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Recognize how stories of change can illuminate key issues in managing change.

Palmer−Dunford−Akin:
Managing Organizational
Change: A Multiple
Perspectives Approach,
Second Edition
1. Introduction: Stories of
Change
Text © The McGraw−Hill
Companies, 2009

1
Chapter1
Introduction: Stories
of Change
Learning objectives
On completion of this chapter you should be able to:
• Understand why change is both a creative and a rational process.
• Identify why there are limits on what the manager of change can achieve.
• Recognize how stories of change can illuminate key issues in managing change.
• Appreciate the “roadmap” for this book and the multiple “images” approach that
underlies it.
Changing organizations is as messy as it is exhilarating, as frustrating as it is satisfying, as
muddling-through and creative a process as it is a rational one. This book recognizes these
tensions for those involved in managing organizational change. Rather than pretend that
they do not exist, it confronts them head on, identifying why they are there, how they can
be managed, and the limits they create for what the manager of organizational change can
achieve. It shows how the image(s) we hold about how change should be managed, and
of what we think our role should be as a manager of change, affects the way we approach
change and the outcomes that we think are possible.

As a way into these ideas, we commence this chapter by visiting four prominent companies
to look at stories of recent changes. The Hewlett-Packard story concerns Carly Fiorina’s
attempts to establish and then manage the merger with Compaq Computer; the IBM story
shows how change to this organization has occurred both from the staff within as well as
from management at the top; the Kodak story shows how pursuing changes to digitalize the
company has provoked reactions from both staff and investors; and the McDonald’s story
points to the pressures on organizations to change in order to reestablish themselves in the
marketplace. The stories contain both similar and different elements about managing organizational
change and the broader tensions and choices this entails. In the last part of the
chapter, we draw these out, identifying some key lessons that emerge and indicating where
they are addressed in the chapters that follow. We also provide a “road map” that indicates
the position taken by this book, that our understanding of the issues addressed in subsequent
chapters is affected by our underlying images of managing change. Palmer−Dunford−Akin:
Managing Organizational
Change: A Multiple
Perspectives Approach,
Second Edition
1. Introduction: Stories of
Change
Text © The McGraw−Hill
Companies, 2009
2 Chapter 1 Introduction: Stories of Change
Stories of Change
A Hewlett-Packard Change Story: Managing a Merger
Around 7 a.m. on March 19, 2002, Hewlett-Packard’s CEO Carly Fiorina and CFO Bob
Wayman were on the phone to Deutsche Bank trying to make one last ditch effort to convince
them to vote yes. 1
The vote, scheduled for later that morning, was an important one.
It would determine the future of the proposed Hewlett-Packard (HP) and Compaq Computer
Corp. merger and the future of HP as a major player in the technology industry. 2 The
months preceding the vote had been tumultuous. After the announcement of the proposed
merger had taken place in September 2001, Walter Hewlett, the son of the co-founder of
HP, had publicly opposed the proposition, which required shareholder approval. 3 Fiorina
and her team faced serious and accumulating opposition to the merger, but there was also
growing concern for HP’s future if the deal was rejected. A Merrill Lynch portfolio manager
said at the time, “If the deal is voted down, I don’t know what I’m left with. I don’t
know if the board will stay, if management will walk out the door, or what the strategy will
be. Sometimes the devil you know is better than the devil you don’t.” 4
In the lead up to the vote, HP was confident that a yes vote by Deutsche Bank was a sure
thing. Representatives of Deutsche Bank such as George D. Elling had been public supporters
of the merger and had reportedly even given HP a $1 million contract to uncover
the voting plans of other institutions. 5 Word of a change in Deutsche Bank’s thinking
reached Wayman and, despite reassurances from his contacts that the merger would be
supported, talk strongly suggested that they had, in fact, reversed their decision. On the
morning of the vote, Fiorina and Wayman were given their first and only opportunity to
pitch the deal to the investment team at Deutsche Bank. Fiorina, using her innate ability
to impress, gave a compelling and persuasive argument questioning the company’s future
if the merger did not go ahead. The Deutsche Bank team decided that a failure to continue
with the merger would be more disastrous than the merger itself. 6
On March 19, 2002, the
merger was approved by a shareholder vote 7
—a result that would have been more difficult
had Deutsche Bank not supported the merger. 8
Premerger
Back in 1999 when Fiorina joined HP, the company was in serious need of guidance.
The personal computer division faced growing competition, the sales force needed better
coordination, and the company was losing market share to rivals such as Dell and Sun
Microsystems.9 Fiorina joined the organization with aspirations, and external pressures, to
change how it functioned. In her view, the culture of HP could be changed by “going back
to the roots of the place.” 10 One of the ways she set out to achieve this was by working
with a local ad agency and the head of Human Resources to create a set of “Rules from
the Garage” that outlined what she hoped the culture at HP would become. “The customer
defines a job well done” and “Invent different ways of working” became signifiers of the
company’s direction and aspirations. 11
She decided to restructure the company. Customers such as Ford and Boeing were
frustrated by the separate sales teams from HP that were constantly marketing individual
products to them. They wanted a complete package that addressed the needs they
had in their entirety. 12 In light of these uncommunicative operational units within HP,
Fiorina reorganized the company into “quadrants,” creating two “front-end” sections that Palmer−Dunford−Akin:
Managing Organizational
Change: A Multiple
Perspectives Approach,
Second Edition
1. Introduction: Stories of
Change
Text © The McGraw−Hill
Companies, 2009
Chapter 1 Introduction: Stories of Change 3
consisted of sales and marketing and two “back-end” functions where manufacturing
and research occurred. 13 There was considerable, but subtle, employee resistance to the
change. Fiorina’s vision of HP creating a new interface with customers may have been
sound, but, as a radical change, it was not widely welcomed by many who were part of
the HP “system.” 14
Post-Merger
In the aftermath of the merger, and the ensuing lawsuit that opposed the merger and
attempted to dissolve it, 15 Fiorina had a huge task ahead of her. The integration of the two
corporate cultures was made more difficult by the strained relations Fiorina had with her
own staff, many expressing serious concerns regarding the merits of the merger. 16 The
transition was made slightly easier by the 65,000 new personnel who became a part of the
HP community after the merger. They were more at ease with creating an organization in
the way that Fiorina envisioned. According to Fiorina, the necessary cultural adjustment
was simplified by this injection of “new DNA.” 17
Following the merger, Fiorina embarked on a series of technological symposiums and
“coffee talks” with HP engineers. 18 Although the merger had already been undertaken by
HP and Compaq, there were still many employees who were not convinced of the validity
of HP’s riskiest move, some of whom faced being victims of the job cuts resulting
from the merger. 19 To win over the 147,000 employees worldwide, Fiorina used a range
of methods of communicating including the “management by walking around” style that
Packard and Hewlett had originally advocated within the organization. A company
employee commented on her style and interaction with all members of the company by
saying that her actions and down-to-earth nature “earned her a lot of points” with transferees
from Compaq. 20

The company faced challenges in the way of significant competition from both Dell in
the PC business and IBM as a service provider. 21 Communicating a vision for the future of
the company post-merger remained a key issue for Fiorina. 22
Three years later, in February 2005, Fiorina was ousted from HP and replaced by Mark
Hurd.23 In one of his first acts as the new CEO, Hurd undid some of the radical changes
from his predecessor’s reign. 24 He cut jobs and engaged in a restructure, breaking down
the four quadrants into product divisions because they were too “matrix” in design. 25 Some
commentators, in referring to “the debacle of the Carly Fiorina years,” argue that many
of the changes Hurd has made are “designed to unscramble the forced attempt at synergy
attempted by his predecessor, instead handing back clearer responsibility to divisional
managers for their own operations.” 26 Greater attention to becoming more efficient and getting
better at execution appears to be producing results: in August 2007, Hurd announced
HP’s best sales growth for seven years. 27
An IBM Change Story: Transformational
Change from Below and Above
Change from Below 28
Before using the Internet became as commonplace as watching television, David Grossman
and John Patrick took on the mammoth task of convincing their superiors and co-workers
at IBM that the Internet was even worth looking at. Their subsequent actions helped to
revolutionize Big Blue and drastically change its path into the future. 29Palmer−Dunford−Akin:
Managing Organizational
Change: A Multiple

Perspectives Approach,
Second Edition
1. Introduction: Stories of
Change
Text © The McGraw−Hill
Companies, 2009
4 Chapter 1 Introduction: Stories of Change
When David Grossman, a computer programmer, stumbled across a rogue Internet site
for the 1994 Winter Olympics in Lillehammer, Norway, he was troubled. IBM had the
official broadcast rights to the Games, but Sun Microsystems was taking the raw footage
and making it available on the Internet under their logo. Although his position as a
programmer did not require him to act on his findings, Grossman was deeply concerned
about the implications of the branding of the Internet broadcast and the potential effects
on IBM. He pursued the issue by contacting the IBM marketing team for the Olympics.
The rogue site was eventually shut down, but the lesson had not been learned. IBM had not
even begun to comprehend how the Internet could become an integral part of their business
dealings. 30
Grossman’s persistence landed him a meeting with the head of marketing, Abby
Kohnstamm, and some of her colleagues. It was here that Grossman was able to give a
detailed explanation of the benefits of the Internet. He captivated one member of his audience
wholeheartedly. John Patrick, a member of the strategy task force, attended the presentation
that day and he immediately became Grossman’s ally in the Internet Revolution
and an important link to the world of senior management. 31
As a team, Grossman and Patrick complemented each other. Grossman had the more
developed technical know-how. 32 Patrick knew how to make the “boundaryless” culture at
IBM work to his advantage. 33 Together they created an underground community of Web
fans who shared technical information that ultimately helped IBM into the Internet era,
albeit working, for the most part, unofficially. 34 The grassroots Web community infiltrated
all corners of the company in a way that would have been difficult for an officially sanctioned,
top-down group. It was through the advocacy of the lower-level personnel that the
Internet message was spread through IBM’s culture. 35
Of course, the downside of being an unofficial part of an organization is the potential
lack of financial backing for a group’s projects. However, when it came to finding money
for IBM’s first-ever display at an Internet World trade convention in 1995, Patrick was
not fazed. By coordinating the funds and the Web technology from various business units
and becoming a “relentless campaigner” for the project, he gained support and expertise
from multiple parts of the organization. 36 By sharing experienced personnel and resources
from many departments, Patrick and Grossman were able to provide departments with
more expertise and highly trained personnel when they were “returned” to the area from
which they came. This strategy reinforced internal support for the change. 37 Over the
years, Patrick and Grossman succeeded in creating a system that revolutionized the way in
which IBM does business. Coupled with the leadership of Lou Gerstner, the period from
1993 to 2002 was one of reinvention and change. 38 IBM transformed from a computer
manufacturer to a global service provider, focusing on e-business and the Internet. By
the late 1990s, IBM’s trading in the e-business sector began to reflect in the bottom line,
accounting for almost a quarter of its revenue. 39
Change from Above
In 2002, Samuel Palmisano, a lifetime IBMer, took over leadership of the company from
Gerstner. Palmisano’s focus changed to emphasize teamwork and collaboration. One of his
first steps in demonstrating his new management style, to investors and employees alike,
was a readjustment in executive compensation. 40 This involved a cut in the controversial Palmer−Dunford−Akin:
Managing Organizational
Change: A Multiple
Perspectives Approach,
Second Edition
1. Introduction: Stories of
Change
Text © The McGraw−Hill
Companies, 2009
Chapter 1 Introduction: Stories of Change 5
CEO bonus that was redistributed within the top management team. Palmisano claimed that
in order to function as a team, the gap between the CEO and his team must be reduced. 41
Insiders said that the amount pooled was $3 to $5 million, approximately half Palmisano’s
personal bonus. 42 This was an effective way of communicating to the entire organization
his intentions and commitment to his vision.
In a BusinessWeek e-mail interview, Palmisano wrote that in planning for change, “I
kept thinking about an approach that would energize all the good of the past and throw
out all the bad: hierarchy and bureaucracy.” 43 To this end, he disbanded the executive
management committee and created three teams with which he would work directly.
These management teams—in the areas of strategy, technology, and operations—were
composed of people from all over the company, not exclusively top management. 44 His
aim in restructuring was to make IBM a flatter, more creative organization striving to
meet consumer needs. 45
In addition to the restructure, Palmisano saw a lack of skills in IBM around the delivery
of global services. In 2002, IBM acquired PwC Consulting as a way of bringing to it
highly specific consulting skills and expertise to assist IBM in providing a full range of
services to its clients, “from high-end technology consulting to low-end support.” 46 IBM
also put in place other techniques to make sure that it listens closely to its people. For
example, it introduced the concept of “jams,” which are online brainstorming sessions
where any employee can share his or her ideas about management issues or new product
development. Palmisano subsequently expanded the use of jams to include clients, consultants,
and employees’ family members in order to share ideas and help the company
innovate.47 It is as a result of such changes from the top that IBM hopes to meet the challenges
of the future.
A Kodak Change Story: Provoking Reactions
Could this be the beginning of one of the biggest turnarounds in American corporate history
or one of the most public and embarrassing busts? After more than a century of producing
traditional film cameras, Kodak announced in September 2003 that it would cut this line
of production. In Western countries, this involves a complete move away from traditional
products within the film industry and a full-scale launch into digital technology. 48 The
move is slated “to generate . . . $20 billion by 2010.” 49 At an investor conference, CEO
David A. Carp said:
We are at the dawning of a new, more competitive Kodak, one that is growing, profitably,
that has a more balanced earnings stream, and that will have a dramatically lower cost
structure . . . To compete in digital markets, we must have a business model that lets us move
even faster to take full advantage of the profitable growth that digital promises. 50
Implementing this change required Kodak to cut their dividend and raise capital for new
technology purchases. 51 Further elaboration of this strategy occurred in January 2004
when it was announced that to reach the proposed savings of between $800 million and
$1 billion by 2007, Kodak needed to make two physical changes to the organization. 52
First, there would be a reduction in the square footage of Kodak facilities worldwide by
consolidating current operations and divesting unnecessary assets. Second, Kodak intended
to reduce employment worldwide with up to 15,000 jobs to be cut by 2007. 53Palmer−Dunford−Akin:
Managing Organizational
Change: A Multiple
Perspectives Approach,
Second Edition
1. Introduction: Stories of
Change
Text © The McGraw−Hill
Companies, 2009
6 Chapter 1 Introduction: Stories of Change
Investor Reactions
The announcement in September 2003 took many external experts by surprise. 54 At a series
of post-announcement meetings with investor groups, their reactions were not overly supportive,55
particularly to the news that their dividends would be severely cut. 56 They were
conscious of promises to increase the company’s revenue that were not realized. 57 It was
feared that this would become another “half-hearted transition” 58—as with the $1 billion
launch into APS cameras in 1996 that ended in failure. 59 They also pointed to the risk in
moving in this direction given the competitive market with rivals such as Hewlett-Packard,
Canon Inc., and Seiko Epson Corp., which were already ahead in digital technology
research and product development. 60 Carp’s response was to stand firmly by his decision
to pursue digitalization of Kodak. 61
Staff Reactions
For many of Kodak’s employees, the future looked bleak regardless of the success of the
company in moving into digital technology. Employees were rightly concerned about losing
their jobs in light of the proposed 20 percent worldwide cutback in employment. 62
Downsizing is not new at Kodak. From 1997 to 2003, the company reduced its workforce
by 30,000. 63 As argued in The Wall Street Journal, this type of change “moves parallel
[to] those at many companies whose comfortable business models have been threatened
by rapid changes in information technology.” 64 As one union representative explained,
the stress on workers in one Kodak production plant has been made worse than necessary
because “management has not sought to reassure [Kodak employees] that they have got
any long term future. When people have families to raise, financial commitments, that’s a
very difficult environment to work in.” 65 Hence, along with having to convince investors
that the path of change is the right one for Kodak, Carp also had to manage the adverse
effects of an ongoing program of downsizing and restructuring.
The Next Phase
In June 2005, Antonio Perez replaced Carp as CEO. 66 He continued on the path of downsizing
and eliminating plants. From 2004 to 2007, Kodak reduced its head count from
63,900 to 30,600 and offloaded a factory that it owned in Xiamen, China. 67 Perez is also
engaging in a process of acquisitions in order to grow new businesses—with some concern
from the financial community about the amount of debt that the company is accumulating.68
As Guerrera argues, “For now, Kodak’s position illustrates the problems that many
companies face mid-turnaround, when the tough choices have been made but the results
are still unclear. Management, under intense pressure from investors and buy-out groups,
faces a critical test of nerve.” 69

 

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