Managing organizational politics for radical change: the case of Beiersdorf-Lechia S.A., Poznan

Journal of World Business 38 (2003) 204–223

Managing organizational politics for radical change: the case of Beiersdorf-Lechia S.A., Poznan Susanne Blazejewski*, Wolfgang Dorow Department of Business Administration, European University Viadrina, P.O. Box 1786, D-15207 Frankfurt (Oder), Germany

Abstract In 1997, the Beiersdorf group reacquired its former subsidiary in Poznan which had been expropriated by the Polish state after World War II. In two years the new management succeeded in transforming this formerly state-owned, production-driven conglomerate into a highly profitable, market-oriented consumer goods company. We use this case study to introduce a comprehensive model of organizational transformation integrating micro-level change theory and the organizational politics approach focusing on the interplay of power and interests in radical intra-organizational transformation processes in CEE enterprises. # 2003 Elsevier Inc. All rights reserved.

1. Introduction Transformation in Central and Eastern Europe (CEE) has not come to a standstill. Although the political, legal, and macro-economic framework has been reset during the first ten years after the 1989 velvet revolution, the continuous intra-organizational adjustments in CEE enterprises to the demands of internationally competitive markets and the slow evolution of employees’ cultural values and attitudes remain a challenge for enterprise management to date. For an adequate understanding of the ongoing transformation in CEE we therefore need to look more closely at change processes and behavioral issues at the micro-level of CEE organizations in transition. In this paper, we propose a micro-level model for radical intra-organizational change that particularly focuses on a systematic analysis of interests and values, power bases, and power means as important elements of

organizational transformation. Beyond the analysis of political processes in organizational change, we provide a framework for the proactive management of intra-organizational change that outlines which power bases and power processes can be efficiently employed by change agents to attain a rapid and radical turnaround of their company. After a brief review of recent transformation theories and the introduction of the organizational politics model for change, we use a case study on Beiersdorf-Lechia S.A., Poznan to illustrate our model and to demonstrate how a management team effectively applied power based change instruments to transform a formerly state-owned Polish conglomerate into a lean, profitable, market-oriented, and competitive international corporation.

2. Transformation theory: re-introducing micro-level perspectives

*

Corresponding author. Tel: þ49-335-55-34-2479; fax: þ49-335-55-34-2668. E-mail address: [email protected] (S. Blazejewski).

Transformation processes in CEE have long been mainly seen through the lens of macro-level economic

1090-9516/$ – see front matter # 2003 Elsevier Inc. All rights reserved. doi:10.1016/S1090-9516(03)00019-1

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theory (Antal-Mokos, 1998; Bos, 1993; Brada, Singh, & To¨ ro¨ k, 1994; Henderson, Whitley, Lengyel, & Czaban, 1995; Radice, 1995; Rees, 1988). Since the middle of the 1990s, neo-institutionalists and other transformation researchers have, however, increasingly pointed to the need to integrate micro-level aspects into organizational change models in order to explain the ‘‘when and how’’ (Clark & Soulsby, 1999; Newman & Nollen, 1998: 49) of radical organizational change in CEE. We briefly outline the contributions by Johnson, Smith, and Codling (2000) and Newman (2000) whose respective models strive to reconcile macro-level institutional theory with micro-level processes and, in the case of Newman (2000), are explicitly developed within the context of CEE enterprises. Drawing from institutional theory and organizational learning theory, Newman (2000) sheds light on the influence of institutional upheaval in an organization’s environment on micro-level intraorganizational change. In her view, and in contrast to the dominating agency approaches in transformation literature, institutional upheaval, such as radically altered corporate governance systems, encourage organizational transformation processes only to a certain point. Too much institutional level change inhibits organizational transformation by inhibiting the organization’s ability to learn (Newman, 2000). Similarly, Johnson et al. (2000) explore how actors within the organization enact and cope with change in their institutional environment. Focusing on privatization processes, they identify three micro-level mechanisms which—apart from the institutional context—influence an organization’s transition from a public sector to a private sector ‘‘template’’ or ‘‘behavioral script’’: the involvement of actors, reciprocal behavior by other actors confirming the adapted behavioral routines, and symbolic reinforcement of the new template in interactive processes. This reintroduction of micro-level aspects as conducted by Newman (2000) and Johnson et al. (2000) is, in our view, indispensable to better understand the intricate intra-organizational change processes in CEE enterprises. However, both approaches need to be extended. Although Newman (2000) as well as Johnson et al. (2000) identify mechanisms facilitating organizational learning or adaptation of behavioral

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scripts, they do not explicitly tackle the question of how internal actors, particularly management, can proactively support efficient radical intra-organizational transformation. The focus on organizational actors and their ability to actively and efficiently influence organizational learning and organizational change draws attention to issues of power. An actor’s influence in organizational change processes depends on the availability and applicability of power bases and on the vested interests and resources available to his/her opponents who might build up resistance to the change efforts. The urgent need to integrate power and interests into transformation theory has recently been emphasized by several other researches (EGOS conference, 2002, unpublished manuscripts; Greenwood & Hinings, 1996: 1042; Johnson et al., 2000; Michailova, 2000; Newman, 2000; Newman & Nollen, 1998: 210; Romanelli & Tushman, 1994: 1161). Among the growing body of empirical organizational-level research on CEE corporations (Child & Markoczy, 1993; Clark & Soulsby, 1999; Estrin, 2000; Fogel, 1995; Newman & Nollen, 1998; Soulsby & Clark, 1996), Antal-Mokos’ (1998) investigation of privatization processes in Hungarian enterprises is one of the few comprehensive studies on the interplay of power and interests in political processes in organizational transformation of CEE enterprises. According to Antal-Mokos, ‘‘organizational politicking,’’ the micro-political activities of organizational actors involved in transformation processes, forms one of the key determinants of privatization success or failure (see Antal-Mokos, 1998: 29 for the full model). Using a grounded theory approach, he uncovers an extensive variety of political tactics used in CEE enterprises in transition ranging from coalition building to manipulation. He does, however, not present a comprehensive systematization of these political instruments and the respective power bases required for effective organizational change. In our view, the integration of an organizational politics approach, as proposed by Antal-Mokos (1998), with the elements of the neo-institutionalist models, advanced by Johnson et al. (2000) and Newman (2000) who do not systematically address questions of power and interests, enables us to more fully account for the complex micro-level processes leading to either success or failure of organizational

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transformation in CEE enterprises. In addition, we see a need to extend the theories in several aspects: - The three approaches presented focus on changes of the corporate governance structure occurring in the earlier years of transition in CEE. We see a need to concentrate more closely on the ongoing post-privatization processes of intra-organizational change across all organizational domains which we understand to be a major concern of CEE enterprises in their current situation. - Micro-level organizational change needs to be better understood in its political dimensions, but a comprehensive model of organizational transformation also has to include the contextual constraints of micro-political behavior. In our view, environmental pressures can, on the organization level, severely limit the individual’s scope of action and inhibit—or enforce—the effectiveness of his/her micro-political action. Both forces, the ‘‘coercive force’’ of the institutional context (Johnson et al., 2000) and the force of micro-political activity need to be closely integrated in transformation theory. - Antal-Mokos views political behavior in organizational change processes as essentially ‘‘harmful’’ (1998: 200). We do not share his negative assessment and will show that political behavior is not only unavoidable in organizational processes but also how micro-political activities can be productively applied to initiate and support efficient radical transformation processes in CEE enterprises. In our view, micro-political transformation theory has to avoid any overt ideological or normative bias. Only then can we ensure a thorough analysis of political activities in radical change processes which, for example, may include the replacement of large parts of the local workforce as in the case presented here. The importance of the ethical question in radical change processes is unreservedly acknowledged but warrants a separate, in-depth discussion and is not the focus of our analytical approach in this paper. - The theories presented leave aside the possibility of proactive management of transformation processes. Even though the models by Newman (2000), Johnson et al. (2000), and Antal-Mokos (1998) reintroduce the individual actor into transformation theory and describe mechanisms for change on the

micro-level, they do not explicitly address the role of management and its alternatives to support, enhance, or even restrain organizational change through micro-political processes. These alternatives for active micro-political behavior by organizational actors, particularly management, and their effects on the transformation of values and behavioral routines in the context of a CEE privatized enterprise stand at the center of the model of organizational change presented in the following sections.

3. An organizational politics model for organizational change The organizational politics approach contributes to the explanation of the management of change by its concentration on the ‘‘bases and uses of power in organizational decision making’’ (Pfeffer & Salancik, 1974). Since these initial publications on organizational politics (Burns, 1961; Mayes & Allen, 1977; Pettigrew, 1973), a growing body of literature deals with manifold aspects of changing organizational structures and processes. The organizational politics approach interprets change processes as processes of resolving colliding interests among core and/or satellite individuals or stakeholder groups in organizations by using different institutional or personal power bases (Drory & Romm, 1990). Change agents employ these power bases to overcome resistance and reach a new organizational equilibrium. Our conception of organizational politics is rooted in the machiavellian political theory which focuses on the rational and strategic use of power bases in political processes (Christie & Geis, 1970; Clegg, 1989; Dlugos, Dorow, & Farrell, 1993). According to Pfeffer (1992: 299) managing with power has several implications: First, it is necessary to identify the colliding interests and strategies of the relevant power-holders; secondly, it has to be understood to which extent and why these interests and strategies vary within the organization; thirdly, managing with power requires a relative power surplus in relation to opponents; and fourthly, it means understanding the strategies through which power is developed and used in organizations. In order to utilize the organizational politics perspective for a better understanding of complex processes of change, as Pfeffer

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and other scholars demand (Bacharach & Lawler, 1980; Knights & Murray, 1994), we propose a framework which integrates the following variables:

Table 1 Power bases Institutional power bases

Personal power bases

(a) Interests of the organization’s change agents and their opponents: Stakeholders of an organization are modeled as exchange partners who, depending on their individual (or group) interests offer pledges for the fulfillment of certain demands. In processes of change, new pledges and demands are set by change agents. In a situation of conflict of interests the change agents will safeguard them—depending on their access to power bases—against resistance. (b) Limited scope of action of change agents: Change agents, like all stakeholders of an organization, act under external and internal constraints (see Fig. 1). If these constraints are perceived as too tight, change agents will— depending on their interests and their access to power bases—try to enlarge their scope of action. (c) Access to institutional and personal power bases: From the various concepts of power (Deutsch, 1973; French & Raven, 1968; Mintzberg, 1983) two basic forms of power bases can be derived: institutional power bases and personal power bases (Table 1). According to Weber (1947), institutional power bases are independent from an actor’s attributes, while personal power bases are related to an actor’s attributes. Power bases function as sources for power means (information, equivalents) which can be

Rights (legal or contractual)

Knowledge, expertise (general or transaction specific) Personality (charisma, trust, and credibility)

Contracts

Communicative instruments: changing cognitions

Goods (money or commodities)

employed in organizational political processes. For example, a large power base of monetary goods can be used for offering payments to employees as a means of achieving consensus in lay-off procedures. Employees can safeguard their interests by using legal or contractual rights. Based on the change agent’s knowledge or expertise he/she can deliberately disseminate or withhold information to achieve his/her change objectives. (d) Changing the frame and changing cognitions as power processes: We distinguish between two types of power processes (Fig. 1) which actors apply to safeguard their interests against colliding interests: (i) direct communicative strategies such as persuasion, manipulation, the pronouncement of positive and negative sanctions, or (ii) the adjustment of the opponent’s frame or scope of action by exercising legal rights and changing the structural or physical constraints, or through indirect action aimed at third parties who would influence the opponent’s interests in favor of the change agent’s objectives.

Legal environment

Corporate culture Public opinion

Actor's goals

Structure Resources

Social and cultural norms

Competition

Suppliers

Fig. 1. Frame of action and basic micro-political strategies.

Coercive instruments: changing the actor’s frame of action

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Bases of power Means of power

institutional power bases

personal power bases

Offer/withdrawal of information (descriptive, explanatory, normative) or equivalents (monetary equivalents, commodities)

Processes of power

changing the frame of action - setting new structural constraints, influencing third parties

changing cognitions - persuasion, manipulation, offer/ threats, negotiation, bargaining

Change outcome

Pace, magnitude, sustainability of change and side effects: - radical or convergent change - rapid or evolutionary change Fig. 2. Organizational politics model for change.

In this concise layout, the organizational politics model allows for a systematic description of all relevant dimensions of handling conflicts within change processes. In contrast to positivist agency theory or institutional approaches, change processes are triggered not automatically by changes in the organization’s environment but by the strategic behavior of members of the organization. Competitive pressures or institutional upheavals, for example, do not mechanically set off organizational transformation but need to be perceived, acknowledged, and interpreted by key decision-makers, who will in turn re-adjust their goal-setting and goalsafeguarding behavior according to their own interests and power bases. During the implementation of this revised set of objectives, the management’s interests in initiating fundamental organizational change may collide with employees’ interests, for example, in retaining the status quo. In this situation, organizational change can only be put into effect when management successfully safeguards its interests by applying micro-political instruments to either change the opponents’ cognitions or coercively set new constraints for their behavior. The model allows for the change process to be participative (for example, by involving employees in goal setting) or authoritative (exercising institutional power to enforce compliance). The speed of change depends on the instruments applied to delimit the exchange partner’s scope of action. Positive and negative sanctioning, for example, allows for rapid transformation but may be costly and ineffective in the longrun. Persuasion may have positive long-term effects as individuals voluntarily change their optimal set of

goals, but it can be slow and requires an adequate personal power basis (Danesy, 1993). Fig. 2 gives an overview over the elements of the organizational politics model of change and their interdependencies. Our organizational politics model allows for a systematic analysis of the important dimensions of change. In contrast to other theories, it links the dynamics of change to power, interests, and the political behavior of individual members of the organization. The following case study illustrates how managers can effectively use power based micro-political instruments during a fundamental organizational change process.

4. Radical and revolutionary change at Beiersdorf-Lechia S.A., Poznan 4.1. Key phases of change In 1997, the Beiersdorf group1 acquired a majority of shares in the formerly state-owned cosmetics company Fabryka Kosmetyko´ w Pollena-Lechia S.A. in 1 Found in 1882, the Beiersdorf group in 2003 has 17,000 employees in 86 countries. Beiersdorf is one of the world’s major producer of cosmetics with Nivea, 8x4, Atrix, and Juvena being its most important international brands. Beiersdorf also produces band aids as well as other medical goods (Hansaplast and Futura) and owns the tesa brand, the main competitor of 3M’s scotch tape. Especially the Nivea brand has been very successful over the last decades, contributing considerably to Beiersdorf’s impressive results with an EBIT growing at the rate of >10 percent annually. The company’s headquarter is located in Hamburg, Germany.

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Poznan. Poland had been the last country worldwide in which the Beiersdorf AG had until then been unable to restore possession of the brand rights to its leading brand ‘‘Nivea’’ which had been seized by the Polish authorities after World War II. After all efforts made for several years to reacquire only the brand name or to establish some sort of co-operation or joint venture with Pollena-Lechia had failed, Beiersdorf took the strategic decision to buy the entire company with three out-dated production sites in Poznan and more than 1,500 employees when Pollena-Lechia became part of the mass privatization process in Poland. What followed was a full-scale turnaround initiated by the new management which, in only two years, transformed the formerly state-owned, production-driven ‘‘immobile giant’’ Pollena-Lechia into a highly profitable, market-oriented consumer goods company of international standard. Today, Beiersdorf-Lechia S.A. is one of the Beiersdorf group’s top ten affiliates worldwide. Turnover of ‘‘Nivea’’ products alone has increased in only four years by 500 percent to s 88 million in 2001. ‘‘Nivea’’ has become the No. 1 brand in the Polish market for deodorants, body lotion, cream products, and sun protection by outpacing strong competitors like L’Ore´ al or Procter & Gamble. The case study analyzes how these fundamental changes came about and which micro-political instruments were employed by the expatriate team to achieve this considerable success in a fairly limited timeframe. The organizational politics model enabled us to retrospectively discern three different phases in this specific change process: the pre-acquisition phase in which the Polish management struggled with a radically altered institutional and competitive environment; the first post-acquisition phase in which the new owners conducted a rapid, coercive readjustment of the organization’s structural and strategic frame including the replacement of a large part of the workforce; the second post-acquisition phase of cognitive change and cultural integration. 4.2. Methodology Data was collected from multiple sources to achieve triangulation and gain insights into the transformation process at Beiersdorf-Lechia from various perspectives. Between December 2000 and May 2002 we conducted a series of 34 interviews both

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with individuals and in groups and, in addition, had numerous opportunities to directly and unobtrusively observe actual organizational processes during extensive stays at the company in Poznan. Structured and non-structured interviewing in either German, Polish or English depending on the interviewee’s choice was conducted with (i) the General Manager of BeiersdorfLechia S.A., a German expatriate, as the key change agent, (ii) German and Polish members of the management board, (iii) Polish line management, (iv) Beiersdorf-Lechia employees, (v) former employees of the company who left during the change process, (vi) the CEO of Beiersdorf International, and (vii) external consultants of Beiersdorf-Lechia to include an outside perspective on the change process. An atmosphere of trust and openness from the start was valuable to us during the interviews and observation phases and also allowed for informal interaction with the organization’s member which additionally helped to gain insight into the underlying processes of power, interests and individual values which—in our view—are crucial for understanding organizational change. Written material such as internal memos, consulting reports, correspondence regarding the acquisition or negotiations with unions and other archival material pre- and post-acquisition was generously made available to us. All interviews were conducted and all written material were evaluated by at least two researchers to ensure a sufficient degree of inter-subjective reliability of results and interpretations. During the iterative process of data analysis we systematically tested our conclusions in regular discussions with informed colleagues and interview partners in the company.

5. Transforming the management’s frame of action: pre-acquisition constraints at Pollena-Lechia Before the velvet revolution, Pollena-Lechia was part of a collective combine producing cosmetics, detergents, and soaps and tightly embedded in the institutional environment of the socialist planned economy system. Even in the early 1990s, its structure exhibited the typical characteristics of a stateowned socialist industrial conglomerate: high vertical integration including non-core functions such as

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Heterogeneous ownership

Immobile structures Inadequate systems Growing competition

Limited resources PollenaLechia

New trade and supply structures External limitations

Institutional upheaval

Internal limitations

Lack of qualifications

Persistence of ‘old’ values

Strong unions

Fig. 3. Managerial frame of action at Pollena-Lechia prior to the acquisition.

transportation, security and numerous social services, overstaffing, an inefficient administration (also due to the lack of adequate data processing facilities), and a dominating production orientation. With only a few state-owned customers (GS, Spolem, Ruch) and prescribed production volumes for each, which customers even in 1997 collected directly from the production ramp, Pollena-Lechia did not need a marketing department or a sophisticated sales force. In 1995 Pollena-Lechia became part of the Polish mass privatization program. With the entry of the National Investment Funds (NIF)2 as majority shareholders priorities regarding corporate governance shifted from a focus on job security to shareholder value although the state treasury still owned 25 percent of the shares and employees (15 percent) also remained rather influential—mainly a concession to former worker councils. This change of ownership along with the institutional upheaval in the company’s environment put substantial pressure on PollenaLechia’s management. Fig. 3 shows the main endogenous and exogenous impediments to its frame of 2 In December 1994, 15 National Investment Funds (NIF) were established by the Polish Ministry of the Treasury as joint-stock, limited liability companies to function as a transmitter between state ownership and full privatization. On April 30, 1993, the National Investment Funds Act had been passed into law. This act provided the legal framework for the privatization of 512 stateowned Polish companies which represented approximately 10 percent of the Polish manufacturing industry. The principal goal of the NIFs was to achieve maximum growth in the value of their assets.

action and therefore to organizational change after privatization in 1995. The ownership structure was one of the main inhibiting factors preventing the management from adjusting strategies and structure. As predicted by Antal-Mokos’ political model (1998), despite formal privatization the influence of the state and employees and the intensity of stakeholder ‘‘politicking’’ turned out to be too high to formulate a clear corporate strategy and initiate the urgently needed reduction in workforce. Another insecurity for the drifting company arose from the constantly changing trade structures: its three main customers, state-owned trade agencies, had been dissolved. Hundreds of newly established small-scale resellers stepped into the breach, required a different approach in sales relations and were hardly ever profitable for Pollena. In addition, the large international traders entered the Polish market but the company had trouble finding an adequate response to their specific demands. At the same time, international and local competition started aggressively attacking Pollena-Lechia’s markets. Again, due to its lack of experience and market knowledge, the company was becoming more and more vulnerable. With hardly any expertise in marketing and sales, the huge manpower turned into a heavy burden. Even worse, due to the still immense influence of the state and the unions (Solidarity 700, OPZZ 140 members), this burden could not be reduced. This was also the reason why the organizational structure was kept in place. In 1997 more than 350 persons were still working in non-core activities of the company such as maintenance, security, or social services. Financial resources also became a central problem. Though the company nominally ran a profit, this was no sign of a sustainable development because marketing expenses were next to zero—compared to an average of 20–30 percent of sales in this industry— and investment into technology had been stalled for decades. The company was still run on 31 different software systems which did not allow for data integration from different departments. Information deficiencies, for example the lack of consumer research or valid sales data, also inhibited the management to efficiently readjust production plans. Pollena-Lechia’s inability to initiate a process of change was both, a failure of its management to set

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market-oriented objectives, and to effectively manage the heterogeneous interests of its internal and external exchange partners. This inability to change can be largely ascribed to personal and behavioral continuity on the management board. The prevailing theories-inuse or templates dominated by socialist-era norms, values, and skills remained unaltered despite formal privatization. The tight embeddedness of the company in the ‘old’ system in addition to the heterogeneous ownership structures and internal political barriers against organizational change inhibited its effective adaptation to the new environmental conditions. Existing resources and capabilities at Pollena-Lechia had become obsolete but in a phase of institutional upheaval and weak, dispersed internal power bases, management was unable to overcome organizational inertia and develop new behavioral rules and cognitive templates to guide individual action and support the adequate processing of inflowing information from the dynamically changing environment.

6. Transforming the management’s scope of action: post-acquisition extension at Beiersdorf-Lechia In autumn 1997 the Beiersdorf AG acquired a majority stake in Pollena-Lechia from the leading NIF to secure an internationally coordinated develop-

External limitations

Economic Public conditions opinion

Competition Key cus tomers Integrated systems Marketoriented structures

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ment of its leading brand ‘‘Nivea.’’ The company was renamed Beiersdorf-Lechia S.A., Poznan, and Beiersdorf successively replaced all board members with its own executives. Their main objective was to conduct a rapid and sustainable organizational transformation process. In contrast to the situation at Pollena-Lechia, the new management team was able to quickly extend its scope of action (Fig. 4): The acquisition of nearly 100 percent of shares immediately solved the problem of heterogeneous ownership and dispersed power bases which had prevented rapid change at Pollena-Lechia. The injection of PLN 72 million in 1998 released the strain on resources and allowed for the urgently needed investments in marketing and technology. At the same time, the combine-like organizational structures which had severely inhibited the management’s scope of action at Pollena-Lechia were radically transformed in an innovative way. In order to avoid difficult negotiations with the Polish executives still in office, the strong unions and nearly 1,500 employees who seemed to have only one interest— to keep the status quo—Beiersdorf refrained from a strategy of internal reformation of the existing structure which was expected to consume too much time and energy. Instead, management established a parallel, ‘shadow’ structure (Fig. 5), made to measure for the new marketing-driven strategy and with all positions filled with selected, highly motivated personnel,

100% ownership Financial resources Lean production program

Beiersdorf

Adjustment of core values Motivated Low union staff membership

Internal limitations

Fig. 4. Managerial frame of action at Beiersdorf-Lechia.

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Beiersdorf project groups

Pollena-Lechia

Pollena-Lechia

BeiersdorfLechia

Fig. 5. Tunneling the structure.

either handpicked from the existing workforce or freshly recruited from leading Polish universities and other international companies operating in the Poznan area. With these employees, management established a new marketing department to transfer Beiersdorf’s global ‘‘Nivea’’ brand strategy to the Polish market. It then pulled large parts of the sales force into a new sales structure. Where Pollena-Lechia had catered to more than 400 customers, more than twice the sales force could now concentrate on 100 profitable trade partners. With the existing personnel department still in place, Beiersdorf established a parallel human resources project group to develop the handpicked former Pollena-Lechia workers and to recruit new employees according to the expatriate management’s own, marketing- and performance-oriented selection criteria. Often, as with the implementation of an integrated information system facilitating administration and connecting the company to its new logistics partners, the new structures were well hidden within project groups. All resources injected into the company by the Beiersdorf group were exclusively channeled into this shadow structure. At the same time, thanks to the dual structure, production of the Polish version of the ‘‘Nivea-Krem’’ continued-undisturbed by the turmoil of readjustments and restructuring commonly occurring during a postacquisition turnaround. The dual structure was kept in place until the new ‘‘Nivea’’ strategy had been implemented and the brand’s relaunch successfully pulled off. Then, as the General Manager stated, ‘‘the bubble was allowed to burst.’’ The rapidity with which this burst occurred was, however, not expected. Beiersdorf had intended to slowly deflate the now unnecessary

bloated bureaucracy of Pollena-Lechia. In early summer 1998 the expatriate team designed a release program for 350 employees who would voluntarily sign up on a list against a rather generous compensation (PLN 40,000 per head on average) which even elicited positive commentaries in the local media. In the eyes of Beiersdorf-Lechia’s new management many employees who had been with Pollena-Lechia for decades would be unable to keep pace with the organization’s changes and to adjust to the new requirements of a marketing-oriented firm. ‘‘The worker’s inabilities and lack of know-how was,’’ as one Beiersdorf executive put it, ‘‘at least astonishing.’’ Instead of trying to train the existing staff, BeiersdorfLechia’s management had therefore opted for a strategy of exchanging parts of the workforce with young, highly-motivated, university-educated recruits to release the pressure on its scope of action. It came nevertheless as a surprise, that on the last day for sign-up in late June 1998—instead of the 350 planned—more than one thousand workers had decided to leave the transforming company. In January 1999, far ahead of the management’s schedule, the newly designed structure could therefore fully replace the empty skeleton of former Pollena-Lechia. Table 2 summarizes key results of the transformation process at Beiersdorf-Lechia. In the following section we turn to the analysis of how and why the Beiersdorf management was able to attain these results where Pollena-Lechia had previously failed to even initiate a turnaround process. 6.1. Micro-political processes of change According to the organizational politics model we presented, micro-level organizational transformation

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Table 2 Main areas of change 1997

2001

Pollena-Lechia S.A.  Production driven  Sales: PLN 205 million  1,500 employees, average age 42 years  Local orientation (Polish language)  More than 20 brands, 202 products  400 customers  Marketing: 3 employees, minimum budget  Sales force: 40 sales employees, 1 key account manager  Top-down decision making  31 non-integrated software systems, very few PCs, copy machines, faxes, analogue telephone exchange

Beiersdorf-Lechia S.A.  Sales marketing driven  Sales: PLN 400 million  400 employees, average age 33 years  International orientation (English)  4 brands, 135 products  Less than 100 profitable customers  Marketing: 12 employees, high marketing investment  Sales force: 102 sales employees, 6 key account managers  Delegation of responsibility and accountability  Integrated SAP/R3 system, state-of-the-art equipment for every workplace, ISDN telephone exchange

Changing cognitions - cultural change - voluntary adjustment of interests and values - participative leadership

Changing the frame - setting new behavioral constraints - coercive processes - authoritative leadership 1997

1998

1999

20 00

2001

2002

Fig. 6. Post-acquisition phases of change at Beiersdorf-Lechia.

means changing the individual’s behavioral routines and cognitions by (i) providing him/her with a new frame of action and (ii) supporting or guiding the adaptation of his/her underlying cognitions and cultural value system. At Beiersdorf-Lechia, we can distinguish two sequential post-acquisition phases of change with each phase showing a different set of micro-political instruments applied by the company’s management (Fig. 6).3 During the first two years after takeover, the Beiersdorf managers concentrated their efforts on establishing a new frame for action through coercive measures. Only after its successful implementation, did they

start to consciously address the task of advancing and supporting the adjustment of values, attitudes, and mental templates through a range of communicative instruments. In this way, management at Beiersdorf-Lechia proved to have a good intuition regarding the efficient sequencing of managerial instruments. However, the pattern arising from our analysis is not the outcome of a clear predetermined change strategy but rather evolved through experimentation and continuous learning and is based on the management’s ability to quickly respond to problems and events occurring over the course of the change process. 6.2. Changing the frame

3

Please note that the different phases of radical organizational change described here are the result of a retrospective analysis. We do not intent to give the impression that the management at Beiersdorf-Lechia followed a predetermined change plan. Rather, the phases described are the outcome of learning processes, trial and error experimentation and the management’s ability to perceive and quickly grab chances for rapid and radical change turning up during the post-acquisition phases at the company.

Until late 1999, the organizational change process at Beiersdorf-Lechia was clearly dominated by a strategy of direct coercive establishment of a new frame of action for the employees at BeiersdorfLechia. It is a crucial advantage of this strategy— provided the necessary resources and power bases

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are available—that it leads to fast behavioral changes through ‘‘forced learning’’ (Child & Markoczy, 1993) and thus promised a rapid implementation of the strategic objectives of Beiersdorf in the new Polish subsidiary. Changing the frame was also perceived to be a precondition for the sustainable long-term development of the company because only a new frame of action could provide a platform for the necessary changes of underlying values and implicit norms in the Poznan company. A variety of instruments to adjust the employees’ frame of action were applied: The transformation of the organizational structure was accompanied by the issuing of new working contracts for all old and newly recruited employees that radically redefined tasks, competences, and incentives and effectively created new constraints and challenges for individual action. Conditions for work—strategy, structure, but also symbols and the physical environment—were visibly altered instantly. This redefinition of the work environment also included the equipment of each employee with state-of-the-art office technology which was, in addition, perceived as a further sign of commitment of the Beiersdorf group to the investment in Poland. The new managerial attitude regarding human capital as a key asset of the company was already manifested in the substantial raise of nominal wages. It also became evident in the assignment of non-financial incentives: everybody receives the same high-class medical insurance package, sales people drive the same type of car as do members of the board of management. These seemingly minor elements of the changing the frame strategy played an important role for transformation success because they sent unambiguous signals which effectively supported the new set of rules and norms to employees. The management style during this phase was predominantly non-participative. Employees basically had only one choice: to accept the new frame of action and adapt their working behavior accordingly, or to leave the transforming company against a substantial compensation. This leadership style enabled the management team to ensure both speed and force of the change process in this first phase. Despite this clear cut top-down approach the expats managers kept up a policy of constant communication and information of all those involved.

Contrary to the cases presented by Pollert (1999) where high levels of dissatisfaction resulted from the investors’ change efforts, resistance to processes of coercive transformation remained low among Beiersdorf-Lechia’s employees. Recalls one employee who had already worked at Pollena-Lechia: ‘‘With the growing problems (regarding increasing international competition) in 1997, people had started to realize that there was no real alternative to change for the company. Especially the younger colleagues in fact waited for radical changes to occur once the foreign managers had arrived.’’ This positive attitude to change in CEE corporations early in the transition period is congruent with findings by Fogel (1995: 78) and Clark and Soulsby (1999: 149). Potential resistance from employees was also effectively offset by Beiersdorf’s bid to buy back their shares for a guaranteed price of PLN 256 per share which, at that time, was perceived as a very generous offer. Employee shareholding crumbled to 0.5 percent during the first year. High (legal) monetary side payments also prevented the formation of resistance by union leadership: During the workforce reduction program in 1998, compensation payments were based on an algorithm that consciously favored the elderly union officials as an incentive for their ‘voluntary’ retirement. The entire leadership of Solidarity and OPZZ accepted this offer. Many other elderly employees who had difficulties adjusting to the new style of work also decided to leave the company. In this way, potential resistance to change was proactively prevented through the offering of high monetary equivalents. Those employees remaining in the company did not show any sign of overt resistance or dissatisfaction with the change efforts of Beiersdorf’s management team. Unionization dropped from nearly 100 percent (1997) to 15 percent (2001) and is dominated by unskilled, low paid production workers with limited intra-organizational power. Many of the remaining employees welcomed the guidance and orientation provided by the expats. One sales manager recalls: ‘‘Here was the place to learn. I could learn a lot from them and they gave me opportunities to develop.’’ Consequently, the dominating patriarchic management style at that time did not provoke discontent. As empirical research shows, employees in CEE might in fact prefer a more autocratic leadership which

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is in line with previous experiences and confirms their learned norms and values (Holtbru¨ gge, 1995; Kostera & Wicha, 1996; Michailova, 2000; Obloj & Thomas, 1996; Robinson & Tomczak-Stepien, 2000; Woldu & Biederman, 1999). The low level of resistance is also due to the fact that the remaining employees received high monetary remuneration which ensured their compliance in organizational transformation processes. Payments have constantly been 20 percent above the average of international companies in the Poznan region. New labor contracts at Beiersdorf-Lechia were without exception outside the collective agreement, thus further dismantling the power of organized labor. Changing the frame required large institutional power bases. The acquisition of the majority of shares by the Beiersdorf group and the provision of the sum of PLN 72 million for investments bestowed the expatriate team in Poznan with considerable contractual and monetary power bases which they used to draw up a new scope of action for each employee. It is important to notice that these power bases had been largely unavailable to the management at PollenaLechia which had been seriously inhibited by heterogeneous shareholder structures and limited financial resources. 6.3. Challenging culture and cognitions The micro-political strategies of changing the frame have important limitations. Coercive alteration of the individual’s frame of action can achieve—depending on the power bases of management—a rapid adjustment of the employee’s behavior. Changing the frame will, however, barely touch on the individual’s underlying system of values, interests, or attitudes. Kostera and Wicha (1996) have pointed out that particularly in former CEE state-owned enterprises, adjustments of the cultural systems may lag considerably behind strategic and structural organizational changes. Yet, the fundamental organizational change required in CEE corporations is generally viewed as necessitating a transformation of core values through second-order learning (Newman & Nollen, 1998; Pendergast, 1995), although ethical reservations regarding the manipulation of cultural systems remain virulent. Changing organizational culture is not an uncontested territory as researchers particularly challenge the notion that basic assumptions at the cultural core

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can be deliberately influenced through managerial action (Denison, 2000; Hofstede, 1997; Martin, 2002; Schein, 1989). There is, however, some agreement that the conscious elements of culture like behavioral scripts, norms, and values are more accessible. We would like to point out that the following description of cultural change efforts at BeiersdorfLechia is restricted to the level of individual cognitions and should not be understood as implying that a transformation of core basic assumptions has been effected. At Beiersdorf-Lechia, the cultural issue only moved center stage after the successful establishment of a sound frame of action. The restructuring, the implementation of new communication and remuneration systems, the careful selection of new recruits personally undertaken by the General Manager, these were important key stones in building a sturdy platform for the emergence of a new organizational culture at Beiersdorf-Lechia. Despite this change of the frame and the partly exchange of the work force, management saw a need for all employees to reflect their norms, values, and routines. Although the young recent graduates entering the firm (223 new recruits between 1998 and 2001, i.e., 54 percent of the workforce) did not have to go through the difficult process of unlearning the ‘old’ cultural templates previously prevailing at Pollena, their environment had not provided them with a valid alternative. As Newman points out, the chaotic environment in CEE after 1989 de-legitimized existing behavioral scripts but did not necessarily provide new, suitable frameworks to categorize, process, and interpret information (Newman, 2000: 605). Institutional upheaval resulted in a cultural ‘‘lag’’ or ‘‘vacuum’’ (Kostera & Wicha, 1996) in many CEE organizations. This was exactly the situation at Beiersdorf-Lechia. Contrary to the management’s expectations, the exchange of parts of the workforce did not circumvent the problem. Both groups, the recently handpicked recruits and the former Pollena employees—which even in 2001 still accounted for 46 percent of the total workforce—were lacking valid routines to address and cope with the new organizational situation. Even though the Beiersdorf case could be classified as a ‘‘brownfield investment’’ (Meyer & Estrin, 1998), this did not relieve the company of the need for the difficult

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development of a new organizational culture and the adjustment of employees’ attitudes and values. Contrary to those Pollena-Lechia employees who had resigned during the voluntary lay-off procedure, however, both the recently recruited and those Pollena employees who had chosen to stay at the transforming company were, as the HR director observed, receptive to change and had a positive attitude to learning. According to our organizational politics model, a transformation of individuals’ values can only evolve through long-term processes of voluntary acceptance and internalization of new norms. Communicative instruments therefore play a preeminent role in cultural change processes. Whereas changing the frame requires a basis of institutional power, changing the culture is connected to personal power bases. The Beiersdorf-Lechia management, besides controlling the financial means and contractual rights to enforce a new frame of action on employees, now had to prove their expertise and personality to be accepted as cultural change agents. Resistance against the management’s efforts to influence the employees’ cognitive systems seemed to be surprisingly low. None of our interview partners expressed dissatisfaction or anxiety although some testified to a sense of ‘‘tiredness’’ arising from the pace and magnitude of change that put a strain on their learning capabilities. The Beiersdorf-Lechia management supported the evolution of a new corporate culture and individual value systems through four distinct sets of instruments: (a) provide orientation, (b) create mutual trust, (c) strengthen local competences, and (d) cultural dialogue. 6.4. Provide orientation The management’s uncompromising focus on the ‘‘Nivea’’ strategy brought all actions and decisions at Beiersdorf-Lechia onto the same single track and helped the Polish employees to gain a sense of direction. This clear strategic focus thus laid the grounds for the development of a joint corporate vision. Management conducted a series of workshops concluding with the formulation of a new corporate vision in summer 1998. The vision statement circulated among employees but failed to take roots at that time. Follow-up activities to enhance dissemination only confirmed the lack of organization-wide acceptance

and mutual commitment to the statement. As a consequence, between 1999 and 2000 orientation was concentrated on the personal example of the six expatriate managers who functioned as paternalistic role models (see Soulsby & Clark, 1996). Since they were rooted in the Beiersdorf international corporate culture, this resulted in an import of their own cultural templates. Especially for the young, career-oriented recruits who often came directly from the universities, were responsive to western lifestyles and ideas, and did not find suitable guidance in their private contexts, the expatriate change agents provided a face to turn to for orientation. Standard communication instruments like internal journals and the intranet were used as supplementary channels to convey their set of norms, rituals, and values. 6.5. Create mutual trust The second important element of the cultural readjustment at Beiersdorf-Lechia was the creation of mutual trust. A key prerequisite for creating trust among all members of the organization is an open and unambiguous way of communication. Whereas at Pollena-Lechia hierarchies and formalism had dominated the interaction between subordinates and superiors, the expatriate managers avoided indirect and delayed information, manipulation, or misunderstandings from the start. They deliberately took risks, for example by early on sharing precarious information regarding the sale of the toothpaste operations to Colgate-Palmolive Poland with the Polish members of the management team. This unexpected openness was interpreted as a critical incident in creating predictability and a new style of communication by both Germans and Poles. A further building block in creating trust was the symbolic value of the large financial commitment for the Poznan site and the early announcement of a major investment in a new production plant—a clear indicator for the long-term orientation of the Beiersdorf shareholder. Changing symbols reduced the distance between the new management and the workforce: early on members of the board introduced a first name policy. Top-managers and sales agents drive the same high quality type of car. Informal departmental meetings out of office help to encourage informal dialogue across hierarchies.

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6.6. Strengthening local competences The third key element contributing to a change of Beiersdorf-Lechia’s culture aimed at the strengthening of local competences, accountability, and sense of ownership among the members of the organization. From the perspective of the expatriate managers most employees of former Pollena-Lechia were ‘‘hopelessly incompetent’’ regarding basic managerial skills in view of the demands made on them by an internationally competitive market. Pollena-Lechia had for decades only relied on the technical qualifications of its human capital. Its culture of hierarchy and redelegation of even most minor decisions had brought about a serious lack of independent decision-making capabilities and individual accountability among employees. Not only the former Pollena employees but also the young graduates recruited had, apart from their high motivation and eagerness to learn, hardly any professional experience and no training in soft management competencies such as communication, motivation, conflict handling, or general leadership. As the technical education in Poland had in the meantime caught up with western standards, Beiersdorf-Lechia established a training program focusing on leadership skills only. Promising high-potentials were assigned teams and projects to develop a sense of responsibility and ownership. This was accompanied by a change of the expatriate team’s leadership style towards decentralization and management by objectives. Slowly the increasing competence of local managers and employees reduced the power distance between them and the expatriate team. Important projects such as the building of a new factory in Poznan or the introduction of key account management were characterized by real partnership and eyeto-eye teamwork between local, expatriate, and headquarter management. As a Polish operations manager involved in the new factory project recalls: ‘‘This was when some people started to openly propose their own concepts and when necessary even tried to hold their ground against criticism from German colleagues.’’ 6.7. Cultural dialogue In early 2001, a number of problems arose despite the visible success in establishing a stable frame for

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operation and initiating the adjustment of organizational values which had led to a clear sense of direction, a basis for trustful relationships among members of the organization, and continuously increasing expertise on the side of the local workforce. In May 2001, discussions with the expatriate team and an informal survey revealed the following challenging areas: Employees and management alike described the work processes at the company as being too slow, inflexible, formal, and still dominated by hierarchies or status considerations. The new, imported templates had not taken root. Management detected a tendency of exhaustion and rising rigidity which was accompanied by increasing departmental egotism. The need for rebuilding complexity, cross-functional cooperation, and an overall positive attitude towards continuous change became obvious. In addition, the survey confirmed the expatriate managers’ suspicion that the propagated vision and values had not been internalized. Beyond the level of the so called ‘direct reports’ who worked in close daily contact with the management board, the old values—formalized communication, strong hierarchical orientation, patriarchic leadership—still dominated. The values lived and propagated by the expatriate team had led only to superficial and partial changes in the organizational culture. The Polish junior managers had apparently been unable to pass on and actually apply the just learned norms and values to their own teams. Openness and accountability reigned in relationship to their superiors but regarding their own subordinates they were unable to go beyond the formalized, autocratic management style which they had encountered during their primary socialization, schooling or university education in the 80s or early 90s. What were the reasons for this deferred cultural transformation? Most importantly, the Beiersdorf managers had to realize that changing the frame and role modeling desired values is not sufficient to achieve a change in the deep underlying system of personal norms, attitudes, and assumptions shaping individual behavior. The cultural development processes at Beiersdorf-Lechia had so far been unidirectional and dominated by the expatriate management. The undisputed need for clear directions and fast decisions during the first stage of changing the frame had called for an autocratic leadership style which unintentionally had been carried over into the second

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phase—despite the expats’ personal and espoused convictions regarding bi-laterality, openness, and delegation. Once the rapid turnaround of the operations had been accomplished, the managers had tried to apply more and more their values of decentralization and participative leadership but through role modeling they only reached very few of the employees. From the employees’ perspective the management’s official commitment to openness and participation was not convincing and restricted to the level of espoused values. In their eyes, management since the takeover had been dominated by non-participative, power based top-down decision-making, and employees simply had become accustomed to this leadership style. A real chance for cultural change only came up when the expatriate team recognized the need to turn their one-sided, top-down cultural transformation initiative into a mutual cultural dialogue which would also force them to reflect and eventually readjust their own value system in a mutual cultural process. In July 2001, the management initiated a project to support the application and implementation of the results of this reflection process. The task was to develop and formulate a set of jointly shared and accepted key success factors for the company which in contrast to the vision devised in 1998 were not implicitly prescribed from the top but derived from a real, open discussion process involving all members of the organization. The General Manager who was used to directing and dominating all processes through his personality and expertise power deliberately chose the back-up role of the project sponsor. The entire responsibility for conducting the project was delegated to a cross-functional team drawn from middle-management and the company’s high-potentials. An external consultant was in charge of mediating eventual conflicts between the team and top-management which could arise from the unusual allocation of roles and competences. The entire process was open. Management had not predefined expected outcomes in order to create a clear sense of ownership of the project on the team members’ side and to avoid re-delegation of responsibilities. The first part of the project, the formulation of the key success factors, did not run without problems and drawbacks. When, for example, the General Manager was present at team meetings, team members still

perceived him as being the chief decision-maker and person in charge. They consequently withhold their own ideas or criticism and tacitly conceded the ownership of the process to the management board. Communication was still dominated by considerations of status and formal position. In these situations the external coach was immensely helpful in rearranging roles and functions and encouraging the project members to hold their ground against their superiors and to reclaim their assigned responsibilities. The formulation of the ten key success factors concluded in April 2002 turned out to be not the only vital result of the project. The iterative learning process (see Child & Markoczy, 1993) for all involved was at least as important. Management learned to hold back and listen without immediately uttering their own opinion, to concede responsibility and really trust the Polish employees. The Polish project participants learned to discuss openly with their superiors, take over responsibility for a project with company-wide relevance, bring together people from different departments and hierarchical levels and successfully steer them towards a joint, mutually accepted result for the project. Subsequently, the change of the expatriate managers’ attitudes and managerial style has also become more and more visible. Employees perceive it as a clear sign of his commitment to mutual cultural change that the General Manager started to adopt Polish for intra-organizational communication instead of English, thereby deliberately conceding language as a means of power. Another unmistakable signal for a beginning mutual cultural change is the replacement of two German members of the board of management in summer 2002 with Polish managers. This willingness to learn and to accept changes on both sides is a first critical step towards the creation of a joint organizational culture which will complete the radical transformation of Beiersdorf-Lechia as a prerequisite for the sustainable future development of the company.

7. Conclusion Fig. 7 summarizes the three phases of change at Beiersdorf-Lechia and the respective micro-political processes during the pre- and post-acquisition periods.

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Fig. 7. Political processes and change outcomes at Beiersdorf-Lechia.

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The pre-acquisition phase generally confirms Newman’s (2000) hypotheses that organizational transformation in CEE is seriously inhibited by institutional upheaval in the company’s environment. The case study presented here, however, has additionally shown that organizational transformation is also influenced by micro-political activity within the organization aimed at keeping the status quo. The weak power bases of the Pollena-Lechia management, particularly the lack of managerial competencies and financial resources, and its limited scope of managerial action (see Fig. 3) made it impossible to set new, clear corporate objectives providing orientation in a turbulent environment, deter outside disturbances and establish a new, valid frame for employee behavior. Conclusion #1 therefore extends Newman’s model by including the political aspect. 7.1. Conclusion #1 In institutional upheaval, weak managerial power bases prevent organizational transformation by inhibiting the establishment of a new frame for targeted organizational activity and organizational learning. Post-acquisition organizational change at Beiersdorf-Lechia is characterized by two distinct phases: (i) a process of changing the employees’ frame of action that was mainly based on institutional power and led to a rapid adjustment of individual behavior, and (ii) a process addressing the employees’ cognitions based on the personal power of the expatriate team that successively allowed for the adjustment of individual values and attitudes in a slow, evolutionary process and eventually resulted in a fundamental cultural transformation at Beiersdorf-Lechia. The rapid development of a new frame of action in the short term ensured the survival of the company in a dynamic, internationally competitive environment because it helped organizational participants to reduce perceived institutional upheaval and provided them with a clear guidance for individual action in an environment dominated by uncertainties. Those employees who felt unable or unwilling to comply to the new organizational frame were encouraged to resign during the first phase of post-acquisition transformation. The replacement of part of the workforce certainly accelerated the transformation process at Beiersdorf-Lechia but comparative empirical studies

would be necessary to establish whether workforce exchange really is a prerequisite for radical organizational change. In fact, despite workforce exchange, changing the frame at Beiersdorf-Lechia led to the interim coexistence of two different sets of values or templates: the imported culture of the Beiersdorf expatriates and the ‘old’ template of the Polish employees which even among the young, recent recruits still retained traces of the central planning era. The situation of ambiguity arising from the invalidation of traditional institutions and norms in post1989 Poland had even ten years after the velvet revolution not provided any other definite, valid set of values. It is therefore a dangerous assumption that the exchange of employees provides a simple, quasiautomatic solution to the challenges of cognitive transformation required for radical organizational change in CEE enterprises. At Beiersdorf-Lechia, the uncompromising focus on changing the frame between 1997 and 1999 in fact led to a temporal cultural lag when the new frame for action coercively established by expatriate management did not correspond to the dominant cultural template retained by the majority of the Polish employees. 7.2. Conclusion #2 In institutional upheaval, changing the frame through radical restructuring and redefinition of tasks and responsibilities only does not lead to a corresponding adjustment of individual cognitions, values, and norms but creates a cultural lag. If changing the frame is accompanied by an import of a new cultural template (e.g., by foreign management), this will lead to the temporary coexistence of two competitive templates. In the second post-acquisition phase (see Fig. 7, phase ii), the management at Beiersdorf-Lechia focused on its bases of personal power to initiate a process of cognitive change. Communicative and symbolic instruments were used to enhance acceptance, legitimization, and internalization of the behavioral constraints set by the new frame of action. In the long-run, individual values, and norms need to be brought in line with the altered frame for action, so that the constant, costly control of individual behavior can be reduced. The case presented here is particularly revealing because it draws attention to the crucial question of

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time and sequence of micro-political activities in radical organizational transformation as demanded by other change theorists (Johnson et al., 2000; Newman, 2000; Romanelli & Tushman, 1994). In a situation of high complexity caused by institutional upheaval, a recognized need for radical, rapid organizational transformation and extensive but nevertheless limited power bases only the rational and timely employment of different power means ensured efficiency and effectiveness of organizational change at Beiersdorf-Lechia. In our view, the transformation success in this case is predominantly due to the management’s decision to first adjust the frame of action through coercive, autocratic micro-political instruments (see Fig. 7, post-acquisition phase i) and only then focus its attention on the cultural change process by using communicative and symbolic reinforcement strategies based on personal power (phase ii). In this way, the frame established during the first post-acquisition phase served a dual function: By reducing complexity and providing orientation to organizational participants, it (a) led to a better alignment of individual behavior towards corporate objectives and thereby ensured corporate survival in the short-run, and (b) enhanced the organization’s ability for second-order learning in institutional upheaval—a prerequisite for fundamental cognitive changes and the long-run evolution of valid cultural templates. From this argument we derive our third conclusion. 7.3. Conclusion #3 In institutional upheaval, cultural change requires the prior establishment of a new valid frame for action to ensure efficiency and effectiveness of radical organizational transformation. From the Beiersdorf case, we can deduce a further argument regarding timing in radical organizational transformation. Once a new frame of action has been put in place, cognitive changes need to be initiated immediately to keep up the momentum of change and to ensure the efficiency of the change process. Without the voluntary acceptance of the altered behavioral scripts, costs of constant control of individual behavior are high as is the potential risk of formation of resistance against the new frame for action. This is particularly important when, as at Beiersdorf-Lechia,

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two competing templates are in parallel use during the period of changing the frame. In this case management is required to constantly use micro-political instruments to enforce the new behavioral rules against a possibly conflicting set of individual values, interests, and routines. 7.4. Conclusion #4 In institutional upheaval, once the new frame for action is in place, cognitive changes need to be initiated immediately to prevent the formation of resistance against the new behavioral rules and, thus, to ensure efficiency of radical organizational transformation. In addition to the question of ‘when,’ our analysis of organizational transformation at Beiersdorf-Lechia focused on the ‘how’ of radical change processes in institutional upheaval. In our view, the critical role of management as micro-political change agents has so far been underestimated by the transformation literature. Whereas Newman (2000), for example, focuses on the obstacles to organizational learning created by a turbulent institutional environment, our analysis emphasizes how management uses its institutional and personal power bases to overcome or at least reduce these obstacles and proactively support the establishment of an organizational frame that enables organizational learning even in institutional upheaval. Similarly, whereas Johnson et al. (2000) draw attention to the existence of certain contingencies inhibiting (experimental) organizational learning, our model extends their approach and conceptualizes how and in which sequence management can apply micro-political instruments to actively influence these contingencies in order to accomplish efficient rapid and radical organizational change. Contrary to other recent micro-political approaches (Antal-Mokos, 1998; Pollert, 1999) to organizational transformation in CEE, we explicitly focused on the management’s perspective because we consider the management to be a critical driving force for change in an environment characterized by institutional upheaval (Clark & Soulsby, 1999). Managers in transforming enterprises not only need to understand the political dynamics of change, that is the heterogeneous interests and power bases of stakeholders involved which might create resistance to change, but

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they also have to learn how their own limited power bases can be productively and responsibly employed in order to achieve rapid and radical organizational transformation in a turbulent institutional environment such as Poland during the 1990s. The micropolitical model of organizational change proposed in this paper allows for the systematic and differentiated analysis of these intra-organizational processes in transformation situations. It also provides change agents with a framework for a proactive and efficient management of radical and rapid change in CEE enterprises.

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