Organizational change readiness: Effects of organizational structure and leadership communication in organizational change

Similar to other financial organizations, life insurance institutions are dealing with changes caused by the aging of the American population and technological advances. In addition, they are dealing with changes in the cultural and economic environment. Since multiple organizational change processes have failed to achieve the desired result, the topic of organizational change readiness needs to be addressed. This dissertation looks into organizational change models to identify the factors within an organization that help it to embrace change–to be change ready. This dissertation discusses the models of organizational change preparedness and change readiness with a focus on organizational leaders’ reaction to external environmental changes. The study found that organizational structure redesign and effective communication throughout the organization are two factors that assist with organizational change readiness. Using a systematic review of relevant literature and applying evidence-based research methodology, this dissertation found evidence supporting the arguments that organizational structural changes and effective communication assist leaders in making the desired changes that deliver the results they are looking for. This study focuses on specific factors within organizational change literature such as organizational change preparedness, organizational change readiness, organizational structural change, and the influence of effective leadership communication on organizational change.i Organizational Change Readiness: Effects of Organizational Structure and Leadership Communication in Organizational Change by Rajesh R. Krishnan May 2018 Presented to the Graduate Faculty University of Maryland University College In Partial Fulfillment of the Requirements for the Degree of Doctor of Management Dissertation Committee: Dr. Claudine SchWeber Dr. Sharon Hadary ii Abstract Similar to other financial organizations, life insurance institutions are dealing with changes caused by the aging of the American population and technological advances. In addition, they are dealing with changes in the cultural and economic environment. Since multiple organizational change processes have failed to achieve the desired result, the topic of organizational change readiness needs to be addressed. This dissertation looks into organizational change models to identify the factors within an organization that help it to embrace change–to be change ready. This dissertation discusses the models of organizational change preparedness and change readiness with a focus on organizational leaders’ reaction to external environmental changes. The study found that organizational structure redesign and effective communication throughout the organization are two factors that assist with organizational change readiness. Using a systematic review of relevant literature and applying evidence-based research methodology, this dissertation found evidence supporting the arguments that organizational structural changes and effective communication assist leaders in making the desired changes that deliver the results they are looking for. This study focuses on specific factors within organizational change literature such as organizational change preparedness, organizational change readiness, organizational structural change, and the influence of effective leadership communication on organizational change. Keywords: organizational change readiness, change preparedness, organizational structure, organizational change models, leadership, communication, Contingency Theory, Organizational change capacity, diffusion of innovation, Dynamic Capabilities, life insurance iii Acknowledgments First, I would like to thank my wife Carlean and my daughter Maya. Without their support and understanding, the long-term process of completing a doctoral degree would have been impossible. Next I would like to thank two individuals who have been my inspiration in my quest to learn something new and to keep dreaming for something better. My late mother-in-law, Linda O’Neill, you showed me through your life that the steps to greatness are to never cease to learn and to always remain humble. Dr. Dennis Winters, you are an inspiration to me and showed me that we should never stop learning. You showed me that human brains are special and that the more we push them, the better they get. None of this would have been possible without the unconditional love and support of my parents; dear papa and mummy; I am nothing without you two. I would like to acknowledge University of Maryland University College, its graduate faculty, and support staff for creating such a marvelous program and making it such a stupendous success. It is a hard journey for working professionals to go after the terminal degree, and this program and the folks behind it make it all possible. My special thanks to my dissertation committee–Dr. Claudine SchWeber and Dr. Sharon Hadary–for being so supportive throughout this process. I would like to thank my cohorts; I have learned a lot from every single one of you. Marina and Monica, thank you for always figuring out a way to help me get through the day-to-day aspects of the UMUC process; the program and the students are lucky to have you. I would also like to acknowledge a dear friend and the editor of this dissertation, Dr. Lauren DiPaula for taking the time away from your busy schedule to work with me. iv Table of Contents List of Tables ..................................................................................................................... vi List of Figures ................................................................................................................... vii Chapter 1: Introduction ........................................................................................................1 Introduction ....................................................................................................................1 External Environmental Forces............................................................................... 5 Organizational Changes .......................................................................................... 7 Purpose of the Study ......................................................................................................9 Research Question .......................................................................................................10 Chapter 2: Literature Review .............................................................................................12 Introduction ..................................................................................................................12 Organizational Change.......................................................................................... 13 Organizational Change Models............................................................................. 19 Change Readiness ................................................................................................. 29 Research Question .......................................................................................................36 Arguments and Propositions ........................................................................................37 Conceptual Framework ................................................................................................40 Summary ......................................................................................................................42 Chapter 3: Methodology ....................................................................................................43 Methodology Overview ...............................................................................................43 Brief explanation of the dissertation and research question ................................. 45 Application to the current study ............................................................................ 48 v The Systematic Review......................................................................................... 49 Refining the Evidence ........................................................................................... 61 Subject Matter Experts .......................................................................................... 63 Chapter Summary ................................................................................................. 65 Chapter 4: Analysis and Findings ......................................................................................67 Introduction ..................................................................................................................67 Research Findings and Overall Conclusions ........................................................ 68 Organizational Structure and Organizational Change .......................................... 72 Leadership and Communication ........................................................................... 79 Limitations of the Study...............................................................................................85 Conclusions ..................................................................................................................86 Chapter 5: Conclusions and Implications ..........................................................................89 Introduction ..................................................................................................................89 Implications for Management ......................................................................................90 Planning the Change Process ................................................................................ 92 Organizational Structure during Change .............................................................. 93 Leadership Communication during Change ......................................................... 96 Opportunities for Future Research .............................................................................102 Dissertation Summary ................................................................................................103 References ........................................................................................................................106 Appendix: Tables .............................................................................................................116 vi List of Tables Table 2.1. Organizational Change Models ....................................................................... 20 Table 3.1. Article selection – Organizational Change Preparedness .............................. 116 Table 3.2. Organizational Structure and Organizational Change ................................... 123 Table 3.3. Leadership Communication and Organizational Change .............................. 126 Table 3.4. Article Quality Evaluation ............................................................................. 131 Table 4.1. External Forces and Organizational Change ................................................. 134 Table 4.2. Organizational Structure and Organizational Change ................................... 136 Table 4.3. Communication and Organizational Change ................................................. 138 vii List of Figures Figure 2.1. The Six-Box Model ........................................................................................ 22 Figure 2.2. The Star Model ............................................................................................... 23 Figure 2.3. The Congruence Model .................................................................................. 25 Figure 2.4. The Causal Model........................................................................................... 27 Figure 2.5. The Change Readiness Model ........................................................................ 32 Figure 2.6. The Conceptual Framework ........................................................................... 41 Figure 3.1. Chart—Organizational Change Preparedness—Journals .............................. 51 Figure 3.2. Flow Diagram - Organizational Change Preparedness .................................. 54 Figure 3.3. Chart —Organizational Strategy and Change - Journals ............................... 56 Figure 3.4. Flow Diagram - Organizational Structure and Change .................................. 57 Figure 3.5. Chart - Communication and Change - Journals ............................................. 59 Figure 3.6. Flow Diagram - Communication and Change ................................................ 60 Figure 3.7. Flow Diagram - Quality Evaluations of Articles ............................................ 63 Figure 4.1. Change Readiness Framework - Original ....................................................... 86 Figure 4.2. Change Readiness Framework - Revised ....................................................... 88 BEING CHANGE READY 1 © 2018 Krishnan Chapter 1: Introduction Introduction As of 2014, there were over $19 trillion people covered with life insurance in the United States. Just as any other industry, the life insurance industry has been going through a multitude of changes over the past 50 years. Technology has made data easily accessible, making today’s customers more informed and raising their expectations. The changes in the economic environment have changed the financial needs of customers and made those needs more complex. Federal and state regulations and compliance requirements have become more time-consuming and costly. Life insurance companies traditionally used to sell their products using sales agents but are now looking to change their distribution through additional channels such as the internet. Even though some organizations have found some success in reaching certain market segments using different life insurance distribution channels, face-to-face selling by well-trained sales agents continues to be the primary sales mode used by life insurance organizations. The life insurance industry has been facing a decline in attracting and maintaining customers. Studies conducted by industry research organizations such as LIMRA, a worldwide research, learning, and development organization that focuses on the life insurance industry, shows that life insurance ownership is at a 50-year low (LIMRA, 2010). This LIMRA study also found that in 1960, 83 percent of households had some life insurance coverage, but today that number is 70 percent. In 2010, only 44 percent of U.S. households had individual life insurance coverage, down from 62 percent in 1964. In last thirty years, the number of in force life insurance policies dropped 29 percent, BEING CHANGE READY 2 © 2018 Krishnan from 206 million to 146 million policies. In addition, 30 percent or 11 million U.S. households have no life insurance coverage at all. These data show that, even after all the additional sales methods life insurance organizations have tried, they are not delivering in terms of their core purpose of protecting the families at the time of a premature death of their primary breadwinner. The ownership rate of life insurance in 2016 was at 70 percent, with 87.2 million U.S. households owning some form of life insurance (Scanlon, 2016). Zelizer (1983) explored multiple factors to identify the reason behind the exponential increase in life insurance sales and realized that the independent sales agencies used by some insurance companies played an important role in ensuring successful sales of the hard-to-sell product. She argued that the marketing techniques used by life insurance companies determined their success rate. The popularity of life insurance in the United States increased rapidly as insurance companies began to use sales agents. Zelizer (1983) and Stalson (1942) looked at other avenues to explain this increase, like the advent of mortality tables, actuarial solutions, changes in customer outlook, and so on. They explained that none of these above-mentioned factors explain the increase in sales, bringing the focus back to the role of the sales agents. Zelizer (1983) explained that the failure of life insurance sales in earlier years was the direct result of passive selling techniques, in which the insurance companies used word of mouth to sell life insurance rather than trying to reach new customers themselves. With the change in demographics as organizations explore direct sales such as web-based selling, it is important to understand why word of mouth did not work in the industry before. Zelizer (1983) BEING CHANGE READY 3 © 2018 Krishnan credited the life insurance agents for the growth of policy sales in United States. Stalson (1942) argued that a change in organizational structure such as profit sharing with the customer would not alone have created the increase in sales. He gave credit to aggressive marketing techniques, including the hiring of sales agents, for the rapid increase in policy sales. A life insurance contract was so complex that a consumer had difficulty comprehending it without assistance from someone in the organization (Stalson, 1942; Zelizer, 1983). The inability to understand the product sold was a reason for the low rate of adoption of life insurance policies in the earlier part of twentieth century (Zelizer, 1983). Rogers (2003) explained that the lack of communication and the use of improper communication channels, such as mass media advertisement instead of interpersonal communication, could hinder understanding, thereby resulting in a lack of adoption. Sales agents worked as change agents to ensure that policyholders understood the products they were buying, thereby increasing the success rate of the various types of policies. They were able to do this by understanding their customers’ needs and selling the product factors that mattered most for each customer. But as organizations start to look into products that bring in lower premiums and also the lower income demographics, the option of using sales agents to make house visits becomes costly. These products tend to bring in less profit per policy, so they would require organizations to look into the possibility of using technology where they could and reduce the time spend by the actual sales agent per case. Organizations could use the technological solutions available to identify the prospective customers and reach those using social media and websites that could suggest an interest in a life insurance BEING CHANGE READY 4 © 2018 Krishnan solution. Organizations could build customer and sales assistance tools to help with the sales process. In addition, organizations could understand existing customers and their needs better by using business intelligence technology and solutions and by providing additional solutions to them. Leary, Kane, and Woods (2014) explained that there still seems to be huge market for insurance products. They explained that the need for life insurance remains at a very high level and that more than half of the U.S. households understand that they need more life insurance. Leary et al. added that there are over 58 million U.S. households that realize they are underinsured. The younger generation, specifically, generations X and Y represent a significant opportunity. Flynn (2013) explained that 58 percent of the U.S. population recognizes that they need more life insurance, and added that one-third say they are likely to buy in the near future. Leary et al. argued that life insurance surpassed all other sources of financial assets or income that Americans expect to use to help pay bills and to maintain their lifestyles in the event of the primary wage earner’s death. LIMRA (2010) study explained that insurance carriers provide excellent service to beneficiaries, with ninety-five percent of life insurance beneficiaries are “satisfied” overall with their claims experience. The number creeps even higher when an agent or advisor is involved. Those most satisfied feel strongly about the importance of life insurance, are likely to recommend their company to others, and are very likely to do business with that company in the future. There are a number of methods used to calculate life insurance needs. One method used by LIMRA indicates there is a life insurance gap of $15.3 trillion. Surprisingly, the 35 million underinsured households that BEING CHANGE READY 5 © 2018 Krishnan already own life insurance have the largest life insurance gap—$9.3 trillion (Leary et al., 2014, p. 38). Life insurance organizations understand that there is a market out there, but the changes in customer and sales force demographics bring in challenges they have not faced before. Market conditions, specifically the low interest changes, are forcing organizations to look into different products that are not as resource draining as the current ones. Technological advances provide some new options to the organizations while making it easier for competitors to enter the market. The next few sections of the paper will look into these opportunities in a bit more detail. External Environmental Forces External environmental changes are forcing life insurance organizations to adapt and continue to be viable. In the next few sections, some of the different external forces will be explained. Historically, life insurance companies made a profit by making prudent investment decisions. Various regulatory organizations dictate the investment vehicles an insurance organization could use as they want to ensure that insurance companies could pay the customer as promised when they need the money. Due to stringent solvency laws, life insurance companies are not allowed to heavily invest in risky investment vehicles. In additi