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Abstract: The paper evaluates the innovative capabilities as well as change management potential in a large
production company. The paper undertakes to analyse the impacts in shift to different organizational structure
accompanied by a massive restructuring and downsizing. In the conclusion we propose an action plan for
reducing identified barriers to enhance innovation and to support change management.
Abstrakt: Článok hodnotí inovačný potenciál ako aj schopnosti manažmentu na riadenie zmien vo veľkej
výrobnej spoločnosti. Článok analyzuje rôzne vplyvy pri prechode na iné organizačné štruktúry, a zmeny
vyvolané mohutnou reštrukturalizáciou a prepúšťaním. V závere článku navrhujeme akčný plán na
minimalizovanie zistených prekážok na podporu inovácií a na podporu riadenia zmien.
INTRODUCTION
The purpose of this paper is to evaluate the innovative capabilities as well as change
management capacity (Harvard Business Review, 2011) of a large production company (LPC).
The paper is written like a case study. Therefore the paper starts with a short historical excurse of
major changes in LPC‟s environment, which is needed to fully understand the current issues in
respect of innovation capabilities and change management.
Long term successful history of the LPC in stable socialistic economy disrupted by
political changes in the central and east European countries, followed by privatization and
subsequent takeover of the company by a large multinational group (MNE) are major highlights
of environmental changes that left its footprint on the company. The paper highlights that
traditional approaches to manufacturing are not appropriate, not even in the case of a large
established manufacturing company in a mature industry, traditionally competing on price. In
addition, LPC‟s inability to challenge and break its own paradigm, referred to as success trap
(Nadler&Shaw, 1995), is considered.
This paper undertakes the analysis of the impacts in shift of management control to MNE
and LPC‟s integration into this new context, accompanied by a massive restructuring and
downsizing. The paper critically evaluates the ability of the company to manage this major
change coming from the external environment, as well as its innovative capabilities. The major
barriers towards LPC‟s improved performance are identified and linked back to their roots. The
issues of major restructuring and downsizing, leadership issues, cultural clashes and persistently
insufficient focus on external linkages and „open innovation‟ mindsets are dealt with in detail.
The conclusions summarizing how the major external change impacts the performance of LPC
and recommendations for improvements leading to improved future prospects are drawn.
The major theoretical framework for undertaking the analysis is the Causal Model of
Organizational Performance and Change (Burke, Litwin, 1992). More specifically, the focus on
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transformational factors and their mutual links and links with the input/environmental change
(strategy, culture, leadership components) is analysed first, followed by the derived impacts on
the transactional factors (structures, systems, working climate, motivation, people) and their
interactions and links to output/organization performance.
In parallel, the Innovation management audit „toolkit‟ (Tidd at al, 2004) is used as a
secondary model helping to critically evaluate LPC‟s innovative capabilities, specifically in the
respect of strategic approach to innovation and supportiveness of organizational context to
innovation.
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leadership. To assess the change management capacity the extent that the actual changes match
required ones to achieve better company performance (output) is analysed.
2.1 Mission/Strategy
Mission and strategy is what the organization's top management believes and has declared is the
organization's mission and strategy and (b) what employees believe is the central purpose of the
organization Burke, Litwin (1992).
LPC mission statement reads as follows: LPC sets the industry benchmark for operational
excellence, supply chain management, innovation and environmental protection through
„Pushing the Limits‟programme. LPC is therefore the preferred partner for our customers, with
whom they build long-term, mutually rewarding relationships. This is accomplished by
delivering products trusted for their quality, innovative solutions and reliable service. LPC attract
people with entrepreneurial spirit who are proud to be part of MNE and LPC gives them every
opportunity to succeed. LPC success is based on strong leadership, co-operation and a united
passion for excellence. MBP continue to be strongly committed to sustainable development and a
safe working environment through targeting zero work accidents.
Apparently, the mere fact of having a written mission statement is important to
organizational effectiveness (Pearce & David, 1987). The qualitative shift in mission statement
can be summarized as follows. The mission statement and core values give clear evidence that
LPC strives to both challenge the status quo and enhance creativity and innovation. Its external
focus is expressed with aim to deliver value to all LPC‟s significant stakeholders. This represents
a significant shift from the prior understanding of the purpose of the business that was much less
broadly defined, with focus on product quality, internal efficiency, customers and shareholders
value.
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management. The reasons for the barrier seems to be the conflict between the mission statement
strategy promoting correct values and aiming to create an employee/employer covenant, but the
restructuring and downsizing effects (discussed in detail later) are breaking this psychological
contract (Beardwell et al, 2004). Kanter (1989) noted contradictions between remaining „lean,
mean and fit‟ on one hand, yet being seen as a great company to work for on the other.
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management articulates and promotes these core values and beliefs, people do not buy in due to
the simultaneous adverse effects of downsizing. Unfavourable company cultural impacts also
adversely influence the working environment, which makes hiring and retention of people with
right innovation spirit and attitudes, fitting with new culture, a challenging task for managers.
2.3 Leadership
Leaders are executives providing overall organizational direction and serving as behavioural role
models for all employees (Burke, Litwin, 1992). Recognizing the distinction some authors made
between leadership and management, this report takes them as synonyms. Management‟s role in
innovative organizations is to prescribe a set of strategic goals, but to allow personnel great
freedom within the context of the strategic goals (Judge, 1997). Personal and organizational
goals that emphasize quality rather than effectiveness improve the level of innovation (Hall,
1997). Supportive Leadership style (Goleman, 2000) enhances creativity, innovation and
excellence (“Pushing the Limits” movement).
The current situation in LPC certainly requires transformational/discontinuous leadership
(i.e. Bass, 1985, or Nadler et al, 1995). Transformational leaders gain acceptance of the
organizational mission by developing the ability within followers to look beyond their own self-
interests. Nadler et al (1995) emphasize that the CEO is the single most important factor in
managing the transformational/discontinuous change. LPC‟s CEO is a strong individual with
significant powers; he is clear on the mission and tries to „sell‟ the case of necessity of change.
However, the CEO cannot lead the whole change process alone. He must get support and full
commitment of top executives and form a team able to bear the collective responsibility for
success.
Subsequently, the key stakeholders‟ support for the change should be acquired, and they
should be informed of the rational of the change, key directions and potential risks. However, the
downsizing/restructuring that is being done in the company context stepwise was never
communicated to the stakeholders as a formal plan. As such, this process has been taking longer
than necessary (mainly due to trade union power, political/privatization and shareholders related
issues) since support for it is lacking. Winning the support of those two groups is essential, as
their support is a prerequisite for the diffusion of innovation support in lower operating levels.
Bass (1999) suggests that getting acceptance of the transformational change by followers
is accomplished by employing one or more of the factors associated with transformational
leadership: 1) charisma, 2) inspirational motivation, 3) intellectual stimulation, and 4) individual
consideration. Transformational leaders should be able to encourage followers to think critically
and to seek new ways to approach their job. This may directly strengthen followers‟ job
involvement and intrinsic motivation, resulting in more desirable work-related attitudes
(Gardner, 2000).
Management style is perceived by employees as autocratic/coercive (Goleman, 2000),
which might be a by-product of downsizing/restructuring effects. The ability of the LPC leaders
in this respect seems to be insufficient, as their management practices do not motivate followers
to transcend their own self-interests for the sake of the group. The barrier also seems to be the
micromanagement techniques, strong control exercised over tasks and unwillingness to
understand their problems, lack of empowerment, support and consultation. Taking bottom up
approach to analysis, the leaders are not able to bring a deeper understanding and appreciation of
input from employees, which makes them isolated and hinders trust and innovation.
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Politicking is also a barrier of increased innovativeness (Stern, 2004), as people feel their
work is threatened by other‟s agendas (Amabile, 1998). Especially in the environment of
changing organizational structures and downsizing, some managers might feel that they are
losing their power so they start politicking (Morgan, 1997).
To summarize, leadership is a very central aspect of the organizational change, as leaders
steer/manage change in the directions (mission, strategy) as well as facilitate the cultural shifts
and influence the transactional factors. The most significant strategic leadership issue in LPC is
that the core executive group is not a team committed to success of the change. Ability to
manage within a different national culture (Hofstedte, 1993) is another barrier associated with
foreign managers. They tend to blindly apply models that worked before in different
environments.
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has increased their feelings of disappointment and adversely impacted their motivation and
innovation. People‟s natural resistance to change is even increased by such a working
environment that typically makes them stick to rigid behaviour patterns and risk aversion, mainly
due to worries of redundancy. Team instability represents an additional creativity barrier, as
people are worried about their own jobs and therefore do not share team spirit (Amabile, 1999).
Such a working environment is extremely hostile for innovation.
CONCLUSIONS
The major takeover of the management control by MNE and subsequent integration of LPC into
the structures of the new shareholder, accompanied with major restructuring and downsizing,
represents transformational change influencing the strategic and operational areas of LPC. Based
on the results of analysis undertaken of LPC‟s innovative capabilities, it could be concluded that
the company is aware of the need to change and have some abilities to do so. More specifically,
the company has committed itself to right values and aims to use the innovation as a core
competence, leading to a lean enterprise contributing towards value creation for all of its
stakeholders. Such a transformational innovation requires leaders who are as a team fully
dedicated to succeed with the managing the challenging transformational change. The new
“Supportive and Innovative” culture is being promoted. The changes being undertaken at this
level have a direct impact on the transactional changes in the company‟s structure and its
systems, motivation, rewards and individual‟s needs.
The major obstacle identified in achieving better LPC performance is restructuring and
downsizing. This very process seems to be in conjunction with innovative approach, as it is very
traditional „cure‟. In addition, several issues in managing this change were identified (lack of key
stakeholder support, problems with creating strong top management team backing the CEO in
managing the change).
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