Running Head: ORGANIZATIONAL INTEGRATION LEADERSHIP

Organizational integration using a structural frame and transactional leadership LDS7002 Presented to Dr. Moussalli Indiana Tech By Thomas A. Titone 27 April 2013

ORGANIZATIONAL INTEGRATION LEADERSHIP

Abstract This paper reviews leadership practices during an organizational restructuring that integrates two companies. Two books will guide the analysis regarding the effectiveness of leadership activity in this case study. A book by Boleman and Deal, (2008) defines various frames which enables leaders to see different situational perspectives. The other book by Kotter, (2012) focuses on an eight stage process to lead change. Leaders can create successful change efforts, in part, by utilizing different situational perspectives and adapt leadership styles which provide focus on the people affected by the change process (Hogan, 2008; Kotter; 2012). Leaders with limited perspectives and leadership styles hold a disadvantage when conducting complex change initiatives such as in the case of a merger and acquisition integration (Boleman and Deal, 2008; Sendjaya, & Sarros, 2002). This case study reveals gaps toward successful change when leaders rely primarily on a structural frame and transactional leadership to conduct a change initiative. Keywords: integration, frame, change, leadership

ORGANIZATIONAL INTEGRATION LEADERSHIP

Introduction Organizational change is a challenging process which when done successfully takes into consideration multiple interactive and codependent elements (Boleman and Deal, 2008; Kotter, 2012). One example of organizational change is the complex integration process that takes place when two organizations merge together and form one company (Steynberg and Veldsman, 2011). The people who lead and manage the integration process play a crucial role in shaping the overall success of the organizational change (Ahn, Adamson, and Dornbusch, 2004; Kotter, 2012). Leaders bring to the process their own leadership styles and experiences which directly influence their ability to affect the outcome of the change effort (Boleman & Deal, 2008). But without the right experiences or leadership style to fit the circumstances, leaders can run into difficulties in guiding an organization through a successful change journey (Ford and Ford, 2009). Paradigm Shift The organization selected is in the midst of a multiyear organizational integration between two companies which has resulted in a paradigm shift for both companies. The actual shift between the companies began a decade ago, when a smaller company was made a subsidiary of a larger company through an equity firms restructuring. However, more formal actions began to take place circa 2010 when the larger company became the corporate headquarters and the smaller company became a satellite facility. The actual position between the old and new paradigm is at odds between leaders within the organization. Several corporate leaders who initiated the change have stated the change is complete. However, others in the organization, at various leadership and non-leadership positions, see the integration as on going. This paper will demonstrate the later based on observations and comparative analysis utilizing concepts presented by Boleman and Deal (2008) as well as Kotter (2012)

ORGANIZATIONAL INTEGRATION LEADERSHIP

Organizational Context The larger company, which specializes in air analysis devices, has its corporate headquarters located near metro Minneapolis Minnesota. The corporate headquarters administers several satellite facilities located in North America, Germany, the United Kingdom and Asia. The headquarters facility employs about twice the number of people and generates about three times the revenue compared to the satellite facility. The people at the headquarters demonstrate a quiet, professional and academic business culture. In comparison, the satellite facility is an agricultural electronics manufacturing company located in rural central Illinois. The rural people at the satellite facility display a laid back, family oriented and self-reliant business culture. Both the headquarters and the satellite facility were originally operated as independent self-sustaining organizations; each with its own host of business departments such as research and development, engineering, manufacturing operations, purchasing, human resources as well as sales and marketing. Both original companies started in the 1960s and have since evolved, grown and been sold to a common private equity firm. Post 2000, the satellite facility divested itself of a vertically integrated manufacturing model and flattened the manufacturing organization while retaining the aforementioned business departments. During this same time period, both companies independently cycled through their own presidents. Change Initiative Purpose Simply stated, the corporate president communicated the change effort goal to integrate the two companies to one company with global centers of excellence. Specifically, one company in central Illinois would become a satellite company of the corporate headquarters located near Minneapolis, Minnesota. To do so, the executive team and senior managers devised plans and vetted ideas on how best to restructure the organization to operate like one company. The plan,

ORGANIZATIONAL INTEGRATION LEADERSHIP

as it unfolded, began to transform the once separate companies, operating at a distance hundreds of miles apart, into a matrix organization led by several executives at the corporate headquarters. Over the next two years parts of several departmental functions moved from the satellite company to the corporate headquarters. Some functions that moved to the corporate office were parts of the engineering department and some of the executive responsibilities such as president, quality, human resources, sales, marketing and accounting. However, manufacturing operations remained the most significant intact functional group left in the satellite facility. Change Framework Concepts The organizational restructuring change framework transformed the satellite facility from a flattened organizational structure, also knows as a simple structure, into a machine bureaucracy (Boleman & Deal, 2008, p.80). The original structure had a president with a few executive managers overseeing the departments. The new structure eliminated executives at the satellite facility and expanded the reach of responsibility by executives at the corporate headquarters (Boleman & Deal, 2008, p.81). The satellite facility now operates through managers who report to executives at the corporate headquarters. These changes created an overarching organization between corporate office and satellite facility. Executives began regular visits from the corporate office to the satellite facility. The executives observed existing practices, established some familiarity with personnel and followed-up on directed changes from the corporate office. In addition, the satellite facility personnel no longer held complete authority over strategic planning, budgeting or staffing. Some satellite departments began to align policies and procedures to coincide with corporate headquarters facilities. Metrics and regular reporting mechanisms became more similar. For example, departments refashioned existing monthly metrics for quality, on-time delivery and warranty, to look similar to corporate headquarters metrics reports. Several procedural changes

ORGANIZATIONAL INTEGRATION LEADERSHIP

resulted in requiring a multi-level approval process that included the president of the company. These procedural changes transferred the satellite leaders day-to-day autonomy to the executives at the corporate office. For example, procedures included capital purchases and staffing acquisitions. Though corporate executives already approved the budgeted items, they now require multi-level signatures to take action or spend the funds. Now hiring a temporary worker required signatures of several people including the hiring manager, human resource manager, two vice presidents and the president of the company. Satellite facility personnel also contributed to the change effort. Such as in the case of, Hoshin Kanri, a policy deployment methodology used to align strategic and projects between the executives and personnel at the satellite facility. In another example, the human resource department began to change many of the pay and benefits packages for hourly and some salary personnel. To do this, managers met at the satellite office to formulate a plan to communicate the corporate changes. Upon announcing the changes, employees dissented and threatened to unionize. This information made its way to the highest levels of the corporation. In response, corporate headquarters personnel met with satellite facility management team to quell employee tempers. The sessions included methods on how to respond to the disgruntled employees. In addition, consultants proctored facility wide town hall feedback sessions to gain information on the concerns and feelings of the integration changes. The satellite management team then made another attempt to change the pay and benefits package which satisfied to some degree all those involved. However, the final policy was not exactly the same at the corporate headquarters and the satellite facility. The Change Initiative The corporate executive management team began sometime circa 2010 planning to change the organization in order to improve overall organizational performance. Some initial

ORGANIZATIONAL INTEGRATION LEADERSHIP

actions included a separation from the satellite facilitys president and the vice-president of sales and marketing. Following these departures, the company posted a series of temporary organizational charts which provided varying levels of authority and responsibility by the remaining executive or management staff within the satellite facility. The changes shifted most authority and power to the executives in the corporate office. Eventually, the company president announced that the two separate organizations would become one company for the sake of synergy and business performance enhancement. As a result, stories began to circulate throughout the facility as to the nature of the pending changes. The stories circulated based on speculation, formal executive communications and information prematurely leaked to the general population. The leaked information included moving all but manufacturing operations out of the satellite facility. The departments potentially moving to the corporate office included engineering, accounting, purchasing as well as sales and marketing. This leak integration plan changes, violated the trust between leaders at the corporate headquarters and the personnel at the satellite facility. Restructuring the engineering department represents one key change example. Various parts of the engineering group were transferred or replaced by staff at the corporate headquarters. In response to these moves, some engineering talent with tacit and marketing knowledge left the company through either resignations or terminations which further eroded trust and confidence by satellite facility personnel. These changes and actions left personnel without a clear understanding of either the direction or end goal of the organizational change. The satellite personnel began to question the plan and path of action. Offering both constructive criticism and suggested alternatives. The corporate executives addressed these questions to some degree. However, without a clear vision for the organization, people still had questions. Personnel at the corporate office began to see these questions as a challenge to their

ORGANIZATIONAL INTEGRATION LEADERSHIP

authority and as a strong resistance to change. The reason behind the resistance isnt completely understood by the entire leadership or management team at either facility. Groups on both sides continue to judge and blame each other for the situational discontent. This has led to more conflict and less open communications between personnel at all levels in the now combined organization. As a result, satellite senior and middle management leaders continue to receive regular coaching sessions on how to manage their own change behavior and how to address resistance to change as a leader. Leadership Style Impact The executive management team at the corporate headquarters led the one company change initiative. Outside of the president, each executive has change responsibility for personnel alignment within their respective functional groups. In addition, each respective satellite facility department management team member has responsibility for implementing the change actions within the day to day operations at the satellite facility. Also, the human resource executive vice president supported each functional group change initiative. In this role, the human resource vice president orchestrated the organizational re-restructuring efforts and developed the communications methods and tools to deliver the message and execute the change efforts. As a result, the human resource vice president held cross-functional and multi-level influence throughout the change process. Therefore, the human resource vice president is the central leader examined in this case study. The human resource vice president clearly demonstrates certain leadership qualities given her strong communication skills and consistent poise when presenting herself or her ideas in public. As a result, she delivers unwavering messages with confidence and sincerity. Utilizing the situational leadership model of Hersey, (1984) as presented by Boleman and Deal (2008), the human resource vice president engages people at a low relationship level and high task level.

ORGANIZATIONAL INTEGRATION LEADERSHIP

This is due, in part, to the lack of strong relationships with stakeholders at the satellite facility. As a result, she did not possess sufficient knowledge of personnel capabilities. This lack of knowledge in turn required her to carry out the integration leadership interaction through delegation and direction. For example, she directed the aforementioned pay and benefits policy change. Once the change met with unexpected resistance, she further expanded her direction and sought to craft a comprehensive communications plan of the whole sale change. The human resources vice president utilizes the structural frame by attempting to align the company structure and policies with the corporate strategy. Unfortunately, the focus on the change implementation allowed for typical structural leader oversights as described by Boleman and Deal (2008). Both the benefits change and the engineering restructuring highlights the following typical oversights. The change initiative plan; underestimated the potential resistance to change, provided insufficient training up front, did not build a political base at the satellite facility and misread the cultural cues provided at the satellite facility (Boleman & Deal, 2008). The vice president combines the structural frame perspective with a transactional leadership model as defined by Eagly, Johannesen-Schmidt and Van Engen, (2003). The transactional leader provides contingent rewards based on performance as does the vice president. For example, she gives recognition of good performance as part of a corporate program with financial incentives and recognition in a company newsletter. As in the case of the benefits policy change, the human resource vice president passively managed until a problem became severe enough to take action. However, she also actively manages by exception through extensive micromanagement when dealing with structural items or corporate directives. She reviews and approves items already approved by three managers in the organization, as in the case of pre-budgeted items such as temporary hires and tuition reimbursements.

ORGANIZATIONAL INTEGRATION LEADERSHIP

10

Follower Impact As a result of this leadership style and common shortcomings, the human resource vice president is perceived to be a tyrant in attempting to micromanage details and interactions with her peers and her subordinates. Subordinates substantiate perceptions through changes in polices and procedure once left to onsite managers but now funnel through the vice-presidents office. Therefore, employees sense a lack of trust by the vice presidents micromanagement which in turn others from various organizational levels reciprocate. Furthermore, employees began to feel as if the past wasnt that good and that their contributions no longer mattered. These feelings resulted in employees becoming self-conscious of their ability to contribute to the future success of the company (Boleman & Deal, 2008). As a result, people felt a lack of respect for their ideas and ultimately lost faith in the over forty year old organization; where many people have spent most if not all their entire careers or working lives at a company which is now a satellite facility to a larger organization. This loss of faith disenfranchised employees by taking away their desire to work or do their best for the company (Boleman & Deal, 2008). Some vocalized their discontent and were scolded for doing so or were pacified for their silence. Without faith in the leaders and no well understood plan for the organization, some became so unhappy that they left the company seeking contentment (Boleman & Deal, 2008). These departures, combined with relocations or terminations separated lifelong friends which further demoralized the people and sent them into a depression spiral for their loss of both their work family and work life as they had known it (Bridges & Mitchell, 2000). Leadership Alignment As the satellite facility employees lost faith in the organization their cultural identity began to wane (Boleman and Deal, 2008). The organization defined as an agricultural company

ORGANIZATIONAL INTEGRATION LEADERSHIP

11

was now part of a larger company where the forty year heritage was now just another brand in a string of product lines managed by corporate executives. So employees no longer believed in the company because they no longer knew the organizational purpose or direction. The employees satisfaction and meaning are now lacking which in turn has led them to withdraw, resist and rebel (Boleman and Deal, 2008). Employees gain satisfaction by establishing connections to meaning, faith and purpose of the organization. A leader can better understand what satisfies employees through the symbolic and human resource frames. However, the leadership team relied on the structural frame which lacks the elements necessary to understand employee satisfaction. (Boleman and Deal, 2008). Feelings of respect and trust could not be developed in the presence of the micromanagement brought on by an overwhelming structural frame perspective combined with transactional leadership (Eagly, Johannesen-Schmidt & Van Engen, 2003). Kotters Eight Stage Change Process Kotter (2012) outlined an eight stage change process for creating major change. The leadership initiatives in this organizational restructuring effort only partially attempted or completely missed the eight steps. Step one establishes a new sense of urgency. The executive team launched the change initiative by describing the sense of urgency as crisis in the product development pipeline and that the combined synergies of engineering talent at both facilities would solve this crisis. The company president presented this information at various meetings with executives, senior management and personnel companywide. Step two creates a guiding coalition. The guiding coalition created to drive the change had the official power of the executive office and senior management level. However, when tactics and strategy diverged, conflict ensued and team failed to coalesce. In addition, the power

ORGANIZATIONAL INTEGRATION LEADERSHIP

12

wielded by some was due to title only and was without the necessary relationships established to lead a change effort. Step three develops a vision and strategy. Leaders coordinated at the executive level to draft the vision and strategy of the organization. The entire process use to craft the vision and strategy is not entirely known. However, corporate executives used a hoshin kanri process by conducting a series of meetings to communicate, discuss and receive feedback on company strategy (Liker, & Hoseus, 2008). The executives chaired the meetings between cross functional and cross facility groups. Throughout the integration, executives changed the articulated vision multiple times throughout the integration. First the vision targeted financial and business metrics. Later the vision was changed to having one company with scalable synergies which would cross multiple markets. The most recent vision contains common financial and business metric goals but each facility has a different detailed vision using a shared matrix of resources between the two facilities. Step four communicates the change vision. Executive staff communicated the change vision of one company by posting formal organizational charts and change announcements. In addition, executives made presentations and held follow-up meetings to discuss the change with all satellite facility personnel, its leaders as a group and as individuals. Change communication began slowly as leaders of both facilities published, in the semimonthly company newsletter, stories of inter-facility team success. Step five empowers a broad based action. A series of moves and announcements began to transition engineering staff from the satellite facility to the corporate headquarters which eliminated duplicate functions at both facilities. In addition, most executive positions were eliminated at the satellite facility. To remove some communication barriers, employees from both facilities engaged in activities together while making trips to both facilities. Risk taking

ORGANIZATIONAL INTEGRATION LEADERSHIP

13

was not readily encouraged; rather a methodical and logical approach was instituted to generate ideas. These approaches included structured methods for problem solving and communicating ideas such as A3 or 8D tools which included problem statements, cause assessments and action statements. Step six generates short term wins. The company publicly identified and recognized short term wins tied directly to the integration restructuring. For example, each facility had a newsletter publication but integration combined these newsletters. Also, announcements relayed that a segment of engineering had finally moved from the satellite facility to the corporate headquarters. As a result, these actions left offices and cubicles vacant, while the corporate headquarters initiated construction to expand the size of its complex. Therefore, these actions albeit a completed step toward integration, were not necessarily widely celebrated achievements. Step seven consolidates gains and produces more change. Gains in the change efforts were never consolidated to produce further change. As each organizational change took place, resistance resurged which caused the need for the change leaders to regroup and quell emotions once again. Each change took away a piece of employee connection or identity to the organization without establishing a tie or new connection to the future vision. New employees were hired or introduced from the corporate headquarter to help lead change efforts. But suspicion and resistance to these people mounted as unexpected changes were announced to accommodate the evolving organizational vision. For example, one business segment of engineering was originally slated for movement to the corporate headquarters. But as new leaders emerged, they announced that engineering would grow at the satellite facility. Only later to renege on the statement and push to move all of engineering development to the corporate facility.

ORGANIZATIONAL INTEGRATION LEADERSHIP

14

Step eight anchors new approaches in the culture. Shared activities and experiences between personnel at both facilities struggled to anchor new approaches in the culture. Many people now have to reestablish connections both on a personal and professional level to accomplish tasks. For example, design projects now must be coordinated between people at two facilitates. However, these organizations have separate procedures and cultural norms from which to work. As a result, mutual expectations and understanding of responsibilities are not defined or understood by employees. The lack of clarity causes conflict and frustration with one another. So these new behaviors are not felt as successful even if the task was accomplished. Bolman and Deals Reframing Organizations Bolman and Deal (2008) suggests four perspectives with which leaders view, understand and adapt to an organization. These perspectives, the authors described as frames. A frame is a coherent set of ideas forming a prism or lens that enables you to see and understand more clearly what goes on from day to day (Boleman & Deal, 2008, p. 43). The structural frame views the social architecture, govern rules roles and responsibilities of people within an organization (Boleman & Deal, 2008). The leadership in this organization relied heavily on this frame. Leaders redefined the organizational chart and redistributed the roles and responsibilities. The change took authority and some responsibility away from people in the satellite group and gave it to those at the corporate headquarters. Previous modes of organizational interaction, such as daily face to face discussions, were eliminated which left the satellite employees to rely on a new structure of policies which were not always well defined, understood or communicated. The human resource frame looks at how organizations and people mutually coexist in a codependent relationship helping each other survive (Boleman & Deal, 2008). The organizational restructuring strained the fit between the personnel at the satellite facility and the

ORGANIZATIONAL INTEGRATION LEADERSHIP

15

new company model. People no longer found the work satisfying as they began to have relationships break apart while at the same time responsibilities and authority taken away. As a result, the employees felt neglected and undervalued which eroded the employee effort; and in some cases, the talent as people left the organization. Some departmental leaders engaged employees in tasks through project committees or problem solving teams. The company ownership even helped to improve moral over the short term with a satellite facility specific bonus. However, overall, employee investments and empowerment have not been strong elements in the existing leadership model as a way to keep and retain the right people in the organization. The political frame relates to the power associated with the process of making decisions to allocate scarce resources amidst various interested groups or people (Boleman & Deal, 2008). The organizational restructuring completely changed the political power structure of the organization. Previously, the satellite facility relied on coalitions, inclusiveness and consensus to ensure the allocation of scarce resources amongst the interested factions. The reorganization pulled the power structure out of the satellite facility and into the corporate headquarters. As a result, positions of authority or coercion were perceived as the dominate use of power. This was especially so since the relationships and daily connections were not developed due to the time and distance between those in power and those needing resources. The bottom-up cooperation is now at conflict with the top-down control. The symbolic frame sees how people make sense of the world around them by finding meaning through belief and faith (Boleman & Deal, 2008). The restructuring caused employees to question whether the traditional way of doing things was still acceptable. Somehow their contributions were no longer good enough, as product development that created the organizations identity were now being moved to another facility to be managed by different

ORGANIZATIONAL INTEGRATION LEADERSHIP

16

people. In the past, the product development was a team effort to make products a success through the collective struggle to overcome obstacles. This model of team building which contributed to the organizational lore and identity has changed. The symbols and brands of the products do physically remain intact. However, new processes have yet to be developed in the new organization to gain similar connections between the people, the organization and its collective culture. Change Leader Effectiveness The leadership in the organizational restructuring centered on the human resources vice president. The leaders process was not entirely effective in conducting a comprehensive change process. Gaps in the change effort were due primarily to the focus on the structural frame and transactional leadership style. One gap failed to bridge a connection for loss from the old organization to the new organization as documented by Bridges and Mitchell, (2000). This unsatisfied loss, has led to a chronic state of conflict that was avoidable. In addition, much of the frustration in the organization stems from the sources of ambiguity as outlined by McCaskey (as cited in Boleman & Deal, 2008, p. 33). The employees were not sure of the plan or what they were supposed to do. They also were not sure if they had the resources to succeed or how to get the resources they needed. These gaps indicate the organization is being over managed and under led because the satellite employees await instructions on what to do and how to react. The satellite facility managers wait to act because of their superiors micromanagement in lieu of empowerment. Furthermore, the change model failed to fully consider the aspects of the human resource, the political and the symbolic frame which includes focusing on the people perspective as the key element and not just the tactical actions of structural change (Ahn, Adamson, & Dornbusch, 2004; Boleman & Deal, 2008; Liker, & Hoseus, 2008; Steynberg, & Veldsman,

ORGANIZATIONAL INTEGRATION LEADERSHIP

17

2011). In contrast, successful change requires about 75% leadership and 20% management Kotter (2012). Conclusion Organizational change challenges leaders (Ford and Ford, 2009; Kotter, 2012). Leaders faced with an organizational integration will contend with a complex and challenging process (Steynberg and Veldsman, 2011). The complex process becomes even more challenging when leaders face the task with limited leadership perspectives and do not adapt to meet the given situation (Boleman and Deal, 2008; Hogan, 2008). In particular, leadership approaches which focus on the structural elements and the tactical execution of task run the risk of alienating and disenfranchising the people (Boleman and Deal, 2008). Leaders can find greater success with organizational change by employing models such as the human resource and symbolic frames as well as transformational and servant leadership. These concepts place people at the heart of any change effort success (Ahn, Adamson, and Dornbusch, 2004; Boleman & Deal, 2008; Bridges and Mitchell, 2000; Eagly, Johannesen-Schmidt and Van Engen, 2003; Ford & Ford, 2009; Kotter, 2012; Sendjaya & Sarros, 2002).

ORGANIZATIONAL INTEGRATION LEADERSHIP

18

References Ahn, M. J., Adamson, J. S., & Dornbusch, D. (2004). From leaders to leadership: Managing change. Journal of Leadership & Organizational Studies, 10(4), 112-123. American Psychological Association. (2010). Publication Manual of the American Psychological Association (6th ed.). Washington, DC: American Psychological Association. Bolman, L.G., & Deal, T.E. (2008). Reframing organizations: Artistry, choice and leadership (4th ed.). San Francisco, CA: Jossey-Bass. Bridges, W., & Mitchell, S. (2000). Leading transition: A new model for change. Leader to Leader, 16(3), 30-6. Eagly, A. H., Johannesen-Schmidt, M. C., & Van Engen, M. L. (2003). Transformational, transactional, and laissez-faire leadership styles: a meta-analysis comparing women and men. Psychological bulletin, 129(4), 569. Ford, J., & Ford, L. (2009). Decoding resistance to change. Harvard Business Review. 99-102. Hogan, T.J. (2008). The adaptive leadership maturity model. Organization Development Journal, 26(1), 55-61. Retrieved from http://search.proquest.com/docview/197997251?accountid=42681 Gilley, A., McMillan, H. S., & Gilley, J. W. (2009). Organizational change and characteristics of leadership effectiveness. Journal of leadership & organizational studies, 16(1), 38-47. Kotter, J. P. (2012). Leading change. Boston: Harvard Business School. Liker, J. K., & Hoseus, M. (2008). Toyota culture. McGraw-Hill. McGuire, J. B., Palus, C. J., Pasmore, W., & Rhodes, G. B. (2009). Transforming your organization. Global Organizational Development White Page Series.

ORGANIZATIONAL INTEGRATION LEADERSHIP

19

Sendjaya, S., & Sarros, J. C. (2002). Servant leadership: Its origin, development, and application in organizations. Journal of Leadership & Organizational Studies, 9(2), 57-64. Steynberg, R., & Veldsman, T. (2011). A comprehensive, holistic people integration process for mergers and acquisitions. SA Journal Of Human Resource Management, 9(1), 16 pages.