Managing Change in a Decentralized Organizational Structure Margaret Tam Applied Project (APRJ-699) Word Count: 17,141 Submission Date: March 19, 2017 Academic Coach: Dr. Conor Vibert Applied Project Coordinator: Dr. Angela Workman-Stark 1 | P a g e ABSTRACT Managing change is a challenging but critical effort for an organization to meet evolving business needs. To successfully lead transformative initiatives, leaders need to consider both the strategic side and human side of a change. While there are multiple influencers, organizational structure can add complexity to any change implementation due to its impact on decision making process. A decentralized organization with dispersed decision making authority can affect how leaders implement an organization- wide transformation. The purpose of this applied project is to answer the research question: “How can change be managed in a decentralized organizational structure?”. Reviewing contemporary research, industry best practices, and a past project implemented within the University of British Columbia Faculty of Medicine, this paper highlights key lessons learned on how to manage the human side of major organizational transformations and to provide recommendations for managing future changes in organizations with a decentralized organizational structure. As a conceptual paper, the research design of this applied project is mainly based on secondary sources and data, such as academic research papers, industry best practices, books and internal project reports. The literature review examines insights regarding change drivers, organizational structure, leadership, and change methodologies. Different types of change drivers and change theories with assumptions regarding economic value and organizational capabilities can impact how leaders lay the proper foundation for making organizational change. An organization’s structure can determine the organizational level where decisions are made. In a decentralized organization, decisions are made at the lower level where problems occur. While decentralization supports empowerment, it presents challenges for leaders to mobilize a diverse group of stakeholders to make transformative change. Leaders influence followers with different power bases, such as coercive, reward, legitimate, expert, referent, and information. Referent and expert are the two power bases that attract followers to commit. To undertake transformative change, leaders need to act as change agents while addressing psychological implications and showing results. To systematically implement change, leaders can leverage change management methodologies, such as Kotter’s 8-Step Process for Leading Change and Prosci’s ADKAR Framework. Following the literature review, three predictions statements are presented regarding how to manage change in a decentralized organizational setting. 1. Insights from Theory E and Theory O will be evident in the management of change in a decentralized organization. 2. Change leaders with referent and expert power bases will be effective change agents in a decentralized organization. 3. Insights from Kotter's Change Model will be well suited to the management of change in a decentralized organization. 2 | P a g e An analysis based on concepts from the literature review and past project experience, Teaching Tracking and Payment, is presented in the results section. The analysis supports the three predictions by applying management concepts to analyze the project lessons learned. The first insight is to leverage Theory E and Theory O in managing change in a decentralized organization. Theory E and Theory O are two change theories based on economic values and organizational capabilities respectively. A sequence of applying Theory O after Theory E can produce positive impact for implementing change. The second insight is leaders with referent and expert power bases are more effective in managing change. They can act as change agents to mobilize people across the organization. The third insight is to follow a change management framework like Kotter’s 8-Step Process for Leading Change can better equip change leaders to manage organizational transformations. Following the results, six recommendations are presented: (1) develop and align change vision, (2) combine Theory E and Theory O, (3) enlist leaders as change agents, (4) recruit operational champions, (5) leverage change models in implementations, and (6) sustain a change culture for continuous improvement. Managing transformative change is challenging for a decentralized organizational structure. As organizations need to evolve, transform and sustain themselves, change management has become a popular management topic for business management research. Future studies in this field will further support, validate or correct the predictions and findings in this report. 3 | P a g e Table of Contents Abstract ........................................................................................................................... 2 1.0 Introduction ............................................................................................................... 6 2.0 Literature Review and Analysis ................................................................................. 7 2.1 Change Drivers ...................................................................................................... 7 2.11 Types of Change .............................................................................................. 7 2.12 Economic Value and Organizational Capability ................................................ 8 2.13 Analysis ............................................................................................................ 9 2.2 Organizational Structure ........................................................................................ 9 2.21 Five Types of Organizational Structure ............................................................ 9 2.22 Definitions of Centralization and Decentralization .......................................... 10 2.23 Management Theories on Decentralization .................................................... 10 2.24 Change Management and Decentralized Organizational Structure ............... 11 2.25 Analysis .......................................................................................................... 11 2.3 Leadership ........................................................................................................... 12 2.31 Power and Decision Making ........................................................................... 12 2.32 Leaders as Change Agents ............................................................................ 13 2.33 Analysis .......................................................................................................... 14 2.4 Change Methodologies ........................................................................................ 14 2.41 Kotter’s Leading Change Model ..................................................................... 15 2.42 Prosci Change Management Methodology .................................................... 16 2.43 Analysis .......................................................................................................... 16 3.0 Predictions .............................................................................................................. 17 3.1 Prediction Statements .......................................................................................... 17 4.0 Methodology ............................................................................................................ 18 4.1 Research Design ................................................................................................. 18 4.2 Organization Background .................................................................................... 18 4.3 Major Transformation Initiative Background ........................................................ 19 5.0 Results .................................................................................................................... 22 5.1 Prediction 1 – Theory E and Theory O ................................................................ 23 5.11 Types of Change ............................................................................................ 23 5.12 Organizational Structure ................................................................................ 24 5.13 Economic Value and Organizational Capability .............................................. 25 5.14 Predication 1 Validation ................................................................................. 26 4 | P a g e 5.2 Prediction 2 – Leadership .................................................................................... 27 5.21 Centralization and Decentralization Decision Making .................................... 27 5.22 Power Bases .................................................................................................. 28 5.23 Leaders as Change Agents ............................................................................ 30 5.24 Prediction 2 Validation ................................................................................... 31 5.3 Prediction 3 – Change Methodologies ................................................................. 31 5.23 Change Management and Organizational Structure ...................................... 31 5.32 Kotter’s Change Model ..................................................................................