Whirlpools Senior Management Team - Coursework Example

Running Head: Change at Whirlpool 27-Oct Contents Introduction Initiating change and managing it are challenges for any organization and for a company like Whirlpool that was staring at the abyss of stagnant growth and declining margins, the urgency of initiating and managing change were of the highest importance. This paper is about how change was initiated and managed at the appliance maker, Whirlpool and the drivers of change as well as the imperatives that made the company adopt the path that it did. This paper is based on the two part case study published by Harvard Business School and the content in this paper is derived from an analysis of the case using the tools, concepts and methodologies that were discussed in class during the course. Additionally, the change at Whirlpool is also analyzed using five different change management theories using the literature made available as part of the course. The emphasis of this paper is on analyzing the change initiated by Whirlpool’s senior management team in late 1999 in response to market conditions and how the company broke new ground by adding an entirely new core competency i.e. innovation to its portfolio. This is the significant feature of the change that Whirlpool’s senior management initiated and the succeeding sections present my analysis of how this was done, why this was done and how to manage it going forward. Abstract The change initiated at Whirlpool is unique in the sense that an entirely new core competency was created. The practice of innovation as a core competency and the change initiated to follow innovative ways of producing products is the highlight of the case study being discussed in this paper. At the best of times, initiating change that affects the fundamental business processes is difficult. Considering that Whirlpool’s senior management initiated and drove change during stagnating periods of growth is testament to their ability to manage change top down as well as bottom up. The slogan innovation from anywhere and from everyone meant that this change was not isolated to a few divisions in the company or restricted to select employees. On the other hand, the change was pervasive and modified the corporate DNA to reflect innovation as a way of life. This is the key to the analysis of the case and this case highlights the way in which companies faced with declining volumes as well as retracting prices in an industry that has become commoditized can adapt to the situation and achieve stellar growth rates. The different change management theories that are discussed in this paper point to the conclusion that Whirlpool has been exceptionally successful in managing change. However, as pointed out in the action planning section, the next set of challenges for Whirlpool would be to sustain innovation, manage the pace and direction of change and become a next generation appliance maker. Case Summary Case Facts The facts of the case are that Whirlpool was facing stagnating growth in its product lines and was at the risk of being commoditized in its range of products. As David Whitman, the CEO of Whirlpool put it in 1999, when he went into a store and saw rows and rows of washers with all of them looking the same and there is nothing to pick Whirlpool’s washer out. Hence, there was an urgent need to reinvigorate the company and improve the products by pursuing a path of innovation that is driven by a need to deliver superior customer value and to tap into the huge internal market of employees who could be relied upon to initiate and drive change through innovation. Over a few years, Whirlpool, first under the leadership of Whitman and then under Fettig pursued an aggressive innovation strategy that rested on four pillars and which would be discussed later (Rivkin and Hamel, 2006 A). Specific Changes Introduced in Whirlpool The specific changes that were introduced at Whirlpool included changing the corporate culture to achieve customer satisfaction and deliver superior value to the customer. This meant that the organization itself had to change its approach to the way it makes and markets its products. Whitman realized that the industry itself was stagnating and hence what was needed was a fresh approach which was needed if Whirlpool had to differentiate itself from its competitors. The point here is that Whirlpool was at risk of becoming a “me-too” product maker and hence a radically new approach towards customers and the markets it served was needed. This prompted the top management to pursue innovation as a way of doing business and towards this end, Whitman and later, Fettig instituted innovation teams from across the organization to pursue their vision of customer focused strategic change (Rivkin and Hamel, 2006 A). The specific changes that were introduced were constitution of KM teams, roping in outside consultants to advise the company, changing the corporate culture by constituting I-Boards and focused innovation teams and finally, introducing several new products that were the result of the innovation drive. All these changes did indeed translate into measurable and concrete gains for Whirlpool (Rivkin and Hamel, 2006 B). Change Management Issues faced in Whirlpool The change management issues faced by Whirlpool are to do with the need to grow despite facing a stagnating growth situation and with revenues and profits flat, to devise a way to drive growth. The specific change management issues that Whirlpool faced were to do with the strategy not paying off for quite some time (from late 1999 to early 2002) which made the management modify some of the change management strategies and accelerate the pace of change (Rivkin and Hamel, 2006 B). Previous Two Attempts at Change In late 1999, Whitman realized that to be competitive in the market, Whirlpool needed to come up with a different strategy. Towards this end, Whirlpool under Whitman undertook the innovation drive and initiated far reaching changes by adopting innovation as the new motto for the company. However, the results of these attempts to change were disappointing as the changes did not fit Whirlpool’s lines of business or did not match its strengths. This is the reason that the latest round of change (discussed in detail) in the subsequent sections was so important because Whirlpool created an entirely new core competency. Hence, the previous two attempts at organizational change did not succeed because they were not in line with the core competency of Whirlpool. The Home Appliance Market in the US The home appliance market in the United States is characterized by consolidations among the top players and intense competition among these players for capturing the available market share. The home appliance industry in the US is more or less a commodity market and hence, the players in the market find new strategies to cope with declining sales and stagnant growth. The trend of consolidation that began in the 1980’s has continued well into the 1990’s. By the time the 21st century dawned, the top players had drawn up strategies that were driven by internal factors but at the same time were externally focused. The key thing to remember about the home appliance market in the US is that in the post World War Two boom, the industry really took off and many players in the market often hope for another such boom to take them to what they were during those times. Whirlpool Corporation Status Whirlpool Corporation is the “numero uno” player in the home appliance market in the US and the company has held the leadership position since the 1950s. By 1991 the company had established itself as the largest manufacturer of “white goods” in the US and the second largest in the world. This was done by a series of partnerships and acquisitions with the other players and in 2006, Whirlpool acquired the rival Maytag Corporation, which was the third largest in the home appliance market. With this acquisition, Whirlpool became the largest appliance maker in the world and this reinforced the status of Whirlpool Corporation as the number one company not only in the US but in the whole world. Need for Change As the CEO of Whirlpool, David Whitman put it, it is not fun to keep slogging day after day knowing that the growth rate is going to be the same and there would be no discernible effect on profits. Further, the fact that Whirlpool’s downsizing of its workforce by 10% did not help matters much compounded the situation. Hence, there was an urgent need to radically restructure the way things were being done and this is one of the main change management issues that Whirlpool faced (Rivkin and Hamel, 2006 A). . Added to this is the fact that the prices of Whirlpool’s products were declining at the rate of 3.4% per annum. All these put together presented a set of challenges for the company from which the management could infer that change was needed and it was needed now. Choice between Strategies The choices that Whirlpool faced in its endeavor to be the foremost in the home appliance market was either to innovate as a means of being at the top or acquire companies and grow inorganically. The choices that Whirlpool faced under the decade long leadership of Whitman were between organic growth and inorganic growth. However, it is to the credit of the leadership team at Whirlpool that they were able to make the choice to grow by a mixture of organic and inorganic growth strategies and not by one of the two alone. However, the innovation case that is discussed in this paper is an example of organic growth and hence it can be said that while Whirlpool did indeed grow inorganically as well, the main emphasis was on organic growth. Analysis of the Case Innovation as a Core Competency The important aspect of the way the change was driven in Whirlpool is that Innovation as a source of competitive advantage was embraced as a core competency in itself. It is worth noting here that Whirlpool did not have innovation in its corporate DNA prior to the change and hence, the change management adopted by the leadership was noteworthy for altering the very corporate DNA of the organization. As mentioned earlier, Innovation was embraced on four counts and hence it was not restricted to enhancing shareholder value alone and instead innovation was introduced as a means of enhancing customer value (Rivkin and Hamel, 2006 A). The key difference between the two aspects listed above is the difference in Theory O and Theory E where Innovation was driven not only from an economic perspective but also by enhancing organizational capacities for the same. In this way, the convergence of these two theories led to the adoption of Innovation as a force from everywhere and anywhere and not only as top down or bottom up. Given the fact that many consultants whom the top management of Whirlpool had contacted had advised against this approach and instead insisted that Innovation always comes from the top, the subsequent success of the initiative proved all these skeptics wrong (Rivkin and Hamel, 2006 B). Prahlad and Hamel had postulated that companies must stick to their core competencies if they are to achieve competitive advantage. However, the case of Whirlpool was that the company created an entirely new core competency i.e. innovation that was then used as a source of competitive advantage. As explained elsewhere, the need for a new core competency arose because of the fact that Whirlpool in the 1990s was facing stagnancy in its revenue streams and its products were at the risk of being commoditized. This prompted Whitman and later Fettig to look for a source of competitive advantage that would put Whirlpool ahead of the competition. And the idea that they came up with was to create an entirely new core competency around which the company could launch its new products (Rivkin and Hamel, 2006 B). Driving Innovation at Whirlpool A noteworthy feature of the innovation initiative at Whirlpool was the emphasis on inclusivity and encompassing all the employees in a pervasive manner. The point to note is that the innovation teams that were formed at all levels did not exclude any employee and instead the slogan innovation from anywhere and from anyone meant that it was not solely top down or bottom up but a mixture of both resulting in participation from all employees. The constitution of the I-Boards and the leadership teams meant that the top management had its pulse on the pace of the innovation initiative while the participation of all the employees meant that the change was introduced into the nerves and sinews of the organization. Considering the fact that Nancy Snyder was appointed as director of the strategic process group responsible for innovation meant that the top management walked the talk as far as driving innovation was concerned. Despite many consultants telling them that innovation could only be driven from the top, the senior management at Whirlpool decided to involve all the employees and this paid off handsomely going by the number of new products that were launched by Whirlpool after the innovation initiative was kicked off (Rivkin and Hamel, 2006 B). Change Management Theories Change Management Model of Nadler and Tushman Applying the change management theories of Nadler and Tushman to Whirlpool, we find that the change at Whirlpool was reactive and incremental to a large extent which meant that Whirlpool and its senior management were reacting to market conditions as well as introducing changes that were not wholly incremental but at the same time not rapid and abrupt (Nadler and Tushman, 1995, 17). Hence, one needs to be a bit circumspect when tagging the change as discontinuous, though for the purpose of analysis it is worth considering the change as “tuning” and “adapting” the organizational frame (Nadler and Tushman, 1995, 20). The point here is that the changes at Whirlpool were introduced in a gradual manner and at the same time the organizational framework was subject to change as well. Hence, the combination of gradual change with adaptation by the organizational frame to the new market realities meant that Whirlpool experienced change as a set of discrete events in a continuum that stretched over a period of many years. However, there was modification in the organizational structure though it was not discontinuous and enough time was given for the organizational frame to adapt itself to change (Nadler and Tushman, 1995, 30). The Eight ‘S’s of Strategy Execution The analysis of the case according to the Eight ‘S’ model of strategy execution reveals that the strategy and purposes, structure, systems and processes, style, staff, resources, shared values, and strategic performance were all aligned together leading to highly successful change management achieved by superior strategy execution. Though the change at Whirlpool too some time to deliver results, the overall direction and pace of the change was always well under control. The point here is that the different aspects of the strategy execution under this model took some time to fall in place with the overall philosophy of organizational change. This was mainly due to the fact that Whirlpool attempted a restructuring of its corporate culture and instituted far reaching changes to its organizational philosophy. All the eight ‘S’’s were aligned symmetrically with each at the end of the change management cycle and the different components of the model or the individual ‘S’’s tied into the core competency that was created which was innovation (Higgins, 2005, 12). Organizational Change Model of Burke and Litwin The organizational change model of Burke and Litwin is a complex, non-linear, multidimensional and multidirectional model of organizational change which is popular among management theorists because it captures the uncertainties of organizational complexity and the ambiguities of non linearity perfectly well. Applying this model to Whirlpool would help us understand the complexities of the organizational change that the top management at Whirlpool was grappling with and the response to the stimuli from the external environment that prompted them to initiate change. Given the fact that any organization is in a symbiotic relationship with its external and internal environment, the model of change proposed by Burke and Litwin is useful to analyze the external drivers of change at Whirlpool and the internal dynamics of actualizing such a change. As Burke and Litwin put it, Organizational change, especially an overhaul of the company business strategy, stems more from environmental impact than from any other factor. This is very much the case with Whirlpool which initiated change in response to falling sales, stagnating demand and declining growth (Burke and Litwin, 1992, 530). Leadership Model The leadership models proposed in the article by Avolio and Weber can be used to analyze the leadership of Whitman and Fettig. The closest model or theory that these leaders in Whirlpool come close to is the authentic leadership model wherein the leader is in constant engagement with the organizational context and draws upon and in turn influences the organizational culture by self regulated positive behaviors. The fact that both Whitman and Fettig inspired the organization as well as were inspired by the organization that they were leading, makes one reach the conclusion that they practiced authentic leadership (Avolio and Walumbwa, 2009, 430). Further, both of them had a high degree of future focus or in other words were visionary and this led to the introduction of changes that have been discussed in this paper. Creating an entirely new core competency requires exceptional leadership and this is what Whitman did at Whirlpool. Continuing with change and monitoring it requires heritability of leadership traits and this is what Fettig has been doing ever since he took over from Whitman. Action Planning and Conclusion Sustaining Innovation The key challenge before Whirlpool and its senior management is to sustain the pace and direction of innovation that has been initiated over the last decade. It is one thing to make innovation a core competency and another to not deviate from it and diversify too much. This applies to the way in which Whirlpool consciously pursued innovation as a change management strategy and created an entirely new core competency for itself. The next steps ought to be to institutionalize the change management through innovation into the corporate DNA and ensure that irrespective of whoever is the CEO or the Vice President in charge of innovation and knowledge management, the basic requirement of sustaining innovative practices and coming up with new ideas and products is continued (Kotler, 2010, 80). The key to any change management initiative is to carry on after the initial euphoria is over and this continuity of business processes even after the successes are savored is the key to lasting change and the recipe for success for great companies. This can be done by integrating the innovation initiative more tightly into the organizational framework and making innovation a way of life rather than a separate activity. By incorporating innovation and innovative practices into the very fabric of the company, the change can be continued and even without the people who had originally initiated change, the organization can go on smoothly and drive change in an uninterrupted manner. The point to note here is that organizations should not be people dependant and hence change has to be seen as a continuous process and not as a onetime event. Hence, sustaining the pace of change is the key challenge for Whirlpool and if some of the above points are followed, it can ensure that there is continuity in its business practices and the uncertainty of what comes next can be mitigated to a large extent (Kotler 2010, 93). Managing Change Effectively The most important aspect of Whirlpool’s change management strategy is that the foundation for the change has been laid and it would be relatively easy for future managers to build upon the existing framework set in place by Whitman and Fettig. The strength of the foundation can be gauged from the words of Whirlpool’s vice president of global cooking technology development, Steve Poddack, who said, “If anyone were to try and suppress the innovation efforts of the organization at this point, there would be a revolt. They couldn’t do it.” (Rivkin and Hamel, 2006 B) This is the heartening aspect of the change management framework at Whirlpool and something that gives the analysts who follow the company reasons to be optimistic about the growth prospects of the company. As the succeeding paragraph details, the next challenge for the management would be to manage the existing change effectively. Instituting change into the organizational design and framework is the first step. The next step is to continue with the change and the subsequent steps are to manage the pace and direction of the change. It is easy for companies to get lost in the euphoria of their successes following successful implementation of change management strategies. The difficult part would be to ensure that change does not overwhelm or underwhelm the company. For instance, Whirlpool can be said to have initiated change that is not too abrupt and rapid but nonetheless is not incremental or gradated. Hence, the challenge before the management would be to ensure that the pace of the change is managed effectively. This can be done only if the structures put in place by the previous management team are monitored and health checks done on a periodic basis to gauge the pace and direction of the change. Conclusion Now that Whirlpool has successfully surmounted the challenges of declining growth, stagnation and retracting prices, it needs to look forward to the future and become the maker of appliances of choice for households. Considering the fact that the innovation initiative and the drive towards innovation as a way of life at Whirlpool has resulted in the company introducing several new products aimed at capturing the hearts and minds of the consumers, it is time to think about the next generation products that would be made by the company. These would include development of appliances and products that are “intelligent” and “aware” which is what the 21st century homes and their denizens would like. There have been a few products made by Whirlpool (as a result of the innovation drive) wherein intelligent refrigerators and appliances for homes were developed. Whirlpool has to continue with the same strategy and become the appliance maker of choice for households who would like their homes to have the cutting edge technologies much like their workplaces are. Hence, developing the next generation of products ought to be Whirlpool’s strategy and this can be achieved if the company both sustains the innovation initiative and manages the pace and direction of change. More than anything, this is the time for the senior management of Whirlpool to stay the course and ensure that the hugely successful organizational changes are carried through over the next few years (Rivkin and Hamel, 2006 B). Annexes Assessment Tool 1: How Hierarchical is Your Company? The score from the assessment too is 16 which means that my organization displays only few of the characteristics associated with a hierarchical culture. Employees feel comfortable engaging in collaborative work which is crucial for change-readiness. Assessment Tool 2: Theory O and Theory E Applying Theory O and Theory E (the theories of organizational change based on organizational capabilities and economic value) we find that Whirlpool and its senior management had embarked on the process of organizational change using a combination of Theory O and Theory E. The reason for reaching this conclusion is that innovation at Whirlpool was not purely driven by considerations of shareholder value alone nor was the change driven by organizational capacities alone. As the analysis in this section shows, both theories were used in the change management process at Whirlpool. The article by Beer and Nohria lists the key dimensions along with these theories can be evaluated for the way in which they drive organizational change. These dimensions are Goals, Leadership, Focus, Process, Rewards, and Use of Consultants. If we take each of these dimensions and apply them to Whirlpool (given the fact that the change at Whirlpool was a combination of Theory O and Theory E), we get the following result: Goals In statements made during company meetings, the top management emphasizes both shareholder value and the advantages of having a high performance workforce which is indicative of a combination of both Theory O and Theory E in practice. Leadership The change at Whirlpool has been driven both from the top as well as managed by lower levels which indicate that the leadership was provided at all levels and employees had a sense of ownership as to the direction and pace of change. From the case description, it is evident that change programs at Whirlpool are from everywhere and anywhere and this indicates that the company has a laissez faire approach to change management. Focus The changes introduced at Whirlpool attempt to change things on both a structural and cultural level as is evident from the way in which an entirely new core competency was created (structural) and the top management sought to bring out about an attitudinal change (cultural) in its employees. Process The process of change introduced at Whirlpool is a conscious attempt to initiate change which is also dynamic as well and one that responds symbiotically to changes in its external and internal environment. The process is not rigid and at the same time not chaotic. It can be described as “emergent” rather than planned in a rigid manner. Rewards Employees get rewarded financially as well as non-financially as can be seen in the way the case describes how the reward systems at Whirlpool work by material and non material inducements. With better financial performance, there is scope for higher salaries and perks and with better growth; there is the scope for advancement and fulfillment at work. Use of Consultants The Company uses consultants to advise it in restructuring but also designs its own change programs. The example of this is in the way in which the top management at Whirlpool went against the advice of consultants to initiate change from anywhere and from anyone and at the same time sought the help of Gary Hamel to advise it on some aspects of the change. Hence, we see a mix of Theory O and Theory E here as well (Beer and Nohria, 2000, 490). References Avolio, B. and Walumbwa, F. (2009) Leadership: Current Theories, Research, and Future Directions, The Annual Review of Psychology, 60(1), p.421-449. Beer, M. and Nohria, N. (2000) Cracking the Code of Change, Harvard Business Review, 18(4), p.483-492. Burke, W. and Litwin, G. (1992) A Causal Model of Organizational Performance and Change, Journal of Management, 17(11), p.523-542. Higgins, J. (2005) The Eight ‘S’’s of successful strategy execution, Journal of Change Management, 5(1), p.3-13. Kotler, P. (2010) Marketing Management, 5th ed. London: McGraw-Hill, p.80-120. Nadler, D. and Tushman, M. (1995) Types of Organizational Change: From Incremental Improvement to Discontinuous Transformation, Discontinuous Change: Leading Organizational Transformation, 1(1), p.15-34. Rivkin, J. and Hamel, G. (2006) Change at Whirlpool Corporation (A), Harvard Business Review, 18(6), p.1-12. Rivkin, J. and Hamel, G. (2006) Change at Whirlpool Corporation (B), Harvard Business Review, 18(6), p.13-26. Read More