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Developing a change approach for the transition to an HPO

The purpose of this study – Developing a change approach for HPO – is to help managers in their constant quest to create and implement new sources of competitive advantage and ways to achieve sustainable high performance to become a high performance organization (HPO) – defined as an organization that achieves financial and non-financial results that are exceedingly better than those of its peer group over a period of five years or more to by focusing in a disciplined way on issues of genuine importance to the organization. One way to become an HPO is by applying the HPO Framework, which has been validated in multiple countries and shown to indeed help organizations to improve their performance. However, a change approach for implementing the HPO Framework that is valid in different contexts has not been developed to date. Such an approach is important as change initiatives suffer from a high failure rate.

  • Design/methodology/approach – The goal of this research was to identify an appropriate change approach for implementing the HPO Framework. A theoretical framework for an HPO change initiative was constructed, which subsequently was tested at an organization undergoing a transformation to become an HPO.
  • Findings – The results show that the theoretical approach in practice was indeed useful at the case company. A continuous rate of change is needed to implement a corporate-wide change strategy that will enable the organization to constantly adapt to the demands of its business environment. The scale of the transformation differs for each HPO change initiative, depending on the results of the HPO diagnosis. Directly after the HPO diagnosis and at the beginning of the HPO transformation, a planned approach predominates; conversely, while maintaining the HPO, the emergent approach predominates.
  • Research limitations/implications – This study is relevant by enabling managers to learn the essentials of a change approach for creating an HPO in the present-day business environment. Based on these essentials, managers can start to develop a change approach that is appropriate for creating their own HPO.
  • Originality/value – The theoretical relevance of this paper is that, although much literature exists concerning approaches for organizational change initiatives, no change approaches specifically designed for creating an HPO can be found in the literature. This paper provides such an approach.
  • Keywords – HPO, High performance organization, Change approach, Categories of change
  • Paper type – Research paper in Emerald Publishing Limited
  • Authors – André de Waal and Ivo Heijtel

Download chapter 1 and 2 of What Makes a High Performance Organization for free (PDF)

1. Introduction

Since the emergence of the so-called “new economy” in the 1990s, organizations have been facing high levels of change. Growing international competition, new and fast changing technologies, political changes and the recent financial and economic crises seem to be fundamentally reshaping the global business environment (Burnes, 2005; By, 2005; Strycharczyk and Elvin, 2014). For organizations to maintain their competitiveness and viability, they need to continuously adapt to the changing circumstances by initiating and implementing fundamental changes in the way they conduct business (Sackmann et al., 2009). Ultimately, when organizations are not capable of adjusting, they run the risk of going out of business (Bharijoo, 2005; By, 2005). Consequently, the ability of managers to adapt to the dynamics of the business environment and practice successful management of change is seen as a core organizational competence (Turner et al., 2009; Whelan-Berry and Somerville, 2010; Burnes, 2011; Schraub et al., 2011). Thus, managers are constantly seeking to create and implement new sources of competitive advantage and ways to achieve sustainable high performance to thereby mitigate competitors’ advantages (Biedenbach and Söderholm, 2008).

One of these methods is to apply the high performance organization (HPO) Framework (de Waal, 2012a, 2012b). An HPO is defined as “an organization that achieves financial and non-financial results that are exceedingly better than those of its peer group over a period of time of five years or more, by focusing in a disciplined way on that what really matters to the organization” (de Waal, 2012b, p. 5). The HPO Framework, developed and validated with data collected worldwide, comprises five factors and 35 underlying characteristics that have a direct positive relationship with an organization’s competitive performance. An organization that focuses attention upon these factors will most likely be a higher performing organization compared to its peer group (de Waal, 2012b). The HPO Framework has, to date, been validated and shown to indeed help organizations to improve their performance in such diverse countries as Nepal (de Waal and Frijns, 2011), The Netherlands (de Waal, 2012b), The Philippines (de Waal and Haas, 2013), Vietnam (de Waal et al., 2009), Thailand (de Waal et al., 2014), the UK (de Waal, 2012b), the USA (de Waal, 2012b) and Zambia (de Waal et al., 2015a, 2015b). Therefore, it is of utmost importance that organizations are able to implement the HPO Framework successfully and change themselves into HPOs, as this status conveys so many advantages. Unfortunately, the academic literature reports high failure rates of organizational change initiatives, because organizational change is a complex and challenging process (Young, 2009; Whelan-Berry and Somerville, 2010; Burnes, 2011). In this sameHPO Framework literature over the past 20 years, there has been much debate over the best way to manage organizational change; as a logical consequence, the present academic literature provides a wide range of contradictory and sometimes confusing theories and approaches (Bamford, 2003; Burnes, 2005). The high failure rate of organizational change initiatives, however, seems to indicate that a generic valid framework for implementing organizational change is yet to be established (By, 2005). The development of such a change approach for implementing the HPO Framework successfully is essential; otherwise, organizations run the risk that this potentially valuable technique to achieve high performance cannot be used. The goal of this research, therefore, is to identify and test a change approach for implementing the HPO Framework and, thus, transforming an organization into an HPO. A theoretical framework for an HPO change approach will be constructed, which is subsequently tested at an organization undergoing a transformation to become an HPO.

The relevance of the study is that, although much literature exists concerning approaches for organizational change initiatives, no change approaches focusing specifically on creating an HPO can be found in the literature (Bamford, 2003; Burnes, 2005). This is illustrated by de Waal and Heijtel (2016), who discuss eight HPO approaches (Collins (2001); Joyce et al., 2003; Gratton, 2004; Miller and Le Breton-Miller, 2005; McFarland, 2008; Keller and Price, 2011; de Waal, 2012b; Bendell, 2014) that do not contain a detailed change approach for the transformation of an organization into an HPO. As such, it is currently not known if and how the change approach for a transformation to an HPO differs from other change interventions undertaken in organizations. Thus, the research described in this paper will fill a gap in the current literature. The remainder of this paper is structured as follows. In Sections 2 and 3, the HPO Framework is described and a theoretical change approach for implementing the HPO Framework is developed. The case company at which the change approach was tested is then introduced. Subsequently, the research approach and research results are described and analyzed. The paper ends with the theoretical and the practical implications of the research, the research limitations and opportunities for future research.

2. The high performance organization framework

To help managers in their quest for the elements that create sustainable high performance, the HPO Framework was developed, founded upon the characteristics that characterize excellent organizations worldwide and that can be directly influenced by managers. The research through which the HPO Framework was formulated comprised a descriptive literature review and an empirical study in which a worldwide
questionnaire was used (de Waal, 2006 rev. 2010, 2012a, 2012b). In the descriptive literature study, 290 studies describing empirical research into high performance and excellence were evaluated with regard to potential HPO characteristics. This literature study initially yielded 189 potential characteristics that were given a “weighted importance” calculated by the number of times a characteristic occurred in the literature. The characteristics with the highest weighted importance were included in a questionnaire that was administered during courses, lectures, workshops and presentations given by the authors in Europe, North America, Asia, Africa and South America. The subject of these courses etc. was not always high performance; they also covered subjects such as performance management, budgeting and organizational behavior. There was therefore limited risk of bias in the respondent population. All respondents were working, some of them taking classes on the side, and no selection was made according to sex or age. The questionnaire, conducted in the period 2006-beginning of 2007 yielded 2015 responses of 1,470 organizations, which is an average of 1.4 respondents per organization. The respondents were asked to indicate how well their organization performed in relation to each of the potential HPO characteristics on a scale from 1 (very poor) to 10 (excellent) and also to report on how their organization’s results faired compared with those of its peer group. Two types of competitive performance were established (Matear et al., 2004):

  1. Relative performance (RP) versus competitors: RP = 1 – ([RPT – RPW]/[RPT]), in which RPT = total number of competitors and RPW = number of competitors with worse performance.
  2. Historic performance (HP): This was measured over the past five years (possible answers: worse, the same or better).

Using this subjective measure of organizational performance is generally accepted as being indicative of real organizational performance (Dawes, 1999; Heap and Bolton, 2004; Jing and Avery, 2008). The questionnaire yielded 2,015 responses of 1,470 organizations. With a statistical analysis (principal component analysis with oblimin rotation and non-parametric Mann–Whitney test) of the respondents data, the 35 characteristics which had the strongest positive correlation with organizational performance were extracted into five factors (Table I). In the Appendix the detailed HPO factors and characteristics are given.

table 1 - Developing a change approach for the transition to an HPO

An organization that pays more attention to these so-called HPO factors and HPO characteristics is more likely to be a high performing organization compared to other members of its peer group. Research into HPOs has shown that, on average, their revenue growth is 10 per cent higher, their profits are 29 per cent higher and total shareholder return is 23 per cent higher compared to companies that are not HPOs (de Waal, 2012b).

Because the HPO Framework encompasses both structural and behavioral aspects of organizational management, it provides a unique HPO insight into the factors that combine to produce an excellent organization. Moreover, because the five HPO factors are interrelated, an organization that improves on one of these factors will also improve simultaneously in the other factors to a certain degree. The first HPO factor is the quality of the management of the organization. This involves management that is trusted by employees and has integrity; serves as a role model for employees; applies fast decision-making and fast action-taking; coaches employees to achieve better results; focuses on achieving results and is very effective in that respect; applies strong leadership and is confident; and is decisive regarding non-performing employees. The second HPO factor concerns characteristics that not only create an open culture in the organization but also focus on using this openness to implement dedicated action to achieve results. These characteristics comprise management that frequently engages in dialogue with employees and involves them in important processes; employees that devote considerable time to dialogue, knowledge exchange and learning to thereby achieve higher performance; and management that welcomes change and allows mistakes to be made. The third HPO factor indicates that long-term commitment is far more important than short-term gain. The characteristics related to this factor are management and employees that have been with the company for a long time; the promotion of new management from within; an organization that maintains long-term relations with stakeholders and grows through partnerships; and an organization that aims to serve its customers in the best possible manner. The fourth HPO factor reflects a trend that has been extensively occupying organizations for the past two decades: continuous improvement and innovation. The characteristics related to this factor are the adoption of a strategy that clearly sets the organization apart; the continuous improvement, simplification and alignment of processes; reporting all information that matters to everybody within the organization; and continuous innovation in the organization’s core competencies, products, processes and services. Complementary to the first factor “high management quality”, the fifth HPO factor addresses employee quality: these employees want to always be held responsible for their results; want to be inspired to achieve extraordinary results; are resilient and flexible; are diverse and complementary; and are able to cooperate very effectively with suppliers and customers.

When an organization wants to establish if it is an HPO, it can perform an HPO diagnosis that identifies the organization’s level in relation toDeveloping a change approach each of the HPO characteristics. This diagnostic instrument involves a questionnaire that is distributed for completion among the organization’s managers and employees This questionnaire covers the 35 HPO characteristics, with possible answers on an absolute scale from 1 (very poor) to 10 (excellent). The individual scores are averaged to produce scores on the HPO factors for the complete organization. The organization’s questionnaire scores are then compared to the average scores for organizations within the same industry and the score required to be considered an HPO. As HPO research has shown the existence of a positive relationship between the five HPO factors and competitive performance, higher scores on the HPO factors are correlated with better organizational results, while lower scores reflect lower competitive performance. The research has also shown that all HPO factors need to have equal scores, and that when an organization achieves an average score of 8.5 or higher on all the factors, it can be considered an HPO (de Waal, 2012b). The HPO diagnosis further identifies which HPO characteristics need to be changed to strengthen the organization.

3. Theoretical high performance organization change approach

According to Senior (2002), change initiatives are categorized by the rate of occurrence, the scale and the management of the changes. By (2005) adopted Senior’s (2002) categories of change as a structure to which the dominant literature about organizational change could be linked. In this research, the structure formulated by Senior (2002) and the theories related to this structure that By (2005) proposed are used to describe three categories of an HPO change initiative.

3.1 Change initiatives characterized by rate of occurrence

The main theories about the rate of the occurrence of changes during change initiatives are the incremental, continuous and discontinuousDeveloping-a-change-approach-for-the-transition-to-an-HPO-(1) rates of change occurrence (By, 2005). When the rate of occurrence of change is incremental, the organization deals separately with one change element and one transformation at a time. A variation on this type of change occurrence is a bumpy incremental change in which operational-level change is characterized by periods of relative serenity, followed by periods of acceleration in the pace of change. When the rate of occurrence of change is continuous, the organization transforms continuously to keep pace with the changes in its environment. This type of change occurrence involves monitoring, sensing and responding to alterations in the internal and external environment using small steps during a continuous process. A variation on this type of change occurrence is a bumpy continuous change in which organization-wide change is characterized by periods of relative serenity, followed by periods of acceleration in the pace of change. Finally, when the rate of occurrence of change is discontinuous, all the required changes are combined into a one-time event in which a specific change will be implemented through a large, all-encompassing initiative, which is followed by a long period of consolidation.

To become an HPO, an organization needs to strengthen the five HPO factors from an initially diagnosed present level to a required level, then sustain this level for at least five years. Using the HPO diagnosis demonstrates clearly which HPO factors and characteristics in the organization need to be strengthened to the required level and sustained there for multiple years. To strengthen the HPO factors, an organization needs to be able to adjust to its continuously evolving business environment, meaning it must be capable of adjusting its HPO change initiative when needed. Without these adaptations, the HPO change initiative could focus on the wrong HPO characteristics. Therefore, an incremental rate of occurrence of change is inappropriate for an HPO change initiative: when the individual parts of the organization deal separately from each other with one change in one characteristic at a time, the HPO factors will be strengthened too slowly in the rapidly changing business environment. In the same vein, a discontinuous rate of occurrence of change is not suitable, as during this type of change, there is a one-time, large, all-encompassing initiative, followed by a long period of consolidation. It is possible that these periods of consolidation may be disturbed by the changing environment, creating situations in which new changes are required to sustain high levels against each of the HPO factors. Therefore, the rate of occurrence of change for the transformation to an HPO is determined to be continuous.

3.2 Change initiatives characterized by scale

The main theories about the rate of change occurrence during change initiatives are fine-tuning, incremental adjustment, modular change and corporate change (By, 2005). On the scale of fine-tuning, elements of the organization are changed in a continuous process to ensure that they continue to match the structure, processes, people and strategy of the organization. These changes are usually manifested at the group level of the organization.

On the scale of incremental adjustment, changes involve distinct modifications to management processes and organizational strategies but do not include radical change. On the scale of modular change, changes comprise major shifts in one or several organizational units and, thus, focus on a part of the organization rather than on the organization as a whole. On the scale of corporate change, changes are organization-wide and characterized by radical alterations in the business strategy.

To transform to being an HPO, the scale of the changes will differ for each organization. This is because the HPO diagnosis determines, at the beginning of each HPO change initiative, the scale of the changes needed in specific elements of the organization. These changes can cover the complete organization if it fully participates in the HPO diagnosis, or alternatively, and just as effectively, can cover only one department when the diagnosis is limited thereto. In the same vein, radical changes might be needed when the difference between the measured average HPO score and the desired average score of 8.5 is large; alternatively, fine-tuning change might be needed when this difference is small. Thus, the rate of the scale of change in transforming into an HPO is not uniform, as it depends on the results of the HPO diagnosis.

3.3 Change initiatives characterized by the management of the change

The main theories about the management of change during change initiatives are the planned change approach and the emergent change approach (By, 2005). For the planned change approach, it is important to understand the different phases of change an organization must undergo and which activities must be implemented to initiate the move from an unsatisfactory state to an identified desired state (Cummings and Worley, 2008). These phases and activities need to be incorporated into a long-established and coherent change approach that makes rational project selection possible. In the planned perspective of change, projects are implemented top-down, pushed into the organization.

According to Biedenbach and Söderholm (2008), the planned perspective of change makes the following assumptions: there is a stable and predictable environment; it is possible to identify the need for the organization to change; change moves from a stable start position to a stable end position via clear steps; and employees are willing to change. In the planned change approach, a manager needs to be effective at both task- and person-oriented skills (Battilana et al., 2010). Task-oriented skills are those related to organizational structure, design and control tasks and to establishing routines to attain organizational goals and objectives. Person-oriented skills include behaviors that promote
collaborative interaction among organization members, establish a supportive social climate and promote management practices that ensure equitable treatment of organization members.

In the emergent change approach, change is considered to be unpredictable and an open-ended and continuous process of adapting to an altering environment (Biedenbach and Söderholm, 2008). The emergent perspective stresses the unpredictable nature of change, because the individual parts of the organization can adapt separately from each other and incrementally to each alteration in their local business environment (Bamford, 2003; Burnes, 2005). An emergent change, thus, occurs when people incrementally and separately from each other deal with daily routines, contingencies, failures and opportunities and also continuously adapt and alter elements of the organization, producing fundamental changes without premeditation. Because these emergent changes are small, they often go unnoticed (Weick, 2000). The emergent change approach is a bottom-up approach in which the individual parts of the organization commence and implement the required changes themselves without direction from the top. In the emergent perspective, the manager needs to create a climate in which the individual parts of the organization are encouraged to experiment and to take risks to start implementing the required changes. The manager has a controlling role in developing a common purpose, giving direction to the individual parts and making it possible to evaluate the proposed changes (Bamford, 2003).

For a transformation to HPO status, the management of change approach has to ensure that the organization moves from its current, generally unsatisfactory state to the desired level in relation to each of the HPO factors. For this purpose, all organizational members need to be informed about the results of the HPO diagnosis and the goals and approach of the HPO change initiative. In this respect, the planned approach is an appropriate change management approach for this communication from the top to the bottom of the organization. However, the planned approach is less appropriate in other respects, because it is based upon the assumption that there is a stable and predictable business environment: in reality, the unstable and unpredictable business environment tends to be the principal motivation for an organization’s original decision to undertake an HPO change initiative. Such a dynamic business environment poses difficulties to the development of a structured action agenda. In addition, the planned approach assumes that organizational members are willing and committed to transform the organization’s characteristics.

However, lack of commitment is the most prevalent factor contributing to the large number of failed change projects (Herscovitch and Meyer, 2002). The emergent approach seems to be more appropriate for sustaining the required level of the HPO factors over the years than to enhancing the HPO factors within a given organization to the required levels during an HPO change initiative. This is because, in the emergent approach, the transformations in organizational elements generally are too slow and too small, as individual parts are incrementally and separately transformed in circumstances where the organization as a whole needs to transform more quickly to an HPO in preparation for forthcoming and ongoing challenging circumstances. Conversely, sustaining the high level of the HPO factors over multiple years requires the ability to constantly adapt to changes in the environment for which the emergent approach is well-suited (By, 2005).

Based on the preceding discussion, it seems…

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Marco Schreurs

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