Magazine article Ivey Business Journal Online

Winning Support for Organizational Change: Designing Employee Reward Systems That Keep on Working

Magazine article Ivey Business Journal Online

Winning Support for Organizational Change: Designing Employee Reward Systems That Keep on Working

Article excerpt

Organizations undertaking change initiatives must engage employees. Paying the person instead of the job and using variable pay and stock are perhaps the most powerful changes an organization can make in moving its reward system toward one that supports performance and change. These authors describe the reward systems and motivational tools that will move employees to support the organization's change initiatives.

Built to change

Organizational excellence is about change. We would not have made this comment in the 1970s or 1980s, and perhaps not even in the 1990s. But today, it goes almost without saying: Most organizations simply cannot sustain performance excellence unless they respond to shifting environmental demands. And as the rate of change continues to accelerate, the premium on organizations' ability to change is likely to become even more important.

In the 1980s, the best-known management book was In Search of Excellence. It identified a number of companies that were excellent performers. By the late 1980s, however, many of them had ceased to be excellent performers. It was not that they had lost the ability to do what they had done. It was simply that what they had done no longer met the demands of the business environment. This raises the critical question: Why didn't they change?

Our research and experience with a variety of organizations leads us to a sobering conclusion: Many organizations do try to change, but most of their change efforts are doomed to failure right from the beginning. The type and scope of change that is attempted is simply beyond the ability of most organizations to implement successfully. Admittedly, some organizations have made amazing transformations. Nokia, for example, has become a successful global electronics company even though it once operated only in local markets, in the rubber and pulp and paper industries. Intel was able to abandon its memory business and build a strong microprocessor business. But, the reality is that most change efforts in established organizations fail to meet expectations because the internal barriers to change, most of which are human, are so formidable. A key barrier in most change efforts is the motivation to change; all too often it is simply missing.

We believe that the only way to ensure that organizations will be able to change is to design them to change. Although we are pessimistic about organizational transformations of the kind that AT&T failed to make, and the kind that Kodak is trying to now make, we are optimistic that organizations can be built to change. Our optimism is based on the ability of some companies to change and on research that suggests the right policies, practices and organization designs can make a company "change-ready." In looking at practices and designs that make an organization ready to change, it is important to consider whether they contribute to current organizational effectiveness. The optimal practices and designs are those that create high-performance organizations that are ready and able to change. Although there are a variety of features that contribute to an organization that is "built to change" and effective, the role of rewards and motivation in - 2 - Ivey Business Journal March/April 2006 promoting change is one of the more important. This article will focus on designing and implementing the reward systems and motivational tools that work best.

Human and social capital

Any discussion of building organizations that are change-ready needs to recognize that the era of human and social capital has arrived. The rapid growth in scientific and technological knowledge is one driver that has contributed to the growing importance of human capital. A second driver is the information technology boom of the 1990s. The accompanying talent shortage got firms thinking about human capital as never before. Finally, a growing recognition that more and more of a firm's market value is tied up in their human capital has spawned a focus on talent management. …

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