom on how a firm shouldbe managed and what underlies its success. Firmsnowadays are called upon to abandon the emphasison lowering costs, rigid organisational structures and‘command and control’ management styles. Instead,they are urged to direct their attention to value cre-ation for the customer, to innovation and flexibility.

Organisational change, within this context, is not justan option; it constitutes a fundamental necessity forsuccess within the new competitive landscape(Hamel and Prahalad, 1996; Illinitich et al., 1996).Firms world-wide appear to recognise the need fortransformation and make efforts to implement thechanges deemed necessary to improve their competi-tiveness. It appears, however, that these attemptsoften result in failure (Strebel, 1996). In response, anumber of requirements for successful OC have beenprescribed in the extant literature. It has been sug-gested, for example, that producing change dependson the level of top management commitment, thetype of intervention used, people’s readiness toaccept the changes required, levels of resistance, andthe organisation’s culture (cf. Goodman, 1982; Quinnand Cameron, 1989). Beer and Nohria (2000) intro-duce two ‘archetypes’ of change in organisations:theory ‘E’ based on economic value, and theory ‘O’based on organisational capability. Theory E putsshareholder value at the centre of measurement ofcorporate success. Theory O advocates developmentof corporate culture and human capability. In thispaper we tend to incline towards the ‘O’ approach,while recognising, as Beer and Nohria stress, thatboth approaches need to meet and integrate.

A central prescription that is often overlooked inpractice, centres on the need for managers to clearlyrecognise that OC represents (or should represent) amassive all-encompassing undertaking that involves theorganisation as a whole (Dutta and Manzoni, 1999).Given this, a conceptual framework is needed forstructured analysis and implementation. A numberof such frameworks have been proposed in the litera-ture, including the 7S model (Pascale and Athos,1981), and the Scott-Morton framework (Scott-Mor-ton, 1991).

The 7S model is built on the premise that successfulOC rests on the consistency and balance or trans-formation between seven specific dimensions,namely, strategy (i.e. a coherent set of actions aimedat achieving sustainable competitive advantage),skills (i.e. organisation distinctive capabilities),shared values (i.e. culture), structure (i.e. organis-ational chart and related concepts), systems (i.e. theprocesses and procedures by which things get done),staff (i.e. human capital skills and abilities) and style(i.e. managerial styles). Scott-Morton (1991) views anorganisation basically as shaped by five forces (i.e.strategy, structure, processes, people and technology)

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while at the same time operating within the contextof a specific external environment. These forces col-lectively define a firm’s fundamental modus operandiand are seen to be in dynamic equilibrium, leadingto the accomplishment of its strategic objectives.

Using Scott-Morton’s framework as a point of depar-ture, but looking at technology as a key enabler forimplementing change in strategy formulation, struc-ture, processes and human resource management,this paper develops an integrative model of OC thatseeks to offer managers guidance as to the fundamen-tal factors that need to be considered when planningand implementing change initiatives. It is argued thatthe forces of globalisation and technology explosionhave resulted in the enthroning of the customer asthe ‘king’ of the competitive game (Dupuy, 1999),and that for firms to survive and grow they need tobecome innovative and flexible (cf. Dougherty andHardy, 1996; Grant, 1998; Teece et al., 1997; Volberda,1997, 1998). Therefore, our model assumes thatactions for managing change should take intoaccount the primary management imperatives offlexibility and innovation. These imperatives, whenapplied to the Scott-Morton forces/dimensions, ‘gen-erate’ a set of managerial objectives, which can be achi-eved through a set of actions/levers. Critical for thesuccessful implementation of these levers, and theabsorption and sustainability of change are theorganisation’s dynamic capabilities as well as theenabling role of Information and CommunicationTechnologies (ICT).

The remainder of the paper is organised as follows:the subsequent section briefly discusses the new com-petitive landscape introducing the major buildingblocks of the framework; the third section presentsthe model and the remaining sections discuss thefundamental objectives that OC initiatives shouldpursue in terms of strategy, structure, processes andhuman capital, together with an indication of somespecific levers of change within each of thesedomains. Without any claim to be exhaustive, weattempt to give a wide overview of change trendsand to describe them using what we hope will beseen as expressive labels for ‘branding’ change effortsin organisations. The paper concludes with a sum-mary of the key propositions.

The New Competitive Landscape

It has become a truism that globalisation and thetechnology explosion are the major phenomena shap-ing today’s economic environment world-wide. Thisis evident both at the macro and the micro (i.e.organisational) levels of analysis. With respect to theformer, and according to the OECD, more than halfof the total GDP in advanced economies is attributedto the so-called knowledge-based industries (i.e. tele-communications, computers and software, pharma-

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ceuticals, etc.). In the same vein, high-technologyindustries have nearly doubled their share of manu-facturing output over the past two decades, whileknowledge-intensive services have grown at evenfaster rates. At the organisational level, the businesspress has repeatedly proclaimed the rise of the 21stcentury corporation (see for example Business Week,21/08/00).

The ‘new competitive landscape’, (a notion academi-cally coined by Bettis and Hitt, 1995), is in fact self-evident and there is really no need here to discussthe mechanisms by which it has been effected. Whatis important, however, is to identify the conse-quences of these global changes for management. Inthis connection, it has been argued that fundamen-tally the most immediate and abrupt consequence ofglobalisation is the customer’s victory (Dupuy, 1999).Put differently, economic power has been handedover by the producer to the consumer, henceenjoying ‘more quality, more for the money, morechoice, more service’ (Hammer and Champy, 1993).These scholars put the notion of customer victory inopposition to customers suffering from poor per-formance in monopoly-delivered goods and services.In this sense it is rational to talk about customer vic-tory. Borders that previously held the market backfrom fulfilling its vocation of effective distribution ofwealth are now being torn down. Particular Internetservices take customer victory to extremes when, forexample, customers are allowed to specify theirdesired price in on-line auctioning (Venkatraman,2000).

If the customer is truly on the path of becoming the‘king’ of the competitive game, then managers needto identify and access new ways of successfullydelivering customer value since the latter is arguablythe fundamental prerequisite for success. As men-tioned earlier, flexibility and innovation have cometo constitute the two primary credos in academic andpractice-oriented literature used to denote the direc-tion of change required for achieving sustained com-petitive advantage. Critical for the successfulimplementation of these imperatives, however, isthat firms are endowed with appropriate capabilitiesand also are rapid, innovative and knowledgeable inexploiting the ever-evolving potential offered byICTs. While the imperatives of innovation and flexi-bility are directly or indirectly related to a firm’sability to adapt to and satisfy ever-changing cus-tomer needs, organisational capabilities represent thefirm’s very capacity to implement, make sense of,and, perhaps most important, sustain the changesrequired for being flexible and innovative. Interest-ingly, developing and nurturing organisational capa-bilities is itself a process requiring organisationalchanges (Leonard-Barton, 1992).

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Imperative 1: Flexibility

In an era of hyper-competition and discontinuouschange, managers’ capacity to pre-plan or makedecisions in advance is seriously limited. This doesnot mean that proactive action is excluded. As com-prehensively developed by Brown and Eisenhardt(1998) companies need to balance between reacting,anticipating and leading change. Hence, what theend of long-term planning implies is a quest for stra-tegic and organisational flexibility as a naturalresponse; a strategic option – indeed a fundamentalone – in situations where anticipating future marketevents is (nearly) impossible. Business intelligenceemerges in this context as the substitute for long-range planning.

Flexibility is of course not a new concept. It has beenmuch discussed in the literature. It denotes the firm’sresponsiveness to competitive pressures and itsadaptability to change. According to Aaker and Mas-carenhas (1984), strategic flexibility may be definedas the ability of the organisation to adapt to substan-tial, uncertain and fast-occurring changes in theenvironment that have a meaningful impact on itsperformance. Eardley et al. (1997) and Evans (1991)argue that it also signifies the firm’s ability to deviatefrom a predetermined course of action or its originalintentions. Moreover, Volberda (1997) has noted aninteresting inherent paradox in the concept of flexi-bility: that it must be combined with stability. Put dif-ferently, while organisations need to be able to adaptquickly, at the same time they can only obtainefficiency from stable processes.

Received wisdom generally distinguishes betweenthree types of flexibility: (a) operational, (b) structuraland (c) strategic flexibility (Volberda, 1997). Oper-ational flexibility, the most common type, has as itsdistinguishing characteristic that it is based on exist-ing structures or goals of the organisation, which, asthe term implies, mainly involves operational activi-ties. Moreover, it is reactive in nature as it relates tothe volume of activities rather than the kinds ofactivities performed. Examples of operational flexi-bility are the variation of production volume, thebuilding up of inventories, the maintenance of excesscapacity, the contracting out of peripheral activitiesand the use of temporal labour. Structural flexibility,on the other hand, refers to the firm’s capacity toadapt within a given structure as well as the rapidityby which the adaptation can be accomplished. In con-trast to operational flexibility, which is ‘confined’ tooperational activities, structural flexibility involveshaving to renew or transform current processes. Jobenlargement, the creation of small work cells withina production line, the use of project teams and formsof inter-organisational co-operation (as in the case ofco-design) are common examples of how a firm canachieve structural flexibility. Finally, strategic flexi-bility relates to the very goals of the organisation. Itis the most radical form of flexibility as it is much

Quite wrongly, the

technology is often reduced

to the artefact that

represents it

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more qualitative in nature involving changes in thecharacter, as opposed to the volume or the structuralorganisation of activities. It may, for example,involve dismantling current strategies, the appli-cation of new technologies or even the fundamentalrenewal of products/services offered (Volberda,1997). In the following sections we synthesise anddevelop an array of means for developing oper-ational, and most importantly structural and strategicflexibility in an organisation through appropriate lev-ers of change in strategy, structure, processes and inhuman capital management practices.

Imperative 2: Innovation

Similar to flexibility, the ability to generate a varietyof successful new products or services (embeddingtechnological innovation), and to continuously inno-vate in all aspects of business – strategy, structure,processes and organisation – is vital for any corpor-ation. Clearly innovation is critical, but what does themanagement of innovationreally entail? If an innovation is‘an idea, practice, or object thatis perceived as new by an indi-vidual or other unit of adop-tion’ (Schumpeter, 1961) andmanagement is defined as the‘judicious use of means toaccomplish an end’ (Webster,1998), then innovation management in a companywould concern the way in which a broad array ofmeans – accessible to the company’s managers andemployees – are used in order to propose ideas, prac-tices or objects perceived as new by customers wil-ling to pay for them.

In many respects innovation is naturally associatedwith technology. For example, innovation in high-tech markets is often defined as an object perceivedas new that will have one or several new technologiesas its main constituent. Quite wrongly, the tech-nology is often reduced to the artefact that representsit, for example, a laptop or a mobile phone containsmicroprocessors and crystal display technology. Yettechnology is more than simply an artefact. It is (a)the system of scientific and technical knowledge atthe origin of an invention, as in, for example, the caseof crystal display technology, (b) the competenciesused to materialise an innovation, for example Nok-ia’s ability to learn from alliances with companies likeGeoworks and Intel, (c) the artefact representing aninnovation, e.g. the cellular telephone, and (d) theknow-how used to ensure the sustainability anddevelopment of the innovation, e.g. the R&D capacityand strategic management of innovation in a com-pany like Nokia. Thus, technology can be seen as agenerator, a carrier and a representation of innovation.Today, technology is present throughout a com-pany’s business processes. Its use in products or ser-vices and in their production processes is obviously

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important, but technology is also crucial to design,organisation, information-handling, marketing, dis-tribution and sales. The omnipresence of technologytogether with its systemic nature is a major driverbehind the exploding potential to innovate in busi-ness and throughout the value chain.

As noted by many, innovation and flexibility are keyprerequisites for survival in the new competitivelandscape. While undoubtedly true, imperatives arefar easier to express in words than to accomplish inpractice. We shall argue below that for a firm to suc-ceed in these imperatives and achieve the changesrequired, it has to engage in enabling efforts todevelop and nurture its internal competencies and totake advantage of IT.

Enabler 1: Internal Capabilities

During the 1990s, practitioners and scholars alikeredirected their attention to firms’ unique and idio-

syncratic capabilities as the pri-mary determinants of competi-tive success. In what has cometo be termed the resource-basedview (RBV) of the firm, innov-ative performance is consideredto be the outcome of reciprocalinfluences between the firm’sinternal capabilities and the

external contingencies related to environmentaluncertainty and turbulence (Dosi et al., 1991; Nelsonand Winter, 1982; Teece, 1982). Hence, as Teece et al.(1997) stress, a company’s competitive advantage isattributed to its ability to continually innovate beforeits competitors, while at the same time ensuring thatsuch capabilities, which reside in the firm’s tacit col-lective knowledge and dynamic processes, areambiguous and ‘path dependent’ (i.e. they are basedon the firm’s specific history: its identity, pastaccomplishments and strong points as evolved overtime), and therefore cannot be easily imitated by rivals.

Within this same line of reasoning, the ability of afirm to be agile and versatile (i.e. flexible), can beattributed to internal capabilities. On this account,Volberda (1997) introduces the notion of ‘meta-flexi-bility’ as an internal capability. Meta-flexibilityshould be distinguished from operational, structural,and strategic flexibility (discussed beforehand) sinceit involves the learning and monitoring systems thatsupport the latter. In particular, meta-flexibilityinvolves the processing of information that is needed inorder to continually adjust the composition of man-agement’s flexibility.

It may be useful at this point to make a distinctionthat is critical for our purposes: that between a firm’sresources and its capabilities. The distinction is simi-lar to that between ‘having’ (i.e., what the firm hasor owns) and ‘doing’ (i.e. what the firm can do). For

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example, advanced manufacturing equipment rep-resents a resource for any given firm. It is somethingthat the firm owns. In contrast, however, the abilityof the firm to exploit the capacity of the equipmentto its own advantage (e.g. to produce technologicallyadvanced products) usually involves an entire arrayof factors that cannot be readily obtained, such asexperienced and motivated operators and a culturethat rewards learning and performance, to name afew. In this sense, the productive capability of thefirm to exploit advanced manufacturing technologyis conceptually and practically different from the sim-ple fact that it owns a piece of equipment. Put differ-ently, it takes more than simply owning the tech-nology to become flexible and innovative.

This discussion leads us to conclude that in order forcompanies to be able to respond to the imperatives ofinnovation and flexibility, and to successfullyimplement the levers that will be presented in sub-sequent sections, it needs to develop and nurturethose internal competencies that are crucial for thetask. Interestingly, the development of these com-petencies is itself the result of appropriate changes(e.g. in organisational structure or culture). Change,even radical change, is arguably not enough in an eraof hyper-competition. What is essential is the capa-bility for continuous change. This, in addition to thearray of other organisational capabilities in an organ-isation, is first impacting on the ability to managechange effectively through the operationalisation oflevers to achieve goals. Second, after implementationand evaluation of specific changes, organisationalcapabilities, including that for continuous change, areimpacted upon through ‘sense-making’ of the results,a process during which knowledge accumulation andlearning take place.

Enabler 2: Information and CommunicationTechnologies (ICT)

The role of ICT in the success of change efforts maybe decisive. As is often argued, ICT fundamentallychallenge the traditional ways by which firms oper-ate, as they enable – indeed drive in many cases –dramatic changes in the structure and operation oforganisations. Dutta and Manzoni (1999) forexample, argue that IT adoption corresponds to anincremental process of organisational capabilitydevelopment and strategic impact. The ‘e-businesstidal wave’ (a term coined by Trevor Stewart of Delo-itte & Touche, 1998) has provided firms with unpre-cedented opportunities for new strategy directions.Beyond providing a novel means for achieving com-petitive advantage, it has created the capability toextend and redefine the boundaries of markets, toestablish direct channels, to create new value, toshort-circuit the value chain, even alter the funda-mental rules and basis of competition (Deloitte &Touche, 1998). Thus, it has directly influenced man-agement perceptions of market opportunities con-cerning new markets and new types of activities

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(Prastacos, 1998) that in turn have translated intoshifts in strategy directions.

It is also generally accepted that IT, because of itsdramatically increasing power and capabilities, is anenabling mechanism for changes in organisationaldesign. On this account, IT is often associated withflatter, more flexible organisational structures(Wigand et al., 1997; Applegate et al., 1999). IT canalso exert a dramatic impact on specific business pro-cesses (e.g. information technologies embedded inlogistics, production, etc.), and, more generally,streamline operations as well as radically enhancingcoordination and control abilities throughout thefirm (Grant, 1998). Finally, IT, apart from enablingchanges in strategy, organisational structure and pro-cesses, both supports and presupposes a culture thatpromotes continuous learning and employeeempowerment, i.e. motivation, creativity and net-working, among others. On this account, it is essen-tial that employees are ‘multi-skilled’ and ‘multi-functional’ to take full advantage of the opportunitiesstemming from IT. They need to be equipped withappropriate analytical abilities and knowledge andbe capable of efficiently organising activities withina fluid and flexible environment. Moreover, theyneed to assume initiative and exercise leadership inexploring innovative uses of information techno-logies. Finally, IT critically supports the need forextensive teamwork and horizontal communication(Prastacos, 1998).

Introducing the Model

As noted in the introduction, there exists a vast bodyof literature examining OC using a multiplicity ofperspectives. At the same time, the business presscontinuously heralds the emergence of new organis-ational forms in response to ever-increasing competi-tive pressures. Organisational change is admittedly acomplex and multi-dimensional phenomenon and, inthis sense, different points of view can offer variedand valuable insights into its effective implemen-tation. It is worth noting, however, that though con-temporary businesses face fundamentally differenteconomic conditions and challenges in comparisonwith those experienced in the 80s or even the early90s, the extent to which the required changes haveso far diffused among firms and the performanceconsequences thereof have been recently questionedby some scholars (cf. Hoskisson et al., 1993; Gummer,1991; Whittington et al., 1999).

We believe that these doubts are generally valid asrecent empirical evidence appears to suggest thatalthough change is becoming widespread, its direc-tion and tendencies are neither simple nor one-way(Whittington et al., 1999). It could be argued that,among other things, this may be due to the somewhatlimited emphasis in extant literature on giving con-

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crete, definitive advice to practitioners dealing withchange initiatives; a failure that may be attributed to‘disciplinary isolation’ among the various theoreticalperspectives from which OC is examined. This articleaims to address this gap. More specifically it attemptsto complement the understanding of intentionalchange by developing an integrative framework thatsynthesises existing notions, concepts and theoreticalperspectives in a manner we hope is useful for prac-tising managers.

The framework, depicted in Figure 1, draws upon theliterature on globalisation, innovation, flexibility,information technology and the resource-based viewof the firm in an attempt to convey a complete andsynthetic picture of the imperatives and enabling fac-tors underlying successful OC initiatives. As shownin Figure 1, it all begins with the external drivers ofchange. Globalisation and technology explosion createpressures that firms cannot afford to ignore sincethey fundamentally pertain to the challenges posedby the assumed customer victory. Simply put, thismeans that management has to initiate changes thatinvolve the entire organisation. Not only in strategyor structure but in people-management and processes aswell, since change in one domain unequivocallyaffects the others. Perhaps more important, the suc-cess of attempted change in one area (e.g. structure),critically depends on fitting changes in all the otherdomains, given their close interconnection in theenterprise system.

Figure 1 An Integrated Framework for Managing Change in the New Competitive Landscape

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These changes, however, need to conform to thosemanagerial imperatives that best address the chal-lenges posed by customer victory, namely, innovationand flexibility. In the case of strategy, for instance,changes need to be made that drive the firm froma situation of duplicated mediocrity towards a morechallenging objective: attaining virtual world-class. Itis emphasised, however, that this, as well as the othersubsequently discussed heavily demanding changeobjectives, cannot be successfully implemented unlessthe firm is endowed with two critical enabling fac-tors: appropriate organisational capabilities and infor-mation technologies. There appears to exist generalagreement among management scholars that firmsuccess is ultimately dependent upon idiosyncraticcapabilities that enable the efficient and effectiveexecution of critical tasks. Parallel to internal capa-bilities, information technology can be a criticalenabler in the success of change efforts, affecting thefield of possibilities in change objectives, providing‘tools’ as levers and supporting change implemen-tation and evaluation of results.

In our framework, change involves the implementationand evaluation of what will be described as the leversof change within each organisational domain. Asshown in Figure 1, however, the relation betweenorganisational capabilities on the one hand, andimplementation and evaluation of change levers onthe other, is one of mutual interaction and impactrather than a one-way relationship. While it is true

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that the successful implementation/evaluation ofchange initiatives presupposes that the firm isendowed with appropriate capabilities, it is equallytrue that the experiences gained by implementingchange are fed back into and nurture the existingstock of available firm competencies. This followsfrom the simple fact that organisational capabilitiesare accumulated through continuous learning andcomplex routines that are deeply embedded in thesocial fabric of the organisation. Hence, the two-way interaction.

Accordingly developed and nurtured, internal capa-bilities ultimately represent the firm’s very essence.They come to constitute its identity by defining theinternal balance of organisational domains, thecharacter and quality of its operations and, ultimatelythe specific ways by which the firm receives andinterprets the stimuli posed by the drivers of change.Schematically, this is denoted by the two-headedarrows connecting capabilities with the organisation(i.e. organisational domains).

Taken overall, our framework implies that OC is an‘auto-genetic’ process. It represents a ‘closed’ systemin the sense that it relies on the firm’s own mech-anisms by which change is implemented given its in-built capacity to continuously generate and developcompetencies to achieve the task. At the same time,it is an ‘informationally open’ system in the sensethat the firm is continuously engaged in receivingand interpreting the external environment signalsthat in turn ignite the otherwise ‘closed’ process ofchange within its boundaries.

In the subsequent sections, we provide a detailedaccount of the objectives and the levers for change inall organisational domains.

Objective 1: Change the Strategy, ‘fromDuplicated Mediocrity, to Virtual WorldClass’

Take a product such as the mobile phone. Just whenexisting carrier technology has been criticised forpoor enabling of new WAP services, the GPRS tech-nology (General Packet Radio Services) emerges. Thistechnology, which adds data routers on the coremobile networks, will offer a 10-fold increase in datathroughput rates, from 9.6 to 115 kbit/s, thus render-ing mobile Internet truly possible. Such fast-movingmarkets seriously challenge one of the most belovedconcepts of traditional strategic management: theproduct life-cycle. Many products no longer reach thematurity stage, they are killed in full growth becausethe technology they are based upon is replaced bysomething new. Hence, there is no room for marketfollowers duplicating the pioneers. There is onlyroom for world class innovators, each of them pion-

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eering niche products and keeping up with tech-nology through virtual links to different expert play-ers; developers, laboratories, suppliers andcompetitors.

To be world class in this context, innovation shouldbe central to strategy and the organisation flexibleenough to nurture the ability to innovate by tappinginto a web of capabilities needed to face each marketchallenge, sourced from business partners many ofwhich may be integrated ‘virtually’ through infor-mation and communication technologies. To do so,we suggest managers think over the following stra-tegic questions: First, what is the essence of strategyin your organisation? Then, how do you tackle thosehyper-changing markets? Lastly, how do you installpartnering with other organisations? Below we sug-gest three key levers to keep in mind when managingchange in an organisation’s strategy.

From Strategy as Planning, to Strategy asIncubation

If strategic planning is the managerial equivalent ofjogging (Minzberg, 1994), i.e. ‘not an efficient meansto get anywhere, but if practised regularly will makeyou feel better’, then today’s business leader needsto seriously analyse the role of strategy in his or herorganisation. Is it just a planning tool with the objec-tive of allocating resources and setting goals tobenchmark against? Or is it also used as a lever forextracting the best-in-context performance ofemployees and as a means of channelling theirenergy towards the accomplishment of goals and thecreation of new competitive advantage?

Briefly, our argument is that strategy should be usedas an incubator for change. This means that strategyshould continuously and dynamically absorb,reformulate in corporate language terms, and dis-seminate throughout the organisation, the temporary‘right’ values enabling employees to take the corre-sponding temporary ‘right’ decisions and commit thecorresponding temporary ‘right’ acts. In this sense,strategy formulation is a continuous process, wherebusiness plans are revised at appropriate and flexibleintervals. British Petroleum’s strategy of ‘keepingideas flowing and stimulating thinking’ is anexample of strategy as incubation, because it meansapplying a series of frameworks that help employeesat all levels to constantly re-examine what the com-pany is doing (Prokesch, 1997).

Strategy as incubation relies on strong and well dis-seminated guiding visions; clear pictures of an oper-ational future, organisational or project destinationsthat serve as reference and focal points (Bowen et al.,1994). Guiding visions make strategy talk and makesure that people have guidelines for how to act incritical situations. Through such inspirational leader-ship (Business Week, 21/08/00), strategy will help to

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leverage self-initiated change and self-initiated value-adding activity critical for creativity and successfulinnovation (Robinson and Stern, 1998). Further, strat-egy as incubation allocates resources for identifyingand exploiting the true drivers of value, and fortracking down generators of waste and unnecessarycost. Finally, it fosters empowerment by givingemployees the moral and physical support, togetherwith the managerial reactivity they need in order tointernalise a culture of entrepreneurship in their day-to-day activities and act correspondingly.

In order to monitor the successful accomplishment ofstrategic goals, there is a need for highly visible andtransparent performance monitoring and reward systemswell-aligned with corporate objectives. The balancedscorecard (Kaplan and Norton, 1996) provides manyof the fundamentals of such a system, whilst thedesign of the system evidently needs to be tailoredto each specific business context.

From Market Segmentation, to CustomerIndividualisation

The all-embracing concept for attaining the objectiveof customer individualisation is a customer focusedorientation in the entire business. This can be done,first of all, by letting as many employees as possibleget a close look at customers by bringing the cus-tomer into the organisation! The time is over whensalespeople were the only interface to the magicworld of customers. Today’s leaders in terms of inno-vation and flexibility share their operational realitywith their customers. R&D teams at Valeo, Bosch orAutoliv, to take an example from the automotiveindustry, maintain permanently open communi-cation channels with their customers, meaning thatengineers are connected in real-time, working onshared CAD systems and groupware such as project-specific VPNs (Virtual Private Networks).1 Salespeo-ple certainly act as facilitators in commercial negoti-ations on price and lead time, while project managersact as coaches who guarantee the overall fit of theproject within the golden triangle of quality, cost andlead time. But value-adding activity in developmenttakes place at an expert level in webs of technicalworkers from customer and supplier companiesenabling immediate feed-forward of expectationsand feedback of solutions in an ever-evolving loopof continuous improvement and value propositionsuntil a final product or service is developed. Theability to work in such confidence, trust and open-ness with customers gives a unique opportunity tounderstand them and develop your business for andwith them. The importance of cultivating theserelationships for sustained competitive advantagecannot be over stressed.

A customer-focused orientation could enable a com-

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pany to move from market segmentation to customerindividualisation. In marketing terms, the concept oftribe is replacing that of segment, and mass customis-ation can today become reality through the individu-alisation of the global market that the Internet pro-vides. It was not without reason that Ducati’s CEOrecently exclaimed on CNN that when he is dealingwith a Japanese customer, it is no longer a questionconcerning the Japanese market managed throughthe company’s Japanese sales office, but a direct con-versation, through e-mail, with Mr XX-san and hispersonal needs and wants.

It goes without saying that dealing with customerson an individual basis can be exhausting – andexpensive – in terms of the mobilisation of resourcesit requires. Hence, the importance of managing a bal-anced portfolio of customers also in terms of customerrelations. The knowledge and value-creating relation-ships described are today essential in order to sustaina lead in innovation and flexibility. However, asmany of those activities are long-term, stable sourcesof revenue must be ensured from less resource-demanding customer relationships.

From Vertical Integration, to Inter-OrganisationalConnectivity

‘Today innovation calls for the complex knowledgethat only a broad network of specialists can offer’(Quinn, 2000). With the dominance in the last decadeof the core competence concept (Prahalad andHamel, 1990), Henry Ford’s idea of the monolithicorganisation ‘from mine to after-sales’ seems to havebeen definitively consigned to the junkyard of man-agement concepts. The message is clear: whetherinter- or intra-company, each homogenous entity interms of the product/service-customer should goback to basics, stick to its knitting or compete on itscapability base relying on mechanisms of connectivityin order to remain in the frontline of innovation andflexibility. Today, any organisation, large or small,manufacturer or service provider, must know how tomanage alliances and collaborations – both verticaland horizontal – and how to cultivate and leveragethese connections. One important lever is knowl-edge-sharing as a strategic intent when entering acollaborative relationship. For example, when Nokiadecided in the late 1980s to become a global telecomcompany, it entered into strategic alliances with theAmerican firms Geoworks and Intel, joint venturesthat have proven to be invaluable to Nokia’s growthand introduction of new product innovations.

Again, IT can act as an enabling lever, especiallyIntranets and VPN technology. In a knowledge-inten-sive activity such as new product development,where engineering design is conducted in close col-laboration with networks of experts and systems sup-pliers, a VPN, for example, can enable real-time actu-alisation of a technical modification undertaken by

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one supplier so that the impact from the modificationon interfacing components and systems can beinstantly evaluated (Soderquist and Nellore, 2000).

Outsourcing continues to be a hot topic, as the initialquote from James Brian Quinn shows. After the out-sourcing wave of component design and manufactur-ing in industry (an initial step towards outsourcingof innovation), outsourcing of a multitude of servicesincluding software management (via application ser-vice providers (ASPs) – companies that rent softwarefunctionality over the Internet) human resource man-agement (recruitment relying on head-hunters andstaffing on temporary work agencies), and accountingand control has become strategic for many companies.

However, outsourcing is not a panacea. Business Week(21/08/00) exclaims: ‘Forget the vision of the entirely“virtual” corporation in which everything is outsour-ced’. Certainly, freelance knowledge workers areimportant, and expertise services provided by sup-pliers are essential. But companies will need to haveboth a core of careerists to provide continuity, and acore of key business processes to provide competitiveuniqueness. The importance is to find the right bal-ance between core capabilities and outsourcing.Here, portfolio models can play a role as tools forchoosing the ‘right’ activities, projects, or products tokeep internally, or outsource respectively (Bensaou,1999; Quinn and Hilmer, 1994).

Objective 2: Change the Structure, ‘fromFormal Rigour, to ad Hoc Support’

Organisational structure provides the context for stra-tegic choices to be formulated and also constitutesthe vehicle by which these choices are effectivelyimplemented (Grant, 1998). All organisations must bestructured in a way that most effectively handles thecontingencies posed by their respective environ-ments. But when these contingencies change, and onecan stress that today change occurs frequently andrapidly, structure can be formal only in thoseinstances when customer value is created. So insteadof being formal and rigid, structure needs to becomea flexible skeleton providing ad hoc support forpeople finding themselves in the process ofaccomplishing strategic goals. This exerts a tremen-dous demand on structure’s ability to adapt andtransform itself, to recreate itself as a sort of hypert-ext lego system for enhanced innovation and flexi-bility. The hypertext organisation is characterised byits flexibility to switch between different settingsappropriate for different stages in the processes ofcreation and exploitation of knowledge (Nonaka,1994).

To enable this change in structure, traditional hier-archies of power need to be transformed, structure

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must enable people to reach the frontline of value-creating activity, and the right balance between over-and under-staffing must be found. Below we analysethese three key levers for achieving structuralchange.

From Vertical Hierarchies of Power, to VirtualWebs of Collaboration

We have already talked about networked collabor-ation, but here we are looking inside the organisationand not, as before, its relation with the environment.In an organisational structure optimised for inno-vation and flexibility, power residing within numer-ous hierarchical levels should be transferred toorganic webs of collaboration empowered byadvanced information and communication tech-nology, and supported by appropriate and structur-ing work methodologies. Important levers to helpachieve this are the decentralisation of power struc-tures and the establishment of structural networks,enabling people to access information and collabor-ators in order to take action. In the new flexi-organis-ation, authority, power and responsibility should notbe determined by formal position, but by the require-ments posed by the task in question.

Engineering teams may be the most illustrativeexample of how virtual webs of collaboration mightwork. Academic research into R&D and new productdevelopment (NPD) management has pioneered thecurrent conception of project management (Clark andFujimoto, 1991; Karlsson and Nellore, 1998). NPDproject teams are formed around a baseline of value-creation. At the French automotive supply giantValeo, new project teams are staffed after an in-depthanalysis of the specific needs for managerial andscientific knowledge on the one hand, and of the indi-viduals’ skills – thoroughly described and stored ina database – on the other. As projects evolve, struc-turing stage-gate models2 allow for continuous moni-toring of skill requirements and a correspondingadaptation of the team profile. In this way, teams arealways right-on-target in terms of capabilities. More-over, Intranet technology virtually links together pastand current team members and specific pools ofexpertise in different technology areas. Withdecision-making taking place within teams at regularstage-gate meetings where functional managers cometo the teams for direct briefing, flexibility and inno-vation are enhanced.

From Hiding in the Hierarchy, to (sun)bathing inthe Frontline

With customers constantly present in operations anddecision-making, there are no more hideaways inclosed and opaque hierarchies. Also, the collabor-

. . . in countries like

Sweden, work-related stress is

considered a work injury

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ation in dedicated teams described above leaves noroom for isolation or avoidance of responsibility toact. Of course there needs to be ‘safe’ places for crea-tivity, for testing of new ideas and concepts, and for‘bootlegging’ (unofficial but presumably futurevalue-creating activity). What needs to be rooted outin organisations is irresponsibility, laissez-faire atti-tudes, and opportunistic manoeuvring of opinionand affinity disastrous for value creation. Employees‘(sun)bathing in the frontline’ will not forget whomakes their living – the customers do. They will notmisunderstand what the customers want – immedi-ate correction will take place. Instead, frontlineemployees will be able to channel their energy intowhat is beneficial for customers and profit-generatingfor the company. Moreover, IT in the form of data-bases and CRM systems enable on-line access toBackOffice information for the frontline employees.

Now, ‘(sun)bathing’ means getting tanned and thatmight hurt! Hence, employeeswill need all possible moralsupport from the ‘strategy-as-incubation’ philosophy, and allpossible structural support interms of solid work method-ologies as previously discussed.In an engineering company wehave studied over several years, there was a true cul-tural revolution when engineers and technicianswere allowed to have direct contact with theircounterparts in customer firms, without obligatorilypassing through the project managers. Top manage-ment’s support for this change was shown to be theright choice: the company was able to cut develop-ment lead-time by 20 per cent and reduce late engin-eering changes by the same ratio, due to the simpli-fied communication patterns.

Introducing the idea of ‘(sun)bathing in the frontline’necessarily involves much discussion of culture, andwe will link up with this theme again when humanresources are analysed below. However, the struc-tural elements such as webs for collaboration are fun-damental in order to make this culture take root.

From Anorexic Downsizing, to Agile Right Sizing

Downsizing as the (wrong) interpretation of lean pro-duction is definitely out of fashion. What is infashion, however, is an ever-increasing debate con-cerning its disastrous effects on human well-being,continuous improvement, organisational learning,innovation and development. In countries likeSweden, where work-related stress is considered awork injury, absence due to this cause is setting newrecords every month. After the downsizing wave,many companies have been left with only sufficienttime and resources for fire brigade operations (cf.Bohn, 2000), i.e. extinguishing the most violent firesof customer complaints or other operative crises.

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Understaffed services can only ensure that the mosturgent tasks are completed and there is simply notime to think or create. Worse, much of an organis-ation’s intellectual capital might have been thrownout with the bathwater in the name of downsizing.

When downsizing was launched as a managementrecipe, the ‘new economy’ with its entrepreneurial,technology-driven boom was not even imaginable.What was hot stuff was not brainpower, but cost-cut-ting. It was not new value creation through inno-vation, but short-term survival for the upcoming bal-ance sheet. Today, when again we seem to be facinga recession, some lessons have hopefully been learntso that managers pay more attention to the impor-tance of human capital for survival in a period ofcrisis. Unfortunately, as the press reports almostdaily during the Fall of 2001, massive lay-offs cannotalways be avoided. Alarming, however, is the factthat even during the recent boom, studies both in the

US and in the UK reported thatcompanies were becoming lessand less loyal to theiremployees, that workingatmospheres were becomingharsh, and that people oftenpresented fear and distrust inrelation to their managers

(Pfeffer and Sutton, 2000).

The true lessons from lean thinking, i.e., value, valuestream, flow, pull, and perfection (Womack and Jones,1996), are still going strong, but they are more closelyrelated to outsourcing and core competence thinkingthan to downsizing. What we should learn from theprevious era of downsizing is that ‘fatness’ is danger-ous (and many dotcom start-ups have already experi-enced this painfully), so we should pay strategicattention to be able to ‘right-size’ our organisationsin an ad hoc way, corresponding to rapidly shiftingneeds in terms of innovation power and flexibility.Remaining agile, with flat communication channelsand rapid decision-making paths is crucial for sus-tained competitive advantage. Becoming anorexic isa disease!

Objective 3: Change the Processes,‘from Sequenced Steps to Produce, toSystemic Flows for Value’

We have many times talked about value-creatingactivities. Finally, we come to the core of them – pro-cess management. Processes are where tasks andactivities are merged and integrated to create thisvalue we are talking about. A formal definition of aprocess is ‘a specific ordering of work activitiesacross time and place, with a beginning and end, andclearly identified inputs and outputs’ (Davenport,1992). Processes are intrinsic to structure; they are

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constructed based on ‘goal-directed rules’ which areinherent in strategy (Weick, 1979; Dutta and Man-zoni, 1999), and processes become ‘alive’ through thepeople that execute the tasks and activities withinthem. In this way they are truly systemic.

Many still associate the word process with pro-duction processes. But the process notion embracesall value-creating flows of tangibles and intangibles.Below, we will first specify all this through the notionof the value stream. Then, we will discuss importantchanges in supply chain management and emphasisethe criticality of activating an organisation’s knowl-edge capital in process management.

From Task and Function, to Value Stream

The focus on processes as the main contributors tovalue creation is basic to the management literaturedealing with BPR, Lean Thinking, and CapabilityBased Competition – the great business recipes of the1990s. At the dawn of the new century, in the midstof the e-transformation, Internet companies likeAmazon, e-Bay, and Dell have shown that processesare more critical than ever as major keys to inno-vation and flexibility – in their case the processes ofprocurement, customer ordering, distribution, anddelivery.

Focusing on processes presumes that their constitut-ing elements, i.e., different tasks and activities, are‘best of breed’, in other words, of world class stan-dard. This is today not too difficult to achieve, at leastfor the most general and standardised ones. Forexample, enterprise systems or ‘ERPs’ are used toautomate low value-adding tasks, and in this contextinformation flows and administrative processes tendto become more and more similar especially betweenfirms competing in the same sector (Davenport,1998). The real challenge, then, lies in orchestratingtasks and activities in unique ways that are difficult forcompetitors to understand and imitate. This is wherethe notion of process actually materialises a corecapability strategy, in which core capabilities aredefined as a unique, difficult to imitate, mix of basicresources where the latter are common to all playersin a given business. Even though for years Ericssonwas considered to be the master of manufacturing thebest cellular phones in the world, they still have dif-ficulty decoding how Nokia has become the masterof selling the best phones… Part of the answer cer-tainly lies in unique processes, and the criticality ofthe question becomes obvious in view of the recentfundamental restructuring of Ericsson’s phone busi-ness through their joint venture with Sony.

A somewhat under-explored concept that summar-ises the transformations in process management isthe value stream (Womack and Jones, 1994). The basicelements in the lean enterprise are a re-focus on alimited number of core activities (a resource-based

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view), and strong collaborative ties with clear agree-ments on target costing, levels of process perform-ance, rate of continuous improvement, and costreduction between the players in each individualvalue stream (a supply chain integration view). Inaddition, a particular career management within flatorganisations that focuses on skill development(rather than on hierarchical advancement), and onrotation of mid and senior managers between thecompany’s operations, suppliers and global subsidi-aries, are central elements of this new industrialstructure. In the lean enterprise, highly specialisedcompanies, using state-of-the-art technology in theirspecial core activity, form value streams where eachparticipant adds a piece of value throughout the sup-ply chain – from raw material to distribution andsales of a finished product. Once common principleshave been agreed upon within the value stream, thecompanies must practice mutual verification withaudits conducted jointly. IT’s role in the value streamis important. A company such as Heineken pioneeredthe use of Extranets to receive orders from its dis-tributors, which, in turn, allowed the company toeffectively share information with suppliers, distribu-tors and retailers (Perez, 1997).

The notions of ‘value stream’ and of ‘lean enterprise’point to a broad concept of integration, viewed as theinter-linking of an entire system of activities into asynchronised whole. This drives organisationstowards the attainment of particular goals, and in theprocess towards becoming organised and staffedaround their value-creating processes. According toAhmed et al. (1996) integration is an antecedent toflexibility in the sense that it provides on the onehand, a holistic logic in the functioning of businessprocesses, while on the other allowing each individ-ual process to optimise in a manner designed to beefficient as well as flexible. The concept of inte-gration, as articulated here, points to a systemic logicwhere the parts (i.e. individual processes) have theinherent ability to change but in a concerted mannerdriven by an overall objective (i.e. that of the system).

From Arm’s-Length Subcontracting, to IntegratedSourcing

Fundamental changes in buyer–supplier relation-ships and supply chain management were initialisedin the early 1990s when the concept of lean supplywas introduced (cf. Lamming, 1993). Since then, allworld class innovators, independently of size, havebeen in the process of abandoning arm’s length sub-contracting – except for commodities – and haveimplemented changes such as:

❖ Setting up vigorous supplier selection proceduresbased on quality and technology audits,

❖ Establishing strong collaborative ties with selectedsuppliers, keeping them and developing them as

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long as they maintain a proven record of high per-formance,

❖ Leveraging a core capability strategy within thenotion of the value stream in order to reap thebenefit of frontline R&D performed by highlyspecialised suppliers,

❖ Exchanging information in an open manner,including long-term plans, required workingtogether for mutual benefit within a framework ofground rules for determining prices, ordering anddelivery, proprietary rights, material supply andquality assurance,

❖ Selecting suppliers early, not only integratingthem into value-adding process but also outsourc-ing total innovation, design and developmentresponsibility.

All these changes have paved the way for integratedsourcing, where the current challenge consists of sus-taining relationships and leveraging the effects of ITas support for integrated problem-solving (Intranets,VPNs) and optimised transactions (e-procurementand B2B e-commerce). In sectors such as automobilesand electronic appliances, the pressure on suppliersis as severe as ever. What has changed is that thepressure stems less from the threat of losing businessfrom one day to another or by not mastering the tech-nologies employed in operations – as it was in thearm’s-length situation – but is rather driven by theneed to develop capabilities and competencies in theareas of innovation and flexibility.

However, e-procurement and global sourcing haveled to a ‘Lopez-effect’ in that many companies arereturning to arm’s-length relations through Internet-based auction sourcing especially for commodities –something that runs counter to the thinking onbuyer–supplier relations outlined above (Narayandaset al., 2000; Wise and Morrison, 2000). This may leadto incidents in the relationship building processesand it will be interesting to see how firms will learnto live with the duality of building relations on theone hand and the increased reach of the Internet –allowing heavy price competition – on the other. TheB2B Internet market is still far from being mature. Forcomplex components and services purchase decisionshinge on many variables beyond price.

In order to jointly learn about new product techno-logies within buyer–supplier relations, the mostimportant lever is to establish mutual trust. This iseven more important (Jarvenpaa and Leidner, 1999;Farhommand, 2000) as companies today are not onlysourcing components or raw materials, but new col-laborators, market access, contact networks and allkinds of tacit and explicit knowledge potentially use-ful for your business.

From Archiving Knowledge, to ActivatingKnowledge

Knowledge Management (KM) is more than afashionable buzzword. It is the fruit of over a decade

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of intensive managerial practice and theoreticalreflection. Rarely have academics and practitionersinteracted in such an intensive way as in the case ofdeveloping our understanding of what is maybe themost complex issue facing business today: the cre-ation, storage, transfer, and usage of corporateknowledge. If knowledge is power, if knowledge isan asset, then how can it be turned into competitiveadvantage? The mission of knowledge managementis to visualise and elucidate the knowledge that existswithin an organisation, to direct, pilot, and control itso that it transforms into competencies that pay offin business. At the basis of KM is knowledge creationthat should be seen as a continuous process (Nonaka,1994). If no new knowledge is developed, there will beno new ‘raw material’ for knowledge management.

In order to fulfil its mission, knowledge managementshould act at two levels: transforming individualknowledge into organisational knowledge, and trans-forming tacit knowledge into explicit knowledge(Martensson, 1999). When Hewlett Packard’s formerCEO, Lew Platt, said ‘If only HP knew what HPknows we would be three times more productive,’ heput the finger on an important issue. Are you mainlyarchiving the fraction of corporate knowledge that isexplicit, or are you activating the tacit dimensionthrough processes of reflection in practice in valuecreating projects? The concept of the reflective prac-titioner (Schon, 1983) is very powerful when it comesto integrating doing and thinking – practice andreflection – in the planning, implementation, obser-vation and assessment of tasks and activities beingpart of value-creating processes (Soderquist and Nel-lore, 2000).

A conscious approach to process management notonly includes optimising physical and informationflows but above all, should focus on the cognitiveprocesses of knowledge creation, knowledge dissemi-nation, learning and use of new knowledge. IT playsa crucial role for successful knowledge managementin several ways:

❖ IT can facilitate cooperation and communication,and ultimately the development of a common cog-nitive ground (that will be further discussedbelow) within communities of practice. This, inturn, can help in the process of rendering tacitknowledge more explicit,

❖ Specific IT tools, such as competence trees, existfor the mapping of explicit knowledge and identi-fication of intellectual capital,

❖ Databases and data warehouses are essential forthe storage and retrieval of intellectual capital,

❖ Intranets, groupware, and VPNs are important forrendering knowledge available throughout theorganisation.

Studies in which we have participated, conducted inlarge development-intensive manufacturing firms,show that IT tools for KM are instrumental in the

. . . knowledge can be

created instantly as a response

to a difficult or critical

situation

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efficiency of knowledge sharing in particular, but onlyif information sharing and open communication havebeen made an integral part of the corporate culturebeforehand.

The tricky part of knowledge is not only that it ismainly tacit, it is also that people ‘don’t really knowwhat they know until they need to know it’(Snowden, 2000). In other words, knowledge can becreated instantly as a response to a difficult or criticalsituation. The lever for activating such knowledge isto maximise the occasions for employees to findthemselves in critical situations – the essence of theconcept of (sun)bathing in the frontline – and to for-malise and render explicit the knowledge created oneach occasion.

Objective 4: Change the HR Policies,‘from People as Workforce, to People asCompetitive Force’

One of the key characteristics of the informationsociety that has been put forward by a multitude ofresearchers is the growingimportance of the human factorin the organisation (cf. Pras-tacos, 1998). When Jack Welsh,newly retired CEO of GeneralElectric, devoted 40 per cent ofhis time to ‘people’ issues(Sherman and Hadjian, 1995),he demonstrated the impor-tance of the human factor in today’s organisation.According to Arie de Geus (Vlahos and Gary, 1998),this demonstrates a fundamental shift in the impor-tance of critical economic production factors: ‘A lotof evidence suggests that the dominant role capitalhas played for several centuries in the creation ofsuperior wealth is diminishing.’ Therefore, developinghuman or intellectual capital and attracting and keepingthe best people are among the most critical issues fortoday’s organisations (Deloitte & Touche, 1998). Onereason for this is that competitive advantage isincreasingly obtained through the constant creationof knowledge. Knowledge is created by establishing alearning organisation culture and through managing theinformation value chain, an analogy of Porter’s conceptapplied to the transformation of data into knowledge.

Hence, overall, human resource management shouldemphasise the importance of people not only asworkforce, but as competitive force in the broadestpossible sense of the word. One important lever is toconsider employees as experts in their jobs and reapthe benefits of their knowledge and experience.Further, people have always liked to talk to eachother, to have a sense of community and to take pridein a good piece of craftsmanship (Robinson and Stern,1998). Thus, HRM should encourage a culture of

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shared cognition where people with common values,but with different angles of attack towards problems,can perform truly integrated problem-solving so thatwe move away from a mechanistic view of co-ordi-nation through, often unproductive, liaison activities.The issue of motivation is also critical. In order toretain the best people, traditional compensationschemes are likely to be insufficient. Finally, inno-vation starts with an individual and flourishesthrough playing with ideas in communities of prac-tice and reflection (Nonaka, 1994). Making inno-vation an everyday job for all employees passesthrough a perfect understanding of how to promotehuman creative acts. Let us suggest three key objec-tives concerning your human resources in the man-agement of change process, reflecting the above.

From Carrot and Stick, to Conscious Coaching

HRM is faced with an enormous paradox: how todeal with the trade-off between the individual’sinherent drive for competition – so badly needed forcontinuous progress – and the imperative of com-munication, knowledge sharing, and ‘straight’relationships between people at all hierarchical lev-

els – so badly needed for con-tinuous progress too! When wediscussed (sun)bathing in thefrontline, we insisted on theneed to root out opportunisticmanoeuvring of opinion andaffinity. But this activity, which,hand on heart, can occupy asignificant share of many

people’s ‘work’ time, is exactly what individuals’inherent drive for competition also might lead to(except for driving continuous progress). So, topmanagers need to keep a close watch on howemployees are actually behaving in the organisation(and themselves look in the mirror too, from time totime) and coach them so that they choose the rightpaths.

Motivation of employees is extremely complex. If thestick, in terms of threats and destructive workplacestress definitely should be abandoned, simple con-cepts of motivation, where the carrot equals somestandard raise in pay, must also be revisited. Todayemployees need coaching and this coaching musttake into account the multiple dimensions of thehuman character at work. Consciousness of individ-ual behaviours, wants and needs becomes more andmore necessary in order to extract the best fromhuman capital. Emotional payment, includingempowerment and encouragement, acts comp-lementarily to stock options and partnering in com-panies pioneering innovative HRM.

Managers should also remember that their co-workers(or ‘subordinates’ in ancien regime vocabulary) are theirbest coaches. It surely takes some guts to do, like Chris-

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topher Hoenig, CEO of a Washington-based B2B Inter-net start-up, who recruits collaborators under whom hewould be proud to serve himself and who will challengeand complement him in every step of his leadershippath. In order to win in markets, firms not only need towin their customers but also the confidence, respect andsustained appreciation of their employees, by listeningto them, and acting on their opinions.

From Co-ordination, to Integration and SharedCognition

When there is division of tasks performed by specialistsand those tasks are interdependent, there is need for co-ordination (Minzberg, 1979). Co-ordination has longbeen seen as a core activity that has to be efficientlyperformed for any organisation to function properly.

Now, if managers wish to move beyond co-ordinationand actually integrate different tasks, activities, andspecialists with different functions in value-creating pro-cesses such as new product development, order pro-cessing, or after-sales services, there is a need in the firstplace for increased co-operation and intensive communi-cation between those people involved in the processes inquestion (e.g. Clark and Fujimoto, 1991). In fact, effectiveintegration has both a ‘hard’ and a ‘soft’ side wheresome of the elements previously discussed meet. Organ-isational structure, work methodologies (includingmethods for framing and analysing problems), skilldevelopment programmes, and IT tools for communi-cation are important but tend to give few results if posi-tive attitudes to change, trust between team membersand hierarchical levels, and commitment to commonobjectives fail to emerge.

Let’s go one step further. Isn’t it the case that communi-cating intensively will be of little use if one group ofpeople does not understand the skills possessed anddeployed by another group, for example, for reasons ofdifferent professional affiliation? Unless there exists acommon cognitive ground between the people whose tasksand activities you want to integrate, how can you expectcommunication and co-operation alone to result in inte-gration? The relevance of these questions has been scien-tifically proved (Karlson, 1994). What they stress is thatdifferent participants in integrated teams working in inte-grated processes must also be able to understand non-articulated tacit knowledge possessed by their colleagues.Successful companies apply job rotation in order to achi-eve a common cognitive ground. It is not only limitedto rotating between functions. Unilever rotates managersthrough various jobs, moving them around the worldespecially early in their careers. Managers’ potential andprogress are monitored through special committees(Barnevik and Kanter, 1994).

In order to create the common cognitive ground andtransmit tacit knowledge, learning through the alter-nating of work tasks within a more or less broadly definedspectrum of activities, is a powerful managerial lever.

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From Invention by the Few, to Innovation by theMany

A strong misconception of how to become an innov-ative company is that it depends on a few, suppos-edly highly creative people who are given great free-dom and an imperative to… invent. However, asRobinson and Stern (1998) argue, the creativity ofthese high flyers is certainly important but consti-tutes only a fraction of a company’s creative poten-tial, and its ability to… innovate.

In order to better understand what we are talkingabout, let us first clarify the difference between inven-tion and innovation. Already in 1911, Schumpeterargued that innovation was the introduction of newproductive combinations in the economy, meaningthat innovation hides an imperative of market vali-dation, in other words, increased value to an externalor internal customer. Inventions, conversely, are newscientifically or technically relevant discoveries thatmaterialise new knowledge. It might take considerablefurther experimentation, development and refinementbefore an invention will generate some value to a cus-tomer. While the criteria for success of an innovationare commercial (does the innovation provide a basisfor economic rent?), they are scientific and/or technicalwhen it comes to invention (is this finding true/real?).As long as competition was more product-driven thanservice-driven, companies could excel for decadesexploiting inventions and patents developed by ‘loneheroic inventors’ such as A. G. Bell, T. Edison, G. Dalenand L.M. Ericsson. Today, invention is still important,but innovation in both tangibles and intangibles has tobecome a major task for every organisational member.

If managers succeed in instilling the idea that inno-vation is a much broader concept – and in that sense‘easier’ to accomplish than invention – and if corpor-ate creativity is allowed to flourish, an innovationculture is already a long way ahead. This is a stra-tegic issue and has to be reflected in a corporate strat-egy of innovation. If a high-tech company inventsonce a week, it innovates every second in strategy,structure, processes, activities, and tasks. And whoare the generators of innovation? The answer is allemployees that feel free enough to act and that knowin what direction they should look when takingaction. Hence, strategy as incubation plays animportant role in order to achieve innovation by themany. Moreover, so does structure. In order to enableinnovation by everyone, many of the previously dis-cussed levers, such as maximising customer contacts(to foster a feeling of what really counts in terms ofvalue and involve the customers in the innovationprocess), and establishing structural networks (toenable people to access information and collaboratorsin order to take action) are essential. Otherwise, ‘abad system will beat a good person every time’ Rob-inson and Stern (1998). Lastly, HRM needs to payattention to the power of self-initiated activity drivenby intellectual curiosity, and the importance of unof-

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Table 1 Objectives and Levers for Managing Change in the New Competitive Landscape

Management objectives Levers to achieve the objectives

‘From duplicated mediocrity, to virtual world �Analyse the role of strategy. Use strategy as an incubator for change.class’ Strategy as incubation combines visions and tangible support for realizing the

visions.�Develop a customer focused orientation in the entire business, enabling amove from market segmentation to customer individualization.�Develop and nurture core capabilities while relying on mechanisms ofconnectivity in order to remain in the frontline of innovation and flexibility.

‘From formal rigour, to ad hoc support’ �Transfer the power from vertical hierarchies to organic webs of collaborationempowered by ICT and supported by appropriate and structuring workmethodologies.�Bring all employees out of the hierarchies and confront them with customersin the frontline of value creation.�Beware of downsizing that leads to capability drain and only allows for themost urgent operational crises to be dealt with. Focus on agile right-sizingenabling flexibility and sustained competitive advantage.

‘From sequenced steps to produce, to �Focus on processes as the main contributors to value creation and assystemic flows for value’ vehicles for materialising unique capabilities. The notion of value stream

focuses the organisation on linking and integrating processes into asynchronised whole.�Develop integrated sourcing with focus on the contribution of capabilities ofeach player in the supply chain.�Bring knowledge out of the archives so that it is activated in action andprocesses that pay off. Maximise the occasions for employees to learn, tocreate and apply knowledge.

‘From people as workforce, to people as �Develop conscious coaching of employees by taking into account individualcompetitive force’ behaviour, wants and needs, and the multiple dimensions of the human

character.�Move beyond coordination to true integration based on shared cognition andcommon understanding of multiple perspectives and viewpoints.�Instil a culture for innovation by all employees in all functions and areas of thebusiness.

ficial activity – bootlegging – where there is room fortesting and experimenting with new ideas. ‘If compa-nies have no redundancy or randomness at all, theyare optimised for their present environment and soare limited to only what they can anticipate and plan’(Robinson and Stern, 1998, p. 192).

Conclusions

Business leaders of today are well aware of thenecessity to grasp the changes in the new competitivelandscape. Globalisation, and the rapidly expandinguse of information and communication technologies,is generating a new revolution comparable to the lastcentury’s industrial revolution, with far-reachingimplications in all domains of human activity. Com-panies today are called to operate in a continuouslychanging business environment.

In order to survive in the new environment, organis-ations need to understand the nature of the challengesand opportunities that lie ahead and respond to themin an intelligent manner. This means rethinking theirstrategy and processes, reconfiguring their structure,and redefining the role of individuals and groups.

European Management Journal Vol. 20, No. 1, pp. 55–71, February 2002 69

This paper has presented an integrated framework inan attempt to offer guidance and advice for the thoughtprocess preceding any successful implementation ofchange initiatives. We argue that to address the con-tinuously increasing challenges and to successfullymanage change, organisations needs to be innovativeand flexible. Based on the Scott-Morton model, wherethe organisation can be viewed as the dynamic interac-tion of five forces/dimensions, we have put forwardand synthesised a number of management objectivesand corresponding actions/levers that need to be takenin order to successfully manage change. Table 1 sum-marises the management objectives and the corre-sponding levers presented and analysed above.

The success of change implementation criticallydepends on an organisation’s dynamic capabilities,as well as the ability to ‘make sense’ and learn fromthe experiences obtained. As illustrated throughoutthe paper, ICT is also an important factor in effec-tively implementing change.

As a final word of advice: OC is not a static undertak-ing! It simultaneously involves the whole organis-ation embracing the entire array of organisationaldomains be it strategy, structure, people or processes.Equally important, it never stops. OC is a never-end-

AN INTEGRATED FRAMEWORK FOR MANAGING CHANGE

ing process of continuous transformation as it oughtto be in a world where Darwin’s motto about theresponsiveness to change is more true than ever.

Notes

1. If based on Internet (IP), the VPN technology can extendthe use of Intranets to remote offices, mobile users, andtelecommuters – while preserving security and confiden-tiality through encryption of data and solid firewalls at theboundaries of the organisation.

2. Projects go through a series of development stages on theirjourney from initial idea to commercial launch, each stageis accompanied by a validation gate which projects haveto pass in order to proceed (Iansiti and Kosnik, 1994).

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