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10.4 Organizational Innovation • Innovation is the creation of something new and useful that gets commercialized. • Crossing the types of innovation with the focus on the innovation results in four approaches to innovation. • Innovation can produce new products or new processes and can vary in focus from improvement to new directions. • An innovation system’s seven components are (1) an innovation strategy; (2) commitment from senior leaders; (3) an innovative culture and climate; (4) required structure and processes; (5) necessary human capital; (6) appropriate resources; and (7) human resource policies, practices, and procedures. 10.5 The Threat of Change: Managing Employee Fear and Resistance • Resistance to change is an emotional/behavioral response to real or imagined threats to an established work routine. Resistance can be considered to be the interaction of three causes: (1) employee characteristics, (2) change-agent characteristics, and (3) the change agent–employee relationship. • Ten reasons employees resist change are as follows: (1) individuals’ predisposition toward change, (2) surprise and fear of the unknown, (3) climate of mistrust, (4) fear of failure, (5) loss of status or job security, (6) peer pressure, (7) disruption of cultural traditions or group relationships, (8) personality conflicts, (9) lack of tact or poor timing, and (10) nonreinforcing reward systems. 10.6 Career Corner: Managing Your Career Readiness • There are two key methods for improving your openness to change: self-affirmation theory and self-compassion. • Self-affirmation theory reveals that openness to change is enhanced by replacing negative thoughts or beliefs about yourself with positive affirmations. • You can increase self-compassion by practicing self-kindness, reminding yourself that you are not alone, and practicing mindfulness. Understanding the Chapter: What Do I Know? 1. What are the two principal types of change? 2. Describe the four kinds of external forces of change and two kinds of internal forces of change. 3. How does Kurt Lewin’s model of change work? 4. What is the organizational development process? 5. What’s the difference between a product innovation and a process innovation? 6. Explain four approaches to innovation. 7. What are four steps for fostering innovation? 8. Employee resistance can be considered to be the interaction of what three causes? 9. There are 10 reasons employees resist change. What are they? 10. How can you increase the career competency of openness to change? Management in Action Chipotle Needs to Change Chipotle Mexican Grill started in 1993 with a single restaurant and now operates in 2,400 locations, including in Canada, England, France, and Germany. The fast-food chain had approximately 60,000 employees and revenues of $4 billion in 2017.153 Steve Ells founded Chipotle and served as its CEO until 2018. Ells wanted to differentiate his brand from that of other fast-food chains, so he focused on fresh, high-quality raw ingredients free of antibiotics and pesticides. Meals were prepared using classic cooking methods and were served in choose-your-own style so diners could get the individual ingredients they preferred.154 Then the company’s growth and profitability were stunted by outbreaks of foodborne illnesses. Customers were sickened by E. coli, norovirus, and salmonella at dozens of Chipotle restaurants around the United States between 2015 and 2016.155 The restaurant’s stock never recovered as shares fell nearly 60 percent between 2015 and 2018.156 Let’s examine what led to the burrito maker’s fall from grace. AS CHIPOTLE GREW, SO DID ITS PROBLEMS Chipotle rose to greatness because customers were offered a straightforward set of options, food was prepared on site in an open kitchen, and diners felt they were eating something healthy. The company had success with this model early on, but the system started to crack as Chipotle grew. Inconsistent food preparation was the first stressor. The open kitchen proved a difficult model to scale, and poor food handling most likely led to the outbreak of foodborne illness. According to the Chicago Tribune, “Chipotle has been growing too quickly, and without a game plan.” The restaurant chain was plagued by inconsistency and inefficiency.157 Foodborne illnesses continued to haunt it almost two years after the initial outbreak. In 2017, “The Organizational Change and Innovation CHAPTER 10 405 rate of food poisoning reports attributed to Chipotle continues to be multiples higher than peers,” said Business Insider.158 These statistics are especially troubling for a brand that prides itself as providing “Food with Integrity.” The restaurant’s menu reflects another crack in its vision and strategies. Chipotle offers burritos, tacos, burrito bowls, and salads. This simple menu attracted customers for over a decade but is now seen as “stale,” according to an analyst with the Tribune.159 Ells began offering queso in September 2017 in an attempt to spice up Chipotle’s menu. The results were not promising. Only 15 percent of orders included queso, compared to the 40 percent of orders that included guacamole. Business Insider reported that queso-related traffic died off after peaking the first week the new item was available.160 These problems have created opportunities for other fast-casual restaurants such as Qdoba and Moes, which are opening locations all over the United States. According to a UBS analyst, “. . . these concepts are exhibiting significant growth rates while also increasing competition for attractive market/site selection.” Chipotle’s once unquestionable market leadership is on shaky ground. CHIPOTLE’S NEW CEO WAS SUCCESSFUL AT TACO BELL Chipotle named Brian Niccol CEO in 2018. Niccol had been Taco Bell’s chief marketing officer from 2011 to 2015 before taking over as its CEO.161 He was hired at Chipotle because of the successful turnaround he had overseen at Taco Bell. A disgruntled customer had filed a lawsuit in 2011 alleging Taco Bell’s taco mixture was more filler than beef. The suit was later withdrawn, but it took a toll on Taco Bell’s reputation and sales. Niccol’s change efforts focused on repositioning the chain as a youthful lifestyle brand. He did this by welcoming ideas from restaurant employees and introduced new menu items, including breakfast.162 These changes produced impressive results. Taco Bell posted an average of 4 percent sales growth during Niccol’s time as CEO.163 The fast-food chain also beat out Pizza Hut and KFC as the most successful restaurant in the Yum Brands portfolio.164 NICCOL’S CHALLENGE AT CHIPOTLE Niccol faces three challenges at Chipotle. The first is the menu and potential resistance to changing it from the company’s senior leadership. The second is increased competition taking advantage of the company’s past problems, and the third relates to Chipotle’s food preparation practices and their contribution to foodborne illness. Niccol first needs to address Chipotle’s menu problem. According to a CNNMoney analyst, “They need something that gets people talking about the brand again.” The analyst says that Chipotle should consider adding new menu items such as nachos or frozen margaritas. Niccol may be positively disposed to this suggestion because he was also the architect of Taco 406 PART 4 Organizing Bell’s positive move to offer breakfast and Doritos Locos tacos.165 Other analysts have concerns about the company venturing too far from its core offerings.166 Those who are skeptical about changing the menu include Chipotle’s founder and current executive chair, Steve Ells. Ells still yields significant power and is known as a hands-on leader and perfectionist, according to The Wall Street Journal.167 He told The New York Times, “It’s not like you can put a whole new thing up on the menu board and—like at a typical fast-food place.”168 This view is supported by Ells’s earlier strategic failure of adding queso to the menu. Niccol is likely to experience resistance to some of his ideas because Ells does not believe Chipotle is like Taco Bell. Chipotle is more vulnerable to suppliers’ changes in the price of items such as avocados and chicken. Other fast-food brands can push increased costs to franchises—something Chipotle does not have. Ells also refuses to compromise on quality as part of any change. “I don’t think you’re going to see a situation where someone says, ‘To hell with food with integrity. We’re going to buy cheap commodity meat now and really turn this thing around,’” he told the Times.169 Chipotle’s second challenge is increased competition, and the biggest threat here is Panera. Panera is outside Chipotle’s cuisine niche, but it is competing with its promise of fresh, additive-free ingredients. It also has an exhaustive menu that rotates seasonally. Chipotle customers who are tired of its “big-four” menu will easily find a Panera nearby; Business Insider reports that 87 percent of Chipotles compete with a Panera Bread within a 10-minute drive.170 Niccol will have to do more than change Chipotle’s menu if he wants to compete with Panera. He needs to address his third challenge, which is stopping people from getting foodborne illnesses at his restaurants. The new CEO might accomplish this by slowing the chain’s growth and focusing on safer operations. For exle, each of Chipotle’s approximately 2,400 locations does its own prep work, such as washing lettuce and chopping tomatoes.171 Although this practice is part of Chipotle’s operational vision, an analyst from the Tribune suggested that “[Chipotle managers have] to keep to their core values . . .but need to find a way to be more consistent and efficient.” The analyst recommended that Chipotle wash and prep food in a central location and send it out to nearby stores.172 Such a food preparation change will significantly alter Chipotle’s restaurant structure. Customers may no longer walk into a restaurant and see employees grilling meat and chopping vegetables behind the food line. This setup has been part of the chain’s vision and heritage and represents something Ells holds near and dear. “Niccol will likely face an uphill battle in uprooting some of that heritage, as he’s stepping into a role occupied by a founder for the past 25 years,” said an analyst to Business Insider.173 Can Niccol inspire change and save Chipotle? College of Administrative and Financial Sciences Assignment 3 Principles of Management (MGT101) End of Week 13, Deadline: 28/11/2020 @ 23:59 Course Name: Principles of Management Course Code: MGT101 Student’s Name: Semester: 1st CRN: Student’s ID Number: Academic Year: 1441/1442 H, 1st Term For Instructor’s Use only Instructor’s Name: Dr. Gowri Vijayan Students’ Grade: /5 Level of Marks: High/Middle/Low Instructions – PLEASE READ THEM CAREFULLY • This assignment is an individual assignment. • Due date for Assignment 3 is by the end of Week 13 (28/11/2020). • The Assignment must be submitted only in WORD format via allocated folder. • Assignments submitted through email will not be accepted. • Students are advised to make their work clear and well presented. This also includes filling your information on the cover page. • Students must mention question number clearly in their answer. • Late submission will NOT be accepted. • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. • All answered must be typed using Times New Roman (size 12, doublespaced) font. No pictures containing text will be accepted and will be considered plagiarism). Submissions without this cover page will NOT be accepted. Assignment Workload: • This Assignment comprise of a short Case. • Assignment is to be submitted by each student individually. Assignment Purposes/Learning Outcomes: After completion of Assignment-3 students will able to understand the LO 2. Recognize the functions of planning, organizing and controlling and how they interrelate (Lo2.1) LO 4. Apply knowledge and techniques of strategic planning and decision making. (Lo2.1) Assignment-3 • Please read the case “Chipotle needs to change” on Page number 406, Chapter 10 “Organizational change and innovation” available in your textbook/e-textbook “Management: A Practical Approach” 9th edition by Kinicki, A., #038; Williams, B., and answer the following questions: Assignment Question(s): (Marks 5) 1. What is the underlying problem in this case from CEO Brian Niccol’s perspective? (2marks) 2. What type of change Niccol need to inspire- reactive or proactive? Explain (1 mark) 3. Using Fig 10.1 on page 380, describe what forces for change exist both inside and outside Chipotle. (1 mark) 4. Utilize Lewin’s change model (Fig 10.2 on page 384) as a blueprint and describe how Niccol can inspire change at Chipotle? (1 mark) Answers: 1. 2. 3. 4.
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