Hurdle the Cross-Functional Barriers to Strategic Change

As firms attempt to speed decision making, improve their business processes, and become more market-oriented, they have a number of managerial prescriptions to choose from. Most share a common theme: remove the barriers that divide functional units and business units. To this end, many organizations are adopting leaner structures and emphasizing team-based processes to harness their collective strength. However, the introduction of strategic or technological change often signals that traditional barriers remain, barriers that require delicate management to surmount.

We have traced a highly contested strategic decision — the Techno project — in a Fortune 500 communications company. The Techno case exemplifies the change that is transforming the U.S. service sector, most notably in telecommunications, insurance, banking, and financial services, where productivity-enhancing technological gains are generating sharp reductions in employment and a blizzard of new offerings.1 The project centered on the development of a core technology that promised to alter radically the way the firm operated. For some, the technology represented improved productivity, a stream of new products, and a stronger competitive position. For others, it threatened their budgets, existing strategies, and even job security.

The Techno case gave us an opportunity to examine the germination and development of a strategic decision through the eyes of managers in different functions and at different levels. We conducted in-depth interviews three times during the decision process. As the Techno project unfolded, three barriers to strategic change emerged. Here we explore each and highlight the implications Techno has for managing strategic change.

First, we briefly review the strategic decision-making literature, focusing on the forces that often produce markedly different views of the appropriate strategic course across units. Next, we describe the Techno project, explore the turf battles, and contrast the key functional units’ divergent opinions. We also profile the cross-functional communication patterns that united or isolated participants in the process and explore top managers’ roles. Finally, we discuss the implications for managing strategic change.

Cross-Functional Barriers

Strategic change can be best understood as a political process.2 How you feel about a decision depends on “where you sit” in an organization. Rather than emphasizing neat, orderly administrative procedures, emerging concepts “depict strategic decisions as messy, disorderly, and disjointed processes around which competing factions contend.”3 Innovation and change processes may be seen as outcomes of the competition between organizational stakeholders, who each interpret a strategy’s meaning from a different perspective.4

Strategic changes often imply corresponding changes in the distribution of resources and power across units. Organizational members interpret the meaning of a change in relation to their functional identities.5 Identities reflect how individuals or specialized functional units “make sense of what they do in relation to a larger set of organizational norms.”6 Although functions, business units, or other structural categories are formed to fulfill organizational needs, they have both social and psychological consequences for individual managers.7 When an organizational member identifies with a particular group, he or she sees the values, perspective, and practices of the in-group as more distinctive and more salient than those of a more abstract, complex, secondary organization.8

Strategic change often involves shuffling old structural categories into exciting new combinations to achieve competitive advantage. Such changes upset the negotiated order by altering how units operate, reconfiguring connections between and among units, and reformulating the mix of factors that differentiate one unit from others. Quinn’s concept of “logical incrementalism” characterizes the strategic change process in ten large corporations.9 In his view, an organization moves step-by-step from early generalities to later specifics, adjusting strategies incrementally as new information emerges and organizational or political constraints dictate.

Quinn offers recommendations for implementing the incremental approach to strategic change. First, goals should sometimes be stated in general rather than specific terms. Specific goals provide a clear focus for opposing groups and may be difficult to alter later. Second, senior executives must build awareness of the need for change and then build “pockets of commitment.” Floating trial balloons, building informal communication networks, empowering champions, and managing coalitions are tools executives can use to form a strategy one step at a time.

Ultimately, successful strategic change is a collective achievement that requires the energy and commitment of multiple functions and stakeholders. However, by threatening established identities, three obstacles can damage or hinder a change initiative: turf barriers, interpretive barriers, and communication barriers.

· Turf Barriers.

Since tasks may define an organizational member’s role and identity, connote prestige, and provide a power base, he or she may be reluctant to have the domain or territory altered. (Territory or turf includes an area of expertise or authority, a particular task, or access to resources.) Subunits are strongly motivated to defend against loss of status or power.

Strategic decisions engage and arouse members who may gain or lose. A threat to a group’s domain tends to strengthen members’ identification with the group. Turf battles ensue as units compete for resources, information, and support.10 During this competition, “group lines are drawn more sharply, values and norms are underscored, and we/they differences are accentuated.”11

· Interpretive Barriers.

Each participant in a strategic decision contributes special knowledge to the process. Each may have a unique interpretation of strategy goals and their importance. Certain biases may affect strategic decisions by restricting the range of alternatives and the information for evaluating them.12 For example, decision makers may seek information that supports their hunches while innocently ignoring contrary evidence, reinforcing an illusion of personal control. Other biases can also creep in, as decision makers recall past successes when they assess the odds of success for a new strategy. The effects of biases may be seen in how decision makers organize their thinking and action.

Dougherty asserts that “departments are like different ‘thought worlds,’ each focusing on different aspects of technology-market knowledge and making different sense of the total.”13 Collaboration across units is necessary for successful innovation, and differing interpretations are major barriers. Each department has common judgments and procedures that produce a qualitatively different understanding of product innovation. For example, marketing personnel are interested in products that will be successful in the near-term, while R&D personnel are interested in more radical breakthrough projects.

· Communication Barriers.

Departments develop a shared language that reflects similarities in members’ interpretation, understanding, and response to information.14 This language or coding enhances communication within the department. However, organizational members unfamiliar with it may distort and misinterpret it and find communication with the departmental members difficult.

Efforts to move toward a shared understanding are a central challenge. In R&D project groups, for example, frequent communication between at least some project team members and colleagues inside and outside the group is a vital, yet formidable task.15

The Techno Project

The top managers of a large communications firm launched the Techno project to drive down costs and examine fundamental changes in customer service. The strategic decision centered on the development of a platform technology, which would ultimately shape a diverse array of services across the firm’s market units. The Techno project involved a significant resource commitment (e.g., for some options, more than $1 billion) and relatively enduring commitments for each function and market unit.

By providing an automated interface, the platform would eliminate more than 100 steps from the process of delivering service to new customers and instantly notify field service personnel of existing customers’ repair needs. The platform would also improve service reliability to large organizational customers by continuously monitoring communication signals from their systems and providing instant backup in a system failure. In the near term, the platform’s expanded capacity and control could create a series of new services for existing markets. But some senior executives and technologists believed that Techno might provide a way to diversify into totally new businesses, such as database storage or a multi-media network. An R&D manager commented, “Fundamentally, the project is an effort to identify alternative ways to operate so that we have higher value products and lower operating costs for delivery. It’s focused on the entire business end to end.”

Top management assigned a senior R&D executive the task of assembling a team of technical specialists to explore promising technologies for revamping operations. Located at a research facility several hundred miles from corporate headquarters, the team had a preliminary budget and freedom from the administrative controls that normally regulated technology projects. An R&D manager remarked, “If you tried to do this within the existing cultural base of the corporation, without completely walling it off or isolating it, you would fail.” Another R&D manager commented, “You go in with a great deal of autonomy to demonstrate what you want without much interference. That’s a luxury I don’t believe anybody has ever had — to be left totally alone to go for it.”

The team’s early efforts centered on increasing the degree of computer automation in the firm’s customer contact. The technology would enable customers to order products and services without a salesperson’s intervention. If the concept worked — and considerable controversy surrounded its technical feasibility — significant labor cost savings and improvements in customer service reliability were projected. The team also envisioned the automated sales function as just one promising new application. A decision to move ahead with the technology would present profound internal and external consequences by monopolizing the firm’s capital budget, downsizing the salesforce and customer service staff, and possibly reorganizing the firm’s traditional structure.

As word of the Techno project spread through the organization, we began the first phase of interviews with key players involved in the decision process. We conducted follow-up interviews after six months (coinciding with the budgeting cycle) and twelve months (implementation phase). The decision participants included the R&D team and representatives from several functions, including marketing and manufacturing, and from multiple layers in the hierarchy (managers, corporate vice presidents, and above). In each interview series, we queried executives about their opinions of Techno, their communication about the project, and other aspects of the decision process. To be in our sample, an executive had to be identified as a decision participant by at least three other members. The network of participants grew as the project unfolded. We interviewed thirty-nine managers at milestone one, sixty at milestone two, and sixty-four at milestone three.16 However, our analysis here isolates the opinions of the marketing and R&D managers who participated in the Techno decision process. Sixteen marketing managers were involved across the three decision milestones. For R&D, eight executives participated at milestone one, while none were involved in the remaining phases.

A Turf Battle

Clashes between the R&D team and other functional areas, particularly marketing, characterized the early phases, and pockets of resistance emerged. The R&D team was united in support of the technology and actively pursued an ambitious agenda. When the organization learned of the team’s work on sales automation, questions reverberated. Did the R&D team think it would control the project? Would the customer accept this? Was another round of job cuts coming?

Isolation increased the team’s cohesion and commitment to the project but hampered its efforts to merge with the rest of the company. Battle lines were drawn. An R&D manager commented, “We’re suggesting such massive changes and stepping on a lot of people’s toes, so we’re bound to end up with some turf issues. There’s something for everyone to hate.” A marketing manager remarked, “I’ve experienced some hostility from the technical people such as ‘How you dare say anything negative about this project? It’s my baby. You’re out to kill my project.’”

The team members’ solidarity and confidence was evident in their desire to firmly maintain control of the technology and its applications. Marketing managers reacted with alarm. One said, “If Techno starts to have an impact on the consumer, I think marketing should be calling the shots. R&D doesn’t have the expertise on the marketing side to figure out what’s going on.” An R&D manager remarked, “The technology group should do the implementation of these types of things, like changing the business. If you have marketing controlling Techno, marketing is going to do what’s best for marketing.”

The budget became the ultimate scoreboard in the turf battles. By providing a way to fully automate the sales function, the Techno project posed an ominous threat to the marketing budget. R&D charged that marketing’s objections were rooted in a fear of lost jobs and eroding status. An R&D manager said:

If there is a barrier to achieving what we want, the threat of job loss is probably the biggest. If the marketing people lose jobs or power and they are the ones making the decision on whether the project can do anything, it is a real uphill battle. By causing resistance or questioning, they can possibly delay the decision or change it so that it has less impact, just so they can protect themselves.

The two elements of the Techno project — a promising new technology platform and a vehicle for restructuring the corporation — became tightly coupled early on. The R&D team felt the project demonstrated the value of organizing around technical service centers in particular market areas. This sharply contrasted with the firm’s market-centered approach; each market unit was organized to serve a particular customer class. At milestone one, the potential loss of control, rather than the technology itself, occupied marketing managers’ attention.

Diverse Interpretations

Two managers in different functional areas may assign quite different meanings to a proposed strategy. Until resolved, divergent perceptions can delay action, increase conflict, and cause defensiveness. Managers need to alter their mental models and work toward a joint model as they interact.

We coded our interviews to capture managers’ opinions of the Techno project during the decision process, using the following categories: customer service, selling efficacy, new product development, technology, investment, cost, and follow-up opportunity. We coded each opinion as positive or negative. When aggregating opinions across the categories, we found that marketing managers reacted lukewarmly to Techno at milestone one. There were an average 10.5 negative opinions and 4 positive. By contrast, the R&D team conveyed enthusiastic support, averaging 7.5 positive and 2.5 negative responses.

At milestone one, four of the opinion categories best captured the differences between functions. Marketing managers had negative opinions of Techno’s impact on customer service and selling efficacy (see Figure 1). Marketers also saw the sizable investment in Techno as significantly negative and were less enthusiastic than R&D managers about its follow-up opportunities. R&D managers were positive about customer service, the investment, and follow-up opportunities, and less negative on selling efficacy.

A marketing manager commented on customer service, “You have the tendency to love the technology and nurture the technology because it’s so great and because it can do so much. You lose sight of the fact that, well, that’s fine, but no customer wants it.” On the other hand, an R&D manager said, “What we’re doing should improve customer service and make our system and company quicker and more responsive to customers.”

On the significant investment needed, a marketing manager said, “If I don’t know how I’m going to make my budget and meet my expense commitment to generate revenue with the resources I have, it’s hard for me to get enthusiastic about a ‘gee whiz’ item.” And an R&D manager remarked, “We hamstring the very things that allow us to achieve long-term goals because of the short term. In the long term, you get more revenue, you’re better able to serve your customer, you have higher quality, but you can’t afford it.”

At milestone two, many of the differences that had divided marketing and R&D disappeared (see Figure 2). The decision participants in marketing then viewed Techno more positively, closely paralleling the R&D team’s opinions. The resolution of the turf battle in marketing’s favor explains the shift. A marketing manager commented, “Marketing now has a voice and controls what’s happening. R&D no longer has the autonomy they once had to make decisions. Now they get our input.” Once in control of new product development, the marketing function insisted that the technology have a supporting role in the customer interface; the salesperson would be retained and the technology would fulfill customer orders faster and more reliably.

The threat that Techno might spawn companywide reorganization worried marketing participants at milestone one. Once the control issue was settled, they reexamined the technology’s potential, and by the second milestone, they focused on how to apply the technology to enhance the firm’s competitive position. By milestone three, implementation was underway. The resolution of the turf battle between marketing and R&D had been a turning point.

Barriers and Links to Communication

Significant technological changes tax the formal and informal communication in any organization. Ultimately, the work of an autonomous team must be linked to other functions, departments, or business units for consensus. In the company we studied, the market units and various functions were linked to the R&D team as advisers. Some managers felt that this advisory role put them outside the Techno process, particularly at milestone one. A marketing manager remarked, “The project team needs to embrace the added value that we would bring to the project. It’s not that we are totally left out. We’re a part of advisory panels, and they do seek our input. But they haven’t embraced us as full team members.”

The physical separation between the team’s research facility and stakeholder groups further impeded communication and provided intrigue about what the team was up to. A newsletter periodically informed organizational members about Techno’s progress, but the scenarios the team considered changed rapidly. Many unfounded rumors spread through the organization.

We asked Techno decision participants to identify other managers with whom they communicated about the project. At milestone one, 45 percent of the R&D team members’ links were with managers in other functions and 15 percent were with top management (see Figure 3). The remaining links (40 percent) were with other Techno team members.

At milestone two, 70 percent of the team’s links were with members of other units. This pattern was sustained at milestone three. Since the turf battle had been resolved between milestones one and two, the marketing function adopted a more proactive stance. Informal communications may have played an important role in settling the feud.

The project leader’s communication links reveal a similar cross-functional pattern. At milestone one, 70 percent of the leader’s ties were with other team members, 20 percent with other functions, and 10 percent with top management. At milestone two, half the leader’s communication links were to the team and half were to other units.

Top Managers’ Role in the Techno Process

At the start, senior executives established broad, general goals for Techno, encouraged experimentation, and demonstrated flexibility throughout the process. They also shaped the project by choosing the personnel and leader for the R&D team, selecting the work site, appointing liaison members as advisers from throughout the organization, and controlling the flow of funds. Top management provided the initial Techno budget but decreed that a major share of future funding would have to come from the market units. The intent here was to strengthen the technology-market connection. A senior executive described his efforts to create the proper environment:

I kept trying to make sure that the highest levels of management looked at the project and kept an open mind about what we could learn from it and how it could be used. The other tack I took was to ensure that everyone understood that we must reduce our operating expense by restructuring the business.

You have to overcome enormous momentum. Change is very difficult in large companies, particularly in companies where the sanctity of the manufacturing process has been well established. Any time you can conduct a test so manufacturing can see that there are ways to make some changes, you have taken a giant step forward.

Another questioned the wisdom of separating the R&D team:

One of our greatest errors was to put the project in a really remote place. If you expect to have support on a project and a lot of input, you have to put the project somewhere easy to get to. How could something as simple as location have been the one Achilles’ heel? I’m afraid that is what it has become.

The top management team used both formal and informal strategies as the technological options emerged. For example, an influential market unit manager who opposed the project at milestone one was promoted and made responsible for implementing Techno at the second milestone. Senior executives also praised the team’s technological success at milestone one but reaffirmed that marketing would continue to control product development at milestone two.

At the third milestone, implementation was underway, and other projects occupied managers’ attention. The R&D project leader took over another politically sensitive strategic initiative because top management especially valued his political savvy. Overall, marketing managers were pleased with Techno’s outcome but realized that now a rapid transition to a fully automated sales function could occur, depending on budget pressures or competitive forces. Beyond milestone three, restructuring efforts continued, the market units launched a number of new services successfully, and the firm boldly diversified into new businesses. Looking back, many say that Techno paved the way.

Implications for Managing Strategic Change

The differing opinions of marketing and R&D about Techno illustrate the challenge in building technology-market knowledge.17 Underlying an innovative organization’s strength is the ability to harmonize technology with a clear understanding of customers’ present and future needs. A shared appreciation of each function’s distinctive skills contributes to creating competitive advantage. R&D can articulate the technological possibilities, while marketing thoughtfully assesses the possibilities in light of market opportunities and competitive realities.18 Collaboration creates new, sharper conceptualizations of how technology can profitably serve customers and strengthen competitive advantage.

At its core, the Techno decision centered on the development of a technology platform that was a foundation for a family of new services. The computer-automated sales function was just one service initiative that the platform made possible. Technical knowledge, coupled with an understanding of target customers’ needs, is crucial to planning. Rather than centering on individual product initiatives, firms need to emphasize multiyear planning and budgeting for product families. Turf battles, like those in the Techno project, can deflect attention from more fundamental platform strategy decisions.

Beyond a single product or service, a strong platform can provide the base for a stream of new offerings, each targeted at a specific niche. Creating a strong platform requires a tight technology-market connection. When strategy scenarios change rapidly, market data quickly become outdated, and new interpretations of old market information pose additional risks. The Techno case illustrates the importance of involving both R&D and marketing in formulating critical market research questions, so technical options can be directed to the consumer. Such jointly conceived research efforts can establish common ground.

· Executive Leadership.

A fundamental task for leaders is to create a strategy map that organizational members can strongly identify with.19 A compelling vision builds commitment and provides a common goal. At the organizational level, a firm’s identity is what individuals see as central, distinctive, and enduring.20 Our research indicates, however, that a fundamental challenge is to link or meld the identities of various subunits into the organization’s emerging new identity. Constructive debate and tension across organizational units can speed learning, while destructive turf wars stifle it.

The top management team accorded special status to the Techno project and openly acknowledged its promise for the organization. Rather than creating winners and losers, the team attempted to control conflict while guiding the marketing and R&D units toward a reinterpretation of their respective roles. While senior executives’ clear signals settled the control issue in marketing’s favor, they predicted similar projects and reaffirmed R&D’s crucial role in them.

Ultimately, a broadly defined strategic initiative must be guided, clarified, and given concrete meaning.21 As progress with the Techno project became evident, top management unfolded its strategy map one step at a time. Between steps, uncertainty surrounded the choice of the appropriate course for Techno. Critical executive attention was given to controlling conflict while promoting the active search for new technology-market knowledge that would clarify the next move. The top management team affirmed Techno’s value, nurtured the learning process, and then synthesized learning into a vision of the future.

· Forming the Team.

The Techno case illustrates the tradeoffs in structuring teams. The dedicated core R&D team was free to explore technological options that might represent a significant breakthrough. But, once an option developed, a contentious and time-consuming process followed, as the proposal was introduced to the rest of the organization.

A relatively common dispute in high-technology firms centers on which function — marketing or R&D —should control new product development.22 Much strife in the Techno project was triggered by R&D’s desire to own product development. Although top management gave the team a broad mission, it gave the market units control of product development. Firms such as Motorola that are legendary for their use of teams emphasize the importance of executive sponsorship, a clearly defined mission and charter, and a detailed roadmap.23 Such an approach might be best suited for stand-alone projects, like those that lead to a new business unit (AT&T Universal Card) or a new product line (Motorola pagers). However, for projects like Techno that cut across diverse business units, a more adaptive approach that involves key stakeholders from the start may be in order.

· Locating the Team.

The odds for successful innovation are better if the early efforts take place within a safe haven.24 Because of its remote location, the R&D team was free to focus exclusively on Techno. But to ensure acceptance of the innovation, the isolated group must maintain ties with important stakeholder groups for support in the eventual implementation.25 This is a difficult balancing act. For projects that involve a web of interdependencies throughout the enterprise, a central, but separate, location offers distinct advantages. The team can take ownership of the project while exploiting other units’ competencies.

The Techno team’s rapid progress in demonstrating the technology’s feasibility was more than offset by the delays from turf squabbles. In the end, however, the technological hurdles proved easier to scale than the political ones, particularly when the team attempted to mold the proposed change into the organization’s entrenched administration. The remote location may also have contributed to the misinformation and rumors that haunted the project at milestone one.

· Managing Boundaries.

Innovations that affect several domains present particularly difficult political problems. At milestone one, knowledge about Techno varied widely through the company. Managers, far removed from the team’s activity, knew the project was underway and were preoccupied with its threat to their units. Even though there were no specific details about the Techno project, coalitions formed quickly to oppose it.

An emissary from the R&D team visited the market units at milestone one to allay fears and rally support, but it was too late. The market units were already firmly opposed to the project because of R&D’s intention to control it. Rather than allow the R&D manager to share the project details with a large audience of market unit employees, a handful of managers met with the R&D emissary in a small conference room. These managers served as gatekeepers — filtering the information for the rest of their unit.

The Techno project highlights the importance and complexity of managing cross-functional boundaries during strategic change. First, top managers should assess how the proposed change will affect stakeholders and identify zones of support and opposition. Second, they should disseminate project-related information early in the process. Such communications build awareness, quell rumors, and forge relationships to enable later implementation. Third, they should recognize the unique goals, orientations, and priorities of each department and function.

· Network Patterns.

The development and implementation of strategic change involves a growing network of participants. The Techno project demonstrates the importance of a manager’s personal network of working relationships. As communications between the Techno team and other stakeholders increased, the interpretive barriers that divided the functional units began to crumble. Collaborative processes are especially crucial with projects like Techno. At key points, R&D team members divided their time between technical and political activities.

Conclusion

One Techno participant lamented that “the decision process around here is not pretty to see, but the end result is usually good.” Clearly, the ambiguity surrounding strategic decisions, coupled with participants’ competing goals and preferences, inevitably led to conflicts. For projects like Techno, sharply different perspectives come to bear. The process of converting functionally based competencies into collective technology-market knowledge lies at the core of successful innovation. Structural remedies that join members into cross-functional teams or reconfigure cross-unit connections show promise, but the fundamental task is to meld units’ established identities into the organization’s new identity. Tensions across units spawned by differing views of the technology-market fit can be constructive and speed learning. In contrast, conflicts over turf stifle learning, hamper communication, and create distrust.

The top management team used political and administrative levers in the early phases of Techno when marketing and R&D were embroiled in a turf war. Senior executives clarified Techno’s goals and created a strategy map with which both marketing and R&D could identify. Overall, while the decision process was messy, cross-functional conflicts were resolved, learning eventually spread through the organization, and a clear identity for Techno emerged.