INFLUENCE OF EMERGENCE ON ORGANISATIONAL CHANGE PROCESSES IN CHANGING MARKET CONDITIONS
Master thesis, MscBA, specialisation Change Management University of Groningen, Faculty of Economics and Business
INFLUENCE OF EMERGENCE ON ORGANISATIONAL CHANGE PROCESSES IN CHANGING MARKET CONDITIONS
Abstract
This study covers the convergence developments in the industries of media, communications and high tech in the Netherlands and its critical success factors (CSFs), as well as the way companies in organisational change processes deal with emergence in these changing market conditions. For these industries it is found that companies have to be good at almost any factor and outperform on innovation. At KPN was found that change processes were initialized because of developments in the market, but emergence was coming mainly from inside the organisation because of the interference of many change processes with each other.
Key words: Media, Communications and High-Tech, Convergence Developments, Organisational Change, Emergence, Critical Success Factors
1st and 2nd evaluator: Dr. M. P. Mobach & Dr. K. S. Prins Word count abstract: 97
Tim Slijp (1983) is associated to the faculty of Economics and Business at the University of
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION
In this study the influence of emergence on the change process is researched. The study is performed in cooperation with the Accenture Communications & High Tech Industry Group of Accenture Netherlands. Accenture issued this research to present the results on a symposium and advise its clients. This research uses the industry developments and changes in critical success factors to describe the influence of emergence on ongoing change processes. In this chapter, the context of the research is discussed and the research objectives and research inquiries are introduced.
Accenture is a global firm with over 186,000 employees in 49 countries in the business of consulting, technology services and outsourcing. Accenture is the largest consultancy firm in the world and one of the largest outsourcing companies. Most work is performed at design, implementation and integration of (back-end) systems. The strategy consulting branch of Accenture is relatively small. In the Netherlands, Accenture employs over 2,500 people serving clients like Shell, KPN and KLM. This study is performed at the Management Consulting & Integrated Markets department of Accenture Netherlands in the industry group of Communications & High Tech. This group advises Accenture’s clients in the Netherlands in the field of Media & Entertainment, Communications and High Tech. Its clients include KPN, UPC, Philips and Wolters Kluwer. Accenture assisted with this research in various ways. Accenture provided us with client access and other relevant contacts. Various publications and analyses were provided and consultants, all with many years of experience in the field, shared their knowledge and insights.
As “convergence” (the merging of different hitherto separate industries) being one of the buzzwords since the mid-nineties, Accenture organizes the Global Convergence Forum every year. This is a large symposium on which topics regarding convergence of the Media, Communications & High Tech industries are discussed. To enlarge its footprint on existing clients, Accenture decided to launch a similar event in the Netherlands for Benelux clients. Besides ‘top speakers’ and ‘a balanced audience’ Accenture wanted to present an Accenture publication on convergence. Therefore this research was issued.
delivering integrated or bundled services and deal with; mergers, acquisitions and partnerships; new business and collaboration models; positioning and critical success factors.
Accenture defines the Media, Communications & High Tech industries as follows (Accenture, 2008a):
• “Our Media & Entertainment industry group serves the broadcast, entertainment (television, music and movie), print, publishing and portal industries.”;
• “Our Communications industry group serves many of the world’s leading wireline, wireless, cable and satellite communications network operators and service providers.”;
• “Our Electronics & High Tech industry group serves the communications technology, consumer technology, enterprise technology, semiconductor, software and aerospace/defense segments.”
As this research is conducted in cooperation with Accenture these same definitions are used in this thesis as well. An overview of some major players in the Netherlands can be found in figure 5. In this study only companies affected by the convergence of these industries are included, excluding companies such as those in semiconductor and aerospace/defense segments.
While we already started on the Accenture research, it became soon obvious that the Accenture research had a completely different focus than the focus of my studies Change Management. The Accenture research focuses on changes on industrial level while Change Management focuses on organizational changes. The challenge I had to face was that I was unable to alter the objectives of the Accenture research. All the more because of the fact the research was done in cooperation with a Strategic Management student it was even harder to tweak the research formulation towards a Change Management perspective. To achieve Accenture’s objectives an extensive report on convergence developments and Critical Success Factors (CSFs) was written. This report which answers the management question of Accenture and will be representative for Accenture’s client group, can be found in total in Appendix II. After that we conducted additional research, partly embroidering on these findings, on the subject of emergence in change processes to answer to Change Management’s demand. The results of this ‘schismatic’ research can be read in this thesis, which displays the results of both researches.
CHAPTER 2: RESEARCH OBJECTIVES & METHODS
The research objectives and methods for research are discussed in this chapter. As mentioned in the previous chapter a difference between the focus of Accenture and the Change Management department exists. Accenture’s focus of research is on industry level changes to be able to provide its client group with industry insight, while the focus of research of the Change Management department is on changes inside organizations. At the start of the research process these two foci did not seem irreconcilable as one might argue that changes at industry level might be related to changes at an organizational level. However during the research which was performed at Accenture, the research tended to move more towards the Accenture objectives and less towards the Change Management objectives. At the time the first part of empirical research was already performed it seemed that not enough attention had gone to the Change Management objectives and additional research was needed to correct this. In this thesis it is tried to include both objectives. The first part which describes both the convergence developments as the critical success factors in the industry in a short, on change management focused, version of the complete report which was written to comply to Accenture’s demand and can be found in Appendix II. The second part is purely focused on organizational change in the light of industry changes. These two research objectives resulted into the research inquiries that will be discussed in this chapter.
This research consists of both literature research and empirical research, therefore the research objectives and methods for data collection are already given in this chapter before chapten consisting the theory. The next chapters display the results of the literature research and both the first and second part of the empirical research. Because the research objective is twofold, first the methods for identifying convergence and the critical success factors will be described, after that the methods for describing how companies deal with emergence during change processes are elaborated on.
2.1 Research Objectives
achieving high performance in the media, communications and high tech industries in the Netherlands. The result of the research should be a report that can be presented during a forum.
Part II, Studies of Change Management Research Objective
Research objective Part II: General objective of this part of the research is to clarify matters on the subject of emergence in change processes.
As these two objectives are clearly different, it became soon obvious that it was hard to unite these two in one research and one paper. Therefore two different reports were written, the complete Accenture report of the first part can be found in Appendix II.
2.2 Research Inquiries
Two different research inquiries are expected with two different research objectives. These two research inquiries are, however, combined into one overarching research inquiry.
Overarching Research Inquiry:
What are the convergence developments in the industries of media, communications and high tech in the Netherlands, and how do companies in organisational change processes deal with emergence in these changing market conditions?
These two parts of the research inquiry are not completely isolated entities but somewhat related. It is expected that emergence will be more prevalent in changing market conditions, but this relation is presupposed and not subject of research as organizations are often described as open systems (e.g. Lawrence & Lorsch, 1967). The open systems theory looks at the environment and the interaction of the organisation with the environment; what happens along the way in change processes and how will this be absorbed and incorporated in the change process? Therefore it is interesting to research this phenomenon in practice.
Part I:
• Literature research: What are, in general, drivers for convergence?
• Literature research: What are drivers for- and consequences of convergence in the industries of media, communications and high tech?
• Literature research: What possible theoretical framework can be used to identify convergence developments in the industries of media, communications and high tech in the Netherlands? • Literature research: How can CSFs be identified?
• Literature research: What influence do convergence developments have on CSFs?
• Both literature research as industry experts: What are feasible CSFs in the industries of media, communications and high tech in the Netherlands, given these convergence developments? • Empirical research: What are the convergence developments in the industries of media,
communications & high tech in the Netherlands?
• Empirical research: What are the critical success factors in the industries of media, communications & high tech in the Netherlands, given these convergence developments?
Part II:
• Literature research: How does emergence materialize during organisational change processes? • Literature research: In what way are CSFs and the organisational change process interrelated? • Empirical research: How do companies in organisational change processes deal with
emergence?
Sub-questions needed to be answered to conduct empirical research on above stated research questions:
• Industry experts: Which companies in the industries of media, communications & high tech in the Netherlands are currently in an organisational change process?
• Empirical research: How much room is there for emergence to materialize in the design of the change process?
understanding and input for a research publication. Furthermore, this will create an opening for further research on emergent strategy at relevant companies.
Secondly, this research attempts to identify the way companies deal with emergence in these changing market conditions in an explorative case study research. This provides more insight on the influence of emergence on change processes and clarifies matters for future research.
This research focuses on the organisation as an open system as showed in the general model (Fig. 1). Industry developments influence the need for an organisation to change; this influence is marked by number (1). These influences create a certain momentum for change as critical success factors change (2) and the organisation will be out of fit with its environment. During the change process (3), which transforms the organisation to organisation’, these industry developments still continue to have an impact on and influence the change process.
Fig. 1 General model of the influence of industry developments on an organisation
Fig. 2 Conceptual model of this research
The following topics are researched, based on orientating interviews with industry experts: 1) Convergence developments; what are the convergence developments in the Netherlands; 2) Critical Success Factors, what are these in the fields of: marketing & sales; operations; technology strategy; increasing revenues and decreasing costs and 3) Change Processes, how do companies in organisational change processes deal with emergence in these changing market conditions.
2.4 Focus of research
This section elaborates on the concepts this research focuses on. In chapter 3 these concepts will be further discussed by literature research.
2.4.1 Convergence
(1984) define CSFs as “those characteristics, conditions, or variables that when properly sustained, maintained, or managed can have a significant impact on the success of a firm competing in a particular industry. “ This definition implies, similar to Rockart (1979), that these are “the key areas where ‘things must go right’ for the business to flourish”. The second implication of this definition is that these CSFs are different per industry. In this research we try to find the CSFs, given convergence developments, in order to describe the influence of the industry environment on organisational change processes.
2.4.3 Change process
In this study we define the change process as the process of going from intended strategy to realized strategy. According to Mintzberg (1987) it is important to understand how strategy processes work. He states that strategies are both “plans for the future” as “patterns from the past”. In his view strategy is crafted along the way of implementing it, this together with the plans for the future, the intended strategy, forms eventually the realized strategy. Strategy affects large parts of the organisation; therefore the change process consists often of change in systems, structures and culture. This change process is sometimes considered to be emergent in itself, but this study does not focus on emergent change as a paradigm. Instead this study focuses on emergent elements (emergence) in the change process. The change process starts with plans for the future (planned change or intended strategy) and how companies deal with the influences of emergent elements in these change process is focus of this research.
2.5 Methods for data collection
As the research consists of two parts, this section firstly discusses the methodology used to confirm convergence and find the critical success factors and secondly discusses the methodology for determining the influence of emergence on change processes.
2.5.1 Convergence & Critical Success Factors
experts. These feasible CSFs were processed into the questionnaire. This questionnaire contained these feasible CSFs, 20 in total, which participants could score on a 7-point Likert scale in terms of perceived importance. Because interviews were performed, respondents were able to explain their answers or add factors to make sure no factor of importance would be left behind. A stratified random sample of companies was selected, consisting of both Accenture clients as non clients. A relevant stratification will be selected on basis of literature on the subject. The aim was to conduct a minimum of 40 interviews to have an indication of market developments in general. In these 40 interviews more than 90 percent of the client population of Accenture on the relevant markets is included, so results will be valid for the client population of Accenture.
2.5.2 Convergence & Critical Success Factors - Sampling
A stratified sample is taken for conducting this research. The stratification is based on the reconfigured value chain as mentioned in chapter 3. However some sectors seem less represented than others in the sample, this if for the larger part due to the high concentration of power in some sectors (e.g. in content distribution KPN, Ziggo and UPC together represent around 90% of the total market in terms of annual turnover). Participants are selected on basis of the amount of overview of their entire business; most of them included executive management or national marketing and sales managers. To enrich the sample some industry experts from different consultancy firms are included. For a complete overview of all interviewees see the reference section. In the analysis sometimes different numbers of the total respondents are given, this reflects the number of valid answers.
Sector Number of organisations Number of industry experts Total Content creators 10 0 10 Content aggregators 7 1 8 Service providers 8 2 10 Distributors 7 2 9 Device creators 7 2 9 Total 39 7 46
Table 1 Composition of sample
2.5.3 Change Process
selected to be covered in research in cooperation with four industry experts. A company that will be threatened by developments most and is currently in organisational change, according to these experts, was selected. This way it was expected to find the largest effects. It was chosen to select only one company to minimize interference from other factors, because more factors are the same and to make sure it is not a niche-player which may not be affected by industry developments. Five to ten people which are involved at current organisational change processes were selected. To ensure data triangulation people with different jobs and from different departments were selected.
2.5.4 Change Process - Sampling
Which companies in the industries of media, communications & high tech are currently in a organisational change process? After consultation with two telecom industry expert of the companies currently in organisational change process the telecommunications company KPN is selected to perform a case study in order to answer the problem formulation. KPN is selected because of three main reasons:
• Largest company in the Netherlands which is covered by the research, therefore this company is certainly no ‘niche-player’. This means that if there is any effect of the industry developments, this company will be affected by it.
• More interviews at the same company means that more factors will be the same, such as corporate culture. This will result in less interference of such factors. At a smaller company it might not be possible to interview enough people from different departments to ensure enough data triangulation.
• There is a lot of involvement of Accenture in this company, meaning easy access to interviewees, easier to select relevant people and a favourable attitude towards Accenture and its publications.
Interviewees were selected in cooperation with the executive partner at Accenture responsible for the KPN account. A total of eight people were selected on basis of their active involvement with change projects, five of them participated in the research.
Function Business Unit
Manager Sales and Product Management KPN Broadcast Services
CIO Adviser KPN IT NL
Strategic Innovation Manager KPN Mobile
Senior Innovator KPN Technology & Innovation
Senior Innovator Architect KPN Technology & Innovation
2.6 Limitations
CHAPTER 3: THEORY
This chapter elaborates further on the literature about convergence, CSFs and change processes. This helps in researching the problem formulation: What are the convergence developments in the industries of media, communications and high tech in the Netherlands, and how do companies in organisational change processes deal with emergence in these changing market conditions? First the theory on industry convergence is explored to get insight on the context of the research and to recognize the process of industry convergence in the Netherlands by identifying the drivers for convergence. Secondly, the concept of critical success factors (CSFs) is discussed to get a better understanding of the concept and ways to identify CSFs in general. Also the literature about CSFs in converging markets and specifically in the converging industries of media, communications and high tech, is discussed. These factors from literature are used as input in field research, as well as the methods of identifying CSFs. The last section of this chapter consists of both an elaboration on the concept of emergence in change processes and the introduction of a framework which explains the intertwinement between CSFs, the change process and emergence in change. This explains in which way industry developments and change of the CSFs might influence current change processes as a part of the changing environment and thus emergent elements. These three sections together provide us with a theoretical background and framework to interpret the results from field research.
3.1 Industry convergence
What are, in general, drivers for convergence? And What are drivers for- and consequences of convergence in the industries of media, communications and high tech? To be able to answer these questions, in this section the complementary convergence cycle as a model to describe industry dynamics to replace the product life cycle, which does not fit well with industry dynamics in converging industries, is introduced first. After that the preconditions for convergence in general and drivers for convergence in media, communications and high tech industries are discussed both. Here also the feedback loop for these drivers is introduced in a framework. This framework helps us to identify the convergence developments in the industries of media, communications and high tech in the Netherlands in empirical research.
3.1.1 Complementary Convergence Cycle
drivers are leading to a cross-sector standardisation of the market’s technological foundations.” According to Christensen (2008), especially in ICT-intensive sectors complementary convergence and divergence are pervasive forms of industry dynamics. This may be explained by the common digital foundation of ICT-intensive products and technologies that make them easier to ‘fuse’ and recombine than non-digital products and technologies.
To describe industry dynamics usually the Product Life Cycle model (PLC-model) is used (Dean, 1950 & Levitt, 1965). However, a large number of industries do not fit well in the PCL-model, according to Klepper (1997) one of the reasons for non-PLC behaviour could be industry convergence (or divergence), by which he meant changing horizontal and vertical industry boundaries. However, Klepper lacks the insight why firms integrate backwards or operate in new market segments and thereby change industry boundaries. Christensen (2008) proposes a new model which could be used instead of the PLC-model and gives three preconditions for using it (section 3.1.2). The model Christensen proposes is the Complementary Convergence Cycle (CCC) which includes three stages; verticalization, complementary convergence and complementary divergence. These stages are explained in table 3.
Stage Description
Verticalization Formation of new niches or industries, which could be:
-new products that expand or reduce the scope of an extant value chain or are complementary to products supplied by other niches/industries
-new forms of supplier-buyer relations/activities Complementary
convergence
The stage of complementary convergence should be analysed at both the level of core assets and core activities of a firm. According to Stieglitz (2003) the convergence could be a process of substitution (the new niche or industry replaces the incumbent one) or integration (in which the new niche or industry becomes complementary to the incumbent one or creates together with the incumbent one a whole new range of products or technologies). Both substitution and integration can be applied to products as well as to technology.
Complementary divergence
The stage of complementary divergence may not always be applicable, but refers to ‘outsourcing’ or ‘deverticalization’ which is a natural phenomenon in mature industries. This could lead to the formation of new niches or industries in a new verticalization stage, concluding the cycle.
3.1.2 Preconditions and drivers for convergence
To apply the Complementary Convergence Cycle model of Christensen (2008), Christensen mentioned three preconditions which help to distinguish it from the process of formation of niches. These preconditions are:
1. The complementary assets or activities in question must have reached some level of maturity and demonstrated substantial value in terms of functional features, technical performance and market penetration.
2. There must be opportunities for supply-side economies of scope.
3. Strong demand side economies of scope must become manifest. Hence, an increasing share of customers must develop preferences for integrated buyer-supplier activities, integrated services or integrated products.
In addition to these Chan-Olmsted and Kang (2003) mention that complementary convergence is more likely to happen in the media, communications and high-tech industries than competitive convergence because the resources and competencies from the different industries form new functions that complement the existing ones instead of replacing existing ones. According to them the existing products (e.g. the telephone and the television) will not cease to exist because of their uniqueness in fulfilling certain needs, but rather will be enhanced with additional value (e.g. cable telephony or video-on-demand).
Besides these preconditions, what are the drivers for convergence? In the Media, Communications and High Tech industries there are many drivers for convergence. Wirtz (2001) accumulated these into three major drivers;
1. Technological innovations; 2. Deregulation of markets; 3. Change of user preferences.
According to Gong and Srinagesh (1996) the major drivers for convergence are technological advantages and regulatory environments. Research conducted by Accenture (2006, 2007) identified drivers which led and are still leading convergence, which can be classified into the drivers of Wirtz (figure 3):
interoperability between different devices. Finally, these devices, e.g. cell phones, now have the capacity to process high demanding applications like displaying video.
2. The change of user preferences: On the demand side convergence is driven by the change of user preferences. This is displayed by the changing of consumption and viewing habits of consumers. As Accenture (2008c) research indicates; only 15% of young people (<25 years old) is still happy with current TV offerings, but more than 50% would enjoy watching TV on a mobile device.
3. Deregulation of markets: To stimulate competition across sectors and industries European and national legislation is introduced, like the deregulation of the cross-ownership rules for media companies. Recent rulings of the Dutch Independent Post and Telecommunications Authority (OPTA) on opening up cable markets indicate these changes to continue. Although related to in this study, the scope of study does not cover the in-depth legal implications.
Both Accenture and Wirtz believe that these drivers are reinforced by a feedback loop. Because of this loop, it is difficult to determine which drivers are the enablers of convergence and which are catalysts. For example, the digitalization of content also shifts consumer preferences, because content is digital, consumers increasingly expect to be able to watch it anytime, anywhere and anyhow instead of being limited to the airtime of the broadcaster. This is illustrated figure 3 by the feedback loop.
Conclusion industry convergence
What are, in general, drivers for convergence? Christensen (2008) mentioned three drivers for convergence in general:
1. The complementary assets or activities in question must have reached some level of maturity and demonstrated substantial value in terms of functional features, technical performance and market penetration.
2. There must be opportunities for supply-side economies of scope. 3. Strong demand side economies of scope must become manifest.
What are drivers for- and consequences of convergence in the industries of media, communications and high tech? In addition to the drivers for convergence in general, in the
industries of media communications and high tech, also technological innovations and deregulation of markets are mentioned by both Wirtz (2001) and Gong and Srinagesh (1996). But Wirtz also mentions the change of user preferences as a driver.
What possible theoretical framework can be used to identify convergence developments in the industries of media, communications and high tech in the Netherlands? The framework of Wirtz will be very helpful with this. Because of the feedback loop the drivers can also be seen as characteristics of convergence, so existance of these drivers and preconditions will also be proof for confirmation of convergence developments. During interviews the variables of technological innovations and the change of user preferences are tested. In the research these variables are operationalized in different factors in cooperation with industry experts. Legislation is not covered in field research because data on this can be easily retrieved from secondary sources such as lawbooks.
3.2 Critical Success Factors
3.2.1 Identifying CSFs
According to Leidecker and Bruno (1984) there are different levels on which a CSF analysis can be performed. This can be firm specific-, industrial-, macro- or environmental analysis. The latter one is believed to be of little importance when identifying CSFs in a particular industry. Here the industry specific CSF analysis is discussed, because this study seeks to find CSFs which are applicable to the whole industry
As already mentioned CSFs vary from industry to industry (Leidecker & Bruno, 1984) and these can be a characteristic (e.g. price advantage); a condition (e.g. capital structure or advantageous customer mix) or an industry structural characteristic (e.g. vertical integration).
In a particular industry all differences in performance are caused by variations in two basic factors: perceived value and relative costs (Day & Wensley, 1988; Petersen, 1991; Porter, 1980 as mentioned in Grunert & Ellegaard, 1992). According to Grunert and Ellegaard these two factors are both determined by three sets of skills and resources:
• Core skills and resources (these are failure preventers, not success producers (Varadajaran, 1985 as mentioned in Grunert & Ellegaard, 1992). These could function as barriers for entry into a particular industry.)
• Slack skills and resources (which are no prerequisites for being in the industry and do not explain large portions of the variation in perceived value and or relative cost)
• Critical success factors (which explain the bulk of the variance in perceived value and or relative costs)
To identify CSFs there are many techniques available. Leidecker & Bruno (1984) give an extensive overview of these. To minimise the disadvantages of the different techniques it is best to combine these.
1. Interviewing Industry/Business Experts: This technique is not really objective and therefore should be coupled with other techniques to prevent that these inputs are only biased opinions. 2. Analysis of the Dominant Firm in the Industry: If an industry is dominated by only one or a
reliable source. The major advantage is the risk that not all industry level CSFs will be uncovered.
While all CSFs are important in a specific industry there are some methods to determine the importance of different CSFs. This can also be used as a final check to make sure that the factors found are indeed CSFs. Leidecker & Bruno (1984) give three methods for the determination of factor importance:
• Major activity of business (CSFs are usually found in major areas of the business) • Large dollars involved (companies invest large amounts in major CSFs)
• Major profit impact (changes in these variables cause large bottom-line changes)
• Major changes in performance (these changes are usually caused by a significant change, this could indicate a CSF)
That these CSFs indeed have a major impact on performance is confirmed by Sousa de Vasconcellos E Sa and Hambrick (1989). They state that the match of CSFs and organisational strengths leads to high performance for a company (figure 4).
Match? Technology and Market Context Critical Success Factors Firm’s Strengths
Yes --- High Performance
No --- Low Performance
Fig. 4A model of the origins and implications of critical success factors (derived from Sousa de Vasconcellos E Sa & Hambrick, 1989)
3.2.2 Implications of convergence on CSFs
As convergence of the former separate industries of media, communications and high tech, leads to a new industry this also implies that the CSFs will change. The CSFs of these separated markets will differ from this new industry since CSFs differ per industry.
& Whalley, 2002). However, these authors differ somewhat in their opinions about the consequences of this unbundling.
Hagel & Singer state that companies have to unbundle their value chains into three different businesses each focused on one of three activities, but they see the decline of transaction costs as the main reason instead of convergence. Nevertheless one can argue that technological innovations (e.g. Internet) are major drivers for both the decline in transaction costs (Zwass, 1996) and convergence (Wirtz, 2001). Both Hagel and Singer, and Li and Whalley state these three activities have to be:
• Customer relationship businesses, competitive advantages come from economies of scope • Product innovation, focus is on lowering the time to market
• Infrastructure management, focus is on cost
According to Li and Whalley this unbundling leads to increased collaboration of companies, ultimately leading to a “complex and rapidly evolving value network”.
According to Normann and Ramírez (1993) the impact of information technology and globalization of markets leads to new opportunities in value added offerings in which “invaders from previously unrelated sectors change the rules of the game overnight”. Companies have to form value constellations in which suppliers, business partners, allies and customers work together to co-produce value. The implication of this is that companies have to look at strategy at a different way, instead of positioning themselves at the right part in the value chain; they have to reconfigure their relationships and business systems to continuously improve the total value for consumers.
Fig. 5 Reconfiguration of value chain structures and key activities and players on the Dutch market (adopted from Wirtz, 2001 and Chan-Olmsted & Kang, 2003)
3.2.3 CSFs in converging industries
As stated in the last subsection, in converging markets not only the industry changes but also the rules of the game change. This implies that besides new CSFs for the new industry, there might be some specific competences that a company has to possess to be successful in converging industries. The path to success will no longer be just a matter of positioning itself right in the value chain, because old value chains will be unbundled, rebundled or reconfigured into networks and value constellations.
meta-competence, which they call additional capabilities for deploying core competences, as a precondition for leveraging existing industry-specific core competencies in a converging industry.
Pennings and Puranam (2001) make this meta-competence more tangible, they state that a firm should posses “relational competences”. This is the ability to accumulate experience in mergers and acquisitions and joint ventures to produce “superior intelligence about convergence” and reduce “thresholds when bundling assets with those of others”. This was researched by Lorenzoni and Lipparini (1999) who state that these competences are triggered by the need to gain access to new markets and skills and to achieve time compression in new product development. In their view a firm’s network portfolio becomes a key organisational attribute, enabling organisations to keep pace with (technological) developments. This is crucial for convergence, according to Bröring and Cloutier (2008), to close competency gaps in technological developments. They state that “the more a firm leaves its existing development path and faces competence gaps the more it should pay attention to the relationship value in buyer-seller relationships”. The findings of Lorenzoni and Lipparini (1999) suggest that the managerial design of an organisation should support this. Companies should create an architecture in which expertise is located both internally and externally, which is consistent with the view of value creating networks in converging industries.
The question arises which organisational form will be most suitable for acquiring relational competences or for convergence in general. According to Pennings and Puranam (2001) organisational structure in converging industries should be based on the ability of learning. They state that a highly modularized structure has the greatest potential for organisational learning. Firms should be loosely held together and highly decentralized. This results in the ability of incorporating mergers, acquisitions or joint ventures without disrupting internal organisations. Zenger and Hesterly (1997) argue that the enablers for modular structure can be found in the innovations in measurement tools, deriving from developments in information technology, cost accounting, aggressive benchmarking and expanding quality movements. This raises the ability to form almost autonomous firms with hierarchy-like limits, but still control the complete organisation.
Bröring and Cloutier agree that “inter-industry collaborations, as flexible modular organisational forms […] is the prevalent organisational form [in converging industries]”.
These are characteristics which can be identified in converging industries in general. Especially in the converging industries of media, communications and high tech, these are widely found. This endorses the need for a modular structure in converging industries. However Bröring and Cloutier argue; that in the beginning of convergence, project organisations might be most prevalent, but should become institutionalised when the commercialisation stage nears. Ancari and Shankar (2003) also identify alliance formation as one of the CSFs in converging industries. Another CSF they mention is that companies should be good in customer intimacy, that is to have access to and to build strong relationships with end customers. This is crucial because firms with the deepest access and the strongest relationships have the most potential for cross-selling and up-selling strategies, fundamental for “lock-in strategies” (customers tendency to switch to another provider seems to decrease as more products are purchased, e.g. telephony, internet and television from one provider, Accenture, 2008b).According to Ancari and Shankar it is also critically important to have a strong brand in converging industries because a strong brand “may cut across industries”.
Chan-Olmsted and Kang (2003) quote Cardosa (1996) on the critical competences for multimedia content companies, as they call firms operating in the converging industries of media, communications and high tech. They state that these are;
1. creative use of content; 2. exclusive access to content;
3. experience with marketing and publicity and; 4. access to distribution channels.
In addition to this Chan-Olmsted and Kang formulated core competencies for different sectors in the reconfigured value chain (figure 5). They state that for the different sectors the needed competences still differ although it can be called one new converged industry. These competences are for:
• Content creators: Access to talent and capital for content development; syndication rights of creations
• Content aggregators: Access to popular mass-appeal content or niche content; access to distributors; marketing, publicity, brand management expertise
• Service providers: Consumer knowledge; technology know-how; creative use of information; brand management expertise
• Device creators: Technology know-how; consumer knowledge; cost management; access to distributors; first-comer advantage
3.2.4 Conclusion CSFs
How can CSFs be identified? Different methods for identifying CSFs are introduced. A combination of these techniques to identify the CSFs is used during industry analysis.
Furthermore it is stressed that the match of CSFs and a firm’s strengths leads to high performance and that a mismatch of these two leads to low performance. This implies that the need for change is triggered by this mismatch. The model of CSFs relates to the contingency paradigm in change management, in which changes are always triggered by a mismatch of the organisation with the environment.
3.3 Change processes
What are the convergence developments in the industries of media, communications and high tech in the Netherlands, and how do companies in organisational change processes deal with emergence in these changing market conditions? To be able to research the second part of the research inquiry it is important to know how emergence materializes and in what way organizational change is interrelated to the concept of CSFs. In this section the strategy concept and how this relates to the change process is described first. After this we discuss how the change process including emergence and the concept of CSFs are intertwined. Together this answers both the questions; how does emergence materialize during organisational change processes; and in what way are CSFs and the organisational change process interrelated?
In the literature about change one of the most discussed dichotomies is that of planned change versus emergent change. According to Burnes (2004) the disapproval of the planned change approach is growing the last two decades. But it is important to present an alternative to planned change as “supporters of the emergent approach appear more united in their stance against planned change than their agreement on a specific alternative” (Bamford & Forrester, 2003).
Why should we pay interest in the emergent change approach? First of all, in the turbulent business environment of today it is impossible to think of change as moving from one stable state to another (Garvin, 1994 cited in Bamford & Forrester, 2003). Bamford and Forrester argue that organisational change is rather a “continuous process of experimentation and adaptation aimed at matching the organisations’ capabilities to the needs of an uncertain environment”. This resembles the crafting concept of strategy of Mintzberg (1987) in which he also argues that a part of strategy is ‘crafted’ along the way, such as a salesman adjusting the product to match a customer’s needs. Second, “the pace of change is so rapid and complex, once it occurs, that it is impossible for senior management to identify, plan and implement every action required” as argued by Bamford and Forrester. Therefore, they argue, it is only realistic to look at the change process by taking account multiple and varied forces, resulting in emergent change elements.
implementation of the intended strategy will be the realized strategy that consists of both deliberate strategy and emergent strategy. This view (based on Mintzberg, 1987) is the same as that of Beeson & Davis (2000) who see organisational change “as a characteristic feature of the whole organisation, but widely distributed and emergent across the organisation, not simply concentrated in and directed by a management stratum” and organisations as “non-linear systems (where future states cannot be predicted or controlled from past states, and where small initial changes generate large variations), than by seeing them as deviations from a correct line or as failures of management or strategy”. Therefore they state that “research into organisational change needs to be qualitative, observational, and local more than formal or abstract”.
3.3.1 Critical Success Factors and the Change Process
To understand the way the concepts of CSFs and the change process, both planned as emergent, are interrelated Grunert and Ellegaard (1992) have constructed a framework that is displayed in figure 7. As the concept of CSFs seems very deterministic and contingency based, this framework introduces the concepts of Perceived CSFs which presents a more realistic view of the managerial decision making process. The framework indicates the way the industry developments and the CSFs might relate to the change process and how emergent strategy and emergence might materialize during organizational changes.
In the figure can be seen that strategy is both the outcome of the process of comparing perceived CSFs and perceived skills and resources, as well as the process of closing the gap between
Realized Strategy Intended Stra tegy Unrealized Strategy Emerg ent S trateg y Delibera te S trategy
the future (closing the gap) and patterns from the past (the perceived strengths and weaknesses, in the framework depicted as perceived skills and resources). These perceived skills and resources are the results of learning from past actions and performance. This is portrayed in the framework by the feedback loop from performance to both perceived CSFs and perceived skills and resources. The feedback loop is comparable with the ‘Strategic Learning’ concept of Mintzberg (1987) in which strategy is adjusted along the way.
This continuous learning loop can be applied like the evolutionary change strategy or incremental change in the framework of Dunphy and Stace (1988). In their framework the preferred mode of change depends on two different variables; 1) the fit with the environment and 2) whether key interest groups favour or oppose change. The fit with the environment is based on two different variables, the difference between the desired state and the actual state and the amount of available time. For each four of the different combinations of the two variables there is a preferred mode of change. Table 4shows these different modes.
Perceived Critical Success Factors
Perceived Skills and Resources
Strategy
Quality of Implementation Actual Skills and
Resources
Actual Critical Success Factor
Score
Perceived Value and Relative Costs
Performance
However, the framework could also be applied for a revolutionary or transformative mode of change. If the organisation is really out of fit with its environment this means that the skills and resources of a company do not match with the critical success factors resulting in low performance which will be fed back by the performance feedback loop. This in turn, causes large changes in either perceived CSFs, perceived skills & resources or both. This increase or change in the gap will correspond with an increase or adjustment in the perceived need for change. This will call for a revolution on transformative change which will be incorporated in a transformative change strategy.
Incremental Change Strategies Transformative Change Strategies Collaborative Modes Type 1 Participate evolution Type 2 Charismatic transformation Coercive Modes Type 3
Forced evolution
Type 4 Dictatorial transformation
Table 4 A typology of change strategies (Derived from Dunphy & Stace, 1988))
As organisations are not closed systems but are rather seen as open systems (Lawrence & Lorsch, 1967) perceived CSFs and, subsequently, actions of managers do not only depend on performance feedback, but also on personal believes and values (Bamford & Forrester, 2003). These are also influenced by input of factors outside the feedback loop, such as personal experience, market research or input from co-workers and executives. As external input changes perceived CSFs this also means the gap or ‘perceived need for change’ will change, resulting in a change of strategy.
The framework can be applied on different levels in the organisation and for either planned or emergent change or a mixture of those two. The top-down change process can be visualized by a link from management strategy to the perceived CSFs of the employees. This is part of the implementation phase and can consist of such factors as communication, new structures or reward systems. These factors alter the perceived CSFs of the employees as part of external input in the open system. Besides this, the perceived CSFs of employees will still be influenced by the performance feedback loop of the individual employees. This process is similar to the ‘sense making’ concept of Weick (2000). In this concept people continuously interpret the feedback from the environment on their actions and adjust accordingly.
Managements’ perceived CSFs themselves are also influenced by external input. This external input could be an emergent change element at management level in case of e.g. a market research. But the external input from a higher management level is just the opposite and is considered intended strategy. This becomes deliberate strategy when implemented. Operational managers have the most cross-functional position in organisations and therefore in change processes they interact with key suppliers and customers most (Bamford & Forrester, 2003). Therefore we might argue that the most emergent strategy materializes at this level in organisations, an important implication when researching emergence. All these sources of emergent strategy are displayed by the many arrows in the framework for strategy of Mintzberg (figure 6).
3.3.2 Conclusion Change Processes
CHAPTER 4: FINDINGS CONVERGENCE & CSFS
What are the convergence developments in the industries of media, communications and high tech in the Netherlands, and how do companies in organisational change processes deal with emergence in these changing market conditions? In this chapter the first part of the research inquiry will be answered. What are the convergence developments in the industries of media, communications & high tech in the Netherlands and what are the critical success factors in the industries of media, communications & high tech in the Netherlands, given these convergence developments? In this section these two questions are answered. First the convergence process is explored. After that, the CSF’s found in general and specifically per sector are discussed and this chapter ends with the conclusion.
4.1 Convergence in the Industries of Media, Communications and High Tech
What are the convergence developments in the industries of media, communications & high tech in the Netherlands? To identify the convergence process in the industries of media, communications and high tech in the Netherlands, as described in chapter 3, questions on this subject are included in the questionnaire. Based on the technological innovations and the change of user preferences from the model of Wirtz (2001) a number of developments that reflect these convergence trends, according to industry experts, are formulated. Also trends concerning new business models are added, as these combine the trends of technological innovations and the changing user preferences. Respondents are asked whether they see these trends occurring and if occurring; in which timeframe they estimate these developments to reach mass market. As can be seen in the table below; only a small number of respondents see these trends as not occurring. The majority see these trends as already mass market or reaching mass market within the next year, as displayed in figure 8.
81% 71% 72% 74% 56% 58% 53% 47% 19% 26% 26% 21% 41% 40% 45% 50% 0% 100%
New models for advertising
Consumers increasingly make use of multiple media platforms
Media increasingly tend towards niche content
Consumers increasingly use multiplay
Users expect seamless interoperability
Availability of the cloud
Users want to consume content anytime, anywhere, anyhow
Digitalization of the complete value chain
within 1 year within 5 years after 5 years
Trend Not
occurring
N %
New models for advertising 3 43 7,0%
Media increasingly tend towards niche content 3 44 6,8% Consumers increasingly make use of multiple media platforms 2 42 4,8%
Consumers increasingly use multiplay 1 45 2,2%
Digitalization of the complete value chain 1 45 2,2%
Availability of the cloud 0 44 0,0%
Users expect seamless interoperability 0 44 0,0%
Users want to consume content anytime, anywhere, anyhow 0 44 0,0% Table 5 Percentages of respondents that see trends not occurring
Fig. 8 Timeframe in which respondents see trends become mass market
4.2 CSFs in Converging Industries of Media, Communications and High Tech
20 different factors are rated by respondents on a 7 point Likert scale, ranging from 1; not important to 7; extremely important. The average scores on the factors are determined, which are portrayed in the table below1. With average scores ranging from 4.5 to 6.3 we conclude that we did not found any factor that is not important. This means that every factor is considered to be
important and that as a company you should be good at everything to achieve high performance.
1
Factor N Mean Std. Deviation
Be able to launch innovative concepts 46 6.30 0.92
Have a focus on reliability 47 6.23 0.76
Have a strong brand, properly positioned to deliver convergence offerings 46 6.09 1.21
Have a focus on quality 47 6.09 0.80
Effectively manage human resource management 47 5.96 1.06
Have user friendly products and services 45 5.91 1.41
Have tailored offerings for specific segments 46 5.89 1.18
Have a better design of products 45 5.89 1.09
Have a focus on flexibility 47 5.83 1.09
Have a focus on speed 47 5.83 1.09
Have a wide service availability 46 5.80 1.13
Effectively integrate the supply chain 46 5.74 1.42
Be able to continuously launch new products 46 5.65 0.99
Have customer insight 46 5.63 1.24
Be able to launch new products/ services first to market 46 5.48 1.17
Have a better customer service than competitors 45 5.47 1.50
Have efficient and effective meta data management solutions 44 5.41 1.47
Effectively manage digital rights 44 5.16 1.75
Have access to unique distribution channels 44 5.14 1.50
Have a strong patent portfolio 43 4.47 1.83
Table 6 Average factor rating
4.3 CSFs per sector of the reconfigured value chain
Factor N Mean Std. Deviation
Content Creators
Effectively manage human resource management 10 6.30 0.82
Have a strong brand, properly positioned to deliver convergence offerings 10 6.30 0.82
Have a focus on speed 10 6.20 0.79
Content Aggregators
Have customer insight 8 6.50 0.76
Have user friendly products and services 8 6.38 1.41
Have a better design of products 8 6.38 1.06
Service Providers
Have a focus on reliability 10 6.60 0.52
Have tailored offerings for specific segments 9 6.33 0.87
Have a wide service availability 9 6.22 0.83
Content Distributors
Effectively manage human resource management 9 6.33 0.50
Have a focus on reliability 9 6.22 0.83
Have a better design of products 9 6.11 0.93
Device Creators
Have a focus on quality 10 6.60 0.52
Have a strong brand, properly positioned to deliver convergence offerings 10 6.50 0.53
Have user friendly products and services 10 6.30 0.82
Table 7 Average factor rating per sector
4.4 Readiness for Convergence
Respondents are asked to value to which extend they feel that their company is ready for convergence on a 7 point Likert scale reaching from 1 (early stage) till 7 (extensive and mature stage). This indicates whether companies feel a need for change because of the convergence trends in their environment. On average the Content Distributors feel the least ready for convergence, of all sectors. These scores indicate that Content Distributors already feel a need for change. On the other hand, Content Aggregators feel the most ready for convergence, indicating they feel less need for change.
Sector N Mean Std. Deviation
Content Creators 10 4.70 1.34 Content Aggregators 5 5.80 0.84 Service Providers 10 5.20 0.92 Content Distributors 9 4.22 1.64 Device Creators 7 5.14 1.35 Average 41 4.93 1.31
4.5 Conclusion
As respondents do not rate any factor with a low score, every factor included in the research is considered to be important. However rated with the highest score on average and in every sector, innovativeness seems to be key. In the converging industries also relational competences are expected to be really important; the importance of every factor stresses the need for excellent relational competences. Relational competences will enable companies to leverage their strengths and compensate for the factors they are relatively weak at. As expected there remain differences between sectors in terms of which factors are rated at higher importance, also emphasizing the need for cooperation with other parties to deliver a good product at the end of the value chain. Corresponding mergers and acquisitions, joint ventures and strategic alliances are key to growth, according to interviewees, internal growth is not longer seen as a viable option for growth, see also page 32 of appendix II.
Looking at the ‘readiness for convergence’ it can be seen that the network operators, which traditionally fulfil both the Service Provider and Content Distributor role in the reconfigured value chain, feel least ready for convergence. These positions are threatened because new technologies enable “over-the-top’ offerings for Content Creators, hereby leapfrogging the parties in the middle. Distribution of content will still be needed, but the value of this will be reduced to a commodity.
CHAPTER 5: FINDINGS CHANGE PROCESS
What are the convergence developments in the industries of media, communications and high tech in the Netherlands, and how do companies in organisational change processes deal with emergence in these changing market conditions? In this chapter the findings of the second part of the research inquiry are discussed. On basis of in-depth interviews with KPN employees first an answer is given on the question: How much room is there for emergence to materialize in the design of the change process? The way change processes are managed within KPN provides an indication on the amount of room there is for emergence to materialize.Secondly the influence of emergent elements from outside and inside the organisation on change processes are elaborated on. As KPN operates in a turbulent market, including all convergence developments mentioned in last chapter, it is expected that KPN has to do a lot of adjustments to ongoing change processes in order to stay in fit with the environment. By interviewing KPN employees the influence of emergence in change processes is being determined, an overview the of interviewees is given in chapter 2. Literal quotations from the interviews can be found in Appendix I.
5.1 KPN dealing with emergence in change processes
This section firstly elaborates on the way change projects are managed within KPN, this gives a picture of the organisational context for change and an answer to the research question: How much room is there for emergence to materialize in the design of the change process?
After that, the subject of emergence is covered, the elements that interviewees mention regarding this subject will be discussed. This will provide an answer to the research question: How do companies in organisational change processes deal with emergence? This section is divided into emergence with an origin from outside the organisation and emergence with an origin from within the organisation. It was expected to see a lot of influence from the emergence with an origin from outside the organisation, however during interviews also a lot of influence from within the organisation was found. Therefore both these origins are elaborated on in this section.
5.1.1 Room for emergence in change processes
Respondents indicate that most change projects are initialized at top management level. Top management sets out end-goals for these changes in a large, roughly defined framework. Not every detail is defined by top management in advance. Sometimes middle management can discuss the goals which are set and alter these when necessary. In most cases middle management translates the goals into actions at their own insight.
Sometimes, one respondent mentions, end-goals are functional goals instead of organisational goals, the focus is on performance, not on the way of reaching it. This is a continuous change process, which keeps in mind, that the organisation on itself is not a goal, but just a means to an end.
None of the projects make use of a blueprint which defines the change process or the precise organisational end state. Project teams make use of an action plan, but adjust it when necessary.
Interviewees indicate that almost all change processes are top initiated. Top management sets out a framework of goals in which changes takes place, middle management translates these goals into actions. Middle management does not plan every step of the change process in advance. They make sure the end-goals are clear for everyone. Sometimes several change projects are being clustered to create clarity for employees and keep them focused. It can be concluded that there is
quite a lot of room for emergence to arise because top management only sets up a framework for change in which middle management can work out the details and adjust along the change process. However adjustments have to be within the boundaries of the framework set out by top
management, no matter whether these are functional goals or more quantified goals like headcount reduction by a certain percentage. The interpretation of this mix of planned and emergent change is similar with that of Bamford & Forrester (2003), as mentioned in chapter 3, who state that due to the speed and complexity of change it is impossible for top management “to identify, plan and implement every action required”.
5.1.2 Influence of emergent elements from outside the organisation on change processes
As presupposed the environment does have an influence on organisational change processes. As one of the respondents indicate, at KPN the influence of outside developments on the organisational changes was most visible at the time when KPN was near bankruptcy. This financial position really created momentum for change in the organisation and really speeded the pace of changes at the time. However, this cannot be classified as emergence in change processes, but rather as a catalyst in creating momentum for change.
At KPN most projects and organisation change processes are initialised because of changing markets and developments of industries. However as markets or industries change during change processes or change projects, these change processes are rather terminated than adjusted or turned around. Sometimes small changes within the boundaries of the change framework are made. None of the respondents could mention an example of an unexpected success that was stumbled upon during a project and was incorporated into the larger strategy for change.
As forming quick partnerships becomes essential in the industries KPN operates in, one of the respondents mentions that KPN is not able to do so. Change processes are not adjusted when an account manager spots a nice opportunity and KPN does not partner with small companies. Every acquisition or partnership has to be approved by top management. KPN only aims at the mass and acts as a follower of telecom companies abroad. Success stories in other companies are copied in the Netherlands.
It can be concluded that KPN tries to minimize its risk exposure by copying other success stories rather than by being flexible in change. This way KPN can predict the potential for success before starting changes.
One of the respondents said he is worried by the fact that KPN does not look outside the organisation for adjustments on projects. Projects are adjusted, but not on basis of developments from outside the organisation. This acted as a first indication that the main source of emergence in change processes might not be originated outside the organisation but rather inside the organisation as last section indicated that there was room for emergence to occur.
markets, but only initialised because of these changes. One of the respondents is worried by the fact that KPN does not look outside the organisation for adjustments on projects. Developments in the industry form a reason to initialise new change projects, however this is not emergence which is incurred during change processes as expected to be prevalent at KPN. It can be concluded that
emergence with an origin from outside the organisation plays a minimal role in organisational change processes at KPN. However, not as expected but the emergent elements with an origin from
inside the organisation of KPN is indicated by respondents to be an influence of change processes.
5.1.3 Influence of emergent elements from inside the organisation on change processes
What are the convergence developments in the industries of media, communications and high tech in the Netherlands, and how do companies in organisational change processes deal with emergence in these changing market conditions? As this research inquiry indicates the research is not focused on the influence of emergent elements from inside the organisation. This because it was presupposed that the environment had a lot of influence on the organisation and it was expected that this environment would continue to influence ongoing organisational change processes. However during interviews it became soon known that the influence from outside the organisation mostly triggers the initialising of new change processes at KPN and ongoing change processes are for the greater part influenced by forces from inside the organisation. Because of the importance of this aspect in KPN’s change processes, this cannot be ignored, instead the research tries to find out in what way this aspect is influencing change processes. As shown in chapter 3 with the help of the model of Grunert & Ellegaard (1992) (Fig. 7) the perceived CSFs and perceived skills & resources will be influenced by both external as internal forces, meaning the adjustment of strategy and consequently the goals for organisational change will also be influenced by both these forces.
Trying to identify the emergent elements from inside the organisation respondents were asked for difficulties and unexpected successes they experienced during organisational processes.
