Transition Behavior 11.1,2,3,4,5,6,7,8,9 12.1,2,3

1. Transition Behavior11.1,2,3,4,5,6,7,8,9 12.1,2,3 • Stable ESOs (lag response) • Reactive ESOs (lag response) • Change Seeking ESOs (lead response) • Strategic Surprise • Organizational Inertia • Strategic Drift • Modes of Transition • Transition Triggers • Patterns of Transition

2. Lag Response to Threat A5 Cost of Response Shift in Action Potential Procrastination Retrenchment Thrust Shift Power Shift Time A1 A2 AspirationLevel A3 Arrested Loss A4 Operating Loss Crisis Level A3 Unchecked Loss

3. Aspiration Level (A1) • A level of performance that triggers the organization to discuss, negotiate, and evaluate its interaction with the environment. • During this period the ESO will continue historical strategic behavior and performance will continue to drop. • The lack of performance from the organization’s historical aspirations drives consensus that departure from the historical behaviors are necessary.

4. Procrastination Delays (A1-A2) • Identification Delay - The time at which performance drops below the aspiration level and the time management becomes informed. • Verification delay – Management delay in accepting the information as a non-statistical aberration. • Political delay – powerful managers feel the recognition of the performance deficiencies endanger their position or negatively reflect on their reputation. • Cultural Delay – management whose culture is inconsistent with the signals coming from the environment will treat the event as irrelevant and again feel the trouble work itself out.

5. Retrenchment (A2-A3) Internal Retrenchment • Myopic ESOs turn to cost reduction, freezes on hiring, cessation of management development programs, cutback in research and development. External Retrenchment • Reactive ESOs accompany internal retrenchment with attempts to revive sagging external demand through marketing incentives

6. Competitive Flabbiness (A2-A3) Retrenchment Success • Internal and external retrenchment succeeds if the drop in performance is the result of “competitive flabbiness” or loss of efficiency in the internal operations or external marketing aggressiveness. Retrenchment Failure • Internal and external retrenchment’s will fail when the environmental calls for shifts in product technology or markets.

7. Power Shift (A3-A4) Lingering in Retrenchment Creates Crisis • Continued retrenchment behavior leads to a deterioration of the ESO’s condition precipitating a crisis environment. (A3) • Having exhausted familiar responses. The organization seeks a savior, diverting organizational energy from the search for a strategic solution to the realignment and transfer of power.

8. Shift in Thrust (A4-A5) Strategic Expenditures • The ESO begins to increase expenditures on a strategic activity recognizing the discontinuous change in product or marketing strategies. Stable ESOs may fail to arrest the losses and serve to increase them chasing cultural and systemic capability barriers.Reactive ESOs recognize the strategy/structure gap and turns its attention’s matching capabilities with the strategic thrust at A5.

9. Strategic Thrust • Strategic shift is successful as the shift in action potential aligns with the environment. • Strategic thrust produces a sense of success when enough performance to dissipate a feeling of crisis is realized. Political and cultural forces reassert themselves before the strategic culture has moved to the required level. • Strategic Thrust Fails • ESO begins the thrust change too late • ESO starts too late to close the gap between the strategic thrust and capability • ESO lacks the human and financial capital to close the gap • Environmental turbulence has created an industry strategic trap

10. Transition Behavior Hypothesis 11.1: Initial response in change resisting ESOs • Change resisting ESOs react after the impact of turbulence has reduced performance below aspiration levels. • The first reaction is a procrastination delay followed by measures consistent with prior experience, and ESO culture. In stable ESOs these are changes in budgets, and reactive ESOs incremental strategic measures.

11. Transition Behavior Hypothesis 11.2: Power Shift When the initial response leads to crisis, the second response is a shift in power. Hypothesis 11.3: Sequence of Strategic Shift The tertiary response is a strategic shift, which follows a typical Chanderian strategy/structure sequence

12. GM / HP Analysis A5 Cost of Response Shift in Action Potential Procrastination Retrenchment Thrust Shift Power Shift Time A1 A2 AspirationLevel A3 Arrested Loss A4 Operating Loss Crisis Level A3 Unchecked Loss

13. Lead Response to Change • Changed seeking cultures typically respond before and not after the event. Seeking out the unfamiliar. • Strategic issue management systems and weak signal detection facilitate strategic response before environmental discontinuity impacts the organization.

14. Environmental Change Lead Response Forecast of Missed Opportunity Operating Profit Aspiration Level t Time Forecasting Horizon Operating Loss Response 2 Strategic Shift Forecast of Unarrested Threat Cost of Response Response 1 Culturally Consistent Response Time A1 A2 A3 A4 A5

15. Forecasting Future Discontinuity • ESO forecast future discontinuity the time t • The ESO forecasts future missed opportunities and losses if the threat is not arrested.

16. Eisenhower Delay (A0 -A1) • Change seeking ESOs apply a delay principal not triggering a response until the point in which further delay would begin to reduce the effectiveness of the response

17. Culturally Consistent Response (A1 -A2) • The intra-cultural graduated response will not limit itself to retrenchment principles but implement change appropriate to the nature of the discontinuity.

18. Procrastination Delays (A1-A2) • Identification Delay - The time at which performance drops below the aspiration level and the time management become informed. • Verification delay – Management delay in excepting the information as a nonstatistical aberration. • Political delay – powerful managers feel the recognition of the performance deficiencies one danger their position or negatively reflect on thier reputation. • Cultural Delay – management whose culture is inconsistent with the signals coming from the environment will treat the event as irrelevant and again feel the trouble work itself out.

19. Strategic Shift (A3 -A4) • Experiencing unsatisfactory results from the first response, the anticipating ESO confronts the need for a strategic shift. • Exploring ESOs are less likely to select an ineffective initial response and move immediately to a change in strategic thrust.

20. Strategic Action Potential (A4 -A5) • The ESO aligns its capabilities and systems to match and be consistent with the new strategic thrust. (Chandler strategy/structure) • The exploring ESO simultaneously concerns itself with both the change, strategic thrust and strategic action potential.

21. Transition Behavior Hypothesis 11.4: Response of change seeking ESOs • Change seeking ESOs respond to a shift in turbulence before the fact. The first response is consistent with ESOs culture in the second triggers a strategic shift

22. Wal-Mart RF Id Tagging Forecast of Missed Opportunity Operating Profit Aspiration Level t Time Forecasting Horizon Operating Loss Response 2 Strategic Shift Forecast of Unarrested Threat Cost of Response Response 1 Culturally Consistent Response Time A1 A2 A3 A4 A5

23. What Strategic Surprise? • Firms believed they could forecast as far in the future as felt necessary. • Strategic surprise arises through inadequate forecasting technology and the narrow cultural perception filters of management

24. Strategic Surprise Definition • Arrives unannounced impacting the ESO before its ability to detect the change through its environmental scanning • Is usually novel in nature. • Implies a major impact on the performance of the ESO. • Develops rapidly leaving little time for trial and error experimentation.

25. Strategic Surprise Response A5 Cost of Response Shift in Action Potential Procrastination Retrenchment Thrust Shift Power Shift Time A1 A2 AspirationLevel A3 Arrested Loss A4 Operating Loss Crisis Level A3 Unchecked Loss Strategic Surprise Survival Response

26. Strategic Surprise Response Forecast of Missed Opportunity Operating Profit Aspiration Level t Time Forecasting Horizon Operating Loss Response 2 Strategic Shift Strategic Surprise Crash Response Forecast of Unarrested Threat Cost of Response Response 1 Culturally Consistent Response Time A1 A2 A3 A4 A5

27. Managing Strategic Surprise • Management must increase reliance on weak signal detection within the environment. • Environmentally responsive ESOs increasingly reverse the Chandler sequenceFlexible structures capable of deferring strategy decisions until threats become visible and permiting graduated response.

28. Transition Behavior Hypothesis 11.5: Strategic Surprise • ESOs are forced into a crisis response when the time that is remaining for response a shorter than the time needed to execute the response through the existing systems and procedures.

29. Isaac Newton’s First Law of Motion Bodies in motion tend to stay in motion

30. Organizational Inertia • Organizational resistance is created in ESOs where communications are poor. ExampleGeneral management becomes convinced of the seriousness and urgency of a situation before the rest of the ESO. General management then triggers a strategic shift before the rest of the organization is convinced of the imminence of a crisis.

31. Organizational Inertia DefinitionOrganizational Inertia is the resistance to change which arises in the ESO when effort is made to change it strategic thrust. The components of inertia are systemic, cultural, and political

32. Organizational Inertia Components • Systemic – ESOs technology, systems, structures and procedures that contribute to resistance. • Cultural – ESOs attitude toward change, propensity for risk, time perspective, action perspective, and perception of critical success factors. • Power – the distribution of power among the ESO’s constituents.

33. Relation of Organizational Inertia to Power and Culture

34. Newton’s Laws • First lawObjects in motion tend to stay in motion, and objects at rest tend to stay at rest unless an outside force acts upon them. • Second lawThe rate of change of the momentum of a body is directly proportional to the net force acting on it, and the direction of the change in momentum takes place in the direction of the net force. • Third lawTo every action (force applied) there is an equal and opposite reaction (equal force applied in the opposite direction).

35. Newton’s Laws • First lawObjects in motion tend to stay in motion, and objects at rest tend to stay at rest unless an outside force acts upon them.ESOs have a tendency to persist in the strategic thrusts which is compatible with a dominant culture.

36. Newton’s Laws • Second lawThe rate of change of the momentum of a body is directly proportional to the net force acting on it, and the direction of the change in momentum takes place in the direction of the net force.The ESO’s inertia will be directly proportional to the strength of managerial authority exerted upon the ESO and how closely aligned the preferred strategic thrust of the ESO is to the new strategic thrust.

37. Newton’s Laws • Third lawTo every action (force applied) there is an equal and opposite reaction (equal force applied in the opposite direction).Social inertia does not become evident until strategic leadership attempts to change the ESOs strategic thrust

38. Transition Behavior Hypothesis 11.6: Social Inertia • An attempt to change an establish strategic thrust induces organizational resistance in the form of delays, inefficiencies, and efforts to roll back the change. • Resistance to change is proportional to the complexity and rigidity of the ESOs structure and systems; to the degree of discontinuity in the new structure and systems, and to the political threat it presents to the key power centers, and is inversely proportional to the cultural acceptability of the new thrust.

39. Transition Behavior Hypothesis 11.7: Elasticity of Inertia • In a given ESO the resistance to change will vary with the imminence of a crisis. It will be least under actual crisis conditions. Hypothesis 11.8: Speed of Transformation • The time required to effect the transformation of thrust varies directly with the inertial resistance in the size of the shift in the thrust. It varies inversely with the performance pressure.

40. Strategic Drift DefinitionStrategic Drift is a slow, organic and unguided transition of the strategic thrust and strategic action potential to another level.

41. Strategic Drift • During a crisis a shift in personal preferences and aspirations are suppressed in favor of the common survival drive. • Strategic drift occurs in the wake of a premature relaxation of a crisis atmosphere during a rapid shift in the strategic thrust.

42. Strategic Drift • Dramatic power shifts minimize the opportunity for the ESO to drift back a preferred strategic thrust. • Strategic drift will frequently lean toward change resisting cultures and thrust, although positive shifts may occur when the culture and power structure welcome the new thrust.

43. Transition Behavior Hypothesis 11.9: Strategic Drift Strategic drift may occur under the following conditions: • When the pressure which had previously forced a change in the strategic thrust is lifted prematurely; • When the power balance shifts, not enough to give one group a clear dominance, but sufficiently to enable it to force a drift toward its own culture; • When a change in the managerial structure or systems gradually brings about cultural change; • When the ESO has a distributed power structure. (The most favorable condition)

44. Modes of Transition • Budgeting/Operating Behavior – no dramatic changes in budget allocation • Strategically Adaptive Behavior – dramatically expand or contract budgets and make incremental changes in products, marketing and management consistent with past history • Strategically Discontinuous – ESO readily changes strategic thrust, strategic influence potential, and/or strategic action potential that is not consistent with past norms

45. Modes of Transition

46. Strategic Alignment When the shift in strategic thrust is rapid the result will be a misalignment between the thrust and strategic action potential thus:The effectiveness of the strategic behavior is reducedThe organizational transition becomes turbulent and inefficient

47. Alignment of Strategic Behavior A B Environment Aligned ESO Misaligned ESO Strategic Thrust Culture Managerial Capability Logistical Capability S R A E C Increasing Turbulence

48. Strategic Triggers • Aspiration Trigger – point of shift from budgeting behavior to strategic adaptation • Strategic Trigger – point of shift from strategic adaptation to strategically discontinuous behavior • Frustration Trigger – point of shift in exploring ESOs where dissatisfaction with lower returns leads to discontinuous strategic change • Anxiety Trigger – point of shift in stable and reactive ESOs fearing an impending crisis

49. Transition Triggers Strategic Adaptation Strategic Shift Budgeting ESO Performance C O T CrisisTrigger Strategic Trigger Aspiration Trigger Anxiety Trigger Ta = aC Frustration Trigger Tf = fA C O A ESO Performance 0 < a < 1 0 < f < 1 f > 1 Reactive Culture Anticipating Culture Stable Culture Creative Culture f = 1 Exploring Culture

50. Action Through Power Shifts • Power Shifts may occur when:New management is promoted to replace old managementExternal stakeholders force a management changeESO has gradually accumulated power from others and can make a de facto change in powerTakeover occurs because unit has become critical to ESOs success (i.e. production > marketing)