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16

Talent Management

learning
objectives

Examine and evaluate the coaching and mentoring intervention.

Describe the process of implementing management and leadership
development interventions.

Understand how career planning and development interventions improve
the individual’s personal competencies and enhance traditional human
resource approaches.

This is the second chapter on human resourcemanagement interventions—planned changeefforts intended to address the attraction,
development, and retention of human capital in
organizations. It presents three interventions con-
cerned with talent management. First, coaching
interventions attempt to improve an individual’s
ability to set and meet goals, lead change, improve
interpersonal relations, handle conflict, or address
style issues. These resource-intense interventions
focus on the skills, knowledge, and capabilities
of an organization member, usually a manager
or executive but in the case of mentoring also
can apply to individual contributors. Second, man-
agement and leadership development processes
are the primary human resource interventions
for transferring knowledge and skills to many
individuals. They can include in-house training pro-
grams, external educational opportunities, action-
learning projects, and other activities. Third, career
planning and development interventions address
different professional needs and concerns as orga-
nization members progress through their work
lives. All three interventions can support the train-
ing and development aspects of performance

management described in Chapter 15. In the fol-
lowing chapter, interventions that address work-
force diversity, stress, and employee wellness are
presented.

Boudreau argues that HR and organization
development (OD) professionals need to increase the
decision-making rigor regarding talent management.1

He suggests that talent management investments
are as critical to organization effectiveness as
finance and marketing investments and warrant a
more reasoned decision science in human
resources thinking. In the absence of such an
approach, human resource policies resemble a “one
size fits all” point of view and lead to blanket human
capital policy statements like “everyone should get
40 hours of training each year.” In fact, some talent
pools are more important to effectiveness than
others are.

In times of scarce investment resources,
organizations should determine which talent pools
(e.g., customer contact positions, engineering
positions, or leadership) are most “pivotal.”
Those talent pools where improvements in skills,
knowledge, and competence are most likely to
have the biggest impact on performance should

473

get a disproportionate amount of investment.
This perspective will likely conflict with OD’s
traditional egalitarian values, but reflects an

important future trend in human resources
management as the function matures and
becomes more strategic in nature.2

16-1 Coaching and Mentoring
Coaching involves working with organizational members, typically managers and execu-
tives, on a regular basis to help them clarify their goals, address potentially limiting
behavioral style issues, and improve their performance. This intervention is highly per-
sonal and generally involves a one-on-one relationship between the OD practitioner and
the client. Almost every OD intervention involves some coaching. However, the inter-
vention described here helps managers to gain perspective on their dilemmas and trans-
fer their learning into organizational results; it increases their leadership skill and
effectiveness.3

Similar to coaching, mentoring involves establishing a relationship between a man-
ager or someone more experienced and another organization member who is less experi-
enced. Unlike coaching, mentoring is often more directive, with the mentor intentionally
transferring specific knowledge and skill and guiding the client’s activities, perhaps as
part of a career development process (see career planning and development processes
below).4

Coaching can be seen as a specialized form of OD, one that is focused on using the
principles of applied behavioral science to increase the capacity and effectiveness of indi-
viduals as opposed to groups or organizations. It is one of the fastest-growing areas of
OD practice. The International Coach Federation (www.coachfederation.org), founded
in 1995, grew to over 5,500 members in 2002 and to over 18,000 members in 2012.
CoachVille (www.coachville.com), the largest professional network and trainer of coa-
ches worldwide, has over 30,000 members in more than 175 countries. They both offer
coaching certification programs and standards to professionalize the field.

Coaching is a skill that any OD practitioner or manager can develop.5 It involves
using guided inquiry, active listening, reframing, and other techniques to help individuals
see new or different possibilities and to direct their efforts toward what matters most to
them. When done well, coaching improves personal productivity and builds capacity in
individuals to lead more effectively. Unfortunately, despite growing professionalism in
the coaching field, the process can be technique driven, especially when practitioners
substitute formulas, tools, and advice for experience, good judgment, facilitation, and
compassion.

16-1a What Are the Goals?
Coaching typically addresses one or more of the following goals: assisting an executive to
execute more effectively some transition, such as a merger integration or downsizing;
addressing a performance problem; or developing new behavioral skills as part of a lead-
ership development program. A Harvard Business Review study of 140 coaches identified
the top three reasons for coaching: (1) developing high potentials or facilitating a transi-
tion, (2) acting as a “sounding board,” and (3) addressing derailing behavior.6 In any
case, coaching is often confused with therapy.7 Most coaching approaches acknowledge
that coaching is not therapy. While both coaching and therapy can focus on personal
development, coaching assumes that the client is healthy rather than suffering from
some pathology. Coaching is also primarily future and action oriented rather than

474 PART 5 HUMAN RESOURCE INTERVENTIONS

focused on the past, as are many therapeutic models. Coaching can involve helping cli-
ents understand how their behaviors are contributing to the current situation. Such
understanding is often difficult to achieve and often deeply personal. Therefore, clients
and client organizations must acknowledge the limits of a coach’s skills and abilities.
Many coaching failures have been attributed to working too far from the practical appli-
cation of behavioral principles, or too close to the boundaries of therapy, and to the fail-
ure of the coach to understand the difference.

16-1b Application Stages
The coaching process closely follows the process of planned change outlined in Chapter 2,
including entry and contracting, assessment, debriefing (feedback), action planning, inter-
vention, and assessment.8 The mentoring process is similar except that the assessment is
generally presumed and the process moves straight to action planning.

1. Establish the principles of the relationship. The initial phases of a coaching inter-
vention involve establishing the goals of the engagement; the parameters of the rela-
tionship, such as schedules, resources, and compensation; and ethical considerations,
such as confidentiality and boundary issues.

2. Conduct an assessment. This process can be personal or systemic. In a personal
assessment, the client is guided through an assessment framework.9 It can involve a
set of interview questions that elicit development opportunities or a more formal
personal-style instrument, such as the Myers–Briggs Type Indicator, the FIRO-B,
or DISC profile. Other instruments, including the Hogan’s battery of tests, the
Minnesota Multiphasic Personality Inventory (MMPI), or the “Big 5” instrument,
are also used, but they require extensive training and certification. OD practitioners
should carefully consider the ethics of using different instruments and their qualifi-
cations for administering and interpreting the results. In a systemic assessment, the
client’s team, peers, and relevant others are engaged in the process. The most com-
mon form of systemic assessment involves a 360-degree feedback process.

3. Debrief the results. The coach and client review the assessment data and agree on a
diagnosis. The principles of data feedback outlined in Chapter 6 apply here. The
purpose of the feedback session is to get the client to move to action. In light of
the assessment data, intervention goals can be further refined and revised if
necessary.

4. Develop an action plan. Together, the client and coach outline specific activities to
engage in. These can include new actions that will lead to goal achievement, learning
opportunities that build knowledge and skill, or projects to demonstrate competence.
Developing an action plan can be the most difficult part of the process because the
client must own the results of the assessment and begin to see new possibilities for
action. The action plan should also include methods and milestones to monitor
progress and to evaluate the effectiveness of the coaching process.

5. Implement the action plan. In addition to the elements of the action plan listed
above, much of the coaching process involves one-on-one meetings between the
coach and client. In these sessions, the coach supports and encourages the client to
act on her/his intentions. A considerable amount of skill is required to confront,
challenge, and facilitate learning.

6. Assess the results. At appropriate intervals, the coach and client review and evaluate
the results of implementation. Based on this information, the goals or action plans
can be revised, or the process can be terminated.

CHAPTER 16 TALENT MANAGEMENT 475

16-1c The Results of Coaching and Mentoring
Although coaching has been practiced for many years, there are only a small number of
studies assessing its effectiveness. Most of the evidence remains anecdotal and case based
although a few large sample studies have been conducted.10 The case evidence cites diverse
benefits depending on the nature of the client’s objectives. For example, one found that
coaching improved personal productivity, quality, working relationships, and job satisfac-
tion. The return was estimated to be 5.7 times the initial investment.11 Another study
reported that managers found positive results with respect to their personal lives, social
interactions with others, and the skills and knowledge that were important to their work.12

A prepost test design in a government organization found that the experimental
group receiving coaching made significant improvements compared to the control
group on two of six measures, including “acting in a balanced way” and in beliefs
about their ability to set goals.13 Similarly, a randomized control group design of
41 executives in a public health agency received 360-degree feedback, a one-half day
leadership workshop, and four individual coaching sessions over ten weeks. The coaching
group reported enhanced goal attainment, increased resilience and workplace wellbeing,
and reduced depression and stress. Qualitative responses indicated participants found
coaching helped increase self-confidence and personal insight, build management skills,
and helped participants deal with organizational change.14 Finally, a review of the empir-
ical and case study research between 2001 and 2010 found only one meta-analysis of
coaching cases. In the researchers’ opinion, there were too few cases to conduct a meta-
analysis and concluded that the wide range of reported results, while positive and sup-
portive of an organizational impact, was primarily driven by the client’s readiness for
change and the nature of the coaching relationship.15 Clearly, more rigorous studies are
necessary to judge the effectiveness of coaching interventions.

The modest research on mentoring suggests that it is relatively prevalent in organiza-
tions, including Hewlett-Packard, Charles Schwab, Ford Motor Company, Ernst & Young,
Quaker Oats Company, IBM, Georgia-Pacific, Ceridian, JCPenney, PriceWaterhouseCoopers,
3M, and General Mills. About two-thirds of top executives report having a mentor or
sponsor during their early career stages, when learning, growth, and advancement were
most prominent. Effective mentors were willing to share knowledge and experience, were
knowledgeable about the company and the use of power, and were good counselors.
Mentored executives, in contrast to executives who did not have mentors, received slightly
more compensation, had more advanced college degrees, had engaged in career planning
prior to mentoring, and were more satisfied with their careers and their work.16

Research also shows that mentoring is critical for minority and female employees.
One recent study of mentoring minorities stresses that a strong network of mentors is
critical to advancement, and that the mentor of minorities must understand the chal-
lenges that race presents to career development and advancement.17 Similarly, women
face unique challenges, and must address some of the same issues.

16-2 Management and Leadership
Development Interventions
Management and leadership development programs are one of the most popular OD
interventions aimed at developing talent and increasing employee retention. These pro-
grams build an individual’s skills, socialize leaders in corporate values, and prepare
executives for strategic leadership roles.18 A wide-array of organizations offer leadership

476 PART 5 HUMAN RESOURCE INTERVENTIONS

development programs, including Procter & Gamble, Teekay, Federal Express, PartnerRe,
PepsiCo, Cisco Systems, IBM, Microsoft, and Hewlett-Packard.

Management and leadership development interventions can be differentiated from
career development (described below). In management and leadership development, the
focus is on developing the skills and knowledge the organization believes will be neces-
sary to implement future strategies and manage the business. In career development, the
focus in on building the skills and knowledge the individual believes will best equip them
for the career they prefer. Ideally, there is considerable overlap between the two.

Executives agree that preparing leaders is an important top management team
function. However, a recent survey of over 600 executives by the Center for Effective
Organizations and Heidrick and Struggles also found that top management teams were
“uncertain” about the extent to which they performed this function well.19 This section
describes the purpose and goals of leadership development interventions, the application
steps and conditions for transfer, and the research support for this intervention.

16-2a What Are the Goals?
The term training is typically used when the goal is development of the workforce, while
the terms management development or leadership development are normally applied
when the goal is development of the organization’s management and executive talent.
There is a wide range of training and development interventions, and not all involve
OD. For leadership development to be considered an OD intervention, it must focus on
changing the skills and knowledge of a group of organization members to improve their
effectiveness or to build the capabilities of an organization system.20 For example, a lead-
ership development program that provides information about the organization’s strategy
would not qualify as an OD intervention.

16-2b Application Stages
Management and leadership development interventions generally follow a process of
needs assessment, setting instructional objectives and design, delivery, and evaluation.21

1. Perform a needs assessment. Similar to the diagnostic process in the general model
of planned change, a needs assessment typically determines the competencies
believed to characterize effective leaders in the organization. This can be done by
interviewing well-respected executives or reviewing lists of published leadership
competencies. The logic of this intervention assumes that if OD practitioners can
identify the right leadership skills and knowledge, they can develop a program to
educate and equip participants with these competencies. McCall has challenged this
approach and suggested that good leaders develop competencies from experience,
not training. As a result, a needs assessment must gather data on the strategy, the
organization, and the individuals who might attend the leadership program.22

The strategy assessment involves understanding the knowledge and experiences
future leaders will need to execute the business strategy. It includes tasks, activities,
and decisions that participants should perform better after training as well as the
conceptual frameworks that guide these activities. This can be done by identifying
the top three to five external and internal leadership challenges facing the business23

and the experiences that might help build the competence to deal with them. For
example, the Hartford Financial services group believed that its long history of success
had created an internal culture that favored stability over change. In the face of

CHAPTER 16 TALENT MANAGEMENT 477

increasingly aggressive competition and more demanding customers, its leadership
development program included the analysis of a business situation and activities
intended to create change readiness in a relevant portion of the organization.

The organization assessment focuses on the systems that may affect the ability
to transfer learning and developmental experiences back to the organization. For
transfer to occur, a leadership development program must provide participants
with the opportunity and appropriate conditions to apply their new skills, knowl-
edge, and abilities to the work situation. The organization assessment determines
whether the necessary support exists in the organization to make leadership devel-
opment worthwhile. For example, if executives were generally unwilling to send
their managers to the program for fear of losing them to promotion, then the orga-
nization assessment would suggest addressing management’s readiness for change
before implementing the program.

The final element, individual assessment, aims to understand the existing pool of
people who should be candidates for the program. Such an assessment would include
their current level and ranges of skills, knowledge, and abilities. Recently, leadership
development programs have begun to focus on the personal growth of the partici-
pants, and so an important part of the assessment would be to understand individuals’
attitudes toward personal reflection and its role in leadership effectiveness.

2. Develop the objectives and design of the training. This step first establishes out-
come objectives for the development intervention. These objectives should describe
both the results expected from a competent leader and how those results were
achieved. For a leadership development program, an appropriate objective might be
“the ability to produce an acceptable strategic plan for a strategic business unit” or
“to increase participants’ commitment to the strategic direction of the corporation.”

The design of the training involves making choices from among a wide variety
of techniques. The more traditional methods of classroom lectures, 360-degree
feedback, simulations, case studies, or experiential exercises, have been augmented
by more recent emphases on rotational assignments, on-the-job training, coaching,
or action learning projects.

3. Deliver the training. This stage implements the development program. Participants
are invited or apply to attend the program, complete the activities included in its
design, and return to their normal work routines.

4. Evaluate the training. This final step assesses the training to determine whether it
met its objectives. The four criteria most commonly used to evaluate training effective-
ness are reaction, learning, behavior, and results.24 Reaction is the most commonly
used evaluation criterion and refers simply to the participants’ initial judgment about
the training’s usefulness. It is often assessed via questionnaires completed immediately
following the training activity. The learning criterion refers to whether or not partici-
pants acquired the knowledge that should have been transferred during the training; it
stops short of assessing performance or behavior on the job. This can be assessed via
interview or questionnaire. The behavior criterion assesses whether new skills and
abilities gained in the training are actually applied to job activities. These data can be
collected through observation or through interviews with the participant’s manager.
The final criterion, results, determines whether the training can be credited with
improvements in the participant’s or the system’s effectiveness.

Application 16.1 describes a management development program at Microsoft
Corporation. The company was interested in building the strategic competence of its
middle managers and making the organization more capable at managing strategic change.

478 PART 5 HUMAN RESOURCE INTERVENTIONS

a
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1
6

1 LEADING YOUR BUSINESS AT MICROSOFT CORPORATION

M
icrosoft is the largest software develop-
ment organization and one of the most
successful businesses in the world. In
its relatively short history, growth has

characterized almost every aspect of the com-
pany. Growth fueled not only Microsoft’s repu-
tation and no small number of millionaires,
but it also demanded that the Microsoft organi-
zation mature. As technologies, products,
markets, and revenues grew, so did the oppor-
tunities for professional advancement. Soft-
ware development engineers that wanted to
guide, shape, and manage the organization’s
growth found plenty of chances to become
managers, directors, and vice presidents.

After years of double-digit growth, senior
management at Microsoft worried that pro-
motion of the young and brilliant technologists
it had recruited was occurring too fast. While
they understood technology, they were ill pre-
pared to manage strategy, structure, people,
and change. Interviews with successful and
unsuccessful Microsoft managers about the
competencies necessary to lead a business
confirmed these suspicions. CEO Steve Ballmer
believed that the speed of change in the soft-
ware industry demanded leadership from the
middle of the organization where people were
closest to the technology and customers. He
commissioned Microsoft’s Management Devel-
opment Group (MDG) to create a series of
workshops aimed at developing the future
leaders of the organization. Three courses
were envisioned for the series, including one
focused on strategic thinking and strategic
change.

The MDG group contacted an OD practi-
tioner with a background in educational inter-
ventions, strategy, and large-scale systems
change. Together with internal OD practi-
tioners and other members of the MDG
organization, the OD practitioner interviewed
additional managers, discussed program phi-
losophy and company culture, shared strategy
and strategic change concepts, and proposed a
variety of methods to transfer the topics of
strategic leadership to the participants.

After several weeks of discussions, a two-
day workshop design began to emerge. It con-
sisted of a variety of learning technologies and
was based on a principle and philosophy of self-
managed learning. That is, the OD practitioner
and the MDG consultants assumed that the par-
ticipants, already having achieved a middle-
management position, would possess a broad
range of experiences and knowledge. The pur-
pose of the workshop would be to marry that
experience with the concepts from strategy
and change. A number of delivery methods,
including lectures, videos, experiential exercises,
and case studies, were used to expose the parti-
cipants to certain topics, such as goals and goal
setting, distinctive competencies, environmental
scanning, strategy, and strategy implementation.
At the beginning of the workshop, the partici-
pants would be allowed to form “peer consulting
teams” and, following an input module, the
teams would work individually and then in
groups to apply the concepts to their own busi-
ness. In this way, the participants actually left the
workshop with a roughed-out strategic plan.

The design was “beta tested” with a group
of about 20 middle managers and their com-
ments, reactions, and suggestions were used
to make adjustments in different parts of the
workshop design. For example, the peer con-
sulting groups turned out to be a very powerful
idea and all of the groups wanted more time at
the beginning of the workshop to explain their
business so that the other members of the
group had a good understanding of the compet-
itive issues. After the beta workshop, the pro-
gram was marketed to all middle managers at
the Redmond, Washington, headquarters.
Eventually, middle managers in Asia, Canada,
and Europe were included. Over two years,
about 500 of Microsoft’s most important future
leaders went through the workshop.

Ten days after the workshop, an evaluation
was emailed to all participants for the reactions
and feedback. This provided an ongoing data-
base to ensure that the program continued to
meet the needs of the middle managers. In
addition, a qualitative study of the workshop’s

CHAPTER 16 TALENT MANAGEMENT 479

16-2c The Results of Development Interventions
There are hundreds of self-reported case studies in industry magazines and a relatively
equal number of evaluation case studies in the academic press. This is due mostly to
the widespread application of management and leadership development interventions in
the workplace. However, most of the evaluation research consists of only reactions, the
weakest measure of effectiveness.25

A few of the more rigorous assessments provide some evidence about leadership develop-
ment effects. For example, a leadership development program at Catholic Healthcare Partners
that involved 360-degree feedback and action learning projects indicated both organizational
and individual improvements. The greatest individual improvements occurred in self-
awareness, setting and achieving goals, and working across boundaries. The greatest organiza-
tion benefits were an increased focus on strategy and goal setting, more effective teams, and
members feeling more empowered in their work.26 Leadership development programs have
reported increased organizational productivity, decreased turnover, and increased sales.27

In a book-length evaluation of a leadership development program for school super-
intendents in the state of Florida, the most common outcomes of the program included
the development of strategies and competencies for continuous learning, personal change
in specific areas, and progress on learning projects undertaken by groups of participants.
However, the researchers note that less than 50% of the participants reported such out-
comes and that the most participants reported no or very little change on a survey
instrument. Relevant to the reported outcomes, the researchers found no particular ele-
ment of the program was more or less effective. Finally, the researchers speculated that
much of the variation in results was due to the participants themselves. Those superin-
tendents who were in “fine tuning” mode had little to learn while those in a “role expan-
sion” or “new perspectives” mode reported more positive outcomes.28

16-3 Career Planning and Development Interventions
Organizations are becoming more and more reliant on their “intellectual capital.” The war
for talent, the changing nature of the workforce, shifting social expectations about work
and family, and increasingly knowledge-based strategies have pressured organizations to

impact was conducted about a year into the pro-
gram. A variety of information about how partici-
pants had used the workshop was gathered. Most
participants rated the course highly, found the mate-
rials relevant and useful, had applied many of the
frameworks and models in their day-to-day work,
and appreciated the opportunity to stop and think
about their business. The most highly rated feature
of the class was the peer-to-peer learning and the
business view the participants gained, there were
few examples of direct impact on the organization.
However, only a few cases of dramatic success

were found, including a substantial increase in stra-
tegic focus, clarity, and profitability within one of the
Microsoft Office groups; a merger between two
groups that was conceived during the workshop
and then executed successfully after the program;
and the launching of a new strategy within groups of
the MSN and Xbox organizations. In each of these
cases, the managers reported taking the ideas and
plans worked out in the workshop and involving
their direct reports in additional discussions. These
additional inputs along with the original plans
became the basis for implementing changes.

480 PART 5 HUMAN RESOURCE INTERVENTIONS

clarify their career planning and development strategies.29 At the same time, the increasing
volatility in the marketplace, the readiness of organizations to engage in downsizing initia-
tives, and the willingness of members to “job hop” have pressured organizations to think
through the cost-benefit ratio of implementing such strategies. Providing career planning
and development opportunities as well as management and leadership development pro-
grams can help to recruit and retain skilled and knowledgeable workers. Many talented
job candidates, especially minorities and women, are showing preference and more loyalty
for employers who offer career and leadership development opportunities.

Career planning and development interventions are an important tool in devel-
oping and retaining an effective workforce. Growing numbers of managers and pro-
fessional staff are seeking more control over their work lives. Organization members,
especially women, minorities, mid-career workers, and new college recruits, are not
willing to have their careers “just happen” and are taking an active role in planning
and managing them.30 For example, a study by the Hay Group found that technology
professionals were willing to leave their jobs for better career development
opportunities.31

Many organizations—IBM, Booz-Allen-Hamilton, Aetna, British Telecommunications,
Wipro Technologies, and the U.S. Naval Education and Training Command, among
others—have adapted their career planning and development programs to meet the
needs of their members. These programs have attempted to improve the quality of
work life for managers and professionals, enhance their performance, increase employee
retention, and respond to equal employment and affirmative action legislation. Compa-
nies have discovered that organizational growth and effectiveness require career develop-
ment programs to ensure that needed talent will be available. Competent managers are
often the scarcest resource. Many companies also have experienced the high costs of
turnover among recent college graduates, including MBAs; the turnover can reach 50%
after five years. Career planning and development interventions help attract and hold
such highly talented people and can increase the chances that the organization will use
their skills and knowledge.

16-3a What Are the Goals?
Career planning and development interventions provide the appropriate resources, tools,
and processes necessary to help organization members plan and attain their career objec-
tives. A career consists of a sequence of work-related positions occupied by a person dur-
ing the course of a lifetime.32 Career planning is concerned with individuals choosing
jobs, occupations, and organizations at each stage of their careers. Career development
involves helping employees attain career objectives.33 Although both of these interven-
tions generally are aimed at managerial and professional employees, a growing number
of programs are including lower-level employees, particularly those in white-collar jobs.

Research suggests that employees progress through at least four distinct career
stages as they mature and gain experience. Each stage has unique concerns, needs, and
challenges.

1. The establishment stage (ages 21–26). This phase is the outset of a career when
people are generally uncertain and may be stressed about their competence and
potential. They are dependent on others, especially bosses and more experienced
employees, for guidance, support, and feedback. At this stage, people are making ini-
tial choices about committing themselves to a specific career, organization, and job.
They are exploring possibilities while learning about their own capabilities.

CHAPTER 16 TALENT MANAGEMENT 481

2. The advancement stage (ages 26–40). During this phase, employees become inde-
pendent contributors who are concerned with achieving and advancing in their cho-
sen careers. They have typically learned to perform autonomously and need less
guidance from bosses and closer ties with colleagues. This settling-down period
also is characterized by attempts to clarify the range of long-term career options.

3. The maintenance stage (ages 40–60). This phase involves leveling off and holding
on to career successes. Many people at this stage have achieved their greatest
advancements and are now concerned with helping less-experienced subordinates.
For those who are dissatisfied with their career progress, this period can be conflic-
tual and depressing, as characterized by the term “midlife crisis.” People often reap-
praise their circumstances, search for alternatives, and redirect their career efforts.
Success in these endeavors can lead to continuing growth, whereas failure can lead
to early decline.

4. The withdrawal stage (age 60 and above). This final stage is concerned with leaving
a career. It involves letting go of organizational attachments and getting ready for
greater leisure time and retirement. The employee’s major contributions are impart-
ing knowledge and experience to others. For those people who are generally satisfied
with their careers, this period can result in feelings of fulfillment and a willingness to
leave the career behind.

The different career stages represent a broad developmental perspective on peo-
ple’s jobs. They provide insight about the personal and career issues that people are
likely to face at different career phases. These issues can be potential sources of stress
because employees are likely to go through the phases at different rates, and to experi-
ence personal and career issues differently at each stage. For example, one person may
experience the maintenance stage as a positive opportunity to develop less-experienced
employees; another person may experience the maintenance stage as a stressful leveling
off of career success.

16-3b Application Stages
The two primary applications steps are to establish a mechanism for career planning and
assemble an appropriate set of career development processes.

Establish a Career Planning Mechanism Career planning involves setting individual
career objectives. It is a highly personalized process and generally includes assessing one’s
interests, capabilities, values, and goals; examining alternative careers; making decisions
that may affect the current job; and planning how to progress in the desired direction.
This process results in people choosing jobs, occupations, and organizations. It determines,
for example, whether individuals will accept or decline promotions and transfers and
whether they will stay or leave the company for another job or for retirement.

Individual responsibility for careers and career planning has increased significantly,
and recent estimates project that an individual career beginning now will involve an
average of eight major job and/or organization changes. The U.S. Department of
Labor estimates that the average annual turnover in an organization is 20% although
turnover rates have declined significantly in recent years reflecting the difficult eco-
nomic climate. Such turnover rates are not confined to the United States. Turnover
among professional employees in China was over 18% in 2006.34 Further, as organiza-
tions downsize and restructure, there is less trust in the organization to provide job

482 PART 5 HUMAN RESOURCE INTERVENTIONS

security. In the past, when employees more frequently spent their entire career in one
organization, careers were judged in terms of advancement and promotion upward in
the organizational hierarchy. Today, they are defined in more holistic ways to include a
person’s attitudes, experiences, and ability to perform. For example, individuals may
make numerous job changes to acquire additional responsibilities, skills, and knowl-
edge within or across organizations, or they can remain in the same job, acquiring
and developing new skills, and have a successful career. Similarly, people may move
horizontally through a series of jobs in different functional areas of the firm. Although
they may not be promoted upward in the hierarchy, their broadened job experiences
constitute a successful career.

The four career stages can be used to make career planning more effective.
Table 16.1 shows the different career stages and the career planning issues relevant at
each phase. Applying the table to a particular employee involves first diagnosing the per-
son’s existing career stage—establishment, advancement, maintenance, or withdrawal.
Next, available career planning resources are used to help the employee address pertinent
issues. Career planning programs include some or all of the following resources:

• Communication about career opportunities and resources, such as social networks and
employee resource groups, available to employees within the organization

• Workshops to encourage employees to assess their interests, abilities, and job situa-
tions and to formulate career development plans

• Career counseling by managers or human resources personnel

TABLE 16.1

Career Stages and Career Planning Issues

Career Stage Career Planning Issues

Establishment What are alternative occupations, organizations, and jobs?
What are my interests and capabilities?
How do I get the work accomplished?
Am I performing as expected?
Am I developing the necessary skills for advancement?

Advancement Am I advancing as expected?
How can I advance more effectively?
What long-term options are available?
How do I get more exposure and visibility?
How do I develop more effective peer relationships?
How do I better integrate career choices with my personal life?

Maintenance How do I help others become established and advance?
Should I reassess myself and my career?
Should I redirect my actions?

Withdrawal What are my interests outside of work?
What postretirement work options are available to me?
How can I be financially secure?
How can I continue to help others?

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CHAPTER 16 TALENT MANAGEMENT 483

• Self-development materials, such as books and articles, webinars and podcasts, and
other media, directed toward identifying life and career issues

• Assessment programs that provide various tests of vocational interests, aptitudes,
and abilities relevant to setting career goals

According to Table 16.1, the company should provide members in the establish-
ment stage with considerable communication and counseling about available career
paths and the skills and abilities needed to progress in them. Workshops, self-
development materials, and assessment techniques should be aimed at helping employ-
ees assess their interests, aptitudes, and capabilities and at linking that information to
possible careers and jobs. Considerable attention should be directed to giving employ-
ees continual feedback about job performance and to counseling them about how to
improve it. The supervisor–subordinate relationship is especially important for these
feedback and development activities.

In the advancement stage, organizations should provide members with communi-
cation and counseling about challenging assignments and possibilities for more expo-
sure and demonstration of skills. This communication and counseling should help
clarify the range of possible long-term career options and provide members with
some idea about where they stand in achieving them. Workshops, developmental mate-
rials, and assessment methods should be aimed at helping employees develop wider
collegial relationships, join with effective mentors and sponsors, and develop more cre-
ativity and innovation. These activities also should help people assess both career and
personal life spheres and integrate them more successfully.

At the maintenance stage, the organization should provide information about its
long-term vision and communicate with individuals about how they might fit into it.
Workshops, developmental materials, counseling, and assessment techniques should
be aimed at helping employees to assess and develop skills to train and coach others.

Organizations should provide members in the withdrawal stage with communica-
tions and counseling about options for postretirement work and financial security, and
it should convey the message that the employee’s experience in the organization is still
valued. Retirement planning workshops and materials can help employees gain the skills
and information necessary to make a successful transition from work to nonwork life.
They can prepare people to shift their attention away from the organization to other
interests and activities.35

Effective career planning and development requires a comprehensive program inte-
grating both corporate business objectives and employee career needs. As shown in
Figure 16.1, this is accomplished through human resources planning aimed at developing
and maintaining a workforce to meet business objectives. It includes recruiting new tal-
ent, matching people to jobs, helping them develop careers and perform effectively, and
preparing them for satisfactory retirement. Career planning activities feed into and sup-
port career development and human resources planning activities.

Assemble an Appropriate Set of Career Development Processes Career devel-
opment interventions help individuals achieve their career objectives. Career develop-
ment follows closely from career planning and includes organizational practices that
help employees implement those plans. Career development can be integrated with
people’s career needs by linking it to different career stages. As described earlier,
employees progress through distinct career stages, each with unique issues relevant to
career planning. Career development interventions help members implement these
plans. Table 16.2 identifies career development interventions, lists the career stages to

484 PART 5 HUMAN RESOURCE INTERVENTIONS

which they are most relevant, and defines their key purposes and intended outcomes. It
shows that career development practices may apply to one or more career stages and
that many interventions double as both career development processes and interven-
tions in their own right. Performance management, for example, is relevant to all
stages, but especially in establishment and advancement stages. It is also an important
independent intervention (see Chapter 15). Career development interventions also can
contribute to different organizational outcomes such as lowering turnover and costs
and enhancing member satisfaction.

Career development interventions traditionally have been applied to younger
employees who have a longer time period to contribute to the organization than do
older members. Managers often stereotype older employees as being less creative,
alert, and productive than younger workers and consequently provide them with less
career development support. However, the aging of the workforce has focused new
attention on older workers, including a focus on the pace and organization of work,
physical and psychological factors, and ergonomic factors.36 Table 16.2 suggests that
the OD field has kept pace with these trends: six of the eight interventions presented

FIGURE 16.1

Individual Career Planning and Human Resources Planning

SOURCE: Reprinted with permission from Business Horizons, 16(1). © 1973 by The Trustees at Indiana University, Kelley School
of Business.

CHAPTER 16 TALENT MANAGEMENT 485

there apply to the withdrawal stage. This emphasis is likely to remain as the U.S. work-
force continues to gray. To sustain a highly committed and motivated workforce, orga-
nizations increasingly will have to address the career needs of older employees. They
will have to recognize and reward the contributions that older workers make to the
company. Workforce diversity interventions, discussed in the next chapter, are a posi-
tive step in that direction.

We present eight interventions that can be mixed and matched to meet the needs
of a diverse workforce, including realistic job previews, assessment centers, job rotation
and challenging assignments, consultative roles and mentoring, performance manage-
ment, developmental training, work-life balance, and phased retirement.

TABLE 16.2

Career Development Interventions

Intervention Career Stage Purpose Intended Outcome

Realistic job
preview

Establishment
Maintenance
Advancement

To provide members with
an accurate expectation of
work requirements

Reduce turnover
Reduce training costs
Increase commitment

Assessment
centers

Establishment
Maintenance
Advancement
Withdrawal

To select and develop
members for managerial
and technical jobs

Increase person-job fit
Identify high-potential

candidates

Job rotation and
challenging
assignments

Establishment
Maintenance
Advancement

To provide members
with interesting work
assignments leading to
career objective

Reduce turnover
Build organizational knowledge
Increase job satisfaction
Maintain member motivation

Consultative roles Maintenance
Withdrawal

To help members fill productive
roles later in their careers and
provide less experienced
members with exposure to
key knowledge and skill

Increase problem-solving
capacity

Increase job satisfaction
Increase member motivation

Developmental
training

Establishment
Maintenance
Advancement
Withdrawal

To provide education and
training opportunities that
help members achieve
career goals

Increase organizational capacity

Performance
management

Establishment
Maintenance
Advancement
Withdrawal

To provide members with
knowledge about their
career progress and
work effectiveness

Increase productivity
Increase job satisfaction
Monitor human resources

development

Work life balance Establishment
Maintenance
Advancement
Withdrawal

To help members
balance work and
personal goals

Improve quality of life
Increase productivity and morale
Increase organizational

commitment
Decrease absenteeism
Decrease turnover

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486 PART 5 HUMAN RESOURCE INTERVENTIONS

Realistic Job Preview. This intervention provides applicants with credible expectations
about the job during the recruitment process. It provides recruits with information
about whether the job is likely to be consistent with their needs and career plans.
Knowledge resulting from realistic job previews can be especially useful during the
establishment stage, when people are most in need of full and balanced information
about organizations and jobs. It also can help employees during the advancement
stage, when job changes are likely to occur because of promotion. Research suggests
that people may develop unrealistic expectations about the organization and job. They
can suffer from “reality shock” when those expectations are not fulfilled and may leave
the organization or stay and become disgruntled and unmotivated. To overcome these
problems, organizations such as Bank of America, AON Consulting, the Transportation
Security Administration, and Johnson & Johnson provide new recruits with information
about both the positive and negative aspects of the company and the job. They furnish
recruits with booklets, talks, videos, and site visits showing what organizational life is really
like. Such information reduces the chances that employees will develop unrealistic job
expectations, become disgruntled, and leave the company, especially when their tenure is
viewed over the long term.37

Assessment Centers. This intervention was traditionally designed to help organizations
select and develop employees with high potential for managerial jobs. More recently,
assessment centers have been extended to career development and to selection of people
to fit new work designs, such as self-managing teams, or organizational growth.38 Assess-
ment centers can be designed and operated “in house,” but are often contracted out to
consulting firms that specialize in selection and assessment psychology.

When used to evaluate managerial capability, assessment centers typically process 12
to 15 people at a time and require them to spend two to three days on site. Participants
are given a comprehensive interview, take several tests of mental ability and knowledge,
and participate in individual and group exercises intended to simulate managerial work.
An assessment team consisting of experienced managers and human resources specialists
observes the behaviors and performance of each candidate. This team arrives at an over-
all assessment of each participant’s managerial potential, including a rating on several
items believed to be relevant to managerial success in the organization, and pass the
results to management for use in making promotion decisions.

Assessment centers have been applied to career development as well, where the
emphasis is on feedback of results to participants. Trained staff help participants hear
and understand feedback about their strong and weak points. They help participants
become clearer about career advancement and identify training experiences and job
assignments to promote that progress. When used for developmental purposes, assess-
ment centers can provide employees with the support and direction needed for career
development. They can demonstrate that the company is a partner rather than an
adversary in that process. Although assessment centers can help people’s careers at all
stages of development, they seem particularly useful at the advancement stage, when
employees need to assess their talents and capabilities in light of long-term career
commitments.

Job Rotation and Challenging Assignments. The purpose of these interventions is to
provide employees with the experience and visibility needed for career advancement or
with the challenge needed to revitalize a stagnant career at the maintenance stage.
A more formalized approach to job rotation is called job pathing or career ladders, which
specify a sequence of jobs to reach a career objective, although the notion of a job path

CHAPTER 16 TALENT MANAGEMENT 487

in the new economy is being challenged.39 Job rotation and challenging assignments are
less planned and may not be as oriented to promotion opportunities.

Job rotation during the establishment and advancement stages help members
develop new skills, knowledge, and competencies in new jobs. Organization members in
the advancement stage may be moved into new job areas after they have demonstrated
competence in a particular work specialty. Research suggests that employees who receive
challenging job assignments early in their careers do better in later jobs.40 Companies
such as General Electric, Intel, Campbells, Pirelli, and Fidelity Investments identify
“comers” (managers under 40 years of age with potential for assuming top management
positions) and “hipos” (high-potential candidates) and provide them with cross-
divisional job experiences during the advancement stage. These job transfers provide
managers with a broader range of skills and knowledge as well as opportunities to dis-
play their managerial talent to a wider audience of corporate executives. Such exposure
helps the organization identify members who are capable of handling senior executive
responsibilities; it helps the members decide whether to seek promotion to higher posi-
tions or to particular departments. Retaining “hipos” is seen as critical to success in
today’s highly competitive labor market.41 To reduce the risk of transferring employees
across divisions or functions, some firms create “fallback positions.” These jobs are iden-
tified before the transfer, and employees are guaranteed that they can return to them
without negative consequences if the transfers or promotions do not work out. Fallback
positions reduce the risk that employees in the advancement stage will become trapped
in a new job assignment that is neither challenging nor highly visible in the company.

In the maintenance stage, challenging assignments or job pathing can help revitalize
veteran employees by providing them with new challenges and opportunities for learning
and contribution. For example, enriched jobs are more likely to be seen as challenging and
motivating during the first one to three years an individual is in the position.42 People who
have leveled off and remained in enriched jobs for three years or more may become un-
responsive to their motivating features. One way to prevent this loss of job motivation—
especially among mid-career employees who are likely to remain on jobs for longer periods
of time than are people in the establishment and advancement phases—is to rotate work-
ers to new, more challenging jobs at about three-year intervals, or to redesign their jobs at
those times. Such job changes would keep employees responsive to challenging jobs and
sustain motivation and satisfaction during the maintenance phase.43

Consultative Roles. This role involves opportunities to apply wisdom and knowledge to
helping others develop in their careers and solve organizational problems, and is most
frequently offered to employees in the maintenance and withdrawal stages. Such roles,
which can be structured around specific projects or problems, involve offering advice
and expertise to those responsible for resolving the issues, thus increasing the organiza-
tion’s problem-solving abilities. For example, a large aluminum-forging manufacturer
was having problems developing accurate estimates of the cost of producing new pro-
ducts. The sales and estimating departments lacked the production experience to make
accurate bids for potential new business, thus either losing customers or losing money
on products. The company temporarily assigned a production manager who was nearing
retirement to consult with the salespeople and estimators about bidding on new business.
The consultant applied his years of forging experience to help the sales and estimating
people make more accurate estimates. In about a year, the sales staff and estimators
gained the skills and invaluable knowledge necessary to make more accurate bids. Per-
haps equally important, the preretirement production manager felt that he had made a
significant contribution to the company—something he had not experienced for years.

488 PART 5 HUMAN RESOURCE INTERVENTIONS

In contrast to coaching and mentoring, consultative roles are not necessarily focused
directly on guiding or sponsoring younger employees’ careers. They are directed at help-
ing others deal with complex problems or projects. Similarly, in contrast to managerial
positions, consultative roles do not include the performance evaluation and control
inherent in being a manager. They are based more on wisdom and experience than on
authority. Consequently, consultative roles provide an effective transition for moving
preretirement managers into more support-staff positions. They free up managerial posi-
tions for younger employees while allowing older managers to apply their experience and
skills in a more supportive and less threatening way than might be possible from a
strictly managerial role.

Developmental Training. Training and development interventions are among the
oldest strategies for organizational change.44 They provide new or existing organization
members with the skills and knowledge they need to perform work. The focus of training
interventions has broadened from classroom methods aimed at hourly workers to varied
methods, including simulations, action learning, computer-based or on-line training, and
case studies, intended for all levels and types of organization members.

Training and development is a large practice area with growing importance in
organizations. The American Society of Training and Development (ASTD) (www
.astd.org), the largest professional organization, has over 38,000 members worldwide.
According to its most recent state of the industry report, U.S. companies spent about
$171.5 billion on learning and development in 2010.45 Training and development
represents an important organization investment accounting for between 2.2% and
2.7% of a company’s payroll on average.

This intervention is applicable to all career stages and helps employees gain the skills
and knowledge for successfully fulfilling current job responsibilities. It may include
workshops and training materials oriented to communications or supervising others as
well as technical aspects of work. It can also involve substantial investments in education,
such as tuition reimbursement programs that assist members in achieving advanced
degrees. Developmental training interventions generally are aimed at increasing the orga-
nization’s reservoir of skills and knowledge, and can be related to increased retention and
performance.46 This enhances its capability to implement personal and organizational
strategies.

Performance Management. One of the most effective interventions during the estab-
lishment and advancement phases is the integration of performance management sys-
tems with career development conversations. As suggested in the discussions of goal
setting and performance appraisal interventions (Chapter 15), employees need continual
feedback about goal achievement as well as the necessary support to improve their per-
formances. Feedback and support, in the form of coaching, developmental training, or
management development are particularly relevant when employees are establishing
careers. They have concerns about how to perform the work, whether they are perform-
ing up to expectations, and whether they are gaining the necessary skills for advancement.
A manager can facilitate career establishment by providing feedback on performance and
on-the-job training. These activities can help employees get the job done while meeting
their career development needs. Companies such as Steelcase, Wipro, and Intercontinental
Hotels Group, for example, are effective at integrating performance management processes
with employee career development. They separate the career development aspect of perfor-
mance appraisal from the salary review component, thus ensuring that employees’ career
needs receive as much attention as salary issues. Feedback and support interventions can

CHAPTER 16 TALENT MANAGEMENT 489

increase employee performance, satisfaction, and morale, and provide a systematic way to
monitor the development of human resources in the firm, at little or no cost.47

Work–Life Balance Interventions. This OD intervention helps employees better inte-
grate and balance work and home life. Restructuring, downsizing, and increased global
competition have contributed to longer work hours and more stress. Generation X’ers and
baby-boomers approaching the withdrawal career stage are rethinking their priorities and
seeking to restore some balance in a work-dominated life. Organizations from a variety of
industries, such as Wegmans and Whole Foods in grocery, The Container Store in retail-
ing, and USAA in insurance were included in Fortune’s 2012 “100 Best Companies to
Work For,” are responding to these concerns so they can attract, retain, and motivate the
best workforce.48 In addition, many cities, such as Boston, San Francisco, Denver, and
Birmingham, are identifying and publishing a “Best Companies” list.49

Early work–life balance programs started with a focus on women with young chil-
dren in the workforce, but now these programs serve men and women, all ages, and all
family and life situations. Work life programs continue to focus on dependent care of
both children and elders, but they also focus on job scheduling and flexibility, paid and
unpaid leaves, employee wellness, concierge services, and others. Work–life balance plan-
ning helps members better manage the interface between work or paid employment and
all the work and responsibilities associated with a person’s life.

Although these interventions can apply to all career stages, they are especially relevant
during advancement. This is because of the increased number of dual career households.
Transfer to another location—a common occurrence during the advancement stage—usually
means that the working partner must also relocate. In many cases, the company employing
the partner must either lose the employee or arrange a transfer to the same location. Dual
careers also affect expatriate assignments, and being able to facilitate or accommodate a
spouse or partner’s wish to work may make the difference in terms of an employee accepting
such an assignment. Similar problems can occur in recruiting employees. A recruit may not
join an organization if its location does not provide career opportunities for the partner.

Phased Retirement. This intervention provides older employees with an effective way of
withdrawing from the organization and establishing a productive leisure life by gradually
reducing work hours and moving to full retirement.50 A study of women over 35 indicates
a strong interest for phased retirement plans, which may put new demands on related
human resource management programs.51 Employees gradually devote less of their time to
the organization and more time to leisure pursuits (which to some might include developing
a new career). For example, people may use the extra time off work to take courses, to gain
new skills and knowledge, and to create opportunities for productive leisure. IBM, for exam-
ple, once offered tuition rebates for courses on any topic taken within three years of retire-
ment.52 Many IBM preretirees used this program to prepare for second careers.

Equally important, phased retirement lessens the reality shock often experienced
by those who retire all at once. It helps employees grow accustomed to leisure life
and withdraw emotionally from the organization. A growing number of companies
have some form of phased retirement. Pepperdine University and the University of
Southern California, for example, implemented a phased retirement program for pro-
fessors that allow them some choice about part-time employment starting at age 55.
The program is intended to provide more promotional positions for younger aca-
demics and to give older professors greater opportunities to establish a leisure life and
still enjoy many benefits of the university.

Application 16.2 describes how the HR organization within PepsiCo evolved its
career planning and development processes.53

490 PART 5 HUMAN RESOURCE INTERVENTIONS

a
p

p
li

ca
ti

o
n

1
6

2 PEPSICO’S CAREER PLANNING ANDDEVELOPMENT FRAMEWORK

P
epsiCo has a long and well deserved his-
tory of innovative employee and leadership
development practices. However, in the
late 1990s, a significant number of strate-

gic and organizational changes, including the
spin-off of Tricon and the Pepsi Bottling
Group and the acquisition of Tropicana and
Quaker, had left employees feeling unsure
about the requirements for success in the orga-
nization. In particular, employees wanted to
know more about how to build a successful
career within the new organization. Moreover,
and because of Pepsi’s traditionally entrepre-
neurial and autonomous culture, each business
unit had set up its own way of developing
employees. In this new organization, employ-
ees wanted more information about how to
take advantage of cross-business unit and
cross-functional opportunities.

In response, senior management tasked
the internal OD group to partner with the HR
organization and line managers to develop
tools and processes to address these con-
cerns. Their initial efforts resulted in:

• The PepsiCo Leadership Model that out-
lined leadership competencies and pro-
vided a framework for the 360-degree
feedback process

• A career-development web resource called
MyDevelopNet that provided assessment
tools and development resources

• A cross-business unit job posting process
called MyCareerConnection that listed
open jobs in other functions and business
units

Although these tools and processes
became an important part of PepsiCo’s career
planning and development process, people
continued to want more detail and support
regarding what it took to build a successful
career in a given function.

The interest in functional careers was
somewhat at odds with Pepsi’s strong division
focused culture. To shift from a business unit-
focused approach to broader and standardized

enterprise view, the organization needed
to explore the importance of consistency in
language and processes across specialties
but within functions. The HR function was
selected to pilot the approach—to set the
agenda, lead the initiative, and resolve any pro-
blems inherent in the design and implementa-
tion process. The task force, representing the
ten specialties within global HR (e.g., compen-
sation, benefits, diversity, staffing, OD), was
established in 2003 to develop a fully inte-
grated career solution within the HR function.
It was chartered with the following objectives:

1. Provide employees access to career infor-
mation that will allow greater ownership
of their development and enhanced devel-
opment planning discussions with their
managers

2. Provide consistent language around com-
petencies, leadership skills, and the critical
experiences required for career progres-
sion in the HR function at PepsiCo

3. Provide greater clarity regarding different
opportunities and choices rather than pre-
scribed paths.

If properly designed and implemented, the
intervention would result in a stronger and
more capable HR function—one that spoke a
consistent language across very different
types of specialties, and had a greater em-
phasis on individual development and career
growth. In addition, it would pave the way for
similar efforts in other major functions such as
sales, marketing, finance, operations, and
R&D. Based on this diagnosis, the HR Careers
Task Force adopted a five step, OD-related
process that emphasized input from key stake-
holders across the function as well as early
involvement and participation in the process.

The first step was to develop an appropri-
ate competency model for the HR function. The
task force collected lists of HR competencies
from internal and external sources, including
business unit models, professional associa-
tions, and the literature. Importantly, although

CHAPTER 16 TALENT MANAGEMENT 491

several business units had their own competency
list, a successful intervention required a list that
worked well with all employees in HR. The resulting
model consisted of 12 competencies that were
measured by 50 specific areas of applied knowl-
edge and practice.

The second step was to identify the jobs that
would be part of the solution. The task force
believed that it was unrealistic to analyze and
include every job in a function. Rather, the team
identified key positions with multiple incumbents
within each of the ten HR specialties. These jobs
represented consistent, sustainable, long-term
roles to which employees could aspire as part of
their career planning. The final list of key jobs com-
prised the target for their work.

The third step was to validate and calibrate the
competencies for each of these key jobs. To do
that, the task force created a “job modeling” sur-
vey that sampled the incumbents in the key jobs
across the entire HR function. The first 50 ques-
tions represented the key HR competencies identi-
fied in Step 1, and asked participants to rate
the proficiency level required to do the job well.
The next set of questions were drawn from the
PepsiCo Leadership Model to understand the lead-
ership emphasis required in the job, and the final
section asked about the experiences the incum-
bents were gaining from the role. For example,
did the job provide the opportunity to partner with
other divisions, manage a merger or acquisition
process, or apply organization design skills.

The fourth step required the task force to build
the key job database so that it could be used by
managers and employees. That is, whenever a
manager, HR professional, or executive coach sat
down with an employee to have a career conversa-
tion, the data base needed to be able to address at
least three questions:

1. Where are the jobs (level, location, specialty
area)?

2. What are the different accountabilities, experi-
ences, and competencies required for the job?

3. How do I get to the next job from where I am?

The database was designed to provide infor-
mation on each of these questions and to facilitate
rich career discussions. Data elements in the

profiles included: overall position description, key
accountabilities, requisite functional and leadership
competencies, experiences gained, typical next
jobs within and across levels and functions,
required education and experience, and inter-
actions with other roles.

To facilitate the database’s use, additional sup-
porting tools were developed, including:

• an interactive online tool that allowed employ-
ees to view all of the key jobs in the function
and their own division with typical next steps
identified for each position

• the ability to initiate self-assessments against
functional or leadership competencies and
compare those with either the current job or
any other job in the database

• the ability to request a manager’s assessment
on an employee against the same competen-
cies for comparison and discussion

• a HR Resource Guide containing development
tips, tactics, and resources to help employees
build their functional competencies

• a behavioral interviewing guide to assist in job
interviews and placements

• new training resources and modules to sup-
port deeper knowledge acquisition in key
areas of need.

The database and tools were shared with man-
agers, functional VPs, and senior leaders to ensure
that the jobs were properly calibrated against
others both within and across HR divisions. This
data feedback stage was time consuming but
ensured the product was of high quality and high
validity, created additional buy-in on the part of lea-
ders to actually use the tools, and allowed leaders
to reevaluate the nature and accountabilities of the
jobs in question.

The final step of the process involved imple-
menting the system and evaluating its acceptance
and use for areas in need of adjustment. Each HR
specialty created their own integrated rollout
strategy based on current initiatives and available
resources. Certain key messages and tools
supporting the framework and their relationship
to existing HR processes were standardized to
ensure a common language and approach to
career development.

492 PART 5 HUMAN RESOURCE INTERVENTIONS

16-3c The Results of Career Planning and Development
As shown in this section, career planning and development is a broad field within orga-
nization development. A variety of studies have examined individual aspects of career
development. For example:

• Realistic job previews have been associated with reduced turnover and training costs,
and increased organization commitment and job satisfaction54

• Assessment centers have been associated with career advancement when the partici-
pant works on the recommended areas of improvement55

• Challenging assignments and job rotations have helped “plateaued employees”
(those with little chance of further advancement) increase their work satisfaction
and productivity if the organization supports lateral (as opposed to strictly vertical)
job changes56

• General training programs in organizations have produced documented returns on
investment from 16% to 492%57

• Work life balance interventions have led to beneficial outcomes for both employees
and organizations, including increased creativity, morale, and effectiveness, and
decreased absenteeism and turnover.58

This variety of career planning and development interventions also makes program eval-
uation very difficult, although the overall assessment of its impact on retention and
motivation remains positive.

SUMMARY

This chapter presented three major human resources
interventions: coaching and mentoring; leadership
and management development interventions; and
career planning and development interventions.
Although human resources specialists generally carry
out these kinds of change programs, OD practitioners
are gaining competence in these areas and are increas-
ingly involved in these interventions.

Coaching interventions are aimed at helping indi-
viduals. Although it can be an integral part of other
OD interventions, it is intended to help individuals
clarify their goals, deal with potential stumbling
blocks, learn to lead change, and improve their
performance.

Management and leadership development pro-
grams build leadership skills, often in alignment with
a predetermined set of competencies, socialize man-
agers and leadership in a set of values believed to be
important to the success of the organization, and help

execute strategic change agendas. Leadership develop-
ment is one of the most popular OD interventions
today.

Both management and leadership development
and career planning and development interventions
are intended to improve the organization’s ability
to develop and retain a valuable workforce. Career
planning involves helping people choose jobs, occu-
pations, and organizations at different stages of
their careers. It is a highly personalized process that
includes assessing one’s interests, values, and capabil-
ities; examining alternative careers; and making rele-
vant decisions. Career development helps employees
achieve career objectives. Effective efforts in that
direction include linking corporate business objec-
tives, human resources needs, and the personal
needs of employees. Different career development
needs and practices exist and are relevant to each of
the four stages of people’s careers.

CHAPTER 16 TALENT MANAGEMENT 493

NOTES

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2. J. Boudreau and I. Ziskin, “The Future of HR and Effec-
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255–66; A. Myers and S. Edwards, “Educational Leave of
Absence: Retaining High-Potential Employees Pursuing
MBA Degrees,” Cornell HR Review (June 2012), accessed
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3. J. Passmore, “An Integrative Model for Executive Coach-
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M. O’Neill, Executive Coaching with Backbone and
Heart: A Systems Approach to Engaging Leaders with
Their Challenges (San Francisco: Jossey-Bass, 2000);
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eds., Coaching for Leadership: How the World’s Greatest
Coaches Help Leaders Learn (San Francisco: Jossey-Bass,
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Black Publisher, 2002).

4. W. Evers, A. Brouwers, and W. Tomic, “A Quasi-
experimental Study on Management Coaching Effective-
ness,” Consulting Psychology Journal 58 (2006): 174–82;
B. Patwell and E. Seashore, Triple Impact Coaching
(Columbia, MD: Bingham House Books, 2006); K. Kram,
Mentoring at Work (Glenview, IL: Scott, Foresman,
1984); A. Geiger-DuMond and S. Boyle, “Mentoring: A
Practitioner’s Guide,” Training and Development
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Who Makes It Has a Mentor,” Harvard Business Review
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5. R. Heckler, The Anatomy of Change: A Way to Move
Through Life’s Transition (Berkeley, CA: North Atlantic
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Coaching People Toward Success in Work and Life (Palo
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6. D. Coutu and C. Kauffman, “What Can Coaches Do for
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7. J. Gephardt, “From Therapist to Executive Coach,” in
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8. M. O’Neill, Executive Coaching with Backbone and Heart
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9. J. Flaherty, Coaching: Evoking Excellence in Others
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11. L. Miller, “Coaching Pays Off,” HR Magazine, March
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12. Gegner, Coaching: Theory and Practice.
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Study on Management Coaching Effectiveness.”
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ing Enhances Goal Attainment, Resilience and Work-
place Well-being: A Randomised Controlled Study,”
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15. J. Passmore and A. Fillery-Travis, “A Critical Review of
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Theory, Research and Practice 4, no. 2 (2011): 70–88.

16. G. Roche, “Much Ado About Mentors,” Harvard Business
Review 57 (January-February 1979): 14–28.

17. D. Thomas, “The Truth About Mentoring Minorities:
Race Matters,” Harvard Business Review 79 (April
2001): 98–107; E. Fagensen and G. Baugh, “Career
Paths, Networking, and Mentoring,” in Women at
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2000).

18. J. Conger and B. Benjamin, Building Leaders: How
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19. R. Rosen and F. Adair, “CEO’s Misperceive Top Manage-
ment Team Performance,” Harvard Business Review
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494 PART 5 HUMAN RESOURCE INTERVENTIONS

21. I. Goldstein, “Training in Work Organizations,” in Hand-
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22. Goldstein, “Training in Work Organizations”; M. McCall and
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26. C. McCauley and M. Hughes-James, An Evaluation of
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42. R. Katz, “Time and Work: Towards an Integrative Perspec-
tive,” in Research in Organizational Behavior, vol. 2, ed.

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Changes in Human Systems,” in The Planning of Change,
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45. R. Fulmer and M. Goldsmith, The Leadership Invest-
ment: How the World’s Best Organizations Gain Strate-
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F. Luthans, “A Theoretically Based Contingency Model of
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Performance,” People Management 7 (2001): 11.

48. CNNMoney, “Fortune’s 100 Best Companies to Work
For,” Fortune, January 30, 2012, accessed from http://
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49. For an example, see S. Merkner, ed., Birmingham’s Best
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50. Allerton, “Trend Watch,” Training & Development 54,
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Framework,” OD Practitioner 35 (2003): 27–33.

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an Enhancement and a Reduction Preview,” Journal of
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55. R. Jones and M. Whitmore, “Evaluating Developmental
Assessment Centers as Interventions,” Personnel Psychol-
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496 PART 5 HUMAN RESOURCE INTERVENTIONS

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17

Workforce Diversity and Wellness

learning
objectives

Examine human resources management interventions related to
workforce diversity.

Understand and evaluate the effectiveness of employee wellness
interventions.

This chapter presents two additional humanresources management interventions in or-ganizations. Increasing workforce diversity
provides an especially challenging environment for
human resources management, and an attractive
opportunity for line managers looking for a source
of innovation. The mix of age, gender, race, sexual
orientation, disabilities, and culture and value
orientations in the modern workforce is increas-
ingly varied. Management’s perspectives, strategic

responses, and implementation approaches can
help address pressures posed by this diversity
and leverage this resource for organization effec-
tiveness. In addition, wellness interventions, such
as stress management programs and employee
assistance programs (EAPs), are addressing several
important social trends, such as the relationship
and interaction between professional and personal
roles and lives, fitness and health consciousness,
and drug and alcohol abuse.

17-1 Workforce Diversity Interventions
Several profound trends are shaping the labor markets of modern organizations.
Researchers suggest and managers confirm that contemporary workforce characteristics
are radically different from what they were just 20 years ago. Employees represent every
ethnic background and color; range from highly educated to illiterate; vary in age from
18 to 80; may appear perfectly healthy or may have a terminal illness; may be single
parents or part of dual-income, divorced, same-sex, or traditional families; and may be
physically or mentally challenged.

Workforce diversity is more than a euphemism for cultural or racial differences.
Such a definition is too narrow and focuses attention away from the broad range of
issues that a diverse workforce poses. Diversity results from people who bring different
resources and perspectives to the workplace and who have distinctive needs, preferences,
expectations, and lifestyles.1 Organizations must design human resources systems that

497

account for these differences if they are to attract and retain a productive workforce and
if they want to turn diversity into a competitive advantage.

17-1a What Are the Goals?
Figure 17.1 presents a general framework for managing diversity in organizations.2

First, the model suggests that an organization’s diversity approach is a function of
internal and external pressures for and against diversity. Social norms and globalization
support the belief that organization performance is enhanced when the workforce’s
diversity is embraced as an opportunity. But diversity is often discouraged by those
who fear that too many perspectives, beliefs, values, and attitudes dilute concerted
action. Second, management’s perspective and priorities with respect to diversity can
range from resistance to active learning and from marginal to strategic. For example,
organizations can resist diversity by implementing only legally mandated policies such
as affirmative action, equal employment opportunity (EEO), or Americans with Dis-
abilities Act requirements. On the other hand, a learning and strategic perspective can
lead management to view diversity as a source of competitive advantage. For example,
a health care organization with a diverse customer base can not only improve percep-
tions of service quality by having a more diverse physician base, but it can also
embrace diversity by tailoring the range of services to that market and building systems
and processes that are flexible. Third, within management’s priorities, the organiza-
tion’s strategic responses can range from reactive to proactive. Diversity efforts at
Texaco and Denny’s had little momentum until a series of embarrassing race-based

FIGURE 17.1

A General Framework for Managing Diversity

SOURCE: P. Dass, and B. Parker, “Strategies for Managing Human Resource Diversity: From Resis-
tance to Learning,” Academy of Management Executive, 13 (1999), p. 69. Permission conveyed via
© Clearance Center.

498 PART 5 HUMAN RESOURCE INTERVENTIONS

events forced a response. Fourth, the organization’s implementation style can range
from episodic to systemic. A diversity approach will be most effective when the strate-
gic responses and implementation style fit with management’s intent and internal and
external pressures.

Unfortunately, organizations have tended to address workforce diversity pressures
in a piecemeal fashion; only 16% of companies surveyed in 2010 thought their diversity
practices were “very effective.”3 As each trend makes itself felt, the organization reacts
with appropriate but narrow responses. For example, as the percentage of women in
the workforce increased, many organizations simply added maternity leaves to their
benefits packages; as the number of physically challenged workers increased and when
Congress passed the Americans with Disabilities Act in 1990, organizations changed
their physical settings to accommodate wheelchairs. Demographers warn, however,
that these trends are not only powerful by themselves but will likely interact with
each other to force organizational change. Thus, a growing number of organizations,
such as L’Oreal, PepsiCo, Procter & Gamble, American Airlines, and Carrefour, are
taking bolder steps. They are not only adopting learning perspectives with respect to
diversity, but systemically weaving diversity-friendly values and practices into the cul-
tural fabric of the organization.

17-1b Application Stages
Many of the organization development (OD) interventions described in this book can be
applied to the strategic responses and implementation of workforce diversity, as shown
in Table 17.1. It summarizes several of the internal and external pressures facing organi-
zations, including age, gender, race, disability, culture and values, and sexual orienta-
tion.4 For example, the median age of the workforce is increasing, women make up a
larger percentage of the workforce, and globalization is increasing the number of differ-
ent cultural values present in the workplace. The table also reports the major trends
characterizing those dimensions, organizational implications and workforce needs, and
specific OD interventions that can address those implications.

Age To address age diversity, organization development interventions, such as work
design, wellness programs (discussed below), career planning and development, and
reward systems must be adapted to these different age groups and demographic
cohorts.5 For the older employee, work designs can reduce the physical components
or increase the knowledge and experience components of a job. The governments in
Singapore, Japan, and the European Union have implemented formal programs to
encourage organizations to redesign jobs for elderly workers. The adjustments include
more flexible arrangements regarding when and where work is performed, automating
certain tasks, changing roles to allow for mentoring, and altering pay and benefit
options to fit an older workers stage of life. Generation X employees, who are now in
the age range from 32 to 52 years, will likely require more accommodations for work
and life balance and for mid-career plateauing. The youngest workers, often called
Generation Y or millennials, will likely need more challenge and autonomy. Wellness
programs can be used to address the physical and mental health of employees from all
generations. Career-planning and development programs will have to recognize the dif-
ferent career stages of each cohort and offer resources tailored to that stage. Finally,
reward system interventions may offer increased health benefits, time off, and other
perks for the older worker while using promotion, ownership, and pay to attract and
motivate the scarcer, younger workforce.

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 499

Gender Work design, reward systems, and career development are among the more
important interventions for addressing issues arising out of the gender trend. For exam-
ple, jobs can be modified to accommodate the special demands of working mothers.
A number of organizations, such as SAS, Oracle, Booz Allen Hamilton, and Hewlett-
Packard, have instituted job sharing, by which two people perform the tasks associated
with one job. The firms have done this to allow their female employees to pursue both
family and work careers. Reward system interventions, especially fringe benefits, can be
tailored to offer special leaves to mothers and fathers, child-care options, flexible working
hours, and health and wellness benefits. The Container Store offers a family-friendly shift
from 9 A.M. to 2 P.M. so that working mothers can easily drop off and pick up kids from
school. Career development interventions help maintain, develop, and retain a compe-
tent and diverse workforce. Recent research on career development programs suggests
that organizations consider the assumptions embedded in their career development pro-
grams to ensure programs are not biased toward masculine experiences and worldviews,
especially those related to careers.6

TABLE 17.1

Work Diversity Dimensions and Interventions

Workforce
Differences Trends

Implications
and Needs Interventions

Age Median age up
Distribution of ages

changing

Health care
Mobility
Security

Wellness program
Job design
Career planning and

development
Reward system

Gender Percentage of
women increasing

Dual-income families

Child care
Maternity/paternity

leave
Single parents

Job design
Fringe benefit

rewards

Disability The number of people
with disabilities
entering the
workforce is
increasing

Job challenge
Job skills
Physical space
Respect and dignity

Performance
management

Job design
Career planning and

development

Culture and
values

Rising proportion of
immigrant and
minority-group
workers

Shift in rewards

Flexible organizational
policies

Autonomy
Affirmation

Respect

Career planning and
development

Employee
involvement

Reward systems

Sexual
orientation

Number of single-sex
households up

More liberal attitudes
toward sexual
orientation

Discrimination Equal employment
opportunities

Fringe benefits
Education and

training

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500 PART 5 HUMAN RESOURCE INTERVENTIONS

Unfortunately, many programs over the last several years have tended to focus more
on the symptoms, as opposed to sources of gender inequity.7 Recent research suggests
that once an organization recognizes the problem, diagnosis through interviews with
employees is critical to addressing the sources of gender inequity. The research further
suggests that using a strategy of small interventions, “small wins,” or small initiatives
that combine behavior and understanding and that target the organization’s specific
issues are more effective. For example, one European retail company discovered upon
interviewing its employees that a key issue in turnover among female employees was
the company’s lack of discipline regarding time. Last-minute scheduling, meeting over-
runs, and tardiness wreaked havoc for female employees trying to manage work and
home responsibilities. Company leadership began a more disciplined approach to time,
resulting in greater efficiency and effectiveness. Resolving such issues requires careful
and organization-specific diagnosis and intervention.

Race and Ethnicity Race continues to be an important issue in diversity interventions,
especially as organizations globalize and endeavor to increase diversity among top lead-
ership and board members. Training can increase the likelihood that effective diversity
management programs are responsive to data (not impressions or perceptions), move
beyond eliminating obvious racism to eradicating more subtle forms as well, eliminate
vague selection and promotion criteria which can let discrimination persist, link diversity
management to individual performance appraisals, and develop and enforce appropriate
rules.8 For example, 20% of Verizon’s board of directors are African American; an
increasing number of organizations are creating chief diversity officer positions reporting
into the C-suite or directly to the CEO, and a more than 40 firms, including Yum!
Brands, Credit Suisse, and General Mills work with nonprofit firm Minority Leadership
Talent to identify, recruit, and retain black and Hispanic candidates. Mentoring
programs can ensure that minorities in the advancement stage get the appropriate coach-
ing and those successful minority managers and executives get the chance to share their
wisdom and experience with others.

Sexual Orientation Diversity in sexual and affectional orientation, including gay,
lesbian, bisexual, and transgender (GLBT) individuals and couples, increasingly is affect-
ing the way that organizations think about human resources. The primary organizational
implication of sexual orientation diversity is discrimination. Members of the GLBT
community may be reticent to discuss how organizational policies can be less discrimi-
natory because they fear their openness will lead to unfair treatment. People can have
strong emotional reactions to sexual orientation. When these feelings interact with the
gender, culture, and values trends described in this section, the likelihood of both overt
and unconscious discrimination is high, especially around the often misperceived rela-
tionship between sexual orientation and AIDS/HIV. The good news is that the Corporate
Equality Index—an annual report that grades U.S. companies on their practices related
to the GLBT employees—is improving. In 2002, a total of 13 businesses achieved the
top ranking of 100%; in its 2010 report, 305 companies made the 100% mark, an
increase of 45 companies over 2009.9

Interventions aimed at this dimension of workforce diversity are relatively new in
OD and are being developed as organizations encounter sexual orientation issues in the
workplace. The most frequent response is education and training. This intervention
increases members’ awareness of the facts and decreases the likelihood of overt dis-
crimination. In 2012, federal legislation and the Equal Employment Opportunity
Council (EEOC) placed sexual orientation into a protected class supporting the many

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 501

cities and states that had already passed such legislation. Human resources practices
having to do with EEO and fringe benefits will help to address sexual orientation par-
ity issues although most organizations have already modified their EEO statements to
address sexual orientation, including 61% of Fortune 500 companies.10 Firms such as
Ben & Jerry’s, Boeing, Northop Grumman, Hilton, and Google have communicated
strongly to members and outsiders that decisions with respect to hiring, promotion,
transfer, and so on cannot (and will not) be made with respect to a person’s sexual
orientation. Similarly, organizations are increasingly offering domestic-partner bene-
fit plans, and now over 33% of firms polled in a 2012 Society of Human Resource
Management survey offer health benefits to same sex domestic partners.11 Compa-
nies, such as Shell Oil, Microsoft, and Apple, as well as governments and universities,
have extended health care and other benefits to the same-sex partners of their
members.

Disability The organizational implications of the disability trend represent both
opportunity and adjustment. The productivity of physically and mentally disabled
workers often surprises managers. Training is required to increase managers’ aware-
ness of this opportunity and to create a climate where accommodation requests can
be made without fear.12 Employing disabled workers, however, also means a need for
more comprehensive health care, new physical workplace layouts, new attitudes
toward working with the disabled, and challenging jobs that use a variety of skills.

OD interventions, including work design, career planning and development, and
performance management, can be used to integrate the disabled into the workforce.
For example, traditional approaches to job design can simplify work to permit phys-
ically handicapped workers to complete an assembly task. Career planning and
development programs need to focus on making disabled workers aware of career
opportunities. Too often these employees do not know that advancement is possible,
and they are left feeling frustrated. Career paths need to be developed for these
workers.

Performance management interventions, including goal setting, monitoring, and
coaching performance, aligned with the workforce’s characteristics are important. At
Blue Cross and Blue Shield of Florida, for example, a supervisor learned sign language
to communicate with a deaf employee whose productivity was low but whose quality of
work was high. Two other deaf employees were transferred to that supervisor’s depart-
ment, and over a two-year period, the performance of the deaf workers improved 1,000%
with no loss in quality.

Culture and Values Cultural diversity has broad organizational implications. Dif-
ferent cultures represent a variety of languages, values, work ethics, and norms of
correct behavior. Not all cultures want the same things from work, and simple,
piecemeal changes in specific organizational practices will be inadequate if the work-
force is culturally diverse. Management practices will have to be designed with
various cultural values in mind and support both career and family orientations.
Take language as an example. Operating in multiple countries with multiple lan-
guages implies that jobs of all types (processing, customer contact, production, and
so on) may need to be adjusted for non-native-speaking customers, but it also repre-
sents opportunity. If there are large non-native-speaking markets, the organization
has an important resource for reaching those markets. Finally, the organization will
be expected to satisfy both extrinsic and monetary needs, as well as intrinsic and
personal growth needs.

502 PART 5 HUMAN RESOURCE INTERVENTIONS

Several planned change interventions, including employee involvement, reward
systems, and career planning and development, can be used to adapt to cultural diver-
sity. Employee involvement practices can be adapted to the needs for participation in
decision making. People from certain cultures, such as Scandinavia, are more likely
to expect and respond to high-involvement policies; other cultures, such as Latin
America, view participation with reservation. Participation in an organization can
take many forms, from suggestion systems and attitude surveys to high-involvement
work designs and performance management systems. Organizations can maximize
worker productivity by basing the amount of power and information workers have on
cultural and value orientations.

Reward systems can focus on increasing flexibility. For example, flexible working
hours enable employees to meet personal obligations without sacrificing organizational
objectives. Many organizations have implemented this innovation, and most report that
the positive benefits outweigh the costs. Work locations also can be varied. Many orga-
nizations, including Capital One, Oracle, and Gap, Inc., allow workers to spend part of
their time telecommuting from home. Other flexible benefits, such as floating holidays,
allow people from different cultures to match important religious and family occasions
with work schedules.

Child-care and dependent-care assistance also support different lifestyles. For exam-
ple, at Stride Rite Corporation (now a part of Collective Brands), the Stride Rite Inter-
generational Day Care Center accommodates 55 children between the ages of 15 months
and 6 years as well as 24 elders over 60 years old. The center was established after an
organizational survey determined that 25% of employees provided some sort of elder
care and that an additional 13% anticipated doing so within 5 years.

Finally, career planning and development programs can help workers identify
advancement opportunities that are in line with their cultural values. Some cultures
value technical skills over hierarchical advancement; others see promotions or titles as a
prime indicator of self-worth and accomplishment. By matching programs with people,
job satisfaction, productivity, and employee retention can be improved.

17-1c The Results for Diversity Interventions
Workforce diversity interventions have been growing rapidly in OD for more than
three decades. Despite this growth, most evaluation efforts are survey oriented and
somewhat cursory. A 2010 survey by the Society of Human Resource Management
found that 68% of firms have diversity practices in place.13 Research suggests that
diversity interventions are especially prevalent in large organizations with diversity-
friendly senior management and human resources policies,14 and an internal evalua-
tion of a diversity training program in a large manufacturing firm showed positive
attitudinal changes over a three-month period with respect to emotional reactions,
making judgments, behavioral reactions, and organizational impacts.15 Although
existing evidence shows that diversity interventions are growing in popularity, there
is still ambiguity about the depth of organizational commitment to such practices
and the contingencies that moderate the relationship between commitment and
performance.16

Recently, however, two more complete evaluations of diversity management pro-
grams revealed positive results.17 First, using data collected by the EEOC and survey
data from organizations, researchers divided diversity programs into three categories:
structures of responsibility, such as affirmative action plans, diversity committees and
task forces, and diversity managers; educational programs, such as diversity training

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 503

and diversity feedback for managers; and networking and mentoring programs. The data
displayed a clear pattern. Structural programs were associated with significant increases
in overall managerial diversity. Education and feedback programs were not followed by
increases in managerial diversity. Finally, programs that attempted to increase the net-
working among different groups were associated with modest increases in management
diversity. Importantly, the presence of structural interventions improved the effect of the
other two interventions. In efforts to reduce inequality in the workplace, the researchers
suggest that the popularity of individually based diversity interventions should be
reviewed carefully. A great deal more research like this is needed to understand these
newer interventions and their outcomes.

Second, a study by the Rand Corporation compared a Fortune “Best Places to Work
for Minorities” company with a similar company from Fortune’s overall “Best Places to
Work For” list. The results suggest that firms recognized as leaders in diversity manage-
ment were much more likely than companies known for their superior HR practices to
have leadership, structures, initiatives, and evaluation practices reflecting best practices in
the diversity literature. These companies favored diversity for a variety of reasons, but
primarily because they believed it would improve their business performance; as a result,
top officials in these firms demonstrated strong support for diversity in word and deed.
Similarly, best diversity companies implemented more diversity-related initiatives and
established at least some means of measuring outcomes. Best HR firms pursued fewer
kinds of diversity initiatives than best diversity firms (preferring to focus on basic
recruiting, retention, and promotion programs) and had fewer means to evaluate
company effectiveness with respect to diversity.

Application 17.1 describes the evolution of a workforce diversity intervention at
L’Oreal, showing how diversity can be aligned with strategy on a global basis.18

17-2 Employee Stress and Wellness Interventions
In the past two decades, organizations have become increasingly aware of the relation-
ship between employee wellness and productivity.19 At the high end, the American Insti-
tue of Stress (AIS, www.stress.org) estimated that job stress costs U.S. business over $300
billion annually due to increased absenteeism, employee turnover, diminished productiv-
ity, medical, legal and insurance expenses, and Workers’ Compensation payments. Stress
management and wellness interventions, including employee assistance programs
(EAPs), have grown because organizations are interested in retaining a skilled workforce
and concerned for the welfare of their employees. Data also suggest that the greater
emphasis on workforce health can vary significantly by region. In Asia, the focus is the
need to compete for top talent, while in the United States, cost containment continues to
be the primary concern. European multinationals are interested in reducing absenteeism
and improving employees’ health and safety.20 Companies such as Johnson & Johnson,
Weyerhaeuser, Federal Express, Quaker Oats, and Abbott Laboratories are sponsoring a
wide range of fitness, wellness, and stress management programs.

17-2a What Are the Goals?
Individual well-being or wellness comprises “the various life/nonwork satisfactions
enjoyed by individuals, work and job-related satisfactions, and general health.”21

Health is a subcomponent of well-being and includes both mental/psychological
and physical/physiological factors. In addition, a person’s work setting, personality

504 PART 5 HUMAN RESOURCE INTERVENTIONS

a
p

p
li

ca
ti

o
n

1
7

1 ALIGNING STRATEGY AND DIVERSITY AT L’ORÉAL

L
’Oréal is the world’s largest beauty pro-
ducts company. It creates cosmetics, per-
fume, and hair and skin care items in more
than 130 countries under 23 brands, includ-

ing L’Oréal Paris, Maybelline, Lancôme, Soft-
SheenCarson, and Redken. L’Oréal also owns
the UK-based natural cosmetics retailer The
Body Shop International, which operates
about 2,550 stores worldwide. In 2006, L’Oréal
had revenues of €15.8 billion and expected
future growth to come more from its emerging
markets rather than its traditionally large U.S.
and European markets. The organization was
highly decentralized with countries having full
profit-and-loss responsibility. Local results
were then rolled up to the group level to pro-
vide a picture of overall effectiveness.

L’Oréal’s strategy was conducive to a
diversity perspective; the very nature of its
business makes diversity vital for success.
With diverse customer from around the
world, innovation must be based on under-
standing and respecting differences. In order
to be global, the organization must be global
from within, and their experience showed
that variety breeds more creativity and innova-
tion. As a mirror of the ever-changing world, a
diverse workforce is better equipped to deal
with change, be in tune with the environment,
and a represent a key to L’Oréal being a “great
place to work.”

The organization’s current efforts are built
on a long history of diversity which began in
1974 with the “Schueller” leave, a maternity
policy named after the company’s founder
that gives women an additional four weeks
leave in addition to the statutory requirements
and which can be taken, in full or in part, until
the child is two years old. In 2000, L’Oréal
adopted an Ethics Charter describing its values
and practices as a global company and it imple-
mented several other initiatives, such as the
adoption of policies concerning diversity prac-
tices, the appointment of specific roles (a U.S.
vice president of diversity was appointed in
2002), the inception of diversity training, and
participation in career fairs.

Momentum for diversity efforts at L’Oréal
increased in 2004 with the signing of the Diver-
sity Charter, along with 35 other large French
organizations, and the appointment of a global
diversity director. The charter represented
a national effort to promote pluralism and di-
versity as strategies for success. It visibly com-
mitted the organization to pursue a variety of
initiatives, including raising awareness, incor-
porating diversity progress metrics in annual
reports, and implementing policies that pro-
moted diversity throughout the corporation.
Diversity within L’Oréal came to be defined
as “a mosaic of visible and invisible differences
… which influence attitudes, behaviors, values,
and ways of working within the professional
environment.”

The new global diversity director assem-
bled a team that developed an explicit diver-
sity strategy. The strategy involved five action
levers, including recruitment and integration,
training, career management interventions,
management and inclusion, and communica-
tion. These five levers were expected to drive
results along six visible and invisible dimen-
sions, including nationality, ethnic and cultural
background, social promotion, gender, disabil-
ity, and age. The team believed the biggest
obstacle to implementation was the cultural
differences between the countries and a
low-level of awareness of the benefits that a
diversity strategy could bring. For example,
many of the workforces in the emerging mar-
ket countries were quite homogenous relative
to the United States and France, their econo-
mies were growing fast, and their leadership
teams had little experience or understanding
of diversity related practices. On the other
hand, the diversity efforts in the United States
were quite advanced. L’Oréal’s U.S. diversity
program was recognized with the 2004 Diver-
sity Best Practices’ Global Leadership Award
for creating an environment of diversity and
inclusion for employees, customers, and sup-
pliers. The U.S. experience thus provided
some important internal benchmarks for the
global team.

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 505

traits, and stress coping skills affect overall well-being. In turn, well-being impacts
personal and organizational outcomes, including absenteeism, productivity, and health
insurance costs.22

Concern has been growing in organizations about managing the dysfunction caused
by stress. According to a national APA survey of Stress in America, 39% said their stress
had increased over the past year and even more said that their stress had increased
over the past five years (44%).23 The problem is not unique to the United States. In a
Towers Watson global survey, 55% of firms responding reported that mental health
and stress issues were a priority in all or most of the countries they were operating.24

Of the six major economies making up 50% of the world’s gross domestic product, the
United Kingdom has the highest level of worker stress (35%), while China and India
have the lowest (17%).25

For example, with respect to the recruiting
strategy, the U.S. vice president of diversity had
introduced the concept of “fishing in different
ponds” to suggest that where the organization
looked for diverse talent was as important as
whom they were looking for. The organization iden-
tified seven different ponds and as a result, more
than 60% of the general managers were women
compared to a L’Oréal international average of
about 33%. In addition, minority representation
had increased from 13.9% in 2001 to 16% in
2004. Eventually, this led to the principle of sourc-
ing diversification to be able to access a broader
range of profiles.

In addition, the international organization began
computerizing the application process in 2004.
Through its website, they deleted request for certain
kinds of information that might contribute to recruit-
ing biases. Since its inception, the organization has
deleted home addresses, a type of information that
French studies believed was among the most dis-
criminatory, as well as information related to gender,
age, and nationality.

In terms of the training strategy, the U.S. vice
president collaborated with the global training orga-
nization to make diversity and inclusion part of the
core curriculum for all major leadership develop-
ment training programs. One of the global diversity
team’s initial activities was a two-day diversity
seminar that involved over 8,000 managers in
32 countries in Europe. The seminar explained
the diversity strategy and created opportunities

for managers to establish goals and action plans
to make diversity practices a reality in their coun-
tries. In line with the global team’s concerns, the
managers’ reactions were mixed, depending on
their organizational role and the country they repre-
sented. Many wondered if this was a “flavor of the
month” issue, believed they were already manag-
ing with diversity in mind, or had more important
business issues to address. However, many of the
managers also realized the potential of diversity
and became aware of some personal biases.
These managers were used to leverage the diver-
sity effort as it rolled out globally.

The U.S. program also led with way in terms of
implementing the strategy of management and
inclusion. Diversity objectives were included as part
of a manager’s responsibilities in annual performance
reviews. That practice was eventually expanded, and
today diversity objectives are included on a worldwide
basis.

To measure the progress of the programs,
L’Oréal benchmarks the company against leading
Fortune 500 companies that are recognized as
“Best in Class” for women and people of color.
A quarterly “State of Diversity Report” measures
results and monitors progress in key areas; it is
shared with senior leaders and human resources
teams. In 2006, L’Oréal was recognized with the
World Diversity Leadership Council’s Diversity
Innovation Award, and in 2007 Ethisphere maga-
zine ranked the organization as one of the “world’s
most ethical companies.”

506 PART 5 HUMAN RESOURCE INTERVENTIONS

A study by O’Toole and Lawler concluded that the price most U.S. workers and
managers have paid to get more interesting and enriched jobs is an increased
amount of stress.26 Stress has been linked to hypertension, heart attacks, diabetes,
asthma, chronic pain, allergies, headache, backache, various skin disorders, cancer,
immune system weakness, and decreases in the number of white blood cells and
changes in their function. It can also lead to alcoholism and drug abuse, two pro-
blems that are reaching epidemic proportions in organizations and society. For orga-
nizations, these personal effects can result in costly health benefits, absenteeism,
turnover, and low performance. One study reported that one in three workers said
they have thought about quitting because of stress; one in two workers said job stress
reduced their productivity; and one in five workers said they took sick leave in the
month preceding the survey because of stress.27 Another study estimates that each
employee who suffers from a stress-related illness loses an average of 16 days of
work per year.28

17-2b Applications Stages
Stress and wellness interventions involve (1) diagnosing stress and being aware of its
causes and (2) alleviating and coping with stress to improve wellness.

Diagnosing Stress and Becoming Aware of Its Causes Stress refers to the reac-
tion of people to their environments. It involves both physiological and psychological
responses to environmental conditions, causing people to change or adjust their beha-
viors. Stress is generally viewed in terms of the fit of people’s needs, abilities, and
expectations with environmental demands, changes, and opportunities.29 A good
person–environment fit results in positive reactions to stress; a poor fit leads to the
negative consequences already described. Stress is generally positive when it occurs at
moderate levels and contributes to effective motivation, innovation, and learning. For
example, a promotion is a stressful event that is experienced positively by most
employees. On the other hand, stress can be dysfunctional when it is excessively high
(or low) or persists over a long period of time. It can overpower a person’s coping abil-
ities and cause physical and emotional exhaustion. For example, a boss who is exces-
sively demanding and unsupportive can cause subordinates undue tension, anxiety, and
dissatisfaction. Those factors, in turn, can lead to withdrawal behaviors, such as absen-
teeism and turnover; to ailments, such as headaches and high blood pressure; and to
lowered performance. Situations in which there is a poor fit between employees and
the organization produce negative stress consequences.

A tremendous amount of research has been conducted on the causes and conse-
quences of work stress. Figure 17.2 identifies specific occupational stressors, potential
dysfunctional consequences, and interventions to address stress. People’s individual dif-
ferences determine the extent to which the stressors are perceived negatively. For exam-
ple, people with strong social support experience the stressors as less stressful than those
who do not have such support. This greater perceived stress can lead to such negative
consequences as anxiety, poor decision making, increased blood pressure, and low
productivity.

The stress model shows that almost any dimension of the organization, includ-
ing the physical environment, structure, roles, or relationships, can cause negative
stress. This suggests that much of the material covered so far in this book provides
knowledge about work-related stressors, and implies that virtually all of the OD
interventions included in the book can play a role in stress management. Team

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 507

building, employee involvement, reward systems, and career planning and develop-
ment all can help alleviate stressful working conditions. Thus, to some degree stress
management has been under discussion throughout this book. Here, the focus is on
those occupational stressors and stress management techniques that are unique to
the stress field and that have received the most systematic attention from stress
researchers.

Workplace Stressors. Figure 17.2 identifies several organizational sources of stress,
including the physical environment, individual situations, group pressures, and organiza-
tional conditions. Extensive research has been done on three key individual sources of
stress: the individual items related to work overload, role conflict, and role ambiguity.

Research relating workload to stress outcomes reveals that both too much and too
little work can have negative consequences. Apparently, when the amount of work is

FIGURE 17.2

Stress Management: Diagnosis and Intervention

SOURCE: Adapted from J. Gibson, J. Ivancevich, and J. Donnelly Jr., Organizations: Behaviors, Structure, Processes, 8th ed.
(Plano, Texas: Business Publications, 1994): 266. Reproduced with permission of The McGraw-Hill Companies.

508 PART 5 HUMAN RESOURCE INTERVENTIONS

in balance with people’s abilities and knowledge, stress has a positive impact on per-
formance and satisfaction, but when workload either exceeds employees’ abilities
(overload) or fails to challenge them (underload), people experience stress negatively.
This negative experience can lead to lowered self-esteem and job dissatisfaction, ner-
vous symptoms, increased absenteeism, and reduced participation in organizational
activities.30

People’s roles at work also can be a source of stress. A role can be defined as the
sum total of expectations that the individual and significant others have about how the
person should perform a specific job. Problems arise when there is role ambiguity and
the person does not clearly understand what others expect of him or her, or when
there is role conflict and the employee receives contradictory expectations that cannot
be satisfied at the same time.31 Extensive studies of role ambiguity and conflict suggest
that both conditions are prevalent in organizations, especially among managerial jobs
where clarity often is lacking and job demands often are contradictory.32 For example,
managerial job descriptions typically are so general that it is difficult to know precisely
what is expected on the job. Similarly, managers spend most of their time interacting
with people from other departments, and opportunities for conflicting demands
abound in these lateral relationships. Role ambiguity and conflict can cause severe
stress, resulting in increased tension, dissatisfaction, and withdrawal, and reduced com-
mitment and trust in others.

Individual Differences. Figure 17.2 identifies two classes of individual differences that
can affect how people respond to workplace stressors: cognitive/affective characteristics
and biological/demographic characteristics. Much research has been devoted to the
cognitive/affective category, especially the Type A behavior pattern, which is characterized
by impatience, competitiveness, and hostility. Type A personalities (in contrast to Type
B’s) invest long hours working under tight deadlines, and put themselves under extreme
time pressure by trying to do more and more work in less and less time. Type A people
are especially prone to stress. For example, a longitudinal study of 3,500 men found that
Type A’s had twice as much heart disease, five times as many second heart attacks, and
twice as many fatal heart attacks as did Type B’s.33

Stress management is directed at preventing negative stress outcomes either by
changing the organizational conditions causing the stress or by enhancing employees’
abilities to cope with them. This preventive approach starts from a diagnosis of the cur-
rent situation, including employees’ self-awareness of their own stress and its sources.
This diagnosis provides the information needed to develop an appropriate stress man-
agement program. There are two methods for diagnosing stress.

Charting stressors involves identifying organizational and personal stressors operat-
ing in a particular situation. Guided by a conceptual model like that shown in
Figure 17.2, data can be collected through questionnaires and interviews about environ-
mental and personal stressors. For example, researchers at the University of Michigan’s
Institute for Social Research have developed standardized instruments for measuring
most of the stressors shown in Figure 17.2. Similarly, there are specific instruments for
measuring the individual differences, such as hardiness, social support, and Type A or B
behavior pattern. In addition to perceptions of stressors, it is necessary to measure stress
consequences, such as subjective moods, performance, job satisfaction, absenteeism,
blood pressure, and cholesterol level. Various instruments and checklists have been
developed for obtaining people’s perceptions of negative consequences, and these can
be supplemented with hard measures taken from company records, medical reports,
and physical examinations.

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 509

Once measures of the stressors and consequences are obtained, the two sets of data
must be related to reveal which stressors contribute most to negative stress in the situ-
ation under study. For example, an analysis might show that qualitative overload and
role ambiguity are highly related to employee fatigue, absenteeism, and poor perfor-
mance, especially for Type A employees. This kind of information points to specific
organizational conditions that must be improved to reduce stress. Moreover, it identi-
fies the kinds of employees who may need special counseling and training in stress
management.

Health profiling is aimed at identifying stress symptoms so that corrective action
can be taken. Many firms contract with local health care facilities to provide the ser-
vice. It starts with a questionnaire asking people for their medical history; personal
habits; current health; and vital signs, such as blood pressure and cholesterol levels. It
also may include a physical examination if some of the information is not readily avail-
able. Information from the questionnaire and physical examination is then analyzed,
usually by a computer that calculates the individual’s health profile. This profile com-
pares the individual’s characteristics with those of an average person of the same gen-
der, age, and race. The profile identifies the person’s future health prospect, typically
by placing him or her in a health-risk category with a known probability of fatal dis-
ease, such as cardiovascular risk. The health profile also indicates how the health risks
can be reduced by making personal and environmental changes such as dieting,
exercising, or traveling.

Alleviating and Coping with Stress to Improve Wellness After diagnosing the
presence and causes of stress, the next step in stress management is to do something
about it. OD interventions for reducing negative stress tend to fall into two groups:
those aimed at changing the organizational conditions causing stress and those directed
at helping people to cope better with stress. Because stress results from the interaction
between people and the environment, both strategies are needed for effective stress man-
agement. Five such interventions are described below.

Role Clarification. This involves helping employees better understand the demands
of their work roles. A manager’s role is embedded in a network of relationships with
other managers, each of whom has specific expectations about how the manager should
perform the role. Role clarification is a systematic process for revealing others’ expecta-
tions and arriving at a consensus about the activities constituting a particular role.
There are several role clarification methods that follow a similar strategy.34 First, the
people relevant to defining a particular role are identified (e.g., members of a manage-
rial team, a boss and subordinate, and members of other departments relating to the
role holder) and brought together at a meeting, usually in a location away from the
organization.

Second, the role holder discusses his or her perceived job duties and responsibilities
and the other participants are encouraged to comment on and to agree or disagree with
the role holder’s perceptions. An OD practitioner may act as a process consultant to
facilitate interaction and reduce defensiveness. Third, when everyone has reached con-
sensus on defining the role, the role holder is responsible for writing a description of
the activities that are seen now as constituting the role. A copy of the role description
is distributed to all participants to ensure that they fully understand and agree with the
role definition. Fourth, the participants periodically check to see whether the role is
being performed as intended and make modifications if necessary.

510 PART 5 HUMAN RESOURCE INTERVENTIONS

Supportive Relationships. Building supportive relationships is aimed at helping
employees cope with stress rather than at changing the stressors themselves. It
involves establishing trusting and genuinely positive relationships among employees,
including bosses, subordinates, and peers. Supportive relations have been a hallmark
of organization development and are a major part of such interventions as team
building, intergroup relations, employee involvement, work design, goal setting, and
career planning and development. Considerable research shows that supportive rela-
tionships can buffer people from stress.35 When people feel that relevant others really
care about what happens to them and are willing to help, they can cope with stressful
conditions.

Work Leaves. In the United States, employees work more hours and take less time off
than in most other developed countries. For example, Americans worked an average of
1,878 hours per year while workers in the United Kingdom averaged 1,711, France aver-
aged 1,532, and German workers averaged 1,467. Only Korean employees worked more
than Americans. Similarly, other countries offer longer and more flexible work leave
arrangements, with vacation minimums often subject to government mandate. The
United States and Japan average ten days annual vacation, and the United Kingdom,
France, and Germany average 22, 25, and 24 days, respectively.36 While some differences
can be explained by cultural values or government policies, the potential to affect well-
ness through work leaves should not be ignored.

As organizations struggle to minimize the effects of work stress, paid and unpaid
work leaves are receiving increasing attention. Paid leaves include vacation, holidays,
personal days, as well as maternity and paternity leaves. The comparative statistics sug-
gest that globalization may increase pressure on vacation allowances. As with vacation
time, the United States lags behind other countries in regards to maternity and paternity
leave. Although the Family Medical Leave Act (FMLA) guarantees parents 12 weeks
unpaid leave (and more people are taking advantage of FMLA unpaid leave), many
employees cannot afford to take it, and firms at the top of Fortune’s “Best Companies
to Work For” list have responded with paid maternity and paternity leave.37 Another
key work leave intervention is paid sabbaticals, typically received after a specified tenure
of service. For example, Perkins Coie, a Seattle law firm with approximately 1,400
employees, offers eight-week paid sabbaticals. In another survey, 19% of companies,
including Deloitte and Touche, Microsoft and Intel, offered sabbaticals, but only 5%
with pay.38 Sabbaticals are a way of avoiding burnout and renewing employee creativity
and commitment.

Unpaid leaves, or leaves of absence, also offer employees a chance to renew and to
bring new experiences to the organization, while guaranteeing a job for them upon their
return. For example, personal growth leaves or social service leaves may allow an
employee to explore an individual interest or cause. Such a leave is an exchange, offering
the employee a chance for time off, renewal, and pursuit of a given interest, while retain-
ing a valued employee for the organization.

Health Facilities. A growing number of organizations are providing facilities for helping
employees cope with stress. Elaborate exercise facilities are maintained by such firms as
Qualcomm, Xerox, Weyerhaeuser, Google, and PepsiCo, and a majority of the Fortune 500
operate corporate cardiovascular fitness programs. Employees at Aetna can earn a financial
incentive for their involvement in weight management and fitness programs. Before starting
such programs, employees must take an exercise tolerance test and have the approval of

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 511

either a private or a company doctor. Each participant is then assigned a safe level of heart
response to the various parts of the fitness program.

In addition to exercise facilities, some companies, such as McDonald’s and Equitable
Life Assurance Society, provide biofeedback facilities in which managers take relaxation
breaks using biofeedback devices to monitor respiration and heart rate. Feedback of such
data helps managers lower their respiration and heart rates. Some companies provide
time for employees to meditate, and other firms have stay-well programs that encourage
healthy diets and lifestyles.

Employee Assistance Programs. This final stress and wellness intervention is an
organizational intervention and a method for helping individuals directly. EAPs
help identify, refer, and treat workers whose personal problems affect their perfor-
mance.39 While some large companies still provide an in-house EAP, most outsource
their EAPs. Initially started in the 1940s to combat alcoholism, these programs have
expanded to deal with emotional, family, marital, and financial problems, and, more
recently, drug abuse. For example, 2008 data from the federal Substance Abuse and
Mental Health Services Administration, suggest that 10.2% of full-time employed
adults and 11% of part-time working adults are substance-dependent. Of these,
about 85% are dependent on alcohol alone or on alcohol and drugs; 15% abuse
drugs only.40

Alcohol and drug use costs U.S. business an estimated $102 billion per year in lost
productivity, accidents, and turnover.41 Britain’s Royal College of Psychiatrists sug-
gested that up to 30% of employees in British companies would experience mental
health problems and that 115 million workdays were lost each year as a result of
depression.42 Other factors, too, have contributed to increased problems: altered family
structures, the growth of single-parent households, the increase in divorce, greater
mobility, and changing modes of child rearing are all fairly recent phenomena that
have added to the stress experienced by employees. These trends indicate that an
increasing number of employees need assistance with personal problems, and the
research suggests that EAP use increases during downsizing and restructuring.43

When other stress management interventions are not effective or when employ-
ees have particular types of wellness and or health issues, EAPs provide a means of
responding to employee wellness problems including extreme or chronic stress, drug
and alcohol abuse, problems with child and elder care, grief, and financial pro-
blems.44 Central to the philosophy underlying EAPs is the belief that although the
organization has no right to interfere in the private lives of its employees, it does
have a right to impose certain standards of work performance and to establish sanc-
tions when these are not met. Anyone whose work performance is impaired because
of a personal problem is eligible for admission into an EAP. Successful EAPs have
been implemented at Kimpton Hotels and Restaurants, Telemundo Network, Alcoa,
Sprint-Nextel, Wells Fargo Bank, and Johnson & Johnson. Numerous websites,
including that of the Employee Assistance Professionals Association, share or pro-
vide at minimal cost detailed guidelines on establishing an EAP. These steps include
developing an appropriate EAP policy, deciding to insource or outsource the pro-
gram, communicating the program to organization members, and providing training
on EAP use. Recent changes in health care privacy as a result of the Health Insur-
ance Portability and Privacy Act (HIPAA) impact EAPs, related health insurance
benefits, data requirements, and how such data and information can be used and
shared.45

512 PART 5 HUMAN RESOURCE INTERVENTIONS

17-2c The Results of Stress Management and
Wellness Interventions
The variety of stress management and wellness interventions makes it difficult to
provide overall conclusions, but the numerous studies about stress and any particular
intervention do add up to a positive recommendation. For example, the research on
role clarification supports this intervention. One study found that it reduced stress
and role ambiguity and increased job satisfaction.46 Another study reported that it
improved interpersonal relationships among group members and contributed to
improved production and quality.47 Like many of the other studies in this area, the
findings should be interpreted carefully because of weak research designs and per-
ceptual measures.

The research on supportive relationships suggests that organizations must
become more aware of their value in helping employees cope with stress. They may
need to build supportive, cohesive work groups in situations that are particularly
stressful, such as introducing new products, solving emergency problems, and han-
dling customer complaints. For example, firms such as Procter & Gamble and the
Hartford Financial Services Group have recognized that internal OD consultants
bear a lot of the stress of organization change, and so they encouraged internal OD
practitioners to form support teams to help each other cope with the demands of the
role. Equally important, organizations need to direct more attention to ensuring that
managers provide the support and encouragement necessary to help subordinates
cope with stress. For example, Pepperdine University’s executive programs often
include a module on helping subordinates cope with stress, and firms are training
managers to be more sensitive to stress and more supportive and helpful to
subordinates.

Preliminary evidence suggests that fitness programs can reduce absenteeism and
coronary risk factors, such as high blood pressure, body weight, percentage of body
fat, and cholesterol levels.48 A review of the research, however, suggests that fitness
programs primarily result in better mental health and resistance to stress and that
such organizational improvements as reduced absenteeism and turnover and improved
performance are more uncertain.49

The amount of research on EAP-related issues is quite large, as a look through
dedicated journals, such as the Journal for Workplace Behavioral Health or Employee
Assistance Quarterly, will attest. Two studies reviewed the multinational EAP evalua-
tion research for 39 studies between 1990 and 1999 and 42 studies between 2000 and
2009.50 The research explored several aspects of EAP implementation including
assessments of program success. For example, one study reported on a four-year,
quasi-experimental design of Fairview Health Services’ EAP and reported average
per-employee savings of $230 in lost work days, $340 in medical costs, and $188 in
workers compensation claims for a combined cost savings of $758 per employee
accessing the EAP. Application 17.2 provides additional data regarding the benefit of
EAP-related programs.51 Johnson and Johnson’s “Live for Life” program, among one
of the most regarded in the world, has been studied extensively and demonstrates the
long-term value of this approach. The author concludes: “To state it as simply as
possible, EAPs are effective. They save organizations money. EAPs also increase the
well-being of the majority of employees who actively participate in counseling
offered through the auspices of the programs and as a result enhance the wellness
of our communities.”

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 513

a
p

p
lica

tio
n

1
7

2
JOHNSON & JOHNSON’S HEALTH AND

WELLNESS PROGRAM

J
ohnson & Johnson (J&J) is the most diver-
sified health care corporation in the world.
It grosses more than $65 billion a year and
employs approximately 117,900 people

at 190 companies in 51 countries. The J&J
companies are decentralized and directly
responsible for their own operations. Corporate
management is committed to this structure
because of the many proven advantages to
the businesses and people involved, such as
the development of general managers, faster
product development, and a closer connection
with the customer. Its philosophy is embodied
in a document called “Our Credo,” a section of
which makes a commitment to the welfare of
its employees.

J&J has a long history of commitment to
health, wellness, and stress management pro-
grams. For example, based on a successful
pilot project in its Ethicon division during the
1970s, J&J top management decided to imple-
ment EAPs throughout the rest of the com-
pany. The J&J EAPs were in-house treatment
programs that offered employees and family
members confidential, professional assistance
for problems related to alcohol and drug abuse,
as well as marital, family, emotional, and men-
tal health difficulties. The major goal was to
help clients assume responsibility for their
own behavior and, if it was destructive to
themselves or others, to modify it. Employees
could enter an EAP by self-referral or by
counseling from their supervisor. The program
emphasized the necessity of maintaining com-
plete confidentiality when counseling the
employee or family member to protect both
the client’s dignity and job.

The EAPs were implemented between
1980 and 1985 in three phases. The first
phase consisted of contacting the managers
and directors of personnel for each of the
decentralized divisions and assessing their
divisions’ EAP needs. An educational process
was initiated to inform managers and

directors about the EAP. This EAP training
then was conducted in each of the personnel
departments of the divisions. The second
phase included a formal presentation to the
management board of each division. It included
information about the EAP and about an alco-
hol and drug component for executives. In the
third phase, cost estimates were developed
for EAP use and for employment of an EAP
administrator to implement the program in
each division. In addition, the corporate direc-
tor of assistance programs established a qual-
ity assurance program to review all EAP
activities biennially.

Eventually, more than 90% of all domestic
employees had direct access to an EAP, and
the remaining employees had telephone
access. There were EAPs at all major J&J loca-
tions throughout the United States, Puerto
Rico, and Canada. Programs also operated in
Brazil and England. A study of J&J’s EAP in
the New Jersey area showed that clients
with drug abuse, emotional, or mental health
problems who availed themselves of EAP ser-
vices were treated at substantial savings to the
company.

The EAPs were ultimately integrated with
J&J’s original wellness program known as Live
for Life. This program was initiated by the
chairman of the board in 1979, when he
committed to provide all employees and their
families with the opportunity to become the
healthiest employees of any corporation in
the world. The program brought together
experts in health care education, behavior
change, and disease management to create a
program to improve the health and productivity
of workers. The Live for Life program offered
classes in nutrition, weight reduction, and
smoking cessation. In addition, small gymnasi-
ums with workout equipment, aerobics rooms,
and swimming pools were made available. In
the late 1980s and 1990s the combined
programs became known as Live for Life

514 PART 5 HUMAN RESOURCE INTERVENTIONS

Assistance programs. Health, safety, benefits,
wellness, and EAPs worked together to promote
employee well-being in the workplace.

The current Johnson & Johnson Health and
Wellness Program is an outgrowth of those early
programs. It has undergone several transforma-
tions in the past three decades to respond to
shifting business requirements and changing
employee health needs. The Johnson & Johnson
Health and Wellness Program includes disability
management, occupational health, employee
assistance, work–life programs, and wellness
and fitness programs. The program is often stud-
ied by other corporations because of its integrated
service deliveries.

In 1995, Johnson & Johnson’s health and fit-
ness group took a simple step that catapulted par-
ticipation in the company’s wellness program from
26% to 90%. Patricia Flynn, vice president of John-
son & Johnson’s health care system, described
how J&J offered every employee a $500 health-
benefits credit in exchange for completing an
annual health-risk assessment before enrolling in
the plan. Although the company had offered the
assessment optionally for years as part of its well-
ness program, it was not until the incentive was
attached that employees flocked to it. “People
think they are fit and might not want to bother
with an assessment,” Flynn says. “This incentive
got them to do it.”

In the past, organization members were given
incentives for participating in various wellness pro-
grams, but the company’s focus has shifted all of
its incentive dollars toward risk assessment. “We
are confident that once employees know what
their risks are, then we can make a positive impact
on their health,” says Jennifer Bruno, director of
business planning. Early studies conducted at the
company showed that even those employees who
took the assessment but had no follow-up support
through wellness programs showed improve-
ments in their health.

But for Johnson & Johnson, the assessment is
just the beginning. The aggregate data helps the
health care group choose the right wellness

programs for the exact needs of the population,
Bruno says. The program developers aren’t gues-
sing at employees’ health interests or expecting
them to know what programs they will benefit
from, she says. They use the hard data to guide
their wellness program choices. “We are making
better use of our health care dollars, thanks to
the assessment information.”

For example, the initial assessment showed
that the employees had three areas of risk: high
cholesterol, high blood pressure, and inactivity.
The company now regularly offers exercise and
counseling programs to help employees reduce
cholesterol and blood pressure and manage
weight. Bruno says there are also subtle additions
to the workplace environment that contribute to a
healthy culture, such as nutritious choices in the
cafeteria, scales in all of the bathrooms, and a non-
smoking environment.

Johnson & Johnson’s Live for Life program is
one of the most emulated and evaluated pro-
grams of its kind. The most recent evaluation,
which compared J&J’s program against 16 other
programs over time, found that their average
annual growth in medical costs were 3.7% lower.
That is, after accounting for inflation, J&J’s average
medical and drug costs increased 1% per year
between 2002 and 2008 compared to the average
increase of 4.8% in 16 other companies with EAPs.
That translates to an average annual savings of
$565 per employee, and a return on investment
estimate of between $1.88 and $3.92 for every
dollar spent. Further tests suggested that J&J
employees were significantly less likely to be at
risk for high blood pressure, high cholesterol,
poor nutrition, obesity, physical inactivity, and
tobacco use. The researchers conclude that the
benefits from health promotion programs, espe-
cially those as comprehensive as J&Js, may be
long lasting. Johnson & Johnson’s Health and
Wellness program demonstrates a long-term
commitment to its strategy, its industry, and its
people. The execution and coordination of the dif-
ferent wellness components has paid off hand-
somely for many stakeholders.

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 515

SUMMARY

This chapter presented two important human
resources interventions: workforce diversity interven-
tions and employee stress and wellness interventions.
Like coaching, career planning and development, and
leadership development presented in Chapter 18, these
change programs generally are carried out by human
resources specialists but have become an important
part of OD’s practice.

Workforce diversity interventions are designed to
adapt human resources practices to an increasingly
diverse workforce. Age, gender, race, sexual orienta-
tion, disability, and culture and values trends point to a
more complex set of human resources demands. Within
such a context, OD interventions (e.g., job design, perfor-
mance management, and employee involvement prac-
tices) have to be adapted to a diverse set of personal
preferences, needs, and lifestyles.

Employee stress and wellness interventions, such as
work leaves and EAPs, recognize the important link
between worker health and organizational productivity.

A model for understanding work-related stress
includes occupational stressors; individual differ-
ences, which affect how people respond to the stres-
sors; stress outcomes; and interventions to increase
wellness or decrease stress. The two main steps in
stress management are diagnosing stress and its
causes, and alleviating stressors and helping people
to cope with stress. Two methods for diagnosing
stress are charting stressors and health profiling.
Techniques for alleviating stressful conditions include
role clarification and supportive relationships. Means
for helping workers cope with stress are developing
supportive relationships and participation in activi-
ties at health and fitness facilities. Finally, EAPs iden-
tify, refer, and treat employees and their families for
such problems as marital difficulties, drug and alcohol
abuse, emotional disturbances, and financial crises.
EAPs preserve the dignity of the individual but also
recognize the organization’s right to expect certain
work behaviors.

NOTES

1. F. Miller and J. Katz, The Inclusion Breakthrough
(San Francisco: Berrett-Koehler, 2002); R. Thomas, Build-
ing on the Promise of Diversity (New York: AMACOM
Books, 2005); M. Bell, Diversity in Organizations, 2nd ed.
(Mason, OH: South-Western College Publishing, 2011).

2. P. Dass and B. Parker, “Strategies for Managing Human
Resource Diversity: From Resistance to Learning,” Acad-
emy of Management Executive 13 (1999): 68–80.

3. Society for Human Resource Management, “Workplace
Diversity Practices Poll” (Alexandria, VA: SHRM,
2010), accessed from http://www.shrm.org/Research
/SurveyFindings/Articles/Pages/WorkplaceDiversityPractices
.aspx on August 12, 2012.

4. This section has benefited greatly from the advice and
assistance of Pat Pope, president of Pope and Associates,
Cincinnati, OH. Much of the data and many examples
cited in support of each trend can be found in the fol-
lowing references and websites: M. Galen, “Equal
Opportunity Diversity: Beyond the Numbers Game,”
BusinessWeek, August 14, 1995, 60–61; K. Hammon
and A. Palmer, “The Daddy Trap,” BusinessWeek,
September 21, 1998, 56–64; H. Kahan and D. Mulryan,
“Out of the Closet,” American Demographics (May 1995):

40–47; http://stats.bls.gov; http://nces.ed.gov; http://census
.gov; http://cdc.gov.

5. “How to Prepare for the Coming Older Workforce,”
IOMA’s Safety Director’s Report 1, no. 3 (April 2001).
See also World Health Organization information on
aging of the workforce.

6. E. Cook, M. Heppner, and K. O’Brien, “Career Develop-
ment of Women of Color and White Women: Assump-
tions, Conceptualizations, and Interventions from an
Ecological Perspective,” Career Development Quarterly
50 (2002): 291–305.

7. D. Meyerson and J. Fletcher, “A Modest Manifesto for
Breaking the Glass Ceiling,” Harvard Business Review
(January-February 2000): 127–35.

8. A. Brief, R. Buttram, R. Reizenstein, D. Pugh, J. Callahan,
R. McCline, and J. Vaslow, “Beyond Good Intentions: The
Next Steps Toward Racial Equality in the American Work-
place,” Academy of Management Executive 11 (1997): 59–72.

9. H. Ernst, “Promoting Diversity and Equality,” Fortune,
June 14, 2010, 142.

10. “More Employers Cover Domestic Partners,” Employee
Benefit News 17, no. 8 (June 15, 2003): 30.

516 PART 5 HUMAN RESOURCE INTERVENTIONS

11. Society for Human Resource Management, “2012
Employee Benefits: The Employee Benefits Landscape
in a Recovering Economy” (Alexandria, VA: SHRM,
2012), accessed from http://www.shrm.org/Research
/SurveyFindings/Articles/Pages/2012EmployeeBenefits
ResearchReport.aspx on August 14, 2012.

12. D. Baldrige and J. Veiga, “Toward a Greater Understand-
ing of the Willingness to Request an Accommodation:
Can Requesters’ Beliefs Disable the Americans with
Disabilities Act?” Academy of Management Review 26
(2001): 85–99.

13. Society for Human Resource Management, “Workplace
Diversity Practices Poll” (Alexandria, VA: SHRM,
2010), accessed from http://www.shrm.org/Research /Sur-
veyFindings/Articles/Pages/WorkplaceDiversityPractices
.aspx on August 12, 2012.

14. S. Rynes and B. Rosen, “A Field Survey of Factors Affect-
ing the Adoption and Perceived Success of Diversity
Training,” Personnel Psychology 48 (1995): 247–70;
K. Labich, “Making Diversity Pay,” Fortune, September 9,
1996, 177–80.

15. K. De Meuse, T. Hostager, and K. O’Neill, “A Longitudi-
nal Evaluation of Senior Managers’ Perceptions and Atti-
tudes of a Workplace Diversity Training Program,”
Human Resource Planning 30 (2007): 38–47.

16. M. Kwak, “The Paradox of Effects of Diversity,” Sloan
Management Review 44 (Spring 2003): 7–8; M. Hamdani
and M. Buckly, “Diversity Goals: Reframing the Debate
and Enabling a Fair Evaluation,” Business Horizons 54
(2011): 33–40.

17. A. Kalev, F. Dobbin, and E. Kelly, “Best Practices or Best
Guesses? Assessing the Efficacy of Corporate Affirma-
tive Action and Diversity Policies,” American Sociologi-
cal Review 71 (2006): 589–617; J. Marquis, N. Lim,
L. Scott, M. Harrell, and J. Kavanagh, “Managing Diver-
sity in Corporate America” (Santa Monica, CA: RAND
Corporation, 2008), accessed from http://www.rand.org
/pubs/occasional_papers/OP206 on August 13, 2012.

18. This application was adapted from the following sources:
“L’Oréal Dedicated to Diversity,” Global Cosmetic Indus-
try 173 (February 2005): 80; K. Mark, “L’Oréal S.A.: Roll-
ing Out the Global Diversity Strategy” (London, Ontario,
Canada: Richard Ivey School of Business, 2010),
#910C26; http://www.loreal.com.

19. L. Berry, A. Mirabito, and W. Baun, “What’s the Hard
Return on Employee Wellness Programs?” Harvard
Business Review (December 2010): 104–12; “Cadbury’s
Runs Smoothly Under Pressure; Wellness Program
Keeps IT Project on Track,” Human Resource Manage-
ment International Digest 15 (2007): 14; C. Haltom,
“Health Risk Management: Well-Being for the
Employee and the Bottom Line,” Benefits Quarterly 21
(2005): 7–10; M. O’Rourke and L. Sullivan, “Corporate

Wellness: A Healthy Return on Employee Investment,”
Risk Management 50 (2003): 34–36.

20. Towers Watson, “Multinational Workforce Health:
Building a Sustainable Global Strategy” (New York: Towers
Watson, 2012), accessed from http://www.towerswatson
.com/en-ZA/Insights/IC-Types/Survey-Research-Results
/2011/05/Multinational-Workforce-Health-Building-a-
Sustainable-Global-Strategy-1 on June 3, 2013.

21. K. Danna and R. Griffin, “Health and Well-Being in the
Workplace: A Review and Synthesis of the Literature,”
Journal of Management 25 (1999): 357–84.

22. These data were accessed from http://www.successunlimited
.co.uk/costs.htm on January 14, 2000. The results have since
been moved to http://www.bullyonline.org /workbully/costs
.htm, accessed October 1, 2003.

23. American Psychological Association, “Stress in America”
(Washington, DC, 2012), report accessed from http://
www.apa.org/news/press/releases/stress/index.aspx on
August 13, 2012.

24. Towers Watson, “Multinational Workforce Health:
Building a Sustainable Global Strategy.”

25. S. D’Mello, “Stress: The Global Economic Downturn Has
Taken Its Toll on Employees. What’s the Impact for
Organizations?” Kenexa High Performance Institute,
2011, accessed from http://khpi.com/documents/KHPI-
WorkTrends-Report-Stress on August 13, 2012.

26. J. O’Toole and E. Lawler, The New American Workplace
(New York: Palgrave Macmillan, 2007).

27. T. O’Boyle, “Fear and Stress in the Office Take Toll,”
Wall Street Journal, November 6, 1990, B1, B3; A. Riecher,
“Job Stress: What It Can Do to You,” Bryan-College
Station Eagle, August 15, 1993, D1.

28. D. Allen, “Less Stress, Less Litigation,” Personnel (January
1990): 32–35; D. Hollis and J. Goodson, “Stress: The
Legal and Organizational Implications,” Employee
Responsibilities and Rights Journal 2 (1989): 255–62.

29. T. Cummings and C. Cooper, “A Cybernetic Framework
for Studying Occupational Stress,” Human Relations 32
(1979): 395–418.

30. J. French and R. Caplan, “Organization Stress and Indi-
vidual Strain,” in The Failure of Success, ed. A. Morrow
(New York: AMACOM, 1972).

31. C. Cooper and R. Payne, Stress at Work (New York: John
Wiley & Sons, 1978).

32. C. Cooper and J. Marshall, “Occupational Sources of
Stress: A Review of the Literature Relating to Coronary
Heart Disease and Mental Ill Health,” Journal of Occupa-
tional Psychology 49 (1976): 11–28; Cooper and Payne,
Stress at Work.

33. R. Rosenman and M. Friedman, “The Central Nervous
System and Coronary Heart Disease,” Hospital Practice
6 (1971): 87–97.

CHAPTER 17 WORKFORCE DIVERSITY AND WELLNESS 517

34. E. Huse and C. Barebo, “Beyond the T-Group: Increasing
Organizational Effectiveness,” California Management
Review 23 (1980): 104–17; I. Dayal and J. Thomas,
“Operation KPE: Developing a New Organization,” Jour-
nal of Applied Behavioral Science 4 (1968): 473–506.

35. J. House, Work Stress and Social Support (Reading, MA:
Addison-Wesley, 1982).

36. M. Peak, “I Think I’ll Go to Work in France,” Manage-
ment Review 84 (1995): 7; U.S. Department of Labor,
“Annual Hours Worked per Employed Person 1990 and
2001,” Chart 19.

37. R. Levering and M. Moskowitz, “100 Best Companies to
Work For,” Fortune, January 20, 2003, 127–52.

38. T. Gunter, “The Pause That Refreshes,” BusinessWeek,
November 19, 2001, 138.

39. G. Bohlander and S. Snell, Managing Human Resources
(Cincinnati, OH: South-Western College Publishing,
2004).

40. R. Grossman, “What to Do About Substance Abuse?” HR
Magazine 55 (2010): 32–38.

41. S. Savitz, “Mental Health Plans Help Employees, Reduce
Costs,” Best’s Review 96, no. 3 (1995): 60–62.

42. C. Hodges, “Growing Problem of Stress at Work Alarms
Business,” People Management 1 (1995): 14–15.

43. W. Lissy and M. Morgenstern, “Employees Turn to EAPs
During Downsizing,” Compensation and Benefits Review
27, no. 3 (1995): 16.

44. K. Blassingame, “Providers Offer Bereaved Employees
Counseling Options,” BenefitNews.com, September 1,
2003, 51.

45. K. Bakich and K. Pestaina, “HIPAA Mean Changes for
Human Resources,” Employee Relations Law Journal 28
(2002): 29–54; K. Bakich and K. Pestaina, “HIPAA
Mean Changes for Human Resources—Part II: Addres-
sing the Most Challenging HR Issues,” Employee Rela-
tions Law Journal 28 (2003): 47–64.

46. Huse and Barebo, “Beyond the T-Group.”
47. Dayal and Thomas, “Operation KPE.”
48. J. Zuckerman, “Keeping Managers in Good Health,”

International Management 34 (January 1979): 40.
49. L. Falkenberg, “Employee Fitness Programs: Their Impact

on the Employee and the Organization,” Academy of
Management Review 12 (1987): 511–22.

50. R. Csiernik, “A Review of EAP Evaluation in the 1990s,”
Employee Assistance Quarterly 19 (2004): 21–37;
R. Csiernik, “The Glass Is Filling: An Examination of
Employee Assistance Program Evaluations in the First
Decade of the New Millennium,” Journal of Workplace
Behavioral Health 26 (2011): 334–55.

51. Adapted from T. Desmond, “An Internal Broadbrush
Program: J & J’s Live for Life Assistance Program,” in
The EAP Solution, ed. J. Spicer (Center City, MN: Hazel-
den, 1987), 148–56; L. Paetsch, “Wellness Program Saves
Johnson and Johnson $8.5 Million in Health Care Costs,”
Employee Benefit Plan Review 56 (2002): 31–32; S. Gale,
“Selling Health to High-Risk Workers,” Workforce 81
(2002): 74–76; R. Henke, R. Goetzel, J. McHugh, and
F. Isaac, “Recent Experience in Health Promotion at
Johnson & Johnson: Lower Health Spending, Strong
Return on Investment,” Health Affairs 30 (2011): 490–99;
the company’s website http://www.jnj.com.

518 PART 5 HUMAN RESOURCE INTERVENTIONS

S
el

ec
te

d
C

a
s
e
s EMPLOYEE BENEFITS AT HEALTHCO*

Scenario #1

“Pat, I just can’t do it. I know you want me to
go to New York tonight, but I can’t make a trip
like this at the last minute.”

“Chris, you are the best attorney we have
for these negotiations—we need you.”

“I appreciate the compliment, but I can’t
arrange the care for my mother and my daugh-
ter on four hours notice. I told you during my
performance appraisal about the demands I am
under—in terms of carrying my own workload
and part of Sidney’s [a coworker] during this
parental leave time. In addition, like I said, I
have two elderly parents, one needing daily
care, my toddler daughter, and I am moving
next week. I know you want me to progress
and I appreciate it, but you know I work
hard—I work overtime every week—but I can’t
do what you want this time. I’m sorry. I’ll talk to
you later.”

Pat hangs up the phone and thinks, “Okay,
I know I am asking a lot, but how do I resolve
these issues? It’s frustrating that Sidney is out
on 12 weeks leave—geez!!!—and it’s only
going to get worse. Chris is my best person …
why isn’t Chris more committed? And doesn’t
Sidney know that 12 weeks off creates hard-
ships for everyone else? How can I get them
to do more?”

Chris walks to the parking lot thinking,
“Boy, I thought I made a good move in coming
here. But Pat is worse than the partners I used
to work for. What am I going to do? Oh well, at
least the job market for attorneys is good.”

Scenario #2

“Francis, I appreciate your help these last few
weeks. I never could have exceeded all my
goals or facilitated my team exceeding its
goal if you hadn’t connected me with Kyle’s
Elder Care Referral Service. I feel like I would
have had to take at least five to seven days off
to gather the same information that Kyle had

immediately available. And then I would have
spent another week or two—not two days—
getting my dad settled. I don’t know why he
decided to retire to Ireland, but he is delighted
with the arrangements, and is doing well.”

“That’s okay, Blair, I’m happy to help.
Thank you for the excellent job you’ve been
doing. I really appreciate it. Let’s talk about
next month’s key goals.”

Blair had been the project lead during the
implementation of a new quality process in
the laboratory, and despite an above-average
workload the last month, had successfully
met the project’s objectives. Francis thought,
“It was touch and go when Blair’s dad sud-
denly wanted to retire to Ireland, and wanted
to move immediately. Thank heaven I remem-
bered reading about Kyle and the Elder Care
Referral Service.”

Blair left Francis’ office with a smile, think-
ing, “Francis is great to work for … I can’t even
consider any of the calls I’m getting from other
hospitals or headhunters. It’s just great to work
for someone who understands that work is just
one part of life.”

Scenario #3

Robin, department head for pediatrics at
HealthCo’s second largest hospital, had asked
to meet with Mercer, the director of pediatrics
for HealthCo.

“Mercer, thanks for your time. As you
know I’m 56 this year, and I want to talk to
you about my retirement. I have many interests
beyond my medical practice, and also want
more time with my family and community.
What I would like to do is begin working part-
time after this first year. What I’m thinking is
that I would work 30 hours a week for two
years, still holding clinic hours two days
week. Then the next three to five years I
would like to transition to full-time retirement.
What I would like is to work 20 or so hours per
week for those years, working with medical
school students and on research projects.”

“Well, Robin, as you know, we don’t have
any formal retirement policy except to fully

*This case was prepared by Professor Karen Whelan-Berry
of Utah Valley State College for classroom discussion. It is
published with permission of the author.

SELECTED CASES 519

retire. I’m going to have to talk to HR about this.
You have extensive experience and expertise, and
I don’t want to lose that. I’m just not sure what HR
or the Physicians’ Council will say.”

“I understand. My first choice is to remain
with HealthCo, but I know there are organizations
that would be interested in my working part-time.
When can you get back to me?”

“Give me a couple of weeks, Robin.”
“Okay.”
Mercer began to think about Robin’s request,

already hearing HR raise issues like benefits, ongo-
ing participation in retirement funding, and prece-
dents being set. But Mercer didn’t want to lose
Robin’s expertise. And Robin’s idea of working
with the medical students might let HealthCo cre-
ate a unique internship and residency experience,
which would let HealthCo attract the top students.

BACKGROUND

The people in these three scenarios work for
HealthCo, a fully integrated, nonprofit health care
organization with nine major medical centers and
36 affiliated clinics, rehabilitation units, therapy
facilities, hospice and geriatric units, and other
highly specialized centers. Located in the eastern
United States, HealthCo has about 6,700 employ-
ees. Like other health care companies, it employs
a disproportionate number of women, especially in
nursing and patient care, allied health services, and
support staff. The backgrounds of Pat, Francis, and
Mercer, all managers at HealthCo, are provided
below.

Pat is the chief counsel of HealthCo’s internal
legal department. Pat has worked for HealthCo for
five years, after 15 years in a major law firm in
Washington, D.C. It has been a difficult transition
from the “do-anything, 24/7” pace of the firm to
the “slower, less professional” pace of HealthCo.
Pat is married and has three kids. Pat’s spouse is
also an attorney. Pat’s staff is primarily full-time
and works “nine to five.” The department is very
busy, often with a workload that significantly
exceeds the day-to-day capacity of the staff.

Francis serves as the director of laboratory ser-
vices for the largest hospital. The laboratory is
staffed around the clock and can be called on to
perform routine and emergency procedures at
any time. The new quality process that Blair helped

to implement was critical to the lab supporting the
hospital’s status as the primary emergency and
critical-care facility in the region. Francis, who had
started in a research lab prior to joining HealthCo,
felt the pressure of staffing a 24/7 lab. Having
never married, Francis could not imagine juggling
marriage and children in addition to the demands of
having two parents and five siblings and their fami-
lies living nearby. Francis tried to help the lab’s
employees with family or life demands, but did
so on a personal basis, and not because the hospi-
tal had many such benefits available.

Mercer is a nationally known pediatrician with
15 years experience, and was recently hired to
head HealthCo’s pediatrics organization. Mercer’s
expertise and management capabilities were
stretched in a positive way by the demands of
such a large and comprehensive pediatric practice.
Thriving on that challenge, Mercer had been very
successful since taking over the organization. Mar-
rying after medical school to another physician,
Mercer felt grateful for being able to work the
hours required to fully learn and understand this
new position. Mercer knew a number of people
on the pediatric staff, including a number of the
pediatricians. Many of them felt Mercer worked
way too much, and moreover, worried Mercer
expected the same of them. Mercer knew that
younger physicians weren’t as keen on the 24/7
doctor lifestyle that Mercer’s father had lived.

RECENT EVENTS

A couple of weeks after Pat’s conversation with
Chris, Francis’ with Blair, and Mercer’s with
Robin, a senior staff meeting was called to discuss
current issues and the coming year’s strategic
initiatives. The CEO, Dr. Palmer, recently had
become focused on employee retention, after
Human Resources reported that HealthCo’s turn-
over was 1.5 times the industry average. While
HealthCo was competitive about salary, benefits
seemed to be an area needing improvement. Fur-
ther, the recent issue of Fortune, which identified
the “Best Companies to Work For,” raised Dr. Pal-
mer’s awareness of the growing importance of
work–life programs and policies.

Dr. Palmer realized that HealthCo did not pro-
vide many of the benefits offered by these “best
companies.” In fact, very few health care

520 PART 5 HUMAN RESOURCE INTERVENTIONS

companies made the list. Palmer conceded that
the 24/7 nature of health care organizations proba-
bly complicated the provision of work–life benefits.
However, Palmer also saw a potential competitive
advantage in being a leader in providing such ben-
efits, especially when combined with the competi-
tive salary and merit structure HealthCo offered.
Dr. Palmer remembered that a survey had been
done of HealthCo female employees by an outside

research team, and that one area of the survey
was work–life issues. A review of the data
revealed a number of benefits seen as important
to the female employees of HealthCo (see
Table 1). The research also had suggested that
the immediate supervisor played a vital role in the
employee’s ability to successfully balance work
and life, and the employee’s satisfaction with her
work–life balance. An immediate supervisor’s

TABLE 1

Rank-Order Importance of Work–Life Benefits for Female Employees at HealthCo

Benefit Rank Currently Offered by Healthco

Maternity/Paternity and Family Leave
Includes paid maternity and paternity leave,

extended paid leave for family issues, and
unpaid leave for family issues with the
ability to return to work.

1 HealthCo pays six weeks maternity and
paternity leave, after the employees has
been with the company for one year.
Employees can take another six weeks
unpaid. No extended leave.

Sabbatical/Extended Leave
Paid extended leave after working for a

specified time with the company.
2 Not offered by HealthCo.

Fitness
Includes on-site fitness facilities, and/or paid

health club memberships.
3 Not offered by HealthCo.

Flextime
Includes part-time work schedules, flextime,

and telecommuting.
4 Flextime, with two-hour flex offered in

some departments.

Work–Life Task Force
Employee committee that oversees

work–life issues.
5 Currently overseen by HR.

Concierge Services
Includes services such as on-site takeout,

dry cleaning, auto service, and other simi-
lar services.

6 Not offered except at corporate
headquarters.

Child Care
Includes on-site child care, vacation pro-

grams, and before and after school care.
7 Sick-child care offered at some of the

medical centers.

Referral Services
Includes child care, elder care, and other

referral services.
8 Not offered by HealthCo.

Paid Health Insurance Premiums * HealthCo pays the employee’s premium.

*Payment of health insurance premium not rank-ordered, but included in survey information.

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SELECTED CASES 521

direct support of work–life balance was signifi-
cantly linked to other important outcomes, such
as job satisfaction, organizational commitment,
and intent to leave the organization.

Dr. Palmer raised the question of offering
work–life benefits at the senior staff meeting. Dr.
Palmer noted that while funding was not unlimited,
of course, HealthCo’s recent financial performance
would permit budget allocations to such benefits,
and might also be offset by reduced turnover costs
or improved productivity.

Pat immediately stated, “I can barely get my
staff together now with all the work we have going
on. And, I certainly can’t hold their hands. They
would never be coddled this way in a law firm.
People work the hours needed, no questions
asked.” Francis said, “I can see the difference
such benefits would make, but how do I make
this work in a 24/7 department? While Legal
might see it as difficult, I see it as impossible,
especially any movement away from traditional
shifts.” A nursing director commented thought-
fully, “Some hospitals are considering shorter,
split shifts, and longer shifts to create flexibility—
there might be something to that.” A number of
departments immediately argued such scheduling
was a leader’s nightmare, and that the company’s
existing two hours of flextime in a number of
departments created serious issues. The V.P. of
finance for the hospital spoke up, “I don’t see
why people with children should be treated
differently—it’s their choice to have children.
I have a life, too, and you don’t see me asking for

special arrangements. I have employees asking me
to work from home—how do I appraise their per-
formance if they primarily work at home?” Mercer
thought about Robin’s request, wondering if other
baby-boomer employees would soon be making
similar requests.

Dr. Palmer listened to what was quickly
becoming a heated discussion, noting the varied
and complicated reactions of the different direc-
tors, vice presidents, and other top leaders of the
organization. Dr. Palmer commented, “We say in
our recruiting materials that our employees are
HealthCo, that it is individual care in all areas of the
company—from nursing to accounting—that
makes us different. How can we expect our
employees to give individual care if we, as an orga-
nization, don’t care about them and their lives?”

“I’d like a team of four to six volunteers to put
together a plan for becoming a top company in
terms of work–life benefits. Please identify the
key issues in serving all employees with such a
set of benefits, and any related issues.”

Questions

1. How would you conduct a diagnosis of the
situation at HealthCo?

2. Based on the information provided in the
scenarios and the case, what is your own
diagnosis of the situation?

3. What do you see as the key issues in
HealthCo becoming a top company in terms
of work–life benefits?

522 PART 5 HUMAN RESOURCE INTERVENTIONS

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SYSTEM AT DISK DRIVES, INC.*

D
isk Drives, Inc. (DDI) is a specialty electron-
ics firm that designs, markets, and distri-
butes disk drives for the computer
industry. DDI began in 1980 by manufactur-

ing and marketing large-format disk drives for
minicomputer firms, such as Digital Equipment
Corporate (DEC) and Data General, as well as
for complex, large-scale word-processing sys-
tems offered by Xerox and Wang. DDI’s first
products were quite successful and the com-
pany grew to revenues of $119 million by 1985.
A strategic decision to integrate different tech-
nologies inside the disk drive for a different
type of customer resulted in a newer and smal-
ler product line with lower costs and lower
prices. Unfortunately, DDI was late to market
and its products did not have the performance
features these customers wanted or needed.
Thus, despite the new customers and higher
product volumes, sales and profits plummeted
as its original products faded and its new
products faltered.

One of DDI’s subsidiaries, however, was
designing and selling different and even smal-
ler disk drives to personal computer original
equipment manufacturers (OEMs). Following
a different business model, they had out-
sourced their manufacturing capacity to a
Japanese plant. The subsidiary—over the
1985–1989 time frame—saved DDI from failure.
By 1988, DDI announced it would stop develop-
ing and manufacturing all of its larger disk drives
and focus on the smaller ones for PCs. It also
phased out its domestic manufacturing opera-
tions and began sourcing its drives exclusively
from the Japanese plant. Whereas two-thirds of
DDI’s 1988 revenues had come from large
drives manufactured domestically, by the end
of 1989, 100% of its revenues were from the

small drives manufactured in Japan. The ques-
tion facing DDI management was how to main-
tain the momentum. It required a careful look
at the existing organization and determining its
fitness for the future.

The head of HR at DDI, who was quite
knowledgeable in organization change and
development, convinced the executive team
to go through a systematic process of diagnos-
ing the organization’s current operating model
and redesigning the company to handle the
projected growth and the increased complexity
it was facing.

THE CURRENT DDI ORGANIZATION

At the macro level, competition in the disk
drive market was characterized by fast-paced
technology change and product evolution as
well as a number of equally sized competitors.
First, customers—the OEM manufacturers of
PCs, such as IBM, Dell, Toshiba, and HP—
were not only designing newer, faster, and
more sophisticated computers, they were
demanding and expecting newer, faster, and
more sophisticated disk drives. Although man-
agement was confident in the firm’s technical
ability to offer the best price/performance
products in the industry, they realized that
the period during which a new DDI drive
could retain a performance edge before being
leapfrogged by a competitor was getting
shorter and shorter. Second, when an OEM
announced a new computer model, all of the
disk drive manufacturers competed aggres-
sively to get the business. The disk drive
firms had a limited amount of time—usually
less than a few months—to make their bid,
and it was often based on yet untried techno-
logical capabilities. Moreover, the sales pro-
cess had a “gold rush” or “winner take all”
feel. If a disk drive manufacturer could win a
contract with an OEM manufacturer, it usually
meant that a whole line of disk drives, including
follow-on models, would be part of the deal.
As a result, quality, speed of customer
response, and cost were increasingly important

*This case was derived and adapted from materials found
in C. Christensen, “Quantum Corporation—Business
and Product Teams,” Harvard Business School Case
9-692-023 (Boston: Harvard Business School, 1992);
S. Mohrman, “Computer Components,” Center for
Effective Organizations (Los Angeles: University of
Southern California, 2012).

SELECTED CASES 523

dimensions to be managed. Quality was necessary
to win the confidence of the OEMs and increase
the chances of winning follow-on business, speed
of response was necessary given the narrow time-
frame, and cost vigilance was necessary to pro-
duce a profit.

In this environment, the company was clear
about the processes for adding value (Figure 1).
The key work processes included:

1. Working with appropriate technical support, it
was important to bid and win on new accounts.
A Request for Proposal (RFP) provided by the
OEM detailed the technical specifications for
the disk drive in its new computer model.

2. The disk drive was then designed to fit the
technical specifications and to meet quality
and cost targets.

3. The resulting design was then prepared for
transfer to the manufacturing facility.

4. The drive was manufactured in Japan.
5. The drive was then released to the OEM to be

incorporated into the computer, and support
issues were handled.

DDI was growing fast and new models were
being continually released that embodied technology
advances, new capabilities, and enhanced designs.
The life cycle for a disk drive (once a contract was
signed with the OEM) was about six to eight
months for development, first-run production, and
field distribution and service. Even including a sec-
ond release (follow-on) product, the entire life cycle
for the model was generally about 12 to 16 months.
The company was handling about five to six disk
drive designs at any particular time and that number
was expected to increase significantly.

As described above, DDI had signed a long-
term, exclusive contract to outsource manufactur-
ing to a Japanese company that promised, in turn,
to continually retool and upgrade its manufacturing
capabilities as DDI grew. To manage this process,
DDI had experienced manufacturing engineers,
quality assurance, process optimization, and distri-
bution staff to plan the movement of the disks into
the contracted factory and to manage its introduc-
tion into the field.

In line with this functional structure and work
process, the organization was governed by the
executive committee, composed of the CEO and
trusted colleagues who had “grown up” together
in the industry. Each took responsibility for certain
functional tasks (Figure 2). Each hired people to
carry out the functions they managed as the com-
pany achieved success and grew rapidly.

The executive team was also responsible for
the planning, coordination, and integration of the
activities of marketing and sales, technical devel-
opment, and managing operations and field distri-
bution and support. That is, decision making, goal
setting, and strategic direction were centralized to
this group. Similarly, the organization’s perfor-
mance management system was centralized and
traditional. Managers and functional employees
were given overall company targets for revenue
and each function was expected to translate
those goals into specific objectives for their
group. Functional supervisors gave annual perfor-
mance appraisals that provided the basis for merit
pay increases. In addition, all DDI employees were
eligible for a profit sharing bonus that had been
running at about 5% of salary. Executives were eli-
gible for stock options as well.

FIGURE 1

The DDI Value Chain

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524 PART 5 HUMAN RESOURCE INTERVENTIONS

ENGAGING IN A REDESIGN OF DDI

Although happy with the recent success of the
company, the executive team realized that it could
not continue to grow and be successful as it was
currently designed. It was not effectively coordinat-
ing the complexity that came with rapid growth, and
it was having trouble keeping up with demand. It
had experienced several delays and quality inci-
dents, including one major field warranty problem
due to a disk drive failure. The executive team
was highly involved in ongoing operational issues,
and the CEO was concerned that they did not
have time to attend to the strategic decisions
required in the rapidly developing computer indus-
try. He also believed that the executive team had
become a bottleneck and was slowing product deci-
sion making. The CEO recalled being in an execu-
tive committee meeting and asking about why a
particular product had not yet shipped to the cus-
tomer. After collecting a variety of data and informa-
tion about component inventories, capacity
planning, forecasts, and other details, he realized
that management—in particular, the executive
committee—was part of the problem. “We were
trying to manage details we weren’t knowledgeable
about. We had a bandwidth problem—the executive
staff just didn’t have enough time or brain capacity
to keep making all the key decisions.”

The executive team decided that they needed
to assume a more strategic role in the organization
and decentralize cross-functional integration and
operational decision making about new product
development, manufacturing, and field support.
Although they wanted insight into product develop-
ment progress and milestone achievement, they
also understood that to decentralize this integration
and decision making, they needed to be clear
about the roles, responsibilities, and accountabil-
ities for success. They believed such a change
would create and build a cadre of future leaders
for the organization.

Based on the diagnostic data and the executive
team’s requirements, the head of HR led the team
through a systematic redesign of the organization.

Commitment to Strategic Direction

The executive team first recommitted itself to the
basic strategy of rapidly advancing the technology
through aggressively bidding on and delivering disk
drives to computers that required increasing oper-
ating speed, flawless quality, and continual new
functionalities.

Structure Modification

The executive team believed that the existing func-
tional structure provided important advantages.

FIGURE 2

DDI’s Functional Organization

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SELECTED CASES 525

There was a clear focus on technical excellence and
clear technical career paths. However, to achieve
the cross-functional integration and speed objec-
tives and to begin building leadership skills, they
decided to implement cross-functional product
teams as a lateral structure to coordinate the devel-
opment of each disk drive. Functions would remain
the core units of the company, but the management
of each disk drive model would be carried out by a
team, established as soon as a contract was signed,
to manage the product over its life cycle (see the
dotted horizontal lines in Figure 3).

The members of each product team would
be functional managers at the director or senior
manager level—moving the operational cross-
functional coordination and management lower in
the organization and freeing up the executive team
to concentrate on more strategic issues.

The teams were to consist of seven members,
one from each function (although there was no
member from the sales organization). They were
to be collectively responsible for the general man-
agement of their product and not just represent

their functional point of view. In general, the engi-
neering team member was to be the leader during
the initial phases of the program, but as the product
approached commercial launch, the marketing
member would assume more leadership responsi-
bilities. The engineering team member would also
lead a dedicated group of engineers assigned to
develop the drive and to work through any product
design problems encountered during manufactur-
ing and in the field (see the solid vertical lines in
Figure 3). The engineering member was the only
person with a functional group dedicated to the
product; all other functions would allocate personnel
to a product team based on the project’s stage of
development and need. Each team member
would continue to have management responsibilities
within their function. In other words, working on a
team was considered an “overload” responsibility
in addition to their regular functional responsibilities.

Management Processes

The executive team was careful to delineate which
issues were the responsibility of the product teams,

FIGURE 3

The Proposed Product Team Structure

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526 PART 5 HUMAN RESOURCE INTERVENTIONS

the functional organizations, and the executive
staff. The product team would be empowered to
make all decisions relating to developing and
bringing a specific product into the field—and it
would be incented to bring the product to market
on time, within cost, and with high levels of qual-
ity and customer satisfaction. Teams were
responsible for the revenues and gross margins
generated by the product and for the inventories
required to support the revenues. The product
teams were responsible for achieving faster and
faster development cycle times. Each product
team was given clearly defined milestones that
were derived from the contract, including cost,
quality, and profitability targets.

Functional groups, on the other hand, were
charged with managing ongoing functional activi-
ties and expenses, providing effective career
paths and skill-building programs, executing the
plans, and staffing the programs initiated by the
product teams. For example, the engineering
organization was responsible for maintaining
DDIs overall technical edge, dedicating a group
of engineers to a specific product, and defining
professional development. In addition, each func-
tion was divided into discipline groups that car-
ried out specialty tasks. For example, the quality
function had a group that specialized in design
quality, prototype testing, and manufacturing
quality specifications and monitoring (the latter
working closely with the contract manufacturing
facility). The responsibilities of the product teams
and the functional organizations are summarized
in Table 1.

Finally, the executive team controlled milestone
reviews for each product, including prototype
design completion, design completion/release to
manufacturing, release to customer, and the three-
week release to field.

Performance Management

The executive team next considered the question
of performance management and incentives.

Questions

1. Does DDI need a new performance system to
account for the structural and management
process changes they are contemplating?
Why or why not?

2. Assuming a modification to the performance
management system is necessary, describe the
features of a system you would recommend.
What changes need to be made in the goal
setting, feedback/appraisal, and reward sys-
tems at DDI? Be specific about the features of
the system(s) you believe need to be changed
and the characteristics of the system itself. That
is, do not describe the process for designing
the system (see Question 3) but focus on the
characteristics of the reward system that are
required to fit or align with the strategy,
structure, and management processes.

3. Describe the change management process
you would use to design and implement the
new system. What roles and responsibilities
should the executive team take on? How fast
should the system be implemented?

TABLE 1

Product Team and Functional Organization Responsibilities

Product Team Mission: To work in a
coordinated way to address market needs

Functional Organization Mission: To ensure
high quality technical support services

• Define, develop, and introduce new products
• Manage cycle time, cost, and quality

objectives
• Manage the inventories required to support

revenues
• Manage product revenues and gross margins

• Provide career path and skill development
• Support team projects and provide specialized

services
• Allocate engineering and manufacturing

personnel to product team projects
• Execute plans and staffing programs initiated

by product teams

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SELECTED CASES 527

SELECTED CASES

© Pixmann/Imagezoo/Getty Images

PART 6
STRATEGIC
CHANGE
INTERVENTIONS

18 Transformational Change

19 Continuous Change

20 Transorganization Change

Global Mobile Corporation

Leading Strategic Change at DaVita:
The Integration of the Gambro Acquisition

528

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Transformational Change

learning
objectives

Describe the characteristics of transformational change.

Explain the organization design intervention for both domestic and
worldwide situations.

Learn about the integrated strategic change intervention and understand
how it represents the revolutionary and systemic characteristics of
transformational change.

Discuss the process and key success factors associated with culture
change.

This is the first of three chapters describingstrategic change interventions. In priorchapters of this text, organizational develop-
ment processes aimed at improving specific
parts of an organization were described. For
example, third-party interventions addressed con-
flict between two individuals, team-building inter-
ventions improved group functioning, employee
involvement interventions increased member
engagement, and reward system interventions
aligned individual and team incentives with busi-
ness strategy. In every case, the intervention
focused on one particular organizational sub-
system and placed other subsystems in the back-
ground. That is, diagnostic data pointed to one
specific aspect of the organization, such as a
structure, system, or process, as needing devel-
opment. More importantly, there was an implicit
or explicit assumption that the organization’s cul-
ture was part of that background and that the
interventions were unlikely to influence the cul-
ture in any significant way.

The focus of the interventions in Part 6 is on the
whole system—on organization development. These
change programs are “strategic” in that they are
intended to alter the relationship between an
organization and its environment, and they are
intended to affect outcomes at the organization
level, including sales, profitability, and culture. These
interventions involve changing the strategy and/or
design of a single organization or combining or
orchestrating the activities of multiple organizations.

This chapter describes transformational inter-
ventions. These change processes bring about
important alignments between the organization
and its competitive environment and among the
organization’s strategy, design elements, and
culture. They are initiated in response to or in
anticipation of major changes in the organization’s
environment or technology. As a result, these
changes often trigger significant revisions in
business strategy, which, in turn, may require
modifying internal structures and processes to
support the new direction. Such fundamental

529

change entails a new paradigm for organizing
and managing the organization; it requires
qualitatively different ways of perceiving,
thinking, and behaving. Movement toward this
new way of operating requires senior executives
to take an active leadership role. The change
process is characterized by considerable inno-
vation as members discover new ways of
improving the organization and adapting it to
changing conditions.

Transformational change is an emerging part of
organization development, and there is some
confusion about its meaning and definition. This
chapter starts with a description of several major
features of transformational change. For example,
transformational change is triggered by internal or
external disruptions; initiated by line managers and
executives; influenced by multiple stakeholders,
systemic and revolutionary; and characterized by
significant learning and a new paradigm.

Organization design interventions address the
different elements that comprise the “architecture”
of the organization, including structure, work design,
human resources practices, and management
processes. In either domestic or worldwide
settings, organization design interventions seek to

fit or align these components with each other
so they direct members’ behaviors in support of
a strategic direction. Integrated strategic change
is a comprehensive OD intervention that builds on
the systemic and revolutionary nature of
transformational change. It leverages traditional
change management frameworks and aims to
transform a single organization or business unit. It
suggests that business strategy and organization
design must be aligned and changed together to
respond to external and internal disruptions.
A strategic change plan helps members manage the
transition between the current strategic orientation
and the desired future strategic orientation.

Organizational culture is the pattern of
assumptions, values, and norms regarding
correct behavior that is shared, more or less, by
organization members. A growing body of research
confirms that culture can affect strategy formulation
and implementation as well as the firm’s ability
to achieve high levels of performance.1 Culture
change involves helping senior executives and
administrators diagnose the existing culture
and make necessary alterations in the basic
assumptions and values underlying organizational
behaviors.

18-1 Characteristics of Transformational Change
Organization transformation implies radical changes in how members perceive, think,
and behave at work. These changes go far beyond making the existing organization
better or fine-tuning the status quo. They are concerned with fundamentally altering
the prevailing assumptions about how the organization functions and relates to its
environment. Changing these assumptions entails significant shifts in corporate values
and norms and in the structures and organizational arrangements that shape members’
behaviors. Not only is the magnitude of change greater, but it can fundamentally alter
the qualitative nature of the organization.

18-1a Change Is Triggered by Environmental
and Internal Disruptions
Increased global competition and the lingering economic recession are forcing many
organizations to engage in radical changes to their operating strategies and structures,
downsize or consolidate, or become leaner, more efficient, and flexible.2 Global warm-
ing, social unrest, and the rise of watchdog nongovernmental organizations are pushing
firms to implement a variety of corporate social responsibility and sustainability initia-
tives. Public demand for less government intervention and lower deficits conflicts with
expectations of support during hard times. Public sector agencies must try to expand

530 PART 6 STRATEGIC CHANGE INTERVENTIONS

services, streamline operations, and deliver more for less. Rapid changes in technolo-
gies render many organizational practices obsolete, pushing firms to be continually
innovative and agile.

However, research suggests that traditional organizations are unlikely to undertake
transformational change without significant reasons to do so.3 Power, emotion, and exper-
tise are vested in the existing organizational arrangements, and when faced with problems,
organizations are more likely to fine-tune those structures than to alter them drastically.
Thus, in most cases, organizations must experience or anticipate a severe threat to survival
before they will be motivated to undertake large-scale, transformational change.4 Such
threats arise when environmental and internal changes render existing organizational strat-
egies and designs obsolete. These disruptions threaten the existence of the organization’s
current design and the likelihood of continuing to perform at a high level.

In studying a large number of organization transformations, researchers suggest that
large-scale change occurs in response to at least three kinds of disruption:5

1. Industry discontinuities—sharp changes in legal, political, economic, and technolog-
ical conditions that shift the basis for competition within an industry.

2. Product life cycle shifts—changes in product life cycle that require different business
strategies or business models.

3. Internal company dynamics—changes in size, corporate portfolio strategy, or execu-
tive turnover.

In each case, the organization’s current or future performance is threatened in
substantive ways. These disruptions severely jolt organizations and push them to ques-
tion their business strategy and, in turn, their organization’s design.

18-1b Change Is Initiated by Senior Executives
and Line Managers
Senior executives and line managers usually initiate transformational change.6 They are
responsible for maintaining the organization’s character and performance. As a result,
senior managers decide when to initiate large-scale change, what the change should be,
how it should be implemented, and who should be responsible for directing it. Because
existing executives may lack the talent, energy, or commitment to undertake these tasks,
the organization may recruit outsiders to lead the change. Externally recruited executives
are three times more likely to initiate such change than are existing executives.7

Executive leadership in large-scale and transformational change is critical, especially
when the change must happen quickly. Lucid accounts of transformational change
describe how executives, such as Ray Anderson at Interface Carpet, Lou Gerstner at
IBM, and Victor Fung at Li and Fung, actively managed both the organizational and per-
sonal dynamics of transformational change. Researchers have identified four key roles for
executive leadership during transformational change:8

• Envisioning. Executives must articulate a clear, credible, compelling, and consistent
vision of the new strategic orientation. During changes of this magnitude, it is
imperative that leaders throughout the organization maintain the message and their
commitment to a desired future state that is fundamentally better than the current
one. In periods of change, when anxiety is elevated, people need to know that every-
one in the organization is committed to the new organization and its purpose. Cre-
ating and discussing the organization’s future configuration is a leadership behavior
that helps to meet this need.

CHAPTER 18 TRANSFORMATIONAL CHANGE 531

• Energizing. Executives must demonstrate personal excitement for the changes and
model the behaviors that are expected of others. Behavioral integrity, credibility,
and “walking the talk” are important ingredients.9 Christening initiatives and allo-
cating resources to key transformation tasks in line with the vision demonstrates
that commitment. Change is accelerated when organization members see important
and scarce resources being devoted to large-scale change tasks. Executives must pro-
vide the resources necessary for undertaking significant change and use rewards to
reinforce new behaviors.

• Enabling. The third leadership behavior that contributes to large-scale change is
communication that helps people make sense of transformation. They must commu-
nicate examples of early success to mobilize energy for change. By “connecting the
dots”—showing people how certain accomplishments, results, milestones, and other
activities are working together to achieve the transformation—leaders help organiza-
tion members understand that change can happen and is happening.

• Engaging. Executives also must set new and difficult standards for performance, and
hold people accountable to those new standards. During transformational change, the
organization explicitly or implicitly voids prior employment relationship understandings
and all of its implied behaviors and incentives. Managers must lay out the new expecta-
tions and incentives. Sending clear signals in conversations with people about the values
and behaviors that will be supported in the new organization—and those values and
behaviors that will not be supported—is an important contributor to transformational
change. While there must be an appropriate recognition for past performance and pride
in past accomplishments, there must also be enthusiastic support for the new strategy.

18-1c Change Involves Multiple Stakeholders
Transformational change invariably affects many organization stakeholders, including
owners, managers, employees, vendors, regulators, and most importantly, customers.
An organization’s current performance is the result of tacit and explicit coordination
among a variety of stakeholders. As performance declines due to the internal or external
disruptions described above, these different stakeholders are likely to have different goals
and interests related to the change process. Unless the differences are revealed and rec-
onciled, enthusiastic support for change may be difficult to achieve. Consequently, the
change process must attend to the interests of multiple stakeholders.10

The creation of a “stakeholder map” or open systems plan, such as that described in
Chapter 11, facilitates transformational change.11 It helps to document the current
demands of relevant stakeholders, the current organizational responses to each stake-
holder, how each stakeholder’s demands are changing or likely to change, and the impli-
cations of those changes on the organization’s mission and strategy. Involving a variety
of organization stakeholders creates an accurate view of the environment, organization,
and the change challenges.

18-1d Change Is Systemic and Revolutionary
Transformational change involves reshaping the organization’s strategy and design ele-
ments to affect culture and performance. These changes can be characterized as systemic
and revolutionary because the focus is on the realignment of the entire organization in a
relatively short period of time.

An organization’s design includes the structure, work design, human resources prac-
tices, and management processes that support the business strategy. Because each of

532 PART 6 STRATEGIC CHANGE INTERVENTIONS

these features significantly affects member behavior, they need to be designed and chan-
ged together to reinforce their mutual support of a new strategic direction and its desired
behaviors.12 This comprehensive and systemic view of transformational change contrasts
sharply with piecemeal approaches that address the design elements separately. A frag-
mented approach risks misaligning design elements and sending mixed signals about
desired behaviors.13 For example, many organizations have experienced problems imple-
menting team-based structures because their existing human resource systems emphasize
individual-based performance.

Longitudinal change studies also underscore the revolutionary nature of transfor-
mational change and point to the benefits of implementing change as rapidly as possi-
ble.14 Organizations often move through relatively long periods of smooth growth,
operational improvements, and incremental changes. At times, however, they experi-
ence severe external or internal disruptions that render existing organizational arrange-
ments ineffective. Successful firms respond to these survival threats by transforming
themselves to fit the new conditions. Examples of successful transformational change
include IBM, Harley Davidson, and DaVita. These periods of total system and quan-
tum change represent abrupt shifts in the organization’s strategy, structure, and pro-
cesses. Also, the majority of the people in the organization change their behavior.15

Typically driven by senior executives, change occurs rapidly so that it does not get
mired in politics, individual resistance, and other forms of organizational inertia.16

The faster the organization can respond to disruptions, the quicker it can attain the
benefits of operating in a new way. If successful, the shift enables the organization to
experience another long period of smooth functioning until the next disruption signals
the need for drastic change.17

18-1e Change Involves Significant Learning
and a New Paradigm
Organizations undertaking transformational change are, by definition, involved in second-
order or gamma types of change.18 Gamma change involves discontinuous shifts in mental
or organizational frameworks19 and therefore requires much learning and innovation.20

Organizational members must learn how to enact the new behaviors required to imple-
ment new strategic directions. This typically involves trying new behaviors, assessing their
consequences, and modifying them if necessary. Because members usually must learn qual-
itatively different ways of perceiving, thinking, and behaving, the learning process is likely
to be substantial and to involve a considerable amount of “unlearning.”

Creative metaphors, such as “organization learning” or “continuous improvement,”
are often used to help members visualize the new paradigm.21 Increases in technological
change, changes in climate patterns, concern for quality, and worker participation have
led many organizations to shift their organizing paradigm. This transformation has been
characterized as the transition from a “command and control-based” paradigm to a
“commitment-based” or “sustainability-based” paradigm.22 The features of the new para-
digm include broader, more inclusive organizational goals; leaner, more flexible struc-
tures; information and decision making pushed down to the lowest levels; decentralized
teams and business units accountable for specific products, services, or customers; and
participative management and teamwork. This new organizing paradigm is well suited
to changing conditions. Thus, a compelling vision of the future organization and the
values and norms needed to support it also encourage the learning process. Because the
environment itself is likely to be changing during the change process, transformational
change often has no clear beginning or ending point but is likely to persist as long as

CHAPTER 18 TRANSFORMATIONAL CHANGE 533

the firm needs to adapt to change. Learning how to manage change continuously can
help the organization keep pace with a dynamic environment. It can provide the built-in
capacity to fit the organization continually to its environment. Chapter 19 presents
OD interventions for helping organizations gain this capability for continuous change
and learning.

18-2 Organization Design
Organization design configures the organization’s structure, work design, human
resources practices, and management processes to guide members’ behaviors in a strate-
gic direction. This intervention typically occurs in response to a major change in the
organization’s strategy that requires fundamentally new ways for the organization to
function and members to behave. It involves many of the organizational features dis-
cussed in previous chapters such as restructuring organizations (Chapter 12), work
design (Chapter 14), and performance management (Chapter 15).

18-2a Conceptual Framework
A key notion in organization design is “fit,” “congruence,” or “alignment” among the
organizational elements.23 Figure 18.1 presents a systems model similar to the one pre-
sented in Chapter 5 showing the different components of organization design and the
interdependencies among them. It highlights the idea that the organization is designed

FIGURE 18.1

A Systems Model of Organization Design

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534 PART 6 STRATEGIC CHANGE INTERVENTIONS

to support a particular strategy (strategic fit) and that the different design elements must
be aligned with each other and all work together to guide members’ behavior in that
strategic direction (design fit). Research shows that the better these fits, the more effec-
tive the organization is likely to be.24 These design components have been described pre-
viously in this book, so they are reviewed briefly below.

• Business strategy determines how the organization will use its resources to gain
competitive advantage and achieve its objectives in the short to medium term. It
may change, for example, the degrees of breadth, aggressiveness, and differentiation
to focus on introducing new products and services (innovation strategy) or control-
ling costs and reducing prices (cost-minimization strategy). Strategy sets the direc-
tion for organization design by identifying the organizational capabilities needed to
make the strategy happen.

• Structure describes how the organization divides tasks, assigns them to departments,
and coordinates across them. It generally appears on an organization chart showing
the chain of command—where formal power and authority reside and how depart-
ments relate to each other. Structures can be highly formal and promote control and
efficiency, such as a functional structure; or they can be loosely defined, flexible, and
favor change and innovation, such as a matrix, process, or network structure.

• Work design specifies how tasks are performed and assigned to individual or groups
to add value. That is, work and organization design must be aware of the underlying
processes that transform inputs into valued outputs. Work design can create tradi-
tional jobs and groups that involve standard tasks with little task variety and
decision making or enriched jobs and self-managed teams that involve highly vari-
able, challenging, and discretionary work.

• Human resource practices involve recruiting, selecting, developing, and rewarding
people. These methods can be oriented to hiring and paying people for specific
jobs, training them when necessary, and rewarding their individual performance.
Conversely, human resource practices can also select people to fit the organization’s
culture, continually develop them, and pay them for learning multiple skills and
contributing to business success.

• Management processes describe how goals are set, how decisions are made, how
resources are allocated, and how information and knowledge is stored and commu-
nicated. Managers can set direction, allocate resources, or make decisions using a
command and control style that relies on hierarchical authority and the chain of
command; or they can utilize highly participative methods that facilitate employee
involvement. Information can be tightly controlled and centralized, with limited
access and data sharing; or it can be transparent and shared freely throughout the
organization.

18-2b Basic Design Alternatives
Table 18.1 shows how these design components can be configured into two radically dif-
ferent organization designs: mechanistic, supporting efficiency and control, and organic,
promoting innovation and change.25 Mechanistic designs have been prevalent in organi-
zations for over a century; they propelled organizations into the industrial age. Today,
competitive conditions require many organizations to be more flexible, fast, and inven-
tive.26 Thus, organization design is aimed more and more at creating organic designs,
both in entirely new start-ups and in existing firms that reconfigure mechanistic designs

CHAPTER 18 TRANSFORMATIONAL CHANGE 535

to make them more organic. Designing a new organization is much easier than redesign-
ing an existing one in which multiple sources of inertia and resistance to change are
likely embedded.

As shown in Table 18.1, a mechanistic design supports an organization-strategy
emphasizing cost minimization, such as might be found at Carrefour and McDonalds
or other firms competing on price. The organization tends to be structured into func-
tional departments, with employees performing similar tasks grouped together for maxi-
mum efficiency. The managerial hierarchy is the main source of coordination and
control. Accordingly, work design follows traditional principles, with jobs and work
groups being highly standardized with minimal decision making and skill variety.
Human resources practices are geared toward selecting people to fit specific jobs and
training them periodically when the need arises. Employees are paid on the basis of the
job they perform, share a standard set of fringe benefits, and achieve merit raises based
on their individual performance. Management processes stress centralized decision mak-
ing, with power concentrated at the top of the organization and orders flowing down-
ward through the chain of command. Similarly, communication and goal setting
systems are driven from the top. Information is not widely shared. When taken together,
all of these design elements direct organizational behavior toward efficiency and cost
minimization.

Table 18.1 shows that an organic design supports an organization strategy aimed
at innovation, such as might be found at 3M, Google, and Unilever or other firms com-
peting on new products and services. All the design elements are geared to getting em-
ployees directly involved in the innovation process, facilitating interaction among them,

TABLE 18.1

Organization Designs

Mechanistic Design Organic Design

Strategy • Cost minimization • Innovation

Structure • Formal/hierarchical
• Functional

• Flat, lean, and flexible
• Matrix, process, and

network

Work design • Traditional jobs
• Traditional work groups

• Enriched jobs
• Self-managed teams

Human
resources
practices

• Selection to fit job
• Up-front training
• Standard reward mix
• Pay for performance and

individual merit
• Job-based pay

• Selection to fit
organization

• Continuous training and
development

• Individual choice rewards
• Pay for performance and

business success
• Skill-based pay

Management
processes

• Centralized decision making
• Top down goal setting and

communication

• Employee involvement
• Transparent information

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536 PART 6 STRATEGIC CHANGE INTERVENTIONS

developing and rewarding their knowledge and expertise, and providing them with
relevant and timely information. Consequently, the organization’s structure tends to be
flat, lean, and flexible like the matrix, process, and network structures described in
Chapter 12. Work design is aimed at employee motivation and decision making with
enriched jobs and self-managed teams. Human resources practices focus on attracting,
motivating, and retaining talented employees. They send a strong signal that employees’
knowledge and expertise are key sources of competitive advantage. Members are selected
to fit an organization culture valuing participation, teamwork, and invention. Training
and development are intense and continuous. Members are rewarded for learning multi-
ple skills, have choices about fringe benefits, and gain merit pay based on the business
success of their work unit. Management processes are highly participative and promote
employee involvement. Communication systems are highly open, inclusive, and transpar-
ent providing relevant and timely information throughout the organization. In sum,
these design choices guide members’ behaviors toward change and innovation.

Application 18.1 describes organization design at Deere & Company.27 It illustrates
how the different design elements must fit together and reinforce each other to promote
a high-performance organization.

18-2c Worldwide Organization Design Alternatives
An important trend facing many business firms is the emergence of a global market-
place. Driven by competitive pressures, lowered trade barriers, increased knowledge
work, and advances in information technologies, the number of companies develop-
ing or offering products and services in multiple countries continues to rise. World-
wide organizations28 offer products or services and actively manage direct
investments in more than one country; must balance product and functional con-
cerns with geographic issues of distance, time, and culture; and must carry out co-
ordinated activities across cultural boundaries using expatriates, short-term and
extended business travelers, and local employees. They must relate to a variety of
demands, such as unique product requirements, tariffs, value-added taxes, govern-
mental and environmental regulations, labor practices, transportation laws, and
trade agreements, and adapt their human resources policies and procedures to fit
different cultures. Tobacco companies, for example, face technological, moral, and
organizational issues in determining whether to market cigarettes in less-developed
countries, and if they do, they must decide how to integrate manufacturing and dis-
tribution operations on a global scale. The organizational complexity associated with
managing these organizations is challenging.

How these firms choose to arrange their products/services, organization, and
personnel enable them to compete in the global marketplace.29 Despite the many possi-
ble combinations, researchers have found that two dimensions are useful in guiding
managerial decisions about these choices.

As shown in Figure 18.2, managers need to assess two key success factors: the degrees
to which there is a need for global integration or for local responsiveness.30 Global integra-
tion refers to whether or not business success requires tight coordination of people, plants,
equipment, products, or service delivery on a worldwide basis. For example, Intel’s “global
factory” designs semiconductors in multiple countries, manufactures them in a variety of
locations around the world, assembles and tests the finished products in different coun-
tries, and then ships the final product to customers. All of this activity must be coordi-
nated carefully to maintain an integrated flow of goods. Local responsiveness, on the other
hand, is the extent to which business success is dependent on customizing products,

CHAPTER 18 TRANSFORMATIONAL CHANGE 537

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ORGANIZATION DESIGN AT DEERE & COMPANY

D
eere & Company, one of the world’s lead-
ing producers of agricultural, construction,
forestry, and turf care equipment, has a
rich history of dedicated employees, qual-

ity products, and loyal customers. When
Robert W. Lane, an 18-year veteran of Deere,
became Chairman and CEO in August of
2000, however, economic and organizational
problems were threatening this tradition. The
company’s operations were capital intensive,
extremely decentralized, and spread across a
diversity of products with highly cyclical busi-
ness cycles. This meant that overall company
profitability required constant vigilance and
comparison of profit margins across products
with an eye to reducing cyclical swings and
to optimizing the whole business and not just
a particular business unit. Unfortunately,
Deere focused too loosely on managing
assets and profit margins and was too decen-
tralized to do business this way, often wast-
ing economic value. Lane described the firm
as “asset heavy and margin lean.” Moreover,
Deere was having problems keeping pace
with a rapidly changing and demanding global
business environment.

With the support of a unified senior team,
Lane immediately created a plan to manage
assets more efficiently, to make a new gener-
ation of products geared to emerging market
demands, and to reduce the firm’s vulnerabil-
ity to cyclical swings and uncertain agriculture
and construction markets which together
accounted for about 70% of Deere’s sales.
To make the plan work over the next several
months, Lane made a number of related
changes in the company’s management and
information systems, structure, and human
resources practices.

Deere’s redesign effort started with a
simple yet powerful approach to measuring
firm performance: shareholder value added
(SVA), which is net operating profit after
taxes minus cost of capital. Because this
value-based metric is straightforward and intu-
itive, it was easily understood and embraced
by operating people throughout the firm. SVA

became the central tool for managing the
company’s business. It provided a common
performance measure that could be applied
to every product; it addressed the fundamen-
tal question: What value does this product add
to Deere’s shareholders?

Consistent with this new performance
measure, Deere restructured its largest divi-
sion, agriculture, into two business units:
worldwide harvesting and tractors/imple-
ments. This enabled each new unit to focus
more diligently on the underlying economics
of its products. It also provided for a far
more integrated business than the previous
structure allowed. Thus, for example, world-
wide harvesting could now get its combine
harvester factories in Asia, Europe, and
North America to all work together as one
global product team with common metrics. It
could also do the same for its factories that
made cotton pickers and so on.

Next, Lane introduced an online perfor-
mance management system to align goals
and rewards with SVA. All 18,000 salaried
employees now had to develop goals that
were explicitly linked to the firm’s goals. Spe-
cific SVA targets were set for each product line
at various points in the business cycle. High
expectations for improvements in operating
performance and SVA growth were set and
widely communicated. Then, rewards were
tied directly to progress on meeting those
objectives. The simplicity and consistency of
this system focused employee behaviors on
the economics of the business and reinforced
the need to continuously improve performance
and raise SVA.

Finally, Lane made significant changes in
Deere’s talent mix to better meet the higher
performance standards and the increasing
demands of global competition. Employee
selection and training practices were oriented
to acquiring and developing a workforce with a
strong customer orientation and collaborative
skills. Employees needed to understand cus-
tomer needs fully so they could respond with
appropriate technological solutions and product

538 PART 6 STRATEGIC CHANGE INTERVENTIONS

services, support, packaging, and other aspects of operations to local conditions. Intel has
to do very little customization; a microprocessor is a microprocessor everywhere in the
world.

Based on that information, worldwide organization development involves one of
four designs: international, global, multinational, or transnational. Table 18.2 presents
these designs in terms of the features described above. Each design is geared to specific
market, technological, and organizational requirements.

The International Design The international design exists when the key success fac-
tors of global integration and local responsiveness are low. This is the most common
label given to organizations making their first attempts at operating outside their own
country’s markets. Success requires coordination between the parent company and the
small number of foreign sales and marketing offices in chosen countries. Similarly, local
responsiveness is low because the organization typically exports the same products and
services offered domestically.

FIGURE 18.2

Worldwide Success Factors

innovations. They needed to be able to work
together in teams on a worldwide basis.

Six years into Deere’s organization redesign,
financial results were remarkable. In contrast to
2003, the firm’s 2006 net income more than

doubled and revenues were up almost 50%. In
2006, SVA was near $1 billion. Perhaps more
important, Deere’s culture had shifted from
mainly family values to those promoting a high-
performance organization.

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The goal of an international organization is to increase total sales by adding reven-
ues from nondomestic markets. By using existing products/services, domestic operating
capacity is extended and leveraged. As a result, most domestic companies will enter
international markets by extending their product lines first into nearby countries and
then expanding to more remote areas. For example, most U.S.-based companies first
offer their products in Canada or Mexico. If a certain period of successful performance
and learning occur, they may begin to set up operations in other countries.

To support this goal and operations strategy, an “international division” is given respon-
sibility for marketing, sales, and distribution, although it may be able to set up joint ventures,
licensing agreements, distribution territories/franchises, and in some cases, manufacturing
plants. The organization retains its original structure and operating practices. The manage-
ment processes governing the division are typically looser, however. While expecting returns
on its investment, the organization recognizes the newness of the venture and gives the inter-
national division some “free rein” to learn about operating in a foreign context.

Finally, roles in the new international division are staffed with volunteers from the
parent company, often with someone who has appropriate foreign language skills, expe-
rience living overseas, or eagerness for an international assignment. Little training or ori-
entation for the position is offered as the organization is generally unaware of the
requirements for being successful in international business.

TABLE 18.2

Design Characteristics for Worldwide Strategic Orientations

Worldwide
Strategic
Orientation

Business
Strategy Structure

Management
Processes

Human
Resources

International Existing products
Goals of increased

foreign revenues

International
division

Loose but
centralized

Learning orientation

Volunteer
recruitment

Retain existing
performance
management
processes

Global Standardized
products

Goals of efficiency
through volume

Global product divisions
Global functions

Formal and
centralized

Ethnocentric
selection

Rewards for
enterprise
performance

Multinational Tailored products
Goals of local

responsiveness
through
specialization

Decentralized operations;
centralized planning

Global geographic
divisions

Profit centers Regiocentric or poly-
centric selection

Rewards for regional
performance

Transnational Tailored products
Goals of learning and

responsiveness
through
integration

Decentralized,
worldwide
coordination

Global matrix or
network

Subtle, clan-oriented
controls

Learning orientation

Geocentric selection

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The Global Design This design is appropriate when the need for global integration is
high but the need for local responsiveness is low. The decision to favor global integration
over local responsiveness must be rooted in a strong belief that the worldwide market is
relatively homogenous in character. That is, products and services, support, distribution,
or marketing activities can be standardized without negatively affecting sales or customer
loyalty. This decision should not be made lightly, and OD practitioners can help to
structure rigorous debate and analysis of this key success factor.

The global organization is characterized by a strategy of marketing standardized
products in different countries. It is an appropriate orientation when there is little eco-
nomic reason to offer products or services with special features or locally available
options. Manufacturers of heavy equipment (Caterpillar and Komatsu), bathroom fix-
tures (American Standard, Toto), computers (Dell, HP, Lenovo), and tires (Michelin
and Goodyear), for example, can offer the same basic product in almost any country.

The goal of efficiency dominates the design choices for this orientation. Production
efficiency is gained through volume sales and a small number of large manufacturing
plants, and managerial efficiency is achieved by centralizing product design, manufactur-
ing, distribution, and marketing decisions. The close physical proximity of major func-
tional groups and formal control systems that balance inputs, production, and
distribution with worldwide demand supports global integration. Many Japanese firms,
such as Honda, Sony, NEC, and Matsushita, used this strategy in the 1970s and early
1980s to grow in the international economy. In Europe, Nestlé exploits economies of
scale in marketing by advertising well-known brand names around the world. The
increased number of microwave and two-income families, for example, allowed Nestlé
to push its Nescafé coffee and Lean Cuisine low-calorie frozen dinners to dominant
market-share positions in Europe, North America, Latin America, and Asia.

In the global design, the organization tends to be centralized with a global product
structure. Presidents of each major product group report to the CEO and form the line
organization. Each of these product groups is responsible for worldwide operations.
Management processes in global organizations tend to be quite formal with local units
reporting sales, costs, and other data directly to the product president. The predominant
human resources policy integrates people into the organization through ethnocentric
selection and staffing practices. These methods seek to fill key foreign positions with per-
sonnel from the home country where the corporation headquarters is located.31 Key
managerial jobs at Emerson, Siemens, Nissan, and Michelin, for example, are often
occupied by American, German, Japanese, and French citizens, respectively. Ethnocentric
policies support the global orientation; expatriate managers are more likely than host-
country nationals to recognize and comply with the need to centralize decision making
and to standardize processes, decisions, and relationships with the parent company.
Although many Japanese automobile manufacturers have decentralized production,
Nissan’s global strategy has been to retain tight, centralized control of design and
manufacturing, ensure that almost all of its senior foreign managers are Japanese, and
have even low-level decisions emerge from face-to-face meetings in Tokyo.

Application 18.2 describes how one organization faced the challenges of implement-
ing a global strategy.32 They tried to find the right balance between strong headquarters
control and local responsiveness. The OD practitioner in the case describes her data,
actions, and results.

The Multinational Design This design is appropriate when the need for global inte-
gration is low, but the need for local responsiveness is high. The decision to favor local
responsiveness over global integration must be made with the same analytic rigor

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IMPLEMENTING THE GLOBAL STRATEGY:

CHANGING THE CULTURE OF WORK IN WESTERN CHINA

C
hina has a strong culture, but one that
allows it, paradoxically, to assimilate other
ideas and philosophies. For example,
Buddhism was added to Confucianism dur-

ing the heydays of the Silk Road, and China has
adapted to globalization quickly since it began
market reforms in the early 1990s. For many
firms entering China, the question is, “Will
China assimilate Western cultural ways from
the multinational corporations that enter, or
will they insist on a Chinese cultural process
of doing business?” This application describes
the process one American technology com-
pany utilizing a global worldwide strategy
used in opening a manufacturing plant in a
western Chinese province. The story is told
from the perspective of the internal OD consul-
tant who was charged with plant start-up
support.

In 2003, a major U.S. multinational broke
ground for a new set of factories in the “sec-
ond tier” Chinese city of Chengdu. A city of
more than ten million people in Western
China, Chengdu is correctly considered the
heartland of Chinese culture with a strong tra-
dition of Taoism and a relaxed, friendly culture.
In contrast, the multinational technology com-
pany came to western China with a strong
business-centered, “just get results,” U.S. cul-
ture. While the organization had facilities all
over the world, and several in China, it had not
started-up a true greenfield plant as the first
MNC in a city in more than ten years. In keep-
ing with the firm’s global strategy, the corpo-
rate headquarters expected each plant to
integrate seamlessly with other plants in the
supply chain. Low costs and meeting the tech-
nical specifications of the product were the key
measures of performance.

The first time I saw the factory site in
Chengdu it was bare dirt with the wind blowing
dust over what had been a farmer’s field. Even
as the buildings came out of the ground—an
office building, one factory and then another,
a large warehouse, and a training center—the
local culture of Chengdu was being challenged

in the way it thought about safety. In China,
construction projects have a traditional algo-
rithm for safety: the millions of Yuan (the
local currency) spent in construction was pro-
portionate to the number of deaths resulting
from it. This project was different. There was
a clear expectation that no deaths would occur,
and that no injuries more serious than cut fin-
gers were going to be tolerated. Subcontrac-
tors were required to wear hard hats, steel-
toed shoes, goggles, and the like, and not
everyone liked it. One subcontractor walked
off the job believing the safety equipment
was too burdensome.

About 30 expatriates were brought in to
manage the site. They were experienced com-
pany employees from four different cultures:
Malaysia, Philippines, Costa Rica, and the
United States. Most were Malaysian; very
few were American. The first local employees
hired were support personnel in human
resources, accounting, and purchasing. They
were trained in their jobs in the way that the
company expected them to work. The first
Chinese factory workers were part of the
Early Involvement Team (EIT), and they were
sent to another of the company’s factories to
learn the correct processes and behaviors nec-
essary to run the production lines. When the
EIT returned, they were to teach the next gen-
eration of employees. While this training could
be considered just learning the job, it was also
a culture change for people who had never
worked in a Western high-tech factory. Ramp-
ing up this factory to production required that
we hire and integrate 100 to 200 people per
month; 70% of those hired were recent col-
lege graduates.

As the OD manager, my job was to set up
systems to transmit the culture and develop
leaders, managers, and teams. I began with
the site’s Vision, Mission, and Guiding Princi-
ples. To help the team begin the process, I
defined the Vision as “the best we could be,”
the Mission as “our marching orders—what
the corporation expected of us” and Guiding

542 PART 6 STRATEGIC CHANGE INTERVENTIONS

Principles as “how we make decisions and treat
each other.” We utilized two off-site sessions
with the “whole system in the room.” Inclusive
processes employing exercises and conversations
about what was important to people were used
to formulate beginning statements. After we had
a set of draft statements, I formed small teams
of Chinese leaders who debated the elements of
Vision, Mission, and Guiding Principles. The teams
came to consensus for each statement to ensure
that both the English and Chinese words we used
reflected Chinese culture and spoke in a way that
fit the Chinese thought processes. We unpacked
each statement using Chinese metaphors to
provide depth of meaning. Essentially, we were
defining the site’s specific culture, which while
congruent with the corporation, was specific to
this site and its chosen values. When completed,
these statements went back to the site leadership
for ratification. To disseminate the Vision, Mission,
and Guiding Principles, each leader, whether expa-
triate or local Chinese, took responsibility to water-
fall the message to their team using dialogues to
explore the meaning of the statements for the
team. It was not enough to have posters on the
wall, or simply tell people what they were. People
needed to talk through the meaning and come to
some conclusion for themselves as to their own
belief. Additionally, people needed to see that lead-
ership practiced what they espoused. So, when an
important site decision was made, its fit with the
Guiding Principles was publicly communicated.
When certain initiatives were begun, such as man-
agement training, it was tied to the site Vision.
Only because people could see the Vision, Mis-
sion, and Guiding Principles in practice did they
become real.

Before the first building was under construction,
I came to Chengdu to do the initial cultural research
for the site. I interviewed university students, busi-
ness leaders, and Chinese cultural experts in
Chengdu. I found a disparity between how the mid-
dle managers viewed management and leadership
and what the young, university students wanted in
a manager. As this was the first multinational organi-
zation in Chengdu, most of the middle managers
we hired were from state-owned enterprises with
a very top-down, hierarchical culture. The university
students expected Western-style, consensual
decision making—a clear mismatch even within

the Chinese culture. Management training and
coaching would be required to help middle man-
agers learn to work in a consensual way.

To accomplish that, we engaged the expatriate
site leaders as teachers and mentors in a nine-
month management development program that
included two outdoor “adventure-style” sessions.
The first program placed the initial outdoor session
after four months of activities. I found that in the
classroom, Chinese managers could “talk the
talk,” but when we put them in the team
decision-making situations of the outdoor ses-
sions, they were unable to make productive deci-
sions. In the second management development
program, I placed the outdoor session earlier so
that the Chinese managers would understand the
required managerial behaviors right away. We
eventually graduated more than 50 managers with
two-thirds of them receiving promotions within a
year of completion.

The corporation had a number of key
espoused values in its culture, including quality,
safety, and business practice excellence. These
were primary and nonnegotiable values. While
that may seem the arbitrary hubris of a foreign
multinational, I found that the Chinese employ-
ees appreciated these three values, especially
safety. As mentioned above, China has a poor
record of workplace safety. When asked about
this value, many people responded that “the
company cares for my life.” Rather than seeing
it as an imposition of a foreign cultural value,
they found it fit the Chinese value of renqing or
human heartedness.

The company also employed six values as
basic to its culture. However, these values were
really expected behaviors, such as discipline, risk
taking, and being open and direct. In my work in
Chengdu, I designed and implemented a process
to develop those values as part of the expected
behaviors of the site. I had learned that “telling-
teaching,” or putting posters on the wall, was not
very effective in this culture, so I engaged a cadre
of volunteer “ambassadors” for each value. They
used a positive approach of catching people “doing
it right” and rewarding them in a public ceremony
with a “Star of Chengdu Culture” award. To create
a common understanding of each value, we again
used an interactive and participative process. We
provided materials that allowed and encouraged

CHAPTER 18 TRANSFORMATIONAL CHANGE 543

described earlier. In this case, the analysis must support the belief that worldwide mar-
kets are relatively heterogeneous in character. That is, success requires customized and
localized products and services, support, distribution, or marketing activities. It repre-
sents a strategy that is conceptually quite different from the global strategic orientation.

A multinational organization is characterized by a product line that is tailored to
local conditions and is best suited to markets that vary significantly from region to
region or country to country. At American Express, for example, charge card marketing
aligns to local values and tastes. The “Don’t leave home without it” and “Membership
has its privileges” brand messages that were popular in the United States had to be

every manager to have a conversation with their
team as to the meaning of that particular value.
We endeavored to make the materials relevant to
a Chinese audience using Chinese stories and
situations to illustrate the meaning of the value.

However, not all these values fit within
Chinese culture, and this created cultural dilemmas
for Chinese employees. Being open and direct was
one example of a value that did not fit. Generally,
the organization talked about being open and direct
in terms of “constructive confrontation,” which the
Chinese employees shortened to “con con.” In my
interviews, I found that this value was both the
most difficult and the least practiced. The Chinese
employees related con con to a lack of harmony
rather than a method of solving problems directly
and easily. It was antithetical to Chinese culture.
Chinese employees who learned to practice con
con in the workplace found themselves out of
step when those behaviors were used with their
family and friends outside of the factory. Essen-
tially they had to bifurcate their life, learning to be
one way inside the organization and another way
outside. When I asked people what they lost by
coming to work at the factory, employees often
noted that they had lost some friends because
they were now different from the Chinese culture
at large. Practicing con con was a big part of that.
They also told me of many instances in which they
appeared to the expatriates as though they were
practicing con con, when in fact they were practic-
ing harmony. They felt that harmony was a better
long-term solution to the problem at hand than cre-
ating a situation in which fellow workers lost

“face.” They talked about finding a “middle way”
to do business that allowed problem solving while
still maintaining harmonious relationships.

If real cultural differences can keep people
from assimilating into an organization, the ques-
tion becomes, “Did these skilled Chinese workers
actually assimilate into the factory culture, or
did they simply appear to apply the organization’s
value system while maintaining traditional
Chinese values?” While much of the work on
Values, Mission, and Guiding Principles was well
accepted and understood, the Chinese workers in
this situation had difficulty placing con con into a
usable framework that worked in their social set-
ting because it did not align with the Chinese
value of harmony. Since con con was a founda-
tional behavior/value for the company, such a mis-
fit reveals a lack of real assimilation into the
corporate culture.

Some Chinese lament that China is losing her
cultural traditions as the country becomes part of
the global economy. At least in Chengdu, I did not
find that to be true. People described themselves
as traditional Chinese who practiced their own cul-
ture and struggled with those organizational pro-
cesses that did not fit Chinese culture. They
continued to look for the middle way that allows
them to maintain their Chinese cultural values
while moving into a capitalistic future. Just as
China assimilated Buddhism into their Confucian
practices millenniums ago, they see the value of
assimilating some Western practices into their
way of doing business, but it will still be capitalism
with a Chinese face—a middle way.

544 PART 6 STRATEGIC CHANGE INTERVENTIONS

translated to “Peace of mind only for members” in Japan because of the negative conno-
tations of “leaving home” and “privilege.”33

The multinational design emphasizes a decentralized, global division structure. Each
regional or country division reports to headquarters but operates autonomously and
mostly controls its own resources. This results in a highly differentiated and loosely
coordinated corporate structure. Operational decisions, such as product design,
manufacturing, and distribution, are decentralized and tightly integrated at the local
level. For example, laundry soap manufacturers offer product formulas, packaging, and
marketing strategies that conform to the different environmental regulations, types of
washing machines, water hardness, and distribution channels in each country. On the
other hand, planning activities are often centralized at corporate headquarters to achieve
important efficiencies necessary for worldwide coordination of emerging technologies
and of resource allocation. A profit-center control system allows local autonomy as
long as profitability is maintained. Examples of multinational corporations include
Hoechst and BASF of Germany, MTV and Procter & Gamble of the United States, and
Fuji Xerox of Japan. Each of these organizations encourages local subsidiaries to maxi-
mize effectiveness within their geographic region.

People are integrated into multinational firms through polycentric or regiocentric
personnel policies because these firms believe that host-country nationals can understand
native cultures most clearly.34 By filling positions with local citizens who appoint and
develop their own staffs, the organization aligns the needs of the market with the ability
of its subsidiaries to produce customized products and services. The distinction between
a polycentric and a regiocentric selection process is one of focus. In a polycentric selec-
tion policy, a subsidiary represents only one country; in the regiocentric selection policy,
the organization takes a slightly broader perspective and regional citizens (that is, people
who might be called Europeans, as opposed to Belgians or Italians) fill key positions.

The Transnational Design This orientation exists when the need for global integra-
tion and local responsiveness are both high. It represents the most complex and ambi-
tious worldwide strategic orientation and reflects the belief that products or services
should be developed, produced, or distributed in the places where it makes the most
sense but customized to sell anywhere.35

The transnational design combines customized products with both efficient and
responsive operations; the key goal is learning. This is the most complex worldwide stra-
tegic orientation because transnationals can manufacture products, conduct research,
raise capital, buy supplies, and perform many other functions wherever in the world
the job can be done optimally. They can move skills, resources, and knowledge to regions
where they are needed.

Transnational organizations combine the best of global and multinational design
and add a third capability—the ability to transfer resources both within the firm and
across national and cultural boundaries. Otis Elevator, a division of United Technologies,
developed a new programmable elevator using six research centers in five countries: a
U.S. group handled the systems integration; Japan designed the special motor drives
that make the elevators ride smoothly; France perfected the door systems; Germany cre-
ated the electronics; and Spain produced the small-geared components.36 In addition,
Otis has the production capability to ensure that all the parts made in different places
all fit together perfectly as well as the logistics capability to guarantee that all the parts
will arrive at a specific job site on the right day. Other examples of transnational firms
include General Electric, Asea Brown Boveri (ABB), Unilever, Electrolux, HP, and most
worldwide professional services firms.

CHAPTER 18 TRANSFORMATIONAL CHANGE 545

Transnational firms organize themselves into global matrix and network structures
especially suited for moving information and resources to their best use. In the matrix
structure, local sales and marketing divisions are crossed with product groups at the
headquarters office, engineering groups in different countries, and other dimensions as
required. The network structure treats each local office, including headquarters, product
groups, functions, call centers, and production facilities, as self-sufficient nodes that
coordinate with each other to move knowledge and resources to their most valued
place. Because of the heavy communication and logistic demands needed to operate
these structures, transnationals have sophisticated information systems. State-of-the-art
information technology stores and moves strategic and operational information and
knowledge throughout the system rapidly and efficiently. Organizational learning
practices (see Chapter 19) gather, organize, and disseminate the knowledge and skills of
members who are located around the world.

People are integrated into transnational firms through a geocentric selection policy
that staffs key positions with the best people, regardless of nationality.37 This staffing
practice recognizes that the unique capability of a transnational firm is its capacity to
optimize resource allocation on a worldwide basis. Unlike global and multinational
firms, which spend more time training and developing managers to fit the strategy, the
transnational firm attempts to hire the right person from the beginning. Recruits at any
of HP’s foreign locations, for example, are screened not only for technical qualifications
but for personality traits that match the company’s cultural values.

18-2d Application Stages
Organization design can be applied to the whole organization or to a major subpart,
such as a large department or stand-alone unit. It can start from a clean slate in a
new organization or more commonly, reconfigure an existing organization design.
To construct the different design elements appropriately requires broad content
knowledge of them. Thus, organization design interventions typically involve a team
of OD practitioners with expertise in business strategy, organization structure, work
design, human resources practices, and management processes. This team works
closely with senior executives who are responsible for determining the organization’s
strategic direction and leading the organization design intervention. The design pro-
cess itself can be highly participative, involving stakeholders from throughout the
organization. This can increase the design’s quality and stakeholders’ commitment
to implementing it.38

Organization design interventions generally follows the three broad steps outlined
below.39 Although they are presented sequentially, in practice they are highly interactive,
often feeding back on each other and requiring continual revision as the process unfolds.

1. Diagnosing the current design. This preliminary stage, following the processes out-
lined in Chapter 5, involves assessing the organization’s current performance and
alignment of design features. It starts with a description of current effectiveness
and the extent to which changes in the strategy and organization design elements
are required. The organization’s new strategy and objectives are examined to deter-
mine what organization capabilities are needed to achieve them. For worldwide
designs, this involves a careful analysis of the required levels of global integration
and local responsiveness. Then, the organization is assessed against these capabilities
and requirements to uncover gaps between how it is currently designed and the
necessary design changes. This gap analysis identifies current problems the design
intervention should address. It provides information for determining which design

546 PART 6 STRATEGIC CHANGE INTERVENTIONS

elements will receive the most attention and the likely magnitude and timeframe of
the design process.

2. Designing the organization. This step involves describing and configuring the
design components to support the business strategy and objectives. The most effec-
tive design sequence is to first identify the work processes and work designs that will
best add value to customers and other key stakeholders according to the strategy.
Based on these work processes, alternative structures, such as functional, matrix, or
customer-centric, should be described and debated among the design team and
senior executives. The core structure that best supports the work and strategy should
be chosen, although no structure is perfect. Managers need to be aware of the
strengths and weaknesses of each structural alternative and be conscious about the
tradeoffs. OD practitioners can help managers work through this difficult decision.

Once the strategy-structure-work design decisions are made, the next step is to
specify the management processes and human resource practices that will compli-
ment and support them. These two design features are well suited to address any
weaknesses in the chosen structure. For example, functional structures are good at
promoting technical excellence but weaker with respect to coordination. Manage-
ment processes can be designed to increase the flow of cross-functional information
exchange and human resource practices can be designed to reward cross-functional
decision making. The resulting design usually falls somewhere along the continuum
from mechanistic to organic.

A broader set of organizational members often participates in these decisions,
relying on its own as well as experts’ experience and know-how, knowledge of best
practices, and information gained from visits to other organizations willing to share
design experience. This stage results in an overall design for the organization, detailed
designs for the components, and preliminary plans for how they will fit together and
be implemented.

3. Implementing the design. The final step involves making the new design happen by
putting into place the new structures, practices, and systems. In all cases, implementation
draws heavily on the methods for leading and managing change discussed in Chapter 8
and applies them to the entire organization or subunit, and not just limited parts.
Because organization design generally involves large amounts of transformational
change, this intervention can place heavy demands on the organization’s resources and
leadership expertise. Members from throughout the organization must be motivated to
implement the new design; all relevant stakeholders must support it politically. Organi-
zation designs usually cannot be implemented in a single step but must proceed in phases
that involve considerable transition management. They often entail significant new work
behaviors and relationships that require extensive and continuous organization learning.

The transition from domestic to global or multinational designs is an important
period in an organization’s development. It represents a significant shift in strategic
breadth even though many firms approach it as a simple and incremental extension of
the existing strategy into new markets. Despite the logic of such thinking, the shift is
neither incremental nor simple. OD practitioners can play an important role in making
the transition smoother and more productive by maintaining a focus on the systemic
nature of the change and applying the appropriate human process, technostructural,
and human resource interventions. For example, team-building interventions are appro-
priate in almost every implementation of a worldwide design. The centralized policies of
the global design make the organization highly dependent on the top management team,
and team building with this group can help to improve the speed and quality of

CHAPTER 18 TRANSFORMATIONAL CHANGE 547

decision making and improve interpersonal relationships. Team building remains an
important intervention for the multinational design, but unlike team building in global
designs, the local management teams require attention in multinational firms. This pre-
sents a challenge for OD practitioners because polycentric selection policies can produce
management teams with different cultures at each subsidiary. Thus, a program developed
for one subsidiary may not work with a different team at another subsidiary, given the
different cultures that might be represented.

Similarly, managers can apply technostructural interventions to design organization
structures that clarify new tasks, work roles, and reporting relationships between corporate
headquarters and foreign-based units. Finally, managers and staff can apply human resource
interventions to train and prepare managers and their families for international assignments
and to develop selection methods and reward systems relevant to operating internationally.40

The evolution from a global or multinational to a transnational design is a particu-
larly complex strategic change effort because it requires the acquisition of two additional
capabilities. First, global organizations, which are good at centrally coordinating far-flung
operations, need to learn to trust local management teams, and multinational organiza-
tions, which are good at decentralized decision making, need to become better at coordi-
nation. Second, both types of organizations need to acquire the ability to transfer
resources efficiently around the world. Much of the difficulty in evolving to a trans-
national strategy lies in developing these additional capabilities.

In the transition from a global to a transnational design, the administrative challenge
is to encourage creative over centralized thinking and to let each functional area contribute
and operate in a way that best suits its context. For example, if international markets
require specialized products, then operations must configure manufacturing or service
capacity to minimize costs but optimize customization. OD interventions that can help
this transition include training efforts that increase the tolerance for differences in manage-
ment practices, control systems, performance appraisals, and policies and procedures;
reward systems that encourage entrepreneurship, coordination, and performance at each
location; and structural changes at both the corporate office and local levels.

In moving from a multinational to a transnational design, products, technologies, and
regulatory constraints can become more homogeneous and require more efficient opera-
tions. The competencies required to compete on a transnational basis, however, may be
located in different geographic areas. The need to balance local responsiveness against the
need for coordination among organizational units is new to multinational firms. They
must create interdependencies among organizational units through the flow of parts, com-
ponents, and finished goods; the flow of funds, skills, and other scarce resources; or the
flow of intelligence, ideas, and knowledge. For example, prior to Alan Mulally’s appoint-
ment as CEO, Ford was operating as a multinational with different divisions in different
parts of the world acting independently. Mulally’s “One Ford” strategy recognized that its
operational assets were not being leveraged. As a result of the strategy, ten different car
models now use the same platform and share about 80 of the parts which can be sourced
anywhere in the world. The strategy has allowed Ford to offer different looking cars in
different markets but to have similar platforms and parts that lower costs.41

18-3 Integrated Strategic Change
As described above, transformational change is systemic and revolutionary in nature.
Integrated strategic change (ISC) is an OD intervention that extends traditional OD
processes into the content-oriented discipline of strategic management and describes

548 PART 6 STRATEGIC CHANGE INTERVENTIONS

how to conduct a systemic and revolutionary change program. It is an intentional pro-
cess that leads an organization through a realignment between the environment and a
firm’s strategic orientation, and that results in improvement in performance and
effectiveness.42

The ISC process was initially developed by Worley, Hitchin, and Ross in response
to managers’ complaints that good business strategies often are not implemented.43

Research suggested that managers and executives were overly concerned with the
financial and economic aspects of strategic management.44 The predominant paradigm
in strategic management—formulation and implementation—artificially separates stra-
tegic thinking from operational and tactical actions; it ignores the contributions that
planned change processes can make to implementation.45 In the traditional process,
senior managers and strategic planning staff prepare economic forecasts, competitor
analyses, and market studies. They discuss these studies and rationally align the firm’s
strengths and weaknesses with environmental opportunities and threats to form the
organization’s strategy.46 Then, implementation occurs as middle managers, super-
visors, and employees hear about the new strategy through memos, restructuring
announcements, changes in job responsibilities, or new departmental objectives. Con-
sequently, because participation has been limited to top management, there is little
understanding of the need for change and little ownership of the new behaviors, initia-
tives, and tactics required to achieve the announced objectives.

18-3a Key Features
ISC, in contrast to the traditional strategic management process, is more integrated,
comprehensive, and participative. It has three key features:47

1. The relevant unit of analysis is the organization’s strategic orientation comprising its
strategy and organization design. An organization’s business strategy and the design
features that support it must be considered as an integrated whole.

2. Creating a strategic plan, gaining commitment and support for it, planning its
implementation, and executing it are treated as one integrated process. The ability
to repeat such a process quickly and effectively when conditions warrant is valuable,
rare, and difficult to imitate. Thus, a strategic change capability represents a sustain-
able competitive advantage.48

3. Individuals and groups throughout the organization are integrated into the
analysis, planning, and implementation process to create a more achievable
plan, to maintain the firm’s strategic focus, to direct attention and resources on
the organization’s key competencies, to improve coordination and integration
within the organization, and to create higher levels of shared ownership and
commitment.

18-3b Implementing the ISC Process
The ISC process is applied in four phases: performing a strategic analysis, exercising
strategic choice, designing a strategic change plan, and implementing the plan. The
four steps are discussed sequentially but actually unfold in overlapping and integrated
ways. Figure 18.3 displays the steps in the ISC process and its change components. An
organization’s existing strategic orientation, identified as its current strategy (S1) and
organization design (O1), is linked to its future strategic orientation (S2/O2) by the
strategic change plan.

CHAPTER 18 TRANSFORMATIONAL CHANGE 549

1. Performing the strategic analysis. The ISC process begins with a diagnosis of the
organization’s readiness for change and its current strategy and organization
design (S1/O1). The most important indicator of readiness is senior management’s
willingness and ability to carry out strategic change. Greiner and Schein suggest
that the two key dimensions in this analysis are (1) the leader’s willingness and
commitment to change and (2) the senior team’s willingness and ability to follow
the leader’s initiative.49 Organizations whose leaders are not willing to lead and
whose senior managers are not willing and able to support the new strategic direc-
tion when necessary should consider team-building or coaching interventions to
align their commitment.

The second stage in strategic analysis is to understand the current strategy
and organization design. The diagnostic process begins with an examination of
the organization’s industry and current performance. This information provides
the necessary context to assess the current strategic orientation’s viability. Porter’s
industry attractiveness model50 and the environmental frameworks introduced
in Chapter 5 should be used to look at both the current and likely future envi-
ronments. Next, the current strategic orientation is described to explain current
levels of performance and human outcomes. Several models for guiding this
diagnosis exist.51 For example, the organization’s current strategy, structure, and
processes can be assessed according to the model and methods introduced in
Chapter 5. A metaphor or other label that describes how the organization’s mission,
objectives, and business policies lead to improved performance can be used to rep-
resent strategy. 3M’s traditional strategy of “differentiation” aptly summarizes its
mission to solve unsolved problems innovatively, its goal of having a large percent-
age of current revenues come from products developed in the last five years, and its
policies that support innovation, such as encouraging engineers to spend up to 15%

FIGURE 18.3

The Integrated Strategic Change Process

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550 PART 6 STRATEGIC CHANGE INTERVENTIONS

of their time on new projects. An organization’s objectives, policies, and budgets sig-
nal which parts of the environment are important, and allocate and direct resources
to particular environmental relationships.52 Intel’s new-product development objec-
tives and allocation of more than 20% of revenues to research and development
signal the importance of its linkage to the technological environment.

The structure, work design, management processes, and human resources
system describe the organization’s design. These descriptions should be used to
assess the likely sources of customer dissatisfaction, product and service offering
problems, financial issues, employee disengagement, or other outcomes. The
strategic analysis process actively involves organization members. Large group
conferences, employee focus groups, interviews with salespeople, customers, and
purchasing agents, and other methods allow a variety of employees and managers
to participate in the diagnosis and increase the amount and relevance of the data
collected. This builds commitment to and ownership of the analysis; should a
strategic change effort result, members are more likely to understand why and
be supportive of it.

2. Exercising strategic choice. Once the strengths and weaknesses of the existing
strategic orientation are understood, a new one must be designed. For example,
the strategic analysis might reveal misfits among the organization’s environ-
ment, strategic orientation, and performance. These misfits can be used as
inputs for crafting the future strategy and organization design. Based on this
analysis, senior management formulates visions for the future and broadly
defines two or three alternative sets of strategies and objectives for achieving
those visions. Market forecasts, employees’ readiness and willingness to change,
competitor analyses, and other projections can be used to develop the alterna-
tive future scenarios.53 The different sets of strategies and objectives also include
projections about the organization design changes that will be necessary to
support each alternative. It is important to involve other organizational stake-
holders in the alternative generation phase, but the choice of strategic
orientation ultimately rests with top management and cannot easily be dele-
gated. Senior executives are in the unique position of viewing a strategy from a
general management position. When major strategic decisions are given to
lower-level managers, the risk of focusing too narrowly on a product, market,
or technology increases.

This step determines the content or “what” of strategic change. The desired
strategy (S2) defines the ideal breadth of products or services to be offered and the
markets to be served. It also describes the aggressiveness with which these outputs
will be pursued and the differentiators to be employed. The desired organization
design (O2) specifies the structures and processes necessary to support the new strat-
egy. Aligning an organization’s design with a particular strategy can be a major
source of superior performance and competitive advantage.54

3. Designing the strategic change plan. The strategic change plan is a comprehensive
agenda for moving the organization from its current strategy and organization
design to the desired future strategic orientation. It represents the process or “how”
of strategic change. The change plan describes the types, magnitude, and schedule of
change activities, as well as the costs associated with them. In line with the research
on transformational change, the change plan should be aggressive and attempt to
complete the required change activities in as short a time frame as possible. As a
result, the change plan also specifies how the changes will be implemented, given

CHAPTER 18 TRANSFORMATIONAL CHANGE 551

power and political issues, the nature of the organizational culture, and the current
ability of the organization to implement change.55

4. Implementing the plan. The final step in the ISC process is the actual imple-
mentation of the strategic change plan. This draws heavily on knowledge of
motivation, group dynamics, and change processes. It deals continuously with
such issues as alignment, adaptability, teamwork, and organizational and per-
sonal learning. Implementation requires senior managers to champion the differ-
ent elements of the change plan to effect change quickly. They can, for example,
initiate action and allocate resources to particular activities, set high but achiev-
able goals, and provide feedback on accomplishments. In addition, leaders must
hold people accountable to the change objectives, institutionalize the changes
that occur, and be prepared to solve problems as they arise. This final point
recognizes that no strategic change plan can account for all of the contingencies
that emerge. There must be a willingness to adjust the plan as implementation
unfolds to address unforeseen and unpredictable events and to take advantage
of new opportunities.

Application 18.3 describes an ISC process at Microsoft Canada and demonstrates
how the process was refined over time as the organization built its capability in strategic
management.

18-4 Culture Change
The topic of organization culture is again becoming an important one to companies.
Originally spurred by a number of best-selling management books in the 1980s, includ-
ing Theory Z, The Art of Japanese Management, and In Search of Excellence, culture is
re-emerging as an important concern as organizations look for competitive advantage
beyond the traditional sources, such as products, technologies, and markets. Culture
has remained a focus of research, with books such as Built to Last and Corporate
Culture and Performance,56 demonstrating why culture is seen as a major strength in
such companies as Herman Miller, Intel, PepsiCo, and Southwest Airlines. A growing
number of managers appreciate the power of corporate culture in shaping employee
beliefs and actions. A well-conceived and well-managed organization culture, closely
linked to an effective business strategy, can mean the difference between success and
failure in today’s demanding environments.

18-4a Defining and Diagnosing Organization Culture
OD practitioners have developed a variety of culture definitions57 and number of
culture change interventions.58 There is good agreement about the elements or fea-
tures of culture that are typically measured. As shown in Figure 18.4, they include
artifacts, norms, values, and basic assumptions.59 The meanings attached to these
elements help members make sense out of everyday life in the organization. The
meanings signal how work is performed and evaluated, and how employees are to
relate to each other and to significant others, such as customers, suppliers, and gov-
ernment agencies.

Diagnosing organization culture poses at least three difficult problems for col-
lecting pertinent information.60 First, to the extent culture reflects the more or less
shared assumptions about what is important, how things are done, and how people
should behave in organizations, organization members generally take cultural

552 PART 6 STRATEGIC CHANGE INTERVENTIONS

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3 MANAGING STRATEGIC CHANGE AT MICROSOFT CANADA

M
icrosoft Canada is a subsidiary of the
Microsoft Corporation responsible for
the marketing, sales, and service of the
full range of software products, including

the Windows operating systems and Microsoft
Office, enterprise solutions, and the Xbox video
game console. The organization marketed to a
variety of segments, such as software applica-
tion developers, small and medium business,
and large enterprises, through a broad range of
partners that worked directly with the client
organizations to install and optimize the soft-
ware’s use. A small service organization,
along with the partners, provided consulting
support to clients.

Prior to 2001, Microsoft Canada had been
part of the North American subsidiary. Under
this structure, the large U.S. market was
clearly the focus of attention for Microsoft’s
server, desktop, and other software products.
However, the President of Microsoft Canada
argued that the Canadian market was differ-
ent and underdeveloped. It had a different mix
of customers than did the United States, dif-
ferent competitors, and different growth
opportunities. Moreover, software sales and
personal computer shipments as a percent-
age of the market’s size and growth were
below worldwide averages. These differ-
ences, he argued, warranted a specialized
strategy.

As the fiscal year ended, the president
and his newly appointed Director of Strategic
Planning wanted to seize the opportunity
to define a uniquely Canadian strategy. The
strategic planning director’s prior position
had been as Director of Marketing and Corpo-
rate Communications in Microsoft Canada.
Together with her senior marketing manager,
they had crafted and implemented a participa-
tive process of strategic planning. The strate-
gic planning director contacted the OD
practitioner who had worked with them and
contracted to design and implement a strate-
gic planning process for the Canadian organi-
zation. Over a two-month period, the strategic
planning director conceived of a series of

workshops involving the Canadian Leadership
Team (CLT). This team represented a broad
cross section of the organization, including
representatives from the legal staff, human
resources, Microsoft’s consulting and service
business, marketing managers, customer
support, and managers responsible for differ-
ent segments of Microsoft’s business, includ-
ing enterprise customers, small and medium
business, Xbox, and the Microsoft Network
(MSN).

The strategic analysis phase consisted of
preliminary work by several members of the
CLT as well as initial exercises during the first
workshop. Members of the CLT each prepared
an analysis of their respective area of res-
ponsibility. For example, the enterprise sales
manager provided historical growth rates in
revenues, developed forecasts for market
growth and Microsoft’s share, described cur-
rent levels of customer satisfaction, and a tech-
nology road map of products being developed
by the Redmond headquarters organization. In
addition to these specific analyses, the strate-
gic planning director contracted with a market-
research firm to provide overall descriptions of
the Canadian information technology market.
Finally, a competitor analysis was performed
to develop an understanding of likely strate-
gies, goals, and initiatives from key competi-
tors such as IBM, Oracle, and (at the time)
Sun Microsystems, as well as the competitive
threat posed by alternative operating systems
software.

During the first workshop, the CLT used
the prework data to perform an environmental
scan. They discussed, debated, and ultimately
came to some agreements about the trends
affecting the organization. Based on that scan,
the group engaged in a vision and value for-
mulation exercise and set out an initial list of
short- and long-term goals. These activities
led to several important decisions for the
new marketing organization. For example, the
vision and values exercise produced important
insights about what the Canadian organization
stood for, its uniqueness compared to other

CHAPTER 18 TRANSFORMATIONAL CHANGE 553

marketing subsidiaries within the Microsoft orga-
nization, and its strengths in competing as a
Canadian organization. The values also informed
discussions about future goals and the strategy
for achieving them. Importantly, the Canadian
leadership realized that customer loyalty would
and should become a driving force for the organi-
zation. This realization led to passionate discus-
sions about the relative emphasis in the
organization on revenues versus customer satis-
faction and loyalty. It also led to the development
of a Big Hairy Audacious Goal (BHAG) that the
members of the CLT believed would be challeng-
ing but achievable.

The first workshop ended with a number of
assignments, unresolved issues, and excitement
about the future. In between the first and sec-
ond workshops, members of the CLT worked
with their own organizations. Issues, decisions,
and questions that were addressed within the
CLT were discussed throughout the organiza-
tion. The most important discussion concerned
the BHAG and the relative emphasis of revenues
and customer loyalty over the short and the long
term. A consensus began to emerge that the
right and proper strategy for Microsoft Canada
was to argue for a slower growth rate in
revenues in the short term, invest in customer
satisfaction and loyalty, and then leverage that
loyalty for a more secure stream of revenues in
the future.

The president took this idea to the execu-
tives in Redmond and discussed the implications
of this strategy, including revenue projections,
budget implications, the risks involved, and
how the strategy aligned with corporate and
other marketing organizations’ initiatives. The
results of these conversations became the sub-
ject of opening discussions at the second
workshop.

The cautious but positive support from the
corporate organization allowed the CLT to move
forward on its strategic intent. In the second
workshop, the organization’s mission and values
were finalized, year-by-year revenue goals were

agreed upon to achieve the BHAG, and these
goals were broken down and assigned to specific
groups and managers. Finally, key customer and
partner-loyalty programs were established and
outlined. Ownership for the different initiatives
was assigned and a strategic change plan
emerged. The president pressed the group on
its decision to emphasize customer loyalty and
challenged the group with several scenarios that
tempted them to trade off satisfaction for reve-
nue. These scenarios helped cement the CLT’s
commitment to their strategy.

An important part of the strategic change plan
that emerged was a discussion and decision to tie
the individual performance appraisals of CLT mem-
bers to the achievement of both revenue and cus-
tomer satisfaction goals. The CLT as a whole also
staked their end-of-fiscal-year bonuses to the
achievement of customer satisfaction, rather than
revenue goals.

The strategic change efforts at Microsoft
Canada are important for several reasons. First,
the Canadian organization’s realization of the
importance of customer satisfaction and loyalty
was influential in moving the larger Microsoft
Corporation to examine its values in this area.
A BusinessWeek article reported on the changes
Steve Ballmer was making in the organization;
they reflected the increased importance of cus-
tomer loyalty in Microsoft’s strategy and struc-
ture changes. Second, the organization learned
how to organize a strategic planning effort. In
the two years since this effort began, the strate-
gic planning director has built a stronger strategic
planning organization and has taken more and
more responsibility for driving the strategic plan-
ning process. Even as the corporate Microsoft
organization was making important changes in
its reporting structure, financial systems, and
business processes, the Canadian organization
was able to adapt using its own resources and
knowledge. Finally, the BHAG has become an
institutionalized part of the organization that
drives thinking and decision making in the
organization.

554 PART 6 STRATEGIC CHANGE INTERVENTIONS

assumptions for granted and rarely speak of them directly. This means that consid-
erable time and effort must be spent observing, sifting through, and asking people
about these cultural outcroppings, such as daily routines, stories, rituals, and lan-
guage, to understand their deeper significance for organization members.

Second, values and beliefs come in two forms: espoused values and values-in-use.
Espoused values are the beliefs organizations declare openly as important. Organizations
often post their espoused values on plaques in the office or on corporate websites.
Values-in-use are those beliefs that actually drive behaviors. People sometimes espouse
values that have little to do with the ones they really hold and follow. People are reluc-
tant to admit this discrepancy, yet somehow the real assumptions underlying idealized
portrayals of culture must be discovered.

Third, large, diverse, or global organizations are likely to have several subcultures,
which Martin called “differentiated” cultures,61 including countercultures going against
the grain of the wider organization culture. Assumptions may not be shared widely and
may differ across groups in the organization. This can be a very real issue in worldwide
organizations, and it means that focusing on limited parts of the organization or on a
few select individuals may provide a distorted view of the organization’s culture and sub-
cultures. All relevant groups in the organization must be identified and their cultural
assumptions sampled. Only then can practitioners judge the extent to which assumptions
are shared widely.

Transformational change interventions generally include diagnosing the organiza-
tion’s existing culture to assess its fit with current or proposed business strategies.
A comprehensive approach to describing and diagnosing culture emphasizes all four

FIGURE 18.4

Culture Components

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e
Le

ar
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20

15

CHAPTER 18 TRANSFORMATIONAL CHANGE 555

levels of organization culture—artifacts, norms and values, as well as the generally unex-
amined, but tacit and shared assumptions that guide member behavior and that often
have a powerful impact on organization effectiveness. A comprehensive diagnosis
typically begins with the most tangible level of awareness and then works down to the
deep assumptions.

OD practitioners have developed a number of useful approaches for diagnosing
organization culture, and each diagnostic perspective focuses on particular aspects of
organization culture. Together the approaches can provide a comprehensive assessment
of this complex phenomenon.

Artifacts Most cultural assessments include descriptions of surface-level artifacts.
Artifacts are the visible symbols of the deeper levels of culture, such as norms, values,
and basic assumptions. They include members’ behaviors, clothing, and language; the
organization’s design features, including structures, systems, and processes; and the
organization’s physical arrangements, such as décor, office space layouts and appoint-
ments, and noise levels. At Nordstrom, a high-end retail department store, the policy
and procedure manual is rumored to be one sentence, “Do whatever you think is
right.” In addition, stores promote from within; pay commissions on sales to link effort
and compensation; provide stationery for salespeople to write personal notes to custo-
mers; and expect buyers to work as salespeople to understand better the customer’s
expectations.

One diagnostic method simply asks groups of people to generate lists of language
patterns, clothing norms, office arrangements, and design features. By themselves, arti-
facts can provide a great deal of information about the real culture of the organization
because they often represent the deeper assumptions. The difficulty in their use during
cultural analysis is interpretation; an outsider (and even some insiders) has no way of
knowing what the artifacts represent, if anything.

A second method emphasizes the pattern of behaviors that produce business
results.62 It is among the more practical approaches to culture diagnosis because it
assesses key work behaviors that can be observed. It provides specific descriptions
about how organizations perform tasks and manage relationships. For example, a series
of individual and group interviews can ask managers to describe “the way the game is
played,” as if they were coaching a new organization member, in regard to four key
relationships—companywide, boss–subordinate, peer, and interdepartmental—and in
terms of six managerial tasks—innovating, decision making, communicating, organizing,
monitoring, and appraising or rewarding. These perceptions can reveal a number of
common behaviors that describe how tasks are performed and relationships managed.

Norms and Values A deeper level of cultural diagnosis can occur by focusing on the
norms and values level of culture. Just below the artifact level of cultural awareness are
norms guiding how members should behave in particular situations. These represent
unwritten rules of behavior. Norms generally are inferred from observing how members
behave and interact with each other. At Nordstrom, norms dictate that it is okay for
members to go the extra mile to satisfy customer requests, and it is not okay for sales-
people to process customers who were working with another salesperson.

Values are the next-deeper level of awareness and include beliefs about what ought
to be in organizations. Values in use, as opposed to espoused values, tell members what
is important in the organization and what deserves their attention. Because Nordstrom
values customer service, the sales representatives pay strong attention to how well the
customer is treated. Obviously, the norms and artifacts support this value.

556 PART 6 STRATEGIC CHANGE INTERVENTIONS

One popular method of cultural diagnosis at the values level looks specifically at
how the organization resolves a set of value dilemmas.63 A value dilemma consists of
contradictory values placed at opposite ends of a continuum, as shown in Figure 18.5.
The two value dilemmas are (1) internal focus and integration versus external focus
and differentiation and (2) flexibility and discretion versus stability and control. Organi-
zations continually struggle to satisfy the conflicting demands placed on them by these
competing values. For example, when faced with the competing values of internal versus
external focus, organizations must choose between attending to the integration problems
of internal operations and the competitive issues in the external environment. Too much
emphasis on the environment can result in neglect of internal efficiencies. Conversely,
too much attention to the internal aspects of organizations can result in missing impor-
tant changes in the competitive environment.

This “competing values” approach commonly collects diagnostic data about the
competing values with a survey designed specifically for that purpose.64 It provides
measures of where an organization’s existing values fall along each of the dimensions.
When taken together, these data identify an organization’s culture as falling into one of
the four quadrants shown in Figure 18.5: clan culture, adhocracy culture, hierarchical
culture, and market culture. For example, if an organization’s values emphasize inter-
nal integration as well as innovation and flexibility, it manifests a clan culture. On the
other hand, a market culture reflects values that emphasize an external focus as well as
stability and control.

Deep Assumptions of Culture Finally, OD practitioners have a couple of options for
understanding the deep assumptions level of culture.65 The deepest level of cultural

FIGURE 18.5

The Competing Values Approach to Culture

SOURCE: Adapted from K. Cameron and R. Quinn. Diagnosing and Changing Organizational Culture.
Based on the Competing Values Framework, p. 32 © 1999 Addison-Wesley Publishing Co., Inc.

CHAPTER 18 TRANSFORMATIONAL CHANGE 557

awareness are the taken-for-granted assumptions about how organizational problems
should be solved. These basic assumptions tell members how to perceive, think, and
feel about things. They are nonconfrontable and nondebatable assumptions about relat-
ing to the environment and about human nature, human activity, and human relation-
ships. For example, a basic assumption at Nordstrom is the belief in the fundamental
dignity of people; it is morally right to treat customers with extraordinary service so
that they will become loyal and frequent shoppers.

One OD method involves an iterative interviewing process involving both outsiders
and insiders.66 Outsiders help members uncover cultural elements through joint explora-
tion. The outsider enters the organization and experiences surprises and puzzles that are
different from what was expected. The outsider shares these observations with insiders,
and the two parties jointly explore their meaning. This process involves several iterations
of experiencing surprises, checking for meaning, and formulating hypotheses about the
culture. It results in a formal written description of the assumptions underlying an orga-
nizational culture.

A second method for identifying the organization’s basic assumptions brings
together a group of people for a culture workshop—for example, a senior management
team or a cross section of managers, old and new members, labor leaders, and staff.67

The group first brainstorms a large number of the organization’s artifacts, such as beha-
viors, symbols, language, and physical space arrangements. From this list, the values and
norms that would produce such artifacts are deduced. In addition, the values espoused in
formal planning documents are listed. Finally, a facilitator asks the group to identify the
assumptions that would explain the constellation of often conflicting values, norms, and
artifacts. For example, some employees challenged Nordstrom’s to reconcile its espoused
value of respect for people with the practice of encouraging salespeople to conduct cus-
tomer support activities “off the clock” in order to save costs. Nordstrom has had to
work hard to make sure its actions aligned with its words. Because these basic assump-
tions generally are taken for granted, they can be very difficult to articulate. A great deal
of process consultation skill is required to help organization members see the underlying
assumptions.

In summary, culture is the pattern of artifacts, norms, values, and basic assump-
tions. This pattern describes how the organization solves problems and teaches new-
comers to behave.68 Culture is the outcome of prior choices about and experiences
with strategy and organization design. It is also a foundation for change that can
either facilitate or hinder organization transformation. For example, the cultures of
many companies (e.g., IBM, JCPenney, Sony, Disney, Microsoft, and Hewlett-
Packard) are deeply rooted in the firm’s history. They were laid down by strong
founders and have been reinforced by top executives and corporate success into cus-
tomary ways of perceiving and acting. These customs provide organization members
with clear and often widely shared answers to such practical issues as “what really
matters around here,” “how do we do things around here,” and “what we do when
a problem arises.”

18-4b Implementing the Culture Change Process
There is considerable debate over whether changing something as deep-seated as organi-
zation culture is possible.69 Those advocating culture change generally focus on the more
surface elements of culture, such as norms and artifacts. These elements are more
changeable than the deeper elements of values and basic assumptions. They offer OD
practitioners a more manageable set of action levers for changing organizational

558 PART 6 STRATEGIC CHANGE INTERVENTIONS

behaviors. Some would argue, however, that unless the deeper values and assumptions
are changed, organizations have not really changed their culture.

The people who argue that culture change is extremely difficult, if not impossi-
ble, typically focus on the deeper elements of culture (values and basic assumptions).
Because these deeper elements represent assumptions about organizational life,
members do not question them and have a difficult time envisioning anything else.
Moreover, members may not want to change their cultural assumptions. The culture
provides a strong defense against external uncertainties and threats.70 It represents
past solutions to difficult problems. Members also may have vested interests in
maintaining the culture. They may have developed personal stakes, pride, and
power in the culture and may strongly resist attempts to change it. Finally, cultures
that provide firms with a competitive advantage may be difficult to imitate, thus
making it hard for less successful firms to change their cultures to approximate the
more successful ones.71 However, given the problems with cultural change, most
practitioners in this area suggest that changes in corporate culture should be consid-
ered only after other, less difficult and less costly solutions have been applied or
ruled out.72

Despite problems in changing corporate culture, large-scale cultural change may
be necessary in certain situations: if the firm’s culture does not fit a changing
environment; if the industry is extremely competitive and changes rapidly; if the
company is mediocre or worse; if the firm is about to become a very large company;
or if the company is smaller and growing rapidly.73 Organizations facing these
conditions need to change their cultures to adapt to the situation or to operate at
higher levels of effectiveness. They may have to supplement attempts at cultural
change with other approaches, such as modifying strategy or making organization
design changes.

A large amount of research and experience provides the following practical advice
with respect to interventions intended to bring about cultural change:74

1. Formulate a clear strategic vision. Effective cultural change should start from a
clear vision of the firm’s new strategy and of the shared values and behaviors
needed to make it work.75 This vision provides the purpose and direction for
cultural change. It serves as a yardstick for defining the firm’s existing culture
and for deciding whether proposed changes are consistent with the core values
of the organization. A useful approach to providing clear strategic vision is
development of a statement of corporate purpose, listing in straightforward
terms the firm’s core values. For example, Johnson & Johnson calls its guiding
principles “Our Credo.” It describes several basic values that guide the firm,
including, “We believe our first responsibility is to the doctors, nurses and
patients, to mothers and all others who use our products and services”; “Our
suppliers and distributors must have an opportunity to make a fair profit”; “We
must respect [employees’] dignity and recognize their merit”; and “We must
maintain in good order the property we are privileged to use, protecting the
environment and natural resources.”76

2. Display top-management commitment. Cultural change must be managed from
the top of the organization. Senior executives and administrators have to be
strongly committed to the new values, need to create constant pressures for
change, and must have the staying power to see the changes through.77 For exam-
ple, when Jack Welch was CEO at General Electric, he enthusiastically pushed a
policy of cost cutting, improved productivity, customer focus, and bureaucracy

CHAPTER 18 TRANSFORMATIONAL CHANGE 559

busting for more than ten years to every plant, division, group, and sector in his
organization. His efforts were rewarded with a Fortune cover story lauding
his organization for creating more than $52 billion in shareholder value during
his tenure.78

3. Model culture change at the highest levels. Senior executives must communicate
the new culture through their own actions. Their behaviors need to symbolize the
kinds of values and behaviors being sought. In the few publicized cases of successful
culture change, corporate leaders have shown an almost missionary zeal for the new
values; their actions have symbolized the values forcefully.79 For example, when the
Four Seasons hotel chain agreed to operate the George V hotel in Paris, it not only
remodeled the hotel; it had to implement a culture consistent with its corporate
brand and strategy, which were both “North American” in nature. Didier Le Calvez,
General Manager of the Four Seasons George V, made a number of controversial
decisions, including agreeing to the 35-hour work week, hiring an executive chef,
and implementing a performance appraisal process. The nature of these decisions
symbolized his understanding of French culture on the one hand and the impor-
tance of the Four Seasons’ standards on the other. In addition, Le Calvez was very
visible on the property, meeting the French union officials for lunch, finding con-
structive ways to correct behavior in line with the Four Seasons’ service expectations,
and participating in the interview and selection of all employees.80

4. Modify the organization to support organizational change. Cultural change gener-
ally requires supporting modifications in organization structure, human resources
systems, work design, and management processes. These organizational features
can help to orient people’s behaviors to the new culture.81 They can make people
aware of the behaviors required to get things done in the new culture and can
encourage performance of those behaviors. For example, to support the culture
change at Cambia Health Solutions, a Blue Cross-Blue Shield provider, the leader-
ship team sponsored a variety of large and small reorganizations, changes in the
reward system, and changes in the goal setting process. The leadership team moni-
tored each of these changes, and the internal OD function and HR business partners
supported them.

5. Select and socialize newcomers and terminate deviants. One of the most effective
methods for changing corporate culture is to change organizational membership.
People can be selected and terminated in terms of their fit with the new culture.
This is especially important in key leadership positions, where people’s actions can
significantly promote or hinder new values and behaviors. For example, a midterm
evaluation of the culture change effort at Cambia Health Solutions found that many
people believed the effort was working because of several leadership changes, includ-
ing the movement or replacement of key executives as well as the hiring of new
executives that behaved in line with the new values.

Another approach is to socialize newly hired people into the new culture. Peo-
ple are most open to organizational influences during the entry stage, when they can
be effectively indoctrinated into the culture. For example, companies with strong
cultures like Samsung, Procter & Gamble, and 3M attach great importance to social-
izing new members into the company’s values.

Application 18.4 presents an example of culture change at IBM. It illustrates how
important cultural principles are used to shape behavior during a period of organiza-
tional growth and how culture can be used to facilitate merger and acquisition integra-
tion processes.82

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4 CULTURE CHANGE AT IBM

I
BM began in 1914 as a maker of cheese
slicers, scales, and tabulating machines.
Thomas Watson, its founder who became
famous for the “Think” watchword, created

the company on three values called “Basic
Beliefs:” “respect for the individual,” “the
best customer service,” and “the pursuit of
excellence.” Based on these values, IBM
grew into one of the great industrial giants of
the world, routinely hailed as a “best managed
company.”

By the late 1980s and the early 1990s, how-
ever, IBM’s enormous success had an unin-
tended consequence. The firm became
complacent; its basic beliefs provided a rationale
for stability. “Respect for the individual” had
morphed into an entitlement mentality where
lifetime employment was reinforced by cultural
norms. The “pursuit of excellence” gave way to
corporate arrogance and a failure to listen to cus-
tomers or the marketplace because IBM knew
what was right. Finally, its devotion to large, cen-
tralized computer systems rather than PC-based
distributed architectures led to its downfall.
IBM’s stock price dropped 75% between
August 1987 and September 1993.

To turn things around, IBM appointed Lou
Gerstner CEO in 1991. When asked how he
would lead IBM, this former GE executive
retorted: “The last thing IBM needs right now
is a vision.” Over the next few years, Gerstner
cut IBM’s workforce in half, abolished lifetime
employment, and refocused business strategy
from hardware to software and services. The
spectacular success that followed is regarded
as one of the great turnarounds in business
history.

So what would you do as the CEO who
followed Gerstner? Sam Palmisano, a lifetime
IBM employee, was appointed CEO in 2002.
He strongly believed that IBM’s continued suc-
cess depended on re-laying its foundation.
“We couldn’t be casual about tinkering with
the DNA of a company like IBM. We had to
come up with a way to get the employees to
create the value system, to determine the

company’s principles. Watson’s Basic Beliefs,
however distorted they might have become
over the years, had to be the starting point.”

To clarify and shift IBM’s culture,
Palmisano orchestrated a process that began
with the corporation’s top 300 executives.
Together, they generated the basic categories
for the new values, including respect, cus-
tomer, excellence, and innovation. These cate-
gories were tested in focus groups and broad
surveys with more than 1,000 employees
across levels, locations, and functions. Based
on this input, three proposed values—
commitment to the customer, excellence
through innovation, and integrity that earns
trust—were submitted to “ValuesJam,” a 72-
hour process where all employees at IBM
were invited to comment on the proposed
values via IBM’s intranet. ValuesJam organized
employee discussion around four forums.
A company values forum asked general ques-
tions about the importance of values. A “first
draft” discussion forum asked for reactions to
the three proposed values. A third forum asked
about IBM’s value in society, and a fourth
asked people to describe IBM when it was at
its best. Including Palmisano, 50,000 employ-
ees made over 10,000 comments about the
company’s culture and identity. The following
were some early-on comments:

• “The only value in IBM today is the stock
price.”

• “Company values (ya right).”
• “I feel we talk a lot about trust and taking

risks, but at the same time, we have end-
less audits, mistakes are punished and not
seen as a welcome part of learning, and
managers (and others) are consistently
checked.”

• “There appears to be great reluctance
among our junior executive community to
challenge the view of our senior execs.”

• “Many times I have heard expressions like
‘Would you tell Sam that his strategy is
wrong?’”

CHAPTER 18 TRANSFORMATIONAL CHANGE 561

However, after initial feedback about why
things weren’t working or wouldn’t work, the
debate turned more positive. Eventually, a small
design team took all the comments, looked for
themes, and revised the proposed values into
“dedication to every client’s success,” “innovation
that matters—for our company and for the world,”
and “trust and personal responsibility in all
relationships.” Palmisano announced them in
November 2003. The feedback, in the form of post-
ings on the intranet and more than a thousand
emails sent directly to Palmisano, was “these are
fine… show me.”

In the final stage of the culture intervention,
Palmisano sponsored a series of change projects
to demonstrate how the values would be used
to make decisions and manage the company.
One project was dubbed, the “$100 million bet
on trust.” It was in response to a story that
Palmisano heard about an IBM employee proto-
typing software for a client in Tokyo who imme-
diately needed a software engineer based in
Austin to help configure a server. The employee
couldn’t get the help right away because a
charge code was first needed so there would
be a way to account for the software engineer’s
time. In effect, employees were unable to
respond quickly to client needs because financial
control processes required several levels of man-
agement approval. Although the money would
usually be approved, it was often too late to be
responsive. To address these issues, the
$100 million bet on trust gave each manger in a
pilot group up to $5,000 annually to spend, no
questions asked, to respond to extraordinary
situations that would help generate business,
to develop client relationships, or to respond
to an IBMer’s emergency need. Subsequent
evaluation showed that the money was being
spent wisely. There were several examples
of teams winning deals and delighting clients
with a small amount of immediately available
cash. Consequently, the program was extended
to all 22,000 first-line managers. Palmisano
was convinced that allowing line managers to
take some reasonable risk and trusting them

with those decisions would pay off. More impor-
tantly, the program symbolized living the IBM
values.

Another important change to reflect the
values better involved setting prices. ValuesJam
surfaced many stories about the difficulty of pric-
ing a customer solution that involved a variety of
products and services from multiple IBM groups.
Since each brand and business unit had its own
P&L, an across-IBM bid was usually pulled apart
by each unit and run through the financial
accounting system as separate bids for individual
products and services. This made it extremely
difficult to come up with an all-inclusive price,
which ran counter to IBM’s value of client suc-
cess and the strategy of being able to offer a
total solution—hardware, software, services,
and financing. In one classic case, IBM’s CFO
was putting together a deal for his partnership
account that involved hardware, software, and
services. He was told by the finance function
that he couldn’t price it as an integrated solution.
In other words, IBM’s CFO was told he couldn’t
offer the deal he was proposing!

In response, IBM developed an integrated bid
system to better reflect its values. All of the peo-
ple who set prices for clients were brought
together and told, “You work for IBM. When
there’s a cross-IBM bid with multiple products,
you price it on the IBM income statement, not
on the income statements of each product.”
This led to a series of intense meetings with
senior executives about allocating integrated
bids to business-unit P&Ls. IBM made it work
because it was the right thing to do in aligning
the organization to its values.

The IBM culture change was led by senior
executives and involved the whole organization
in discussing and debating the firm’s values and
identity. There was remarkable agreement on
what the values should be. The debate, as it
turned out, wasn’t over the values themselves
but on whether IBM would be willing and able
to live with them. To make this happen, specific
organization changes were made that symbolized
the values in use.

562 PART 6 STRATEGIC CHANGE INTERVENTIONS