Chapter 8BudgetingNature and Objectives of Budgeting

Chapter 8
Budgeting
Nature and Objectives of Budgeting
Budgets play an important role for organizations of all sizes and
forms.
For example, budgets are used in managing the operations of
government agencies, churches, hospitals, and other nonprofit
organizations.
This chapter describes and illustrates budgeting for a
manufacturing company.
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Objectives of Budgeting
(slide 1 of 2)
or in part.
3
Objectives of Budgeting

(slide 2 of 2)
Budgeting affects the following managerial functions:
Planning
Planning involves setting goals to guide decisions and help
motivate employees.
Directing
Directing involves decisions and actions to achieve budgeted
goals.
A budgetary unit of a company is called a responsibility center.
Each responsibility center is led by a manager who has the
authority and responsibility for achieving the center’s budgeted
goals.
Controlling
Controlling involves comparing actual performance against the
budgeted goals.
Such comparisons provide feedback to managers and employees
about their performance.
If necessary, responsibility centers can use such feedback to
adjust their activities in the future.
or in part.
Human Behavior and Budgeting
Human behavior problems can arise in the budgeting process in
the following situations:
Budgeted goals are set too tight, which are very hard or
impossible to achieve.
Budgeted goals are set too loose, which are very easy to
achieve.
Budgeted goals conflict with the objectives of the company and
employees.

or in part.
Human Behavior and Budgeting:
Setting Budget Goals Too Tightly
If budgeted goals are viewed as unrealistic or unachievable, the
budget may have a negative effect on the ability of the company
to achieve its goals.
Attainable goals are more likely to motivate employees and
managers.
For this reason, it is important for employees and managers to
be involved in the budgeting process.
Involving employees in the budgeting process provides them
with a sense of control and, thus, more of a commitment in
meeting budgeted goals.
or in part.
Setting Budget Goals Too Loosely
Although it is desirable to establish attainable goals, it is
undesirable to plan budget goals that are too easy.
Such budget “padding” is called budgetary slack.
Managers may plan slack in their budgets to provide a
“cushion” for unexpected events.
However, slack budgets may create inefficiency by reducing the
budgetary incentive to trim spending.
or in part.

Setting Conflicting Budget Goals
or in part.
8
Budgeting Systems
(slide 1 of 4)
The budgetary period for operating activities normally includes
the fiscal year of a company.
For control purposes, annual budgets are usually subdivided
into shorter time periods, such as quarters of the year, months,
or weeks.
or in part.
Budgeting Systems
(slide 2 of 4)
A variation of fiscal-year budgeting, called continuous
budgeting, maintains a 12-month projection into the future.
The 12-month budget is continually revised by replacing the
data for the month just ended with the budget data for the same
month in the next year.

or in part.
Continuous Budgeting
or in part.
11
Budgeting Systems
(slide 3 of 4)
Developing an annual budget usually begins several months
prior to the end of the current year.
The responsibility of developing an annual budget is normally
assigned to a budget committee.
Such a committee often consists of the budget director, the
controller, the treasurer, the production manager, and the sales
manager.
The budget process is monitored and summarized by the
Accounting Department, which reports to the committee.
or in part.
Budgeting Systems
(slide 4 of 4)
There are several methods of developing budget estimates.
One method, called zero-based budgeting, requires managers to
estimate sales, production, and other operating data as though

operations are being started for the first time.
A more common approach is to start with last year’s budget and
revise it for actual results and expected changes for the coming
year.
Two major budgets using this approach are the static budget and
the flexible budget.
or in part.
Static Budget
(slide 1 of 2)
A static budget shows the expected results of a responsibility
center for only one activity level. Once the budget has been
determined, it is not changed, even if the activity changes.
Static budgeting is used by many service companies,
government entities, and for some functions of manufacturing
companies, such as purchasing, engineering, and accounting.
A disadvantage of static budgets is that they do not adjust for
changes in activity levels.
or in part.
Flexible Budget
(slide 1 of 3)
Flexible budgets show the expected results of a responsibility
center for several activity levels.
A flexible budget is, in effect, a series of static budgets for
different levels of activity.

or in part.
Flexible Budget
(slide 2 of 3)
A flexible budget is constructed as follows:
Step 1: Identify the relevant activity levels.
The relevant levels of activity could be expressed in units,
machine hours, direct labor hours, or some other activity base.
Step 2: Identify the fixed and variable cost components of the
costs being budgeted.
Step 3: Prepare the budget for each activity level by multiplying
the variable cost per unit by the activity level and then adding
the monthly fixed cost.
or in part.
Flexible Budget
(slide 3 of 3)
Because the flexible budget adjusts for changes in the level of
activity, it is much more accurate and useful than the static
budget.
or in part.
Master Budget

or in part.
18
Master Budget for a Manufacturing Company
or in part.
19
Operating Budgets
or in part.
20
Sales Budget
The sales budget begins by estimating the quantity of sales.
The prior year’s sales are often used as a starting point.
These sales quantities are then revised for such factors as:
Planned advertising and promotions
Projected pricing changes
Expected industry and general economic conditions

Once sales quantities are estimated, the budgeted sales revenue
can be determined as follows:
or in part.
21
Production Budget
The production budget estimates the number of units to be
manufactured to meet budgeted sales and desired inventory
levels.
The budgeted units to be produced are determined as
follows:Expected units to be sold XXX unitsDesired units in
ending inventory XXXEstimated units in beginning inventory
(XXX)Total units to be produced XXX units
or in part.
Direct Materials Purchases Budget
(slide 1 of 2)
The direct materials purchases budget estimates the quantities
of direct materials to be purchased to support budgeted
production and desired inventory levels.

or in part.
Direct Materials Purchases Budget
(slide 2 of 2)
The direct materials purchases budget can be developed in three
steps:
Step 1: Determine the budgeted direct material required for
production, which is computed as follows:
Step 2: The budgeted material required for production is
adjusted for beginning and ending inventories to determine the
direct materials to be purchased for each material, as follows:
Step 3: The budgeted direct materials to be purchased is
computed as follows:
Materials required for production (Step 1) XXXDesired ending
materials inventory XXXEstimated beginning materials
inventory(XXX) Direct material quantity to be purchased XXX
or in part.
24
Direct Labor Cost Budget
(slide 1 of 2)
The direct labor cost budget estimates the direct labor hours and

related cost needed to support budgeted production.
or in part.
Direct Labor Cost Budget
(slide 2 of 2)
The direct labor cost budget for each department is determined
in two steps, as follows:
Step 1: Determine the budgeted direct labor hours required for
production, which is computed as follows:
Step 2: Determine the total direct labor cost as follows:
or in part.
26
Factory Overhead Cost Budget
The factory overhead cost budget estimates the cost for each
item of factory overhead needed to support budgeted
production.
The factory overhead cost budget may be supported by
departmental schedules.

Such schedules normally separate factory overhead costs into
fixed and variable costs to better enable department managers to
monitor and evaluate costs during the year.
or in part.
Cost of Goods Sold Budget
or in part.
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Selling and Administrative Expenses Budget
The sales budget is often used as the starting point for the
selling and administrative expenses budget.
The selling and administrative expenses budget is normally
supported by departmental schedules.
or in part.
Budgeted Income Statement
(slide 1 of 3)

or in part.
30
Budgeted Income Statement
(slide 2 of 3)
This budget summarizes the budgeted operating activities of the
company.
In doing so, the budgeted income statement allows management
to assess the effects of estimated sales, costs, and expenses on
profits for the year.
or in part.
Financial Budgets
or in part.
32
Cash Budgets
The cash budget estimates the expected receipts (inflows) and
payments (outflows) of cash for a period of time.

or in part.
Estimated Cash Receipts
The primary source of estimated cash receipts is from cash sales
and collections on account.
In addition, cash receipts may be obtained from plans to issue
equity or debt financing as well as other sources such as interest
revenue.
To estimate cash receipts from cash sales and collections on
account, a schedule of collections from sales is prepared.
or in part.
Estimated Cash Payments
Estimated cash payments must be budgeted for operating costs
and expenses such as manufacturing costs, selling expenses, and
administrative expenses.
In addition, estimated cash payments may be planned for capital
expenditures, dividends, interest payments, or long-term debt
payments.
To estimate cash payments for manufacturing costs, a schedule
of payments for manufacturing costs is prepared.
or in part.

35
Completing the Cash Budget
(slide 1 of 2)
The cash budget is structured for a budget period as follows:
or in part.
36
Capital Expenditures Budget
The capital expenditures budget summarizes plans for acquiring
fixed assets.
Such expenditures are necessary as machinery and other fixed
assets wear out or become obsolete.
In addition, purchasing additional fixed assets may be necessary
to meet increasing demand for the company’s product.
Capital expenditures budgets are often prepared for five to ten
years into the future.
This is necessary because fixed assets often must be ordered
years in advance.
or in part.
Budgeted Balance Sheet

or in part.
38
´
Budgeted revenue = Expected sales volume
Expected unit sales price
Budgeted direct material = Budgeted pr
oduction volume × Direct material quan
tity
required for production
expected per unit
Budgeted direct material = Direct mate
rial quantity to be purchased × Unit p
rice
to be purchased
Budgeted labor hours = Budgeted produc
tion volume × Direct material quantity
required for production
expected per unit
Direct labor cost = Direct labor requi
red for production (step 1) × Hourly rat
e
Chapter 7: Managing Recipients of Change and Influencing
Internal Stakeholders
Chapter Overview

This chapter deals with those on the receiving end of change
View recipients as stakeholders and revisit assumptions and
approaches to ambivalence and resistance if or when it occurs
Changes that alter people’s sense of their psychological contract
need to be approached with care
When disruptive change occurs, recipient stakeholders go
through a predictable series of reactions to change
Recipients often respond emotionally to change and their view
of change are influenced by their personalities, experiences,
their peers, and by the change leaders
The present-day challenge is to make change the norm and
encourage recipients to be change leaders and implementers
Deszca, Ingols & Cawsey, Organizational Change: An Action-
Oriented Toolkit, 4th ed.. © 2020 SAGE Pub.
2
2
The Change Path Model
Recipients and Internal Stakeholders
Responses to change: +ve, ambivalence, and –ve
Psychological contract
Stages of reaction to change
Impact of personality, experience on change
Managing forward with recipients and internal stakeholders

3
Awakening
Chapter 4
Acceleration
Chapter 9
Institutionalization
Chapter 10
Mobilization
Chapters 5 through 8
Recipients
Reactions vary from positive to negative, and ambivalence often
comes first
Recipients do not always react negatively—it depends on how
they perceive the change
Recipients will have questions and concerns, as they attempt to
make sense of the change
Resistance is not inevitable—listen, work to understand and
respond in ways that build understanding and support
Do this early and often—don’t wait for ambivalence to become
resistance

4
Channeling Feelings for the Change
Channel energy in positive ways, not letting enthusiasm
overwhelm legitimate concerns
Recognize mixed feelings and seek to understand them
Use respected, positively oriented individuals in positions of
influence concerning the change
Pace the change. Remember that going too slow can lose
enthusiastic support and going too fast will choke those who are
doubtful.
5
Ambivalence to Change Is No Surprise
Mixed feelings are common as recipients try to make sense of
the change
Ambivalence generates discomfort as they seek to resolve a
multitude of issues about the change:
People find it easier to voice concerns about conflicting beliefs
than about conflicting emotions
Once they resolve their ambivalence, feelings solidify and
subsequent change to attitudes become more difficult to change
again

Invest the time needed at the front end of the change to respond
to ambivalence positively—or prepare to face a more difficult
task later, when it turns to resistance
6
Responding to Mixed Feelings About the Change
Focus on helping people make sense of the proposed
organizational change
Listen for information that may be helpful in achieving the
change
Constructively reconcile their ambivalence
Sort out what actions are now needed
7
Common Causes of Negative Reactions
Negative consequences perceived to outweigh the benefits
Flawed communication process
Concern that the change has been ill conceived
Lack of experience with change or locked into old habits

Prior negative experience with a similar change
Prior negative experience with those advocating change
The negative reactions of others that recipients trust and/or with
whom they will have to work in the future
The change process seen to lack procedural or distributive
justice and breaching their “contract”
Fear that they lack skills they’ll need to perform well
8
8
Perceptions of Fairness & Justice
Perceptions of Fairness & Justice
Will influence how recipients view and react to the change
Procedural Justice
Was the process managed in a fair and equitable way?
Distributive Justice
Was the end decision a fair one?
9

Is It Resistance...
or Is Something Else Going On?
We often misinterpret impediments to change as caused by
resistant recipients
Impediments are much more likely to come from problems
related to the misalignment of structures and systems than from
individuals engaged in resistance
Blaming individuals rather than addressing misaligned
structures and systems will worsen the situation
10
Managers as Recipients
Recipients of change are not just those in front-line roles
Supervisors, middle, and even senior managers are often
recipients of the organizational change
Managers often try to manage up, down, and laterally to cope
with change; they try to shape it and deal with implementation
on their own terms
Coping with change while trying to link, influence, and
implement is difficult
If you are a change recipient in these middle roles, be aware of
how this can affect your judgment

11
11
Toolkit Exercise 7.3
Personal Reactions to Change
Think about times when you have been a recipient of change:
What was the change and how was it introduced?
What was the impact on you?
What was your initial reaction?
Did your attitudes change over time? Why or why not?
Was there a pattern to your response?
Under what circumstances did you support the change? When
did you resist? What can you generalize from your reactions?
If you experienced ambivalence, how did you resolve it and
what happened to your attitudes toward the change?
Have your experiences with change been largely positive,
negative, or mixed? Have they colored your expectations about
the future?
12
Psychological Contract
The psychological contract represents the sum of the implicit

and explicit agreements we believe we have with our
organization
It defines our perceptions of the terms of our employment
relationship and includes our expectations for ourselves and for
the organization, including organizational norms, rights,
rewards, and obligations
Changes often disrupt recipients’ psychological contracts
When unilateral changes are made to psychological contracts,
negative reactions can be expected
13
Toolkit Exercise 7.5—Disruption of the Psychological Contract
Think about a change initiative that you are aware of:
What was the psychological contract?
How did the change disrupt the psychological contract?
What were the reactions to these disruptions to the contract?
What steps could have reduced the negative effects stemming
from the disruption?
How should a new psychological contract have been developed
with affected individuals?
If you were a recipient, what steps could you take to better
manage your way through the development of a new contract?
14

Stages of Reaction to ChangeBefore the ChangeDuring the
ChangeAfter the ChangeAnticipation & Anxiety PhaseShock,
Denial, & Retreat PhaseAcceptance PhaseIssues: Coping with
uncertainty and rumors
Pre-change AnxietyIssues: Coping with the announcement and
associated fallout, reacting to the new “reality”
Shock
Defensive Retreat
Bargaining
Depression, Guilt, and/or Alienation Issues: Putting effects of
change behind you, acknowledging the change, achieving
closure, and moving on to new beginnings— adaptation and
change
Acknowledgment
Adaptation & Change
15
In the Midst of Change, Change Is About...
Ambiguity
Risk
Denial
Anger
Fear

Resentment
Excitement
Exploration
Determination & Commitment
Tension
Satisfaction
Pride
Lots of Other Potentially Conflicting Emotions
16
Toolkit Exercise 7.4—Your Normal Reaction to Innovation &
Change
When you find yourself dealing with matters of innovation and
change, how do you typically react?
Do you fall into the category of innovator or early adopter?
Or do you generally fit into the early majority category? If the
experiences of early adopters are positive, you take the risk.
Or are you in the category of the late majority? You wait until
the innovation has been tried and tested by many before
adopting.
Or do you avoid adopting until the vast majority have done so?
In other words are you a late adopter or even a non-adopter,
until forced to do so?
17

Recipient’s Past Experience with Change & Perceived Risk
18
Personality and the Change Experience Change Experience
Little Some Frequent ChaosIndividuals with High
Tolerance for Ambiguity and ChangeIndividuals with Low
Tolerance for Ambiguity and Change
Boredom
Energized
Negative Stress Effects
Comfort
Stress Discomfort Rises
Severe Distress
19
Personality & Change
PERFORMANCE
Low AMOUNT OF CHANGE High

High Need for Change Individuals
Low Need for Change Individuals
20
20
What Is Your Tolerance for Change?
What is your tolerance for change? What level of turbulence
and ambiguity at work do you find most stimulating and
satisfying?
How do you react when the rate of change is likely to remain
quite low?
How do you react when the rate of change is moderate? What
constitutes a moderate for you? Are your tolerance levels lower
or higher than others you know?
What price do you find you pay when the rate of turbulence
and ambiguity exceed what you are comfortable with?
Have you had to cope with prolonged periods of serious
upheaval? Have these affected your acceptance of change?
21

Influence of Coworkers on Change Recipients
Coworkers and Work Teams will greatly influence Change
Recipients’ views toward the organizational change.
Coworkers who are trusted will have greater influence.
Cohesive teams will tend to become more cohesive when
threatened.
Cohesive teams will be influential.
22
How Trusted Peers Influence RecipientsOpinions of Those
Trusted by Recipients*Recipients' Initial Attitude to the
ChangePossible ImplicationPositive Toward the ChangePositive
Toward the Change Very motivated to supportNegative Toward
the ChangeInitially opposed but may move to support due to
new information from trusted others + peer pressureNegative
Toward the ChangePositive Toward the ChangeSupport of the
change may be weakened or silenced due to information offered
by trusted peers + peer pressureNegative Toward the
ChangeOpposition to the change is reinforced by the views of
trusted peers
* As the cohesion of coworkers increases, so too does their
influence
23

Feelings About Change Leaders Matter
How people react to change is also influenced by their
perceptions of the change leader
They are more likely to respond positively to the change if:
they trust and respect these leaders
they believe their perspectives and interests are recognized
24
Minimizing Cynicism Toward Change
Meaningful engagement of recipients with decisions that affect
them
Emphasize and reward supervisors who foster two-way
communications, good working relationships, and show
consideration and respect for employees
Timely, authentic communications—keep people informed and
include honest appraisals of risks, costs, benefits, and
consequences
Keep surprises to a minimum via regular communications about
changes, anticipating questions and concerns
25
Minimizing Cynicism Toward Change (cont..)
Enhance credibility by:

using credible spokespersons who are liked and trusted
using positive messages that appeal to logic and consistency
using multiple channels and repetition
Acknowledge mistakes and make amends
Publicize successful changes and progress
Use 2-way communications to see change from employees’
perspective—this will aid planning & future communications
Provide opportunities for employees to express feelings, receive
validation and reassurance. Address their concerns
26
Toolkit Exercise 7.6—Leadership &
Change Recipients
Think of an example of change leadership:
How was leadership exercised?
Was the leader trusted?
Did he/she deserve the trust given?
What kind of power did the leader use?
How were change messages conveyed? Were they believable?

27
Toolkit Exercise 7.6—Leadership & Change Recipients (cont..)
Did systems and processes support, or at minimum, not impair
the change leader’s messages?
Was there a sense of continuity between the past and anticipated
future? How was this developed and communicated? Impact?
What can you learn about the impact of the leader on people and
stakeholders as a result of your responses to the above?
What can you learn about the impact of organizational systems
and processes on the people and stakeholders?
Talk to others about their experiences. Can you generalize? In
what way? What cannot be generalized?
28
Strategies for Coping with ChangeRecipients’ Strategies Change
Leaders’ StrategiesAccepting Feelings as Natural
Managing Stress
Exercising ResponsibilityRethinking Resistance

Giving First Aid
Creating Capability for Change
29
29
Strategies for Coping with Change (cont..)Recipients’ Strategies
Change Leaders’ StrategiesAccepting Feelings as Natural
Self-permission to feel and mourn
Taking time to work through feelings
Tolerating ambiguity Rethinking Resistance
As natural as self-protection
As a positive step toward change
As energy to work with
As information critical to the change processManaging Stress
Maintaining physical well-being
Seeking information about the change
Limiting extraneous stressors
Taking regular breaks
Seeking supportGiving First Aid
Accepting emotions

Listening
Providing safety
Marking endings
Providing resources and support
30
Strategies for Coping with Change (cont..)Recipients’ Strategies
Change Leaders’ StrategiesExercising Responsibility
Identifying options and gains
Learning from losses
Participating in the change
Inventorying strengths
Learning new skills
Diversifying emotional investing
Creating Capability for Change
Making organizational support of risks clear
Providing a continuing safety net
Emphasizing continuities, gains of change
Helping employees explore risks, options
Suspending judgment
Involving people in decision making
Teamwork
Providing opportunities for individual growth
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Roles for Middle Managers

Linking—with Above, Below, and Across
Offering—as a Top, Bottom, and a Link
Influence Up
Championing Strategic Alternatives
Synthesizing Information
Influence Down
Facilitating Adaptability
Implementing Strategy
32
Working Through the Phases of Change
Consider a significant and disruptive change situation. Can you
identify the different phases of change? What phases are you
aware of?
Can you identify strategies that recipients used or could have
used to help them work their way through the different phases?
Can you identify strategies that change leaders used or could
have used to help recipients work their way through the
different phases?
33

Working Through the Phases of Change (cont..)
Aware Strategies Strategies Change
Yes/No Recipients Can Use Leaders Can Use Pre-change
AnxietyShockDefensive RetreatBargainingDepression, Guilt,
and AlienationAcknowledgmentAdaptation and Change
Does the model hold? Why or why not?
What other consequences of change can you identify?
34
34
Closing Advice for Change Leaders Thinking About Recipients
Avoid coercion as a change strategy, if at all possible
Align systems & processes with the change— when not aligned
they can send conflicting signals
Reduce the intensity of change by making change the norm
Work to increase your tolerance for change, become a change
agent yourself, and avoid the recipient traps
35
Walking the Talk—Why?

It’s all about trust and authenticity in the person’s competence
and character!
Trust in change leaders creates confidence in the proposed path
Trust provides an environment for others to take risks
Remember—every change is a risk!
36
Walking the Talk – How?
Get out there—don’t hide!
Act as if you’re always on display
Communicate clearly the why, what, how, when & who of the
change
Talk about your personal responses to the changes
It’s ok to be excited, uncertain, determined, frustrated, relieved
Acknowledge missteps & mistakes—they will happen
Be empathetic—actively support and coach others, show your
willingness to listen and learn
37
Assessing Recipient Openness to ChangeThink of change you

know of or are involved with. How are the recipients likely to
rate the following factors?
ScorePast experience with change, particularly changes similar
to that advocated Very -10 -5 0 +5 +10 Very ___
-ve +veNormal rate of change that
has been experienced by the organization Very Low -10 -5 0
+5 +10 Mod ___
or Very High HighRecipients' general
predisposition to change as reflected in their personality Late
-10 -5 0 +5 +10 Early ___
Adopter AdopterRecipients believe they
understand nature of the change and the reasons for it Low -
10 -5 0 +5 +10 High ___
38
Assessing Recipient Openness to Change (cont..)
ScoreRecipient’s personal belief about the need for this
particular change Very -10 -5 0 +5 +10 Very ___
-ve +ve(a) Reactions of coworkers
to the change
(b) Strength of coworker relations (norms) Very
-10 -5 0 +5 +10 Very
-ve +ve
Multiply #6a by #6b
Weak 0.1 0.3 0.5 0.7 1.0 Strong ___ Leader credibility
Low -10 -5 0 +5 +10 High ___Leader gains
compliance through fear versus gains commitment through
understanding & empathy Fear -10 -5 0 +5 +10 Support

___
39
Assessing Recipient Openness to Change (cont..)
ScoreOrganizational credibility (i.e., will it follow through on
commitments related to change) Low -10 -5 0 +5 +10
High ___Congruence of systems and processes with the
proposed change (or confidence that they will be brought into
congruence) Very -10 -5 0 +5 +10 Very ___
Incongruent CongruentPredisposition to Change
Index:
Scores can range from -100 to +100Overall Score
___
40
Summary
This chapter deals with how recipients respond to change.
Resistance isn’t inevitable —don’t assume as much
Ambivalence often precedes resistance & influence is easier at
this point
Understand reasons for resistance & put knowledge to work
(e.g., the impact of change on the psychological contract)
Factors affecting how recipients view change & their change
reaction to disruptive change are discussed

The chapter considers how recipients & change leaders can
better manage the process & minimize the negative effects
41
Degree of
Perceived
Risk
Associated
with the Particular
Change
HighLowLong Period
of Minimal
ChangeModerate
Rates of
ChangeProlonged Periods
of Upheaval or
Extreme Change
Normal Rate of Change in the Organization
Degree of Perceived Risk Associated with the Particular Change
High
Low
Long Period of Minimal Change
Moderate Rates of Change
Prolonged Periods of Upheaval or Extreme Change

Normal Rate of Change in the Organization
Chapter 6: Navigating Organizational Politics and Culture
Chapter Overview
Change leaders need to understand the informal components of
organizations—culture and power
Understanding the cultural and power dynamics in an
organization is critical to a successful change
Force Field Analysis and Stakeholder Analysis are two key
tools to analyze the informal organizational system and how to
change it
Change leaders need to know themselves. They are both
stakeholder and key actors in the process
.Deszca, Ingols & Cawsey, Organizational Change: An Action-
2
The Change Path Model
Navigating Organizational Politics and Culture
Power Dynamics
Perception of change and the change equation
Force field analysis
Stakeholder analysis
3

3
Awakening
Chapter 4
Acceleration
Chapter 9
Institutionalization
Chapter 10
Mobilization
Chapters 5 through 8
Power Dynamics:
Sources of Individual Power
Position or authority power
Network power
Knowledge power
Expert power
Information power
Personality power

4
Power Dynamics:
Other Sources of Power
Ability to cope with and absorb environmental uncertainty
Low Substitutability
What you have to offer is scarce and not easy substituted for
Centrality to decision making, resources critical to strategy or
survival, or to work that others rely on
5
Resource, Process & Meaning Power
Resource Power
The access to valued resources in an organization
Process Power
The control over formal decision making arenas and agendas
Meaning Power
The ability to define the meaning of things. Thus, the meaning
of symbols and rituals and the use of language provide meaning
power
6

Usage Frequency of Different Power TacticsWhen Managers
Influence
SuperiorsWhen Managers Influence
SubordinatesMost Popular Tactic
Least Popular TacticUsing & Giving ReasonsUsing & Giving
ReasonsDeveloping CoalitionsBeing
AssertiveFriendlinessFriendlinessBargainingDeveloping
CoalitionsBeing AssertiveBargainingReferring to Higher
AuthorityReferring to Higher AuthorityApplying Sanctions
7
Assessing Your Power
What sources of power are you comfortable with and which do
you have access to?
Consider a particular context that you regularly find yourself in.
What could you do to increase the power you have available?
What types of power are involved?

How do the key players, structures, and systems in the
particular context influence the types and amount of power
available to you? How could you change this?
8
Where Does Power Lie in Your Organization?
Pick an organization you know well:
What factors lead to power? Which departments carry more
weight? What behaviors are associated with having power?
Think of a change situation it faced. What types of power were
at play?
In Hardy’s terms, who controlled resources? Who had process
power? Meaning power?
Who had “yea-saying” and “nay-saying” power? On what
issues?
If you examine Table 6.1 in the book, what types of power were
used most often? What types are you most comfortable using
when you are attempting to influence others?
9
When Does Change Occur?

Change Occurs When:
Perceived Benefits
of Change
Perceived Cost
of Change
10
Modified Change Equation
11
Perception of Dissatisfaction
with the Status Quo
Perception of the Benefits
of Change
Perception of the Probability
of Success
Perceived Cost of Change
Change Occurs When:
Reactions to Change
People react to change for many reasons
Don’t equate support with friends and resistance with enemies
It may be ambivalence and not resistance you’re seeing

People experience ambivalence and/or resist for many reasons.
Listen carefully so you can learn and refine initiatives
Don’t be blind to learning opportunities to refine analysis,
avoid problems areas, and strengthen initiatives
The prospects of moving someone from resistance to support
increase when they feel their concerns and insights have been
understood and received
12
Resistance to Change
Resistance to change is normal and there are often good reasons
for it
Don’t assume resistance is “bad” or “negative”. It might be
helpful
Resistance usually contains information that is useful—people
have reasons that they resist change
13
Reasons for Resistance
Self-interest
Misunderstanding and lack of trust

Different assessments of the consequences
Low tolerance for change
14
Organizational / Individual Consequences & Support for Change
Perceived Impact of the Change on the OrganizationPerceived
Impact of the Change on the IndividualDirection of Support of
the ChangePositivePositiveStrong support for
changePositiveNegativeIndeterminate, with possible resistance
NeutralPositiveSupport for changeNeutralNegativeResistance to
changeNegativePositiveIndeterminate support for change
NegativeNegativeStrong resistance to change
15
Perceived Impact of Change
Consider the impact of a change on an organization you know
and consider the impact on the individuals concerned.
Were the impacts on the organization and affected individuals
both positive? Were they perceived that way?
What were the perceived costs of change? Were the perceptions
accurate? How could they be influenced?
What were the perceived benefits? What was the probability of

achieving these benefits? Were people dissatisfied with the
present state? What were the costs of not changing?
Were significant costs incurred prior to gaining benefits? Why
did they take the risk (incurring definite costs but indefinite
benefits)?
16
Force Field Analysis
Desired State
Current State
Restraining Forces
Driving Forces

17
Forces For and Against Change
No change
Strong
Strong
Weak
Weak
R
E
S
I
S
T
A
N
C
E
F
O
R
C
E
S
CHANGE FORCE
No
Change
Sporadic
Change
Discontinuous
Change
(Breakpoints)

Continuous
Change
Status Quo
Dominates
Change
Dominates
18
Stakeholder Analysis
A stakeholder is…
Anyone who is influenced or could influence the change
you wish to make happen.
A stakeholder analysis is…
The process of understanding of the motives, power base,
alliances, goals, etc. of all crucial stakeholders.
19
Stakeholder Analysis (cont.)
Who are the stakeholders?
What do they want?
Do they support you? Why? Why not?
What prevents them from supporting you?

Who influences these stakeholders? Can you influence the
influencers?
Can stakeholders be co-opted or involved in a positive way?
20
Stakeholder Management: Savage et al.
High
High
Low
Low
Stakeholder Potential Threat
Stakeholder
Potential
For
Cooperation
Mixed Blessing:
Collaborate
Supportive:
Involved
Non-Supportive:
Defend
Marginal:
Monitor
21

Stakeholder Map
Stakeholder # 1
(issues, needs, etc.)
Stakeholder # 2
Stakeholder # 3
Stakeholder # 4
Stakeholder # 5
Stakeholder # 6
Stakeholder # 7
Stakeholder # 8
Change Agent
22
22
Stakeholder Roles in Networks
Central Connectors
People who link most people in an informal network with each
other
Boundary Spanners
Who connect an informal network with other parts of the
organization or other organizations

Information Brokers
Who join the different sub-groups together (and prevent
fragmentation)
Peripheral Specialists
Who have specialized expertise (and need freedom from
connections to maintain that expertise)
23
Dimensions of Networks
Source of information
Inside or outside of the functional area
Social restrictions
Tenure, hierarchy, and location determining the network
Source of connections
Planned interactions or happenstance hallway encounters
Quality of the connections
Relationship quality (short vs. long term, level of trust and
confidence in the information, etc.)
24
Stages in the Change Process

25
Initial Awareness
Interested in the Change
Wanting the Change to Happen
Ready to Take Action
General Orientation Towards Change
Innovators
Early Adopters
Early Majority
Late Majority
Late Adopters
Non-adopters
Similar to consumer adaptation profiles in marketing, except
you are urging the adoption of a change, not a product or
service

26
Type of Commitment Exhibited
Opposed to the change
Let it happen
Help it happen
Make it happen
27
Managing the Strategic ConsensusHigh Understanding of the
ChangeLow Understanding of the ChangeHigh, Positive
Commitment to the ChangeStrong ConsensusBlind
DevotionLow, Positive Commitment to the ChangeInformed
ScepticsWeak ConsensusNegative Commitment to the
ChangeInformed OpponentsFanatical Opponents
28
Analysis of the Stakeholders’
Readiness to Take Action

Jones
Smith
Douglas
Green
Etc.
Stakeholder’s
Name
Aware
Interested
Desiring Change
Taking Action
Predisposition to Change: innovator, early adopter, early
majority, late majority, laggard
Current Commitment Profile: resistant, ambivalent, neutral,
supportive or committed
29
Force Field Analysis
Consider an organization change situation you are familiar with:
What are the forces for change? Who is championing the
change? How strong and committed are these forces (Who will
let it happen; who will help it happen; who will make it
happen)?
How could these forces be augmented or increased? What forces
could be added to those that exist?

What are the forces that oppose change?
How could these forces be weakened or removed? What things
might create major resentment in these forces?
Can you identify any points of leverage you could employ to
advance the change?
30
Stakeholder Analysis Checklist
Who are the key stakeholders?
Is there a formal decision-maker with authority to authorize or
deny the change project? What are his/her attitudes to the
project?
What is the commitment profile of stakeholders? Do a
commitment analysis for each stakeholder.
Are they typically initiators, early adopters, early majority, late
majority, or laggards when it comes to change?
Why do stakeholders respond as they do? Does the reward
system drive them to support or oppose your proposal? What
consequences does your change have on each stakeholder? Do
the stakeholders perceive these as positive, neutral or negative?
31

Stakeholder Analysis Checklist (cont.)
What would change the stakeholders’ views? Can the reward
system be altered? Would information or education help?
Who influences the stakeholders? Can you influence the
influencers? How might this help?
What coalitions might be formed amongst stakeholders? What
alliances might you form? What ones might form to prevent the
change you wish?
By altering your position, can you keep the essentials of your
change and yet satisfy some of the needs of those opposing
change?
Can you appeal to higher order values and/or goals which will
make others view their opposition to the change as petty or
selfish?
32
Summary
Change agents need to understand the power structures and
people in their organization—much of which may be informal
and emergent in nature
Ambivalence to change is a natural reaction. Resistance to
change is likely (but not inevitable) and there is potential to use
ambivalence and resistance in a positive way. People react to
change for good reasons and change agents need to know those
reasons.

Force field analysis helps plot the major structural, system and
people forces at work in the situation and to anticipate ways to
alter these forces.
Stakeholder analysis helps us understand the interactions
between key individuals and the relationships and power
dynamics that underpin the web of relationships
33

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